Big Oil Limiting Gasoline Supply
California pays for corporate chicanery
By Jamie Court
(SF Chronicle, May 14) — Californians are paying the highest price in
the continental United States for gasoline. The nation’s big oil
companies announced world record profits for the first quarter, building
on last year’s world record profits. Sound familiar?
The latest version of California’s electricity crisis registered
$3.37 per gallon at the pump last week.
A few years ago, Enron and other energy companies turned off the
lights and robbed Californians blind. They did it by closing power
plants and artificially withholding electricity to give the illusion of
scarcity. That made the price of electricity soar, even though the price
of producing it was minimal.
Big Oil is playing a similar game now. A few large oil companies are
making billions of dollars by artificially limiting refined gasoline
supplies to jack up prices far in excess of raw material and production
costs. (That’s why a recent drop in crude oil prices isn’t resulting in
reductions at the pump.)
California oil refiners have rigged their system by limiting the
number of refineries and running low inventories. The companies have
closed nearly half the state’s refineries since federal gasoline
deregulation in 1981.
Today, the gasoline supply barely meets demand. As a result, the
commodity appears scarce and the market price for it is sky high,
along with profits.
The latest proof comes from government gasoline pricing reports.
They show that from January to April, crude oil costs increased far less
than the run-up in gasoline prices, even assuming that refiners all had
to pay the high “spot market price” for crude oil, which they didn’t.
The increases in the crude oil “spot price” accounted for only 12
cents extra per gallon of the 60-cent rise in that period. More than 40
cents of the 60-cent increase in gasoline prices over 3 1/2 months came
as increased refinery profit margins for the oil companies.
The reason oil companies generally do not pay the spot price for
crude is that they either harvest crude oil from their own fields or have
long-term contracts at cheaper prices. So even the oil spot price
calculation gives oil companies too much credit for increased costs of
producing gasoline.
The refiners also blame increased costs for ethanol additives for
the big jump at the pump. But if ethanol blending increased costs for oil
companies in California, other states in the West using conventional
unblended gasoline should not be as affected.
Yet Washington state, which uses only conventional gasoline and has
similar refinery capacity and crude oil sources, saw increases at a
higher percentage rate than California’s.
To pump up their profits, refiners have also taken a page out of
Enron’s playbook by shipping needed energy products out of the state.
According to a California Energy Commission report, state refiners
recently switched production from our state’s gasoline formula to
gasoline that could be used only in other states, including Arizona,
Nevada and Oregon.
The supply of “export” gasoline increased by a startling 38.5
percent during a single week, while production for in-state use fell by
more than 10 percent. This prevented any surplus in California, which
would have pushed prices downward.
The most visible proof of refiner profiteering came in corporate
reports to shareholders. Chevron, for example, informed its investors of
a 49 percent increase in net income financed by a 260 percent increase in
refining and marketing profits, in large part coming from California.
When oil companies can make more money by making less gasoline, what is
their incentive to change? Only the big stick of government regulation of
the gasoline supply can help.
First, the state Public Utilities Commission should be charged with
regulating gasoline supplies. The commission could require refiners to
meet demand by controlling exports of gasoline products and by monitoring
refinery shutdowns to prevent manipulation of supplies. If necessary, the
commission could force oil companies to build new refining capacity.
Second, California needs to invest in alternative fuels to stop our
dependence on petroleum and the companies that control it. Signatures are
expected to be turned in soon for a November ballot measure to take back
a small portion of oil companies’ windfall profits in order to fund the
development of alternative fuels that could significantly reduce gasoline
consumption and fuel prices.
Unfortunately, Big Oil — like Enron — has paid a lot of campaign cash
for its political cover. For example, Gov. Arnold Schwarzenegger has
received $2.2 million in campaign contributions from oil companies,
running a close second to President Bush ($2.6 million)Â for top spot in
most campaign contributions in America from Big Oil.
If California politicians had acted quickly to take over power
plants and stop the electricity rip-off, Californians would have
saved tens of billions of dollars. State officials need to learn from
that lesson or the financial toll from this “energy crisis” — and the
next — will be just as bad.
—————–
Jamie Court is president of Santa Monica’s Foundation for Taxpayer
and Consumer Rights.
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“A war of aggression is the supreme international crime.” — Robert Jackson,
former U.S. Supreme Court Chief Justice and Nuremberg prosecutor
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