The Scene Is Set: Almost two months ago, Exxon(NYSSE:XOM) acknowledged that its 2007 profits were the highest ever recorded by a publicly-traded company. A few weeks later, the House of Representatives responded to Big Oil's gargantuan profits by passing a bill that would redirect the $18 billion in tax breaks currently enjoyed by the oil industry into companies that are developing renewable energy resources. The bill has been shot down in the Senate, and President Bush has promised to veto it if it ever comes across his desk.
Tuesday witnessed the next step in the drama. Representatives of the top five oil companies, Exxon Mobil, Royal Dutch Shell(NYSE:RDS.A), BP(NYSE:BP), Chevron (NYSE:CVX)and Conoco Phillips(NYSE:COP) appeared before Congress to explain their record profits amid the growing gas crisis. The stage was ready, and the tension was palpable...
Biff! Bam! Bop! The Democrats Came Out Swinging! Democratic Congressmen used the meeting as a stage to issue lofty, populist statements about the needs of average Americans. The clear leader was Massachusetts' Ed Markey, whose first zinger made clever use of the fact that Tuesday was April 1: "Today, on April Fools' Day, consumers all over America are hoping that the top executives from the five largest oil companies will tell us that these soaring gas prices are just part of some elaborate hoax [...] unfortunately, it's not a joke." Markey then went on to wax, Al Sharpton-style, about big oil's halfhearted R&D effort: "Last year these companies alone made over $123 billion in profit. What is the oil industry doing with all this profit? Ultimately, it goes as much to financial engineering as to renewable engineering."
Rep. Markey wasn't alone in his populist speechifying. Rep. Jay Inslee (D-Wash) sarcastically queried the execs about renewable energy: "Does the oil fairy have to show up? When are you going to put some real money into it?" Representative Earl Bumenauer (D-Ore) picked up the same theme, stating that "[Renewable energy] is where we should be putting our scarce resources, not into areas that probably don't need our help."
Whap! Zap! Zowie! Big Oil Returned Fire! Republican Congressmen and the oil executives offered stock responses to the Democrat onslaught, hammering home the party line about supply and demand and changing market pressures. Stephen Simon, Senior Vice President of Exxon/Mobil stated that "Imposing punitive taxes [...] will discourage the investments needed to safeguard our energy security. The pursuit of alternative fuels must not detract from investments in oil and gas." He added that "We depend on high earnings during the up cycle to sustain [...] investment over the long term, including the down cycles."
Big Oil's other major theme was that the United States needs to grant the oil companies greater access to untapped oil reserves. When Rep. James Sensenbrenner (R-Wis) asked what could be done to lower prices, Robert Malone of BP America alluded to alternative fuel sources, saying "We need access to all kinds of energy supply." He quickly demonstrated that his definition of "all kinds of energy supply" largely means "more places to get oil," pointing out that most of the country's coastline is off limits to drilling. Chevron's Peter Robertson picked up the theme, arguing that the solution to the current gas crisis is to "Open up the 95 percent of the outer continental shelf that's off limits."What It All Means For You: For all its sound and fury, this little bit of political drama signified nothing. After all, the Democratic congressmen know exactly why the oil companies will do little to reduce prices: frankly, Exxon and the boys are making tons of money and have absolutely no motivation to stop doing so. In fact, Big Oil's "suggestions" for helping consumers are a transparent grab for resources: the gas companies have argued that greater access to crude oil will lower gas prices, but most experts agree that the real factor driving the price of gas is the current lack of oil refineries. Thus, while greater access to crude might lower the bottom line for the gas companies, it will probably do very little for the poor schmoes who are watching their paychecks disappear at the pumps.
As most of the major players are well aware, the solution to the current energy crisis is for the United States to mount a massive effort for the development of energy-conserving devices and renewable energy resources. Tax breaks would be undoubtedly help this along, but President Bush's intransigence on this issue, combined with the oil companies unwillingness to pursue technologies that will lower their profit margin, make it unlikely that there will be any improvement before January 2009. In the meantime, the politicians will issue eloquent sound bites, the oil companies will count their record profits, and the cost of gas will continue to rise.
It might be a good idea to dust off your bike, buy a new pair of sneakers, and get to know your local bus schedule.
Bruce Watson is a freelance writer, blogger, and all-around cheapskate. He keeps telling himself that he loves walking everywhere; sooner or later, he might begin to believe it.