Markey urges majors to spend 10% of their profits on alternatives

Saying that the poorest US families now spend 10% of their annual incomes on gasoline because of high oil prices, a House committee chairman said that major oil companies should direct a similar portion of their profits to alternative energy research and development.

"There's been a windfall of revenue which has fallen to these oil companies the last few years and it is expected to continue. They are the world's leading oil companies and we can't solve these problems without their help," Rep. Edward J. Markey (D-Mass.) said as he ended a nearly three-hour hearing of the House Select Committee on Energy Independence and Global Warming on Apr. 1.

He was particularly critical of Exxon Mobil Corp., which he said plans to spend only $100 million over 10 years on alternative and renewable energy research and development when several of its competitors individually plan to spend billions.

"After we put the brightest minds in the company to work addressing the prospects for renewable energy prospects, we determined that current technologies won't do the job. Consequently, we are examining ways to develop future technologies," responded Exxon Mobil Senior Vice President J. Stephen Simon, one of five major oil company executives who testified.

He subsequently said that Exxon Mobil is concentrating its research on ways to mitigate carbon and other climate impacts of burning fossil fuels, which the multinational oil and gas firm believes will remain the dominant near and mid-term energy source.

"You can't have it both ways, Mr. Simon. You can't nickel-and-dime renewable energy R&D when your company made $40 billion in profits last year and paid several billion dollars in dividends and executive compensation," Markey told him.

Other steps

He said that the companies also should support, instead of oppose, H.R. 5351 which would shift $18 billion in financial incentives from the biggest US oil companies to alternative and renewable energy R&D programs as a way to give consumers some relief from high prices.

"Finally, the Bush administration must stop filling the Strategic Petroleum Reserve during periods of high prices to send a signal to the market and oil speculators that Americans won't be held hostage," Markey said.

Shell Oil Co. President John D. Hofmeister, BP America Inc. Chairman and President Robert A. Malone, Chevron Corp. Vice Chairman Peter J. Robertson and ConocoPhillips Executive Vice President John E. Lowe also testified at the hearing, "Drilling for Answers: Oil Company Profits, Runaway Prices and the Pursuit of Alternatives."

Hofmeister said in his written statement that crude prices have climbed past $100/bbl because global oil demand growth has accelerated in recent years from rapid economic expansion and industrialization of China, India and other countries. Geopolitical events in Nigeria and other producing nations; higher costs for labor and engineering services amid scarce supplies; increasing difficult access to oil and gas resources worldwide, and available supplies increasingly being found in areas that are more technically challenging, more remote from markets and more costly to develop also have contributed, he said.

The US dollar's declining value and global investment firms rebalancing their portfolios to include more commodities, including oil and gas, also contributed, he said.

"Most of these factors are not controlled by or even much influenced by the actions of oil companies. However, our business is developing energy and delivering to consumers in the most efficient and cost-effective manner we can. We will continue to strive to contain costs and to deliver these energy products to consumers at competitive prices in a secure and reliable manner," Hofmeister said.

More sensitive markets

Global oil demand's accelerated increase since 2004 has reduced spare capacity, creating a tighter relationship between supply and demand and heightened market concerns, according to Robertson. "This new reality and the impact on oil prices are compounded by the weakening of the US dollar. The higher oil price is in part a market adjustment that reflects weakening purchasing power of oil exporting countries that well their oil in US dollars but buy goods with stronger currencies such as the euro," he said in his written testimony.

While biofuels potentially could play an important transportation role, they still face commercial challenges, Robertson said. "One of the country's largest biodiesel facilities in Washington state, for in stance, has an annual production capacity of 100 million gallons. This amount would serve the country's demand for transportation fuels for about six hours of one day, and it roughly equals the amount of transportation fuel that Chevron's refinery in Pascagoula, Miss., produces in a single week," he said.

Worldwide investments in renewable and alternative fuels have increased nearly fourfold since 2004 and nearly $150 billion has been poured into the sector in the past 12 months, he continued. Their total volume is expected to increase by about 45% by 2030 to meet demand but still will represent only about 10% of the total energy mix, their current share, because overall global demand is growing so quickly, Robertson said.

"Energy efficiency is the most immediate and important action that each of us can take to start to reduce energy prices. The United States must become a nation of energy savers. In short, we need a 'Made in America' solution enabled by everything from human ingenuity to 'smart' buildings to advanced vehicles and transportation systems . . . Markets are indicating that consumers are already taking action. You and your committee have a critical role to play to engage the US public and put the United States at the forefront of responsible energy use," he told Markey.

Recognizes negative effects

Malone said that the United States faces tremendous energy challenges now because of short-sighted government policies, poor market dynamics and decisions which limited access to resources, discouraged development and constrained investments to meet growing demand. "BP recognizes the negative effects high prices have on the economy and the consumer. We alone can't change the conditions that brought us here. Energy companies, policymakers and consumers all have a role to play in creating a new US energy future," he said.

The company strongly supports renewing incentives for wind, solar and biofuels R&D, he continued. "They are an important part of why the US has been so successful in developing its renewable energy sector, but we cannot support a tax package that discourages efforts to bring on other much needed energy sources such as oil and gas production," Malone said.

"Despite the growth and development activity we are experiencing in alternatives, they cannot close the supply gap that is projected to occur over the next 20-year period. Fossil fuels such as coal, oil and natural gas will be critical to meet expected energy demand growth," he continued. The United States must also produce more of the energy it consumes and increase its energy efficiency, Malone said.

Lowe said that Congress should encourage development of more domestic conventional supplies, optimize biofuels production and encourage development of both alternative and unconventional sources. "Although oil sands and unconventional fossil fuels such as oil shale and coal gasification are more energy and carbon-intensive than conventional sources today, they could substantially improve energy security because these resources are abundant in the United States and Canada," he said.

He noted that ConocoPhillips is test marketing unbranded E-85 in a number of states with more than 2,500 potential sites, provided participating marketers meet certain image, safety and fuel quality guidelines. "Results from our test are pending, but industry data have shown that the consumer response to E-85 to date has not been very good. Many retailers who have installed E-85 dispensers report insufficient consumer demand to justify the expense of the conversion," he said.

"We have a pilot project testing E-85 at some of our company-owned subjects in the Chicago area. So far, consumer response has been poor," added BP America's Malone.

Contact Nick Snow at nicks@pennwell.com

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