Oil Cost Strategy

From brian carroll <human@electronetwork.org>
Date Fri, 15 Jun 2001 11:40:16 -0800

>Memos Highlight Oil Cost Strategy
>Filed at 7:17 p.m. ET
>WASHINGTON (AP) -- Even as the Bush administration cites a lack of
>refineries as a cause of energy shortages, oil industry documents
>show that five years ago companies were looking for ways to cut
>refinery output to raise profits.
>The internal memos involving several major oil companies were
>released Thursday by Sen. Ron Wyden, D-Ore., whose office obtained
>them from a whistleblower. He said the materials did not
>necessarily reflect any illegal activities but said some of them
>``sure look very anticompetitive.''
>In response, Red Cavaney, the president of an industry trade group,
>said: ``This finger pointing six years into the past serves no
>useful purpose.''
>Wyden was turning the material over to the Governmental Affairs
>Committee, which plans hearings on oil industry practices and
>energy prices.
>Tight gasoline supplies have been cited repeatedly by the industry
>and the White House as a primary reason for soaring gasoline prices
>this year.
>While pump prices have eased recently, the cost of gasoline jumped
>an average of 31 cents a gallon nationwide during the seven weeks
>ending in mid-May, according to government figures presented at a
>House hearing Thursday.
>Because it takes about four years to build a large refinery,
>planning for a new plant would have had to begin by the mid-1990s,
>energy experts say. There has not been a new refinery build in the
>United States in 25 years; in the meantime, dozens of small ones
>have closed.
>The documents obtained by Wyden's office suggest that in the
>mid-1990s oil companies had no interest in building refineries
>because of low profit margins. In fact, companies were discussing
>the need to curtail refinery output in order to make more money,
>the documents suggest.
>``If the U.S. petroleum industry doesn't reduce its refining
>capacity, it will never see any substantial increase in refinery
>margins (profits),'' said an internal Chevron document in November
>1995, citing views presented by participants at an American
>Petroleum Institute conference.
>A year later, an official at Texaco, in a memo marked ``highly
>confidential,'' called concerns about too much refinery capacity
>``the most critical factor'' facing the refinery industry. Excess
>capacity is producing ``very poor refining financial results,'' the
>memo said.
>Wyden said the documents ``raise significant questions about
>whether America's oil companies tried to pull off a financial
>triple play -- boosting profits by reducing refinery capacity,
>tagging consumers with higher pump prices and then arguing for
>environmental rollbacks.''
>The institute produced statistics showing refinery capacity has
>increased since 1996 as refineries became more efficient and some
>expanded. The figures also showed capacity increasing slower than
>Cavaney, the institute's president, said the industry's reluctance
>to invest in new refinery capacity when profit margins are low and
>supplies are adequate -- as was the case in the mid-1990s -- was
>``a normal response in a commodity market.''
>Wyden singled out a 1996 memo from Mobil Corp., which has since
>merged with Exxon, that suggests that Mobil was ready for a ``full
>court press'' to make sure an independent California refinery,
>which had closed in 1995, would not reopen.
>At the time Mobil was concerned that if the refinery, owned by the
>Powerine Oil Co., resumed production it might force down the price
>of a special, cleaner burning gasoline by as much as 3 cents.
>``Needless to say, we would all like to see Powerine stay down,''
>the memo said. ``Full court press is warranted in this case.'' The
>refinery remained closed.
>Texaco spokeswoman Keelin Molloi said Wyden's allegations ``divert
>attention away from legitimate policy questions'' about energy
>As for the 1995 Texaco memo, she said: ``Within any company,
>discussions about the margins and capacity are conducted in a
>normal course of business and in no way constitutes inappropriate
>or illegal behavior.''
>Chevron spokesman Fred Gorell said the company ``flatly denies any
>improper conduct involving refinery production levels or gasoline
>Attempts to reach ExxonMobil were unsuccessful.
>The need for more refinery capacity has been the focus of President
>Bush's energy plan. Vice President Dick Cheney has blamed gasoline
>prices increases on tight supplies caused to a large part, he
>contends, by the fact that the last new U.S. refinery was built in
>In fact, 24 refineries -- many of them small independents -- have
>shut down since 1995, according to the Energy Department. That has
>accounted for the loss of 831,000 barrels a day of refining
>capacity. Individual refinery expansions at the same time have
>added 1 to 2 percent of capacity annually.
>On the Net:
>Sen. Ron Wyden, D-Ore.:
>American Petroleum Institute: http://www.api.org/
>Information Administration: http://www.eia.doe.gov/index.html
>Copyright 2001 The New York Times Company

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