Oil, the Created Crisis: Oil Firms Sell Abroad, U.S. Pays (Part 1)

July 22, 1973

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At the time, the committee was studying the role of the Federal government in relation to the petroleum industry. Wright told the committee:

"I think the important thing to you gentlemen is that, in a company like Jersey (at that time, Exxon was known as Standard Oil Co. of New Jersey), the foreign production that is developed is primarily for the purposes of supplying foreign markets.

"We do not develop crude on the outside of the United States primarily to supply markets inside the United States. Now, this I think is something that many people do not quite understand."

The same philosophy of foreign oil for foreign markets was indicated Mobil Oil Corp. In its 1972 annual report.

Commenting on the company's search for oil and gas in the stormy waters of the North Sea off the coasts of Great Britain, Norway and The Netherlands, Mobil stated:

"Although severe weather makes exploration unusually difficult in the North Sea, the incentive to find hydrocarbons there is great.

Cut Import Needs

"The area is at the doorstep of the most heavily industrialized region of Europe, where Mobil has an important position in the big, expanding market and several large refineries in operation with another about to be built.

"Also, the countries bordering the North Sea are actively encouraging exploration there to minimize their dependence on imports."

Indeed, while Mobil and other American oil companies are warning that the United States will become increasingly more dependent on imports in the coming years, the discovery of vast oil and gas deposits in the North Sea by these same companies will drastically reduce Great Britain's dependence on imports.

In fact, the British, who now import almost all of their oil, expect to meet two thirds of their needs in the 1980s with North Sea oil and gas, according to estimates made by that country's usually conservative Department of Trade and Industry.

It should be noted that the American oil industry is not a monolithic organization that speaks with a single voice.

Its membership ranges from thousands of small, independent producers and marketers to about two dozen large, integrated companies, sometimes loosely referred to as the majors. An integrated company is one involved in all phases of the petroleum business, from production to sales.

The various groups often have conflicting interests and there are even marked differences among the so-called majors. For example, the five companies studied by The Inquirer all have extensive worldwide marketing operations.

On the other hand, the Philadelphia-based Sun Oil Co., which ranked 14th last year among oil companies in sales and is considered one of the majors, has few markets outside the United States and Canada. Last year, the two countries accounted for 96 percent of Sun's sales.

Sun, like the five multi-national companies, also is exploring for oil in other parts of the world. But unlike the other five companies, Sun's overseas exploration is designed to serve its markets in the United States.

Drilling in Algeria

As Darwin W. Ferguson, an executive vice president of Sun, explained it:

"We're now drilling in Algeria. We've been the first company in recent years invited to do that. If we find oil there, we would bring it right to Philadelphia."

Such is not the case with the multi-national companies like Exxon. As Exxon's Wright told the U.S. Senate subcommittee in 1969:

"This is purely a business question and you also build up an obligation over a period of time with your customers in any place.

"And generally speaking, over the years Jersey (Exxon) has supplied the Eastern Hemisphere markets from Eastern Hemisphere crude sources, and the Western Hemisphere market from Western Hemisphere crude sources. This has a great deal to do with the economics of transportation."

When asked why Exxon did not sell low-sulfur crude oil from its Libyan fields in the United States – where there is a demand for that oil because of air pollution controls – Wright replied:

"It is a question of economics. If they (buyers in the United States) want to pay enough for it, we would do it. But the normal market is Europe for Libyan crude."

Exchange With Senator

Pressed further as to why Libyan crude was not sold in the United States, Wright had this exchange with Sen. Philip A. Hart (D., Mich.):

Sen. Hart – "The answer would be understandable if you can make more money selling it in Europe."

Wright – "Right. That is a very simple answer and that is the kind of answer it is. It is a question of how much people want to pay for it. If they want to pay enough for it to make the market profitable in Europe, sure, we will sell it there. We are in business."

Interestingly, the American taxpayer is subsidizing the sale of petroleum products in foreign countries by American-owned companies.

Over the last decade alone, the multi-national American oil companies have escaped payment of billions of dollars in Federal income taxes as a result of special subsidies, allowances and tax loopholes – covering oil produced and sold outside the United States.

The special allowances have contributed to some curious pricing practices in the oil industry, as was disclosed during the 1969 Senate Antitrust and Monopoly Subcommittee hearings.

Dr. John M. Blair, the committee's chief economist, noted that Exxon had sold Arabian crude oil to affiliate Japanese companies for $1.63 a barrel in early 1965, but that in 1966 the price went down to $1.57 and that by late 1968 it had dropped to $1.46.

"Are we to conclude," Blair asked of Exxon's Wright, "that at the same time you were raising the price to the American consumer, your company was reducing the price to foreign buyers?"

Wright said, "You are working in two separate worlds when you speak about what you do in the United States compared to what you do abroad, and what you say is exactly right.

