Big Oil's Ads Against Price-Gouging, Windfall Profits Tax

Edwards Calls for Probe of Oil Industry
Edwards Calls for Probe of Oil Industry
By May Wong
The Associated Press
Thursday 31 May 2007

Democratic presidential hopeful John Edwards on Thursday called for a federal investigation into possible antitrust violations by the oil industry and criticized oil companies for raising gas prices.

"There's absolutely no justification for the gas companies to be as profitable as they are and have the taxpayers subsidizing the industry," Edwards said.

The former senator from North Carolina spoke to reporters during a brief campaign stop at a restaurant in Silicon Valley to outline an energy plan he said would help get America "off its oil addiction."

Wendy Li, the co-owner of a family run sheet metal manufacturing company in San Jose, joined Edwards during the appearance to tell him how soaring gas prices have put financial pressure on the business and her family.

"It's holding us hostage," said Li, an Edwards campaign volunteer. "And you can't just say 'drive less.'"

Edwards said his plan would seek to provide economic relief while increasing industry oversight and reducing America's petroleum-reliant habits. It proposes:

An independent Justice Department investigation into the wave of mergers of oil companies, the cause of higher gas prices and possible remedies.

Raising federal auto fuel economy requirements to 40 miles per gallon from the current 27.5 mpg by 2016.

Expanding use of biofuels such as ethanol, including a requirement for oil companies to make available E-85 fuel (which has 85 percent ethanol) at a quarter of their stations. Edwards wants all new cars to be able to use E-85 by 2010.

Mandatory restrictions on emissions of carbon dioxide with an aim to cut greenhouse gases by 80 percent by mid-century.

Creating a $13 billion energy fund from the sale of greenhouse gas permits and ending some tax breaks for the oil industry. The money would be used to support biofuels and conservation technologies.
Tupper Hull, spokesman for the Sacramento-based Western States Petroleum Association, said the region's high gas prices reflect market rates, and an antitrust investigation would be a waste of time. He said the industry has been the subject of more than 20 state and federal investigations over the past two decades.

Rival Democratic presidential candidates, including Sens. Hillary Clinton and Barack Obama (news, bio, voting record), also have called for expanded ethanol use and other measures to reduce U.S. reliance on oil.
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Associated Press Writer Rachel Konrad in San Francisco contributed to this story.

Oil Industry Scales Back Refinery Plans
Oil Industry Scales Back Refinery Plans
The Associated Press
Sunday 17 June 2007

Washington - A push from Congress and the White House for huge increases in biofuels, such as ethanol, is prompting the oil industry to scale back its plans for refinery expansions. That could keep gasoline prices high, possibly for years to come.

With President Bush calling for a 20 percent drop in gasoline use and the Senate now debating legislation for huge increases in ethanol production, oil companies see growing uncertainty about future gasoline demand and little need to expand refineries or build new ones.

Oil industry executives no longer believe there will be the demand for gasoline over the next decade to warrant the billions of dollars in refinery expansions - as much as 10 percent increase in new refining capacity - they anticipated as recently as a year ago.

Biofuels such as ethanol and efforts to get automakers to build more fuel-efficient cars and SUVs have been portrayed as key to countering high gasoline prices, but they are likely to do little to curb costs at the pump today, or in the years ahead as refiners reduce gasoline production.

A shortage of refineries frequently has been blamed by politicians for the sharp price spikes in gasoline, as was the case last week by Sen. James Inhofe, R-Okla., during debate on a Senate energy bill.

"The fact is that Americans are paying more at the pump because we do not have the domestic capacity to refine the fuels consumers demand," Inhofe complained as he tried unsuccessfully to get into the bill a proposal to ease permitting and environmental rules for refineries.

This spring, refiners, hampered by outages, could not keep up with demand and imports were down because of greater fuel demand in Europe and elsewhere. Despite stable - even sometimes declining - oil prices, gasoline prices soared to record levels and remain well above $3 a gallon.

Consumer advocates maintain the oil industry likes it that way.

"By creating a situation of extremely tight supply, the oil companies gain control over price at the wholesale level," said Mark Cooper of the Consumer Federation of America. He argued that a wave of mergers in recent years created a refining industry that "has no interest in creating spare (refining) capacity."

