Raking in Profits at the World's Expense
Last week, within days of each other, Chevron and ExxonMobil announced record quarterly and annual profits for the second year running. These are not your average earnings statements. These are profits on an inconceivable scale, profits that dwarf the income levels of most countries.
ExxonMobil announced $36 billion in profits -- in profits -- last year. That's $3 billion every month, which if ExxonMobil were a country would make it the 90th richest country in the world. This astronomical number is a 42 percent increase from last year's record-breaking profits. Chevron also bested its record profits for the second year in a row, raking in $27.4 billion in 2005. This is, once again, the company's highest profit in its 126-year history.
It is no surprise that these announcements come as Americans are paying record prices at the pump, as well as for heating oil and natural gas. Many oil industry critics, as well as most drivers, can connect the dots.
Tyson Slocum, acting director of Public Citizen's energy program, said oil companies are taking advantage of consumers. "Oil prices are definitely arificially high," Slocum said, "in large part because of anti-competetive practices by major oil companies. We've documented it, government investigations have documented it." Slocum testified before the Senate on Wednesday about the price squeeze induced by mergers in the oil industry. In the past 15 years, there have been more than 2,600 mergers in the oil industry, which Slocum says make this kind of price manipulation almost inevitable.
"In 2001, the Federal Trade Commission did a major investigation of gasoline markets and found that oil companies could intentionally withold capacities from the marketplace in order to create some scarcity to drive prices up," Slocum said. "Now when they create scarcity, they're not actually creating scarcity like long gas lines, but they're creating shortages that, in the wholesale market, translate to higher retail prices. If that sounds familiar to you, because that's exactly the economic strategy pursued by Enron and other electricity companies in California, where they literally were taking power plants offline, creating shortages that caused the prices of electricity to skyrocket, and they made tons of money."
It's not just the big-business-friendly policies that rule Washington these days that have caused both high gas prices and even higher oil company profits. Between last year's intense hurricane season (which is expected to be as bad or worse this year) and ongoing concerns about Middle East oil, the public has been primed to expect high prices.
But many experts dispute the reality of those facts on the ground. Antonia Juhasz, author of "The Bush Agenda" and an AlterNet contributor, says that blaming high prices on the war in Iraq is a misleading argument. "One of the reasons that high oil prices have been sold to the American public is that there is a tighter supply because of a disruption in supply coming out of Iraq," Juhasz said in a recent phone interview. "The reality is that there is more oil coming out of Iraq today to the U.S. than at almost any other time in history. It's not steady or as much as the Bush administration had hoped for, but it's certainly more than was the case in the last 30 years, and certainly there's no reason to justify increased oil prices."
The sad truth of the matter is that gas companies have always been quick to raise prices and glacially slow to bring them back down. Steve Kretzmann, executive director of Oil Change International, explained the trend: "The oil industry takes the opportunity of the price of crude going up to pass on the price increase to the pump. They basically take whatever excuse they can get to raise it. And then you'll notice, when the price goes back down, there's nowhere close to a corresponding decrease in the price of gas. It's pretty clear that they're getting this coming and going."
As he wrote on his blog at PriceofOil.org, "ExxonMobil is Old School, the Bad Boy of Oil. ExxonMobil pretty much ignores the ruckus about looming environmental catastrophe and goes about their business." Kretzmann said ExxonMobil has earned this reputation as the biggest, baddest player in the biggest, baddest industry through a few well-established tactics. "Exxon is pretty much the top funder of climate skeptics, and of the major oil companies, they have the smallest investments in alternative energy," Kretzmann said. In the past, former Exxon CEO Lee Raymond has made it clear that he thought climate change was a hoax.
Bringing up discussions of Exxon Valdez right now are especially pertinent in light of Exxon's breathtakingly arrogant actions at the end of last month. Just three days before announcing its world-beating profits, Exxon's lawyer Walter Dellinger asked the Ninth Circuit Court of Appeals to erase the punitive damages stemming from the 1989 Exxon Valdez oil spill in Alaska.
The punishment currently stands at $5 billion, a mere 15 percent of the company's profits this year, and the company has instead asked to shell out just $25 million in payment. This request comes after 16 years of steadily fighting any responsibility to make amends to the residents of the Prince William Sound area, which was devastated by the negligent spill.
Orli Cotel, a media coordinator for the Sierra Club, put the costs in perspective. Cotel said about 30,000 plaintiffs are listed in the suit Exxon is fighting. "Twenty-five million dollars seems like a lot," Cotel said, "but if you divide it by 30,000, it comes to like $830 per person," or $52 a year since their livelihoods were destroyed. Cotel noted that in the 16 years since the spill, more than 3,000 of the plaintiffs, mostly fishermen in the sound, have died without receiving any compensation. "Exxon is basically saying, 'We've made more money than any company on earth and we refuse to help out these poor fishermen whose businesses we've crippled.' It's more than offensive, it's morally wrong."
Cotel pointed out that the second episode of the club's new television show, Sierra Club Chronicles, details what life has been like in the town of Cordova, one of the fishing economies ruined by the spill. The show, which airs on Feb. 8, features some particularly damning Exxon footage from 1989.
"Right after the Valdez spill," Cotel explained, "Exxon held a town hall meeting, and we've got footage of their spokesperson standing up in front of the crowd of people saying, 'You are lucky, and you don't know how lucky you are because this was Exxon and it wasn't some other company, and Exxon does things right, and we're going to do right by you.' And you know, it was pure PR."
With profits like these, Exxon -- as well as Chevron and almost any oil company -- can afford to ignore its promises as easily as it does the basic idea of good corporate citizenship. Which is why Public Citizen's Tyson Slocum testified before Congress last week [PDF] to urge a governmental fix to the problem. The first step in the group's proposed solution is a windfall tax, which would in essence label these undeniably excessive profits as such and allow Congress to take a portion of the profits and put them to better use.
Slocum said that using the windfall tax idea -- used in a very similar situation by Jimmy Carter in 1979 -- will take some of the extra zeroes off those profits and redirect them towards necessary projects like improving mass transit, increasing sustainable fuel programs, and making our homes and buildings more energy efficient. "These are all investments that ExxonMobil will never make, but they are investments that are necessary if we're going to get our way out of this energy crisis."