Consumer advocate Tyson Slocum recently testified before the U.S. House of Representatives Committee on Transportation and Infrastructure about the record high gas prices. I am going to resist the urge to do a deep debunking, because 1). I have already taken a shot at his credibility; 2). I haven’t slept in 36 hours; 3). Maybe he’s got some good points? 😉
Here is a PDF of his testimony:
Among some of Slocum’s findings (and a “few” comments, since I can’t resist):
Public Citizen research shows that oil companies aren’t adequately investing these record earnings into projects that will help consumers, as the five largest oil companies have spent $170 billion buying back their stock since 2005.
I am sure the oil companies will be calling for advice on projects you think deserve their investments. Be sure to keep your list handy.
ExxonMobil, ChevronTexaco, ConocoPhillips, BP and Shell produce 10 million barrels of oil a day—more than the combined exports of Saudi Arabia and Qatar.
So the top 5 have total production greater than the exports of two countries? Wouldn’t you then surmise that these companies are dwarfed by the national oil companies that they must compete against?
While major oil companies haven’t applied for a permit to build a new refinery, a small start-up has: Arizona Clean Fuels.
While they have been fiddling with that permit for close to 10 years now, major oil companies have expanded refining capacity by 2 million barrels. Of course inconvenient facts don’t fit Slocum’s agenda. But do let us know when Arizona Clean Fuels breaks ground on their new facility. However, don’t count on it now given Mexico’s declining production (which is where they were expecting to get their oil).
With nearly $1 trillion of combined assets tied up in extracting, refining and marketing petroleum and natural gas, the big five oil companies’ entire business model is designed to squeeze every last cent of profit out of their monopoly control over fossil fuels.
Hmm, that’s a lot of money tied up. How much would you expect to profit if you had a trillion dollars tied up? Would $100 billion a year – 10% return on those assets – do it? Or would that be a windfall?
Margins for U.S. oil refiners have been at record highs. In 1999, U.S. oil refiners enjoyed a 22.8 cent margin for every gallon of gasoline refined from crude oil. By 2006, they posted a 53.5 cent margin for every gallon of gasoline refined, a 135 percent jump.
Given that you testified in 2008, wouldn’t that be a relevant data point? What are margins now, Tyson?
Slocum outlines his plan:
Public Citizen has a five point plan for reform:
• Repeal all existing oil company tax breaks, close loopholes allowing oil companies to escape paying adequate royalties and/or implement a windfall profits tax, dedicating the new revenues to financing clean energy, energy efficiency and mass transit.
• Re-regulate energy trading exchanges to restore transparency and impose firewalls to stop energy traders from speculating on information gleaned from the companies’ affiliates.
• Ensure that new powers provided to the Federal Trade Commission to crack down on unilateral withholding and other anti-competitive actions by oil companies and financial firms are effectively carried out.
• Establish a Strategic Refining Reserve to be financed by a windfall profits tax on oil companies that would complement America’s Strategic Petroleum Reserve (SPR), and cease filling the SPR.
• Improve fuel economy standards from the modest increase approved by Congress in 2007 to reduce gasoline demand.
That should ensure cheap energy for all. All this leads me to wonder exactly what kind of expertise one requires to be invited up to Congress to testify. Simply an ability to speak?
Many people seem to be assuming that future advances in energy must come from the existing oil companies–thus, it is a terrible thing if these companies pay out $ in dividends rather than reinvesting the money.
But there’s not much support in business history for the idea that the incumbents will be the developers & deployers of the disruptive technologies. Rather than having XOM try to turn itself into a wind-farm operator or a fusion-power researcher, maybe it’s better if they pay $ out in dividends and let the capital markets fund the innovations.
Their should be a windfall profits tax with the proceeds funding clean energy. If the oil companies want to invest in clean energy, they can avoid the tax. But what’s the chance of that?
Robert & Anon – here is a point nobody else has made – returning money to shareholders may be the BEST way to fund alternative energy.
When an energy company buys its own stock back, it puts a portion of its earnings back into investors hands. This money is now available for further investment. If the shareholders want to invest in alternative energy companies, they are totally free to do so. This is the way that capital markets work.
In fact I could make the case that companies like ExxonMobil should NOT invest anything in alternatives. Rather they should focus their efforts on traditional oil and gas and maximizing shareholder returns to enable their shareholders to invest in alternatives. Maybe we should reduce taxes on oil and gas companies so they have even more money to return to shareholders.
Tens of thousands of individual investors and entrepreneurs are likely to do a better job of finding alternatives than a government mandated program or even decisions made in the company boardroom.
What we need is more capitalism and less government control.
I always wonder about these calls for Big Oil to invest billions in alternative energy. First, it’s not really their core expertise. Wouldn’t it be more efficient for someone with the focus and expertise to do it?
But of more interest, the people criticizing the oil industry for obscene profits want these same greedy CEO’s running the alternative energy industry in the future?
I agree with kingofkaty. Let the capital markets fund the best innovators. There are tremendous prizes out there for people who come up with good solutions. There’s no shortage of incentives. Over 10% of US venture capital is now going to alternative energy research, according to data360.
http://www.data360.org/graph_group.aspx?Graph_Group_Id=369
I am a big leftie-softie, but you can’t tax oil companies to make more oil. We should open up shale oil to Shell and its technology for extracting it at $30 a barrel w/o retorting (along with numerous conservation and clean energy developments).
The price mechanism is a great thing. Let it work. And tax heavily imported oil.
king: “Maybe we should reduce taxes on oil and gas companies so they have even more money to return to shareholders.”
hehe…
No chance the author of that statement has money tied up in oil and gas shares. 🙂
I have an idea: Oil and gas shareholders should donate their stock to alternate energy companies!
bob – well maybe a little.
Besides, oil and gas companies have lots of engineers and scientists who also happen to be stockholders. If stock prices go up then maybe these people will have the financial security to enter 2nd careers in alternative energy.
I just want to cast another vote for King of Katy’s idea. That’s one of the most sensible statements I’ve heard in a while.
The Rockerfeller heirs have been beating up on Exxon-Mobil to invest more in alternative energy. Here’s a counterproposal:
Sell your XOM stock, take the proceeds, and start a company dedicated to whatever form of alternative energy you believe to be the most promising.
Of course, that would require you to do productive work, rather than just telling other people what they should do.
How much would you expect to profit if you had a trillion dollars tied up? Would $100 billion a year – 10% return on those assets – do it? Or would that be a windfall?
ExxonMobil’s upstream return on capital employed is not 10%. More like 50%.
Slocum’s trillion dollar number sounds way off. ExxomMobil PP&E is 120 billion, Chevron 80 billion. You should know better than to rely on his data.
You should know better than to rely on his data.
Oh, I am not relying on his numbers. I wouldn’t repeat him as a source. I am just his own numbers to refute his argument. I put no stock in the actual numbers.
But it sounds to me like you agree that he doesn’t know what he is talking about.
But it sounds to me like you agree that he doesn’t know what he is talking about.
I thought we all agreed on that.
BTW, ExxonMobil’s Annual Report says upstream ROCE was 45% in 2005 and 2006. It fell to 41% in 2007 because of Hugo Chavez. At current prices it should be comfortably above 50%. It’s one thing to debate whether these 50% returns should be subject to additional taxation, quite another to pretend returns are only 10%. Let’s leave those kind of wild distortions to Tyson Slocum and his ilk.