'Government Likes High Prices'
What consumers should know about oil
September 15, 2005
If you're part of the vast majority of Americans who feels the need to drive, then you've noticed the stratospheric high prices at the pump. To find out what's going on, I called Tyson Slocum, the energy program research director for the consumer advocacy group Public Citizen. Slocum's appeared on CNN, Fox News and in The New York Times and Wall St. Journal. This week he testified before Congress on rising prices. Clearly, he knows oil.
Maui Time Weekly: Why are gas prices so high?
There's no question demand does play a role in this. Americans have a huge demand for oil The U.S. uses 25 percent of the world's oil. China is the second largest consumer—they use seven percent. The U.S. uses 21 million barrels a day. Seventy percent of U.S. use goes to highway transportation. We have worse fuel economy in 2005 than we did in 1985. Our competitors in Europe and Asia use half the fuel we do.
For most consumers, demand is what economists call "inelastic"—Are consumers going to stop driving to work? No. For the most part, people need their cars. We're in a bind: we need to make our cars more fuel-efficient.
Is it just demand that's driving the high prices?
No. There's a big disconnect between the prices we're seeing and actual supply and demand. This is much different than the 1970s—there are no shortages except in isolated areas. This time, there's a direct correlation between our record high gas prices and record profits for the oil companies.
Price gouging is absolutely going on. The federal government has concluded this. In 2001, the Federal Trade Commission found conclusively that oil companies were manipulating the market. They were holding supplies, waiting for prices to rise, then releasing their product. In 2004 the General Accounting Office found that recent [oil industry] mergers have directly led to higher prices by squelching competition.
There are record profits at every stage. Recent statistics from the federal Department of Energy show record profits in the refining industry. Refining profit margins in 1999 were 22 cents per gallon. In 2004 they were 40 cents per gallon. I guarantee 2005 will be higher.
Prices leapt after Hurricane Katrina—they show oil companies are willing to take advantage of a national emergency. Public Citizen called for temporary national price controls.
Hawai'i recently instituted a wholesale price gas cap. What are your thoughts on that?
I like the general concept of it. It's a moving cap, changing every week, based on some variables. It uses the averages of prices in various regions on the mainland. You can ask whether these regions are relevant, and maybe make the cap more exact, but the general concept is very solid. It's sound. Because Hawai'i is getting no help from the federal government, it's an appropriate move to get control.
The cap is very controversial out here.
Analysts in the pay of oil companies always say price caps won't work. They're wrong. In 2000, 2001, Enron was ripping off California's energy market. Regulators allowed it to continue for 13 months. Finally they ended it by enacting price controls. These price controls ended the blackouts and put Enron out of business. It was extraordinary. Analysts who say price caps don't work are lying at worst or don't know what they're talking about at best.
Besides, it's not like you're imposing this on an industry in dire straights. Since George W. Bush took over in 2001, Chevron/Texaco has had more than $31 billion in profits. Shell has had $60.7 billion in profits since 2001. The refinery Tesoro has had profits of $615.6 million since 2001—they're smaller than the other firms, but they've got a healthy profit margin for their business. Refining profit margins are through the roof.
Now the refiners are saying they haven't built any new refineries since 1976 because of environmental regulations. What about that?
They always say environmentalists are keeping them from building new refineries. They're lies. But the reason they haven't built any new refineries is because they have no financial interest to do so. Think about it: more refineries will drive prices down. In 2001 an oil industry executive actually said, "I would rather produce less gas… than flood the market with gas and earn a lower margin." They want to make as much money as possible.
Now Anderson Clean Fuels, a small company based in Arizona, is building a new refinery. And they've successfully obtained all the necessary environmental permits. If a small independent company can get the money to build a refinery and get all the environmental permits, why can't Exxon-Mobil do it?
Now what about that giant energy bill that Bush signed in August?
That energy bill—which unfortunately both Hawai'i senators voted for—is one of the worst bills in history. Weeks after it passed [both houses of Congress], prices are rising. The bill was just $6 billion in new subsidies for oil companies. There was $1.5 billion for companies doing deep water drilling in the Gulf of Mexico. There was another billion dollars in tax breaks—companies can now write off exploration. There are tax breaks for refiners. A barrel of oil costs $65-70—these subsidies make no sense. Hawai'i's senators should be ashamed. It was an outrageous piece of legislation.
Do you see any hope for a drop in prices?
Not really. I think we're on a steady march towards much higher prices. Markets respond to what the government does. When Bush signed that energy bill, the industry got a clear signal that government likes high prices. They have incentives to produce more SUVs. Last year Goldman Sachs put out a report saying we'd have $100 barrels of oil in a year. When it first came out, I dismissed it. But now, we'll see $100 barrels before we see $30 barrels of oil. And when that happens, our economy is in the tank.
For more information about Slocum and high gas prices, visit www.citizen.org. MTW
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