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columnist: Kipper Mathews

Topic: Bush / Cheney
The Bush / Cheney Stratagem. Part 1 Chapter 1

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Gas prices are skyrocketing, Millions of people are loosing their homes to foreclosure, their jobs to other countries and our country is plummeting into a recession. We're in a war that has no end and the Bush Administration has no answers. Yet since George Bush became President in 2001, the top five oil companies in the United States had recorded profits of $464 billion through the first quarter of 2007... and that was last year when oil was $60 a barrel.

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by Kipper Mathews
(Libertarian)
Friday, May 9, 2008

Everyone in the country knows that politicians help themselves to working Americans hard earned money once they get into office. Helping out their home states, their friends, business partners and people that contributed to their election champaign. So it should come to no surprise that the price of gasoline is breaking our banks (literally) having two "Big Oil" executives running the country. I knew when G. W. Bush elected himself president, that this country was in for a rude awakening and that oil prices were going to climb. Well, here they are, higher than I had ever imagined and bound to go higher yet.

Why?...I don't really know but that's what I am going to try to find out and report on in this series of articles, as I have learned that what they are telling selling us is just as we thought, smoke and mirrors. The war, the economy, the price of gold and as George Bush proved when he "became" president, even our election processes are all being manipulated by "The powers that be" while they pillage, plunder and pad their over flowing pockets with Americas money.

I'm going to start with this document, made public by the PIA. It is the testimony of Tyson Slocum, Director Public Citizen's Energy Program before The U.S. House Committee on Energy and Commerce, Subcommittee on oversight and Investigations.

It is a very clear documentation of the workings of Big Oil.

Note that this testimony was taken May 22 2007 and contains 26 pages which I am going to break down into chapters (1 Chapter per post) for easier reading.

Part 1 / Chapter 1.

"Gasoline Prices, Oil Company Profits, and the American Consumer"

Thank you, Mr. Chairman and members of the Subcommittee on Oversight and Investigations for the opportunity to testify on the issue of gasoline prices. My name is Tyson Slocum and I am Director of Public Citizen’s Energy Program. Public Citizen is a 36-year old public interest organization with over 100,000 members nationwide. We represent consumer interests through research, public education and grassroots organizing.

Gasoline prices have nearly tripled in the last five years, creating financial hardship for millions of families, as the average annual expenditure on gasoline increased $1,000 for the typical family over that time. While some households have been able to reduce their consumption in response to these high prices by either investing in a more fuel-efficient or alternative-fuel car, taking mass transit or weatherizing their home to cut down on home heating oil costs, most lack the financial resources to make such investments or lack access to alternatives to driving in their car. That explains why, even in the face of skyrocketing gasoline prices, consumption has not moderated.

While American families pay record high prices, oil companies are enjoying the strongest profits in the economy. Since 2001, the largest six oil companies operating in the United States—ExxonMobil, ChevronTexaco, ConocoPhillips, BP, Shell and Valero—recorded $477 billion in profits. Recent entries to oil markets like investment banks, hedge fund and private equity firms have also been posting record earnings. While some of their profit clearly stems from certain aspects of global supply and demand, investigations show that a portion of these record earnings are fueled by market manipulation and other anticompetitive practices, made possible by the wave of recent mergers and weak regulatory oversight, thereby denying Americans access to competitive markets. To add insult to injury, oil companies enjoy billions of dollars worth of subsidies courtesy of the U.S. taxpayer at a time when the industry records record profits. Investing in America’s communities—not Big Oil—is needed to provide families with access to alternatives.

Public Citizen research shows that oil companies aren’t adequately investing these record earnings into projects that will help consumers, as the largest capital expenditure in 2006 was to buy back stock and pay dividends to shareholders. America’s addiction to oil is a major source of greenhouse gas emissions that cause global warming. Forty-four percent of America’s world-leading carbon dioxide emissions are from the burning of petroleum products. Until the oil industry takes the lead on prioritizing investments to curb America’s addiction, Congress should take steps to revoke oil company subsidies or impose a windfall profits tax to finance sustainable energy solutions.

Did Congress take his advice on that?

