Texaco and Chevron are awaiting government approval for a merger
that would create the nation’s fourth-largest oil company.MSNBC STAFF AND WIRE REPORTS
June 14 — The oil industry has partly blamed recent gasoline spikes on environmental rules for restricting refineries, but internal documents show that as long as five years ago some oil companies were looking for ways to cut refinery output to boost profits. “If the U.S. petroleum industry doesn’t reduce its refining capacity, it will never see any substantial increase in refinery margins,” says a 1995 Chevron document obtained by a U.S. senator and released Thursday.
INTERNAL INDUSTRY documents obtained by Sen. Ron Wyden, D-Ore., suggest that in the mid-1990s oil companies had little interest in building new refineries because of low profit margins and, in fact, were discussing the need to curtail refinery output to boost profits.
The November 1995 memo by Chevron also cited warnings about refinery profits by a senior analyst from the American Petroleum Institute, the industry trade group, at an industry conference that year.
API spokesman Jim Craig said Thursday, “We don’t know about these alleged internal company memos, but the idea that the API would warn member companies on profits is ludicrous.”
Six months later, in a Texaco memo marked “highly confidential,” a company official said surplus refinery capacity was “the most critical factor” facing the refinery industry because it resulted in “very poor refining financial results.”
The memo, written in March 1996, concluded that “significant events” were required to deal with the excess refinery capacity problem and suggested that one solution might be to get the government to lift clean air requirements for an oxygenate in gasoline. Removal of the additive would require more gasoline to be used in each gallon of fuel, thereby tightening supplies.
Even though refining capacity is tight now, the oil industry is still pressing for an end to the federal requirement for an oxygenate in gasoline, arguing that new blends of gasoline can meet the same clean air requirements.
NOT ILLEGAL, BUT ANTICOMPETITIVE?
Wyden said “the documents suggest that major oil companies pursued efforts to curtail refinery capacity as a strategy for improving profit margins.”
At a news conference, Wyden said that while the actions might not be illegal, they “sure look plenty anticompetitive.”
Oil companies are saying “we should be rewarded with environmental rollbacks or financial incentives” to restore capacity, the senator said, while the memos show that they tried to cut back that capacity.
Wyden added that he was conferring with Senate colleagues about a “comprehensive investigation.” One of those is Carl Levin, D-Mich., who had earlier indicated that he plans to do just that.
The Federal Trade Commission last month wrapped up a three-year investigation into refinery practices, concluding that it “found no evidence of conduct by the refiners that violated federal antitrust laws.”
Both Chevron and Texaco said they were preparing responses to Wyden’s claims. The two oil giants are awaiting government approval to merge, creating the nation’s fourth largest oil company.
REFINERIES KEY TO BUSH PLAN
Energy experts say that in order to provide the extra refining capacity needed to relieve today’s high prices, construction on plants should have begun in the mid-1990s.
The need for more capacity has been the focus of President Bush’s energy plan. Vice President Dick Cheney frequently has blamed gasoline price increases on tight supplies caused in large part, he says, by the fact that no new refineries have been built in 25 years.
In fact, 24 refineries — many of them small independents — have shut down since 1995, according to the Energy Department, accounting for the loss of 831,000 barrels a day in refining capacity. At the same time, individual refinery expansions have added 1 percent to 2 percent to nationwide capacity each year.
At a House hearing on gasoline supplies Thursday, the National Petroleum and Refiners Association said both financial and regulatory constraints make it difficult to build new refineries in the United States. While refinery profits have improved recently, the group said the rate of return on investments in refining has averaged a modest 5 percent over the past decade.
The president’s energy policy blueprint calls for incentives to boost refinery production. It blames the loss of refinery capacity on a variety of reasons, from low profit margins to burdensome environmental regulation and industry consolidation.
Too much capacity also “may have deterred some new capacity investments in the past,” the Bush energy plan acknowledges.
But Wyden said the documents he obtained — including the internal Texaco and Chevron memos — suggest that oil companies in the ’90s “sought to eliminate excess capacity to improve profits.”
TARGETING INDEPENDENTS
He said some of the refineries that were closed may have been shuttered “specifically to tighten supply and drive up costs” to consumers.
Wyden cited a confidential 1996 e-mail from Mobil Corp., which has since merged with Exxon, that suggested that major oil companies were not reluctant during the 1990s to try to force smaller independents out of business.
A California refinery owned by Powerine Oil Co. had ceased operation in 1995 but was trying to start up again a year later, hoping to compete in production of a special, cleaner gasoline required by the state.
This gas was selling at a premium, and Powerine’s re-entry into the market could have caused the price to drop as much as 3 cents a gallon, a Mobil executive warned in the internal e-mail.
“Needless to say, we would all like to see Powerine stay down,” the memo said. “Full court press is warranted in this case.”
Wyden also
released what he called an investigative report on the
documents. The report is online at
www.senate.gov/~wyden/oilinvest.doc.
-- Anonymous, June 14, 2001