Only last year, the Energy Department was told that refiners, reaping big profits and anticipating growing demand, were looking at boosting their refining capacity by more than 1.6 million barrels a day, a roughly 10 percent increase. That would be enough to produce an additional 37 million gallons of gasoline daily.

But oil companies already have scaled those expansion plans back by nearly 40 percent. More cancelations are expected if Congress passes legislation now before the Senate calling for 15 billion gallons of ethanol use annually by 2015 and more than double that by 2022, say industry and government officials.

"These (expansion) decisions are being revisited in boardrooms across the refining sector," said Charlie Drevna, executive vice president of the National Petrochemical and Refiners Association.

With the anticipated growth in biofuels, "you're getting down to needing little or no additional gasoline production" above what is being made today, said Joanne Shore, an analyst for the government's Energy Information Administration.

In 2006, motorists used 143 billion gallons of gasoline, of which 136 billion was produced by U.S. refineries, and the rest imported.

Drevna, the industry lobbyist, said annual demand had been expected to grow to about 161 billion gallons by 2017. But Bush's call to cut gasoline demand by 20 percent - through a combination of fuel efficiency improvements and ethanol - would reduce that demand below what U.S. refineries make today, he said.

"We will end up exporting gasoline," said Drevna.

Asked recently whether Chevron Corp. might build a new refinery, vice chairman Peter Robertson replied, "Why would I invest in a refinery when you're trying to make 20 percent of the gasoline supply ethanol?"

Valero Corp., the nation's largest refiner producing 3.3 million barrels a day of petroleum product, recently boosted production capacity at its Port Arthur, Texas, refinery by 325,000 barrels a day. But company spokesman Bill Day said some additional expansions have been postponed.

"That's not to say we've changed our plans," Day said in an interview. "But it's fair to say we're taking a closer look at what the president is saying and what Congress is saying" about biofuels. He said there's a "mixed message" coming out of Washington, calling for more production but also for reducing gasoline demand.

"It's something that we have to study pretty carefully," said Day.

Ron Lamberty of the American Coalition for Ethanol said all the talk about biofuels threatening gasoline production is the "latest attempt to blame ethanol on Big Oil's failure to meet our energy needs."

"The ethanol industry continues to grow while oil refiners continue to make excuses for maintaining their profitable status quo," said Lamberty.

Sen. Byron Dorgan, D-N.D., said consolidation of the oil industry into fewer companies has left them with no incentive to expand refineries.

"It's a perverted system that does not act as a free market system would act," said Dorgan. "If you narrow the neck of refining, you actually provide a greater boost to prices which is a greater boost to profitability."

Richard Blumenthal, the attorney general of Connecticut, wants Congress to require refiners to maintain a supply cushion in case of unexpected outages.

In the 1980s, Blumenthal said at a recent hearing, refiners were producing at 77.6 percent of their capacity, "which allowed for easy increases in production to address shortages. In the 1990s, as the industry closed refineries, ... (that figure) rose to 91.4 percent, leaving little room for expansion to cover supply shortfalls."

The bill being debated in the Senate is HR 6.

Democrat Plan re Billions in Oil Subsidies to Renewable Fuel
Is it possible that the oil industry's threat to reduce their refining capacity is to scare off the Congress' move to reallocate oil subsidies to renewable fuels? Naw! They wouldn't do that, would they? ---BBB

June 18, 2007
Democrats Press Plan to Channel Billions in Oil Subsidies to Renewable Fuels
By EDMUND L. ANDREWS
New York Times

Senate Democrats are seeking a major reversal of energy tax policies that would take billions of dollars in tax breaks and other benefits from the oil industry to underwrite renewable fuels.

The tax increases would reverse incentives passed as recently as three years ago to increase domestic exploration and production of oil and gas. The change reflects a shift from the Republican focus on expanding oil production to the Democratic concern about reducing global warming.

On Tuesday, the Senate Finance Committee will take up a bill that would raise about $14 billion from oil companies over 10 years and would give about the same amount of money on new incentives for solar power, wind power, cellulosic ethanol and numerous other renewable energy sources. The bill is one of the signature issues this year for Democrats, along with immigration and the war in Iraq, and one in which they hope to clearly distinguish themselves from the Republicans.

