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The Oil Industry, Gas Supply and Refinery Capacity:More Than Meets the EyeAn investigative report presentedby Senator Ron WydenJune 14, 2001“As observed over the last few years and as projected well into the future, the most criticalfactor facing the refining industry on the West Coast is the surplus refining capacity, and thesurplus gasoline production capacity. The same situation exists for the entire U.S. refiningindustry. Supply significantly exceeds demand year-round. This results in very poor refinerymargins, and very poor refinery financial results. Significant events need to occur to assistin reducing supplies and/or increasing the demand for gasoline.”Internal Texaco document, March 7, 1996“A senior energy analyst at the recent API (American Petroleum Institute) conventionwarned that if the U.S. petroleum industry doesn’t reduce its refining capacity, it will neversee any substantial increase in refining margins…However, refining utilization has beenrising, sustaining high levels of operations, thereby keeping prices low.”Internal Chevron document, November 30, 1995America is indeed facing an energy crunch. For much of the year, gas prices have soared andsupply has trailed demand.During the course of my ongoing investigation into potential anti-competitive and anti-consumer practices by the oil industry, I have obtained documents that raise seriousquestions about the circumstances leading to limited gas supply and high prices.The oil industry and its allies would have the public believe that insufficient refiningcapacity, restrictive environmental standards, growing gasoline demand and OPECproduction cutbacks are the primary reasons for the current oil and gas supply problem.However, the record shows – supported by documents I have obtained – that there is more tothe story. Specifically, the documents suggest that major oil companies pursued efforts tocurtail refinery capacity as a strategy for improving profit margins; that competing oilcompanies worked together to subvert supply; that refinery closures inhibited supply; andthat oil companies are reaping record profits, yet may benefit from a proposed nationalenergy policy that would offer financial incentives to expand refinery capacity.For the last several months limited domestic refinery capacity has taken center stage as thepurported reason for insufficient domestic gasoline supply and higher prices.
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page 2In the mid-1990s too much refining capacity, not too little, concerned the nation’s major oilcompanies. At that time, the oil and gas industry faced what they termed “excess refiningcapacity,”a circumstance they viewed as a financial liability that drove down overall profitmargins. The industry reduced the total amount of potential supply by closing down morethan 50 refineries in the past decade. Since 1995 alone, 24 refinery closings have takennearly 830,000 barrels of oil per day.In September 1999, I released a report looking into the anti-competitive practices of zonepricing and redlining by West Coast oil companies. At the time of the 1999 investigation,industry officials explained higher gas prices as the result of refinery fires in California andworldwide production cuts spurred by OPEC. They did not blame inadequate domesticrefining capacity as the culprit for restricted supply or high prices.Today, the nation’s major oil companies are experiencing record profits, thanks in no smallpart to higher prices at the pump. Despite the across-the-board financial gains of theindustry, the Bush administration’s recently released National Energy Policy seeks toprovide incentives, perhaps including relaxed environmental regulations, to quickly boostrefining capacity.Information I have received during my ongoing investigation raises serious concerns thatthe nation’s major oil suppliers have set out in a strategic effort to orchestrate a financialtriple play, a coordinated effort that would reduce supply, raise prices at the pump andrelax environmental regulations. Unfortunately, in each case, it is the consumer whotakes the hit.While the documents target activity on the West Coast and refinery closings in 11 states,they point to practices with significant national ramifications. The companies involvedare national companies that operate in multiple states. In addition, gas and oil is afungible commodity and the amount of capacity that has been taken offline is significantenough to affect national markets.The following information reflects what I have found to date during the course of myinvestigation.FINDING 1:Oil Companies Articulated their “Need” to Reduce Oil and Gas Supply to IncreasePrices and Grow Profit MarginsFacing what they deemed inadequate profit margins in the mid-1990’s, oil companiesreadily recognized that the surest way to drive up profits was to drive down oil andgasoline supply. By restricting supply, they would be able to demand higher prices andreap higher margins for their product. Oil company documents raise questions as towhether this mindset was the underpinning of a strategic business approach in which theindustry willfully engaged to control gas supply.
