Dr Mark Cooper

April 7, 2004

TESTIMONY OF
DR. MARK COOPER,
DIRECTOR OF RESEARCH
CONSUMER FEDERATION OF AMERICA,
ON BEHALF OF CONSUMER FEDERATION OF AMERICA
AND CONSUMERS UNION
ON
CRUDE OIL: THE SOURCE OF HIGHER PRICES?
BEFORE THE SENATE JUDICIARY COMMITTEE, ANTITRUST,
COMPETITION POLICY AND CONSUMER RIGHTS
SUBCOMMITTEE
APRIL 7, 2004
1
MR. CHAIRMAN AND MEMBERS OF THE COMMITTEE,
My name is Dr. Mark Cooper. I am Director of Research of the Consumer Federation
of America. The Consumer Federation of America (CFA) is a non-profit association of 300
pro-consumer groups, which was founded in 1968 to advance the consumer interest through
advocacy and education. I am also testifying on behalf of Consumers Union, the independent,
non-profit publisher of Consumer Reports.
I greatly appreciate the opportunity to appear before you today to discuss the problem
of rising gasoline prices and gasoline price spikes.
The headlines about rising energy prices that are not often written involve the structure of
the domestic oil and gas industry and how this allows price manipulation at the pump.
? The gasoline refining and marketing segments of the domestic industry have increased
pump prices by $50 to $60 billion in the past four years and domestic natural gas
wellhead prices increased by $80 to $100 billion, separate and apart from
anything that OPEC has done.
? The bottom line that is overlooked is that at least $50 to $60 billion of after tax
windfall profits have gone to the domestic petroleum industry in the past four years.
? The story behind the headline numbers that does not get coverage is that a merger
wave in the mid-1990s dramatically increased the concentration of the petroleum
industry into the hands of a small number of giant, vertically integrated companies
whose business decisions restricted capacity, undermined independents and rendered
many markets uncompetitive and vulnerable to manipulation.
Decisions by the oil cartel to increase crude prices have cost consumers, but private
business decisions about stockpiles and product supply, and the failure of public policy to
slow the growth of demand by promoting efficiency, have cost much more.
Three years ago the analysis we provided in a report entitled Ending the Gasoline
Price Spiral1 showed that the explanation given by the oil industry and the Bush
Administration for the high and volatile price of gasoline is so oversimplified and incomplete2
that it must be considered at best misleading. At worst, it is wrong because it points to policies
that do not address important underlying causes of the problem and therefore will not provide
a solution.
? Blaming high gasoline prices on high crude oil prices ignores the fact that over the past
few years the domestic refining and marketing sector have imposed larger increases on
consumers at the pump than crude price increases would warrant.
? Blaming tight refinery markets on Clean Air Act requirements to reformulate gasoline
ignores the fact that in the mid-1990s the industry adopted a business strategy of
2
mergers and acquisitions to increase profits that was intended to tighten refinery
markets and reduce competition at the pump.
? Claiming that the antitrust laws have not been violated in recent price spikes ignores
the fact that forces of supply and demand are weak in energy markets and that local
gasoline markets have become sufficiently concentrated to allow unilateral actions by
oil companies to push prices up faster and keep them higher, longer than they would be
in vigorously competitive markets.
? Eliminating the small gasoline markets that result from efforts to tailor gasoline to the
micro-environments of individual cities will not increase refinery capacity or improve
stockpile policy to ensure lower and less volatile prices, if the same handful of
companies dominate the regional markets.
? Blaming natural gas price increases on crude oil prices ignores that fact that natural gas
wellhead prices have increased much faster than the price of oil. Natural gas markets
lack liquidity and transparency and have been manipulated. The merger wave led by
the major petroleum companies has impacted the natural gas market.
Thus, the causes of record energy prices involve a complex mix of domestic and
international factors. The solution must recognize both sets of factors, but the domestic
factors must play an especially large part in the solution, not only because they are directly
within the control of public policy, but also because careful consideration of what can and
cannot be done leads to a very different set of policy recommendations than the
Administration and the industry have been pushing, or the Congress is considering in the
pending energy legislation.
Because domestic resources represent a very small share of the global resources base
and are relatively expensive to develop, it is folly to exclusively or predominantly pursue a
supply-side solution to the energy problem. The increase in the amount of oil and gas produced in
America will not be sufficient to put downward pressure on world prices; it will only increase oil
company profits, especially if large subsidies are provided, as contemplated in pending energy
legislation. Moreover, even if the U.S. could affect the market price of basic energy resources,
which is very unlikely, that would not solve the larger structural problem in domestic markets.