In addition, energy trading markets, where futures prices of oil and gasoline are set, were recently deregulated, providing new opportunities for oil companies and financial firms to manipulate prices. Investigations show that energy trading firms have not only exploited recently weakened regulatory oversight, but a new trend of energy traders controlling energy infrastructure assets like pipelines and storage facilities provide additional abilities to use "insider" information to help manipulate markets.

Public Citizen has a five point plan for reform:

• Repeal all existing oil company tax breaks, close loopholes allowing oil companies to escape paying adequate royalties and/or implement a windfall profits tax, dedicating the new revenues to financing clean energy, energy efficiency and mass transit.

• Strengthen antitrust laws by empowering the Federal Trade Commission to crack down on unilateral withholding and other anti-competitive actions by oil companies. Re-evaluate recently approved mergers.

• Establish a Strategic Refining Reserve to be financed by a windfall profits tax on oil companies that would complement America’s Strategic Petroleum Reserve.

• Re-regulate energy trading exchanges to restore transparency and impose firewalls to stop energy traders from speculating on information gleaned from the companies’ affiliates.

• Improve fuel economy standards to reduce gasoline demand.

Did anyone make these changes?

Recent Mergers, Weak Anti-Trust Law Threaten Consumers

According to the U.S. Government Accountability Office, over 2,600 mergers have been approved in the U.S. petroleum industry since the 1990s. In just the last few years, mergers between giant oil companies—such as Exxon and Mobil, Chevron and Texaco, Conoco and Phillips—have resulted in just a few companies controlling a significant amount of America’s gasoline, squelching competition. And the mergers continue unabated as the big just keep getting bigger. In August 2005, ChevronTexaco acquired Unocal; ConocoPhillips acquired Burlington Resources in December 2005; and in June 2006, Anadarko Petroleum announced it was simultaneously acquiring Kerr-McGee and Western Gas Resources. ExxonMobil, ChevronTexaco, ConocoPhillips, BP and Shell produce 10 million barrels of oil a day—more than the combined exports of Saudi Arabia and Qatar.

Consumers are paying more at the pump than they would if they had access to competitive markets, and five oil companies are reaping the largest profits in history.

Since 2001, the six largest oil companies operating in America have recorded $477 billion in profits. While of course America’s tremendous appetite for gasoline plays a role, uncompetitive practices by oil corporations are a cause—more so than OPEC or environmental laws—of high gasoline prices around the country.

High prices are having a detrimental impact on the economy and national security.

Imported oil represents one-third of America’s trade deficit, slows economic growth, adds to inflationary pressures and creates financial hardship for families and businesses.

Motorists are not getting any bang for their buck. While drivers are stuck paying record high prices, oil companies are spending more money buying back their own stock then they are on investing in their aging infrastructure. The industry leader, ExxonMobil, spent $37.2 billion buying back its stock and paying dividends to its shareholders in 2006, while spending only $19.9 billion worldwide on its oil exploration and refining capital investment.

In just the last few years, mergers between giant oil companies—such as Exxon and Mobil, Chevron and Texaco, Conoco and Phillips—have resulted in just a few companies controlling a significant amount of America’s gasoline, squelching competition. Public Citizen research shows that in 1993, the largest five oil refiners controlled one-third of the American market, while the largest 10 had 55.6 percent. By 2005, as a result of all the mergers, the largest five now control 55 percent of the market, and the largest 10 dominate 81.4 percent. This concentration has led to skyrocketing profit margins. As a result of all of these recent mergers, the largest five oil refiners today control as much capacity as the largest 10 did a decade ago.

In 2005, Wall Street investment bank Goldman Sachs and private equity firm Kelso & Co. bought a 112,000 barrels/day oil refinery in Kansas, demonstrating how major energy traders are now acquiring hard energy assets.

The consolidation of downstream assets—particularly refineries—plays a big role in determining the price of a gallon of gas. Recent mergers have resulted in dangerously concentrated levels of ownership over U.S. oil refining. A recent government study revealed that the "source of potential market power in the wholesale gasoline market is at the refining level because the refinery market is imperfectly competitive and refiners essentially control gasoline sales at the wholesale level" and concluded that "mergers and increased market concentration generally led to higher wholesale gasoline prices in the United States."

