Join me, if you will, in shedding a tear for the plight of Big Oil, which earned so much money in 2004 — the 10 largest companies had sales of more than $1 trillion, with profits of more than $100 billion — that they can't find enough places to invest it.
So, some are disposing of part of it in the form of dividends to their shareholders and in buybacks of their stock (it goes without saying that company moguls will reap handsome bonuses).
The figures are staggering, even for a business accustomed to big numbers.
While you've been paying through the nose for diesel to run your tractors, combines, cotton pickers, and irrigation pumps, British Petroleum, Europe's largest oil company, was racking up a profit of $16.2 billion. Exxon Mobil earned $25 billion-plus. Royal Dutch-Shell reported record profits, as did state oil companies in Australia, Norway, Canada, and Venezuela, the latter up 88 percent over 2003.
Amid charges that the profits were “obscene” and that the companies aren't investing enough in exploration and infrastructure, oil industry leaders defended their jackpot by lamenting that the easy oil has already been found and it's harder and more costly to find new supplies.
Interestingly, in their zeal to justify their profits, not one announcement was made about spending some of the windfall on alleviating one of the major shortcomings of the industry — inadequate refining capacity.
Not since 1976, almost 40 years ago, has a major new refining facility been built in the United States. That ain't all: As best anyone can tell, no new refineries are on the drawing board in this country. Nada. Zip. Zilch.
In 1980, there were over 300 refineries in the United States; at the start of 2004, that number had dropped more than 50 percent to 149. In most cases, the companies said, the closed facilities weren't profitable.
Which wasn't the case for 2004, when profits from refining and marketing operations were a significant part of the overall gains by the major companies.
Because U.S. refining capacity is woefully inadequate to meet demand that has skyrocketed with the mass exodus out of passenger cars into SUVs over the last decade, gas imported from offshore refineries has increased from just 4 percent 10 years ago to nearly 10 percent now.
Even if a company wanted to put up a multi-billion dollar refinery somewhere in the United States, it would face an environmental/legal/regulatory quagmire that would add millions to the cost and years in delays. “Not in my backyard” is the outcry from a public less than enthusiastic about a host of potential problems, from pollution to terrorism.
Companies have spent billions in upgrading their equipment to comply with environmental regulations and have minimally increased output at existing facilities.
But, regulatory and public obstacles aside, they are less than aggressive in pushing for new refineries for another very good reason: money. When supplies are tight and prices high, they make a lot more money from the limited number of facilities they have.
It looks as if their good times will continue; industry leaders say prices this year can be expected to continue at “historically high levels.”