THE UNDERLYING STRUCTURAL PROBLEM IN DOMESTIC PETROLEUM MARKETS
Our analysis shows that energy markets have become tight in America because supply
has become concentrated and demand growth has put pressure on energy markets. This gave a
handful of large companies pricing power and rendered the energy markets vulnerable to price
shocks. While the operation of the domestic energy market is complex and many factors
contribute to pricing problems, one central characteristic of the industry stands out - it has
become so concentrated in several parts of the country that competitive market forces are
weak. Long-term strategic decisions by the industry about production capacity interact with
3
short-term (mis)management of stocks to create a tight supply situation that provides ample
opportunities to push prices up quickly. Because there are few firms in the market and
because consumers cannot easily cut back on energy consumption, prices hold above
competitive levels for significant periods of time.
The problem is not a conspiracy, but the rational action of large companies with market
power. With weak competitive market forces, individual companies have flexibility for
strategic actions that raise prices and profits. Individual companies can let supplies become
RECENT MERGERS AFFECTING FRS OIL AND GAS PRODUCERS
4
tight in their area and keep stocks low, since there are few competitors who might counter this
strategy. Companies can simply push prices up when demand increases because they have no
fear that competitors will not raise prices to steal customers. Individual companies do not
feel compelled to quickly increase supplies with imports, because their control of refining and
distribution ensures that competitors will not be able to deliver supplies to the market in their
area. Because there are so few suppliers and capacity is so tight, it is easy to keep track of
potential threats to this profit maximizing strategy. Every accident or blip in the market
triggers a price shock and profits mount. Moreover, operating the complex system at very
high levels of capacity places strains on the physical infrastructure and renders it susceptible to
accidents.
GENEALOGY OF THE 2001 FRS R E FINERS
5
It has become evident that stocks of product are the key variables that determine price
shocks. In other words, stocks are not only the key variable; they are also a strategic variable.
The industry does a miserable job of managing stocks and supplying product from the
consumer point of view. Policymakers have done nothing to force them to do a better job. If
the industry were vigorously competitive, each firm would have to worry a great deal more
about being caught with short supplies or inadequate capacity and they would hesitate to raise
prices for fear of losing sales to competitors. Oil companies do not behave this way because
they have power over price and can control supply. Mergers and acquisitions have created a
concentrated industry in several sections of the country and segments of the industry. The
amount of capacity and stocks and product on hand are no longer dictated by market forces,
they can be manipulated by the oil industry oligopoly to maximize profits.
Much of this increase in industry profits, of course, has been caused by an intentional
withholding of gasoline supplies by the oil industry. In a March 2001 report, the Federal
Trade Commission (FTC) noted that by withholding supply, industry was able to drive prices
up, and thereby maximize profits.3 The FTC identified the complex factors in the spike and
issued a warning.
The spike appears to have been caused by a mixture of structural and operating
decisions made previously (high capacity utilization, low inventory levels, the
choice of ethanol as an oxygenate), unexpected occurrences (pipeline breaks,
production difficulties), errors by refiners in forecasting industry supply
(misestimating supply, slow reactions), and decisions by firms to maximize
their profits (curtailing production, keeping available supply off the market).
The damage was ultimately limited by the ability of the industry to respond to
the price spike within three or four weeks with increased supply of products.
However, if the problem was short-term, so too was the resolution, and similar
price spikes are capable of replication. Unless gasoline demand abates or
refining capacity grows, price spikes are likely to occur in the future in the
Midwest and other areas of the country.4
A 2003 Rand study of the refinery sector reaffirmed the importance of the decisions to
restrict supply. It pointed out a change in attitude in the industry, wherein "[i]ncreasing
capacity and output to gain market share or to offset the cost of regulatory upgrades is now
frowned upon."5 In its place we find a "more discriminating approach to investment and
supplying the market that emphasized maximizing margins and returns on investment rather
than product output or market share."6 The central tactic is to allow markets to become tight.
