Skip to comments.Oil Companies Limited Refining Capacity to Drive Up Gas Prices
Posted on 09/08/2005 7:01:08 AM PDT by cogitator
SANTA MONICA, Calif., Sept. 7 /U.S. Newswire/ -- The Foundation for Taxpayer and Consumer Rights (FTCR) today exposed internal oil company memos that show how the industry intentionally reduced domestic refining capacity to drive up profits. The exposure comes in the wake of Hurricane Katrina as the oil industry blames environmental regulation for limiting number of U.S. refineries.
The three internal memos from Mobil, Chevron, and Texaco (available at http://www.consumerwatchdog.org/energy/fs/ show different ways the oil giants closed down refining capacity and drove independent refiners out of business. The confidential memos demonstrate a nationwide effort by American Petroleum Institute, the lobbying and research arm of the oil industry, to encourage the major refiners to close their refineries in the mid-1990s in order to raise the price at the pump.
"Large oil companies have for a decade artificially shorted the gasoline market to drive up prices," said FTCR president Jamie Court, who successfully fought to keep Shell Oil from needlessly closing its Bakersfield, California refinery this year. "Oil companies know they can make more money by making less gasoline. Katrina should be a wakeup call to America that the refiners profit widely when they keep the system running on empty."
"It's now obvious to most Americans that we have a refinery shortage," said petroleum consultant Tim Hamilton, who authored a recent report about oil company price gouging for FTCR. (Read the report at http://www.consumerwatchdog.org/energy/rp/ ) "To point to the environmental laws as the cause simply misses the fact that it was the major oil companies, not the environmental groups, that used the regulatory process to create artificial shortages and limit competition."
The memos from Mobil, Chevron and Texaco show the following.
-- An internal 1996 memorandum from Mobil demonstrates the oil company's successful strategies to keep smaller refiner Powerine from reopening its California refinery. The document makes it clear that much of the hardships created by California's regulations governing refineries came at the urging of the major oil companies and not the environmental organizations blamed by the industry. The other alternative plan discussed in the event Powerine did open the refinery was "....buying all their avails and marketing it ourselves" to insure the lower price fuel didn't get into the market. Read the Mobil memo at http://www.consumerwatchdog.org/energy/fs/5105.pdf
-- An internal Chevron memo states; "A senior energy analyst at the recent API convention warned that if the US petroleum industry doesn't reduce its refining capacity it will never see any substantial increase in refinery margins." It then discussed how major refiners were closing down their refineries. Read the Chevron memo at http://www.consumerwatchdog.org/energy/fs/5103.pdf
-- The Texaco memo disclosed how the industry believed in the mid-1990s that "the most critical factor facing the refining industry on the West Coast is the surplus of refining capacity, and the surplus gasoline production capacity. (The same situation exists for the entire U.S. refining industry.) Supply significantly exceeds demand year-round. This results in very poor refinery margins and very poor refinery financial results. Significant events need to occur to assist in reducing supplies and/or increasing the demand for gasoline. One example of a significant event would be the elimination of mandates for oxygenate addition to gasoline. Given a choice, oxygenate usage would go down, and gasoline supplies would go down accordingly. (Much effort is being exerted to see this happen in the Pacific Northwest.)" As a result of such pressure, Washington State eliminated the ethanol mandate - requiring greater quantities of refined supply to fill the gasoline volume occupied by ethanol. Read the Texaco memo at http://www.consumerwatchdog.org/energy/fs/5104.pdf
FTCR is nonprofit, nonpartisan consumer group. For more information visit, http://www.consumerwatchdog.org
I read another article, and the memos have been made public before. But they're worth a re-read.
If this is true, I have the tar, feathers, rope and a tall tree.
Wow! I am bookmarking this one. Thanks.
The natural response of the Democrats will be to gleefully pounce on the Republicans and "Big Oil." The natural response of the Republicans should be to enact regulations to make it easier to build refineries or to re-open the ones which were closed. Maybe throw in a little trust-busting lawsuit to protect the "little guys."
BTW, notice how all these memos are during clinton administartion.
Wonder how much money was "donated" to the Klintoon reelection/slush fund for all of this?
I once worked in refinery construction and maintenance. It is not that easy to restart one that is been sitting idle for years.
""Large oil companies have for a decade artificially shorted the gasoline market to drive up prices," said FTCR president Jamie Court, who successfully fought to keep Shell Oil from needlessly closing its Bakersfield, California refinery this year. "Oil companies know they can make more money by making less gasoline. Katrina should be a wakeup call to America that the refiners profit widely when they keep the system running on empty."
"It's now obvious to most Americans that we have a refinery shortage," said petroleum consultant Tim Hamilton, who authored a recent report about oil company price gouging for FTCR. (Read the report at http://www.consumerwatchdog.org/energy/rp/ ) "To point to the environmental laws as the cause simply misses the fact that it was the major oil companies, not the environmental groups, that used the regulatory process to create artificial shortages and limit competition.""
This has been in the news for 6 months, but the gubmint don't give a rats a$$ !!!!!!!!!!1
Seems like they're working more at the state level, not the national level. (I.e., California). Not the Chevron memo, though, which was only about statements made at a meeting.
Due to the nightmare of red tape and lawsuits it takes to build new refineries, the free market has not been able to work to allow competition to balance out the market.
LOL. So now the author of the piece expects us to suppose a competitive decision back in 1996...9 years ago...is relevant to today's prices.
Oil is a product like any other: bought and sold according to supply and demand. Get the freaking government out of the equation. Lower the insane taxes on the product. Let companies drill for oil where there is oil.
That'll bring the prices down real quick. Or maybe it won't--demand may continue to rise. Economics.
