The Problem Isn’t the Oil Companies…

Whenever corporate executives are summoned to testify on Capitol Hill, you can bet it’s for the wrong reason.

The recent testimony of Big Oil executives is a classic case-in-point. Marketed to the public as a stern interrogation of those mainly responsible for the nation’s rapidly deepening energy crisis, the whole thing was utterly faux, a true dog-and-pony show.

Here’s why:

The real problem is much deeper than just the practices of the oil corporations. It is: a) Peak Oil, and b) the deep inability of our overclass even to admit the Peak Oil problem exists.

Exxon-Mobil, to take one major example, is one of the largest non-state oil producers in the world. It is a dominant force in the oil states that remain too weak and corrupt to nationalize their production schemes — in places like Indonesia and the Niger Delta countries, and in the United States, which, despite its long-lost self-sufficiency, remains a serious petroleum producer. In such abject places, E-M produces a large amount of crude oil, something like 3-4 million barrels a day.

Now, E-M is indeed a huge corporation that enjoys oligopoly power within its market. Hence, it will always engage in price gouging. Indeed, that’s one of the top reasons why all big businesses exist — to escape full-on price competition and to gouge whenever they can.

But despite the big oil corporations’ record profits, their pursuit of price gouging probably explains no more than 10 percent of the current price of gas at the pump. If the implied claim of Congressional (and other) demagogues — that it’s all price gouging, and nothing deeper — were true, then the record profits would be ten times what they actually are. If corporations could still get barrels of oil for $25, but sell gas to Americans for $4.00 a gallon, we’d be hearing about 380% or 3800%, not 38%.

In reality, below the real but thoroughly secondary problem of corporate price gouging, the fact remains that two much more fundamental things are quite real, no matter who is doing the drilling:

1. It is getting significantly harder to find new oil fields and keep existing ones going at present rates. The world’s remaining supply of in-the-ground petroleum is peaking, if not already declining.

2. Drilling for petroleum is itself extremely petroleum-intensive. You need lots of heavy machinery to drill and transport the product, and it also costs a great deal of energy to explore and test for new fields. E-M is not lying when it says its costs of production are rising quickly.

So, the whole focus on the oil companies, sick and brutal as they are, is simply a distraction.

We ought to form a National Energy Planning Administration that operates like the Pentagon. This new effort should include a new Manhattan Project working to coordinate the radical reconstruction of the nation’s transportation, residential, and production infrastructures so as to put energy conservation truly at the top of the agenda. It also ought to compete fiercely with Exxon Mobil and others in the production of energy, including a drive to scramble like hell to make and distribute as much wind, water, and solar technology as makes sense, before we run out of the inherited hydrocarbon inputs those things will require.

Of course, as things stand, none of this is going to reach the agenda, because it’s all a huge death knell for corporate capitalism, which cannot persist as a dominant force without the energy squandering automobiles-first arrangement we are now stuck with and forbidden to question. In the end, our problem is really cars and capitalism, not oil. That’s the secret to why this extreme global emergency remains “off-the-table,” and why our “leaders” are pointing their feigned anger at the icing rather than the cake. Like the idea that thoroughly money-centered, social-climbing CEOs are unaware of their own salaries, it’s a flimsy hoax.

So, what should we do? Well, as MLK said, privileged classes never surrender their privileges without strong resistance.

The starting point for strong resistance is seeing and telling the truth.

Michael Dawson is author of The Consumer Trap: Big Business Marketing in American Life (2004). He is the publisher of the blog The Consumer Trap, which aims to expose capitalism, marketing and market totalitarianism. Read other articles by Michael, or visit Michael's website.

21 comments on this article so far ...

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  1. Don Hawkins said on May 28th, 2008 at 9:49am #

    Michael simple and to the point very good.

  2. Edwin Pell said on May 28th, 2008 at 10:05am #

    No need for a new department called “National Energy Planning Administration” it already exists and is called “The Department of Energy”. True the department has done little in the last 35 years to fulfill its mission but having two department will not be any more likely to work.

    I agree peak (light sweet crude) oil has come and gone. Production of natural gas still seem to be on the raise for a few more years. The net total seem like it will peak in 2010-2012. And of import is that the gas reserves are in Russia, Iran, and Qatar. All three are hard to transport to the U.S. All three have takers far closer E.U., India, China, Japan.

    Most government schemes for new energy system involve giving tax money to privately owned corporation. This makes no sense to me. If I am investing in a corporation I expect ownership in return. Every dollar invested in energy companies should buy a dollars worth of stock in the company. The dividends from which should be used to pay social security benefits.

  3. Edwin Pell said on May 28th, 2008 at 10:06am #

    No need for a new department called “National Energy Planning Administration” it already exists and is called “The Department of Energy”. True the department has done little in the last 35 years to fulfill its mission but having two department will not be any more likely to work.

