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Memos purportedly show refiners sought to limit ops to spike price of gasoline


A consumer group is publicizing a series of memos marked “highly confidential” alleging major oil companies ‘ including Mobil, Chevron and Texaco ‘ intentionally limited their refining capacity in order to raise gasoline prices and increase profits.

The revelation comes as Americans have seen a major spike in prices at the pump in the immediate aftermath of Hurricane Katrina, while “the oil industry blames environmental regulation for limiting number of U.S. refineries.”

The Foundation for Taxpayer and Consumer Rights (FTCR) released three memos that purportedly demonstrate a nationwide effort by the American Petroleum Institute to encourage major refiners to close refineries in the 1990s.

“Large oil companies have for a decade artificially shorted the gasoline market to drive up prices,” said Jamie Court, president of the FTCR, who successfully fought to keep Shell Oil from needlessly closing its Bakersfield, Calif., 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.”

The internal memoranda themselves have been made public before, in a 2001 investigative report by Sen. Ron Wyden, D-Ore., who this week said the primary reason for sky-high prices is that “the government isn’t in the consumer-protection business anymore.”

Much of U.S. paying at least $3 per gallon in wake of Hurricane Katrina

The memo from Chevron states: “A senior energy analyst at the recent API convention warned that if the U.S. petroleum industry doesn’t reduce its refining capacity it will never see any substantial increase in refinery margins. … However, refining utilization has been rising, sustaining high levels of operations, thereby keeping prices low.”

It continued to discuss how major refiners were shutting 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.)”

The state of Washington subsequently did away with its ethanol mandate, requiring greater quantities of refined fuel to fill the gasoline volume occupied by ethanol.

FTCR says the Mobil memorandum from 1996 evinces the company’s successful plan to keep smaller refiner Powerine from reopening its California refinery. It notes much of the hardships created by California’s refinery rules came at the urging of the major oil companies, not the environmental groups 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.

Meanwhile, the API is urging Americans to adjust their driving habits to consume less fuel.

“We know that Hurricane Katrina‘s effects on our industry are having a nationwide impact through skyrocketing prices for gasoline and other fuels,” API president Red Cavaney told the House Energy and Commerce Committee yesterday.

But he warned, “Congress should not repeat the mistakes of some past energy policies by trampling the structures of the free marketplace by imposing new controls, allocation schemes, or other obstacles, which will only serve to make a bad situation much worse.”

U.S. refineries were thrust into the spotlight after Hurricane Katrina plowed through the Gulf of Mexico last week, impacting operations for at least four refineries.

“Those four that appear to have suffered major damage, it will be a matter of months [for repairs],” said Guy Caruso, head of the U.S. Energy Information Administration.

Bob Slaughter, president of the National Petrochemical & Refiners Association, is hoping the refineries can return to service as soon as possible, but he told the Senate Energy and Natural Resources Committee, “Employee safety and overall safe startup and operation concerns are paramount. Significant flooding and damage still affects some facilities.

“However, some refiners with operating facilities have indicated that they will be able to ramp up production from currently reduced levels at refineries near the affected areas, which should have a positive impact on product supplies.”

Regarding reports of price gouging, Slaughter said, “Each alleged situation should be thoroughly investigated by the appropriate state and federal authorities and prosecuted when the law has been broken.”

According to the Minerals Management Service, oil output from the Gulf of Mexico has been cut by 861,000 barrels per day, a 57 percent reduction from before Katrina’s arrival Aug. 29.

Consumer Watchdog
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