CUB’s Brainstorm Blog on Gasoline

“Exxon Mobil Corp… posted its biggest first-quarter profit ever on Thursday… The Texas behemoth reported a profit of $8.4 billion, on the heels of record earnings of $10.7 billion in the previous quarter. The news is expected to fuel growing consumer resentment in the United States over Big Oil’s long-running profit bonanza.” Reuters on Yahoo 04/27/06

It sure hurts to fill up the car these days, and with summer coming and travel increasing, gasoline prices are expected to stay high. Gasoline (made from crude oil) is a totally different product than the natural gas which is sold by NW Natural, Cascade and Avista here in Oregon, and which is regulated by the Oregon Public Utility Commission. There is no such state or federal price regulation of the gasoline market, and it shows. As Public Citizen testified before Congress, “So it would seem there is a direct correlation between record prices paid by consumers and record profits enjoyed by oil companies. As Americans shell out more dollars at the pump, the profit margin by U.S. oil refiners has shot up 79% from 1999 (the year Exxon and Mobil merged) to 2004.”

CUB has no direct stake in the trajectory of the gasoline market, and, since our board has not discussed it, no official position. However, we are consumer advocates dealing with energy issues across a broad spectrum of the social, economic, and environmental background of Oregon. We are people with opinions (no surprise to those who know us!) and with concerns regarding the overall energy stability of the society we live in. Also, one gubernatorial candidate recently suggested that perhaps gasoline should be regulated by the PUC. And, most importantly, CUB members have asked us about what, if anything, can be done about the rising prices at the pump. For all these reasons, we offer this brainstorm blog on gas, a collection of voices about an issue looming larger and larger on the horizon.

We feel that the conversation about gasoline prices has reached an interesting point, and that the proposed windfall profit tax, or some other mechanism for limiting customer vulnerability in the market, deserves more exploration. (Note below under Royalties, Senator Wyden’s attempt to shift some of the cost back to oil companies when prices skyrocket.)

Another suggestion, some form of regulation of the gasoline market, also deserves discussion. We have definitely seen a difference between those states which retain a regulated natural gas market and those whose market is deregulated; while customers in regulated states such as Oregon are subject to the same volatile prices of the wholesale market as deregulated states, the regulated states have not seen huge jumps in profit margins, CEOs’ salaries, etc, which can and do drastically affect the bottom line on customers’ bills. (See CUB article on Rates in Deregulated States.)

A great failing of the American energy portfolio to date has been its shortsightedness. We have dwindling oil production capability—dwindling massively at home and dwindling gradually abroad (click here for a primer on estimated remaining oil reserves). And yet America has yet to open a serious discussion on turning this Titanic economy away from near-total dependence on oil. Some serious foresight with regard to the future of gasoline (not just stock futures of gasoline) seems to be in order, and regulation could help put a structure for such foresight in place.

Another perspective suggests that it would be foolish to try to manage oil costs without at the same time addressing natural gas, since their production and usage are linked. This perspective would suggest the formation of a group that directs the purchase and sale of both oil and gas, to stabilize changes in price, just as the Federal Reserve Board does for U.S. currency. This would help with the current speculation bubble in the price of oil, which is estimated to be anywhere from $10-$25 out of a barrel cost of $75.

Supply and demand remains a primary problem. For many years the U.S. was the main buyer for worldwide oil production, but now China and India are becoming major competitors for the worldwide supply. A short-term solution would be better gas mileage standards for all new vehicles, and a long-term solution means shifting usage to other energy sources altogether. This is the same message CUB offers for managing electricity and natural gas usage: conserve what you can, and start shifting the energy you must use to renewable sources.

Finally, security issues, questions of cost and ethics surrounding American military intervention in places where oil is produced, have come to the forefront. As stated by James Howard Kunstler in an article on Alternet, “The problem is that the oil supply will soon steadily diminish at a rate of at least 3 percent a year, and that necking down of supply is likely to be expressed in greater geopolitical friction and turmoil between the great nations who crave oil.”  These issues are beyond the scope of this brainstorm, but no discussion of energy stability would be complete without mentioning them.

Again, CUB does not deal in regulation of gasoline. Energy in all its forms, however, is not only interrelated, but of great importance in the ongoing discussion of how we protect consumers, cultivate a healthy economy, and maintain a livable planet. We appreciate your willingness to engage in this discussion with us.