But Senate Democrats are expected to go beyond the $14 billion in tax changes in the draft bill. Democratic officials said the committee is all but certain to adopt a proposal by Senator Jeff Bingaman of New Mexico that would raise $10 billion from companies that drill for oil and gas in federal waters but do not currently pay royalties to the government.

"We are cutting back subsidies for the oil and gas industry and using that money to finance the development of new and cleaner sources of energy," said Mr. Bingaman, who plans to attach the entire tax package to the energy bill on the Senate floor next week.

It is unclear how much President Bush or Republicans in Congress will fight the proposed tax shift. The ranking Republican on the Senate Finance Committee, Senator Charles Grassley of Iowa, has already endorsed the $14 billion package.

But the plan could easily founder because of opposition to any one of many hotly disputed provisions in the broader energy bill. Just last week, a threatened filibuster by Republicans forced Democrats to postpone a floor vote on requiring electric utilities to produce 15 percent of their power from renewable fuels. The White House, meanwhile, has threatened to veto the bill if lawmakers do not drop a provision intended to prosecute what Democrats call "unconscionably excessive" gasoline prices.

Senator Charles E. Schumer of New York has proposed that oil companies be prohibited from using an accounting method called "last in, first out" for inventories that saves them as much as $5 billion in taxes a year.

Because Senate Democrats want to offset the cost of any new tax breaks with tax increases elsewhere, many lawmakers are pushing for even more tax raises from oil companies.

Oil executives are protesting loudly, saying that the proposed changes would take money away from exploring and drilling in the United States and increase the nation's dependence on imported foreign oil.

"They talk about our companies as if they're owned by space aliens," said John Felmy, chief economist at the American Petroleum Institute, a trade association. "They talk about energy security, but these provisions could have the opposite effect in terms of reducing our production here and increasing our imports."

The oil industry has ample reason to worry. With consumers seething about gasoline prices increasing to more than $3 a gallon and oil profits reaching record highs, oil companies would be short of friends in Congress regardless of the party in power.

Beyond the immediate jockeying, however, lies a bigger question: Is Congress putting taxpayers at risk by funneling billions of dollars in subsidies into alternative fuels that are still a long way from being profitable?

Indeed, industry experts said the Senate bill greatly understated the true cost of incentives for renewable fuels. Most of the incentives are set to expire at the end of 2009 or 2010, but Democrats in both the House and Senate have called for an increase in the production of such fuels by 2022. As a practical matter, the vast majority of "temporary" tax breaks are routinely extended once they are passed for the first time.

In addition to higher taxes for oil companies, House and Senate Democrats are hitting at the oil industry in other ways. The Senate bill would give the federal government more power to prosecute companies that engage in "price gouging" on gasoline prices, which is broadly defined in the bill as charging "unconscionably excessive" prices that reflect "unfair leverage." A similar measure is moving through the House.

Separately, the House Natural Resources Committee passed a bill last week that would, among other things, crack down on companies that cheat on royalties they pay for oil and gas pumped on publicly owned land.

In effect, the various bills would transfer billions of dollars from oil companies to producers of renewable fuels.

The Senate bill would offer $5.6 billion in tax credits over the next three years for companies that produce electricity from renewable fuels like wind and geothermal power. It would offer tax-free bonds for new power plants with renewable or clean energy. It would offer tax credits totaling about a dollar a gallon to producers of cellulosic ethanol, and even bigger tax credits for "biodiesel" fuel. It would extend and expand tax breaks for plug-in electric cars and other vehicles that use alternative energy sources, and it would provide tax breaks for gas stations that offer renewable fuels.

In a nod to the politically powerful coal industry, the bill would also provide $1.5 billion in tax-free "clean coal bonds" for advanced coal-fired electricity plants and $332 million in tax credits for plants that make diesel fuel from coal.

Democrats in the House are moving with similar legislation. The House passed a bill earlier this year that would raise about $14 billion over 10 years from oil companies, and the House Ways and Means Committee is expected to mark up a new tax bill that would offer rich incentives for alternative fuels and increased efficiency.

