Oil Executives Try to Educate Senate
May 21, 2008
Oil Executives Try to Educate
Senate Democrats, But Democrats Appear Hopeless
Earlier today, the Senate
Judiciary Committee summoned top executives from the petroleum industry for what
Chairman Pat Leahy thought would be a politically profitable inquisition. Leahy
and his comrades showed up ready to blame American oil companies for the high
price of gasoline, but the event wasn't as satisfactory as the Democrats had
hoped.
The industry lineup was
formidable: Robert Malone, Chairman and President of BP America, Inc.; John
Hofmeister, President, Shell Oil Company; Peter Robertson, Vice Chairman of the
Board, Chevron Corporation; John Lowe, Executive Vice President, Conoco Philips
Company; and Stephen Simon, Senior Vice President, Exxon Mobil Corporation. Not
surprisingly, the petroleum executives stole the show, as they were far smarter,
infinitely better informed, and much more public-spirited than the Senate
Democrats.
One theme that emerged from
the hearing was the surprisingly small role played by American oil companies in
the global petroleum market. John Lowe pointed out:
I cannot overemphasize the
access issue. Access to resources is severely restricted in the United States
and abroad, and the American oil industry must compete with national oil
companies who are often much larger and have the support of their governments.
We can only compete directly
for 7 percent of the world's available reserves while about 75 percent is
completely controlled by national oil companies and is not
accessible.
Stephen Simon
amplified:
Exxon Mobil is the largest
U.S. oil and gas company, but we account for only 2 percent of global energy
production, only 3 percent of global oil production, only 6 percent of global
refining capacity, and only 1 percent of global petroleum reserves. With respect
to petroleum reserves, we rank 14th. Government-owned national oil companies
dominate the top spots. For an American company to succeed in this competitive
landscape and go head to head with huge government-backed national oil
companies, it needs financial strength and scale to execute massive complex
energy projects requiring enormous long-term investments.
To simply maintain our
current operations and make needed capital investments, Exxon Mobil spends
nearly $1 billion each day.
Because foreign companies and
governments control the overwhelming majority of the world's oil, most of the
price you pay at the pump is the cost paid by the American oil company to
acquire crude oil from someone else:
Last year, the average price
in the United States of a gallon of regular unleaded gasoline was around $2.80.
On average in 2007, approximately 58 percent of the price reflected the amount
paid for crude oil. Consumers pay for that crude oil, and so do we.
Of the 2 million barrels per
day Exxon Mobil refined in 2007 here in the United States, 90 percent were
purchased from others.
Another theme of the day's
testimony was that, if anyone is "gouging" consumers through the high price of
gasoline, it is federal and state governments, not American oil companies. On
the average, 15% percent of the cost of gasoline at the pump goes for taxes,
while only 4% represents oil company profits. These figures were repeated
several times, but, strangely, not a single Democratic Senator proposed
relieving consumers' anxieties about gas prices by reducing taxes.
The last theme that was
sounded repeatedly was Congress's responsibility for the fact that American
companies have access to so little petroleum. Shell's John Hofmeister explained,
eloquently:
While all oil-importing
nations buy oil at global prices, some, notably India and China, subsidize the
cost of oil products to their nation's consumers, feeding the demand for more
oil despite record prices. They do this to speed economic growth and to ensure a
competitive advantage relative to other nations.
Meanwhile, in the United
States, access to our own oil and gas resources has been limited for the last 30
years, prohibiting companies such as Shell from exploring and developing
resources for the benefit of the American people.
Senator Sessions, I agree, it
is not a free market.
According to the Department
of the Interior, 62 percent of all on-shore federal lands are off limits to oil
and gas developments, with restrictions applying to 92 percent of all federal
lands. We have an outer continental shelf moratorium on the Atlantic Ocean, an
outer continental shelf moratorium on the Pacific Ocean, an outer continental
shelf moratorium on the eastern Gulf of Mexico, congressional bans on on-shore
oil and gas activities in specific areas of the Rockies and Alaska, and even a
congressional ban on doing an analysis of the resource potential for oil and gas
in the Atlantic, Pacific and eastern Gulf of Mexico.
The Argonne National
Laboratory did a report in 2004 that identified 40 specific federal policy areas
that halt, limit, delay or restrict natural gas projects. I urge you to review
it. It is a long list. If I may, I offer it today if you would like to include
it in the record.
When many of these policies
were implemented, oil was selling in the single digits, not the triple digits we
see now. The cumulative effect of these policies has been to discourage U.S.
investment and send U.S. companies outside the United States to produce new
supplies.
As a result, U.S. production
has declined so much that nearly 60 percent of daily consumption comes from
foreign sources.
The problem of access can be
solved in this country by the same government that has prohibited it. Congress
could have chosen to lift some or all of the current restrictions on exportation
and production of oil and gas. Congress could provide national policy to reverse
the persistent decline of domestically secure natural resource
development.
Later in the hearing, Senator
Orrin Hatch walked Hofmeister through the Democrats' latest efforts to block
energy independence:
HATCH: I want to get into
that. In other words, we're talking about Utah, Colorado and Wyoming. It's fair
to say that they're not considered part of America's $22 billion of proven
reserves.
HOFMEISTER: Not at
all.
HATCH: No, but experts agree
that there's between 800 billion to almost 2 trillion barrels of oil that could
be recoverable there, and that's good oil, isn't it?
HOFMEISTER: That's
correct.
HATCH: It could be recovered
at somewhere between $30 and $40 a barrel?
HOFMEISTER: I think those
costs are probably a bit dated now, based upon what we've seen in the
inflation...
HATCH: Well, somewhere in
that area.
HOFMEISTER: I don't know what
the exact cost would be, but, you know, if there is more supply, I think
inflation in the oil industry would be cracked. And we are facing severe
inflation because of the limited amount of supply against the
demand.
HATCH: I guess what I'm
saying, though, is that if we started to develop the oil shale in those three
states we could do it within this framework of over $100 a barrel and make a
profit.
HOFMEISTER: I believe we
could.
HATCH: And we could help our
country alleviate its oil pressures.
HOFMEISTER: Yes.
HATCH: But they're stopping
us from doing that right here, as we sit here. We just had a hearing last week
where Democrats had stopped the ability to do that, in at least
Colorado.
HOFMEISTER: Well, as I said
in my opening statement, I think the public policy constraints on the supply
side in this country are a disservice to the American consumer.
The committee's Democrats
attempted no response. They know that they are largely responsible for the
current high price of gasoline, and they want the price to rise even further.
Consequently, they have no intention of permitting the development of domestic
oil and gas reserves that would both increase this country's energy independence
and give consumers a break from constantly increasing energy costs.
Every once in a while,
Congressional hearings turn out to be informative