Big Oil Feasts on Economic Woes

Record Profits from Big Five Oil Companies Feed on High Gas Prices

President Bush’s record shows that despite his rhetoric, he puts his alliance with Big Oil ahead of progress on clean, renewable energy options.

Updated 2.7.08

High gas prices may have cinched American consumers’ wallets in 2007, but they loaded the coffers of the big five oil companies: BP, Chevron, Conoco Phillips, ExxonMobil, and Shell. ExxonMobil, after record high profits in 2005 and 2006, smashed the record for highest profits ever made by a public U.S. company—previously held by Exxon—by posting a net profit of $40.6 billion in 2007.

To put these figures in perspective, Exxon’s $40.6 billion profit in 2007 is roughly equal to receiving “$30 for every person in China and $132 for every U.S. resident.” Another way of looking at it is that Exxon made $77,245 per minute in 2007—that’s more money generated per minute than 70 percent of Americans earned all year, according to the Census Bureau.

Shell also had a record breaking year. Its $31.3 billion 2007 profit set a new company record, and was 23 percent higher than its $25.4 billion profit in 2006. Analysts believe that higher crude oil prices are responsible for the company’s success. Chevron also matched its prediction of positive gains with $18.7 billion profit, primarily due to high gasoline prices at the pump. ConocoPhillips made $11.9 billion, its third best year since 2001. And its fourth quarter 2007 revenues exceeded last year’s fourth quarter by more than $1.2 billion, due partly to high energy prices. BP had a turbulent year, posting a gain of $20.8 billion in net profits. However, their fourth quarter earnings rose 22 percent from last year’s fourth quarter, mostly due to high oil and gasoline prices.

High oil prices are to big oil company profits what steroids are to home run records—number inflators. It costs oil companies less than $10 per barrel to extract and ship a barrel of oil. The “finding” costs to explore and develop an oil field range from $5 per barrel in the Middle East to $67 per barrel off of the U.S. coast. These are production costs. So when the market price jumps due to speculators, political unrest, supply disruption, or other similar events, it is a windfall for the oil company.

If the current high gas prices stay steady, big oil will surely see more gigantic profits in 2008. The price of oil is up by $45 per barrel—or 80 percent—from a year ago. The price of gasoline is 81 cents—or 38 percent—higher than this time last year. Families are now shelling out $60 or more per refill, while on a national scale, households that rely on home heating oil will pay about $551 more this winter.

What’s more, the Department of Energy expects the monthly average gasoline prices to peak “near $3.50 per gallon this spring.” This would easily beat the inflation-adjusted record of $3.23 from March 1981 ($1.42 in 1981). Breaking this record would continue to flood the coffers of big oil with money from hard-working Americans.

Rhetorically, President Bush acknowledges that the United States needs to reduce its oil dependence, which would decrease demand, lower pressure on prices, and reduce profits. During his State of the Union address last week, Bush advocated for a “new generation of clean energy technology,” since “our security, our prosperity, and our environment all require reducing our dependence on oil.”

Yet in reality, the president is protecting oil company profits at the public’s expense. In December 2007, he threatened to veto the entire energy bill because of its tax package, even though it included incentives for “a new generation of clean energy technology” that he extolled one month later in the State of the Union address. The reason for the veto threat? The energy tax package would have closed tax breaks for big oil that are worth slightly more than $1 billion annually.

The big five oil companies made over $123 billion in net profits in 2007; the closed loopholes would be less than one percent of their 2007 profits.

President Bush said that he opposed tax breaks for big oil companies in 2005: “I will tell you with $55 oil we don’t need incentives to oil and gas companies to explore.” Yet when oil was selling for $90 per barrel this fall, he forced Congress to drop tax incentives for clean alternatives because they would have been paid for with elimination of relatively small tax breaks for big oil.

There is still time for President Bush to put clean energy alternatives ahead of big oil’s enormous profits. On February 6th, the Senate failed by one vote to extend incentives for constructing renewable energy plants powered by wind and geothermal energy, as well as individual and business use of solar energy as part of the economic stimulus package. Efforts to extend these incentives will continue. Without an extension of these measures, the economy could lose up to 116,000 jobs.

President Bush should also support tax proposals stripped from the Energy Independence and Security Act, which would spur investments in cellulosic and other biofuels, advance research into carbon capture and storage, and encourage consumers to purchase plug in hybrid vehicles. These steps would be a welcome change from an administration that values big oil company profits above all else.

For more information about the Center’s recommendations for creating a low-carbon economy, see:

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Daniel J. Weiss

Senior Fellow