Why is the Oil Industry No Longer Laughing all the Way to the Bank?

Barry Stevens
Group Vice President – Energy Systems at INEDCO

On April 8, 2010, John M. Broder and Clifford Krauss reported in the New York Times, Texas Oil Firms Oppose California Climate Law (Part 1 of 2): “Several Texas oil companies are bankrolling a petition drive to suspend California’s path-breaking climate change law in a move that may prove a bellwether for national efforts to address global warming.”

Looking objectively, the report ignites emotional responses from a sense of infuriation to a “well maybe,” there is a point to all this madness (see Part 2 -excerpts). With a struggling economy why test providence at this time for something that may be too little, too late or even “unproven.” Nevertheless, the report concluded that the action to suspend was based on two speculative counterpoints: 1) “Electricity prices WOULD go up under the law,” and 2) “that the legislation WOULD increase gasoline prices.”

At first glance, it seems almost prudent to move slower and let the healing process take its due course. As economists, scientists, politicians, industrialists, educators, and just plain everyday citizens, we search for a heuristic model that validates or disputes the premise that controls – WOULD – result in damaging price increases. But there lies a major problem, for in the not too distant past there was a situation of runaway petroleum price increases that necessarily had nothing to due to with government regulations. Memories, being what they are, conjure up an abyss when it comes to what Velaro and other major oil players were doing when the price of gasoline skyrocketed to $4.00 a gallon in 2008.

Faded by the passage of time, one is left with the impression that the oil industry was smiling all the way to the bank. Headlines such as “Exxon Mobil Corp. reported second-quarter earnings (July 31, 2008) of $11.68 billion, the biggest profit from operations ever by any U.S. corporation …….. ,” permeated the media. Though, along the way and maybe due to the humdrum of deposing huge sums of money, it appears the oil industry failed to file similar petitions to put the brakes on their revenue stream.

Mostly coincidental, as soon as the public and private sectors took a serious look at alternate sources of energy, gasoline prices fell south with laser beam speed in several months if not weeks. All were happy again to ride, drive and fly with cheaper petroleum. Even the federal government was happy to have a hiatus from the political sensitivities associated with global warming, pollution and transition to a clean energy economy. In the wake of potentially helpful and possibly damaging legislation, the Senate shelved precedings on it its version of H.B. 2454 aka “Climate Control Bill” that was approved by the House on June 26, 2009.

In California’s case, the justification for the current petition is “WOULD;” in 2008, the situation for no petitions, was why oil “SHOULD.”

Reprinted from Barry Stevens’  LinkedIn:Energy Group Discussion