Relying on... existing plant and equipment to the greatest possible extent, even
if that ultimately meant curtailing output of certain refined product... openly
questioned the once-universal imperative of a refinery not "going short" - that
is not having enough product to meet market demand. Rather than investing in
and operating refineries to ensure that markets are fully supplied all the time,
refiners suggested that they were focusing first on ensuring that their branded
6
retailers are adequately supplied by curtailing sales to wholesale market if
needed.7
The Rand study drew a direct link between long-term structural changes and the
behavioral changes in the industry, drawing the connection between the business strategies to
increase profitability and the pricing volatility. It issued the same warning that the FTC had
offered two years earlier.
For operating companies, the elimination of excess capacity represents a
significant business accomplishment: low profits in the 1980s and 1990s were
blamed in part on overcapacity in the sector. Since the mid-1990s, economic
performance industry-wide has recovered and reached record levels in 2001.
On the other hand, for consumers, the elimination of spare capacity generates
upward pressure on prices at the pump and produces short-term market
vulnerabilities. Disruptions in refinery operations resulting from scheduled
maintenance and overhauls or unscheduled breakdowns are more likely to lead
to acute (i.e., measured in weeks) supply shortfalls and price spikes.8
The spikes in the refiner and marketer take at the pump in 2002, 2003 and this year, were
larger than the 2000 spike that was studied by the FTC. The weeks of elevated prices now
stretch into months. The market does not correct itself. The roller coaster has become a
ratchet. The combination of structural changes and businesses strategies has ended up costing
consumers billions of dollars. Until the Federal government is willing to step in to stop oil
companies from employing this anti-consumer strategy, there is no reason to believe that they
will abandon this practice on their own.
As we demonstrated in a report last year, entitled Spring Break In the U.S. Oil
Industry: Price Spikes, Excess Profits and Excuses,9 the structural conditions in the domestic
gasoline industry have only gotten worse as demand continues to grow and mergers have been
consummated. The increases in prices and industry profits should come as no surprise.
THE RECENT GASOLINE PRICE RATCHETS
If we examine the two most important components of the pump price of gasoline,
crude oil and the domestic refiner/marketer spread, we find that crude oil prices increased
sharply in 1999 and 2000, peaking just before the election of 2000. However, the record
prices we see today are the result of the combination of historic highs in both crude and
the domestic spread.
The domestic spread is the share of the pump price accounted for by the refining and
marketing of gasoline. It excludes the price of crude, which is set by OPEC (the Organization
of the Petroleum Exporting Countries) and taxes. The domestic spread increased somewhat in
2000, but it moved up more sharply after the election, peaking in the spring of 2001. Thus, in
7
THE CONVERGENCE OF HIGH DOMESTIC REFINER/ MARKETER SPREADS AND
CRUDE OIL HAVE PRODUCED THE RECORD HIGH GASOLINE PRICES
0
10
20
30
40
50
60
70
80
90
JA -95
AP
JL
O
JA-96
AP
JL
O
JA-97
AP
JL
O
JA-98
AP
JL
O
JA-99
AP
JL
O
JA-00
AP
JL
O
JA -01
AP
JL
O
JA -02
A
J
O
JA-03
A
J
O
JA-04
CENTS/GALLON
REFINER MARKETER DOMESTIC SPREAD CRUDE OIL
THE DOMESTIC SPREAD ON GASOLINE HAS SKYROCKETTED SINCE 2001
0
10
20
30
40
50
60
70
80
90
JA -95
MY
S
JA-96
MY
S
JA-97
MY
S
JA-98
MY
S
JA-99
MY
S
JA-00
MY
S
JA -01
MY
S
JA -02
M
S
JA-03
MY
S
JA-04
CENTS/
GALLON
ACTUAL SIMPLE HISTORIC AVERAGE TRENDED
8
the spring of 2001, when the National Energy Policy Development Group was formed, crude
oil prices were well off their historic highs, while the domestic spread was at its peak.
The price spike of early 2001, driven largely by domestic factors, was used as a
justification for the formation of the National Energy Policy Development Group. The irony
of the misplaced blame can be seen when we contrast crude oil pricing since January of 2001
and the domestic spread since January 2001. Crude prices fell much more than the domestic
spread during the recession of winter 2001-2002. In 2003 the domestic spread spiked again
before crude prices rose.
Compared to the simple historical average for the domestic spread, the domestic
spread price shock resulted in increases of over $60 billion since 2000. Compared to a
trended baseline, the domestic spread price shock resulted in increases of about $50 billion.
NATURAL GAS
Behavior patterns in natural gas raise similar concerns. They cast doubt on the recent
claim of the National Petroleum Council (NPC) that the natural gas resource base has
suddenly changed.10 First, as a factual matter, non-industry analysts disagree.11 Second, to the
extent that there is a change in resource recovery, it reflects business decisions over a number
of years.
