That conventional wisdom was flipped on its head last week with the announcement that a bipartisan group of senators has joined together to break a legislative deadlock on chemical safety reform.

The result is the proposed Chemical Safety Improvement Act (CSIA), which already has received positive reviews from the American Chemistry Council as well as environmental groups like the Environmental Defense Fund and Safer Chemicals, Healthy Families.

Updating an old regulatory model

The nation’s chemical industry currently is governed largely by the Toxic Substances Control Act (TSCA), a federal statute that has grown increasingly antiquated in the nearly four decades since President Ford signed it into law in 1976.

The agreement announced last week by a bipartisan grouping of leaders on Capitol Hill provides hope of bringing the chemical industry’s regulatory structure into line with the 21^st century realities of an industry that employs more than 800,000 people and whose products are found in 96 percent of all manufactured goods.

While TSCA has worked well enough since it was first passed, there is little question that our federal government’s approach to chemical regulation could work far better. The fact that chemical management regulations in other countries and regions take their cues from the U.S. regulatory system provides added impetus to make sure ours is up to date.

Science- and risk-based regulation

The Chemical Safety Improvement Act will do just that. It modernizes the regulatory system with a science-based, risk-based approach to chemical regulation. It will provide the Environmental Protection Agency with improved tools and flexibility to make chemical regulation smarter.

At the same time, the CSIA will create a strong, coherent national chemical regulatory program that gives states opportunities for input while preventing the confusion that a patchwork of laws at various levels might produce.

The CSIA also addresses a feature of the 1976 TSCA law that has drawn its share of criticism over the years: namely, the provision that grandfathered thousands of chemicals that were already on the market from undergoing an EPA review.

Under the new law, all grandfathered chemicals still in commerce today will be subject to a clear, systematic evaluation process to assess safety. This will go a long way to reestablishing confidence in the safety of chemicals as well as in the federal government’s oversight of the industry.

CSIA still has some hurdles to clear before it becomes law, and there’s no guarantee it will pass during the current session of Congress. But there’s no doubt that this agreement, which the Chicago Tribune calls ”a rare display of bipartisanship on Capitol Hill,” represents a step in the right direction.

Released today, the free ExxonMobil app is where you will find our latest publications, videos and interactive content. You can download it to your iPad at Apple’s App Store℠.

I recommend checking out the enhanced version of ExxonMobil’s Outlook for Energy: A View to 2040. There you can access interactive graphics that give more detail about the work we do around the world to bring energy supplies to consumers, including:

• A deep-water drilling animation, which puts in context the depths at which we drill to find and produce oil and natural gas.
• An electricity primer, which shows how energy is used to produce electricity and how it’s transmitted to your home.
• A hydraulic fracturing animation, which demonstrates how the process works and the depths at which it takes place.

You can also follow the latest on the Perspectives blog from the app. Read more in today’s announcement, or if you’re on your iPad, download the app here.

iPad is a trademark of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.

For the next week, I will be the host of The Daily Beast’s “Energy Tweet Sheet,” where I’ll be tweeting about energy news stories from around the world. You can follow me @KenPCohen to keep up with the latest, or join the discussion by tweeting the energy stories you’re reading to #EnergyTweetSheet.

To get started, I thought I’d share some of the interesting energy stories I’ve read in the past couple of days. Read on …

An oil production record in … North Dakota?
A recent Associated Press article reports that oil drillers in North Dakota have surpassed the record set last year for crude oil production, due to the oil-rich Bakken and Three Forks shale formations there. The state is nearing a milestone of a half-million barrels of oil a day; North Dakota is currently the fourth-largest producer of oil in the country but is nearing production amounts of Alaska and California. It’s also worth noting the jobs and economic activity created by this increasing oil production: Jobs supported by the petroleum industry more than doubled in North Dakota from 2005 to 2009, totaling more than 65,000 in 2009. The industry also tripled its overall economic impact to the state in recent years – from $4.2 billion in 2005 to $12.7 billion in 2009.

