Republicans are often so wrong!

This is topic that I was going to get to eventually, but a letter to the editor in the Strib has prodded to write about it, here is the letter in its entirety.

GAS PRICES
Blame the Democrats
During the hearings on gas prices being conducted by our illustrious House of Representatives, maybe the oil companies should have pointed out the real reason for the high prices: The U.S. government, namely the liberal Democrats, has stopped them from building the necessary refineries to refine the oil to gasoline and diesel fuel and from drilling new oil wells.
HAROLD OLSON, MINNEAPOLIS

Okay, Olson, you lay the blame on a bottleneck in refinery capacity as the reason for higher gas prices. On this, you and I are in 100% agreement. However, you blame environmentalists and their hold on Democrats, which is pretty predictable for a Republican. I, on the other hand blame the corporations that I think are gaming the system by creating artificial shortfalls to increase the prices.

Clearly, these are two very different reasons for a reduced (or limited) refining capacity, but which is true? Maybe some of both?

Well unfortunately for Olson, he is wrong, so very very wrong! These two quotes come from oil company internal memos, and are documented in June 14, 2001 report (pdf) by Senator Ron Wyden,

“As observed over the last few years and as projected well into the future, the most critical factor facing the refining industry on the West Coast is the surplus refining capacity, and the surplus gasoline production capacity. The same situation exists for the entire U.S. refining industry. Supply significantly exceeds demand year-round. This results in very poor refinery margins, and very poor refinery financial results. Significant events need to occur to assist in reducing supplies and/or increasing the demand for gasoline.”
Internal Texaco document, March 7, 1996 (pdf of memo)

“A senior energy analyst at the recent API (American Petroleum Institute) convention warned that if the U.S. petroleum industry doesn’t reduce its refining capacity, it will never see any substantial increase in refining margins…However, refining utilization has been rising, sustaining high levels of operations, thereby keeping prices low.”
Internal Chevron document, November 30, 1995 (pdf of memo)

I think the introduction to the report really explains the situation, and the argument that even 7 years later is still being rolled out by Republicans,

America is indeed facing an energy crunch. For much of the year, gas prices have soared and supply has trailed demand.

During the course of my ongoing investigation into potential anti-competitive and anti consumer practices by the oil industry, I have obtained documents that raise serious questions about the circumstances leading to limited gas supply and high 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 there is more to the story. Specifically, the documents suggest 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.

For the last several months limited domestic refinery capacity has taken center stage as the purported reason for insufficient domestic gasoline supply and higher prices.

In the mid-1990s too much refining capacity, not too little, concerned the nation’s major oil companies. At that time, the oil and gas industry faced what they termed “excess refining capacity,” a circumstance they viewed as a financial liability that drove down overall profit margins. The industry reduced the total amount of potential supply by closing down more than 50 refineries in the past decade. Since 1995 alone, 24 refinery closings have taken nearly 830,000 barrels of oil per day.

Well, that sure proves my point.

-Josh

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