Fall 2005 Record Profits

“By most familiar comparisons, the $9.92 billion profit earned by Exxon Mobil Corp. in just three months is almost unimaginable. It would cover all Social Security benefit payments for three months… It would fund the military operations in Iraq and Afghanistan for more than two months. Yet oil industry representatives and Exxon Mobil yesterday made a game effort to cast the record profit, earned during a quarter in which the Gulf Coast was shattered by hurricanes and gas prices rose well above $3 a gallon, as middling at best.” The Washington Post 10/27/05:

Congress Reacts

“Sen. Byron Dorgan has introduced a three-year tax of 50 percent for any profit oil companies make for oil sold above $40 a barrel. But even the North Dakota Democrat admits it’s an uphill battle for the bill. “This is not a very hospitable political environment to challenge the oil industry,” Dorgan told CNN/Money. “We have a president and vice president who come from the oil industry and they’re not interested in doing anything that runs counter to the interests of major integrated oil companies.” But Dorgan said he’s sensing some growing support for a tax across the aisle.” CNN Money 10/28/05:

Where We Are Now - $3.00 and Rising

“Bolstered by high oil prices, Exxon Mobil said profits rose 7 percent in the first quarter, even as Congress threatens to punish oil companies for excessive profits at a time of soaring gasoline prices. The surge in energy costs has jumped to the top of the political agenda as the average price of gasoline recently reached $3 a gallon in many parts of the country. Last week, crude oil prices jumped above $75 a barrel, the highest in over a quarter century. Facing growing political pressure ahead of this year’s mid-term elections, Congress is considering ways to trim $2 billion in tax breaks it awarded oil companies as part of last year’s energy bill. Some would also like to see a windfall profit tax imposed on oil companies. Net income at Exxon, the world’s largest publicly traded oil company, rose to $8.4 billion in the first quarter, compared with $7.86 billion in the year-earlier period. Sales climbed 9 percent to $89 billion.” New York Times 04/27/06

Red Herrings

“No doubt it makes everyone feel better when the president states his concern for Americans, who are now paying more than $3 a gallon for gasoline. Unfortunately, the measures President Bush chose to announce this week to combat high prices are either meaningless or possibly dangerous in the long run, even if they do offer a bit of temporary relief. For example, just talking publicly about “price gouging” can spook gasoline providers into slightly lowering prices. And maybe it’s useful to inspire state officials to start looking harder for crooks, given that price gouging is defined at the state level, not by the federal government. But in the long term, such talk encourages the public to believe that evil price gougers are responsible for higher pump prices, when the real culprits are global economic growth, increased demand and Americans’ own large cars.” Washington Post Editorial 04/27/06

Genuine Issues:

Executive Pay

“Last year, Exxon made the biggest profit of any company ever, $36 billion, and its retiring chairman appears to be reaping the benefits. Exxon is giving Lee Raymond one of the most generous retirement packages in history, nearly $400 million, including pension, stock options and other perks… Last November, when he was still chairman of Exxon, Raymond told Congress that gas prices were high because of global supply and demand… Raymond, however, was confronted with caustic complaints about his compensation… That was before new corporate documents filed with the Securities and Exchange Commission that revealed Raymond’s retirement deal and his $51.1 million paycheck in 2005. That’s equivalent to $141,000 a day, nearly $6,000 an hour… “I think it will spark a lot of outrage,” said Sarah Anderson, a fellow in the global economy program at the Institute for Policy Studies, an independent think tank. “Clearly much of his high-level pay is due to the high price of gas.”“ ABC News 04/14/06

Royalties

“At a time when energy prices and industry profits are soaring, the federal government collected little more money last year than it did five years ago from the companies that extracted more than $60 billion in oil and gas from publicly owned lands and coastal waters. If royalty payments in fiscal 2005 for natural gas had risen in step with market prices, the government would have received about $700 million more than it actually did…” New York Times 01/23/06.

P.S. Kudos to Oregon Senator Ron Wyden who filibustered yesterday (04/27/06) in an attempt to force a vote on his amendment which would curtail royalty waivers for oil companies when oil is selling at above $55/barrel.

Finite Resource

“Are Americans willing to live with $100-a-barrel oil prices, which could translate into $6-a-gallon gasoline and heating oil? They may have no choice. It could happen as soon as five years from now, according to some energy experts. The price for a barrel of crude has nearly tripled in three years, from $25 in April 2003, to over $72 today. But the more crucial question is this: Are Americans and their political representatives willing to make the individual and collective sacrifices needed to come up with viable mass-market energy alternatives to heat our homes, drive our cars and run our industries? They would have to accept the unpalatable prospect that a concerted national push for alternatives to oil will be neither cheap nor easy, and it won’t generate significant results for quite some time, even when such alternatives are made to work.” Newsday Editorial 04/23/06

Conflict

“No one who is honestly assessing the decline of American leverage around the world due to our energy dependence can fail to see that energy is the albatross of US national security,” Sen. Richard Lugar (R) of Indiana said last month… Now, with an election looming and higher gas prices, the US is in a perfect storm of playing politics with energy. It’s time to end blame games and decide whether oil is a social good needing evermore protection.” Christian Science Monitor Commentary 04/26/05

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