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Created: Wed Mar 31 11:38:22 2004
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Buyers Up · Congress Watch · Critical Mass · Global Trade Watch · Health Research Group · Litigation Group
Joan Claybrook, President
March 2004
Mergers, Manipulation and Mirages: How Oil Companies Keep Gasoline
Prices High, and Why the Energy Bill Doesn't Help
Summary
The United States has allowed multiple large, vertically integrated oil companies to merge over
the last five years, placing control of the market in too few hands. The result: uncompetitive
domestic gasoline markets. Large oil companies can more easily control domestic gasoline prices
by exploiting their ever-greater market share, keeping prices artificially high long enough to rake
in easy profits but not so long that consumers reduce their dependence on oil (after all, if prices
went up too high for too long, then we'd seek alternatives to oil).
The largest five oil companies operating in the United States (ExxonMobil, ChevronTexaco,
ConocoPhillips, BP and Royal Dutch Shell) now control:
· 14.2% of global oil production (nearly as much as the entire Middle East members of the
OPEC cartel).
· 48% of the domestic oil production (which is significant given the fact that the U.S. is the
3rd largest oil producer in the world).
· 50.3% of domestic refinery capacity.
· 61.8% of the retail gasoline market.
· These same five companies also control 21.3% of domestic natural gas production.
It is therefore little wonder why these top companies enjoyed after-tax profits of $60 billion in
2003 alone.
These figures are in stark contrast to just a decade ago, when the top five oil companies
controlled only:
· 7.7% of global crude oil production.
· 33.7% of domestic crude oil production.
· 33.4% of domestic refinery capacity.
· 27.0% of the retail market.
· In addition, in 1993, the top five U.S. companies controlled only 12.7% of domestic
natural gas production.
The major difference between 1993 and 2003 is that the largest oil companies have merged with
one another, creating just a handful of oil monopolies that control significant chunks of the
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American oil and gas markets. Armed with significant market share, companies can more easily
pursue uncompetitive activities that result in price-gouging. The lack of investigations into
domineering practices by these large companies may be explained by the more than $67 million
the oil industry has contributed to federal politicians since 1999--with 79% of that amount going
to Republicans. In addition, the oil industry spends an additional $50 million every year lobbying
Congress and the White House. These investments into buying support of Congress and the
White House is paltry compared to the largest five oil companies' $125 billion in after-tax profits
since 2001.
Gasoline prices are rising because of uncompetitive actions by this handful of new mega-
companies, not because of environmental regula tions. Forecasts say that gas prices will reach
historic highs this spring, with the national average exceeding $1.80 a gallon, the highest prices
(adjusted for inflation) since 1985. Already in some parts of the country, prices passed $2.10 a
gallon, with some predicting as much as $3 gallon in certain areas by this summer.
The Bush administration blames environmental rules for causing strains on refining capacity,
prompting shortages and driving up prices. But in reality it is uncompetitive actions by this
handful of companies with large control over our nation's gas markets that is directly causing
these high prices. These uncompetitive actions by the largest oil firms have forced much of the
920,000 barrels of oil per day of refinery capacity formerly owned by smaller, independent
refiners that has been shut down in recent years.
The U.S. Federal Trade Commission (FTC) concluded in March 2001 that oil companies had
intentionally withheld supplies of gasoline from the market as a tactic to drive up prices--all as a
"profit- maximizing strategy." These actions, while costing consumers billions of dollars in
overcharges, have not been challenged by the U.S. government.
At the same time that the industry is consolidating, the Bush administration's decision to fill the
nation's Strategic Petroleum Reserve (SPR) is contributing to tight domestic supplies, further
driving up the price of oil and gasoline. Since 2001, President Bush has been removing more
than 100,000 barrels of oil a day from the market to stock the SPR, filling it by more than 100
million barrels since he's been in office to over 640 million barrels--well more than 90%
capacity. President Bush's actions, while providing more than enough protection against external
supply shocks, severely strains domestic supplies for the market. For example, if the entire
Middle East OPEC cartel decided today to no longer sell oil to the U.S., we could rely on current
SPR reserves for ten months to make up the difference. SPR supplies can be selectively released
without harming national security while helping the economy and consumers.
