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NPRA Comments on ''The Oil and Gas Industry Antitrust Act of 2006'' (S. 2257)

Posted on: Monday, 10 April 2006, 12:00 CDT

NPRA, the National Petrochemical and Refiners Association, today issued the following comments on S. 2257, "The Oil and Gas Industry Antitrust Act of 2006" introduced last week by Senator Arlen Specter (R-PA) and others. Although NPRA will be further analyzing this proposal over the coming weeks, it is outlining its major concerns now because of the significant impact this proposal could have on refining industry operations.

NPRA President Bob Slaughter said: "Generally, the bill is based on the flawed assumption that concentration in the oil industry has had an adverse impact on consumer protection. NPRA disagrees with this premise. Today's refining industry is highly competitive. Data do not support the conclusion that acquisitions have increased prices. In fact, we believe companies have become more efficient through mergers and acquisitions plus organic growth. They continue to compete fiercely. Currently, there are 54 refining companies in the U.S., hundreds of wholesale and marketing companies, and more than 165,000 retail outlets."

The biggest U.S. refiner accounts for only about 13% of the nation's total refining capacity while large integrated companies each own and operate only about 10% of retail outlets. The Federal Trade Commission (FTC) thoroughly evaluates every merger proposal, holds industry mergers to the highest standards of review, and subjects normal industry operations to a higher level of ongoing scrutiny. Further, mergers in the refining industry have actively maintained and even increased refining capacity. Without such consolidation, the individual refineries involved might not have been economically viable. For example, Valero alone has increased the productive capacity of the refineries it has acquired by an aggregate of over 500,000 barrels per day over the past several years.

NPRA is concerned about other aspects of the bill. The section dealing with refusals to sell, diversions or exports may well be an illegal trade barrier. It is also unclear precisely how the proposal would impact export markets. In a well-functioning marketplace, sellers choose among potential buyers based upon price. The proposal seems contrary to this essential market behavior and creates de facto price controls. Slaughter said, "The energy price and allocation controls of the 1970s resulted in supply shortages in the form of long gas lines. Studies have shown that, although intended to reduce costs, controls actually resulted in increased costs and greater inconvenience for consumers."

The State-Federal task force concept appears flawed as well. First, the Committee has laid no predicate for the argument that information is currently shared in impermissible ways. Two dozen analyses seem to contradict the assumption that any data are improperly shared.

Finally, waiving OPEC's sovereign immunity, applying extraterritorial jurisdiction, and waiving the act of state doctrine is likely to exacerbate a political situation that is already a cause for concern. Slaughter said, "The result could be retaliation against U.S. commercial interests worldwide and further limitations on international free trade. For the foreseeable future, American industry will need to engage OPEC in ongoing business relations."

NPRA respects the interest of Chairman Specter and the other Judiciary Committee members in the issues addressed by this legislation and looks forward to working with them on these important questions.

NPRA is a national trade association with more than 450 members, including most U.S. refiners and petrochemical manufacturers.

Source: Business Wire

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