The move of the major oil companies into gas changed the nature of the sector.12
Decisions by these majors to acquire reserves through mergers and acquisitions, rather than
exploration, shifts resources.13 Decisions about which types of wells to drill may change
replacement rates.14 Decisions about which well to produce and which well to cap, how much
to inject into storage, how to use pipeline capacity and, ultimately, how to report prices, are
affected by business decisions. The consolidation in the industry came hand-in-hand with the
shift to acquisition of resources through mergers and a shift of drilling away from exploration.
A couple of years latter the NPC concludes that a change in the understanding of the
underlying resource base has occurred, when it may only be a change in the business strategies
to develop the resource base that has occurred.
It is also important to recognize in the case of natural gas that the markets that drive
the wellhead price are quite new. Most were set up in the 1990s, as part of the restructuring of
the natural gas industry.15 Enron played a large role in these markets, and when it collapsed,
so too did much private trading.16 Today, the markets are "very thin" and that raises concerns
about trading, but the evidence is mounting that manipulation and abusive practices have long
been part of these markets.17
The picture for natural gas wellhead prices is similar to the domestic spread.18 Natural
gas is overwhelmingly produced from domestic sources. There was a run-up in prices in mid-
2000 and then a peak in early 2001, reinforcing the sense of an energy crisis. Prices tumbled
9
WELLHEAD PRICE OF NATURAL GAS
0
1
2
3
4
5
6
7
8
9
JA -95
JL
O
JA-96
AP
JL
O
JA-97
AP
JL
O
JA-98
AP
JL
O
JA-99
AP
JL
O
JA-00
AP
JL
O
JA -01
AP
JL
O
JA -02
A
J
O
JA-03
A
J
O
JA-04
MONTHS AND YEAR
$/MCF
NATURAL GAS CRUDE OIL
NATURAL GAS PRICES COMPARED
TO HISTORIC TRENDS
0
1
2
3
4
5
6
7
8
9
JA -95
JL
O
JA-96
AP
JL
O
JA-97
AP
JL
O
JA-98
AP
JL
O
JA-99
AP
JL
O
JA-00
AP
JL
O
JA -01
AP
JL
O
JA -02
A
J
O
JA-03
A
J
O
JA-04
$/MCF
ACTUAL TRENDED GAS HISTORIC GAS HISTORIC CRUDE
10
during the 2001-2002 recession, but have mounted again and have stabilized at over twice the
level of the late 1990s.
We can compare the price of natural gas to the price of crude oil to isolate the change
in domestic natural gas pricing behavior. It is certainly true that natural gas prices respond to
oil prices, but because they are not substitutes in many uses, the correlation between the two
sets of prices was moderate. Moreover, between January 1995 and January 2001, the average
price of natural gas at the wellhead was 66 percent of the average price of crude oil. Since
January 2001, it has averaged about 90 percent of the price of crude. The stakes are huge.
The difference between a price trend for natural gas which did not close the gap with oil and
what actually occurred is over $1 per thousand cubic feet (mcf), which totals to over $80
billion. Even in 2000, when domestic prices started to become volatile, it averaged 76 percent
of the price of crude. Clearly, there was a shift in the domestic market behavior that started in
2000, but became most prominent in 2001 and later years.
The Industrial Energy Consumers of America used a simple average price to arrive at a
much higher figure. Using their simple average, the increase since 2000 in natural gas
wellhead prices would be about $150 billion. Even when stocks built up and passed historic
levels, prices remained extremely high.19 Using a trended historic gas price puts the figure at
about $100 billion.
PROFITS
Since price increases at the pump and wellhead are not caused by cost increases, they result
in increases in profits. Thus, after price, the second important indicator to which economic
analysts look for signs of the exercise of market power and market failure is profits.
The bottom line, literally and figuratively, was a sharp run up in oil company profits
from domestic refining and marketing in 2000 and 2001. Net operating income (income
before special items and taxes) tripled from 1997-1999 to 2001.20 While profits were down in
2002, due to very low prices early in the year as result of the severe economic downturn and
travel slow-down following September 11, they skyrocketed in 2003. About half of the increase
in the domestic spread has been carried to the bottom line in the form of operating income.
