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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.
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Reader Comments (Page 1 of 1)
4-04-2008 @ 4:12PM
jack said...
Same old government inquiry with nothing being done.
I would like to see the congressman fired for incompetance. It is obvious they are derilict in their duties to the voters.
4-04-2008 @ 4:42PM
Bruce Watson said...
Jack-
I agree with you in principle, but I'm not sure what Congress can do here. If the Senate won't pass the tax break legislation, and the President promises to veto it, their hands are tied. I guess they could use up some political capital and force the Presidential veto, but that would only give them a moral victory, not a substantive one. What we need to do is get the Senate to get off their butts and elect a President who isn't beholden to Big Oil!
4-04-2008 @ 5:15PM
jerry said...
The worst part is they are also collecting millions in tax payers money to subsidize their business. We the customer must pay them twice and three times if you also count the solders we pay to defend the oil wells they have sollen from the Iraqi People !
4-04-2008 @ 5:16PM
Bruce Watson said...
Jerry-
I'm right there with you. The tax subsidies are what drive me crazy--I can't believe we're giving them tax breaks on gargantuan profits. And now they want to take oil out of publicly-owned lands without paying a cent!
4-04-2008 @ 5:25PM
John said...
Congress orders you to give money to a church you hate, what are you gonna say?
YOu are going to tell them to buzz off. There is still some business in America that is none of the congress's business.
So they're ordering ExxonMobil to invest money into alternatives in which they do not believe, or during a timeframe of which they do not agree.
I hate W with passion, but I would veto that nonsense in a nano second. This is a free country. ExxonMobil is free to invest in whatever technologies it sees fit in the amounts they see fit. If they make good choices, they win. If they make bad choices, they lose. If they miss the boat on alternatives that pan out, they will end up huge losers.
Why is ExxonMobil making so much money? Because they invest gargantuan amounts of money in their energy business. It's huge. You're buying oodles of gallons of their product every second, and they cannot stop it from adding up - just like every other business on the face of the earth. What are they supposed to do? Give it away. Close their doors?
No other business is asked to do such things. Never.
When oil was $10 a barrel, and ExxonMobil was destroying employees' lives by laying them off left and right into a Texas economy with few job opportunities, did you send a donation? If you did, talk; otherwise, shut up.
4-04-2008 @ 5:35PM
Bruce Watson said...
John-
Fair enough--Exxon has the right to invest as they see fit. However, Congress has the right, and the responsibility, to spend taxpayer's money in the manner that benefits them most. At this point in time, the wisest investment of the taxpayers' money is in renewable energy, not in oil.
If Congress chooses to spend accordingly, as I dearly hope they will, then Exxon is welcome to nose up to the trough. If they choose not to (as they are welcome to do), I have no doubt that there numerous other companies will be ready and willing to take up the charge.
I have nothing against free enterprise, and Exxon is welcome to spend its money as it sees fit, but it's not welcome to spend MY money as it sees fit. As far as I'm concerned, oil is the technology of the twentieth century and we're in the twenty-first. It's time for Congress, and the country, to start looking forward, not backward.
4-04-2008 @ 5:42PM
PATRICK said...
Bruce , you write that congres has right to spend money that benifits them most...
I agree, the Dems. will spend other's ( yours and mine) on things that will benifit them most..
And that would be reelection.
This , oil windfall profit tax, is a ploy to pander to
the uninformed. It makes good bumper stickers,
good sound bites.
Free enterprise.
Patrick, proud to be an American
4-04-2008 @ 5:44PM
Bruce Watson said...
Patrick-
I hate pronouns--they always get me in trouble. By "them," I meant "the taxpayers." I knew somebody was going to get me on this one!
That having been said, you make a fair point about reelection, and I concede it. With regard to tax subsidies, they've existed for quite some time, and it's pretty apparent that the oil companies don't really need them right now.
Renewable energy companies, on the other hand...
4-04-2008 @ 5:50PM
PATRICK said...
Bruce, I am as much against the congress adding on more / additional taxes as I am against tax subsides, tariffs, pork barrell add on's etc.
Something about "keep it simple "
Free enterprise ... yes
Government intervention ... no.
Patrick, proud to be an American.
4-04-2008 @ 6:14PM
PATRICK said...
Bruce, and another thing.
I knew what you meant by "them".
It was self serving to use it.
Sorry to use you for my personal agenda.