    I agree peak (light sweet crude) oil has come and gone. Production of natural gas still seem to be on the raise for a few more years. The net total seem like it will peak in 2010-2012. And of import is that the gas reserves are in Russia, Iran, and Qatar. All three are hard to transport to the U.S. All three have takers far closer E.U., India, China, Japan.

    Most government schemes for new energy system involve giving tax money to privately owned corporations. This makes no sense to me. If I am investing in a corporation I expect ownership in return. Every dollar invested in energy companies should buy a dollars worth of stock in the company. The dividends from which should be used to pay social security benefits.

  4. Michael Dawson said on May 28th, 2008 at 11:25am #

    Post Script:

    Chief among the “other demagogues” is none other than the sometimes-great, but obviously slipping Ralph Nader. Check out his silly piece today on CounterPunch, for example, at http://www.counterpunch.org/nader05282008.html.

    He wants us to believe it’s all just baseless speculation and simple corporate price-gouging. His source for that interpretation is the personal opinion of one person, with no relevant numbers or background.

    When even Ralph Nader wants to ignore Peak Oil, you know we’re up against a wall…

  5. lynette said on May 28th, 2008 at 4:16pm #

    as with most serious problems, there is no single causative factor. to attempt to blame it on one thing ~ big oil, speculation, increasing useage, peak oil ~ keeps us mired in assigning blame instead of fixing the damn problem.

    given my world view, i am convinced it has much to do with greed and unbridled corporate abuses. but that doesn’t explain it all. my frustration is in getting anyone who has the capacity to send us in a new direction in this country (in this world) to listen.

    it shouldn’t be that hard of a sell: our security, our prosperity, our future depends upon energy independence and finding alternative sources. how hard is that? it’s almost short and sweet enough for a 30 second commercial.

    that being said, the oil companies should be taxed and hard. no one has yet been able to explain to me how their profits ~ profits ~ go up because the cost of a barrel of oil increases. i can see the gross going up, but not the profits unless they’re using this as an opportunity to enlarge the profit margin.

  6. John Wilkinson said on May 28th, 2008 at 5:17pm #

    “If corporations could still get barrels of oil for $25, but sell gas to Americans for $4.00 a gallon, we’d be hearing about 380% or 3800%, not 38%.”

    where did you get these figures? can you explain how you arrived at these percentages, because the don’t make sense. if the oil were $25/barrel, and the barrel is 42 gallons, and you get 100% gas from that oil, and there were no refinement costs (all optimistic assumptions raising the profits), then the profits would be:

    P = revenue – cost = 42 gallons/barrel * $4/gallon – $25/barrel =
    = $168/barrel – $25/barrel = $143/barrel

    Then the maximal percentage profits are: P(%) = P/cost = $143/$25 = 5.72 = 572%

    so, can’t possibly be 3800%.

    But the fact is, the oil is not $25/barrel but $120/barrel and more, which cuts into the profits. Again, with no refining costs, oil=gas, etc., we get:

    P = 42*4 – $120 = $168 – $120 = $48

    P(%) = $48/$120 = 40%,

    i.e., exactly what they were reporting, more or less, when all the assumptions are accounted for. so, you’re dead wrong, the numbers do compute as far as profits are concerned; no profits would not be 380% or (never!) 3800%, but 38% just as reported.

    Now, the other thing is, which you completely gloss over is that they are outrageous profits. In private industry, you’re lucky to get profits of 5%, that’s considered good. In other words, the price of gas is too high. In order to get profits of 5%, the price of gas should be (again, discounting second order effects such as refining costs, etc.):

    Price(gas at 5% profit) = (5% * $120/barrel + $120/barrel)/42 gallons/barrel = $3.00/gal

    so, yes, they are gouging, unless refining costs are much greater than second order effects, which I doubt, at these astronomical prices for oil (i.e., they were making hand over fist when the price of oil was $20/barrel, when the refining costs would have been much greater as a percentage of total costs; so if they are a small or even a medium portion of costs at $20/barrel, they stay the same no matter what the cost of oil and at$120/barrel, they are a minuscule contribution to cost).

    So, a poorly researched piece from the start, with poor logic thinking and poor math to boot.

  7. John Wilkinson said on May 28th, 2008 at 5:19pm #

    and the fact is, they get even more profits because some of these oil companies own some of the oil fields, so $120/barrel is not entirely in the cost column to them, but also in the revenue column.

  8. John Wilkinson said on May 28th, 2008 at 5:24pm #

    “But despite the big oil corporations’ record profits, their pursuit of price gouging probably explains no more than 10 percent of the current price of gas at the pump.”

    that is wrong, again arbitrary numbers are picked out of thin air. as shown above, the price gouging explains at least:

    ($4.00 – $3.00)/$4.00 = 25% of the price of gas at the pump, and that is with optimistic assumptions of counting the price of oil as only a cost to the oil companies (i.e., they would have to pay some Arab country that much for the raw material — oil), whereas in fact it’s also a revenue producer for those oil companies which own or exploit oil fields and not just refine oil into gas.

