Busting Big Oil

By Jim Motavalli, E Magazine. Posted August 7, 2000.

Here's the scenario: Sticker shock at the gas pumps, with prices nearly doubling overnight. Long lines at the few stations that are open. Crude cardboard signs reading "out of gas" blocking incoming traffic at the ones that are closed. Huge sales on "full-sized" vehicles. Long waiting lists for econoboxes.

Nineteen seventy three? Nineteen seventy nine? How about 2007? The "high" prices that motorists are now paying could be a harbinger of a much more serious crisis in oil production and delivery. In the near term, gasoline prices are expected to recede from $2 per gallon, largely because the Organization of Petroleum Exporting Countries (OPEC) has agreed to production increases. The posturing calls in Congress for rollbacks in federal fuel taxes will die out, as will the ad hoc consumer protests.

The price hikes have been very good for Big Oil business: Comparing 1999 profits to 1998, Arco showed a 165 percent increase; Texaco a 36 percent rise; Shell a 38 percent jump; Phillips up 46 percent; and BP/Amoco gaining 35 percent. ExxonMobil might have made money too, if it wasn't busy merging. As the Institute for Local Self-Reliance points out, oil companies are both very profitable and publicly subsidized, to the tune of $3 to $11 billion annually. Taxpayers for Common Sense has detailed $200 million a year just in tax writeoffs for exploration costs (and another $100 million for going after hard-to-get oil).

Rising prices are annoyances, but have to be seen in perspective. Even with the recent round of hikes, Americans still pay the lowest oil prices in the world, while using the most energy per capita. Because of our insatiable appetite for oil, the oil-rich United States has become a major importer, dependent upon OPEC and its allies for 56 percent of the supply. (At the height of the energy crisis in 1975, we managed to reduce that dependence to 35 percent.)

In the U.S., transportation gobbles up 65 percent of the oil supply, and because of automotive population growth and the growing appetite for sport-utility vehicles, demand has been steadily rising since 1998. Americans currently take twice as many car trips as Europeans, and walk or bicycle only a fifth as often. If the trend continues, by 2010 we could be importing two-thirds of our oil.

A recent editorial cartoon shows a shopper's eyes popping at the prospect of $1.65 per gallon gasoline, while lugging such groceries as $9.87 a gallon beer, $48 a gallon maple syrup and $4.52 a gallon spring water. If it were sold by the barrel, Ben & Jerry's Chunky Monkey ice cream would cost $1,105.44, according to petroleum researcher John S. Herold, Inc. High prices don't shock Europeans, who routinely pay more than $4 a gallon for gasoline, even though they buy oil at the same per barrel prices. The difference is high European gas taxes, which are used in many cases to support alternative fuels and an excellent public transportation system.

The auto industry is gratified that high gasoline prices have affected neither the upward spiral of Vehicle Miles Traveled (VMT) nor Americans' taste for large, heavy and thirsty sport-utility vehicles (SUVs). The biggest-selling car in America today is not a car at all, but the Ford Explorer SUV. Even with an environmentalist like William Clay Ford, Jr. in the chairman's seat, Ford isn't likely to steer an anti-SUV course. Vehicles like the Ford Excursion and the Lincoln Navigator are its profit center, earning the company as much as $15,000 each. From just one Wayne, Michigan factory making sport-utility vehicles, Ford earns the majority of its profits, approximately $3.7 billion a year.

The combination of consumer affluence (and apparent willingness to pay high oil prices) with runaway sales of profitable SUVs means heady times for both the oil and auto industries. What executive wouldn't rejoice at the sight of citizen's movements to repeal oil taxes? There's even a handy foreign scapegoat, OPEC. Too coincidental? Wenonah Hauter, executive director of Public Citizen's Critical Mass Energy Project, sees the sinister forces of market manipulation and collusion at work.

"There are a number of things coming into play to make oil prices go way up," Hauter says. "The simplistic way of looking at this is that it's just the oil-producing nations doing this to the United States. But you had better believe that the oil industry also had a hand in this. The oil-producing nations are very, very dependent on the oil industry for capital investment and new technology for drilling, and with just a few exceptions, the oil companies have extremely close relationships with the nations that produce oil -- countries like Saudi Arabia, Kuwait and Mexico. The rise in oil prices is also going to help the domestic agenda of the oil companies that drill in the United States. They're going to be able to leverage these high oil prices to do things like change policy to drill in the Arctic and to reduce environmental regulations."

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