Patrick, proud to be an American
4-04-2008 @ 6:31PM
Bruce Watson said...
Patrick-
I figured that you were just busting my chops.
At any rate, I think that you and I have different philosophies about the purpose of government. For me, government exists to support the people and to serve their needs. Like you, I am very proud to be an American, and when I look at big governmental projects, like the Hoover Dam and the TVA, I'm blown away by my country's ability to fund massive infrastructure improvements and the ability of those projects to improve the lives of its citizens.
One way or another, the government already funds thousands of companies--for example, it is currently the largest investor in renewable energy technologies, simply by virtue of its implementation of those technologies. I think that tax benefits for renewable energy companies is, in many ways, an investment in future purchases: by making these technologies cheaper, the government reduces the price of later expenditures.
Given that the government chooses to employ some companies and not others, we could (if we wanted to be pedantic) argue that free enterprise is already a wash. Besides, from Edison on, we'd have to argue that invention and enterprise have often been boosted by government intervention.
4-11-2008 @ 3:07PM
Andy said...
I think it is important to note that the tax breaks in question are available to ALL industry in the nation, not just oil companies. Also, when you look at return on investment, oil companies are quite modest in their returns (~9%, midpack for American industries, compared to say pharmaceuticals and tobacco companies). It is silly to look at gross returns; to say a company is making record profits is a useless measure without taking the costs required to make such profits into consideration. Exxon Mobil, for instance, makes huge profits, yes, but the investment requires to make these profits is enormous (think of the logistics of getting something that comes from miles underground or underseas to your corner store for about the same price per gallon as milk). To tax these companies unfairly will lead to them being uncompetitive with their foreign counterparts, forcing more American jobs overseas. Indeed, oil companies have no pricing power when it comes to crude oil or gasoline; these are global commodities, the majority of which are produced by NOC's (national oil companies, such as Saudi ARAMCO and Brazi's PetroBras) who control around 90% of the world's known reserves of standard crude oil. If the populists want to lower oil prices, then drop the gas tax, which adds nearly 90 cents to the average gallon of gas.
4-07-2008 @ 9:49AM
Andy said...
Correction: I meant to say compared to ~20% for tobacco and pharmaceuticals; the returns in the oil industry are NOT comparable =)
4-05-2008 @ 11:43AM
cl said...
Any form of private enterprise would be furious if the government made them use there private gains to fund government uses. The oil companies are private companies, they have so many government regulations on them, how much a well can pump a day, even when it could do more. The do use much of there profit to drill more, r & d are also recievers of these funds. As for refineries, the government restrictions on new refineries are so large it is impossible to build them in the USA. The old ones are being updated and it is a massive undertaking. alternative fuels use petroleum products to develop alternative fuels. In the 70s' and 80s' when these companies worked in the red to keep people employed and the economics of this country above water no one complained, but they did it for the benefit of the USA. The roads in this country are in horrid condition. Does this mean that truck drivers and trucking companies pick up the bill because they are the ones who use the roads the most. No private company should be told by our government what to do with there profits. Small business owners nor big business owners. We are all in it to make money. I can say, oil and gas companies share the profits greatly with there employees. Not all companies do. If you have a complaint about gas prices ask your senator and congressman to take the 40% tax at the pump off, ask your gas companies to quit multiply by up to 100% what they pay an oil company for oil and gas to your homes. Ask your electric company to do the same. At a well head you get paid so much and all these companies can go up to !00% on your bill as to what they paid. Private enterprise is just that private. No company wants to be told how to run or spend profits. Everyone who works is in for the profits, or we wouldn't be working. Ask your government leaders to stop all the taxing and tell people who have bled this country for billons in welfare, illegally, to do something about there spending before they go after big or small businesses. Waste in government is in the billions.
4-11-2008 @ 4:23PM
prousa217 said...
Bruce Watson :
We conduct window dressing every year on this subject. I watched C-span in action, all a bunch of crock. We weren't born yesterday.. I bet they are all buddy buddy after the hearing is over and begin vacationing at oil exce's expense. All crock and crooks. Nothing constructive ever comes out of it. This government is just so corrupt.. I'm republican and I'm running out of parties to belong to.. The democrats are on the "leg-run" (sex scandals) and the republicans are incompetent and corrupt. Both parties suck.. Yes, I run everyday and look for public transportations when ever I can... So sick of this having morons making me into an idiot!!