  9. John Wilkinson said on May 28th, 2008 at 5:27pm #

    “Of course, as things stand, none of this is going to reach the agenda, because it’s all a huge death knell for corporate capitalism, which cannot persist as a dominant force without the energy squandering automobiles-first arrangement we are now stuck with and forbidden to question”

    hahahaha, aaaahahahahahahaha

    gosh you know nothing about capitalism, don’t you. they won’t find ways to make money off of this, as they already have.

    boy i haven’t had such a good laugh in along time, thank you.

  10. John Wilkinson said on May 28th, 2008 at 5:30pm #

    or if they can’t make money (which is impossible with solar as things stand now, it’s the physics and engineering of it, they need huge subsidies), it won’t be done, until it makes sense (your words).

  11. John Wilkinson said on May 28th, 2008 at 5:37pm #

    “Chief among the “other demagogues” is none other than the sometimes-great, but obviously slipping Ralph Nader. Check out his silly piece today on CounterPunch, for example, at …”

    Finally. FINALLY someone with a brain cell, able to see through this idol of the left. Finally someone not in LOVE, unconditional, unrequited LOVE, with this Peter Pan or whatever. No, not “sometimes-great”, ALWAYS a demagogue. And no, I don’t read his pieces as a matter of principle (I’ve hear ENOUGH from him through the years of LYING), I don’t want my clicks on his piece to be counted for something other than what it means.

  12. John Wilkinson said on May 28th, 2008 at 5:42pm #

    “Production of natural gas still seem to be on the raise for a few more years. The net total seem like it will peak in 2010-2012.”

    The problem with natural gas — and we are running out is, as I understand, once it peaks, it won’t gradually decrease, like oil. No, it will drop like a rock. We are in for some hard time. And the morons — spurred on by Ralph Nader demagoguery, are using more and more of natural gas to power electric power generating stations, now as much is used for that as for all residential purposes — because, that’s the only “environmentally acceptable” alternative that won’t be sabotaged.

  13. John Wilkinson said on May 28th, 2008 at 5:44pm #

    “The starting point for strong resistance is seeing and telling the truth.”

    and the starting point for that is that you research something before you write about it.

  14. John Wilkinson said on May 28th, 2008 at 6:27pm #

    actually, in the above calcs for percent profit, i was speeding a little and not paying attention, so the total revenue should be in the denominator, not the total cost. will not lead to appreciable changes in the numbers.

  15. Max Shields said on May 29th, 2008 at 12:46pm #

    Reading some of these comments is a bit confusing. We know that oil wells run dry. We also know that they continue to run drive as new spots on the globe are explored. Geologists indicate we’ve pretty much exhausted the big ones and most are drying or dried up. We also know that the fossil fuel is finite.

    So, yes, peak oil is real and an issue for the nation’s who have made themselves (USA and West, as well as China and India) dependent on it as a source of energy. Some have estimated that we could resolve the problem by 2050 or so. Is that soon enough? I don’t know.

    What I think is that we have a fundamental economic problem that we fail to deal with directly: Uneconomic growth – that’s when growth is more costly than non-growth. We passed that point a few decades back. We are in a zone where it costs us more to continue to grow and that cost (by all indicators including that which is life giving – the degradation of our ecosystem) is growing expotentially. That’s the problem. Not OIL.

  16. Michael Dawson said on May 29th, 2008 at 5:46pm #

    John, thanks for the calculations. I was just guesstimating on my numbers. 3800 was obviously an exaggeration.

  17. bill rowe said on May 30th, 2008 at 9:45pm #

    Ultimately only nuclear fusion offers the promise of humainity being able to indefinitely consume more energy than that provided by the sun. However it is not clear that we will ever be able to harness that. the long term necvessity is to reduce energy use to a sustainable level at some practicable fraction of that provided by the sun.We are so far off currently some harsh transition will be required. We need to use all available sources including the relatively short term supply of nuclear fission (with reprocessing and breeder technology). This includes all conceivable forms of so-called green sustainable,solar,wind,wave,…. along with conservation and technological efficiency increases…..and still ultimately we will need to limit population size. To limit the harsh transiton we need to spread out ocer time, so I fully believe the energy cost increases are needed blessing.