Since domestic petroleum companies are large owners of oil and gas reserves, they
also profit from increases in the global price of oil. Starting in 2000 profits soared. Fortune
reports return on equity of 25 percent in 2000,21 while Business Week reports 22 percent.22
This is almost twice the historic average for the industry and about 50 percent more than other
large corporations achieved.23 Profits were even higher in 2001. The weak economy lowered
prices and profits early in 2002, but by the end of 2002, profits had increased dramatically and for the
year, they were at about the average for the industry in the 95-99 period. The sharp price increases
11
in 2003 produced another very high level of profits. By the end of 2003 the industry was
seeing record profits once again.24
If we compare the annual after-tax profits of the companies listed by Business Week in
the oil and gas industry in the first four years of the new millennium to the last five years of
the 1990s, we find a huge increase in profits. If recent profits are compared to the simple
average of the 1995-1999 period, the increase is over $50 billion. This figure of $50 billion is
based only on the companies included in the Business Week survey, which account for less
than half of all domestic natural gas (and crude oil) production and about 80 percent of all
refinery capacity. Thus, the total increase in profits across the entire sector is likely to be
much larger. Even if we assume that the oil and gas sector 'should' have earned the national
average for the very large firms included in the Business Week survey, the excess earnings
since the turn of the millennium would be about $44 billion. The oil and gas companies have
enjoyed a huge jump in profits compared to the other large corporations in the economy.
RETURN ON EQUITY
0
5
10
15
20
25
30
1995 1996 1997 1998 1999 2000 2001 2002 2003
RETURN ON EQUIY
Business Week 900 Oil and Gas
12
A COMPREHENSIVE DOMESTIC SOLUTION
We all would like immediate, short-term relief from the current high prices, but what
we need is an end to the roller coaster and the ratchet of energy prices. That demands a
balanced, long-term solution. Breaking OPEC's pricing power would relieve a great deal of
pressure from consumers' energy bills, but the short-term prospects are not promising in that
regard either. There, too, we need a long-term strategy that works on market fundamentals.
Three years ago we outlined a comprehensive policy to implement permanent
institutional changes that would reduce the chances that markets will be tight and reduce the
exposure of consumers to the opportunistic exploitation of markets when they become tight.
Those policies made sense then; they make even more sense today. The Federal government
has done little to move policy in that direction since it declared an energy crisis in early 2001.
To achieve this reduction of risk, public policy should be focused on achieving four
primary goals:
? Restore reserve margins by increasing both fuel efficiency (demand-side) and refining
production capacity (supply-side).
? Increase market flexibility through stock and storage policy.
? Discourage private actions that make markets tight and/or exploit market disruptions
by countering the tendency to profiteer by withholding of supply.
? Promote a more competitive industry.
Expand Reserve Margins By Striking A Balance Between Demand Reduction and
Supply Increases
Improving vehicle efficiency (reduction in fleet average miles per gallon) equal to
economy wide productivity over the past decade (when the fleet average failed to progress) would
have a major impact on demand. It would require the fleet average to improve at the same rate
it did in the 1980s. It would raise average fuel efficiency by five miles per gallon, or 20
percent over a decade. This is a mid-term target. This rate of improvement should be
sustainable for several decades. This would reduce demand by 1.5 million barrels per day and
return consumption to the level of the mid-1980s.
Expanding refinery capacity by ten percent equals approximately 1.5 million barrels
per day. This would require 15 new refineries, if the average size equals the refineries
currently in use. This is less than one-third the number shut down in the past ten years and
less than one-quarter of the number shut down in the past fifteen years. Alternatively, a ten
percent increase in the size of existing refineries, which is the rate at which they increased
over the 1990s, would do the trick, as long as no additional refineries were shut down.
Placed in the context of redevelopment of recently abandoned facilities or expansion of
existing facilities, the task of adding refinery capacity does not appear daunting. Such an
13
expansion of capacity has not been in the interest of the businesses making the capacity
decisions. Therefore, public policies to identify sites, study why so many facilities have been
shut down, and establish programs to expand capacity should be pursued.
Efficiency improvements can be achieved in natural gas consumption as well, which
can alleviate the tightness in that market and have a significant price disciplining effect.25 The
benefits can be achieved both directly through improvements in space heating and industrial
applications, but also indirectly through reduction in electricity consumption because natural
gas has become increasingly important for summer peak generation.
Expanding Storage And Stocks
It has become more and more evident that private decisions on the holding of crude
and product in storage will maximize short-term private profits to the detriment of the public.
