Levin to Use Committee Post to Probe Oil Industry Profits

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Levin to Use Committee Post to Probe Oil Industry Profits

WASHINGTON - 05.29.01 | Sen. Carl Levin, D-Mich., who will take over as chairman of the Senate Permanent Subcommittee on Investigations (PSI) when the Democrats become the majority party in the Senate, has announced his intention to open an investigation into the increase in gasoline prices.

"I am directing the new majority staff of the Permanent Subcommittee on Investigations to pursue an investigation into the recent sharp increase in gas prices," Levin said. "We hear various explanations as to why we have again suffered a dramatic increase in gas prices, but so far the explanations haven't been satisfactory. The oil companies need to explain why gas prices have increased so dramatically given that there has been no comparable increase in the per barrel cost of oil to them."

Levin, as the Ranking Democrat on the Subcommittee, has already asked the General Accounting Office (GAO) to look into the effect of recent mergers and consolidations in the oil industry on gas prices and whether the recent large number of such mergers have resulted in less competition and higher gas prices. Levin pointed out that oil companies have historic high profits, and he asserted the need for the government to use the tools at its disposal to fight back against price gouging by oil companies.

Levin is expected to become chairman of the Permanent Subcommittee on Investigations the first week of June when Senator James Jeffords' officially leaves the Republican party to become an independent. The PSI Subcommittee, which is part of the Senate Governmental Affairs Committee, has a very broad investigative jurisdiction over government operations and national security issues, and has subpoena and deposition authority.



-- Cherri (jessam5@home.com), May 30, 2001

Answers

The oil companies need to explain why gas prices have increased so dramatically given that there has been no comparable increase in the per barrel cost of oil to them."

http://www.csmonitor.com/durable/2001/05/04/fp1s3-csm.shtml

FRIDAY, MAY 4, 2001

50 reasons gasoline isn't cheaper

As big driving season dawns, refiners must make as many blends of gas as there are states.

By Ron Scherer (ron@csmonitor.com)

Staff writer of The Christian Science Monitor

The Marathon Oil Co. refinery in Detroit is only about 200 miles from Chicago. That's not an uncommon distance to transport gasoline, but it might as well be on the other side of the continent as far as residents of the Windy City are concerned.

The reason: The gasoline Chicagoans use is a different blend, formulated to match the city's environmental needs.

This Balkanization of the gasoline market - there are literally 50 different blends used in the country - is a major reason prices might approach $2.00 per gallon in some areas this summer.

In fact, now that the summer driving season is near, boosting demand in an era of tight supplies, the nation's refiners face daunting challenges - and criticism from all sides. They find themselves blamed for shortages, and for air pollution.

They are accused of price-gouging, while they themselves claim they can't make enough money to build new plants. Meanwhile, summer is also smog season, and as metro areas struggle to meet clean-air laws, refiners must find ways to get 50 gas blends through a maze of pipelines to the right storage tanks without making a mistake that might cause motorists to see red.

"They are in a difficult position, it's tough to make everyone happy," says Mark Zandi, chief economist for Economics.com, a web site.

It's a situation that has not escaped the White House, which will be releasing its energy policy in only a few weeks. This week, Vice President Dick Cheney said the nation has to increase its refining capacity to prevent gasoline prices from spiking.

"As matters stand, it's been about 20 years since a large refinery was built in the United States," said Mr. Cheney.

To encourage new refinery capacity, the industry wants the White House to ease up on environmental rules that govern the changes that have to be made in existing facilities. The Environmental Protection Agency (EPA) requires strict standards for the refineries. "The most severe standards should only be required when needed," says Bob Slaughter, a lawyer at the National Petrochemical and Refiners Association (NPRA) in Washington.

For example, the EPA rules require burners that use little nitrogen oxide (a pollutant). But the burners are expensive, and the industry says not all refineries need them. "You have some places like in Yorktown, Va., or Billings, Mont., where it does not always make sense," says Mr. Slaughter.

The environmental community opposes these types of changes. "It's a basic concept of the Clean Air Act, going back as far as 1970, that if you build any new facilities, you must put on the most stringent air pollution technology available," says Blake Early, an environmental consultant to the American Lung Association in Washington. "These companies should not be allowed to get away with this."

Mr. Early says this is not the time to ease up on the rules, since the Lung Association's most recent report found 9 million more Americans living in areas with unhealthy smog levels today, compared with the prior year's report. "It's not like we licked the problem, and it won't hurt if we weaken the requirements."

In fact, on Wednesday, an environmental consortium released a study of ExxonMobil's gigantic Baytown, Texas, refinery. The group alleges scores of environmental problems, ranging from a failure to report emissions to possible violations of federal law. "This is bad news for Texans who want clean air," says Peter Altman, executive director of the coalition.

ExxonMobil, in a press release, said it operates the refinery in accordance with all regulatory requirements. It said the report has misrepresentations and uses "hysterical" language.

