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By Robert Rapier on Apr 10, 2007 with no responses

Artificial Gasoline Shortages?

I need to start doing a weekly column on the Foundation for Taxpayer and Consumer Rights (FTCR) to address their weekly hysterical news releases about the oil industry. The last time it was criticizing the industry for charitable contributions, charging that they were trying to buy respectability (ignoring the fact that these contributions have been going on for decades). This time, it is their continued slander that the reason gasoline prices are rising in California is because refiners are artificially withholding capacity:

With Gasoline a Dime From Record Price, Top Analyst Says West Coast is Toast

SANTA MONICA, Calif., April 9 — A top oil industry analyst predicts today that even if gasoline supplies and prices ease off in the rest of the nation this summer, the West won’t be so lucky. Regular gasoline is at $3.285 a gallon according to AAA, less than 10 cents below last May’s all-time record of $3.38.

Prices in the state, driven upward by an artificial shortage of refining capacity, remain more than 50 cents above the U.S. average, said the Foundation for Taxpayer and Consumer Rights. That view was reinforced today by Tom Kloza, a founder and now publisher of the influential Oil Price Information Service.

First, note the deception they employ. They write “artificial shortage of refining capacity”, and then “that view was reinforced today by Tom Kloza.” So, was it? Judge for yourself:

Kloza was asked in a video interview posted today what the supply picture would be for the rest of the year. He responded:

“In the Rockies and east of the Rockies, there will be plenty of gasoline. …At end of summer, [there will be] a bit of a demand rally but [it] won’t be like the peaks of 2005, 2006.

“I have to caveat the West Coast. The West Coast is its own animal. The West Coast has much lower production at the moment than it had last year, and significantly higher demand. The thing that bailed out the West Coast from being a problem throughout last summer was the fact that people drove less when retail prices…went to $3.40 in some states. You really don’t know where that threshold where people will change behaviors is going to come this year.

“The West Coast going to be the most compromised market, not just for the rest of this year but for the rest of the decade.”

So, where did Kloza say that there was an artificial shortage? He didn’t, it’s just the FTCR once again applying their deceptive spin. What Kloza actually said is that production is lower (but not “artificially”; refineries do have problems and undergo maintenance, and this is maintenance season) but also that demand is much higher (a fact conveniently overlooked by the FTCR).

Continuing:

“Refiners in California are in such a sweet spot that no matter how little gasoline they refine, they’ll make more money,” said FTCR Research Director Judy Dugan.

Really? No matter how little? So, if they refine zero gasoline, they will make more money? In fact, there is every incentive for producers to make more gasoline. The problem with California is self-inflicted. Their fuel standards are very stringent and specific to California, and so neighboring states and exporters can’t easily put gasoline in there to take advantage of high prices (which ultimately eases high prices). That is what we see happen for the U.S. as a whole. When gas prices rise, exporters start sending gasoline to those states. This will eventually take pressure off of prices. But California – and I am certainly not saying they are wrong to have their own high standards – has created this problem.

So, how would the geniuses at the FTCR resolve the matter?

“It’s up to lawmakers and regulators to return some balance to the suffering consumers, who are once again paying $50 and up to fill their minivan tanks.”

Yes of course. More regulations to solve a problem largely caused by regulations. And those poor suffering consumers. I am just glad that the FTCR understands that the purpose of an oil company is not to make money for shareholders, but instead to provide gasoline to consumers at the lowest possible prices (and profit margins). Wasn’t it Microsoft who came up with this business model? Frankly, the faster that the FTCR figures out that oil companies are not public utilities or charities, the quicker they can stop wasting their time on these weekly news releases (even though they do provide some humor). Just as it isn’t the duty of Microsoft to provide Windows at the lowest possible price to consumers, it isn’t the duty of oil companies to provide gasoline at the lowest possible price to consumers. (Incidentally, I paid about $6.50/gallon the last time I fueled up here in Scotland).

It is the refusal of large refiners, including Chevron, Exxon and Valero, to expand capacity that keeps prices half a dollar higher in California than in the rest of the nation, said FTCR. The widening gap between the price of crude oil and the price of gasoline, especially in California, has produced record refining profits.

While the last sentence is certainly correct, the first statement is demonstrably false. Refining capacity in PADD 5 (where California is located) has hit record levels in the past year. You can see this for yourself here. The average daily crude inputs into PADD 5 refineries were 2.44 million bpd in 1997, and 2.67 million bpd in 2006. Yet despite an almost 10% increase in refining capacity in the past 9 years, the FTCR presses on. I wish at some point they would be held accountable for misleading the public. They should turn their attention to those poor “suffering consumers” – users of twice the energy per capita of European Union consumers – as the reason gas prices are so high.

