Profit-Drenched Oil Companies and Gas Prices

This is a three-part commentary on the energy crisis and gas prices.

Part 1

Once again the Republicans in Congress have bowed obsequiously to the powerful oil companies and defeated the “Consumer-First Energy Act of 2008” (S. 3044). On June 10, 2008, the Democrats in the Senate fell 9 votes short of getting the 60 votes needed to overcome a Republican filibuster and move the bill forward.

The bill would have provided energy price relief for all Americans and would have provided the President, the Federal Trade Commission, and state attorneys general with the tools necessary to investigate and deal with potential price gouging during energy emergencies. It would have required the Secretary of Energy to temporarily suspend acquisition of petroleum for the Strategic Petroleum Reserve. It would have allowed the Attorney General to bring anti-trust enforcement actions against any country or company that is colluding in setting the price of oil, natural gas, or any petroleum product. It would also have curtailed excessive speculation in oil futures by commodity traders.

The primary cause of the Republicans’ objection was a provision in the bill that would impose a 25 percent tax on “windfall profits” made by oil companies. Republicans declared that this was just another tax measure that would do nothing to lower gas prices. In fact, it was not really a tax at all. It was an incentive. Oil companies would not have had to pay the tax if they invested the excessive part of their profits in alternative energy projects, refinery expansion, and promotion of energy efficiency and conservation.

According to the Congressional Research Service, ExxonMobil, the largest oil company in the world, shattered records in 2007 by making the largest net profit in history, over $40.61 billion. For the first quarter of 2008, Exxon’s profit was even higher--$10.9 billion compared with $9.3 billion in 2007. All of the other major oil companies followed suit with staggering, record-setting profits. The total 2007 profits of the top nine oil companies came to $127.994 billion.

Needless to say, the compensation packages for executives of these profit-bloated companies were correspondingly immense. According to the executive compensation research firm, Equilar, executive compensation for the CEOs of the 12 largest U.S. oil companies rose by more than four times the rate of all other executives in the S&P 500-stock index--from a median of $14.6 million a year in 2006 to $15.4 million in 2007. Rex Tillerson, the CEO of ExxonMobile, earned $21.66 million in 2007, and Ray Irani, CEO of Occidental Petroleum, received $33.62 million.

Back in 2004, at a time when the oil companies were already deluged with windfall profits, the Republicans in control of Congress passed over $10 billion in tax breaks for the oil industry. Now, in 2008, with gigantic profits gushing into oil company coffers, the Democrats sought to eliminate those tax breaks. They also sought to correct a loophole by which oil companies were able to avoid paying royalties of about $6 billion on oil leases from the federal government. President Bush, Dick Chaney, and the Republicans in Congress strongly opposed these changes.

It was the intention of the Democrats to use the money from these steps to create an alternative-energy fund which would finance new solar, wind, and biofuel projects. The bill would also have used the revenue to create an Energy Independence and Security Trust Fund, which would reduce U.S. dependence on foreign and "unsustainable" energy sources and reduce the risks of global warming.

Now that the Republicans have succeeded in blocking the Democrats’ energy bill, what do they want to do? The answer is that they want to open-up the Arctic National Wildlife Refuge (ANWR) in Alaska for oil drilling. They also want to open-up vast new areas for offshore oil and gas exploration and drilling.

The problem with the Republicans’ demands is that they are based on a combination of misinformation, ignorance, and baloney. As my next commentary will show, drilling for oil and gas in ANWR, and in additional offshore areas, would do practically nothing to lower the price of gas. Moreover, it would do nothing to help solve our energy crisis and would do everything to increase pollution and global warming in areas that are environmentally sensitive and economically important to the states.

Part 2

On June 18, 2008, President Bush urged Congress to end a federal ban on offshore oil drilling and also to open a portion of the Arctic National Wildlife Refuge for oil exploration. This would mean opening the east and west coasts and large parts of the Gulf of Mexico to oil rigs and drilling platforms. President Bush asserted that this would lower gasoline prices and “strengthen our national security.”

Bush’s call for more oil drilling to solve our energy needs reminds me of the testimony given by Athan Manuel of the Sierra Club on June 11, 2008, before the Select Committee on Energy Independence and Global Warming of the U.S. House of Representatives. Manuel is the Sierra Club’s Director of the Lands Protection Program. In commenting on the idea of solving our energy problems by more drilling, Manuel quoted the immortal words of Homer—Homer Simpson that is—“Stupidity got us into the mess, and stupidity will get us out.”

Manuel went on to point out that: “Unfortunately, some members of Congress and the Administration think like Homer Simpson, that the solution to our energy problems is the actual problem itself – a continued dependence on fossil fuels and more and more oil and gas drilling. If we are truly addicted to oil, as President Bush admitted in a recent State of the Union address, the answer is not to simply seek a bigger fix by drilling off of our beaches and in our last special places like the Arctic National Wildlife Refuge.”

It isn’t Bush’s stupidity that got us into this mess. It’s just that in eight years he has done nothing to prevent it. With the power of the presidency and a compliant Republican Congress, Bush could have created far-seeing policies that confronted the dangers of short energy supply and high gasoline prices. Instead, in line with his background as an oil man, he did absolutely nothing. Now he and the congressional Republicans, thinking that it might be a good campaign issue, argue that the solution to our energy problems is more drilling. The argument is thoroughly dishonest and fraudulent. They know better.

Manuel testified that if Congress authorized leasing for the coastal plain of the Arctic Refuge, production would not start for another ten years. The U.S. Energy Information Administration (EIA) reports that during the decade between 2021 and 2030, Arctic Refuge production could reduce prices at the gas pump by approximately 3.2 cents per gallon. Golly!