In addition, deregulation of energy trading markets (like the ones exploited by Enron) has
removed significant transparency from the futures oil and natural gas markets, allowing oil
companies and Wall Street investment banks to potentially manipulate the futures markets as
well.
While the Bush administration and members of Congress claim that the stalled energy bill will
provide new supplies to the market and therefore force down prices, the government's official
analysis concludes that the billions of dollars the energy bill would spend on subsidies to energy
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corporations will neither significantly increase production nor lower prices for consumers. And
rather than improve consumer protections by strengthening regulations, the energy bill actually
further deregulates the energy industry by repealing the Public Utility Holding Company Act
(PUHCA), a vital consumer protection act that prevents non-utility parent companies, such as oil
companies, investment bankers, electrical manufacturers, or insurance firms, from owning and
controlling public utilities.
Effectively addressing America's uncompetitive oil markets should take seven steps--none of
which are included in either the energy legislation developed in Vice President Cheney's secret
energy task force or the latest congressional version written behind the closed doors of the
congressional energy conference committee.
The Bush administration should take the following actions or seek congressional authority to do
so if necessary. These actions would have an immediate impact on driving down oil and gas
prices, protecting consumers, and bolstering economic growth:
· Release oil supplies from the SPR to provide plenty of surplus domestic supply, or, at a
minimum, discontinue filling the SPR. Such an action will immediately and dramatically
lower oil and gas prices while still ensuring for the protection of national security.
· Enforce antitrust laws making it illegal for companies to intentionally withhold energy
from the market for the sole purpose of creating supply shortages in order to drive up
prices.
· Assess how recent mergers have made it easier for large oil companies to engage in
uncompetitive practices and take concrete steps, such as forcing companies to sell assets,
to remedy the situation.
· In order to address excessive control over market share of production and refining by the
largest vertically integrated companies, order oil companies to increase the size of their
storage capacities, require them to hold significant amounts in that storage, and reserve
the right to order these companies to release this stored oil and gas in order to address
supply and demand fluctuations. Such a requirement would also offset temporary supply
disruptions from fires and other calamities, such as the recent one at BP's Texas City
refinery.
· Reduce America's oil consumption by implementing strong fuel economy standards.
Improving fuel economy standards for all "passenger vehicles" from 27.5 to 40 miles per
gallon (mpg), and for light trucks (including SUVs and vans) from 20.7 to 27.5 mpg, by
2015 would save the U.S. an estimated 54 billion gallons of oil between 2005 and 2012.
Combining cars and light trucks and increasing the fuel economy standard of the
combined fleet to 34 mpg by 2015 would save a whopping total of 33 billion gallons. 1
1
Union of Concerned Scientists, "Oil Savings of Various Fuel Economy Options" calculated by David Friedman, June 12, 2003.
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· Restore transparency to energy futures markets by asking Congress to re-regulate trading
exchanges that were exploited by Enron and continue to be abused by ExxonMobil,
Goldman Sachs and other energy traders.
· Impose a windfall profits tax to discourage price gouging.
Recent Mergers Create Uncompetitive Markets
Over the past few years, mergers between giant oil companies--Exxon and Mobil, Chevron and
Texaco, Conoco and Phillips, just to name a few--have resulted in just a few companies
controlling a significant amount of the U.S.'s gasoline market, squelching competition. As a
result, consumers are paying more at the pump than if they had access to competitive markets
and five oil companies are reaping some of the largest profits in history.
Although gasoline prices typically reflect the price of crude oil, oil still must be refined into
gasoline, mostly at the 145 refineries located in the U.S. But recent mergers have consolidated
ownership of refinery capacity, allowing just a handful of companies to control the flow of
gasoline in the U.S. And a number of independent refineries have been closed, some due to
uncompetitive actions by larger oil companies, further restricting capacity.
