How convenient for the oil industry that Hurricane Katrina hit just before the traditional Labor Day-weekend hike in gas prices. Now, instead of having to fake up some absolutely absurd excuse for jacking up gas prices, the industry can try and dupe Americans into thinking that they are suddenly paying $3.25 a gallon because of a storm.
The oil industry’s response to Katrina has provided a reminder of why it is so exceptionally profitable.
Even before a start had been made on assessing the damage caused by the tropical storm, energy corporations were cashing in. And every indication is that they plan to continue doing so–perhaps taking prices over the $4-a-gallon mark, according to James DiGeorgia, editor and publisher of the Gold & Energy Advisor and author of The Global War for Oil.
No one debates the fact that the hurricane has done significant damage to oil rigs, refineries and delivery systems along the Gulf Coast, a region that accounts for roughly 10 percent of US refining capacity. But roughly 90 percent of US refining capacity remains fully functional and, it should not be forgotten, the US has not stopped importing oil.
Additionally, the Bush Administration jumped to the aid of the oil companies long before the relief effort was in full swing.
The Environmental Protection Agency suspended summertime antipollution measures, lifting the requirement that refiners lower fuel volatility and cut sulphur levels. At the same time, the Administration moved to release oil from the nation’s Strategic Petroleum Reserve, which was created more than three decades ago with the precise purpose of boosting fuel supplies in order to keep a lid on rising wholesale gasoline prices in a circumstance such as the one that has now developed.
Despite all the aid they are getting, however, the oil companies are not giving anything back. There is no evidence of a willingness on the part of these highly profitable corporations to sacrifice in a time of national emergency.
Make no mistake: These corporations should be able to absorb a hit. Over the past year and a half, the four largest oil companies–ExxonMobil, ChevronTexaco, Royal Dutch/Shell Group and BP Group PLC–have pocketed close to $100 billion in profits. During the first quarter of 2005 alone, those firms pulled in a cool $23 billion.
But instead of sharing the pain, they appear to be moving to squeeze every cent they can out of the crisis.
With oil-industry friends in charge of the White House and the Congress, don’t expect much of a response from the federal level.
But this is one case where states have an ability to intervene.
Three years ago, in a move to protect against gouging, Hawaiian officials enacted legislation that allows state officials to set price caps on gasoline.
Now, as gas prices are skyrocketing in the aftermath of Katrina, a California legislator wants to give a state agency broad authority to regulate the cost of fuel.
State Senator Joe Dunn, a Democrat, has introduced a constitutional amendment that would allow the state Public Utilities Commission to require mandatory fuel reserves, set profit margins for oil and gas companies and order the construction of new pipelines. The measure would also bar agreements between energy corporations to reduce competition.
Dunn’s amendment would allow the California Public Utilities Commission to cap prices, although the senator told reporters that step would only be taken as a last resort.
Dunn brings a refreshing bluntness to the discourse. Speaking to the Associated Press, he accused the oil industry of creating a dysfunctional market in California, in which competition is essentially eliminated. That, he explained, is why states need to step up their use of regulatory powers.
“Two years ago, when gasoline cost $2 a gallon, the industry said to give it time and prices would settle down. Now, we’re seeing $3 a gallon,” Dunn said. “People in California are no longer believing the excuses of the industry. If they can’t fix their market behavior, we’ll fix it for them.”
It is certainly true that consumers should take steps to reduce their use of petroleum products–not just because of a storm in the Gulf of Mexico but because of the human, economic and environmental tolls this country’s reliance on imported petroleum products has imposed. But petroleum companies should sacrifice as well. And if they are not willing to do so, states should remind them of their patriotic duty.