A Refined Oil Play in Royal Dutch Shell?

Michael is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Royal Dutch Shell (NYSE:RDS.A) was not what I was searching for when I stumbled upon it. I was trying to find out why gasoline was so expensive and if refineries aren't making any money, why are they still in business? According to the U.S. Energy Information Administration, the U.S. has gone from more than 300 operating refineries in the early 1980's to 149 today. The E.I.A. last week said U.S. demand for gas was down 7.2% from a year earlier.  Hmmm? So now we have what has become the annual spring run up in gas prices. According to ABC news every year between February and late May since the year 2000 pump prices jumped on average 27%! The excuse always seems to be that refineries reduce output to repair equipment, oh, and start making the cleaner more expensive blend of summer gas. According to ABC it costs between .05 and .15 cents in additional cost per gallon. Then why nation wide is the price of reformulated gas .23 cents a gallon more expensive then conventional gas? I can't understand why crude is selling for less than it was a year ago at this time yet  prices are up over 14%.

Still following me?  That is what led me to Shell Oil, or better said Motiva Enterprises LLC.  Motiva is a jointly held company owned by Shell and the worlds largest gas and oil company Saudi Arabian Oil. In Port Arthur Texas this joint venture spent between 6 and 7 billion dollars since 2006 to double the capacity to 600,000 barrels a day when finished this year. There hasn't been a permit for a new refinery in the U.S. since the 1970's yet Motiva has spent 7 billion dollars to up capacity! Exxon Mobil (NYSE: XOM) will no longer hold the title of largest U.S. refinery at 560,640 barrels capacity per day at its Baytown Texas facility.

As a consumer I feel we are being gouged at the pump. As an investor I want to purchase companies that are making money from it. The Motiva facility is positioned to take advantage of the Keystone XL pipeline and the Canadian tar sands oil it will deliver. This refinery is set up to process that type of heavy crude. Now don't start thinking this is going to equate in cheaper prices at the pump, it won't. All the extra capacity will be exported to Mexico and Central America where demand is growing. Unlike Sunoco (NYSE: SUN) who is getting out of the refinery business, Shell and Exxon are vertically integrated companies that enjoy the economies of scale. Now don't get me wrong, I wouldn't purchase Shell simply because of its partnership in Motiva. I'd buy it because it is a very profitable global oil player with a nice .84 cent a share quarterly dividend that is selling at a fair value. Maybe owning it would make it a little easier the next time I have to fill up my tank.


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