- The Washington Times - Tuesday, March 14, 2006

Top executives from the country’s largest oil companies rejected arguments yesterday that size has allowed them overwhelming market power to force up gasoline prices.

The executives, appearing before the Senate Judiciary Committee, each said that the industry mergers — a dozen over the past decade — have allow U.S. companies to improve efficiency and achieve the size and scale of operation to compete with the world’s government-owned energy companies in the search for oil.

“Every time there is a merger the prices have gone up. Is that just coincidence?” asked Vermont Sen. Patrick J. Leahy, the committee’s ranking Democrat.

Rex Tillerson, chairman of Exxon Mobil Corp., the world’s largest publicly traded oil company, had anticipated the question in his opening remarks.

“With respect to … whether mergers and acquisitions in our industry have contributed to higher prices at the pump, my answer is no,” said Mr. Tillerson, whose company earned $36 billion last year.

“This remains a highly competitive industry,” said John Hofmeister, president of Shell Oil Co. For example, he said, the Shell gasoline brand is sold in only 12 percent of the country’s service stations.

“We are dwarfed in size” by the world’s nationally owned oil companies, said David O’Reilly, chairman of Chevron Corp., who brought to the hearing a chart showing ExxonMobil ranked 14th among global producers in terms of how much oil a company controls.

But senators, both Republicans and Democrats, questioned the concentration of market power, especially in U.S. refining and retailing.

“It is naive to think that massive consolidation has had no impact” on prices, said Sen. Charles E. Schumer, New York Democrat, who suggested “we should seriously explore divestiture, particularly on the downstream refining and retail” areas.

In 2004, the five largest refiners controlled 56 percent of the gasoline refined in the United States and the 10 top companies controlled 85 percent, according to a study by Public Citizen, a private advocacy group.

Bill Klesse, chief executive officer of Valero Energy Corp., which has bought 17 refineries since 1997, said the consolidation of small refineries under Valero has improved efficiency and allowed facilities to continue operating that otherwise would tinue operating that otherwise would have closed.

“The industry is more competitive and productive,” he insisted.

“The industry is more competitive and productive,” he insisted.

Committee Chairman Arlen Specter, Pennsylvania Republican, said he wanted to know why the pump price of gasoline increased 11 cents a gallon during the past two weeks even as crude oil prices were holding steady or declining. He decided to let the executives respond later in writing.

As yesterday’s hearing was under way, the cost of gasoline for delivery in April increased 7 cents on the New York Mercantile Exchange. Gasoline prices have jumped 50 cents per gallon over the past month.

“You folks have me kind of over a barrel. … I need gasoline,” Sen. Charles E. Grassley, Iowa Republican, told the executives.

The oil company executives argued that the main reason retail prices are so high is not because of market power or manipulation, but the high cost of crude oil.

A price of a barrel of light, sweet crude rose $1.23 to $63 a barrel in New York yesterday.

Mr. Specter said he hopes soon to consider legislation to strengthen antitrust laws on oil company mergers to allow closer scrutiny of their impact on competition.

The legislation also would make it illegal for companies to hold back refining crude oil — or diverting or exporting refined products such as gasoline — when supplies are short in a region in order to hold up prices. Some refiners in the past have been accused of diverting supplies despite regional supply shortages.

Sen. Richard J. Durbin, Illinois Democrat, said existing antitrust laws are not being aggressively enforced.

When it comes to oil industry consolidations, Mr. Durbin said, the FTC enforcers are “lap dogs in a room full of energy pit bulls.”

Other executives appearing before the committee were James Mulva, chairman of ConocoPhillips, and Ross Pillari, president of BP America Inc.


Copyright © 2018 The Washington Times, LLC. Click here for reprint permission.

The Washington Times Comment Policy

The Washington Times welcomes your comments on Spot.im, our third-party provider. Please read our Comment Policy before commenting.

 

Click to Read More and View Comments

Click to Hide