Because of strict environmental laws, it's extremely expensive to build a new refinery. Jerry Thompson, a senior vice president at Tulsa-based Citgo, one of the nation's largest refiners, estimates a state-of-the-art refinery processing 300,000 barrels per day would cost about $3 billion. Instead of building new facilities, the industry is adding about 1.5 percent to the capacity of its existing ones each year. This is about in line with demand, but leaves no cushion.

As long as there are no refinery outages or pipeline problems, Mr. Thompson, also the chairman of the NPRA, predicts the industry will be able to supply most of America. But he warns there could be regional problems in California and the Great Lakes regions, areas with specific gasoline requirements to cut smog.

To try to minimize these problems, the refiners would prefer to see only three blends in the entire country. "The real pinch point is distribution and tankage," Thompson says.

For example, until this year, the city of Tulsa had its own blend of gasoline for the summer. Now, it's been modified so it's the same blend used in Dallas. "It will be a little bit easier for the industry to supply that," Thompson says.

Atlanta and 43 counties around it also have a unique fuel. Thompson says they came up with this new blend to avoid having to use reformulated gas, the other main way to meet federal air-quality standards.

The demands on the refining industry are only expected to increase. It must produce low-sulfur gasoline by 2004, and low-sulfur diesel by 2006.

Thompson doubts the industry can make the $8 billion to $11 billion in needed diesel investments in time.

-- Not with the oil companies. I (just@read.a_lot), May 30, 2001.


YEAH!! WE WANT A $50 MILLION, 8 YEAR LONG INVESTIGATION!

NAIL DUMBYA AND HIS GREEDY BASTARD OIL TYCOON FRIENDS TO THE WALL!!

-- (HANG@EM.HIGH!), May 30, 2001.


Let's see now, is it only oil that should be in investigated if the profit margin is above X %?? Or is it any company that makes profits above a certain margin?

And why is it that these same energy companies were not investigated back in the early to mid 90's when their profit margins were horrible?

As I have always said, liberals are idiots.

-- libs are idiots (moreinterpretation@ugly.com), May 30, 2001.


KCStar Editorial on Gasoline prices ---------------------------------------------------------------------- ---------- Not even Big Oil can beat market Source: Kansas City Star Publication date: 2001-05-30

The pre-holiday surge in gasoline prices, which shouldn't have surprised even the conspiracy theorists, will get worse before it gets better. Big Oil makes a good scapegoat, given recent industry profits that surpass the gross domestic product of many countries. What drivers are up against, however, transcends anyone's ability to manipulate markets.

The market price of anything represents more than its value at the moment of sale. A price is also a signal to consumers concerning a good's relative scarcity or plenty. Gas prices rise in late May because the Memorial Day holiday marks the advent of the vacation driving season, when demand starts rising faster than supply.

The logical question, of course, is why refiners don't try to stabilize summer prices by stockpiling against anticipated increased demand. The logical answer is that it makes no sense for oil companies to incur the cost of sitting on excessive inventories. The point is moot, anyway, because even if they wanted to build inventories they couldn't. Refineries are running too close to capacity.

There is also the problem of clean-air laws requiring specially blended fuels for certain areas, which precludes moving supplies from areas of undersupply to areas of oversupply. In some areas the situation is further worsened by the need for season-specific gas blends.

As if things weren't bad enough already, the gas market this year was victimized by Murphy's Law. Most everything that could go wrong has gone wrong. An analysis in The Wall Street Journal noted that a pipeline blowout, refinery problems and high natural gas prices have further undermined refiners' ability to increase already low inventories.

While inventories were down only slightly overall, supplies of lower- emissions blends, which are used in about a third of the country, fell more than 3 percent the week before the holiday.

Unfortunately, rising prices have done little to blunt demand. This portends even higher prices ahead as long as motorists continue to maintain current driving habits in the face of stable to declining supply. When the price signal becomes strong enough to persuade consumers to curb demand, only then will prices stop rising, and possibly start declining.

All of which is likely to trigger political responses as irate Americans lean on their elected representatives to stop the outrage of "pump piracy," or some such. 'Twas ever thus with petroleum, as Daniel Yergin explained in The Prize, his epic history of the oil industry. Since the world first began running on oil, price spikes for petroleum products have seldom failed to trigger a political reaction.

The irony has been that political responses almost invariably make the problem worse. Attempts to please voters by imposing constraints on supply and pricing mechanisms always create marketplace distortions that either bring shortages, boost prices or both.

If government really wants to help this time around, what's needed is a relaxation of emission rules and policies designed to encourage more refinery development. Meanwhile, it certainly wouldn't hurt if America backed off its love affair with gas guzzlers.

Jerry Heaster's column appears Wednesday, Friday, Saturday and Sunday. To reach him, write the business desk at 1729 Grand Blvd., Kansas City, MO 64108; call (816) 234-4297, or send e-mail to jheaster@kcstar.com.

Publication date: 2001

-- libs are idiots (moreinterpretation@ugly.com), May 30, 2001.


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