Although the U.S. is the third largest oil producing nation in the world, we consume 25% of the
world's oil every day, forcing us to import oil. Domestic sources of oil (more than three-quarters
of our domestic oil is produced in Alaska, California, Texas and the Gulf of Mexico) provide
37% of our daily crude oil needs, while crude oil imports account for 63%. Middle Eastern
OPEC nations supply only 15% of our total crude oil needs, and non-OPEC nations--such as
Canada, Mexico, Norway and England--provide 34% of our daily oil. 2
All of the large oil companies, such as ExxonMobil and ChevronTexaco, ha ve financial dealings
with Middle East OPEC nations. ExxonMobil obtains more than a quarter of its oil from Middle
East OPEC nations; ChevronTexaco more than 40%.
While our reliance on imported oil overall has increased, from 43% in 1989 to 63% in 2003, the
consolidation of downstream assets--particularly refineries--play a bigger role in determining
the price of a gallon of gas. Recent mergers joined vertically integrated companies owning
significant market shares of exploration, production, refining, and marketing of oil and gas. As a
result, just five companies now control 48% of domestic crude oil production, 50.3% of domestic
refining capacity, and 61.8% of the domestic retail gasoline market. Although the U.S. imports
63% of its oil needs, these mega-companies are major international producers, controlling 14.2%
of global oil production.
In 1993, the largest five oil companies operating in the U.S. controlled one third (34.5%) of
domestic oil refinery capacity; the top ten companies controlled 55.6%.
In just ten years, because of mergers, the largest five oil companies now control half (50.3%) of
domestic oil refinery capacity, while the top ten control 78.5%. This dramatic increase in the
control of just the top five companies--from one third of capacity in 1993 to one half of capacity
2
U.S. Energy Information Administration, www.eia.doe.gov
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in 2003--makes it easier for oil companies to manipulate gasoline supplies by intentionally
withholding supplies in order to drive up prices. And because the largest companies are
vertically integrated, in addition to their control over refining capacity, they enjoy significant
market share in oil drilling and retail sales.
The federal government has reached a similar conclusion. According to a March 2001 U.S.
Federal Trade Commission report:3
The completed [FTC] investigation uncovered no evidence of collusion or any other antitrust violation. In
fact, the varying responses of industry participants to the [gasoline] price spike suggests that the firms
were engaged in individual, not coordinated, conduct. Prices rose both because of factors beyond the
industry's immediate control and because of conscious (but independent) choices by industry
participants...each industry participant acted unilaterally and followed individual profit-maximization
strategies...It is not the purpose of this report - with the benefit of hindsight - to criticize the choices made
by the industry participants. Nonetheless, a significant part of the supply reduction was caused by the
investment decisions of three firms...One firm increased its summer-grade RFG [reformulated gasoline]
production substantially and, as a result, had excess supplies of RFG available and had additional
capacity to produce more RFG at the time of the price spike. This firm did sell off some inventoried RFG,
but it limited its response because selling extra supply would have pushed down prices and thereby
reduced the profitability of its existing RFG sales. An executive of this company made clear that he
would rather sell less gasoline and earn a higher margin on each gallon sold than sell more gasoline
and earn a lower margin. Another employee of this firm raised concerns about oversupplying the
market and thereby reducing the high market prices. A decision to limit supply does not violate the
antitrust laws, absent some agreement among firms. Firms that withheld or delayed shipping
additional supply in the face of a price spike did not violate the antitrust laws. In each instance, the
firms chose strategies they thought would maximize their profits. (emphasis added)
The report's amazing conclusion is that although federal investigators found ample evidence of
oil companies intentionally withholding supplies from the market in the summer of 2000, the
government has not taken any action to prevent it. The ability of oil companies to manipulate the
market would have been far more difficult in 1993--before many mergers were enacted--and,
unfortunately, much easier in 2003, since more mergers have been approved after the FTC
concluded its investigation in March 2001.
Companies have exploited this strong market position to intentionally restrict refining capacity
by driving smaller, independent refiners out of business. A congressional investigation4
uncovered internal memos written by the major oil companies operating in the U.S. discussing
their successful strategies to maximize profits by forcing independent refineries out of business,
resulting in tighter refinery capacity. From 1995-2002, 97% of the more than 920,000 barrels of
oil per day of capacity that have been shut down were owned and operated by smaller,
independent refiners. 5 Were this capacity to be in operation today, refiners could use it to better
meet today's reformulated gasoline blend needs.
