The industry has consistently bemoaned the lack of refining capacity, and used that lack as a factor in rising gasoline, diesel, aviation and heating fuel prices.
However, the actual fact is that the lack of refining capacity is one that can be shown to be a choice by the industry, which has chosen to restrict both refinery development and oilfield development production, instead relying on shorted supplies, or market manipulation of prices, to drive profit taking.
After hurricane Katrina gasoline prices took an immediate spike, with the rationale given that refining capacity was diminished by the storm, even though the oil in the pipelines (and in the service station tanks) was already past the refineries. The second rationale given was that the prices were really "replacement cost" increase, where the distributors were charging what they expected the next truckfull to cost.
This is not an argument that gains much sympathy from me. And it appears that the oil companies either woke to that fact themselves, or they have had the possible public reaction (especially with the current push to cut social service programs to offset Gulf coast reconstruction costs) of these levels of profit coupled with the tax cuts given in the new "energy" legislation.
As an example, from the NYT of 10/26/05 we have the following article:
October 26, 2005
High Energy Prices Lift Profits at ConocoPhillips by 89%
By JAD MOUAWAD
ConocoPhillips said today that its third-quarter profits almost doubled after a series of devastating hurricanes in the Gulf of Mexico curbed domestic supplies and pushed up oil and natural gas prices to record highs.
The Houston-based company said that it suffered losses from the impact of Hurricanes Katrina and Rita, but that the disruptions to its operations were more than offset by higher energy prices.
Oil companies are benefiting from a once-in-a-generation surge in profits this year as demand shows no signs of slowing down despite a doubling of crude oil prices in less than two years. Natural gas prices also doubled since the beginning of the summer.
The companies are now facing criticism that they did not invest enough in either refining capacity or new production projects to increase supplies. The pressure is likely to mount this week as Exxon Mobil and Chevron, the top two American oil companies, report their quarterly earnings on Thursday and Friday, respectively.
In response to suspicions of gasoline price gouging this summer and accusations of profiteering leveled by several consumer groups, Senator Byron L. Dorgan, Democrat of North Dakota, introduced legislation last month to impose a windfall tax on oil companies. More recently, the House speaker, J.
Dennis Hastert, Republican of Illinois, called on Exxon Mobil, BP
and Chevron to increase their investments in refining and endorse a $20 billion pipeline that would bring natural gas from Alaska.
At ConocoPhillips, the first big American company to report earnings for the third quarter, net income jumped 89 percent, to $3.8 billion, or $2.68 a share, compared with $2 billion, or $1.43 per share, last year.