The same is true for America’s Outer Continental Shelf. Drilling there would not begin for 10 years and would not necessarily lower the price of gas. The price of gas is set on the world market, largely by OPEC. Look at gas prices in those countries that allow and promote offshore drilling: United Kingdom: $8.37 per gallon; Norway $7.33; Germany, $6.72; Canada, $4.34; and Japan, $4.16.2.

The most fraudulent aspect of the Republicans’ argument is the claim that we desperately need offshore and Artic Refuge oil to counteract our oil shortage and to solve our energy crisis. The fact is that the oil companies have plenty of offshore oil and, for some reason, they are not drilling for it.

Oil companies hold thousands of unused oil and gas leases. According to information provided to Congress by the Department of the Interior, there are more than 7,500 active leases in the outer continental shelf and only 1,655 in production. Only 10.5 million of the 44 million leased acres are currently producing oil or gas. Combined, oil and gas companies hold leases to nearly 68 million acres of federal land and waters where they are not producing oil and gas. As one congressman put it, that is an area the size of two states.

Of the 47.5 million acres of on-shore federal lands that are currently being leased by oil and gas companies, only about 13 million acres are actually in production or producing oil and gas. Experts say that these untapped onshore and offshore lands could yield an estimated 4.8 million barrels of oil and 44.7 billion cubic feet of gas per day.

Why are the Republicans claiming that we need to open-up the Artic National Wildlife Refuge and the areas off our beautiful national beaches for ugly and polluting oil drilling when the oil companies are not making use of the places they now have? Could this be simply a campaign tactic to mislead the public and divert its attention away from the President’s failure to act?

Part 3

The biggest problem with the Republicans’ argument—namely, that we should open-up the Artic National Wildlife Refuge (ANWR), and all remaining offshore areas, to oil and gas exploration and drilling--is that it sounds so good! Who cares if we drill oil and gas up in remote, barren, frozen Alaska? What’s so bad about opening up more offshore areas to oil and gas exploration and drilling? Don’t they have sufficiently advanced technology to prevent oil spills and pollution?

Aside from the fact that such exploration and drilling would do virtually nothing to lower the price of gas, and would do absolutely nothing to relieve our energy crisis, and the fact that the oil companies already have leases to millions of unused onshore and offshore acres which they have not yet begun drilling, the truth is that such additional drilling would create an environmental disaster.

The Artic National Wildlife Refuge is a very special place. It is a nineteen-million-acre area of wilderness in northeastern Alaska in the Alaska North Slope region. It is inhabited by over 45 species of land and marine mammals including the polar, grizzly, and black bears, as well as wolf, wolverine, Dall sheep, moose, musk ox, tens of thousands of migrating snow geese, and, of course, approximately 123,000 caribou. Thirty-six species of fish occur in Arctic Refuge waters, and 180 species of birds have been observed on the refuge. ANWR is just that, a “refuge” for wildlife.

The Refuge is magnificently beautiful, with mountains, rolling hills, small lakes, and north-flowing, braided rivers. There are no roads, but the area has thousands of hikers, campers, hunters, trappers, fishermen, and other visitors every year. The only permanent residents, as far as I know, are Inupiat and Gwich’in people.

Oil production in the Arctic Refuge would, according to the U.S. Geological Survey (USGS), come from many relatively small oil fields, not one large field like Prudhoe Bay. Athan Manuel of the Sierra Club testified before Congress that the result would be a sprawling industrial complex of drilling sites spread throughout one-and-a-half million acres of critical wildlife habitat. There would be hundreds of miles of pipelines, roads, oil derricks, airstrips, power plants, power lines, landfills, pumping stations, housing for workers, and oil processing facilities. There would be air pollution (particularly nitrogen oxides and methane, a greenhouse gas), oil spills, drilling wastes, and sewer sludge.

If you think that oil company technology is too advanced to permit oil spills and pollution, consider that just two years ago, BP, the largest operator on Alaska’s North Slope, caused the largest oil spill in North Slope history – over 200,000 gallons of crude oil, and a temporary but massive shutdown of the nation’s largest oil field due to pipeline corrosion. According to the Alaska Department of Environmental Conservation, there are “about 500 oil spills . . . in the Prudhoe Bay oil fields and along the 800-mile pipeline each year.”

Opening up the offshore areas of the East, southern, and West coasts of America to further oil drilling would also cause an environmental catastrophe. If you have ever gone swimming at Jones Beach in New York, or the beaches of New Jersey, Maryland, Georgia, the Carolinas, Florida , or California, you might have a hard time imagining ugly, dirty, pumping oil rigs off in the water. Athan Manuel points out that America’s coasts are a complex mosaic of sea grasses, wetlands, estuaries, beaches, and dunes. Offshore drilling is not compatible with this fragile ecosystem.

Statistics compiled by the Department of the Interior show that there were 3 million gallons of oil spilled from offshore oil and gas operations in 73 incidents between 1980 and 1999. Oil is extremely toxic to a wide variety of marine species. A recent National Academy of Sciences study found that current cleanup methods are incapable of removing more than a small fraction of the oil spilled in marine waters.

In 2005, Hurricanes Katrina and Rita caused massive spills of oil and other pollutants. The storms caused 124 oil spills into the waters of the Gulf of Mexico. During Hurricane Katrina alone, 233,000 gallons of oil were spilled. There were 508,000 gallons spilled during Hurricane Rita.

We have to ask ourselves whether this colossal environmental damage is worth the infinitesimal reduction in the price of gas that might result from drilling in ANWR and in the offshore areas currently under a ban.