1. Introduction Catalysts GAO Conclusion The Cost of Filling Up: Did the FTC Approve Too Many Petroleum Industry Mergers? Rayola Dougher Manager, Energy Market Issues American Petroleum Institute

2. Introduction Catalysts GAO Conclusion Benefits of mergers Efficiency improvements Economies of scale Refining and marketing margins down Savings passed along to consumers Market is healthy and very competitive Introduction

3. Catalysts GAO Conclusion The cost of filling up has gone up. The question is why? Introduction

4. Catalysts GAO Conclusion Profits about average compared to U.S. Introduction

5. Catalysts GAO Conclusion Overview Catalysts for change  Regulatory  Economic GAO report  Causality  Crude prices  Refinery utilization rates  Inventory assumptions Introduction

6. Catalysts GAO Conclusion From 2 gasoline formulations to 17 Catalysts

7. Introduction Catalysts GAO Conclusion Return on investment (net income/net investment in place) Catalysts

8. Introduction Catalysts GAO Conclusion Producing more gasoline with fewer refineries Catalysts

9. Introduction Catalysts GAO Conclusion Gasoline refining and marketing margins have been trending downward Catalysts

10. Introduction Catalysts GAO Conclusion Problems with the GAO report GAO report  Causality  Crude prices  Refinery utilization rates  Inventory assumptions GAO

11. Introduction Catalysts GAO Conclusion Refiner’s costs—GAO left out 34% of equation Before After = GAO attributes to merger impact Refiner’s rack price less crude price GAO assumed these costs were constant. They are not. GAO

12. Introduction Catalysts GAO Conclusion Refiner margins differ by crude price GAO

13. Introduction Catalysts GAO Conclusion Which crude price makes a big difference 0 1 2 3 4 5 6 7 8 9 1994199519961997199819992000GAO (inflation-adjusted 2004 cents per gallon) WTI-ImportedWTI-DomesticGAO

14. Introduction Catalysts GAO Conclusion GAO – Data problems and limitations Correlated NATIONAL refinery utilization rates with CITY rack prices Inventory assumptions neglect: more costly summer blends price of crude decline in inventories GAO

15. Introduction Catalysts GAO Conclusion The cost of filling up has gone up, but not because of mergers Conclusion

16. Introduction Catalysts GAO Conclusion www.api.org