The Democratic bill contrasts sharply with the energy bill that the Republican-led Congress passed in 2005. The Senate bill offers less than $1 billion in incentives for coal, no tax breaks for nuclear power and tax hikes for oil. But two years ago, Congress approved $11 billion in additional tax breaks, of which $7 billion went to oil, coal and nuclear power.

"It is a dramatic change in policy, targeted at the big oil companies," said Senator Ron Wyden, Democrat of Oregon. "It will show the country the kind of things we can do by taking away subsidies for fossil fuels and putting the money into new sources of energy."

Privately, some Democrats say it is payback time: the oil industry's political contributions have overwhelmingly gone to Republican lawmakers and President Bush, and many Democrats say they have little sympathy for the industry now.

It is unclear whether Republicans or Mr. Bush plan to protect the industry.

In stinging criticism earlier this month, the White House Office of Management and Budget said the proposed price-gouging measure amounted to price regulation that would jeopardize investment in oil production and ultimately hurt consumers.

In 2005, Mr. Bush threatened to veto a one-year measure that blocked oil companies from using the "last in, first out" accounting method for inventories. The Bush administration, echoing charges by the oil industry, said the measure amounted to a one-year windfall profits tax that would frighten investors by raising the prospect of further tax raises whenever oil prices jumped sharply.

Mr. Schumer's proposal is similar to the 2005 proposal, except that his measure would be permanent.

The oil industry still has persuasive clout in Washington. Exxon, Shell and trade groups like the American Petroleum Institute have hired former Democratic lawmakers and Democratic lobbyists to help press their case.

They have carefully positioned themselves, picking their fights on selected issues that attract fairly little popular interest but affect potentially large amounts of money.

The effort is mostly defensive ?- fending off tax increases ?- but also has offensive elements. Royal Dutch Shell and other big companies hope to be big players in coal-based liquid fuels. And the industry in general is still pushing for Congress to open up more areas on the outer continental shelf for deepwater drilling.

But industry executives hold out little hope for emerging unscathed.

Re: Democrat Plan re Billions in Oil Subsidies to Renewable

It's a reasonable business decision: Congress taxes profits from refining, and subsidizes alternative fuels. Both actions make refining less attractive to invest in. So oil companies reduce their investments in new refineries. Nothing mysterious about it, to say nothing of evil.

Yes, but deceptive.

It reminds me of the ads I've seen run by PhamA, the Drug company lobbying group, asking people to ask Congress to 'not vote to give the power to the Gov't to negotiate drug prices.'

I always think, 'well, hell. I bet that's exactly what you guys want. But I doubt it's what Americans really would profit from, not being able to negotiate...'

Cycloptichorn

Well, since I haven't seen the commercials, I must defer to you on this point.

By the way, Congress has several projects going on, not all of them bad. The only bad one is the windfall tax. Profits from refining fluctuate widely from year to year. It would be a very bad idea to to pay the refiners a "windfall loss subsidy" in bad years. It's an equally bad idea to impose a windfall profit tax in good years. If refiners are a cartel, and if they are harming consumers through anti-competitive behavior, have the government prove it to a judge. That's what America has antitrust laws for. If the government can't prove it, it should leave the refiners alone.

"Leaving alone", of course, also includes cutting the subsidies and eventually eliminating them. I'm all for that.

I agree with you about cutting the subsidies. I remember that one of Tom DeLay's last moves before leaving office was to ensure that several oil companies based in Houston got around 2 billion in tax breaks - and this was the same quarter that the said companies profited a combined 40 billion dollars or so.

If we aren't willing to cut the subsidies - and it doesn't seem like that will happen - then why not a profits tax to balance them out? Profit tax them exactly the amount they were subsidized. When they start bitching about that, tell them that we'd be happy to return to neutral, non-subsidized status for them.

Cycloptichorn

Your approach would work, but only if every oil refinery was the same -- equally productive, and equally cushy with politicians near the pork barrel. But if they're not, your approach privileges refineries to the extent that they are lazy and corrupt (unprofitable but able to get lots of subsidies). Conversely, it punishes refineries to the exent that they are productive and unpolitical (profitable and independent of subsidies.) You don't want that, and neither do I.

