Any Profit in a Storm


With gas prices pushing ever higher—maybe reaching $5 a gallon, according to some industry experts—oil company profits are going through the roof. As for the hyped shortage of oil, it’s a game of smoke and mirrors. No doubt the hurricanes have caused, and will cause, some short-term shortages just by prompting the closing of refineries along the Texas Gulf Coast, which produce nearly a quarter of our gasoline supplies. But before, and even after, Hurricane Katrina, government reports showed a surplus of crude oil in the U.S. marketplace. According to the Department of Energy’s Energy Information Agency, prices of crude oil rose even in this surplus situation. Gasoline is another matter. Having been suppressed because of low profit margins, supplies of gasoline actually increased right after Katrina. The situation doubtless will change after Hurricane Rita. Petroleum analyst Tom Kloza of the Oil Price Information Service in Houston told the Associated Press last week that refineries in Houston were different from those in Louisiana because Houston’s are all well above sea level and made it through previous big storms. Power outages might put them out of business for as long as a week after past storms, but then they’d be back up and running.

Take a hike

As the price of gas went up and the numbers of dead and distressed people in New Orleans rose, and as Texas worked to evacuate some 2 million or more people in the path of Rita, the right-wing Republicans who control Congress were cutting back three social-welfare programs to help pay for George W. Bush’s public relations version of the Marshall Plan.

The Republican Study Committee, made up of 100 members of the House, wants to raise premiums for Medicare, postpone introduction of its drug program, cut Amtrak subsidies, and reduce contributions to the United Nations. While the Senate, in a bipartisan move, sought to win approval for a temporary measure to extend Medicaid coverage to all affected by Katrina, the Bush administration stood by, refusing to commit itself. House conservatives are expected to gut the measure.

Bush’s new tax-free zone along the Mississippi Gulf Coast will extend 50 percent tax write-offs to the already profitable casinos. Instead of extending Section 8 vouchers to hurricane homeless so they can rent apartments, Bush wants them to live in trailer parks and on leased cruise ships. The right-wingers were taking up amending the Head Start Bill so as to include faith-based charities. Earlier in the week they broke off to party for the ailing Jesse Helms, who Jerry Falwell said was one of the two greatest men of our times, the other being Ronald Reagan.

Crude blackmail

U.S. oil companies have bitterly assailed environmentalists for blocking construction of new refineries, but as reported last week in Mondo, environmental approvals were obtained for a new refinery in Arizona. The industry press has been quoting the CEO of the Arizona company as saying environmental rules did not block the project. More to the point, the big oil companies are looking to add refining capacity abroad. They see a surplus of gasoline in Western Europe, which is using more and more diesel for transportation, and in the Middle East—such places as Saudi Arabia and Kuwait. The Europeans have already said they are prepared to ship us more gasoline if need be. Over the short term, these sources of supply should prevent shortages in the U.S.

The rising price of gasoline may turn out to have little to do with the hurricanes. “Profit margins for U.S. oil refiners have been at record highs,” Tyson Slocum, the research director of Public Citizen’s energy program, testified last week before the Senate Commerce Committee. “In 1999, U.S. oil refiners made 22.8 cents for every gallon of gasoline refined from crude oil. By 2004, they were making 40.8 cents for every gallon of gasoline refined, a 79 percent jump. It is no coincidence that oil corporation profits—including refining—are enjoying record highs.” Over the past four years ExxonMobil, ChevronTexaco, ConocoPhillips, Shell, and BP, the five oil giants operating in the U.S., have racked up $254 billion in profits.

Bottom-line questions remain: Since the Texas-Louisiana coasts are our soft industrial underbelly, open to devastation by natural disasters and terrorists, why hasn’t the government taken steps to break up the concentration of refineries there? Moreover, the Europeans have a reserve of gasoline. Why don’t we have the same thing?

Foreign substances

Over the long term, our energy future looks increasingly rocky, made even more so by our aggressive and so far unsuccessful gunboat diplomacy. Consider the new Arizona refinery, located in the southern part of the state near the border; it will obtain its crude supplies from Mexico via a pipeline. And under free-trade arrangements, the U.S. ought to be obtaining more and more oil from Mexico and Canada. But the Canadians have grown uneasy about watching the U.S. drain their country of its rich lode of energy sources. In any event, the Chinese appear to have snapped up one of Canada’s most prized future energy sources: the Alberta tar sands. Chinese business has taken options on the deposits there. In Mexico, Pemex, the state oil company, produces oil for export, much of it to the U.S. Mexicans sell their oil cheap to the U.S. and then import high-priced gasoline back home—getting screwed going and coming. Mexico ought to be building and running its own refineries, but that would cut into U.S. sales. So that’s not going to happen anytime soon.

Like every other president, Bush promises to reduce our dependence on foreign oil, especially oil from the Middle East. Instead, we seem set to have a growing dependence on the Middle East and Central Asia.

This can’t last for long. Over the summer, American petroleum experts knowledgeable about Saudi resources—supposedly the biggest in the world—say the Saudis have faked their reserve figures in an effort to inflate them. The war in Iraq has brought to a virtual standstill any exports from that oil-rich country and wrecked its antiquated energy infrastructure. We are counting on imports from the Caspian Basin, but here again, the Chinese have been busily planning a long pipeline all the way back to Shanghai for natural gas. They need the gas to slow the pollution from their booming industries. We could increase oil and gas shipments from the Caspian by routing the fuel in pipelines down through Iran. But we don’t do business with Iran. Hence it appears that instead of going to the U.S., Caspian energy supplies will increasingly go by pipeline and ship to China—and to India, as that country’s energy market grows. In short, our foreign policy is walking us into a trap.

The U.S. looks to make up part of its growing energy deficit by importing natural gas in the form of enormously expensive liquefied natural gas (LNG). Bush, like Bill Clinton, looks to free enterprise as the mechanism to adjust supply and demand. No government—Democrat or Republican—has ever seriously suggested investing in clean alternative-energy resources. It is safe to say there was more interest in the early 20th century in solar energy than there is today.

There is no free market in oil and gas. It is a business dominated by a handful of companies that have managed to regulate themselves through various joint ventures and other deals. During the 20th century they worked openly through cartels, theoretically against the law in the U.S. When times got rough, they persuaded the government to apply various forms of regulation, such as oil depletion allowance, low or nonexistent royalties for oil produced in the public domain on the outer continental shelf. If the situation gets out of hand, there will doubtless be a call for price controls to help the industry keep its head above water, while its executives laugh all the way to the bank.

Additional reporting: Isabel Huacuja and Ali Syed

This article from the Village Voice Archive was posted on September 20, 2005

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