By ,
Published January 13, 2015
Washington lawmakers, citing sky's-the-limit gasoline prices and record profits that followed hurricanes in the Gulf Coast this summer, say it's time for a showdown with oil companies.
According to statistics from the American Automobile Association, the national average for gasoline on Monday was $2.38 for regular unleaded, up 38 cents from this time last year but down 68 cents from Sept. 5's record high of $3.06, just days after Hurricane Katrina.
This week, the Senate will hold its first hearing looking into the multibillion dollar profits taken after hurricanes Katrina and Rita. Members of Congress say they are gearing up to fight for plans they say will take the bite out of this year's wallet-busting gas and home energy prices.
"At the same time this money is going to come out of the pocket books — continue to come out of the bank accounts of ordinary consumers — the bank accounts of these oil companies is fatter, fatter, fatter," Sen. Byron Dorgan, D-N.D., said last week as he announced his proposal for a windfall tax on oil company profits.
On Wednesday, top executives from Exxon Mobil Corp., Chevron Corp., ConocoPhillips, BP America Inc. and Shell Oil Co. will testify before a joint hearing of the Senate Energy and Natural Resources Committee and the Committee on Commerce, Science and Transportation.
Combined, those companies reported third quarter profits of more than $32 billion, an increase of more than $11 billion over the same period last year, or about 38 percent.
"The bottom line is, is that the U.S. oil company is an easy target. It's an easy target for politicians, and when people see record profits, they don't realize it takes record investment, and I want to pat the oil industry on the back for the way that they really averted what could have been a major crisis to the U.S. economy," said Phil Flynn, vice president of Alaron Trading.
Oil industry officials say the profits as well as recently waning gasoline and oil prices, are proof that market forces work to set prices fairly. By leaving the market alone and not over-regulating, the checks and balances have been allowed to take hold.
Indeed, oil prices have dropped from the all-time high of $70 per barrel on Aug. 29, the day Katrina hit, down to just under $60. A year ago, a barrel of oil was roughly $50
Prominent Republicans and Democrats have come out swinging against the high profits, beginning with a controversial measure to allow drilling in the Arctic National Wildlife Refuge. The provision passed the Senate by a narrow margin last week. Other legislative maneuvers are also in development.
But at least one observer said he is already suspicious of the explanations likely to be given by oil executives about the record high profits.
"They're not going to say what I like to hear. What they're going to say is, 'Hey, it's the market,'" said Mark Cooper, research director for the Consumer Federation of America. Cooper said he believes the oil market is not geared toward fair competition, but the oil executives expected to testify are unlikely to admit that.
"They have not behaved in a socially responsible fashion," Cooper said.
Oil on Our Mind
With nightly news offering tips on commuting, running errands and taking vacations, gasoline prices are on every driver's mind, says AAA national spokesman Justin McNaull.
"Certainly, there's frustration for motorists," McNaull said. Based on the number of phone calls his group has been receiving recently, the automobile association reports the highest level of concern about fuel costs ever registered to them by the driving public.
Sara Banaszak, a senior economist for the American Petroleum Institute, which represents the oil industry on policy issues, said gas prices rose rapidly after Katrina because few buffers could offset the cost of bringing oil to market.
Usually, oil production facilities do not operate at full-tilt, but due to high worldwide oil demand, facilities had been operating at about 95 percent capacity, leaving only 5 percent reserve capacity. When Katrina and Rita knocked out some of the oil production centers and supply lines, no buffer could accommodate the shift in production capacity and prices were forced to go up with the shortage in supply, Banaszak said.
But Cooper said he believes the price hike was beyond just market forces.
"The oil companies are doing what capitalists do. They make as much money as they can without being put in jail," Cooper said. "They have the power over price and Katrina finally made that abundantly clear. ... They figured that's what the markets would bear."
Senators Take Action
On top of the higher price of gas, home heating oil is also expected to take a chunk out of people's wallets this winter. Though prices spiked in late August and have since trended downward, mid-Monday's prices of $1.76 per gallon were still more than 30 cents, or about 20 percent higher than the same time last year.
Last week, Sen. Charles Schumer, D-N.Y., said that the rising prices are forcing Americans to choose between eating, filling their gas tanks or heating their homes.
A number of plans have been put before both houses of Congress in an attempt to offset the rising cost of fuel. Some aim to increase fuel production facilities, others would shift more money to programs for the poor, and at least one aims to place a tax on so-called windfall profits.
The Gasoline for America's Security Act passed the House by a slim vote in October, but is now sitting lifeless in the Senate. Among its provisions, greater federal assistance would be given in opening new refineries and price gouging would be investigated. This plan is supported by the oil industry.
The Senate last week also passed a deficit reduction bill that included the ANWR drilling provision. That portion of the bill, which is strongly opposed by environmental groups, is expected to meet opposition in the House.
Other plans would increase the budget for the Low Income Home Energy Assistance Program — or LIHEAP — which is run by the U.S. Department of Health and Human Services. Sen. Judd Gregg, R-N.H., chairman of the Budget Committee, has sought to add $1.3 billion to the home heating program as part of the current budget process. At the same time, he is fighting a more expensive plan that would add $2.9 billion to the program.
Another plan, introduced in September by Sens. Dorgan and Christopher Dodd, D-Conn., would place a windfall tax of 50 percent on any profits earned on oil sold above $40 a barrel. The lawmakers say their bill would force oil companies to do one of two things: reinvest the value of the tax into additional refining capacity or fuel sources, or give the money back to consumers.
Banaszak said the most preferable plans are ones that either promote expansion — like the Gasoline for America's Security Act — or at least do not interfere with the market, like the LIHEAP funding proposals.
But lawmakers must be careful when designing laws that promote industry expansion because "companies should be deciding how to invest in the most efficient ways," Banaszak said.
Companies should not be forced to invest in certain industries that might not be the most efficient or cost-effective. For instance, it might be much more expensive to invest in domestic oil drilling than in drilling abroad.
She also questioned the logic of the Dorgan-Dodd plan, saying the $40 per barrel price set as the tipping point in the bill doesn't represent what the lawmakers say it does. Whereas the lawmakers say the price represents the point after which oil companies receive pure profit, Banaszak said many oil production companies must buy oil before processing it, which also cuts into their profit margins.
Banaszak added that the plan would discourage investment, similar to a 1980s windfall profit tax. Congressional research shows that 1.6 billion fewer barrels of oil were produced as a direct result of the 1980s tax, she said.
But Cooper countered that oil industry doesn't behave in a basic competitive model in which competition and regulation stop price abuse.
"In the oil industry, we have neither," he said. He suggested a series of other proposals, including a strategic refining reserve that would be blocked off from the rest of the oil markets except in major emergencies; a strategic reserve of gasoline versus unrefined oil reserves (a strategic home heating oil reserve does exist); a greater investment in biofuels to create more competition with crude oil industry; and investment in vehicle efficiency.
Whatever plans take shape, with 48 million auto club members, AAA's McNaull said his group will be listening closely to explanations and proposals offered by the oil companies.
"There's a real desire to hear what they have to say," he said.
https://www.foxnews.com/story/senate-panels-set-to-grill-oil-execs