CounterVortex

Big Oil went on the defensive May 16, getting grilled before a House Judiciary Committee antitrust panel and denying accusations that mismanagement and a lack of competition are the reasons behind this spring’s record gasoline prices. Gas prices hit $3.10 a gallon that day—the fourth record day in a row. The surge has been attributed to low gasoline supplies caused by a lack of refining capacity.

“They have no interest in building spare capacity because that would undermine their pricing power,” Mark Cooper, research director for the Consumer Federation of America, said prior to the hearing. He later told the panel: “This is a picture of fundamental market failure. And Congress and the administration have stood by and done nothing to help consumers.”

Others at the hearing said Congress should use its power to regulate and even break up the big oil companies if it is found they have violated the law. “There is near unanimity among economists that there is a concentration of power,” said Connecticut Attorney General Richard Blumenthal, who also voiced support for a proposal to sue OPEC for price fixing. The oil companies “have clearly demonstrated that they will abuse it.”

But the American Petroleum Institute (API), in an e-mail sent out prior to the hearing, said nearly 30 state or federal investigation over the past 30 years have failed to turn up any evidence of price-fixing. API economist John Felmy told the panel that, while a new refinery hasn’t been built in decades, overall refining capacity has increased at a rate that’s the equivalent of adding one refinery a year.

The nation’s top four refiners—ConocoPhillips, Valero, ExxonMobil and BP—account for less that 50% of the country’s refining capacity, a concentration smaller than many other industries, said Ron Planting, another API economist.

Felmy told CNN that whenever the industry tries to add refining capacity, it faces opposition from surrounding communities. He also questioned why the industry should make expensive refining expansions when President Bush is calling for a 20% reduction in gasoline use by 2017.

Felmy said several other contingencies are contributing to the high gas prices—including higher crude prices since the start of the year, attributed to tensions with Iran, violence in Nigeria and a decline in gasoline imports because of a strike in Europe. “We recognize that consumers are frustrated by these prices,” said Felmy. “But price controls could make them worse.”

But the Consumer Federation’s Cooper said the industry hasn’t even tried to build new refineries and has instead closed 50 since the 1990s rather than make investments to bring them in compliance with pollution laws. “They would rather not try and blame their neighbors,” he said.

But Ben Schreiber, energy advocate for US Public Interest Research Group (PIRG), said both sides were missing the point, instead calling for an increase in fuel efficiency standards. “Refining capacity is not the issue, the issue is we need to reduce demand,” he said. “We are not taking the simple steps we need to take to reduce energy consumption.” (CNN, May 16)

See our last post on control of oil.