Houston Chronicle: Rumblings of breaking up Big Oil: Lawmakers call for splitting industry giants

May 24, 2007, 12:58AM
By DAVID IVANOVICH
Copyright 2007 Houston Chronicle Washington Bureau

WASHINGTON — Here in the nation’s capital, discussions about the oil industry are just nothing like the conversations heard at Houston energy conferences.

When oil industry officials have addressed the record-high gasoline prices, they’ve pointed to unexpected downtime at refineries, political unrest in Nigeria and lower imports from Europe.

Lawmakers at a Joint Economic Committee hearing Wednesday talked about breaking up the oil companies.

Pointing to the example set by trustbuster Teddy Roosevelt a century ago, a group of lawmakers led by Sen. Charles Schumer, D-N.Y., are questioning whether they should step in to roll back the mergers that have created the so-called “supermajors” like Exxon Mobil Corp., Chevron Corp. and ConocoPhillips, a notion that sends shivers through the oil sector.

“My instinct tells me that a reconsideration of oil company mergers in the last two decades may be in order,” said Schumer, chairman of the joint Senate-House panel. “When markets have been distorted from lack of competition in the past, the federal government has taken action. Standard Oil, U.S. Steel and AT&T come to mind.”

With motorists clamoring about pump prices topping $4 a gallon in some markets, lawmakers are eager to take action.

Oil industry lobbyists have been scrambling this week unsuccessfully to fend off bills in the House to enable the U.S. Attorney General to sue the Organization of the Petroleum Exporting Countries and to outlaw price gouging at the pump.

And the industry’s critics have long questioned whether consolidation in the oil industry may be harming consumers. But a congressional hearing to consider an actual breakup of the oil companies was a novel experience, at least for this generation in the industry.

“It’s a new twist,” Red Cavaney, president of the American Petroleum Institute, said after the hearing.

Just how much consolidation has occurred in the oil industry is a matter of some debate even within the federal government.

The Federal Trade Commission, for instance, says 1,165 mergers occurred in the domestic petroleum industry between 1993 and 2003, noted Diana Moss, vice president of the American Antitrust Institute, while the Government Accountability Office found 2,600 transactions between a much shorter period, from 1991 to 2000.

Schumer argues that in 1993, the nation’s top five refiners controlled a third of the U.S. market, while the largest 10 held a 56 percent market share. By 2005, Schumer said, the largest five refiners controlled 55 percent of the market, while the top 10 controlled 80 percent of the market.

Cavaney assured lawmakers “oil company mergers and acquisitions have not caused higher gasoline prices.”

“We need to focus on the factors shaping those higher prices and not be misled by claims that have been repeatedly disproved, have no basis in fact, and mask root causes,” Cavaney said.

The Federal Trade Commission strongly supports the industry’s contention.

Michael Salinger, director of the FTC’s Bureau of Economics, told the panel that analysts at his agency “do not believe the consolidation in the industry has been a major factor” in pushing up gasoline prices.

Despite the mergers over the last two decades, market concentration in most parts of the petroleum industry remains what the FTC would deem low or moderate, Salinger said.

Still, the FTC has brought more cases against petroleum companies controlling relatively low shares of the market than in any other industry, Salinger said.

“We are more aggressive with this industry than any other industry,” Salinger said.

Since 1981, the FTC has challenged 21 petroleum mergers, prompting the parties in a fourth of those deals to drop their plans and requiring the companies in another 13 deals to divest significant assets.

The FTC recently objected to Kinder Morgan’s plan to go private through a management-led buyout for fear the deal could prompt higher gasoline prices in the Southeast, until two investment firms participating in the deal agreed to turn their interest in a competitor into a passive investment.

FTC officials also monitor the gasoline markets for anomalies that suggest anti-competitive behavior. And, according to footnote No. 32 of Salinger’s prepared remarks Wednesday, the commission is currently investigating the gasoline and diesel markets in the Pacific Northwest. (Salinger declined to discuss that probe further).

But Democrats, who have long accused the FTC of lax enforcement of the oil industry, are clearly not persuaded.

“They’re conscientiously not looking” for anti-competitive behavior, said Rep. Maurice Hinchey, D-N.Y. “The FTC is putting blinders on.”

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