Join Date: Jun 2008
Why gas prices are so high !!!!!
May 21, 2008
> Earlier today, the Senate Judiciary Committee summoned top
> executives from the petroleum industry for what Chairman Pat
> Leahy thought would be a politically profitable inquisition.
> Leahy and his comrades showed up ready to blame American oil
> companies for the high price of gasoline, but the event wasn't
> as satisfactory as the Democrats had hoped.
> The industry lineup was formidable:
> • Robert Malone, Chairman and President of BP America, Inc.;
> • John Hofmeister, President, Shell Oil Company;
> • Peter Robertson, Vice Chairman of the Board, Chevron
> • John Lowe, Executive Vice President, Conoco Philips Company;
> • Stephen Simon, Senior Vice President, Exxon Mobil
> Not surprisingly, the petroleum executives stole the show, as
> they were far smarter, infinitely better informed, and much
> more public-spirited than the Senate Democrats.
> One theme that emerged from the hearing was the surprisingly
> small role played by American oil companies in the global
> petroleum market.
> John Lowe pointed out:
> I cannot overemphasize the access issue. Access to resources is
> severely restricted in the United States and abroad, and the
> American oil industry must compete with national oil companies
> who are often much larger and have the support of their
> We can only compete directly for 7 percent of the world's
> available reserves while about 75 percent is completely
> controlled by national oil companies and is not accessible.
> Stephen Simon amplified:
> Exxon Mobil is the largest U.S. oil and gas company, but we
> account for only 2 percent of global energy production, only 3
> percent of global oil production, only 6 percent of global
> refining capacity, and only 1 percent of global petroleum
> reserves. With respect to petroleum reserves, we rank 14th.
> Government-owned national oil companies dominate the top spots.
> For an American company to succeed in this competitive
> landscape and go head to head with huge government-backed
> national oil companies, it needs financial strength and scale
> to execute massive complex energy projects requiring enormous
> long-term investments.
> To simply maintain our current operations and make needed
> capital investments, Exxon Mobil spends nearly $1 billion each
> Because foreign companies and governments control the
> overwhelming majority of the world's oil, most of the price you
> pay at the pump is the cost paid by the American oil company to
> acquire crude oil from someone else.
> Last year, the average price in the United States of a gallon
> of regular unleaded gasoline was around $2.80. On average in
> 2007, approximately 58 percent of the price reflected the
> amount paid for crude oil. Consumers pay for that crude oil,
> and so do we.
> Of the 2 million barrels per day Exxon Mobil refined in 2007
> here in the United States, 90 percent were purchased from
> Another theme of the day's testimony was that, if anyone is
> "gouging" consumers through the high price of gasoline, it is
> federal and state governments, not American oil companies. On
> the average, 15% percent of the cost of gasoline at the pump
> goes for taxes, while only 4% represents oil company profits.
> These figures were repeated several times, but, strangely, not
> a single Democratic Senator proposed relieving consumers'
> anxieties about gas prices by reducing taxes.
> The last theme that was sounded repeatedly was Congress's
> responsibility for the fact that American companies have access
> to so little petroleum.
> Shell's John Hofmeister explained, eloquently:
> While all oil-importing nations buy oil at global prices, some,
> notably India and China, subsidize the cost of oil products to
> their nation's consumers, feeding the demand for more oil
> despite record prices. They do this to speed economic growth
> and to ensure a competitive advantage relative to other
> Meanwhile, in the United States, access to our own oil and gas
> resources has been limited for the last 30 years, prohibiting
> companies such as Shell from exploring and developing resources
> for the benefit of the American people.
> Senator Sessions, I agree, it is not a free market.
> According to the Department of the Interior, 62 percent of all
> on-shore federal lands are off limits to oil and gas
> developments, with restrictions applying to 92 percent of all
> federal lands. We have an outer continental shelf moratorium on
> the Atlantic Ocean, an outer continental shelf moratorium on
> the Pacific Ocean, an outer continental shelf moratorium on the
> eastern Gulf of Mexico, congressional bans on on-shore oil and
> gas activities in specific areas of the Rockies and Alaska, and
> even a congressional ban on doing an analysis of the resource
> potential for oil and gas in the Atlantic, Pacific and eastern
> Gulf of Mexico.
> The Argonne National Laboratory did a report in 2004 that
> identified 40 specific federal policy areas that halt, limit,
> delay or restrict natural gas projects. I urge you to review
> it. It is a long list. If I may, I offer it today if you would
> like to include it in the record.
> When many of these policies were implemented, oil was selling
> in the single digits, not the triple digits we see now. The
> cumulative effect of these policies has been to discourage U.S.
> investment and send U.S. companies outside the United States to
> produce new supplies.
> As a result, U.S. production has declined so much that nearly
> 60 percent of daily consumption comes from foreign sources.
> The problem of access can be solved in this country by the same
> government that has prohibited it. Congress could have chosen
> to lift some or all of the current restrictions on exploration
> and production of oil and gas. Congress could provide national
> policy to reverse the persistent decline of domestically secure
> natural resource development.
> Later in the hearing, Senator Orrin Hatch walked Hofmeister
> through the Democrats' latest efforts to block energy
> HATCH: I want to get into that. In other words, we're talking
> about Utah, Colorado and Wyoming. It's fair to say that they're
> not considered part of America's $22 billion of proven
> HOFMEISTER: Not at all.
> HATCH: No, but experts agree that there's between 800 billion
> to almost 2 trillion barrels of oil that could be recoverable
> there, and that's good oil, isn't it?
> HOFMEISTER: That's correct.
> HATCH: It could be recovered at somewhere between $30 and $40 a
> HOFMEISTER: I think those costs are probably a bit dated now,
> based upon what we've seen in the inflation...
> HATCH: Well, somewhere in that area.
> HOFMEISTER: I don't know what the exact cost would be, but, you
> know, if there is more supply, I think inflation in the oil
> industry would be cracked. And we are facing severe inflation
> because of the limited amount of supply against the demand.
> HATCH: I guess what I'm saying, though, is that if we started
> to develop the oil shale in those three states we could do it
> within this framework of over $100 a barrel and make a profit.
> HOFMEISTER: I believe we could.
> HATCH: And we could help our country alleviate its oil
> HOFMEISTER: Yes.
> HATCH: But they're stopping us from doing that right here, as
> we sit here. We just had a hearing last week where Democrats
> had stopped the ability to do that, in at least Colorado.
> HOFMEISTER: Well, as I said in my opening statement, I think
> the public policy constraints on the supply side in this
> country are a disservice to the American consumer.
> The committee's Democrats attempted no response. They know that
> they are largely responsible for the current high price of
> gasoline, and they want the price to rise even further.
> Consequently, they have no intention of permitting the
> development of domestic oil and gas reserves that would both
> increase this country's energy independence and give consumers
> a break from constantly increasing energy costs.
> Every once in a while, Congressional hearings turn out to be