3
Midwest Gasoline Price Investigation, www.ftc.gov/os/2001/03/mwgasrpt.htm
4
The Oil Industry, Gas Supply and Refinery Capacity: More Than Meets the Eye, Office of Senator Ron Wyden, June 14, 2001,
http://wyden.senate.gov/
5
Petroleum Supply Annual, U.S. Energy Information Administration, www.eia.doe.gov
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The virtual monopoly status of the largest oil firms enhances their ability to "earn a higher
margin on each gallon sold than sell more gasoline and earn a lower margin." With full control
over 48% of domestic production, half of domestic refining capacity and 62% of the retail
market, the largest five oil firms have plenty of ability to manipulate supplies.
Precedent Exists of Companies Conspiring to Inflate Prices
If these allegations of price gouging sound too conspiratorial for some to accept, examples in
related industries demonstrate that price- fixing, collusion and price- gouging are regular
occurrences in today's economy, as large corporations routinely abuse their market power to
engage in anti-competitive behavior.
The U.S. Government Accounting Office (GAO) issued a recent report6 raising concerns that
"high concentration would tend to limit competition" in the domestic ethanol-producing industry
because the top eight ethanol-producing firms controlled 71% of the national market.
The top eight oil refiners control 70% of the domestic oil refinery market (ConocoPhillips, Royal
Dutch Shell, ExxonMobil, BP, Valero, ChevronTexaco, Citgo-Lyondell, Marathon-Ashland). In
comparison, the top eight oil refineries controlled 48% of the national market in 1993. So,
concerns raised by the federal government regarding overconcentration of domestic ethanol
markets should also apply to domestic oil refinery markets, since the structure and economics of
the two industries are similar.
And, of course, one of the largest cases of multiple corporations engaging in price- fixing and
manipulating markets is the West Coast energy crisis of 2000-2001 and the widespread
manipulation of natural gas prices that followed by Enron and other energy traders. So far,
federal and state authorities have issued nearly $400 million in fines, penalties and settlements
and ordered energy companies to repay an additional $3.3 billion in overcharges for intentional
manipulation of electricity and natural gas markets.
FTC Not Adequately Protecting Consumers
At the same time that the FTC concludes that refining markets are uncompetitive, the agency
consistently allows refining capacity to be controlled by fewer hands, allowing companies to
keep most of their refining assets when they merge, as a recent overview of FTC-approved
mergers demonstrates.
The major condition demanded by the FTC for approval of the August 2002 ConocoPhillips
merger was that the company had to sell two of its refineries--representing less than 4% of its
domestic refining capacity. Phillips was required only to sell a Utah refinery, and Conoco had to
sell a Colorado refinery. But even with this forced sale, ConocoPhillips remains by far the largest
domestic refiner, controlling refineries with capacity exceeding 2.2 million barrels of oil per day
--or more than 13% of the U.S.'s entire capacity.
The major condition the FTC set when approving the October 2001 ChevronTexaco merger was
that Texaco had to sell its shares in two of its joint refining and marketing enterprises (Equilon
and Motiva). Prior to the merger, Texaco had a 44% stake in Equilon, with Shell owning the rest;
6
U.S. Ethanol Market: MTBE Ban in California, GAO-02-440R, February 27, 2002, www.gao.gov/new.items/d02440r.pdf
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Texaco owned 31% of Motiva, with the national oil company of Saudi Arabia (Saudi Aramco)
also owning 31%, and Royal Dutch Shell owning the remaining 38%. The FTC allowed Shell to
purchase 100% of Equilon, and Shell and Saudi Aramco bought out Texaco's share of Motiva,
leaving Motiva a 50-50 venture between Shell and Saudi Aramco.
Prior to the merger, Texaco's share of Equilon and Motiva refinery capacity equaled more than
500,000 barrels of oil per day--which was simply scooped up by another member of the elite top
five companies, Shell. Had the FTC forced Texaco to sell its share to a smaller, independent
company, the stranglehold by the nation's largest oil companies could have been weakened.
