Oil Execs Grilled Over High Prices

Top executives of the nation's largest oil companies appeared before Congress today to explain why they should continue to get billions of dollars in tax breaks, given the current record high prices for oil and gas.

"On April Fool's Day, the biggest joke of all is being played on American families by big oil," said Rep. Edward Markey, D-Mass., chairman of the Select Committee on Energy Independence and Global Warming.

John Hofmeister, president, Shell Oil Company, acknowledged the pain people are feeling as they fill up their car tanks.

. "I heard what you are hearing," Hofmeister told the committee. " Americans are very worried about the rising price of energy -- the cost to fill their cars, as well as the cost to heat, cool and light their homes and businesses. These cost increases are hitting consumers hard, particularly the poor and those on fixed incomes."


Indeed, many Americans are struggling these days to fill up their cars with gas.

The average price of regular unleaded is now at $3.29 a gallon, a nominal record (the inflation-adjusted record gasoline price was $3.41 set in March 1981).

And prices are only expected to get higher.

The government is predicting prices to climb into the summer peak-driving season. Some parts of the country could easily see $4 a gallon.

At issue are $18 billion in tax breaks the oil companies are receiving over a 10-year period. The House voted last year and again in February to end those tax breaks and instead use the money to support wind, solar and other renewable energy sources. The measure has not passed the Senate and President Bush has promised a veto.

"Each week, Americans go to the gas pump and pay the cost for this administration's failed energy policy," Markey said.

But Hofmeister told the committee there are reasons for the high prices.

First, there is more demand for oil.

Hofmeister said the rate of growth in global demand for oil has accelerated in recent years, largely because of rapid economic growth and industrialization in countries like China and India.

And the oil that is out there is harder to get to. There are problems, Hofmeister said, such as "disturbances in the Niger delta." Other sources of oil are in more technically challenging areas that require more infrastructure.

Also figuring in is the massive consumption by American consumers.

The United States has 5 percent of the world's population but uses nearly 25 percent of the world's oil.

"Americans use 10,000 gallons of oil -- enough to fill a backyard swimming pool -- every second of every day," Hofmeister said. "Consumers -- and that means all of us -- must think more about our own energy footprints: when and how we drive, what we buy, how we work and the kind of world we want to create for coming generations."

To meet that demand, the oil companies said they needed to put their profits back into their infrastructure. For instance, this year, Hofmeister said, Shell will spend $28 billion to $29 billion on capital projects.

This is not the first time -- and probably not the last time -- that the oil executives appeared before Congress to defend their profits.

Their message again today was that the oil business has its ups and downs and that the billions of dollars of profits are needed to allow the industry to weather the down periods.

"Ours is a long-term business, with energy projects requiring enormous investments spanning decades that must carry us through both up and down cycles," said J.S. Simon, Exxon Mobil's senior vice president. "Imposing punitive taxes on American energy companies, which already pay record taxes, will discourage the sustained investments needed to continue safeguarding U.S. energy security."

John E. Lowe, executive vice president of exploration and production for ConocoPhillips, said that too often the oil companies face state and local government roadblocks that delay planned refinery expansions.

"In cases where infrastructure is clearly needed to serve the national interest, Congress should expedite federal and state permitting processes to ensure there is a balance between federal, state and local, and special interests," he said.

He also said that too many regulations, varying from state to state, about what grades of gasoline and what additives are allowed, contribute to higher prices because the oil companies lose out on economies of scale.

Peter J. Robertson, vice chairman of Chevron, said that while oil has gone up, so have many other commodities, such as gold, corn, copper, even coal.

But the Democratic-led committee didn't seem to buy the arguments.

Markey said in his remarks that the companies where using "every trick in the book to keep billions in federal tax subsides even as they rake in record profits."