By Paul Rosenberg, Senior Editor
Global warming threatens life on the planet, driving unprecedented mass extinctions of species, as well as rising human death tolls.
Laws and regulations meant to combat global warming threaten the bottom lines of fossil fuel companies, which is why it’s not surprising that oil companies have been organizing to fight back. What is surprising is that they have managed to keep a deceptively low profile, for such a powerful industry.
This past year, oil companies tried to argue that new global warming cap-and-trade regulations, which were taking effect Jan. 1, 2015, would constitute a hidden tax of 76 cents per gallon. However, the impact turned out to be miniscule. Oil companies have extracted almost $5 billion in excess profits from California drivers in the first six months of this year alone, more than $200 per driver, according Golden State Gouge: The Summer of Record Refining Profits, a report from the Santa Monica-based public interest group Consumer Watchdog, which was released at an Aug. 5 press conference.
“The Golden State is getting gouged,” Consumer Watchdog President Jamie Court said. “The California experience in gas prices is historically unprecedented.”
One simple observation drove the point home.
“Crude prices are now below $45 a barrel,” Court noted. “The last time gas prices were at $4 a gallon, crude prices were over $100 a barrel.”
The report is just the latest in a series not only detailing how oil companies are gouging California consumers, but also drawing attention to how they were trying to use these price hikes to shift blame onto global warming regulations. While oil companies and their allies try to portray the issue as “big government” regulation versus the free market, billionaire financier, philanthropist and environmental advocate Tom Steyer, who also spoke at the press conference, stressed how far California’s oil market diverges from what a free market is supposed to do, and how necessary it is for government to act, when markets are broken.
“If you spend a lot of time in markets, there is a theoretical idea of a perfect market, where you have unlimited competitors driving the price to the marginal cost, so there’s an economic idea in people’s heads,” Steyer said. “And the further you get from that economic ideal, the less well the market is functioning. In this case this is a market that is functioning horribly. It is very far from our idea of the way the capitalist market is supposed to work. A capitalist market is supposed to work to the advantage of consumers, to deliver goods and services in the best way at the lowest price. That’s just not happening.”
As for what to do about it, the broad answer was equally clear, Steyer suggested.
“This is a traditional function of government going right back to Teddy Roosevelt, in the early 20th century, when he was trying to break up the trusts,” he said. “There’s something going on where the citizens of California are being disadvantaged, and we believe their elected officials are perfectly positioned to find out what’s going on, and represent them.”
Steyer referred to the price gouging as “highway robbery,” and not without reason. According to the report:
- California drivers paid $1.2 billion extra for their gasoline in July alone, the most ever recorded, compared to U.S. average prices;
- Refiner margins (the amount refiners receive for each gallon of gasoline) reached a record high of $1.61 in the second week of July. More than triple their average margin of 48 cents per gallon;
- According to the California Energy Commission, the refiner margin has averaged $1.05 per gallon since the price spike began in February, double their 48 cent per gallon average margin;
- In the second quarter of 2015, Chevron made $731 million in profit on their United States refining. This was an increase of $214 million, or 41 percent over the same quarter last year;
- Valero’s California profits were 11 times higher in the second quarter of 2015 than the same quarter in 2014. The company made $294 million, up from $24 million.
But “highway robbery” pales beside something even more nefarious, intended to preserve the robbers’ hold on all of us in perpetuity: an attempt to use the skyrocketing prices to shift the blame onto environmentalists and government regulators who are leading the fight against global warming, as part of the oil industry’s ongoing covert war against climate change action.
This past November, behind-the-scenes details began leaking out in a story from Bloomberg BusinessWeek, “Leaked: The Oil Lobby’s Conspiracy to Kill Off California’s Climate Law.” Climate activists had gotten their hands on a PowerPoint deck with slides and talking points created by the Western States Petroleum Association, which BusinessWeek described as evidence of “a highly coordinated, multi-state coalition that does not want California to succeed at moving off fossil fuels because that might set a nasty precedent for everyone else,” BusinessWeek added. “The PowerPoint deck details a plan to throttle AB 32 (also known as the California Global Warming Solutions Act of 2006) and steps to thwart low carbon fuel standards (known as LCFS) in California, Oregon, and Washington State.”
A key part of the plan is the creation of an array of phony grassroots (aka “astroturf”) groups with names like Oregon Climate Change Campaign, Washington Consumers for Sound Fuel Policy, and AB 32 Implementation Group, which BusinessWeek noted, “are made to look and sound like grassroots citizen-activists while promoting oil industry priorities and actually working against the implementation of AB 32.”
The deck also previewed Western States Petroleum Association’s plan for an ad campaign warning that the cap-and-trade program for gas and diesel, which went into effect on Jan. 1, 2015, would constitute a “hidden” gas tax that devious politicians were trying to sneak past consumers.
The next month, in December 2014, Consumer Watchdog provided a much more comprehensive view of this deceptive propaganda war in a report, Pump Jacking California’s Climate Protection: The Threat Of Oil Industry Influence and Market Manipulation. It combined a discussion of conventional corrupt political practices — $70 million in campaign contributions and $36 million in lobbying from January 2009 to September 30, 2014 — with the novel aspects employed by the oil industry.
