Getting Both Barrels

Bush hit the road this week, touting our economy and paying heed to the topic of high gas prices for a change. Gas prices are on the mind of basically everyone, because these increased prices are a very “in your face” increase that can’t be ignored or denied away by political spin. The average price of a gallon has gone up 88 cents over the last year, hitting a national average of $2.80 at the time I write this and expected to rise another 5% before the summer is over.

This is killing the Administration. Unemployment is down and the stock market is doing relatively well, but gas prices and our unbelievable deficit have finally struck a nerve with most Americans. Good. As Winona would have said in 1994, sometimes reality bites. I personally think it's good that sometimes the consumer actually feels the fiscal fangs strike home. “Why don’t Americans have a better view of the Economy?” they ask. Simple answer: We can’t afford anything. Medical insurance has gone up. Gas prices are up. We’re getting nickeled and dimed from every direction and hey, guess what, the company is downsizing your regular increase this year and you should be happy, at least your job wasn’t outsourced to India!

Some of Bush’s recommendations include:
—Ordering the EPA to temporarily suspend clean-burning gasoline rules
Great! First he advocates drilling in Alaska (every Texas oilman-turned-politico’s dream) and now he’s found another environmental law to repeal in the name of lower consumer prices. Brilliant!

While we’re on the subject of Alaskan drilling, here’s a good quote:

“A recent report from the U.S. Department of Energy’s own Energy Information Administration (EIA) estimates that even 20 years down the road, when Arctic Refuge oil would be at or near peak production, gas prices would only be affected by about a penny per gallon. The United States sits on just 3 % of the world's known petroleum reserves. Government estimates indicate that there is less than a year’s supply of oil in the Arctic National Wildlife Refuge, and even the oil industry admits it would take 10 years to make it to US markets.”
[Statement of Carl Pope, Executive Director of Sierra Club, April 27th]

—Suspending the summer deposits to the nation's Strategic Petroleum Reserve
During the 2004 campaign, Bush chided Kerry for this suggestion, and he’s also criticized Clinton in the past for touching the SPR, but now it’s okay. Good thing Bush isn’t a flip-flopper.
Here’s a great blast from the past. Only $2 a gallon? Holy crap!
Here is another.

—Launching aggressive efforts against price gouging, headlined by a Federal Trade Commission investigation in conjunction with the Justice and Energy departments
Back in May 2004 ten Democratic governors sent a joint letter to Bush, that said, “We strongly encourage you to direct the Department of Energy to conduct a comprehensive investigation of the entire gasoline pricing structure, the profits currently enjoyed by the industry and the cost being passed on to consumers,” The letter was signed by the governors of Arizona, Iowa, West Virginia, Michigan, Kansas, Missouri, Washington, Wisconsin, Pennsylvania and Maine. The letter was ignored.

Bush has steadfastly rejected a “windfall tax” for the large oil companies. Hmm.

This past January, Texas-based Exxon Mobil posted the highest quarterly and annual profits of any U.S. company in history: $10.71 billion for the fourth quarter of 2005 and $36.13 billion for the whole year. Exxon Mobil Corp. also made an $8.4 billion profit in the first quarter of 2006—a 7 percent increase over last year.
Don’t worry about Exxon’s biggest rivals however; ConocoPhillips announced record profits this week. On Friday Chevron announced $4 billion in profits for its first quarter, a mere 49 percent increase. Combined, the three oil companies earned $15.7 billion during the first three months of the year.

Looking back at the profit increases from 2004–2005 isn’t much better (for the consumer anyway):
Exxon Mobil profit increase—218%
ConocoPhillips profit increase—145%
Shell profit increase—51%
ChevronTexaco profit increase—39%
BP profit increase—35%

Going back even further:
In 1999, U.S. oil refiners made a 22.8 cent profit per gallon of gas.
In 2004, U.S. oil refiners made a 40.8 cent profit per gallon of gas—an 80 percent jump.
[1988-2003 Energy Information Administration, Petroleum Marketing Annual, annual reports and 2004-Energy Information Administration, Petroluem Marketing Montly (April 2005)]

Houston, we have a problem here! These guys are having a riot.

In fairness, Exxon Mobil and other oil companies post huge exploration expenditures in the search for new oil supplies. But isn’t this just good business for them too? Let us not forget that oil companies receive tax subsidies from the federal government either.
Per Edmund L. Andrews, NY Times, March 27, 2006:
“But last month, the Bush administration confirmed that it expected the government to waive about $7 billion in royalties over the next five years, even though the industry incentive was expressly conceived of for times when energy prices were low. And that number could quadruple to more than $28 billion if a lawsuit filed last week challenging one of the program's remaining restrictions proves successful.
‘The big lie about this whole program is that it doesn't cost anything,’ said Representative Edward J. Markey, a Massachusetts Democrat who tried to block its expansion last July. ‘'Taxpayers are being asked to provide huge subsidies to oil companies to produce oil—it's like subsidizing a fish to swim.’”

About a third of the oil consumed in the United States is drilled domestically, about 150 million barrels a month, give or take, and they shouldn’t be any more expensive to extract in 2006 than in 2005. Yet it seems all the oil costs are being based on the Middle East price-per-barrel model. So, up goes the price for domestic oil too, a pretty good bargain.

Brian Lehrer of WNYC recently asked an oil business expert on his show why, if oil companies were simply raising their prices to keep up with their own per-barrel costs, why the increasing windfalls? A satisfactory answer wasn’t forthcoming, at least to this listener. (Brian probably felt the same way, as he immediately repeated his question and unsuccessfully tried a second time.)

Our country is at war. The American people have been asked to sacrifice—perhaps not enough in some ways—but government revenues that could have gone to cancer research or medical care for the helpless are being spent in Iraq. Moreover, our soldiers are making the ultimate sacrifice every day. It’s high time the oil companies got with the program and kicked in their share.