Big Oil is just like Big Tobacco in one important way. An oil company, like a tobacco company and other businesses exists to make money ... as much money as possible off (in this case) the limited product it provides. It is not built to be sympathetic, moral, caring or patriotic. An oil company is a capitalist entity focused on ways to maximize profits. So the last people we should be asking about how to solve our current energy crisis are oil company executives. They won't give us the answers that makes the most sense ... they will give us the answers that makes them the most money.
I watched with great interest Jacqueline Bennett's recent interview with the Chief Marketing Executive of the American Petroleum Institute. He says oil companies have done a poor job getting their message out, then proceeded to give every predictable answer you would expect from an oil executive. (You can find a link to one of her stories at the end of this blog). Here's why his answers on three controversial topics are good for oil company executives and not so good for the rest of us.
Domestic drilling: Oil companies' hope that today's high prices will put political pressure on Democrats open more domestic oil fields to them and make them lots more money. The problem is this would have virtually no impact on prices right now because the actual drilling couldn't take place for years. Oil companies want access to U.S. offshore oil because it eventually means more money for them, not less pain at the pump for you right now.
Why no new refineries?: A new gas refinery hasn't been built in the U.S. since the 1970's (although ABC reports one is being built now). The oil expert we spoke with blames environmental laws, but there's something else going on. The profits for big oil are in drilling it, not refining it. If an energy company builds a refinery, it is laying out a lot of cost for not a whole lot of return. What's worse, more refined fuel would increase the supply of gasoline, potentially sending gas prices lower. For an oil company, that's a lose-lose.
Investing in Stock Buybacks vs. Drilling: ABC News made the point the other day that oil companies are using more of their record profits to buy back their own stock than they are to expand drilling. That's because oil company executives are not paid based on how much they drill but by how much their stock goes up. By buying back stock, they are using their profits to enrich their stockholders and themselves even if it does nothing to help you their customer.
And finally, like tobacco companies, oil companies have no interest in supporting positions that might cost them money. That's why oil companies have bankrolled scientists who question whether fuel emissions are contributing to global warming and contributed to political candidates who support greater fossil fuel use no matter what the cost to our air quality.
Oil companies are not the solution to our energy problems. The good news is there are two other forces that could be.
The first is our capitalist system itself. $4 gas has billions now being pumped into alternative energy sources like wind, solar, hydrogen and nuclear power by companies and venture capitalists who hope finding cheap, clean energy will pay them back several times over. Some oil companies (the smart ones) are even looking to transform themselves into 'energy' companies that can provide many different forms of cheaper, cleaner power.
The second is government. Just as the government broke up the infamous Standard Oil trust nearly 100 years ago and later mandated lead be removed from gasoline for health reasons, government can play an important role in creating a national energy policy and aiding in the development of new clean fuel technologies.
But right now, too many in government are focused on propping up what we've done in the past rather than investing in the future. Just like the telegraph gave way to the telephone and VCR's and tape were replaced by DVR's and DVD's, Big Oil will give way to new energy companies employing new energy technologies whether politicians like it or not. Those new technologies that can end our 'addiction to oil' is where our government's efforts need to be focused, but of course, the oil companies aren't going to tell us that.
Good post.Oil companies' hope that today's high prices will put political pressure on Democrats open more domestic oil fields to them and make them lots more money.
manas petroleum
Posted by: manas petroleum | May 28, 2009 at 12:36 AM