Big Oil's Money Gusher
Robert B. Reich

May 16, 2011

ExxonMobil's first-quarter earnings of $10.7 billion are up 69 percent from last year. Other oil companies are also scoring record gains. The five biggest oil companies together report more than $35 billion in profits.

This gusher is an embarrassment for an industry seeking to keep its $4 billion annual tax subsidy from the U.S. government. It's especially embarrassing at a time when Americans are paying $4 a gallon or more at the pump.

An ExxonMobil vice president asks that we look past the "inevitable headlines" and remember the company's investments in renewable energy.

What investments, exactly? Last time I looked, ExxonMobil was devoting a smaller percentage of its earnings to renewables than most other oil companies, including the errant BP. In point of fact, no oil company is investing much in renewables -- precisely because they've got such a money gusher going from oil.

American Petroleum Industry CEO Jack Gerard claims the gusher is due to the "growing strength in our economy." Baloney. If you hadn't noticed already, this is one of the most anemic recoveries on record.

In fact, $4-a-gallon gas is itself slowing the economy's growth, since most consumers are left with less money to spend on everything else.

Gerard claims the giant earnings "reflect the size necessary for (American) companies to be globally competitive with national oil companies" around the world. Get real. The crude oil market is global. Oil companies sell all over the world. American "competitiveness" is meaningless.

Crude oil prices dropped last week in the face of weaker global demand and a declining dollar, but further tumult in the Middle East could push them up again. And no one knows when and if gas prices at the pump will fall. The only near-certainty is that Big Oil will make a bundle.

Republicans are defending oil's tax subsidy. They're responding to soaring gas prices by trying to open more of our oceans to oil drilling.

House Republicans recently passed a bill to accelerate oil lease sales in the Gulf of Mexico and off the coast of Virginia. They're readying measures to open vast new areas of the Atlantic, Pacific and Arctic Oceans to oil exploration. "If we began to allow more permits for oil and gas production, it would send a signal to the market that America's serious about moving toward energy independence," says Speaker of the House John Boehner.

This is nonsense. To repeat: It's a global oil market. Even if 3 million additional barrels a day could be extruded from lands and seabeds of the United States (an optimistic estimate), they'd just be added to the pool of 85 million barrels produced around the world and sold on the world market. The price to American consumers would hardly budge.

Whatever impact such drilling might have would occur far in the future anyway. Oil isn't just waiting there to be pumped out of the earth. Exploration takes time. Erecting drilling equipment takes time. Getting the oil out takes time. Turning crude into various oil products takes time. According the federal energy agency, if we opened drilling where drilling is now banned, there'd be no significant impact on domestic crude and natural gas production for a decade or more.

Oil companies haven't even fully explored the federal lands and offshore seabeds they're already allowed to drill on. They want expanded drilling rights not to pump more oil, but to pump up their balance sheets with leases potentially worth far more than they'd pay for them.

Finally and not least are the dangers of offshore drilling. Republicans must believe Americans have amnesia. Barely a year ago, the Deepwater Horizon blowout killed 11 people and spewed 200 million gallons of oil into the Gulf of Mexico. Why subsidize more of this kind of risk-taking?

In short, there's no reason to expand drilling off our seashores. And no reason to continue to give giant oil companies a $4 billion annual tax windfall.

But there are strong reasons to invest in renewable energy, even in a time of budget austerity. Boosting energy from wind, solar, biomass and water is a far better use of that $4 billion a year than giving it to the oil companies.

In fact, Congress should go further and impose a windfall profits tax on Big Oil's money gusher, to be used for renewable energy. The tax would be triggered whenever oil company profits exceed 10 percent of their revenues.

The oil companies are now gushing profits as Americans pay more and more at the pump. This makes no sense. The gusher should be used to shift America away from our costly dependence on oil.

Robert Reich, former U.S. Secretary of Labor, is professor of public policy at the University of California at Berkeley and the author of the new book "Aftershock: The Next Economy and America's Future."

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