The Oil Industry, Gas Supply and Refinery Capacity:More Than Meets the EyeAn investigative report presentedby Senator Ron WydenJune 14, 2001“As observed over the last few years and as projected well into the future, the most criticalfactor facing the refining industry on the West Coast is the surplus refining capacity, and thesurplus gasoline production capacity. The same situation exists for the entire U.S. refiningindustry. Supply significantly exceeds demand year-round. This results in very poor refinerymargins, and very poor refinery financial results. Significant events need to occur to assistin reducing supplies and/or increasing the demand for gasoline.”Internal Texaco document, March 7, 1996“A senior energy analyst at the recent API (American Petroleum Institute) conventionwarned that if the U.S. petroleum industry doesn’t reduce its refining capacity, it will neversee any substantial increase in refining margins…However, refining utilization has beenrising, sustaining high levels of operations, thereby keeping prices low.”Internal Chevron document, November 30, 1995America is indeed facing an energy crunch. For much of the year, gas prices have soared andsupply has trailed demand.During the course of my ongoing investigation into potential anti-competitive and anti-consumer practices by the oil industry, I have obtained documents that raise seriousquestions about the circumstances leading to limited gas supply and high prices.The oil industry and its allies would have the public believe that insufficient refiningcapacity, restrictive environmental standards, growing gasoline demand and OPECproduction cutbacks are the primary reasons for the current oil and gas supply problem.However, the record shows – supported by documents I have obtained – that there is more tothe story. Specifically, the documents suggest that major oil companies pursued efforts tocurtail refinery capacity as a strategy for improving profit margins; that competing oilcompanies worked together to subvert supply; that refinery closures inhibited supply; andthat oil companies are reaping record profits, yet may benefit from a proposed nationalenergy policy that would offer financial incentives to expand refinery capacity.For the last several months limited domestic refinery capacity has taken center stage as thepurported reason for insufficient domestic gasoline supply and higher prices.
--------------------------------------------------------------------------------
Page 2
page 2In the mid-1990s too much refining capacity, not too little, concerned the nation’s major oilcompanies. At that time, the oil and gas industry faced what they termed “excess refiningcapacity,”a circumstance they viewed as a financial liability that drove down overall profitmargins. The industry reduced the total amount of potential supply by closing down morethan 50 refineries in the past decade. Since 1995 alone, 24 refinery closings have takennearly 830,000 barrels of oil per day.In September 1999, I released a report looking into the anti-competitive practices of zonepricing and redlining by West Coast oil companies. At the time of the 1999 investigation,industry officials explained higher gas prices as the result of refinery fires in California andworldwide production cuts spurred by OPEC. They did not blame inadequate domesticrefining capacity as the culprit for restricted supply or high prices.Today, the nation’s major oil companies are experiencing record profits, thanks in no smallpart to higher prices at the pump. Despite the across-the-board financial gains of theindustry, the Bush administration’s recently released National Energy Policy seeks toprovide incentives, perhaps including relaxed environmental regulations, to quickly boostrefining capacity.Information I have received during my ongoing investigation raises serious concerns thatthe nation’s major oil suppliers have set out in a strategic effort to orchestrate a financialtriple play, a coordinated effort that would reduce supply, raise prices at the pump andrelax environmental regulations. Unfortunately, in each case, it is the consumer whotakes the hit.While the documents target activity on the West Coast and refinery closings in 11 states,they point to practices with significant national ramifications. The companies involvedare national companies that operate in multiple states. In addition, gas and oil is afungible commodity and the amount of capacity that has been taken offline is significantenough to affect national markets.The following information reflects what I have found to date during the course of myinvestigation.FINDING 1:Oil Companies Articulated their “Need” to Reduce Oil and Gas Supply to IncreasePrices and Grow Profit MarginsFacing what they deemed inadequate profit margins in the mid-1990’s, oil companiesreadily recognized that the surest way to drive up profits was to drive down oil andgasoline supply. By restricting supply, they would be able to demand higher prices andreap higher margins for their product. Oil company documents raise questions as towhether this mindset was the underpinning of a strategic business approach in which theindustry willfully engaged to control gas supply.
