Big Oil has little reason to pursue lower prices
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Dear Mr. Berko:
Oil now costs more than $100 a barrel, and our president comes from oil wealth and our vice president was chief executive officer of Halliburton, the largest oil service firm in the world. I’m certain that Congress gets huge amounts of influence money from oil companies, big and small. And it seems the oil companies and Congress want to keep oil over $100 a barrel. Why haven’t Exxon and other big oil giants funded research from their trillions of dollars of sales into alternative energy resources that would bring down our costs? Do you think prices will come down soon, or should I get another job after 21 years of trucking?
R.E., Fort Walton Beach, Fla.
Dear R.E.:
In the years preceding World War II, the U.S. tire manufacturers owned substantial interests in enormous rubber plantations in Ceylon (Sri Lanka), Malaya (Malaysia), Borneo, Indonesia and Sumatra. The sap from millions of rubber trees was shipped to their factories in the States. The balance sheets of those huge tire manufacturers were immodestly rich. And they grew even richer as the market price of the latex increased due to the tremendous demand for tires.
Meanwhile, Goodyear and other tiremakers also owned the patents and the technology to produce synthetic rubber and purchased every new synthetic process that could become a threat to their monopoly. They knew that synthetic rubber would eliminate the need for natural rubber, and that synthetic rubber could collapse the huge investment values of their rubber plantations. The big rubber companies would spend a few dollars every year on synthetic research primarily as a public relations gimmick with no real intent at success. Why compete with yourself?
World War II became a reality in 1938, long before it became a fait accompli in 1941. During those years, the “rubber barons” ignored the inevitable and refused to develop platforms for a synthetic product. However, when the need became critical, the rubber barons, fearing nationalization of their industry, reluctantly put their fat heads together. So with government sponsorship, the tire consortium produced a synthetic rubber known as GR-S (government rubber-styrene) on a commercial scale to meet the needs of the United States.
That reality of 70 years ago is similar to our oil crisis today. There are various proven processes to produce alternative fuel and reduce the cost of gas below $2 a gallon. However, the greed of the oil barons is no different than the greed of the rubber barons of 70 years ago. Exxon Mobil owns 29 billion barrels of oil; at $100 per barrel, that’s an inventory value of $2.9 trillion. That oil cost Exxon a measly $5.45 per barrel. Chevron’s estimated oil inventory is worth an estimated $2.2 trillion at a cost of $5.34 per barrel, and Royal Dutch Shell’s inventory is valued at $2.6 trillion billion at a cost of $5.77 a barrel. Those companies have a profit of over $95 a barrel, and they’ll fight (to near death) to maintain that margin and favorable tax treatments.
Because alternative fuels would cripple the balance sheets of the oil companies, it makes sense for Big Oil to aggressively resist efforts to develop competing products. Since 2002, Big Oil collectively earned nearly $1 trillion in profits after taxes. Since 2002, Exxon Mobil has put zero percent of its profits into renewable or alternative energy; BP, 0.6 percent; ConocoPhillips, 0.7 percent.
Americans need a compelling threat to cause Big Oil and Congress to take action. Sell your rig and find another job. I doubt oil prices will come down in the next few years … there’s no reason for them to.
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