Subject: Oil
Some good information.
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.