  18. ashley said on May 30th, 2008 at 10:43pm #

    I personally believe the Peak Oil theory is inaccurate but I realize many now believe in it fervently. That said, clearly we are overly dependent upon it and the very nature of the substance tends to exacerbate long-distance, i.e. anti-local business and cultural models. I live in a province in Canada that produces the highest per capita nr. of cucumbers in North America. But I don’t buy them at my local supermarket. I buy Californian cucumbers. People somewhere in the States buy our cukes. Why? Because the money is in the brokering, shipping etc., mark-ups every step of the way. The more transactions involved, the more business is generated. Without abundant, cheap hydrocarbons this model is unworkable.

    The real problem with car fuel and electrical consumption is that we are wedded to large-scale centralised systems that favor large-scale organisations (corporations etc.). The solution to car travel has been there since the beginning with diesel using vegetable oil. OK, now there are too many of us. Fine. So switch to the new air compressor cars. Why won’t they be mass produced here? Where’s the money in that? Air is free, it is not even ‘used’ by the engine, simply pressurized and then released back into the atmosphere. No money, it won’t happen.

    Most of our power needs could be supplied from far smaller, indeed local, energy sources including photovoltaic, fibre, and probably there are things that can be done with electromagnetic and so on. But if something can be made on a small scale, preferably in each house, where’s the money? Without the residual income, there are less residual taxes. Without that income and those taxes, what governments and corporations are going to want to change the system in the only fundamental way that makes sense: getting back to local production of energy, food and so forth. This doesn’t mean going back to the Dark Ages but it does mean that we don’t need to have our world essentially run by mega-organization far removed from the immediate situation.

    Best thing for all of us: Oil at $500.00 a barrel. It will hurt, but that way we might actually fix the system. I doubt it though, ‘they’ will just come up with something else that provides residual income and dependency on non-local production and distribution. The entire oil-based system is essentially a business-led scam and has been from the shady founding of the Standard Oil shenanigans from the get-go.

    That said, much of the current problem apart from speculation is the lack of gas-processing plants. There is plenty of oil right now. That’s a bottle-neck deliberately created to raise prices. The root problem here is an overly mercantilist financial system ruled by ubiquitous but systemically invisible oligarchies.

    Step 1 Dismantle the Fed
    Step 2 Restore currencies to silver-gold backed
    Step 3 Introduce mass transit not dependent on non-local fuels
    Step 4 Rewrite the entire tax codes to favor local over national.
    Step 5 Dismantle all foreign bases, only engage in truly defensive military engagements.

  19. Dr David Hill said on May 31st, 2008 at 4:38am #

    Unfortunately the energy crisis is totally different to that of developing the atomic bomb in WW2 or any other for that matter. The Manhattan project was specifically for the construction and solution of a single problem – a bomb that the Nazis may create before ourselves with catastrophic consequences. It was therefore oriented around a single entity solution. But the energy problem is so multifaceted that it would literally take hundreds of Manhattan Projects to solve. But again the greatest problem is that technological solutions take decades to evolve and make any meaningful impact. The reason, sheer logistics to construct fast enough and the distribution of such technology globally. In this respect it takes at least 2 decades to make inroads with even a new technology created today. Therefore no great change will come about to this solution for at least 3 decades and therefore the world is in for probably the roughest ride that it has ever had to contend with. But again, the real problem is the sheer lack of knowledge of our political classes in understanding the energy problem. In this respect energy and more so the sciences that underpins energy, is alien to over 90% of politicians and therefore the reason why they do not understand how to start to even solve the problem.
    Indeed, scientists and engineers have known about the dire problem and the end-game scenario since mid last century but where politicians have never taken the warnings of scientists et al seriously enough to change things and the way we operate. That is basically the reason why we are in the mess that we are in today. Indeed, if our political leaders/masters had taken a long haul view of the problem some 50 to 60 years ago, we would by now have had many of the solutions at hand. But as usual, politicians are reactionary and not pro-active with their endeavors and where it takes many decades to change the direction of global systems and where now due to this political ineptitude of our leaders (since the end of WW2), we just have not the time on our side. Therefore this grave problem is decidedly at the door of politicians and no others, for they were warned decades ago about energy and the problems ahead but where they decided to do nothing about it.

    Dr David Hill
    World Innovation Foundation Charity
    Bern, Switzerland
    Ps. The late Dr Glenn Seaborg (Element 106 Seaborgium) who was the head of the plutonium plant on the Manhattan Project was our Foundation’s first president.

  20. Michael Dawson said on May 31st, 2008 at 9:23am #

    Ashley, why don’t you think Peak Oil is real? I’d be interested to hear. Saying “there is plenty of oil right now” doesn’t address the question. What will things be like in a decade? Two? Three?

    And how are you ever going to produce enough energy within households to run mass transit? That doesn’t seem possible.

    Please explain your thinking.

  21. James Benjamin said on May 31st, 2008 at 9:24pm #

    Something tells me, Ashley, that once oil is priced at $500 per barrel (and gasoline at, like what, perhaps $20 per gallon?) there won’t be much of a system left to fix.