Big Oil, Big Profits: Are We Sharing the Pain?

It’s great to know that we’re all in this high-gas-prices thing together, consumers and oil companies alike. “If each of us took just one small step toward conservation, the impact would be huge,” says a recent Chevron ad campaign, which adds that the company is “working around the clock” to get oil back to pre-Katrina production levels (and, presumably, prices). In the meantime, we’re urged to cut down on trips by “consolidating errands,” “using public transportation when possible” and avoiding “rapid acceleration and braking.” Thanks for the tips, Chevron!

The advice is worthwhile, but somehow it sticks in the craw to hear it from an oil company. No matter how much I keep my foot off the gas, we’ll still be in price control free-fall. Big Oil, never previously a friend of alternative energy or of energy-related regulation, used its lobbying power to lead us straight to where we are today—in a real mess. Another oil company, ExxonMobil, points out, “By 2020, we expect that the world will require about 40 percent more energy than today. By then the world’s consumption is likely to approach 300 million barrels of oil-equivalent energy every single day. We expect that 60 percent of this 2020 demand will continue to come from oil and gas as these primary sources of energy are available in sufficient quantity to meet the world’s growth and are, at the same time, the most economical. Sizable increases in energy demand are projected despite likely continued improvements in energy efficiency.”

In other words, we’re screwed, because we won’t have enough oil to meet the demand, and we won’t have developed alternatives to make up the shortfall. ExxonMobil again: “No matter how successful we are at delivering the energy the world needs today, we know tomorrow’s energy needs will be even greater.” Even with Canada beginning the very messy and costly business of extracting oil from tar sands (about more later), our oil production is unlikely to meet rising demand. And any economist will tell you that the result will be sharply higher fuel costs. Don’t expect $3 a gallon gas to be temporary, though there may be some brief relief in the months ahead. In terms of prices at the pump and in oil tanks this winter, we’ll all share the pain.

But not with the oil companies. As the Washington Post reported in late September, “The spikes caused by Hurricane Katrina—which heavily damaged oil production and refining in the Gulf region—accentuated gains the refiners and producers already were enjoying over the past year. Exxon Mobil Corporation, the Irving, Texas, behemoth that produces and refines oil, reported in July that its second-quarter profit was up 32 percent, to $7.64 billion. Analysts expect Exxon’s profit to soar again this quarter.”

According to an account by author Dick Russell, the Society of Environmental Journalists conference that recently concluded in Austin, Texas included a breakfast session with some top oil men and women. Rich Marcogliese, a senior vice president of refining operations at Valero Energy, proclaimed valiantly, “At the retail level, we are restraining prices as much as we can, but it is a tight supply-and-demand situation.”

Sherri Stuewer, a VP at ExxonMobil, used her time to point out that the strong increase in oil demand is mainly coming from the developing world, and that wind and solar energy together will be able to meet only two percent of that demand (biofuels, maybe five percent). As a consequence, assuming we can even find the fuel to pump, greenhouse gas emissions—now at six billion tons a year—will rise to 11 billion tons by 2030. Stuewer added, “no individual company can control crude oil prices, these are set on futures markets and expectations.” It’s out of their hands, in other words. But what about those profits? ExxonMobil has raked in $89 billion in profits since 2001, and second-ranked Shell had to make do with $60.7 billion.

It’s nice to see Senator Hillary Rodham Clinton (D-NY) taking this issue on. In a series of New York speeches she cited that $7.64 billion profit figure and declared, “You just cannot convince me that they are not manipulating this market
If we don’t fight Big Oil, this country’s going down. We’re not going to have the standard of living and the quality of life, and we’re not going to be able to control our future.”

Clinton is just expressing the public mood. The Civil Society Institute commissioned polling by the Opinion Research Corporation, which found:
"Nine of 10 Americans feel that we’re getting gouged by big oil companies;
"Four of five now support a tax on the windfall profits of oil companies if the resulting revenues are devoted to alternative energy research;
"Three of four believe recent gasoline price hikes make it more important that the federal government impose higher fuel-efficiency standards;
"Four of five adults say that U.S. automakers should use hybrid technology for “all of its new cars going forward

"Two out of three now agree that it is “patriotic” to buy a fuel-efficient vehicle and, therefore, requires this country to import less oil from the Middle East. (And they presumably believe this even if the car itself was imported, as most hybrids are.)