As a condition of the 1999 merger creating ExxonMobil, Exxon had to sell some of its gas retail
stations in the Northeast U.S. and a single oil refinery in California. Valero Energy, the nation's
fifth largest owner of oil refineries, purchased these assets. So, just as with the ChevronTexaco
merger, the inadequacy of the forced divestiture mandated by the FTC was compounded by the
fact that the assets were simply transferred to another large oil company, ensuring that the
consolidation of the largest companies remained high.
The sale of the Golden Eagle refinery was ordered by the FTC as a condition of Valero's
purchase of Ultramar Diamond Shamrock in 2001. Just as with ExxonMobil and
ChevronTexaco, Valero sold the refinery, along with 70 retail gas stations, to another large
company, Tesoro. But while the FTC forced Valero to sell one of its four California refineries,
the agency allowed the company to purchase Orion Refining's only refinery in July 2003. This
acquisition of Orion's Louisiana refinery defeats the original intent of the FTC's order for Valero
to divest one of its California refineries.
Bush and the Strategic Petroleum Reserve (SPR): Making a Bad Situation Worse
The purpose of the SPR is to "store petroleum to reduce the adverse economic impact of a major
petroleum supply interruption to the United States." Federal law further states that the reserves
can be tapped if the "President has found drawdown and sale are required by a severe energy
supply interruption." A "severe energy supply interruption shall be deemed to exist if the
President determines that an emergency situation exists and there is a significant reduction in
supply which is of significant scope and duration; a severe increase in the price of petroleum
products has resulted from such emergency situation; and such price increase is likely to cause a
major adverse impact on the national economy."7 Previous presidents, such as Bill Clinton, have
interpreted domestic price spikes like the ones the U.S. is now experiencing as satisfying the
criteria to release reserves. In September 2000, President Clinton authorized the release of 30
million barrels of oil, which resulted in gasoline prices dropping 10% in just six months.
At the same time that industry consolidation is limiting competition in the domestic production
and refining sectors, the Bush administration has exacerbated domestic supply shortages through
its mismanagement of the (SPR). After September 11, 2001, the administration set a priority of
filling the 700 million SPR to capacity. While the goal is laudable, the administration has
aggressively purchased oil from the market for delivery into the SPR regardless of the market
price. To reach the goal, President Bush has been removing more than 100,000 barrels of oil
every day, increasing the amount stored from 541 million barrels at the end of Clinton's term
7
42 U.S.C. § 6241, www.gpoaccess.gov/uscode/
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(77% capacity) to more than 641 million barrels today (more than 90% capacity). While previous
administrations have typically filled the SPR only at times when oil prices were low and
domestic supplies in surplus, President Bush has been filling it at times when prices are above
$30/barrel and domestic supplies are tight. Moving so much oil out of an expensive, tight market
has made oil even more expensive here at home--a boon for oil company profits but a bust for
consumers. As a result, Bush's policy is actually undermining the goals of the SPR.
Right now, the SPR is more than 90% full. If all Middle Eastern members of OPEC were to
cease exports to the U.S., we could rely on the SPR, at current levels, to supply enough oil to the
U.S. market for nearly 300 days. This is more than enough of a buffer to protect national security
in the event of an oil embargo by nations most likely to carry out such an action.
The Bush administration thus far has ignored pleas from Congress8 to cease filling the SPR.
Although the current administration claims we need to rely on market solutions to address
current high prices, recent mergers have helped ensure that truly competitive markets don't exist
in the domestic gasoline industry.
When the Senate passed a non-binding resolution by a vote of 52-43 buried as an amendment to
unrelated legislation on March 11, 2004, mandating that President Bush merely stop filling the
SPR, Wall Street speculators immediately drove down the price of crude oil 1.6%. 9
Over-the-Counter Energy Disclosure is Underegulated
Contracts representing hundreds of millions of barrels of oil are traded every day on the London,
New York and other energy trading exchanges. An increasing share of this trading, however, has
been moving off regulated exchanges such as the New York Mercantile Exchange (NYMEX)
and into unregulated Over-the-Counter (OTC) exchanges. Traders operating on exchanges like
NYMEX are required to disclose significant detail of their trades to federal regulators. But
traders in OTC exchanges are not required to disclose such information allowing companies like
Enron, ExxonMobil, and Goldman Sachs to escape federal oversight and more easily engage in
manipulation strategies.