Increasing concentration and inadequate competition allows stocks to be drawn down to levels
that send markets into price spirals.
The Strategic Petroleum Reserve is a crude oil stockpile that has been developed as a
mechanism to deal with dire emergencies that would result in severe shortfalls of crude.26 It
could be viewed and used differently, but it has almost never been used, and never
aggressively used, as an economic reserve to respond to price increases. Given its history,
drawdown of the SPR is at best a short-term response.
Private oil companies generally take care of storage of crude oil and product to meet
the ebb and flow of demand.27 The experience of the past four years indicates that the
marketplace is not attending to economic storage. Companies do not willingly hold excess
capacity for the express purpose of preventing price increases. They will only do so if they
fear that a lack of supply or an increase in brand price would cause them to lose business to
competitors who have available stocks. Regional gasoline markets appear to lack sufficient
competition to discipline anti-consumer private storage policies.
Public policy must expand economic stocks of crude and product. Gasoline
distributors (wholesale and/or retail) can be required to hold stocks as a percentage of retail sales.
Public policy could also either directly support or give incentives for private parties to have
sufficient storage of product. It could lower the cost of storage through tax incentives when
drawing down stocks during seasonal peaks. Finally, public policy could directly underwrite
stockpiles. We now have a small Northeast heating oil reserve. It should be continued and
sized to discipline price shocks, not just prevent shortages. Similarly, a Midwest gasoline
stockpile should be considered.
Taking The Fun and Profit Out of Market Manipulation
In the short term, government must turn the spotlight on business decisions that make
markets tight or exploit them. Withholding of supply should draw immediate and intense
14
public scrutiny, backed up with investigations. State government should be authorized and
supported in market monitoring efforts. A joint task force of federal and state attorneys
general could be established on a continuing basis. The task force should develop databases
and information to analyze the structure, conduct and performance of gasoline and natural gas
markets.
As long as huge windfall profits can be made, private sector market participants will
have a strong incentive to keep markets tight. The pattern of repeated price spikes and
volatility has now become an enduring problem. Because the elasticity of demand is so low -
because gasoline and natural gas are so important to economic and social life - this type of
profiteering should be discouraged. A windfall profits tax that kicks in under specific
circumstances would take the fun and profit out of market manipulation.
Ultimately, market manipulation, including the deliberate withholding of supply,
should be made illegal. This is particularly important for commodity and derivative markets.
Promoting A Workably Competitive Market
Further concentration of these industries is quite problematic. The Department of
Justice Merger Guidelines should be rigorously enforced. Moreover, the efficiency defense of
consolidation should be viewed skeptically, since inadequate capacity is a problem in these
markets. The low elasticity of supply and demand should be considered in antitrust analysis.
Restrictive marketing practices, such as zonal pricing and franchise restrictions on
supply acquisition, should be examined and discouraged. These practices restrict flows of
product into markets at key moments.
Consideration of expanding markets with more uniform reformulation requirements
should not involve a relaxation of clean air requirements. Any expansion of markets should
ensure that total refinery capacity is not reduced.
Every time energy prices spike, policymakers scramble for quick fixes. Distracted by
short-term approaches and obsessed with placing the blame on foreign energy producers or
environmental laws, policymakers have failed to address the fundamental causes of the
problem. In the four years since the energy markets in the United States began to spin out of
control we have done nothing to increase competition, ensure expansion of capacity, require
economically and socially responsible management of crude and product stocks, or slow the
growth of demand by promoting energy efficiency. We have wasted four years and consumers
are paying the price with record highs at the pump and the burner tip.
15
SOURCE AND NOTES:
Exhibits:
Prices, quantities and trend line projections are based on U. S. Department of Energy, Energy Information
Administration databases accessed by online publication URLs as follows: Monthly Energy Review -
Gasoline: Table 3.4 for quantities supplied, Table 9.4, for pump prices; Natural Gas: Table 4.1 for production,
Table 9.11 for Prices; Crude Table 3.1 for quantities, Petroleum Marketing Monthly, Table 1 for crude prices
and Table 6 for prices net of taxes. Most recent months are calculated from weekly averages in Weekly
Petroleum Status Report, This Week in Petroleum, Natural Gas Weekly Update, Gasoline and Diesel Fuel
Update.
Mergers: Energy Information Administration, Performance Profiles of Major Energy Producers:
2002,February 2004, Figure 6; Energy Information Administration, Performance Profiles of Major Energy
Producers: 2001, January 2003, Figure 33.