At a press conference announcing the results, Wayne Russum, a vice president of Opinion Research Corporation, said $3 a gallon gas is a major driver in the public’s shifting opinion. “The growing concern about burning fossil fuels is another driver,” added Pam Solo, president of the Civil Society Institute. “And it’s all converging to drive opinion in this direction.”

Keep in mind here that I’ve written hundreds of columns urging domestic automakers to take hybrids seriously, to little avail. Today hybrids are front and center in all their planning, along with fuel-cell vehicles, but this alone won’t erase the pain delay has already cost.

The public is crying out for, no, demanding, that Congress do something about high fuel prices, including requiring higher vehicle fuel-efficiency. According to a survey by the Pew Research Center for the People and the Press, 86 percent would support federal tightening of Corporate Average Fuel Economy (CAFE) rules; 73 percent favor tax cuts for alternative energy; 68 percent support more funding for mass transit; three in 10 have bought a car that gets better gas mileage; and 64 percent are turning down their home thermostats. More than a third (36 percent) blame major oil companies for high prices, while 27 percent point their fingers at President Bush. Only 18 percent blame OPEC, Middle Eastern countries, and other foreign oil producers. A shrinking 36 percent “express confidence that the President is taking the right approach to solving the nation’s energy problems.”

Congress is, of course, doing something about high oil prices. It’s making the situation worse. As the Sierra Club reports: “The Inhofe Refinery Bill (S.1772) being argued today [September 18] in the Senate’s Environmental and Public Works Committee does not propose real, productive solutions to our current energy problems, and instead offers more handouts to the oil and gas industries.This bill is based upon the false premise that rising gas prices and America’s oil dependence c

an be solved by removing environmental safeguards.The reality is, from 1975 to 2000, the U.S. Environmental Protection Agency (EPA) received only one permit request for a new refinery. Oil refineries are not being built because the industry doesn’t want to build them—not because environmental laws are holding them back.

“This winter, home heating bills are expected to reach record highs, and will create a real hardship for many Americans who are already struggling with high gasoline prices,” The Sierra Club added.“Rather than offer real solutions to lower energy bills and cut America’s dependence on oil, the Republican leadership in Congress is trying to exploit this crisis by preparing legislation that will waive environmental laws for new refineries, open the Arctic National Wildlife Refuge and our coastlines to oil and gas drilling, and funnel even more taxpayer dollars to the oil industry.”

A bill that actually would do something about high fuel prices was quietly introduced by a bipartisan coalition of 16 House members September 16. Led by environmentally inclined Science Committee Chairman Sherwood Boehlert (R-NY) and Representative Ed Markey (D-MA), the bill would raise CAFE standards from 25 mpg (where they’ve been stuck for 20 years) to 33 mpg over the next 10 years. The move could save 2.6 million barrels of oil per day by 2025. Americans, said Boehlert, “are sick and tired of paying skyrocketing prices for gasoline. They want relief. This bill will provide it.”

Will the bill pass? Probably not. CAFE increases are routinely defeated by Congress, opposed by the auto industry and various special interests. This despite the aforementioned 86 percent public support for improving federal fuel-efficiency standards.

Detroit’s strategy is ultimately self-defeating. It fights against CAFE increases so it can produce gas guzzlers that, according to the latest statistics, fewer and fewer people want to buy. Big SUV sales plunged 55 percent in September from a year earlier, while the Toyota Prius enjoyed a 90 percent sales gain. Anyone want a used Excursion? There are some real bargains out there.

Tar Sands: Dirty Business

I mentioned that tar-to-oil is a very dirty form of energy production, its $15 to $20 per barrel production costs made viable only by today’s over-$60-a-barrel prices. A recent New York Times piece detailed former wilderness areas turned into moonscapes by tar sands production. And separating oil from sand is very water- and energy-intensive. There is talk of nuclear power plants or natural gas pipelines just to keep the process running. “Essentially we’re taking one fossil fuel for another fossil fuel, and all we’re getting in the northwest is climate change,” says Lewis Rifkind, energy coordinator for the Yukon Conservation Society.

JIM MOTAVALLI is editor of E.


Civil Society Institute

Dick Russell

Yukon Conservation Society