How to revive industries
Growing shale gas production in Ohio, Pennsylvania and West Virginia is reviving several long-lost American industries, according to a recent Associated Press report. In Ohio, the production of natural gas is reviving the hard-hit steel industry with a new $650 million steel mill in Youngstown, Ohio, which will create 350 new jobs. Another $100 million upgrade to a steel pipe plant in Lorain, Ohio, will create another 100 jobs. Even a rail car manufacturer based in suburban St. Louis is benefitting – the shale industry is creating greater demand for freight cars. But the jobs don’t stop there: “For every manufacturing job there are between five and seven ancillary jobs created within the community that support those manufacturing jobs,” said Lorain Mayor Tony Krasienko.

Some New York residents cross the border for jobs … in Pennsylvania
I recently blogged about an interesting piece in the Ithaca (N.Y.) Journal where the state’s economic development director commented on a concerning pattern emerging in southern New York state: “The economy is stalled in most parts of upstate [New York],” he said. “Unemployment remains high. Local governments and school districts in the Southern Tier struggle to make budget cuts. Yet, every morning residents in the Binghamton and Elmira areas watch as hundreds of workers get in their trucks and cars, leave their houses, apartments and hotels, and cross the border to northern Pennsylvania to go to good jobs in the shale gas industry. What is wrong with this picture?”

I hope you find these items of interest. I’m looking forward to sharing more thoughts on energy as host of The Daily Beast’s Energy Tweet Sheet – join in and send me your thoughts as well.

Now, I’m pleased to announce that, in addition to maintaining the blog, I’ll be continuing the policy discussion on Twitter. Starting today, you can follow me @KenPCohen. I’m looking forward to using Twitter as another forum to share views and thoughts on breaking news, legislation, energy policy, technologies and trends.

You can also follow @exxonmobil to learn more about ExxonMobil’s business projects, major announcements, corporate citizenship initiatives and more.

I hope you will join the discussion.

So, as we get ready to release our quarterly earnings on Thursday, here are a few things to consider when you see the inevitable headlines and sound bites about high gasoline prices and what to do about them.  These facts probably won’t make anyone feel better about paying more for gasoline – and of course price increases can have a very real impact on family budgets – but I do think it’s important that we at least have an honest discussion about what’s behind recent energy price increases.

Less than 3 percent of ExxonMobil’s earnings are from U.S. gasoline sales
ExxonMobil’s earnings are from operations in more than 100 countries around the world. The part of the business that refines and sells gasoline and diesel in the United States represents less than 3 percent – or 3 cents on the dollar – of our total earnings. For every gallon of gasoline, diesel or finished products we manufactured and sold in the United States in the last three months of 2010, we earned a little more than 2 cents per gallon. That’s not a typo. Two cents.

Oil is a commodity; prices are set in the global market  
Crude oil is a commodity, and like all other commodities – such as corn, wheat or sugar – the price is determined by buyers and sellers in a global market. Buyers are paying more for oil because the global economy is strengthening, and demand for products derived from crude oil is on the rise. Political instability in some oil-producing nations is also contributing to uncertainty about future supply. Oil markets are well supplied today, but uncertainty about tomorrow’s supply is reflected in prices today. Finally, the U.S. dollar is at a three-year low against other currencies – accelerated last week after a warning by Standard & Poor’s about the country’s $14.3 trillion debt and relative economic weakness. The weaker the dollar, the less it will buy – meaning more is spent for the same amount of a commodity, whether it’s crude oil or nearly all of the commodities in the chart at right.

ExxonMobil doesn’t set oil prices
Take a look at the chart at right. ExxonMobil owns less than 1 percent of the world’s oil reserves, and it produces less than 3 percent of the world’s daily oil supply, so it’s really not credible to suggest that we are responsible for world oil prices. ExxonMobil actually buys more crude oil than we produce. Last year, we spent $198 billion on crude oil, which we used to make refined products such as gasoline.

 
What goes into the price of gasoline
The main component of the price at the pump is the cost of a barrel of crude oil. Another major component of the price of gas is state and federal taxes, which range from a high of 66 cents per gallon in California to a low of 26 cents per gallon in Alaska, according to January 2011 data. How are pump prices set at Exxon and Mobil stations? We don’t own 95 percent of them, and therefore we don’t set the price. Local stations are often owned by a businessman or businesswoman in your community, and they set their own prices based on local market conditions.