"In the foreign circuit where there has been tremendous competition, the price has gone down. I accept your figures. They sound right to me. And, of course, the crude price in the United States is a matter of record."

Product Sales Boom

Thus, while the American taxpayer has subsidized the overseas operations of American oil companies, sales of petroleum products have soared around the world.

Listen to a few accounts from the annual reports of the companies:

Exxon (1965) – "In 1964 Japan became the free world's largest consumer of petroleum after the United States, and it continued to outstrip other areas in percentage growth during 1965. The company's sales in Japan for the year increased 18 percent (compared with 8 percent in the United States)."           

Standard Oil Co. of Calif. (1968) – "In Western Europe, fastest-growing major Free World market outside Japan, Chevron Oil Europe, Inc., a subsidiary, completed its first full year of operation. In this region, which accounts for some 50 percent of free foreign petroleum consumption, Chevron Europe sales increased approximately 20 percent."

Texaco, Inc. (1971) – "Product sales in the Eastern Hemisphere increased 14.7 percent (compared with .2 percent in the United States). Sales of refined products in Western Europe continued to show significant growth in both volumes and revenues."

To help supply its markets in Europe, Exxon – like more than a dozen other American oil companies – has been active in exploratory drilling in the North Sea.

In reviewing its 1972 operations, Exxon stated in its annual report that the company, in partnership with Shell Oil Co., "initiated construction of the first of several large and expensive drilling production platforms. . ."

"The platform will be placed in 460 feet of water, deepest of any industry location in the North Sea. It will be built to withstand waves of up to 136 feet, and winds gusting to 150 miles per hour.

First British Crude

"The severe wave and wind conditions, combined with the water depth, necessitate the use of some 24,000 tons of steel, which is more than three times the requirement of the largest platforms in the Gulf of Mexico.

"It is expected that oil from this Exxon-Shell field will be brought ashore by shuttle tanker in 1974, possibly making it the first British crude oil delivered from the North Sea."

So it is, then, that at the same time Exxon is meeting the crude oil needs of Great Britain, the company is putting out a somewhat different story relating to its capabilities in the United States.

J.K. Jamieson, chairman of the board of Exxon Corp., told the 91st annual meeting of the company stockholders last May 17 in New York City:

"Currently, the (energy) shortages are centered in the United States, where supplies of domestic crude oil and natural gas are inadequate and where there will be inadequate refining capacity for a few years until additional refineries can be built.

"Exxon U.S.A. recently announced that it would make products available to our various customer groups in the same basic proportions that we have been supplying in the recent past.

"I should also mention that it is unlikely that Exxon will have the capability to supply potential new customers in the near future."

The Exxon chairman, of course, was talking about potential new customers in the United States – not elsewhere around the world.

Ten days after he delivered his address to Exxon stockholders in New York, the following advertisement appeared in the London Sunday Express on May 27, 1973:

"Install your Esso central heat wave now. . .pay nothing till October 1st! When all's said and done oil's cheaper to run."

'You Get Stamps'

The advertisement, promoting the sale of home heating oil by Esso – a European subsidiary of Exxon – urged Britons to convert their home heating systems to oil because it costs less and "it's only with Esso that you get Green Shield stamps on every gallon of oil you buy at schedule price. . ."

"With Esso you're sure of your deliveries wherever you live."

That means, of course, if you live in Great Britain rather than the United States.

Following hearings held in Minnesota May 2 concerning the gasoline shortage, Sen. Hubert H. Humphrey (D., Minn.) reported to the U.S. Senate:

"For the last 20, 30 or 40 years school districts (in Minnesota) have contracted with big companies like Standard Oil for fuel oil.

"Now, in every instance where they have sought bids to maintain their contracts, they are unable to do so. In school district after school district in Minnesota, we cannot get bids on fuel oil for this winter."

The situation appears equally bleak for New England this winter. The Independent Fuel Terminal Operators Association, an organization of independents who say they supply 40 percent of New England's fuel oil needs, report that their stocks are at record low levels and that they are unable to obtain commitments for supplies this winter.

In a memorandum to former Colorado Gov. John A. Love, who is President Nixon's latest energy czar, the association said that as of July 1 its members had 1.1 million barrels of fuel oil – down 67 percent from the 3.2 million barrels on hand a year earlier.

30% of Demand

Perhaps even worse, the memorandum stated that "independents have assured supplies of only 85,000 barrels a day. This represents only 30 percent of their projected demand."

So how is it that Exxon and other American oil companies selling overseas can promise to supply their customers in Europe and Asia without interruption, but cannot supply markets in the United States?

James E. Lee, president of Gulf Oil Corp., explained the situation this way in an interview with The Inquirer.

"The problem we have in the United States is not a shortage of crude oil. We can import whatever we want. What we have here is a refining capacity problem.

"Demand has outstripped capacity. This is not the situation in Europe where our refineries are running at 85 to 87 percent of capacity."

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