Analysis: Big Oil causing high gas prices?

By ROSALIE WESTENSKOW, UPI Correspondent  |  April 3, 2008 at 1:25 PM
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THE DALLES, Ore., April 3 (UPI) -- As gas prices reach record highs, some policymakers say big oil companies are to blame, but the companies say it's not their fault.

With total profits of $123 billion in 2007 alone, the country's top five oil companies raked in more money last year than ever before. Some members of Congress, including Rep. Edward Markey, D-Mass., think these profit margins have gone too far, considering the dampening effect skyrocketing fuel prices have on the economy.

"American consumers shouldn't have to break the bank to fill the tank," Markey said Tuesday at a hearing in the House Select Committee on Energy Independence and Global Warming. "The American people deserve answers, and it is time for Big Oil to go on record about these record prices."

Lawmakers grilled executives from the biggest U.S. oil companies at Tuesday's hearing. The witnesses asserted their profits don't vary significantly from those in other industries.

"Because of the massive scale of our industry, our profitability in absolute terms is large, particularly in the current up cycle," said J. Stephen Simon, senior vice president for Exxon Mobil Corp. "But in 2007, the oil and gas industry earned, on average, about 8.3 cents per dollar of sales -- near the Dow Jones Industrial Average for major industries of 7.8 cents per dollar of sales."

Other witnesses at the hearing asserted their oil companies play a small role in determining costs, and the blame for high fuel prices lies elsewhere. Currently, foreign countries -- and their state-owned oil companies -- control 94 percent of the world's oil resources, said Peter Robertson, Chevron's vice chairman.

"Chevron ranks 21st in terms of its access to oil and gas resources," he testified at the hearing. "The fact is, (the United States) is part of the world."

A number of factors affect gasoline prices, witnesses said, including increasing worldwide energy demand, geopolitical turmoil and a weaker U.S. dollar. If anything, oil companies are working to decrease costs, Robertson said.

"We're doing our damndest to fix (high prices). … We're spending as much as we can to produce affordable energy for people in this country."

All of the companies represented at the hearing have invested in renewable energy technologies, including Shell Oil Co., which has invested in 11 wind projects in the United States and Europe and sells 400 million gallons of ethanol each year, said John Hofmeister, Shell's president.

"Shell is a leader in the development of advanced biofuels technologies," he said. "Like most energy companies, we are engaged in the race to develop these technologies and fuels and make them commercially viable."

But these investments, and those of other oil companies, fail to impress some U.S. lawmakers. Rep. Jay Inslee, D-Wash., called current investments "pathetically small" and urged oil companies to put substantial dollars toward green technology development.

"You're spending less than half a percent of your gross revenues on green energy," he said to oil company representatives at the hearing. "Are these (renewable technologies) going to come from the oil fairy?"

Select Committee Democrats are requesting domestic oil companies dedicate 10 percent of their profits to developing renewable energy -- approximately the same percent the poorest 20 percent of U.S. families spend out of their total paycheck on gas, said Eben Burnham-Snyder, majority spokesman for the committee.

The House has also taken measures to decrease the assistance oil companies receive from the government by passing the Renewable Energy and Energy Conservation Tax Act in late February. The bill, if it becomes law, would repeal the $18 billion in government incentives the oil and gas industry currently receives and transfer that money to renewable technologies.

But doing so would unfairly penalize the industry, said Jeff Eshelman, vice president of public affairs for the Independent Petroleum Association of America, a national trade association for the industry.

"It's a deduction that's given to all American manufacturers," Eshelman told United Press International. "What they're doing is singling out the oil and gas industry and saying everyone else in America gets this but you."

And this will lead to hiked prices, said Tony Cudmore, spokesperson for Exxon Mobil.

"What it amounts to is posing additional taxes on the oil industry and that's not going to assist in providing stable and low energy prices for American consumers," Cudmore told UPI.

If Congress really wants to decrease prices, it will change its own policies of restricting access to U.S. oil resources by allowing drilling in more areas, Eshelman said.

"If oil companies are given the ability to go into federal lands and produce crude oil, that would increase supply," Eshelman told UPI. "The more supply we have on the market, the more stable prices will be."

Allowing oil companies access to these resources -- historically off-limits, primarily for environmental reasons -- could significantly decrease U.S. dependence on foreign oil and, as a result, outside influences on price, Eshelman said.

In fact, if the country's resources were more fully developed, domestic natural gas production could increase by 10 percent and an additional 40 billion barrels of oil could be produced in the next five to 10 years, according to a recent study conducted by the National Petroleum Council, an advisory committee to the secretary of energy.

Some policymakers are pushing to open up more areas for drilling for exactly those reasons, including Rep. John Shadegg, R-Ariz.

"We have thousands of acres (of resources) … and we walk away from that supply at a time when worldwide demand is increasing drastically," Shadegg said Tuesday. "The result is … a spike in energy prices for Americans."

But not everyone believes allowing more oil drilling on U.S. land will lead to decreased prices. Daniel Weiss, senior fellow and director of climate strategy at the Center for American Progress, a left-leaning think tank, said, left to their own devices, Big Oil will always charge big prices.

"It's not in the big oil companies' interest to do anything to decrease prices because as prices rise, so do their profits," he told UPI.

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