March 10, 2004

Industry Consolidation, Uncompetitive Behavior Contributing to Rising Gas Prices


Five Companies Control Half of Domestic Oil Production

WASHINGTON, D.C. – Gas prices are rising because of uncompetitive actions by a handful of mega-companies, not because of environmental regulations, Public Citizen said today.


Forecasts say that gas prices will reach historic highs this spring, with the national average exceeding $1.80 a gallon, the highest prices (adjusted for inflation) since 1985. Already in Texas, prices are inching near $3 a gallon.

The Bush administration blames environmental rules for causing strains on refining capacity, prompting shortages and driving up prices. But in reality it is uncompetitive actions by a handful of companies with large control over our nation’s gas markets that is directly causing these high prices, said Wenonah Hauter, director of Public Citizen’s Critical Mass Energy and Environment Program.

Domestic refining and transportation costs account for one-third of the price of a gallon of gasoline – costs that are largely determined by the major oil companies operating in the United States. This share of company costs tacked on to the price of gasoline has been increasing. In November 2000, crude oil prices were at the same level they are today (more than $36 per barrel), but retail gas prices today ($1.78 per gallon) are 17 percent higher than they were then ($1.55 per gallon). Most of this difference has been realized in higher profits from the new mega-companies that have merged since 2000.

The top five companies in America – ExxonMobil, ChevronTexaco, ConocoPhillips, BP-Amoco-Arco and Shell – now control half of all domestic oil production, half of all domestic refinery capacity, and nearly two-thirds of the retail market.

"The fact that a handful of companies control half of the domestic oil production is particularly significant given that the United States is the third largest oil producer in the world," Hauter said. "It’s no wonder that the market leader, ExxonMobil, posted after-tax profits of $21.5 billion in 2003. When you control the market, you can manipulate the system to ensure enormous profits."

The U.S. Federal Trade Commission concluded in March 2001 that oil companies had intentionally withheld supplies of gasoline from the market as a tactic to drive up prices – all as a "profit-maximizing strategy." These actions, while costing consumers billions of dollars in overcharges, are perfectly legal.

The approval of recent mergers has allowed these large oil companies to push smaller, independent refining companies out of business for the sole purpose of limiting refining capacity at the same time that environmental regulations necessitated more refining capacity. Internal company documents describe the aggressive strategies employed by the large oil companies to shut down refineries with capacity of more than 830,000 barrels of oil a day – more than enough to meet environmental regulations if these were open today.

"If it is so clear that America’s gasoline markets are uncompetitive, then why haven’t these companies been investigated?" said Public Citizen President Joan Claybrook. "We believe that millions of dollars in campaign contributions have purchased immunity from congressional and presidential scrutiny."

Collectively, the oil and gas industry has spent more than $270 million to lobby Congress and the White House and provide cash to federal election campaigns since the 2000 election cycle. Of this amount, $66 million was given to federal candidates running for office, with 80 percent of those contributions going to Republicans. That makes this industry among the largest and most partisan of industries.


The oil and natural gas industry has spent an average of $50 million a year lobbying Congress and the White House since 2000, according to an analysis of lobby registration forms filed with Congress. The top five companies, including the American Petroleum Institute, account for half of all these lobbying expenditures.

The energy bill pending in Congress does nothing to address uncompetitive activities by large oil companies. Instead, it rewards them with billions of dollars in new subsidies in the form of tax breaks for new production and other perks.

"Giving tax breaks to ExxonMobil, which just posted $21.5 billion in profit, takes a lot of gall," Hauter said. "We need a real energy policy, one that emphasizes conservation and renewable fuels, not one that continues to pad the pockets of giant companies and allows them to continue soaking consumers."