Re: Fischer-Tropsch News Item

"raphfrk@xxxxxxxxx" <raphfrk@xxxxxxxxx> wrote:

:On Feb 3, 6:41 pm, Quadibloc <jsav...@xxxxxxxxx> wrote:
:> My claim is this:
:>
:> The Saudis and their buddies make a lot of profit on the retail price
:> of oil.
:>
:> So anybody who comes up with a way to produce fuel at a cost which is:
:>
:> a) lower than the retail price of oil, but
:>
:> b) higher than what it costs the Saudis to pump it out of the ground
:>
:> won't be able to recoup his investment, if he is only a private
:> individual, since the Saudis can just cut their price, leaving him
:> unable to be competitive.
:
:Assume you can build a plant and it will produce oil at $16 per
:barrel.
:

This is rather like starting with the assumption, "Assume you can shit
as many gold bricks as you want."

If you want somewhat more realistic numbers, you need to start with
the assumption, "Assume you can build a plant and it will produce oil
at $60-$90 per barrel."

:
:Assume that the Saudis can produce oil for $8.
:
:Current price is $45 per barrel.
:
:You build you plant and start selling oil, this drops the world price
:to $44.50 per barrel (no 1 plant is going to make much if any
:difference).
:

You probably have no appreciable impact on world prices. You spend $5
billion to build your plant. You can produce a hundred thousand
barrels a day or so, at best.

:
:You are now making $44.50 - $16 profit per barrel.
:

Only if the plant was a gift. Otherwise, you're not going to reach
break even until your plant has been operating for several years, at
least.

In fact, at the prices you call out, you are losing another $5-$35 per
barrel you ship on top of your $5 billion capital costs for the plant.

:
:You then build another plant and that drops the price to $44, and
:nearly doubles your profit margin.
:

Except you have to come up with another $5 billion. Again, the plants
aren't free.

:
:The Saudis aren't going to respond to your 1 plant, by selling their
:oil at $15.50 to put you out of business. If they did that, you would
:make a small loss, but pushing the world price to $15.50 would
:represent a massive loss to the Saudi (and Middle East) economy. They
:didn't respond that way to all the other companies who were extracting
:oil from oil sands etc.
:
:Also, I don't think that the Saudis actually could drop the price to
:$15.50 even if they wanted to. They don't have the pumping capacity.
:
:However, assuming that they were in fact, that organised, you could
:still make money.
:
:You could sell futures on the stock market "I promise to provide 1000
:barrels of oil, in 2014" and people would probably pay you $30+ for
:those futures. If you sell enough of them, you can insure your
:company against a drop in the world price of oil. No matter what
:happens to the price of oil, you are still selling your production in
:2013 at $30 per barrel.
:

Which means you're losing at least $30 per barrel, plus the future
value of the $5 billion to construct your plant.

:
:I am not sure how far oil futures go forward though, it might not be
:possible to actually sell those futures if they don't go forward a few
:years.
:

You undoubtedly think you can make a fortune by swapping hats with
someone else, too.

This isn't magic. At world prices under $60-$90 per barrel of oil,
the marginal cost of your synfuel plant is above market cost. You
need to sell for almost $7 PROFIT per barrel in order to break even on
the life of the plant (and I'm assuming the plant requires no
maintenance for the life of the plant, which is a pretty damned kind
assumption). That means you need to sell for at least $67 per barrel
in order to break even, using the most favourable possible numbers.

You actually still lose money, because you need to account for the
future value stream of the $5 billion you have tied up in your plant
that you're not getting back.

Are you starting to see the problem here?


--
"Millions for defense, but not one cent for tribute."
-- Charles Pinckney
.

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