ExxonMobil’s earnings are in line with the industry average
In 2010, ExxonMobil made less than 8 cents for every dollar of revenue from all of our businesses around the world. That’s less than half of companies selling pharmaceuticals, beverages, tobacco and computers, just to name a few. On a dollar-for-dollar basis, our earnings, and those of the U.S. oil and gas industry at large, are generally in line with the average earnings of all U.S. industries.

ExxonMobil is one of the largest taxpayers in the United States
Last year, our total taxes and duties to the U.S. government topped $9.8 billion, which includes an income tax expense of $1.6 billion. Over the past five years, we incurred a total U.S. tax expense of almost $59 billion, which is $18 billion more than we earned in the United States during the same period. Critics often try to ignore these facts by saying the oil and gas industry receives “subsidies.” But what they really mean is that they want to increase our taxes by taking away long-standing deductions for our industry while leaving these same deductions in place for other sectors of the economy.

ExxonMobil invests in new energy supplies
ExxonMobil’s investments to find and produce new supplies of oil and natural gas totaled $32 billion in 2010 – exceeding our earnings by more than $1.7 billion. From 2011 to 2015, we plan to invest $33 billion to $37 billion annually in new energy supplies. In the past 25 years, we’ve invested almost $400 billion in energy projects – an amount that nearly matches our income during that time.

ExxonMobil earnings go to our shareholders
Once we’ve paid our expenses, paid our taxes and funded new projects, we turn the rest of the money over to our shareholders. Last year we distributed more than $19 billion to shareholders through dividends and share purchases.
If you’re living in the United States – where some 85 percent of our shareholders live – chances are you’re benefiting in some direct or indirect way from our earnings even if you don’t own our stock. For example, if you live in any of the following states, your public sector or teachers retirement funds hold shares in ExxonMobil: New York, California, Texas, Ohio, Colorado, Alabama, Tennessee, Alaska, Michigan, Pennsylvania, Kentucky and Utah. Many more retirement funds, 401-Ks and IRAs hold shares in ExxonMobil and other major publicly traded oil companies – including those for government workers and members of Congress.

Each year, we take this opportunity to review our previous year’s performance and preview upcoming projects for analysts interested in evaluating the financial and strategic standing of our company.

But a lot of the information shared during this meeting is of importance to everyone, not just analysts. That’s because economic recovery and growth, both here in the U.S. and around the world, is going to depend on the delivery of new supplies of energy to fuel transportation, factories, homes, businesses and more.

In fact, global energy demand is expected to increase by 35 percent by 2030, compared to 2005 levels, due to rapidly growing economies, rising standards of living, and greater prosperity in countries around the globe.

The only way to meet this growing demand is by making substantial investments in energy projects – totaling billions of dollars – throughout the business cycle. This last point is important. We’re going to see highs and lows in the economy, and market conditions can change day by day. But our industry is built upon forecasts that span decades, not years, which means our investments must be made for the long-term.

As the materials from today’s analyst meeting show, ExxonMobil is making those long-term investments. For example:

• ExxonMobil invested a record $32.2 billion in energy projects in the U.S. and around the world in 2010, bringing our total capex investments to more than $126 billion during the last five years.

• We anticipate an investment profile of approximately $34 billion in 2011 and a range of $33 billion to $37 billion per year through the year 2015.

• Eleven major upstream project start-ups are planned between 2011 and 2013, which will help expand the global pool of energy supplies to meet growing needs.

Take a look at today’s press release to learn more, or you can access the presentation given during today’s meeting on our Investor Relations webpage.

For example, it cost more than 10 times our earnings – a total of $330 billion – to run our business last year, buying goods and services and employing thousands of people around the world.

Our total tax expenses for the year were $93 billion, which governments use to provide public infrastructure and services in the countries where we operate. Here in the United States, our tax expenses were $9.8 billion – nearly two and a half billion dollars more than we made in this country.

