Consumers Pay at the Pump While Oil Companies Pay Themselves

March 31, 2004

Consumers Pay at the Pump While Oil Companies Pay Themselves

 

Pending Energy Legislation Worsens Price Problem by Protecting Oil Companies, Not Consumers

 

WASHINGTON, D.C. – In the past decade, mergers in the oil industry have resulted in an uncompetitive domestic oil market that keeps gas prices artificially high for consumers while the top oil companies rake in record-setting profits, Public Citizen said today in a new report, Mergers, Manipulation and Mirages: How Oil Companies Keep Gasoline Prices High, and Why the Energy Bill Doesn’t Help, The national public interest organization is calling on the U.S. government to fix the price crisis through increased oversight and regulation, as well as stronger fuel economy standards to reduce the United States’ dependence on oil.

The five largest oil companies operating in the United States are ExxonMobil, ChevronTexaco, ConocoPhillips, BP-Amoco-Arco and Royal Dutch Shell. They control 14 percent of global oil production, 48 percent of domestic oil production, 50 percent of domestic refinery capacity, and nearly 62 percent of the retail gasoline market. These same companies also control 21 percent of domestic natural gas production. Since 2001, these top companies enjoyed cumulative after-tax profits exceeding $125 billion.

This control enables oil companies to manipulate prices by intentionally withholding supplies. Indeed, a 2001 Federal Trade Commission investigation into high gasoline prices concluded that oil firms intentionally withheld or delayed shipping oil to keep prices up. However, the government has done nothing to end these uncompetitive practices.

“If the same company owns every step of the process, from crude oil production to the gas station down the street from your house, it has utter control over the price people pay at the pump,” said Public Citizen President Joan Claybrook. “Making it worse is our government’s lackadaisical approach to regulating these oil companies as they collect billions of dollars from every American who drives a car.”

A decade ago, the top five oil companies controlled only 8 percent of global oil production, 34 percent of domestic oil production, 34 percent of domestic refinery capacity, 27 percent of the retail market and just 13 percent of domestic natural gas production.

The lack of investigations into uncompetitive practices by these large companies may be explained by the more than $67 million the oil industry has contributed to federal politicians since 1999 – with 79 percent of those contributions going to Republicans, according to an analysis of Federal Election Commission data from the Center for Responsive Politics. Further, the energy legislation first developed in Vice President Dick Cheney’s secret energy task force and then largely written behind the closed doors of the congressional energy conference committee would do nothing to lower oil and gas prices. Instead, it contains more subsidies for oil and gas corporations.

“The stalled energy bill does nothing to address this worsening crisis,” said Wenonah Hauter, director of Public Citizen’s Critical Mass Energy and Environment Program. “In fact, as the legislation is currently written, these giant oil companies are the greatest benefactors, and consumers are the victims.”

The most effective way to protect consumers is to restore competitive markets. The Bush administration should take the following actions or seek congressional authority to do so if necessary, according to the report (click here to view). These include:

  • Releasing oil supplies from the Strategic Petroleum Reserve, or, at a minimum, cease filling it.
  • Enforcing antitrust laws, thereby making it illegal for companies to intentionally withhold any energy commodity from the market for the sole purpose of creating supply shortages in order to drive prices up.
  • Assessing how recent mergers have made it easier for large oil companies to engage in uncompetitive practices, and take concrete steps – including forced divesture of assets to independent companies – to remedy the problem of too few companies controlling too much of the market.
  • Requiring oil companies to increase the size of their storage capacities, requiring them to hold significant amounts in that storage, and reserving the right to order these companies to release this stored oil and gas to address supply and demand fluctuations.
  • Reducing the United States’ oil consumption by 54 billion gallons of oil by 2012 by improving passenger vehicle fuel economy standards.
  • Restoring transparency to energy futures markets by re-regulating trading exchanges that were exploited by Enron and continue to be abused by other energy traders.
  • Imposing a windfall profits tax to discourage price-gouging.

“Although the Bush administration blames environmental rules for causing strains on refining capacity, prompting shortages and driving up prices, company memos show that the largest oil companies have driven smaller, independent refiners out of business to maximize profits, resulting in tighter refinery capacity markets,” said Tyson Slocum, research director of Public Citizen’s energy program and author of the report. Ninety-seven percent of the more than 920,000 barrels of oil per day of capacity that was shut down between 1995 and 2002 was owned and operated by smaller, independent refiners. Were this capacity operational today, refiners could use the excess capacity to better meet today’s reformulated gasoline blend needs.

 

Finally, taxes also have little to do with rising gasoline prices. The federal gas tax (18.4 cents per gallon) hasn’t been changed since 1997, and the average state gas tax is 19 cents per gallon. Combined, taxes make up 22 percent of the cost of a gallon of gas today.

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