It is becoming increasingly clear that there are some members of Congress who lack a basic understanding of the makeup of the U.S. oil and natural gas industry and how oil markets work.
This week, Senate Majority Leader Charles Schumer (D-NY) and over twenty Senate Democrats authored a letter to the FTC claiming that the proposed mergers of ExxonMobil-Pioneer Natural Resources and Chevron-Hess will result in reduced competition and lead to higher consumer prices. The letter bases its bleak outlook on a number of claims that demonstrate a deep misunderstanding of global energy markets, relying on outdated research and claims, several of which the FTC itself has already rejected.
Déjà Vu?
If the arguments in Sen. Schumer’s letter sound familiar, they should – the Senator and nine Senate Democrats authored a nearly identical letter to the FTC in April 2005. At the time, Sen. Schumer urged the Commission to investigate the proposed ChevronTexaco-Unocal acquisition and scrutinize additional oil and gas mergers that the FTC had already approved, writing:
“We are extremely concerned that this acquisition will only intensify the dangerous level of concentration in the oil industry. This consolidation has already drastically undermined competition, leaving American consumers vulnerable to repeated and sustained spikes in the price of oil.”
The 2005 merger was ultimately approved by shareholders and regulators. Sen. Schumer’s concerns, on the other hand, did not age well. In fact, the following decade turned the American economy and the global energy market upside down – for the better.
Almost overnight, the shale revolution propelled the United States from a position of oil scarcity to abundance – so much so that in less than a decade, America was able to lift its 40-year crude oil export ban and become a leader on the global market. The significant increases in domestic oil and natural gas production transformed the geopolitical arena, as the influx of American energy cut into OPEC+ market share.
Thousands of new American companies incorporated and began exploration, drilling, and service operations. Crucially, the surge in American energy supply helped counteract factors like war in the Middle East that put pressure on oil and gasoline prices.
It’s a good thing that regulators in 2005 did not follow Sen. Schumer’s political agenda and impede growth at a critical moment in American energy history, but historical precedent hasn’t stopped certain members of Congress from rehashing the same claims twenty years later.
Old News and Old Data
This week’s letter from Sen. Schumer and Senate Democrats doesn’t just reproduce old arguments – it references decades-old data, and even cites documents that were previously rejected by the SEC.
The October 2023 letter makes sweeping claims that the American energy industry is already too consolidated, and additional mergers and acquisitions threaten competition further. The cornerstone of that argument is a 2004 Government Accountability Office (GAO) report on the impact of mergers on gasoline prices. Ironically, that report was already presented to the FTC – and rejected wholeheartedly.
Upon reviewing the 2004 GAO report, the FTC’s Bureau of Economics concluded:
“…the Report in its present form is so flawed that reliable judgements cannot be formed regarding competitive effects of mergers in the petroleum industry.” (Emphasis added)
The FTC Chair even doubled down with a public statement supporting the economists’ findings and making it clear that they represented the unanimous opinion of the Commission, writing:
“In 30 years as an antitrust enforcer, academic, and consultant on antitrust issues, I have rarely seen a report so fundamentally flawed as the GAO study of several oil mergers that the Federal Trade Commission investigated under my predecessor, Robert Pitofsky.” (Emphasis added)
This is not the only time that Sen. Schumer’s letter submits “evidence” to the FTC that the FTC itself evaluated and refuted. In another instance, the letter cites comments made by BP officials in 1995, but again, these comments were already reviewed by the FTC as part of a merger review that the Commission ultimately approved.
Back to Energy Dependence?
Longing for the past is evident – Sen. Schumer’s letter suggests that some in Congress want to return to the days of energy dependence.
The letter argues that even if proposed mergers result in more production, American consumers won’t benefit since exports will increase as well. This claim reveals a fundamental misunderstanding of how global oil markets work.
Petroleum products produced in America do not only have economic value if they are refined or consumed in America. Since the price of oil is at the global level, U.S. crude oil that is exported to other countries benefits the U.S. consumer and protects energy security by lowering the global price of oil and reducing dependence on OPEC.
There are also immediate, onshore benefits to increased exports – American oil and natural gas exports support economic activity in the maritime, transportation, and industrial sectors and insulate the country’s trade balance.
The importance of robust domestic oil and natural gas production and exports is on display today, in real time. OPEC’s recent planned (and surprise) production cuts have had a limited impact on prices, due in a large part to “faster than expected growth in U.S. output,” according to Reuters. Crucially, the Wall Street Journal reports that American operators are using environmentally sound and cost-effective practices to step up production in a responsible way:
“The surge is being driven in part by improved production efficiency, and signals that the Organization of the Petroleum Exporting Countries’ power to control prices could be waning…” (Emphasis added)
The value of American oil and natural gas in the global market has not always been a given. It was just in 2021, six years after the crude oil export ban was lifted, that our country for the first time achieved energy independence. This remarkable achievement was powered by the dynamic, competitive, and diverse American energy sector, evidence that one of the best insulations against volatility is a strong domestic industry that can offset geopolitical upheaval.
Bottom Line: Rather than launching a politically motivated attack – again – Senator Schumer and Senate Democrats should take a lesson from history and have confidence in the dynamism of the American energy industry.
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