Press Statement by API President and CEO Red Cavaney
April 26, 2006
[CSPP Note: When gasoline prices spiked last year in the wake of hurricane damage to refineries and off-shore facilities, calls went out for price-controls in response to allegations of price fixing. We prepared a summary on the issue at:
http://ff.org/centers/csspp/pdf/20050928.pdf
CSPP Report highlight:
“In legal terms, the claim is one of price-fixing and anti-trust violations. After years of monitoring and numerous investigations, both the Federal Trade Commission (see p. 26) and its Canadian counterpart, The Competition Bureau, have declared such claims to be without substance.
Since 1990, the Competition Bureau alone has conducted 5 major investigations of gasoline pricing and “has consistently found no evidence to suggest that periodic price increases resulted from a conspiracy to limit competition in gasoline supply.” Instead, it “has always found that market forces such as supply and demand and rising crude oil prices caused the price spikes.”]
Press statement Highlights -
* "Over the last five years, U.S. oil and gas companies invested
nearly $100 billion in emerging energy technologies, including
renewables, in North America alone - 73 percent of the total $135
billion spent by U.S. companies and the federal government."
* "Since 1992, the five largest U.S. oil and natural gas companies
have reinvested more than their total net income."
* "Over the past five years, the earnings average of the oil and
natural gas industry was 5.9 cents per dollar of sales compared to 5.6
cents per dollar of sales for all U.S. industry combined. Last year it
was 8.5 cents and the all-industry average was 7.7."
Press Statement -
We understand the frustration that consumers have expressed about energy
prices. We recognize that high energy prices are adversely impacting
individual households and potentially our economy.
Unfortunately, much of the information that is being circulated about
current the situation and our industry is misleading and harmful if it
becomes the basis for public policy and political actions. Let me begin
by putting the situation in perspective.
In the oil and natural gas business size is everything, and it is
critical to understand that fact when looking at the operational
financial performance of our industry. Earnings and reinvestment
numbers may seem big to you, but in an industry that must make
multi-billion dollar investment decisions annually to remain
competitive, they absolutely are necessary.
Seven of the 10 largest oil companies in the world are owned by foreign
governments, and only one of the three investor-owned companies in the
top 10 - ExxonMobil - is American. Looked at from the perspective of
potential oil and gas reserves - resources essential for the future
operations of the 15 largest oil companies in the world -- only one is
investor-owned. All the others are national oil companies owned by
foreign governments. Nearly 80 percent of the world's reserves are
owned by these national oil companies and a mere 6 percent are
controlled by investor-owned companies.
While our nation is going through challenging times at the pump right
now, it is important to understand that we operate in a global commodity
business, and these same problems are being experienced worldwide. It
is critical to note the oil and gas price changes over the last two
decades are in line with, and in some cases lag behind, other
commodities. So oil and gas price trends are not anomalies.
Industry earnings have also generated a lot of headlines. The earnings
of the oil and gas industry also tend to be very much in line with other
major industries. Over the past five years, the earnings average of the
oil and natural gas industry was 5.9 cents per dollar of sales compared
to 5.6 cents per dollar of sales for all U.S. industry combined. Last
year it was 8.5 cents and the all-industry average was 7.7.
Since 1992, the five largest U.S. oil and natural gas companies have
reinvested more than their total net income. The industry had a return
of investment of 19 percent in 2004 compared to 17.4 percent for all
industry according to Standard and Poor's.
And, the industry's future investments are not focused solely on
traditional hydrocarbon projects. It is important to note that - over
the last five years -- U.S. oil and gas companies invested nearly $100
billion in emerging energy technologies, including renewables, in North
America alone - 73 percent of the total $135 billion spent by U.S.
companies and the federal government.
Regarding energy, we are "where we are" for two important reasons. Over
the past several decades, our nation has chosen a menu of public policy
decisions that has resulted in decreased domestic energy production and
done little to promote energy conservation and efficiency. Attempts to
open new areas to oil and natural gas production have been stymied,
leaving the country with little choice but to turn to foreign suppliers
to satisfy the growing US consumer demand for motor fuels, natural gas,
and other oil products.
In recent years, growing demand for oil from China, India and the United
States comes at a time of waning spare worldwide production capacity.
Rising geopolitical tensions have put great stress on the small amount
of existing surplus production capacity. The thin line is getting
thinner. Major suppliers like Venezuela, Nigeria and Iraq have seen
their exports drop significantly because of their domestic politics, and
supplies from mature oil and gas fields in the U.S. and North Sea have
also been seen declining.
If we all do not understand the factors that determine energy prices, we
are never going to get the policy right. Clearly, it is our nation's
choice where it wants to stand in one of the most important commodity
markets in the world - we can elect to become smaller and less of a
factor. Or we can change from the current path and work together to
solve real-world problems related to oil and natural gas and the
ever-growing competition US consumers are confronted with daily.