The growth of these OTC exchanges exploded in 2000 10 when Congress passed the Commodity
Futures Modernization Act. 11 The Act, among other things, punched a large loophole in
government oversight of energy trading by greatly expanding the ability of traders to operate in
unregulated over-the-counter exchanges. These OTC markets do not feature the tighter
regulation that typically applies to traders engaged in regulated exchanges, such as the New York
Mercantile Exchange (NYMEX). Since this deregulation law took effect, the industry--led by
Enron--has been plagued by dozens of high-profile scandals attributed to the lack of adequate
regulatory oversight over traders' operations. Free from government transparency regulations,
energy traders have demonstrated an ability to manipulate prices more easily.
8
H.R.1221 and S.AMDT.2817 to S.CON.RES.95, 108th Congress, http://thomas.loc.gov/
9
Terin Miller, "Crude-Oil, Gasoline Prices Fall After Senate Plan on Supplies," The Wall Street Journal, March 15, 2004.
10
For more info, see Public Citizen's December 2001 report "Blind Faith: How Deregulation and Enron's Influence Over
Government Looted Billions from Americans," www.citizen.org/documents/Blind_Faith.pdf
11
S. 3283, 106th Congress, http://thomas.loc.gov
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Oil futures markets are no different. A recent congressional investigation12 concluded that "crude
oil prices are affected by trading not only on regulated exchanges like the NYMEX, but also on
unregulated OTC markets that have become major trading centers for energy contracts and
derivatives. The lack of information on prices and large positions in OTC markets makes it
difficult in many instances, if not impossible in practice, to determine whether traders have
manipulated crude oil prices."
Public Citizen has supported efforts to re-regulate energy trading by subjecting OTC markets to
tougher oversight. But the latest such effort, an amendment to the energy bill, was rejected by the
Senate by a vote of 55-44 in June 2003. 13
The measure was defeated after a high-profile public spat between Warren Buffett, chairman of
Berkshire Hathaway, and Alan Greenspan, chairman of the Federal Reserve, over the danger
posed by under-regulation of derivatives. Buffett called the untamed derivatives "weapons of
mass destruction" in March 2003, and Greenspan took the unusual step of publicly disputing
Buffett's assertions.
Raise Fuel Economy Standards to Lower Our Oil Consumption
The fuel economy average for passenger vehicles in the U.S. peaked in 1988. Due to the
changing mix of vehicles on the road and the absence of meaningful government action, the
average is currently lower today than it was a decade ago. This fuel economy average is
stagnating because no new significant car or truck fuel economy standards have taken effect for
15 years, and SUVs and pickups are subject to lower standards than regular autos. But SUVs and
pickups now occupy a much larger part of the new vehicle market.
Overall, fuel economy peaked in 1987 at 26.2 mpg at a time whe n only 21.1% of the vehicles on
the road were light trucks (a category including SUVs, minivans and pickup trucks). By 2001,
light trucks were 48% of the new vehicles sold and total fleet average fuel economy was 24.4
mpg on the highway. 14
Market share for SUVs increased by more than a factor of ten from 1975 to 2003, from under 2%
of sales in 1975 to 24% in 2003. Over that same period, market share for vans increased by 80%,
while demand for pickups was relatively constant. The increasing market share for light trucks,
and their poor gas mileage--now averaging at least six mpg less than cars--is causing the
decline in fuel economy for the new light vehicle fleet.
