Gas prices Enronized, secret memos show

We're all Californians now
Gas prices Enronized, secret memos show
October 2005

Last time you filled up your car, did you think you might need to sell a kidney to pay for it? As gas prices have tripled, oil companies have been recording record profits. With hurricanes Katrina and Rita, gas prices leapt again, and oil companies blamed problems with refinery capacity in the affected areas.

Seems like an unavoidable problem, right? Wrong. According to consumer rights groups, we're experiencing a manufactured crisis designed to drive up gas prices, similar to the phony electricity "crises" that hit California, thanks to Enron-created price manipulations.

In September, the Foundation for Taxpayer and Consumer Rights (FTCR) exposed internal oil company memos that show how the industry has intentionally reduced domestic refining capacity to drive up profits. The exposure came in the wake of Hurricane Katrina, while the oil industry was blaming environmental regulation for limiting the number of U.S. refineries.

The three internal memos from Mobil, Chevron, and Texaco show different ways the oil giants closed down refining capacity and drove independent refiners out of business. The confidential memos demonstrate a nationwide effort by the American Petroleum Institute, the lobbying and research arm of the oil industry, to encourage the major refiners to close their refineries in the mid-1990s in order to raise the price at the pump.

"Large oil companies have for a decade artificially shorted the gasoline market to drive up prices," said FTCR president Jamie Court, who successfully fought to keep Shell Oil from needlessly closing its Bakersfield, California refinery this year. "Oil companies know they can make more money by making less gasoline. Katrina should be a wakeup call to America that the refiners profit widely when they keep the system running on empty."

"It's now obvious to most Americans that we have a refinery shortage," said petroleum consultant Tim Hamilton, who authored a recent report about oil company price gouging for FTCR. "To point to the environmental laws as the cause simply misses the fact that it was the major oil companies, not the environmental groups, that used the regulatory process to create artificial shortages and limit competition."

Memos from Mobil, Chevron and Texaco revealed their strategy.

An internal 1996 memorandum from Mobil demonstrates the oil company's successful strategies to keep smaller refiner Powerine from reopening its California refinery. The document makes it clear that much of the hardships created by California's regulations governing refineries came at the urging of the major oil companies and not the environmental organizations blamed by the industry. The other alternative plan discussed in the event Powerine did open the refinery was "... buying all their avails and marketing it ourselves" to insure the lower price fuel didn't get into the market.

An internal Chevron memo states; "A senior energy analyst at the recent API convention warned that if the US petroleum industry doesn't reduce its refining capacity it will never see any substantial increase in refinery margins." It then discussed how major refiners were closing down their refineries.

The Texaco memo disclosed how the industry believed in the mid-1990s that "the most critical factor facing the refining industry on the West Coast is the surplus of refining capacity, and the surplus gasoline production capacity. (The same situation exists for the entire U.S. refining industry.) Supply significantly exceeds demand year-round. This results in very poor refinery margins and very poor refinery financial results. Significant events need to occur to assist in reducing supplies and/or increasing the demand for gasoline. One example of a significant event would be the elimination of mandates for oxygenate addition to gasoline. Given a choice, oxygenate usage would go down, and gasoline supplies would go down accordingly. (Much effort is being exerted to see this happen in the Pacific Northwest.)" As a result of such pressure, Washington State eliminated the ethanol mandate--requiring greater quantities of refined supply to fill the gasoline volume occupied by ethanol.

For more information, and the complete text of the memos, visit: http://www.consumerwatchdog.org
FTCR is nonprofit, nonpartisan consumer group, based in Santa Monica, California.