And that's why I'm against an extra tax on profits, and for concentrating on subsidy cuts.

Your plan is better. But why focus just on the refineries themselves? Our subsidies go towards things like exploration of new resources, transport, all sorts of odd expenses.

Cycloptichorn

No problem. I bless every cut of those subsidies, too. American gas prices have been ridiculously low for decades, and when I come to the US, I don't want train-commuting, bike-riding folks like you and me to subsidize other people's gas-guzzling. Not through any channel, direct or indirect. I just concentrated on refineries because they are what BBB's thread is about.

For some reason, people really get on oil companies when prices rise. Until a couple of years ago, prices were the same as when I was in college two decades ago. During that time, oil companies got no more money for their product (due to market pressures) and saw their expenses rise with inflation and the difficulty of finding and producing less accessable oil. Note that we did not say "poor oil companies, we should pay more." Those companies cut back on refineries and exploration. Their vendors often ceased operations. A few of them bit the bullet and became hard, lean corporations able to compete it the fierce marketplace. The foremost of these was... Exxon. Now the market has turned and Exxon is hauling in the cash. I say good for them, they earned it with their hard work over a long period of time. If you are calling foul about gas prices, why aren't you screaming about real estate in San Diego and other urban areas? Shouldn't we tax the daylights out of those real estate gains instead of fantisizing about our own property tripling in value with no work on our part?

Sorry, I digress. There is no need for subsidies to encourage refinery upgrades. The market is making it clear that there is money to be made there. BUT, you have to be careful about reducing those profits through taxes. When these companies put together proposals for spending capital, everything is calculated out. The Internal Rate of Return, the Net Present Value, etc. Projects that don't meet the corporate guidelines for return don't get funded. If tax laws change the payback on a project from three to five years, it probably won't move forward. If you don't believe that, you've never been through the process. A change from 1.0 to 1.2 years IRR won't hurt you, but the line is finer than you think.

Lastly, we can reduce our energy consumption dramatically if we have the will to do so. Take a bike, walk, etc. I don't have to tell people on A2K that. We can effectively build our own refinery by saving the equivilent of one. Don't complain about gas prices unless you've done your part to keep them under control.

Engineer
Engineer, what you say might be more believable if it had not been for the experience of those who lived in California when big oil (and other energy providers, including Enron) made life miserable for people and damaged the economy. Their actions were well investigated and documented.

I consider big oil among the corporate criminal class.

BBB

Re: Engineer


The same California that introduced the need for special blends of gasoline to meeting stringent emission standards?

They brought it on themselves.

Re: Engineer

Where? Is the source available online?

BBB

I mis-spoke (a senior moment?) when I assigned criminal activity to "big oil." It was big-electricity producers, many of whom started out as oil men and moved into natural gas and electricity production. Of course, natural gas is joined at the hip with oil production.

The major culprit was Enron in collusion with the grid operators.

http://en.wikipedia.org/wiki/California_electricity_crisis

BBB

That is indeed a valid example of anti-competitive business practices by an oligopoly.

Re: BBB

Glad you cleared that up. I thought I completely missed something. But back to oil and taxes, I think the way to go after gas mileage and conservation would be to put a guzzler tax on cars and have it be geometric. If we want the average fleet MPG to be 25, charge a tax of $50 for 24 MPG, $200 for 23, $450 for 22, etc. Anything over 30 would get a credit on an equal scale. You could get your 15 MPG sports car, but plan on paying a $5,000 tax. That also makes that Prius look pretty darn good.

Taxing the car for guzzling gas, or subsidizing it for conserving it, won't target the most crucial part of every fuel-efficient car: its driver. What's wrong with just letting gas prices surge? It'll encourage drivers to buy fuel-efficient cars, plus it'll encourage them to drive slowly, or leave the car in the garage in the firstplace, or to share rides, or .... The possibilities are endless.

I'm all for high gasoline prices.

In America people just bitch and keep buying SUV's.....through May '07 SUV/truck sales up, car sales down. People like what they like and that's what they're going to drive.