Billions of gallons of oil could be saved if meaningful and possible fuel economy increases were
mandated. Improving fuel economy standards for "passenger vehicles" from 27.5 to 40 miles per
gallon (mpg), and for light trucks (including SUVs and vans) from 20.7 to 27.5 mpg, by 2015
would save the U.S. an estimated 54 billion gallons of oil between 2005 and 2012. Combining
cars and light trucks and increasing the fuel economy standard of the combined fleet to 34 mpg
12
U.S. Strategic Petroleum Reserve: Recent Policy has Increased Costs to Consumers but not Overall U.S. Energy Security,
Minority Staff of the Permanent Subcommittee on Investigations of the U.S. Senate Committee on Governmental Affairs, March
5, 2003, http://govt-aff.senate.gov/
13
Amendment 876 to S. 14, 108th Congress, http://thomas.loc.gov/
14
U.S. Environmental Protection Agency, "Light-Duty Automotive Technology and Fuel Economy Trends: 1975
Through 2003," EPA420-R03-006, April 2003.
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by 2015 would save a whopping total of 33 billion gallons. Demand reduction is a pro-consumer,
environmentally- friendly method of reducing the U.S.'s reliance on foreign sources of oil, and
would also improve safety if the behemoth va ns and SUVs were downsized.
Federal Energy Bill Does Nothing to Address Overconcentration or Conservation
Contrary to recent statements by congr essional leaders and Executive Branch officials, the
stalled energy bill15 will do nothing to reduce high prices of gasoline because it fails to either
improve regulations of an oil industry that is over-concentrated or rein in demand by adopting
tougher fuel economy standards. Instead, the legislation proposes just what the industry wants--
giving billions of the taxpayers' dollars to large oil companies in the form of subsidies and tax
breaks with no real conservation requirement.
Contrary to the administration's public statements, the Bush administration's own analysis 16
concludes that the legislation's incentives to reduce our reliance on foreign sources of oil will
have only a negligible success. The Bush administration report concludes that implementation of
the energy bill would reduce net petroleum imports only by 1.2% by 2025--a reduction hardly
worth the billions of dollars taxpayers would spend. In addition, the report finds that, as a result
of the energy bill, gasoline prices would actually increase 0.4 cents per gallon by 2010 and 5.5
cents per gallon by 2025 due to the bill's new ethanol mandate.
Second, the Bush administration's Department of Interior recently concluded 17 that only 15% of
the oil in the 104 million acres of federal land stretching from Montana to New Mexico is
currently unavailable due to wilderness designations and other environmental restrictions. It is
therefore safe to conclude that the vast majority of oil reserves on federal land are easily
accessible for drilling, and that environmental laws do not need to be weakened--as proposed in
the energy bill and by the Bush administration--in order to supply America's energy needs.
Further, the energy bill would actually lead to increased concentration in the U.S. energy
industry by repealing the Public Utility Holding Company Act (PUHCA). PUHCA prevents
large, non-electric utility companies from controlling utilities without first divesting their non-
utility businesses. 18 If PUHCA is repealed, numerous mergers would quickly follow, further
consolidating the domestic energy industry.
Conclusion
The most effective way to protect consumers is to restore competitive markets is for President
Bush to adopt the following seven proposals:
· Release oil supplies from the SPR, or, at a minimum, cease filling it.
· Make it illegal for companies to intentionally withhold any energy commodity from the
market for the sole purpose of creating supply shortages in order to drive up prices.
15
S. 2095, 108th Congress, http://thomas.loc.gov/
16
Summary Impacts of Modeled Provisions of the 2003 Conference Energy Bill, U.S. Energy Information Administration,
February 2004, www.eia.doe.gov
17
Scientific Inventory of Onshore Federal Lands' Oil and Gas Resources and Reserves and the Extent and Nature of Restrictions
or Impediments to Their Development, BLM/WO/GI-03/002+3100, January 2003, www.doi.gov/epca/
18
For more info on PUHCA, see Public Citizen's PUHCA for Dummies, www.citizen.org/documents/puhcafordummies.pdf
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· Document how recent mergers have made it easier for large oil companies to engage in
uncompetitive practices, and take concrete steps--including forced divesture of assets to
independent companies - to remedy the problem of too few companies controlling too
much of the market.
· Require oil companies to increase the size of their storage capacities, mandate them to
hold significant amounts of product in that storage, and reserve the right to order these
companies to release this stored oil and gas in order to address supply and demand
fluctuations.