“In addition to unprecedented lobbying and campaign contribution expenditures in recent years, California’s oil companies are likely to use their extraordinary power over the gasoline market to artificially inflate gasoline prices as a way of driving political pressure against the new legal obligations refiners will face beginning in January 2015,” Pump Jacking warned in its executive summary. “The main finding of this review of oil companies’ tactics and strategies is that California’s state officials must be on high alert for such price manipulations and warn the oil companies that they will be immediately investigated and prosecuted for cut-backs in gasoline production that drive up price.”
In the months since, Consumer Watchdog has issued a number of reports further exposing the workings of these market manipulations.
On March 24, Consumer Watchdog released Price Spiked: How Oil Refiners Gouge Californians on Their Gasoline, which went into detail about how a small group of refiners manipulate prices — a problem identified as far back as 1999.
The report noted, “when California’s Attorney General formed a gasoline pricing task force that identified market consolidation and limited inventories as causes of prices spikes.”
The report went on to note, “California is an isolated gasoline market where consolidation has left 14 refineries producing a special, environmentally friendly blend of gasoline (CARB gasoline), and gasoline supplies on hand are far lower than the nation’s reserves. This leaves the market vulnerable to price spikes whenever there are refinery outages or accidents.”
A follow-up report, Refining Profits: How Californians Get Fleeced at the Pump, released on May 5, shifted focus from the up-and-down of prices that consumers paid to the cumulative results seen in the quarterly profits of oil companies.
For example, it noted, “On a recent call with investors, Chevron General Manager Jeff Gustavson admitted why the company did so well in the first quarter of 2015, ‘Margins increased earnings by 435 million driven by unplanned industry downtime and tight product supply on the U.S. West Coast.’ His statements reflect how refiners such as Chevron find it profitable to keep low inventory on hand and make large sums of money when the state encounters refinery problems.”
Then, on June 30, Consumer Watchdog’s Wholesale Gasoline Market Analysis burrowed into the details of how refiners used “their contractual leverage over branded stations to charge gas prices that are 30 cents higher than what unbranded stations pay”—that’s 30 cents per gallon of pure excess profit. This compared with a national average price difference of 5 cents the week that the report was released, according to the industry standard Lundberg Survey.
Two weeks later, Consumer Watchdog drew attention to another wrinkle: California refiners were exporting oil during a period of limited supply and price volatility.
“Oil refiners have kept the state running on empty and now they are sending fuel refined in California abroad right as the specter of low inventories in the state drives huge prices spikes,” said Consumer Watchdog president Jamie Court. “There is no good reason for the latest outrageous run up at the pump other than oil refineries manipulating inventories to drive gas prices artificially high.”
All this lead up to the Aug. 5 release of “Golden State Gouge.” Price gouging and market manipulation are far from being a new phenomenon — the oil industry has always been rife with collusion, influence peddling, market manipulation and the like — but these manipulations have been particularly intense.
“This is an unprecedented price gap with America and it’s an unprecedented price gouge,” Court told Random Lengths. “The tactics of oil refiners range from withhold supply, exporting, leveraging their branded gas station contracts for higher prices on the street. This is a nightmare for Californians who face four refiners who control 78 percent of the market and have pulled every trick in the book to gouge Californians.”
“Oil refiners see Californians as their sugar daddies,” Court said, when asked to summarize what the full sweep of reports tells us. “The historic second quarter refining profits from California at Tesoro, the second largest refiner, the 1100% profit increase in California refining profits at Valero, and Chevron’s refining unit having its best first half of the year ever, with 54% of its refining in CA, should show Californians they are being stalked by profit needy predators in the oil industry who are making up from Californians what they are losing on crude oil elsewhere.”
As for what California’s public officials should being doing, Court said, “California’s elected officials need to force oil refiners to be more transparent, open their books and show us why they are running this state on empty and what their plan is to fill up our tank.”
So far, he said, “There’s been little done by the political establishment, except hearings in the state senate and a little interest from the attorney general on the issue of how oil refiners are leveraging their branded station contracts to drive up prices at the 85 percent of stations that are branded to keep gas prices artificially high when imports do come into this market.”
Court added, “There’s been more tough talk than usual from the Senate, but no action to date. Hopefully we will get a bill introduced and moved in the next month, working on it right now.”
Finally, when we asked what’s next, Court responded, “If legislation doesn’t succeed, we are prepared to go to the ballot with Tom Steyer and others who want to put this question to Californians. Until then, we are all just victims of the market power oil refiners have exerted because 4 control nearly 80 percent of the market.”
Steyer expressed a similar outlook at the press conference.
“What’s going on is not right,” Steyer said. “If the legislature and the courts will not act, I believe the citizens will have to take matters into their own hands. We are determined to find a way to independently hold big oil accountable for these outrageous gas price. Nobody in LA, or anywhere in California should have to sacrifice their hard-earned living, while the well companies are multiplying their profits. Either there is something nefarious going on here, or the structure of the market itself is unacceptable. In either case, we need to fix the problem.”