Following Katrina’s devastation, the president could crack down on the real looters by sending the National Guard to Houston and Irving, Texas, and San Ramon, Calif., the headquarters of ConocoPhillips, ExxonMobil, and ChevronTexaco.
In the wake of the hurricane, the retail price of gas shot up by as much as a dollar a gallon. A week later, gas was still up by 46 cents, and the next week by 34 cents. Because of the shortage of refining capacity, it is unlikely to fall to pre-hurricane levels any time soon.
U.S. consumers and businesses use about 400 million gallons of gasoline every day. At an average of 40 cents extra per gallon, that amounts to $2 billion in the first two weeks after Katrina. If we add diesel, jet fuel, heating oil and other refinery products, the extra profits could exceed $4 billion. With predictions of big increases in heating oil and natural gas prices this coming winter, the gravy train is likely to continue.
Most of the increase in prices undoubtedly goes to the multinational oil companies, with the “independent” refiners getting a smaller share. In either case, they are paying about the same for crude as they were before the hurricane. And it still costs the same to turn crude oil into gasoline. But they are charging an extra 40 cents for every gallon they sell.
What a sweet deal! Add to the extra $2 billion per week they are extracting from U.S. consumers the substantial profits from worldwide price increases. No wonder the stock prices of oil companies rose after the hurricane — even those that sustained the worst damage.
By contrast, on Sept. 2 the Boston Globe reported that several big oil companies had pledged a total of a measly $11 million for relief efforts. They made this amount in extra profits in the first hour after the levees burst.
Even before Katrina, the price of crude oil was three times its pre-Iraq war level. An MSNBC report quoted oil analyst Fadel Gheit: “They have so much profit, it’s almost an embarrassment of riches. They don’t know what to do with it.” The mountains of cash — more than $125 billion in the last three years — have gone primarily to enrich oil company owners, executives and bankers.
Katrina knocked out much of the Gulf Coast oil industry temporarily, and it could be months before full production is restored. The oil industry could have used some of its extra cash to build adequate reserve capacity for emergencies. But then there wouldn’t be a shortage of refined petroleum, and they wouldn’t be able to raise prices. There is more profit for the oil industry when it is not prepared for disaster.
For Californians, this is a rerun of 2000-2001. The regulated utilities sold off their generating plants to unregulated companies with no obligation to provide new capacity or reliable service. As growing demand for electricity squeezed reserve margins, the generators and marketers like Enron manipulated supplies and transmission capacity to create artificial shortages and blackouts. Prices went through the roof. Consumers and taxpayers paid tens of billions of dollars in extra charges, while federal regulators refused to stop the profiteering.
While there is no evidence so far that oil companies have deliberately created the current shortages, their neglect of the nation’s oil and gas infrastructure and their profiting from those shortages certainly bring Enron and California to mind.
In Congress, some Democrats have called for an excess profits tax on the oil companies’ profits. There have also been calls for a cap on gas prices at the state and federal levels. These proposals deserve support, but they are a piecemeal approach to a problem that needs to be tackled systematically.
After the Enron disaster in 2001, California took steps to re-regulate electric utilities. We should do the same to the oil and gas industry. A federal regulatory agency should be established with participation by labor, consumer, environmental and community organizations. The agency would:
• cap prices after allowing for legitimate expenses, but not for excessive executive salaries or speculative investments.
• require a long-term investment program including geographically dispersed reserve capacity in production, refining, transportation and storage.
• audit company books and publish real costs of producing, processing and transporting petroleum products.
• regulate energy trading exchanges to prevent wild price swings which are not connected to costs of production.
There are many other elements to a sane energy policy — but that is a topic for another day.
economics @ cpusa.org
Chuck Williams contributed to this article.