“Oil companies built this system to keep supplies tight,” said Dugan. “They know they will reap ever-higher overall profits without having to make or sell more gasoline. With only a handful of companies making most of the refined gasoline in California, they don’t compete, they cooperate. The usual laws of supply and demand are broken.”

Careful. You are charging collusion, which is a crime. Do you have evidence? Of course you don’t. You recklessly throw out charges like this and you slander oil companies at every opportunity. But the oil companies have been investigated again and again for collusion. And you know what the findings have been. You have just rejected them because you don’t like them. After all, they prove that you have just been blowing a lot of hot air.

Letter to the FTCR

Incidentally, I wrote a letter to the FTCR following their last news release. I was hoping for a response, but no luck. Here was the letter:

Irresponsible “Journalism” from the FTCR

After reading your latest diatribe against oil companies – “ConocoPhillips Tries To Buy Into “Big Oil U” In Greenwash Campaign” – might I suggest a new mission statement for FTCR? How about “We will work tirelessly to slam oil companies – while ignoring facts we don’t like – and we will issue a press release every time we do”?

I have a suggestion. If you don’t like oil companies, then you should really make a stand by removing the petroleum-based fuels, plastics, paints, medicines, fertilizers, clothing, etc. from your lives. After all, without customers, these products can’t contribute to pollution. The oil companies will go out of business and that should make everyone at the FTCR happy. Of course your documented position that gasoline should be under $2.00 for everyone is the real source of your irritation, isn’t it? Europeans are paying over $6.00 a gallon – which has caused them to adopt conservation measures and lower their greenhouse gas emissions – but you think sub-$2.00 a gallon gasoline would be just peachy. To be frank, your position is idiotic and inconsistent with your statements on the pollution issue.

I don’t believe I have ever seen a group more dedicated to a one-sided and misinformed representation of the oil industry. I don’t guess I should be surprised at your misconceptions, given that your staff page indicates a glaring lack of technical expertise. When your staff consists entirely of historians, lawyers, political scientists, and various liberal arts graduates, why should I expect you to actually understand any of the technical subjects you feel qualified to pontificate on? You demonstrate incredible incompetence when discussing these issues (the “hot gas” issue is a perfect example) but because of the staff you have put together you don’t even recognize your own incompetence.

Your latest press release is really over the top, and it demonstrates your dishonesty in claiming to be “non-partisan.” You may claim this in the strictest political sense, but you have shown extreme partisanship on the topic of oil companies. Criticizing oil companies for charitable contributions? Have you no shame at all?

In response to your latest essay, perhaps if you had done just a wee bit more homework, you might have run across this story demonstrating that ConocoPhillips – an oil company with Oklahoma origins – has a long history of donating money to the University of Oklahoma. This is not, as you falsely indicate, some newly hatched campaign to buy respectability:

Okla. Univ. Receives $6M Gift From ConocoPhillips

Source: Journal Record – Oklahoma City Publication date: 2007-03-16

Frank Phillips of Bartlesville and E.W. Marland of Ponca City – two Oklahoma oil industry pioneers – were among the first private donors to the University of Oklahoma. Phillips and his brother started Phillips Petroleum and Marland founded Marland Oil, which merged with Continental Oil Co. – Conoco – in 1929. Phillips Petroleum and Conoco merged in 2002.

On Thursday, the company now known as ConocoPhillips and based in Houston continued the tradition of providing financial support to OU with a $6 million contribution allocated to the School of Geology and Geophysics.

Total gifts and pledges to OU from ConocoPhillips now total $33 million, said David L. Boren, OU president.

While I expect that to have no influence at all on your preconceived notions, I believe it is important to fight the type of ignorance you promote, because this sort of mentality is why energy policy in the U.S. is so dysfunctional.

Oh, and be sure to assign someone to issue another scathing press release addressing another recent reprehensible philanthropic gesture from ConocoPhillips:

HOUSTON, Mar. 20, 2007 – ConocoPhillips announced today its contribution of $1 million to Memorial Hermann Life Flight to help with the purchase of six new helicopters that will provide enhanced emergency care to the community.”Since its inception in 1976, Memorial Hermann’s Life Flight has brought hope to thousands of patients who have required emergency medical care and transportation,” said Phil Frederickson, executive vice president, ConocoPhillips. “By replacing the existing four helicopters and adding two new helicopters, Life Flight will be able to reach many more people who have life-threatening medical conditions.”

Perhaps you could set up a hotline and have people turn them in every time they donate some money? I heard they are gearing up for a United Way fundraiser. Don’t let them get away with it!

Sincerely,

Robert Rapier
Chemical engineer, conservation advocate, and fighter of ignorance and hypocrisy.
http://i-r-squared.blogspot.com/

Organizations like the FTCR really make me sick. No journalistic integrity, no regard for the facts, and non-stop slander. Not to mention a primary goal – cheaper gas prices for all – at complete odds with their goal of pollution reduction. What a clueless lot.