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September 23, 2005
The Bramble Bush
by Kevin Morford

Gouging for Gas

     Do you think that the recent high prices of gasoline in the United States are the result of OPEC price increases, or of hurricanes doing damage to drilling rigs in the Gulf of Mexico? Do you think that the price of gasoline has pretty much reached the top and will start to go back down soon? If so, you may be wrong on all counts according to a study recently released by the Foundation for Taxpayer and Consumer Rights California (“FTCR”).

     The FTCR is a nonpartisan nonprofit consumer group. Its study, authored by petroleum industry analyst Tim Hamilton, looked into the causes of the recent spikes in prices paid at the pump in California. This study has some significance for Alaska, because much of the crude oil refined and used in California comes from Alaska.

     The recent price increases for gasoline are very substantial. Between January 17, 2005 and April 18, 2005, average gasoline prices jumped 65 cents per gallon in California. Of this increase, 61 cents per gallon went to refiner profits, and 4 cents per gallon went to the State of California as increased sales taxes. Over a longer time frame, gasoline prices doubled between January 3, 2000, when they were $1.36 per gallon, and August 15, 2005, when they were $2.72 per gallon.

     Here is some of what the study found. First, the price rise is not primarily the result of increases in the price of OPEC oil. Only about 20 percent of the oil refined and used in California comes from OPEC nations. Sixty six percent of California’s oil comes from fields in Alaska or California. Fourteen percent comes from non-OPEC foreign sources.

     Second, costs of production do not explain the rise in price. No evidence exists for substantial increases in the costs required to produce the crude oil, or to refine the oil into gasoline, or to transport the refined gasoline to market. The price increases for gasoline go into increased profits for the refiners, and not into increased production costs.

     Third, the 2005 California price rise was directly tied to the exportation of large quantities of CARB diesel fuel by refiners and traders. CARB fuel is a cleaner burning fuel that has been mandated by the State of California. In June of 2005, in response to falling prices for gasoline at the pump, refiners and traders exported an estimated 21
million gallons of CARB fuel to Chile. Because gasoline is refined out of diesel fuel, the export of the CARB diesel drew down local inventories needed to make more gasoline. By exporting this fuel out of the country, the refiners and traders deliberately decreased the supply of gasoline during a period of peak demand. Prices and profits started rising again.

     Fourth, the oil companies have an economic incentive to keep refining capacity below the level of demand. This helps them to maintain high prices, and high profit margins. According to Jamie Court, the president of FTCR, over the last 23 years refining capacity in the United States has actually dropped by 10 percent, and the number of refineries is now one half of what it was in 1982. Last year Shell Oil tried to close and demolish its existing refinery in Bakersfield. It was forced to abandon that plan by public outcry, and it ended up selling the refinery to another company instead. But if it had succeeded with its plan, the price spikes this summer would have been even higher. Internal memoranda from three big oil companies (Mobile, Chevron and Texaco) show that they have deliberately reduced domestic refining capacity in order to drive up prices. Mobile even advocated tougher environmental regulations on refiners, as a way of discouraging new refiners from entering the market.

     This is the same type of deliberate manipulation of the market which was carried out by Enron during its energy trading days. Enron created rolling blackouts through its manipulations, while the oil industry is creating huge price spikes for gasoline. These types of collusive price manipulations have been going on over a substantial number of years. Rather than enforce existing antitrust laws, the Bush administration included in its recently passed energy bill a tax incentive for the construction of more refineries. That is unlikely to work, because the dollar value of the tax incentives is lower than the record profits created by the artificial shortage of refineries.

     How is the oil industry going to avoid building more refineries? Blame it on the environmentalists. They will claim that the reason they have not built any new refineries in the last 30 years is because of environmental regulations. It is not true, as the internal memoranda of the oil companies show, but it works as a stalling tactic while they continue to ring up record profits.

     Much of this mess is the result of the government’s failure to effectively regulate the industry. The FTCR report predicts that unless the government takes effective steps to stop these price manipulations, the price of gasoline at the pump will reach $4.00 per gallon in the relatively near future. More information on the FTCR report can be found at www.consumerwatchdog.org. Happy driving.







Kevin Morford is a political activist and an attorney in private practice in the Anchorage area.  He can be reached at kmorford@insurgent49.com.
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The
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by Kevin Morford





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in-sur-gent (in sur'jent), n. 1. a member of a group which revolts against the policies of its leadership.