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Oil Refineries: Rigging the Profits While the devastation wrought by Hurricanes Katrina and Rita have certainly put an exclamation point on the oil industry’s profits, 2005 promised to be a banner year even before the hurricanes hit. Between September 2004 and 2005, the refining industry’s cut of gasoline revenues shot up by 255 percent making it far and away the biggest beneficiary of the year-long rise in oil prices.
For the past twenty years, the industry has been positioning itself to capitalize on precisely this type of a windfall. By systematically tightening refining capacity in the United States, the industry has created a perfect storm of low supply at a time of rising consumer demand, leading to a real financial gusher. Cut, Consolidate and Cash-in In 1981, there were 324 gasoline refineries operating in the U.S., today, there are only 149. Even with upgrades and expansions at the remaining refineries, domestic capacity is down 9 percent since 1981, while demand for gasoline has increased 38 percent. A decade ago, the five largest oil companies in the U.S. controlled 34 percent of domestic crude oil production, 33 percent of domestic refinery capacity, and 27 percent of the retail market—amounting to immense power in the marketplace. But today, the five largest firms—ExxonMobil, Royal Dutch Shell, BP, ChevronTexaco and ConocoPhillips—control about half of domestic oil production and refinery capacity, as well as 62 percent of the retail gasoline market. In short, fewer refineries means greater control. And the industry has made no bones about using that control to stuff their mattresses wi
In the first six months of 2005 alone, the big five oil companies in the U.S. have recorded more than $50 billion in profits. To make matters worse, ExxonMobil, which reportedly has amassed more than $18 billion in cash, has shown little interest in investing in a new refinery, content instead to buy back more of its own stock. Of course, record profits have never stopped oil industry executives from securing government handouts in the past, and it isn’t stopping them now. Congress granted more than $4 billion in subsidies for the oil industry in the embarrassing energy bill enacted in August, including a specific tax break for refineries. Apparently Congress didn’t think that a 255 percent increase in their portion of gasoline revenues was sufficient. The refinery tax credit throws another $659 million at the industry over five years. And true to form, the oil industry’s lobbyists will be back on the floors of Congress this week, seeking another giveaway bag of goodies in the name of Hurricanes Katrina and Rita.
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