Oil firms unlikely to boost output

first_img AD Quality Auto 360p 720p 1080p Top articles1/5READ MOREWalnut’s Malik Khouzam voted Southern California Boys Athlete of the Week The companies said in September they were considering adding 100,000 to 300,000 barrels per day of capacity to plants in Louisiana and Texas. Keep in mind, Hofmeister said, that “high-priced oil at 60-plus dollars leads people to seriously question their use of energy. And as they question that use of energy, they use less … let the market do it’s work.” Washington’s complaint that the market might not be working well, however, grew this summer after hurricanes Katrina and Rita exposed the industry’s vulnerabilities, causing supply disruptions that sent gasoline prices above $3 a gallon. The backlash reached a bipartisan crescendo this week after Exxon Mobil Corp., BP Plc, Royal Dutch Shell Plc and Chevron Corp. reported combined third-quarter profits of $29 billion. A congressional hearing on energy prices and profits is scheduled for Nov. 8. With oil hovering above $60 a barrel and home heating costs expected to surge this winter, some analysts believe the industry may have no choice but to work with the government to make the world’s largest petroleum-consuming market more secure and less volatile. “There have been a flurry of proposals, some of which will undoubtedly lead to some kind of innovations,” said Antoine Halff, director of global energy at Eurasia Group in New York. But he added that “investment decisions are going to be made on commercial grounds.” Congressmen say they are worried about the economic hardship soaring energy costs are placing on average Americans. Sen. Bill Frist, R-Tenn., the Senate majority leader, said he would support a federal anti-price gouging law. Sen. Chuck Schumer, D-N.Y., introduced a bill that would place additional taxes on oil company profits to help reduce the deficit and pay for hurricane relief. Some want the industry to assist low-income families with their heating bills. Even the industry-friendly Bush administration acknowledges that something must be done to fix the supply imbalances that underpin today’s high prices. President George W. Bush has repeatedly stressed conservation in recent weeks. Energy Secretary Samuel Bodman said the administration was considering a wide range of proposals, including the creation of an emergency reserve of gasoline, diesel and jet fuel. Bodman also encouraged the industry to increase U.S. refining capacity to make the U.S. less dependent on imports of gasoline and diesel. But Bodman said he would not support the so-called windfall profits tax that Schumer has proposed. Matthew Simmons, a longtime investment banker in the oil and gas industry, said he quietly lobbied Big Oil executives to create a Gulf Coast recovery fund of between $5 billion and $10 billion as a way to avoid the current public relations headache. But the “idea fell on deaf ears,” Simmons said in an e-mail. Wall Street analysts said they’re getting calls from investors who are increasingly concerned about the pressure in Washington to do something about high prices and record profits. They oppose any tax that would punish companies for living up to their fiduciary responsibilities. “If they take the profits away from us, it is fundamentally not going to help consumers,” said John Felmy, chief economist at the American Petroleum Institute. “It will only drain investment budgets.” Spending on exploration and production is on the rise, but major oil companies’ output of oil and gas isn’t, according to third-quarter results. Much of the increased spending reflects the higher costs of doing business at a time when equipment and labor are scarce. Analysts said it may take years to add enough new oil production and refining capacity to ease current supply constraints. Moreover, analysts said it would be foolish to embark on a spending spree simply to silence critics. “The current price of oil is interesting, but it’s irrelevant,” said Lawrence J. Goldstein, president of the Petroleum Industry Research Foundation. “It’s the price that you believe will be out there for a long time that’s important and nobody believes prices will stay at these levels.” Even if they wanted to significantly increase the output of oil and gas, executives said it would be difficult to do soon for a variety of reasons: In the U.S., they face difficulties getting permits to expand refineries, let alone build new ones, and petroleum-rich acreage in the Rockies and the Gulf of Mexico remain off-limits. Around the world, public oil companies are finding foreign governments less eager to have them as investment partners since they are reaping huge sums on their own thanks to high prices. Because of years of underinvestment when prices were low, the industry faces a shortage of everything from drilling rigs to oil tankers to petroleum engineers. Hofmeister said the groundwork was laid for the current energy crisis before back-to-back hurricanes stifled Gulf of Mexico petroleum output, blaming underinvestment by the industry in the 1990s and faster-than-expected economic growth in China and India. These trends led to the virtual disappearance of excess production and refining capacity that the industry had come to depend on if supplies were disrupted. He cautioned against making long-term policy or business decisions in the midst of a crisis and predicted that – as the industry recovers from hurricanes Katrina and Rita – oil and gas production would rise, market tightness would ease and the pressure from Congress would fade. 160Want local news?Sign up for the Localist and stay informed Something went wrong. Please try again.subscribeCongratulations! You’re all set! WASHINGTON – Don’t expect the oil industry to boost fuel production merely to deflect criticism from Congress about soaring prices and profits. Energy executives and analysts insist that in spite of the supply crunch that has kept oil above $50 a barrel for much of the year, demand and prices are still prone to ups and downs, so the industry should not rush to drill wells and expand refineries just because it is flush with cash. “A surplus of supply is not good for the industry,” Shell Oil Co. president John Hofmeister said in an interview on Friday. “Just as a surplus of demand is not good for industry. We strive for balance.” Hofmeister, speaking by phone from his corporate jet upon leaving Washington, said, “We will continue to work as an industry to increase supplies to the American people.” But he said Shell executives were still debating whether it makes economic sense to expand the capacity of refineries it owns jointly with Saudi Refining Inc. last_img read more