Wednesday, June 20, 2007

Big Oil vs. Little Scooter

Chevron has research projects in making gasoline from agricultural waste and wood pulp.


David Reinhard

Peter J. Robertson had no idea what he was walking into earlier this month.

The vice chairman of Chevron Corp.'s board of directors was visiting The Oregonian's editorial board, and I had just filled up at the gas station. Like many Oregonians, I was not happy. I had just spent $3.29 for a gallon of gas. Admittedly, my TNG Milano 49 only needed a gallon for a week of commuting, but this cheapskate didn't join Scooter Nation to watch Big Oil gobble up my gas savings.

I wanted answers, and I wanted them now. More to the point, I wanted someone to blame. Enter Chevron's Robertson.

Why, sir, are oil industry bosses taking food out the mouths of babes by manipulating the gas prices and gouging the poor American consumer?

"Big Oil is not so big," Robertson said after pulling out a bar chart showing the national oil companies (sovereign nations and their oil companies) and the international oil companies¾ExxonMobil, BP, Chevron, etc. The nationals control 95 percent of the world's oil and gas reserves. The international companies control 5 percent.

Iran controls almost 300 billion barrels, Saudi Arabia controls almost as much, and Qatar 160 billion barrels. Chevron controls less than 11.6 billion. Chevron and other oil companies are big companies, but they're small in relation to the global oil market. They're simply in no position to rig oil prices on the world market¾a significant reality because the price of oil accounts for 53 percent of the price of gasoline in the United States. Refining and marketing costs account for 33 percent and, across the country, taxes 15 percent.

Ah, but isn't the oil industry holding back supply?

Actually, he noted, U.S. refineries operate at close to capacity, refining gas at record levels. Indeed, the United States has more than 200,000 barrels a day more capacity today than it did last year.

So, you're sitting there saying the industry is not price fixing? What about all those government investigations?

Yes, there are have been more than 30 since 1973. Not one has concluded the industry manipulated prices.

Why, then, are gas prices so high?

Higher worldwide demand than anyone anticipated, thanks to economic growth in China, India and the United States. Robertson also said the industry is now operating in difficult political environments abroad (Nigeria, Venezuela) while production is more difficult here at home (less and less high-quality material available).

"It's very difficult," he said, "to find places in the United States where you can drill. 'Don't drill here, and we want the cheapest gas in the world'¾that's not possible."

Yeah, but what about Big Oil's obscene profits?

Robertson pulls out another chart. It shows industry-by-industry earnings for 2006. The oil and natural gas industry made 9.5 cents for each dollar in sales. The computers and electronics made 13.4 cents, the beverage and tobacco industry 17.2 cents and pharmaceuticals and medicine made 21.6 cents.

Again with the charts. Well, why not put those profits back in research and development?

Chevron has. It's posted earnings of $53 billion during the past five years. The amount Chevron has invested in the same period? Fifty-three billion dollars. In 2007, Robertson's quick to note, his company will invest almost $20 billion.

"We're not wheeling cash out the back door in wheelbarrows," he said.

Fine, but you're not investing in alternative fuels, are you?

Actually, Chevron is.

"We're the largest geothermal company in the world," Robertson said. He also mentioned Chevron had just cut the ribbon on a new biodiesel plant in Texas that uses soybeans. Chevron has research projects in making gasoline from agricultural waste and wood pulp.

Alternative fuels are the answer, aren't they?

Robertson isn't ready to go that far. They're part of the answer. "One of the problems with the energy business is that people don't appreciate the scale (of production and delivery), so the scale of change is very large, " he said. "The traditional sources are still going to be very important."

I suppose you think the answer is the free market?

"What higher prices are telling us," Robertson said, "is that we need to invest."

What else can we do?

"I think this is a leadership issue," Robertson said. "I think leaders need to be honest with the American people about why prices are higher, not blame a bunch of people for doing business. Nobody's talking about maintaining our oil and gas production. We can't dismiss this issue. As long as our leaders spend their time looking to blame, they're not addressing the issue, which is a complex set of energy issues."

Yeah, well, but, but ... oh, never mind.

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