Return on Equity, "Full Year Results for 900 Companies," Business Week, Annual, 1995-2003.
Endnotes
1 Cooper, Mark, Ending the Gasoline Price Spiral (Washington D.C.: Consumer Federation of America
July 2001).
2 "Text of the Speech of President Bush," in releasing the National Energy Policy Development Group,
National Energy Policy (Washington, D.C.: May 2001), Washington Post, May 18, 2001, set the tone of
directing attention to the international market "overdependence on any one source of energy, especially a
foreign source, leaves us vulnerable to price shocks, supply interruptions and in the worst case, blackmail."
3 Federal Trade Commission, Midwest Gasoline Price Investigation, March 29, 2001.
4 Federal Trade Commission, Midwest Gasoline Price Investigation, March 29, 2001, pp. i... 4.
5 Peterson, D.J. and Serej Mahnovski, New Forces at Work in Refining: Industry Views of Critical
Business and Operations Trends (Santa Monica, CA: RAND Corporation, 2003), p. 16.
6 Peterson and Mahnovksi, p. 42.
7 Peterson and Mahnovksi, p. 17.
8 Peterson and Mahnovski, p. xvi.
9 Cooper, Mark, Spring Break in the Oil Industry: Price Spikes, Excess Profits and Excuses (Washington
D.C.: Consumer Federation of America, October 2003).
10 Balancing Natural Gas Policy: Fueling the Demands of a Growing Economy (Washington D.C.:
September 2003).
11 Huntington, Hillard, G. "Presentation to The Future of Natural Gas Markets: A Forum at RFF,"
November 21, 2004, EMF 20: Natural Gas, Fuel Diversity and North American Energy Markets, November
2003, shows the NPC estimate as an extreme outlier in terms of price.
12 Energy Information Administration, The Majors' Shift to Natural Gas (Washington, D.C.: September
2001).
13 EIA, Energy Information Administration, Performance Profiles of Major Energy Producers:
2002,February 2004, pp. 81-83.
14 EIA, Performance Profiles: 2002, pp. 71-72.
15 Energy Information Administration, The Natural Gas Industry and Markets in 2002 (Washington, D.C.:
February 2004), p. 3.
16 EIA, The Natural Gas Industry, p. 2.
17 Beattie, Jeff, "Judge Green Lights Lawsuit Against Enron Trader," Energy Daily, March 15, 2004, notes
that the judge "backed the CFTC's argument that Enron was positioned to yank price up because its Enron
16
Online (EOL) trading platform controlled fully 40 percent of average daily
trading on the Henry Hub natural gas spot market."
18 Industrial Energy Consumers of America, 41 Month Natural Gas Crisis Has Cost U.S. Consumers
$111 Billion, Washington, D.C., December 3, 2003, used a simple average price to arrive at their estimate.
19 Romero, Simon, "Natural Gas Prices Surge and Fingers are Pointing," The New York Times, December
13, 2003, p. C-1. Johnson, Jeff, "Chemical CEOs Protest Natural Gas Prices," Chemical and Engineering
News, Feb. 2, 2004.
20 Energy Information Administration, U.S. Department of Energy, Performance Profiles of Major Energy
Producers: 2001 (January 2003), Table B32; National Petroleum News, "Signs of Life," March 2003,
Corporate, Downstream Earnings for Major Oil Continue to Rebound," October, 2003; oil industry 2003
financial reports.
21 Fortune 500, July 18, 2001.
22 Business Week, Spring 2001, p. 92.
23 U.S. Department of Energy, Energy Information Administration, Performance Profile, 2001, pp. 7-8.
24 "A Record-Setting Year,' National Petroleum News, available at www.petroretail.net/2004/0403/
0403qtr.asp.
25 Elliott, R. Neal, Anna Monis Shipley, Steven Nadel, and Elizabeth Brown, Natural Gas Price Effects of
Energy Efficiency and Renewable Energy Practices and Policies (Washington, D.C.: American Council for an
Energy Efficient Economy, December 2003).
26Gove, Philip Babcock, Webster's Third New International Dictionary (Springfield MA: 1986), p. 2247,
"a reserve supply of something essential as processed food or a raw material) accumulated within a country for
use during a shortage caused by emergency conditions (as war)."
27 Gove, Webster's Third International, p. 2252, "The holding and housing of goods from the time they are
produced until their sale."