Senate Democrats

How Much Are Oil and Gas Companies Investing in Clean Alternative Fuels?

In the past several weeks, gas prices have risen dramatically once again.  One reason for the spike is the “fear premium” caused partially by the Bush Administration’s deeply flawed foreign policy.  Another reason is the empty words and unfunded promises of the Administration’s short-sighted energy policy.

President Bush’s budget choices have deprived the Treasury of the funds we need to invest in a better, more sustainable energy policy, and his friends in the oil and energy industry have failed to fill the void by investing in alternatives to oil.

As both energy prices and industry profits have risen, the oil and gas industry has touted its investment in new sources of energy.  Given its record-breaking profits, the industry certainly has capital to invest in renewable fuels and energy sources that can reduce our dependence on oil.  Unfortunately, the industry is investing negligible amounts in renewable energy sources and is undermining service stations’ efforts to provide renewable fuels for consumers.

Oil Industry Resources

Record profits.  The five largest oil companies reported almost $120 billion in profits in 2006 alone.  From 2000 through 2005, they reported over $383 billion in profits. (Based on ExxonMobil, Shell, BP, ChevronTexaco, and ConocoPhillips company annual financial reports for 2000-2006)

Cash on hand and return on investment.  The Congressional Research Service (CRS) found in July 2006 that eight top oil and refining companies had $57 billion in cash on hand, a sixfold increase over the $9.5 billion they held in 2001.  The rate of return on equity has also increased sixfold.  Companies have both the capital and financial incentives to invest in the next generation of energy production. (CRS Memorandum to Senator Wyden, 7/5/06)

Investment in Alternatives

Rhetoric: Industry says it is investing heavily in renewable and alternative technology.  The American Petroleum Institute (API) has claimed that, “In North America over the last five years, the oil and gas industry has invested almost $100 billion on renewable, alternative and advanced emerging energy technologies.” (API letter to Members of Congress, 3/30/07)

Reality: Industry is hardly investing in renewable, non-petroleum energy.  When the industry breaks down investment in what it terms “renewable, alternative and advanced emerging energy technologies,” very little of the $98 billion spent on these technologies was invested in renewable or alternative energy sources.  Only $1.2 billion of the $98 billion advertised by the industry as investment in renewables and alternatives was actually spent on renewable sources of energy between 2000 and 2005.  This funding was not spent on renewable fuels but on production of electricity from wind, solar, geothermal, and landfill gas. (American Petroleum Institute, “Facts on Fuel”)

The oil and gas industry has invested heavily ($86 billion over five years) in refining heavier sources of petroleum, including tar and oil sands and oil shale, and on turning waste and residue hydrocarbons into usable products.  The industry has also modestly invested ($11 billion) in combined heat and power and vehicle fuel efficiency technologies.  The amount invested in the next generation of energy is a tiny fraction of investment and an even smaller fraction of industry profits that could be invested in clean technologies.

When asked to provide their companies’ investment in non-petroleum energy supply and production during a November 2005 hearing, the CEOs of the five largest oil companies reported little investment.  Exxon reported investing a “negligible amount” in non-petroleum energy, and ChevronTexaco included coal and natural gas investments in its tally. (ExxonMobil and ChevronTexaco responses to Questions from the Record of Joint Committee Hearing regarding Energy Pricing and Profits, Senate Energy and Natural Resources and Commerce, Science, and Transportation Committees, 11/9/05)

Both public and private investment in energy R&D have declined.  Investment in energy research and development has been steadily falling despite rising geopolitical, environmental, and economic risks of dependence on oil.  Investments in energy R&D by U.S. companies fell by 50 percent between 1991 and 2003.  Total private sector energy R&D is less than the R&D budgets of individual biotech companies.  Since the mid-1990s, both public and private sector R&D spending has been stagnant for renewable energy and energy efficiency.(Daniel M. Kammen and Gregory F. Nemet, “Reversing the Incredible Shrinking Energy R&D Budget,” Issues in Science and Technology, Fall 2005)

Big Oil is an “obstacle” to alternative fuel stations.  Big oil companies are using their market power to discourage service stations from stocking or offering E85 fuel and to create rules that make it difficult for consumers to compare prices for, fill up with, or purchase E85.  Exxon Mobil and BP require their franchised stations to buy fuel exclusively from them, and neither company offers E85.  Station owners must apply for exceptions to purchase E85.  ChevronTexaco and ConocoPhillips require an E85 pump to be set away from the other pumps and do not allow stations to list E85 on their primary sign listing fuel prices.  Chevron recommends that stations install new storage tanks and pumps worth about $200,000 at their own expense to offer E85, rather than using existing tanks and pumps.  BP will not allow its franchised stations to offer payment by credit card at E85 pumps. (Wall Street Journal, 4/2/07)

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