· Reduce America's oil consumption by 54 billion gallons of oil by 2012 by improving fuel
economy standards.
· Restore transparency to energy futures markets by re-regulating Over-the-Counter
exchanges.
· Impose a windfall profits tax to discourage price gouging.
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Table 1. 12
Mergers Concentrate the U.S. Oil Refinery Industry: Changes in
Control of Market Share 1993 to 2003
1993 2003
Market Market
Company Company
Share Share
Chevron 9.1% ConocoPhillips (Tosco-Flying J) 13.2%
Exxon 6.6% Shell (Motiva-Equilon-Pennzoil-Quaker State-Deer Park) 10.8%
Amoco 6.5% ExxonMobil 10.8%
Texaco-Star Enterprise 6.2% BP (Amoco-Arco) 9.0%
Mobil 6.0% Valero (Ultramar-Diamond Shamrock-Orion Refining) 8.4%
Top 5 in 1993 34.5% Top 5 in 2003 52.2%
Shell 4.9% ChevronTexaco 6.4%
BP 4.4% Citgo-PDV-Lyondell 5.8%
Citgo (PDV)/Lyondell 4.2% Marathon-Ashland 5.6%
Arco/Lyondell 3.8% Sunoco 5.2%
Marathon 3.8% Tesoro 3.4%
Top 10 in 1993 55.6% Top 10 in 2003 78.5%
Sun Co (Sunoco) 3.4% Koch 3.1%
Conoco 2.9% Blackstone Group-Premcor 2.5%
Ashland 2.3% Williams Co 2.3%
Koch 2.3% Chalmette Refining 1.1%
Phillips 2.0% TotalFinaElf 1.0%
Top 15 in 1993 68.6% Top 15 in 2003 88.6%
Note: Lyondell refinery capacity in 1993 is equally split between two of its equity partners at the time, Citgo
and Arco.
SOURCE: Compiled by Public Citizen's Energy Program from corporate annual
reports and U.S. Energy Information Administration data.
Table 2. 13
The Top 5 Oil Company 2003 Market Share, Profits and Campaign Contributions
Domestic Oil Campaign
Domestic Oil Domestic
Refinery After-Tax Profits Contributions % to
Company Merger Activity Production Retail Gasoline
Capacity Since 2001 From 2000 Cycle GOP
Market Share Market Share
Market Share to Present
April '00 - BP acquires Arco;
BP 12.7% 9.0% 12.7% $ 25,704,000,000 $ 1,893,217 69%
1998 BP acquires Amoco
ChevronTexaco Oct. '01 - Chevron + Texaco 9.8% 6.4% 8.3% 11,650,000,000 2,987,415 74%
Aug. '02 - Conoco + Phillips
ConocoPhillips merge; Tosco acquired in Sept. 7.4% 13.2% 13.0% 6,101,000,000 1,462,104 88%
'01; 50-50 venture in Flying J
ExxonMobil Nov. '99 - Exxon + Mobil merge 10.6% 10.8% 13.7% 48,290,000,000 2,742,546 90%
Feb. '02 - Acquired Texaco's
shares in Equilon and Motiva,
so Shell now owns all of
Royal Dutch
Equilon while Motiva is a 50-50 7.2% 10.8% 14.0% 33,496,000,000 392,060 78%
Shell
venture with Saudi Aramco; In
2002 Shell Acquired Pennzoil-
Quaker State
Total, Top 5 47.7% 50.3% 61.8% $ 125,241,000,000 $ 9,477,342 80%
addendum a
2001 - Valero merged with
Ultramar/Diamond Shamrock.
Valero Energy 0.0% 8.4% 9.9% $ 1,276,600,000 $ 760,150 68%
In July 2003, Valero acquired
Orion Refining
addendum b
total campaign contributions by entire oil industry from 2000 election to present $ 66,869,819 79%
SOURCE: Compiled in March 2004 by Public Citizen's Energy Program based on corporate annual reports; the U.S. Energy
Information Administration; and the Center for Responsive Politics.