Yeah, I imagine that the metal has rusted and corroded a lot in a refinery that has been idle for a long period of time. Still, some juicy tax breaks might help.
Still all these memos are from the time of the clinton administration, an administartion that put many roadblocks up through the EPA etc.etc. and blocked new exploration and building of new refineries.
I figured as much. This ticks me off to no end!
We had 314 refineries in 1981. Now we had 149 but the demand is higher. It seems to me that by closing refineries, they ARE raising prices for no good reason.
If they have continued the practice of limiting refining capacity to keep prices high, then this IS relevant to today's prices. The pinch due to Katrina has been blamed on the fact that no new refineries have been built since 1976 -- Rush even highlighted this. Maybe if refineries hadn't been shut down there wouldn't be a need to build new ones?
I suspect that there are reasons that older refineries were shut down separate from trying to keep prices high. I hope that's at least part of the explanation.
My guess it is true. Oil companies are quasi monolopies and have great resources to tweak their production to keep prices high. It's why they haven't taken states to court to build new refineries in the name of the common good to have redundencies for gas supplies. They will spend billions for rigs and for the rights for drilling sites but won't fight to to build new refineries. Also lay blame to politicians who are on the hook of oil lobbyists.
This is where american ingenuity needs to come in and have someone make a more efficient engine. I really do think there is internal research that has produced extremely cheap efficient engines that will never see the light of day because it will upset the auto economy.
Also, newer technology enables MODERN refineries to use heavy crude, which is cheaper than the Light sweet crude. Of course, the Enviros, crooked pols, and the oil industry is keeping THAT from happening.
Yep, the envirowhackos.
This is a difficult area. Free enterprise should allow businessmen to decide how much of a commodity they will produce. The businessman's decision will be based largely on his perception of supply and demand. If he can make more money by reducing his production, he will do so.
On the other hand, the recent price increases smack of collusion on the part of the major suppliers. Americans have not tolerated that practice in the past, especially concerning commodities or services which are widely viewed as necessary for the general welfare, and they certainly are not in the mood for it now.
Even if the refineries hadn't been shut down, we would still have to build new ones. Refineries have a limited lifespan and eventually need to be replaced. Even overhauling old ones isn't as effective as building a new one, and if you do overhaul the old one, you end up limiting the supply anyway.
I don't know, but oil is used for other things than making gasoline???
I've no doubt that refining capacity is the critical factor when it comes to the price of gasoline.
However, a barrel of oil only contains 55 gallons, doesn't it?
This past springtime that was selling for about $55, or 1 dollar a gallon. It's now about $65.
Maybe they can make more than 55 gallons of gasoline from 55 gallons of oil, but that doesn't make sense to me. Therefore, counting the $65 cost of a barrel of oil and the costs of transport, refining, additives, advertising, marketing, etc., I'd have to admit that any gasoline price under $1.70 or so a gallon ouldn't even cover costs.
Consider the source, please: FTCR = overtly left-wing California-based conumer "watchdog" group opposed to insurance companies, pharmaceutical companies, health-care providers, and well, private enterprise in general.
Fascinating. However, when I go to the web site and read the oil company internal memos I find that they don't support the allegation that big oil tried to reduce refining capacity either for themselves or others.
I just read the first three memos on their website, and I just don't see their point. The oil companies would like to see more profit from refinery operations. They are in a profit-making business, aren't they?
The mid 90's huh. Who was President then?
What?! You mean this is just more left-wing boob-bait?
Because our crude oil market only uses a small percentage of the world's supply, and only about 20% of that is used to make gasoline (another 10% shared by diesel and heating oil).
First of all, what law requires the oil companies to keep old refineries open? What law requires the oil companies to keep any refineries open? And what is "no good reason"? Who defines that? If I own an oil company, I'm in it for a profit.
Haven't you heard? Oil companies are supposed to lose money and give away their product for free.
Reason is that they lower overhead associated with additional plants and drive up prices due to low supply and produce a higher NET profit than if they had more refineries open.
Less work, more money!
Not surprising at all.
The Godfather of Global Oil, John D. Rockefeller, was quoted as saying, "Competition is a sin".
His descendants and their associates are just following through on his wishes.
Yes. But try not to let it shake your faith in the mainstream media. ;-)
Now for a twist, who are those new owners and why are the atheists all shook up?
And what do some of the local enviros say?
Seems like a lot of people didn't want Powerine to reopen!
Your point is well taken. A large part of the reason for gasoline being as high as $3.00 per gallon is the price of oil. Typically, a barrel of crude oil makes about half a barrel of gasoline (this varies quite a bit depending on the type of crude oil and the refinery). You are right that it is impossible to produce more than a barrel of gasoline from a barrel of crude oil. A barrel (in the oil business) is 42 gallons, not 55.
Refiners do, however, make other products besides gasoline, including aviation fuel, diesel fuel, heating oil, and coke.
The cost of gasoline at the pump also depends on refinery processing and transportaion costs, as well as taxes.
One reason oil has gone up in the past couple of years is that China has been buying a lot of it for their own economy. This drives the price up internationally. It is supply and demand.
I am still waiting to hear a good explanation for the dramatic increase in gasoline prices in the last few weeks. It started before the hurricane hit.
Oil companies screwing the American people? That's Never happened as they are extemely patriotic...oh wait, no they're not.
Do you know why that many refiners went out of business?
Could it be that production was slowed as well? Just a thought.
They may be fined but the profit will far out-weigh the cost given the market control they now have.
Dont screww up their wet dream.
"The Godfather of Global Oil, John D. Rockefeller, was quoted as saying, "Competition is a sin"."
Every business would love to get rid of their competition; that is natural. However, that is not possible in today's world, especially in the oil business.
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