One final thought – we invested a record $32.2 billion to find and develop new energy to meet growing demand. As I’ve mentioned many times, we take a long-term view of our business and continue to invest throughout the ups and downs of the business cycle.

So while the numbers are big, so is the industry and the world’s demand for energy.

You can read more about our earnings here.

We could not agree more. Free markets drive innovation and growth across all sectors of our economy, including the energy sector. Well-developed rules and regulations are essential to the proper functioning of free markets – but can also hinder economic progress if they become onerous or arbitrary. 

President Obama recognized this situation when he said: “Sometimes, those rules have gotten out of balance, placing unreasonable burdens on business – burdens that have stifled innovation and have had a chilling effect on growth and jobs.”

At a time when U.S. corporations are subject to a broad array of complex tax, financial, operating and liability regulatory requirements – and with American jobs and economic recovery on the line – we welcome the president’s efforts to better “strike the right balance” between regulations and free market principles, as outlined in his new executive order.

In an industry like the oil and gas sector – which supports more than 9.2 million jobs in the U.S. and contributes more than $1 trillion a year to the U.S. economy – a review to ensure that regulations are fair, balanced and reasonable holds promise for new investment and opportunity.

For example, oil and gas exploration and production generate significant amounts of U.S. economic activity through employee wages and government revenue from taxes and royalties. Efforts to improve regulations related to access and permitting could help the industry develop new projects in a safe and timely manner – while Americans will benefit from more jobs, revenues and affordable energy supplies.

The president’s initiative to look at regulation in the context of a 21st-century economy offers promise to open up new opportunities for growth and investment at a time when our economy needs it most.

As I mentioned on Monday, the price for crude oil is set in worldwide markets where many buyers and sellers react to market fundamentals, including assessments of current and future supply and demand factors.

But just how much does the price of crude impact U.S. gasoline prices? In November 2010, when the average retail gasoline price was $2.86 a gallon, crude oil accounted for 71 percent of that price.

So what makes up the other 29 percent of gasoline prices? According to the Department of Energy, combined federal and state taxes on gasoline accounted for 14 percent of the average price. The remaining 15 percent of the price on average covers the costs of refining, transportation and marketing. The DOE chart at left shows this average price breakdown.

There are very few consumer products whose price is driven so overwhelmingly by the price of the commodity behind it, as is the case for gasoline and crude oil.Consumers see this correlation everyday on gas station signs that display the fluctuating price of gasoline. In fact, as you can see in the chart below, gasoline prices have closely tracked crude oil prices over the past 10 years.

Let me know if you have questions about how the market-driven price of crude oil affects gasoline prices.

Crude oil is one of a number of globally traded commodities like gold, corn, coffee and many others. The prices of such commodities are set in worldwide markets comprised of buyers and sellers reacting to economic fundamentals and perceptions of supply and demand for each commodity. This means that the price of consumer products based on those commodities – whether it is gasoline or a can of coffee – will fluctuate based on global commodity prices.

You might be interested in an article in The Wall Street Journal last week which made an important point: Many of the same supply and demand factors that could be driving up crude oil prices are pushing up the prices of almost all commodities. According to the Journal, the price of crude oil – reflecting the thousands of transactions between buyers and sellers – rose 15.2 percent in 2010.

The Jan. 3 article, “Commodities Rally Across Board,” also points out that prices for precious metals like silver and gold rose 83.8 percent and 29.8 percent, respectively, while the price of copper, a base metal used in a variety of industries and nearly all personal electronic devices, rose 33.4 percent.

Similar patterns were found in agricultural commodities. Corn prices are up 51.8 percent in 2010, and wheat prices are up 46.7 percent during the same period. Even higher is coffee, which has seen a 76.9 percent jump in commodity prices in 2010.

Of course, rising crude and gasoline prices have a very real impact on household budgets across the nation. Gasoline is an essential product, and price rises are felt by families and businesses alike. I’m going to return to this subject in future posts, but I thought the Journal’s recent analysis of commodity prices is an interesting piece that helps provide some context for the recent increase in the price of crude oil.