Excerpts from The Oil Industry, Gas Supply and Refinery Capacity: More Than Meets the Eye (PDF), a 2001 investigative report by Senator Wyden of Oregon outlining how, over a period of ten years, Big Oil companies orchestrated the current crisis in oil prices.

The oil industry and its allies would have the public believe that insufficient refining capacity, restrictive environmental standards, growing gasoline demand and OPEC production cutbacks are the primary reasons for the current oil and gas supply problem.

However, the record shows - supported by documents I have obtained - that . . . major oil companies pursued efforts to curtail refinery capacity as a strategy for improving profit margins; that competing oil companies worked together to subvert supply; that refinery closures inhibited supply; and that oil companies are reaping record profits, yet may benefit from a proposed national energy policy that would offer financial incentives to expand refinery capacity. [!!!]

* * *

[T]he nation's major oil suppliers have set out in a strategic effort to orchestrate a financial triple play, a coordinated effort that would reduce supply, raise prices at the pump and relax environmental regulations. Unfortunately, in each case, it is the consumer who takes the hit.

While the documents target activity on the West Coast and refinery closings in 11 states, they point to practices with significant national ramifications. The companies involved are national companies that operate in multiple states. In addition, gas and oil is a fungible commodity and the amount of capacity that has been taken offline is significant enough to affect national markets.

In his report, Senator Wyden made the following findings (abbreviated):

• FINDING 1: Oil Companies Articulated their "Need" to Reduce Oil and Gas Supply to Increase Prices and Grow Profit Margins
  

Not only did the oil companies view excess refining capacity as a financial liability, they openly suggested that eliminating the excess capacity and tightening supply would help improve their bottom line.

[D]ocuments show that oil companies had the intent and motive to hamstring supply and reduce refining capacity. Subsequent events show that they acted [based on that intent].

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• FINDING 2: Oil Company Competitors Planned Opportunities to Subvert Oil and Gas Supply . . .
  

"ARCO represents an important part of Tosco=s business. We want to do everything we can to nurture this important business relationship and make sure it keeps up the tradition of being mutually beneficial."

--Thank you note to ARCO Exec. VP James A. Middleton from Tosco CEO Thomas O'Malley, April 25, 1994

"... explore whether or not there was any mutual benefit, any mutual interest, any profit for both ARCO and Tosco to find a way to have ARCO purchase or Tosco sell CARB [cleaner burning California Air Resources Board] gasoline to ARCO, recognizing that the agreement that was in place at that time did not provide for the supply of CARB gasoline."

--Summary of Deposition of William C. Rusnack, President of ARCO Products Co., taken May 15, 1997

"And he, as I recall, confirmed their interest ...and if we can reach a commercial agreement with them, that he felt, you know, this could change some of their investment decisions or change investment decisions of others on supplying CARB gasoline."

--Summary of Deposition of Cecil Blackwell, Senior Chevron Official, taken February 19, 1997

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[M]ajor oil and gas companies supplying CARB gas to the California market entered into 44 supply-sharing agreements . . . to control the quantity of CARB gas on the market, reduce efforts to expand CARB refining capacity, limit imports of CARB gas and discourage excess CARB gas from being sold on the spot market to independent purchasers.

Exxon, ARCO, Chevron, Shell, Texaco, Tosco and Unocal all entered into such supply-sharing agreements with at least one of their competitors.

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In February 1993, Mobil, Texaco and Chevron (with the financial support of Exxon) filed a lawsuit to overturn the small refiners' exemption to the CARB gas program, reducing the ability of small refiners to compete in the CARB gas market.

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"If Powerine re-starts and gets the small refiner exemption, I believe the CARB market premium will be impacted. Could be as much as 2-3 cpg (cents per gallon)...The re-start of Powerine, which results in 20-25 TBD (thousand barrels per day) of gasoline supply . . . could . . . effectively set the CARB premium a couple of cpg lower . . . Needless to say, we would all like to see Powerine stay down. Full court press is warranted in this case."

--Internal Mobil Corp. E-mail regarding Powerine refinery, February 6, 1996

The Powerine Oil Company refinery closed in 1995.

• FINDING 3: Closing Refineries: Oil Companies Act to Inhibit Supply

Since 1995, 24 refineries have closed, including refineries in California, Illinois, Arizona, Oklahoma, Indiana, Kansas, Louisiana, Texas, Mississippi, Michigan and Washington (the Tosco refinery has subsequently reopened), taking nearly 830,000 barrels a day of refining capacity offline. While capacity at some existing refineries expanded during this time, the fact is that more capacity would exist if these refineries were still operating.

• FINDING 4: Record Profits: Oil Companies Reap Benefit of Higher Prices at Pump
  

Despite complaints indicting the cost of environmental compliance and manufacturing "boutique" fuels, in the [year] 2000 the oil and gas industry enjoyed record profits that reflect record gas prices.

According to Texaco's 2000 Annual Report, the company's production steadily decreased from 1998 to 2000, yet its net income more than quadrupled during the same period - with Texaco posting well above $2.4 billion in net income in 2000.

Among these four companies alone [Texaco, Chevron, ExxonMobil, and BP Amoco], profits for the year 2000 increased by over $22 billion dollars in one year. In light of these substantial profits, oil industry claims that they cannot afford to comply with environmental regulations or expand their refining capacity lack credibility.

• FINDING 5: National Energy Policy Incentivizes Oil Companies to Expand Refinery Capacity

The Bush administration's National Energy Policy, released in May, points to lagging profit margins and costly environmental regulations during the past decade as the reason for lost refinery capacity. The report also states that, "excess capacity may have deterred some new capacity investments in the past," and that "more recently, other factors, such as regulations, have deterred investments." . . .

[Bush's recommended policies] will reward the same oil companies who perpetuated the gasoline supply crunch, [who already enjoy] record profits because of their actions, [with] even higher profits by recognizing the cost savings of relaxed environmental standards.

As a result, oil and gas profits would continue to rise, the public would be saddled with the costs of dirtier air, and consumers would remain unprotected from high gas prices.

How's that for a triple play?

1. Reduce supply,
   
2. Exploit the crisis, then
   
3. Demand incentives to increase supply again!