The industry has plenty of incentive to intentionally keep refining markets tight ExxonMobil’s new CEO told The Wall Street Journal that even though American fuel consumption will continue growing for the next decade, his company has no plans to build new refineries:

Exxon Mobil Corp. says it believes that, by 2030, hybrid gasoline-and-electric cars and light trucks will account for nearly 30% of new-vehicle sales in the U.S. and Canada. That surge is part of a broader shift toward fuel efficiency that Exxon thinks will cause fuel consumption by North American cars and light trucks to peak around 2020—and then start to fall. "For that reason, we wouldn’t build a grassroots refinery" in the U.S., Rex Tillerson, Exxon’s chairman and chief executive, said in a recent interview. Exxon has continued to expand the capacity of its existing refineries. But building a new refinery from scratch, Exxon believes, would be bad for long-term business. ExxonMobil and other major oil companies are not building new refineries because it is not in their financial self interest to keep refining margins as tight as possible, as that translates into bigger profits.

Margins for U.S. oil refiners have been at record highs. In 1999, U.S. oil refiners enjoyed a 18.9 cent margin for every gallon refined from crude oil. By 2005, they posted a 48.8 cent margin for every gallon of gasoline refined, a 158 percent jump. That forced The Wall Street Journal to conclude that "the U.S. market is especially lucrative, sometimes earning its refiners $20 or more on every barrel of crude oil they refine."

Indeed, BP’s most recent financial report shows that refining profit margins at their US operations are more than double the margins in other countries. In 2006, BP earned $9.14 for every barrel they refined in the Midwest, $12/barrel in the Gulf Coast and $14.84/barrel on the West Coast. Compare these returns with those at BP’s English operations ($3.92/barrel) and Singapore ($4.22/barrel). While major oil companies haven’t applied for a permit to build a new refinery, a small start-up has: Arizona Clean Fuels. The company is successfully obtaining the necessary air quality permits to build the facility, which begs the question: if a small company can do it, why can’t ExxonMobil, the world’s most profitable corporation, do it?

Concentration of refinery markets has been compounded by consolidation in gasoline marketing. Refiners get gasoline to the market by distributing their product through terminals, where jobbers then deliver to retail gas stations. The number of terminals available to jobbers in the U.S. was cut in half from 1982 to 1997, leaving retailers with fewer options if one terminal raises prices. As a result of this strategy of keeping refining capacity tight, energy traders in New York are pushing the price of gasoline higher, and then trading the price of crude oil up to follow gasoline:

"Last time, Mother Nature intervened in the market [in the form of Hurricane Katrina]," [Larry] Goldstein [president of New York-based Petroleum Industry Research Foundation] said. "This time, prices are being driven by market forces," with gasoline pulling crude and other forms of fuel higher, he says.

Since gasoline futures are a more localized market than crude oil, it is easier for oil companies, hedge funds and investment banks to manipulate gasoline markets. Now that crude oil trading often follows the gasoline markets, the ability of these traders to exploit America’s underregulated futures markets raises concerns that consumers are being price gouged. High domestic inventories are not suppressing prices. In April 2006, U.S. Commercial inventories of crude oil surpassed 347 million barrels—the highest level since May 1998.Current amounts remain at historically high levels, demonstrating that while we have plenty of surplus crude, problems lie with accessing refined products. Consumers are paying a premium not because of problems in crude oil markets, but rather the problems in the refining markets. And the biggest problem in the refining market is the industry lacks financial incentive to expand capacity to create a surplus.

The U.S. Federal Trade Commission found evidence of anti-competitive practices in its March 2001 Midwest Gasoline Price Investigation:
An executive of [one] company made clear that he would rather sell less gasoline and earn a higher margin on each gallon sold than sell more gasoline and earn a lower margin. Another employee of this firm raised concerns about oversupplying the market and thereby reducing the high market prices. A decision to limit supply does not violate the antitrust laws, absent some agreement among firms. Firms that withheld or delayed shipping additional supply in the face of a price spike did not violate the antitrust laws. In each instance, the firms chose strategies they thought would maximize their profits

Webster Dictionary, Stratagem: A cleverly contrived trick or scheme for gaining an end

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2008 Kipper Mathews, all rights reserved.
Published: Friday, May 9, 2008
Last modified: Friday, May 9, 2008

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