[Congressional Record Volume 152, Number 43 (Thursday, April 6, 2006)]
[Senate]
[Pages S3213-S3216]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. SPECTER (for himself, Mr. Kohl, Mr. DeWine, Mr. Leahy, 
        Mrs. Feinstein, and Mr. Durbin):
  S. 2557. A bill to improve competition in the oil and gas industry, 
to strengthen antitrust enforcement with regard to industry mergers, 
and for other purposes; to the Committee on the Judiciary.
  Mr. SPECTER. Madam President, I am sending to the desk today 
legislation captioned as the ``Oil and Gas Industry Antitrust Act of 
2006,'' legislation on behalf of myself and Senator DeWine, Senator 
Kohl, Senator Leahy, Senator Feinstein and Senator Durbin. The 
Judiciary Committee has held hearings on the escalating price of 
gasoline, which has risen some 25 percent in the past year, from $1.85 
per gallon nationally in January of 2005 to $2.38 a gallon early this 
year.
  We have seen rapid consolidation in the oil and gas industry, with 
many mergers which are specified in the written statement I will have 
included in the Record and enormous profits characterized by the 
profits reported by ExxonMobil, which earned over $36 billion in 2005, 
the largest corporate profit in U.S. history.
  The legislation we are introducing will do a number of things. First, 
it will eliminate the judge-made doctrines that prevent OPEC's members 
from being sued for violating the antitrust laws. There is no doubt 
that they take joint action when deciding how much oil to sell, actions 
would normally constitute unlawful price fixing.

[[Page S3214]]

This legislation would make them subject to our antitrust laws.
  With fewer players in the industry, anticompetitive acts, including 
the withholding of supply and information sharing, become easier. The 
bill would prohibit oil and gas companies from diverting, exporting, or 
refusing to sell existing supplies with the specific intention of 
raising prices.
  The bill also requires the FTC and the Attorney General to consider 
whether future oil and gas mergers should receive closer scrutiny. It 
requires the GAO to evaluate whether the divestitures required by the 
antitrust agencies for past mergers were adequate to preserve 
competition. There is significant evidence that the concentration in 
the industry has been a contributing factor to increasing gasoline and 
oil prices. There are other factors, but it is not explained simply by 
the increase in the cost of crude oil. This bill takes a firm stand to 
protect the American consumer from enormous increases in gasoline 
prices and in oil prices--something very serious when we have 
insufficient funds in LIHEAP to take care of people who are unable to 
pay for the increasing costs of heating oil.
  I ask unanimous consent that the full text of my prepared statement 
be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

       Consolidation in the Oil and Gas Industry: Raising Prices?

       Mr. President, I have sought recognition to introduce new 
     legislation, the Oil and Gas Industry Antitrust Act of 2005.
       Average gasoline prices nationwide have risen by 25 percent 
     in the past year alone, from $1.85 per gallon in January 2005 
     to $2.38 per gallon at the beginning of this year.
       Prices for heating oil, other petroleum products and 
     natural gas--products that are important to the lives of 
     American consumers--have risen to similar heights.
       While Americans are paying more for the products they use 
     to get to work and heat their homes, the mammoth integrated 
     oil companies that dominate the industry have earned record 
     profits. ExxonMobil reported that it earned over $36 billion 
     in 2,005, the largest corporate profit in U.S. history.
       Although rising crude oil prices are one factor influencing 
     gasoline prices, it is not the only factor. Increased prices 
     simply cannot be entirely explained by higher crude oil 
     prices.
       In a hearing last month and another one next week, the 
     Judiciary Committee is I exploring a likely cause for higher 
     prices--the consolidation that has occurred in the industry 
     over the past decade, and that continues today.
       Over 2,600 mergers have occurred in the U.S. petroleum 
     industry since the 1990s, including transactions involving 
     the largest oil and gas companies in the nation.
       Last summer, the FTC approved Chevron's acquisition of 
     Unocal.
       In 2002, Valero acquired Ultramar Diamond Shamrock and 
     Phillips merged with Conoco.
       The year 2000 saw the merger of British Petroleum and ARCO.
       The largest transaction occurred in 1999 when Exxon merged 
     with Mobil.
       Other transactions included British Petroleum's acquisition 
     of Amoco, Marathon's joint venture with Ashland Petroleum and 
     another joint venture that combined the refining assets of 
     Shell and Texaco.
       Last month the Department of Justice just approved Conoco-
     Phillips' acquisition of Burlington Resources, a merger that 
     creates the nation's largest natural gas company and the 
     third largest integrated oil company.
       These transactions have resulted in significantly increased 
     concentration in the oil and gas industry, particularly in 
     the downstream refining and wholesale gasoline markets.
       Fewer competitors in a market conveys market power on 
     remaining players, and with it, the opportunity to increase 
     prices. As we have learned in Committee, there is some 
     evidence that consolidation in the industry has increased 
     wholesale gasoline prices.
       Fewer competitors in a market also makes collusion easier. 
     Recent events suggest that increased concentration may be 
     creating a ``collusive environment'' in the industry.
       A number of experts have pointed to limited refinery 
     capacity as a cause for price spikes in recent years. No new 
     refineries have been built in the U.S. for-30 years. While 
     some existing refineries have expanded in recent years, other 
     refineries have closed. From 1998 through 2004, total 
     refinery capacity nationwide grew by less than one percent. 
     Today, U.S. refineries routinely operate at over 90 percent 
     of capacity. Critics have alleged that tacit collusion among 
     industry players has restrained the growth of refinery 
     capacity.
       ExxonMobil and British Petroleum were recently sued by the 
     Alaska Gasoline Port Authority for allegedly conspiring to 
     withhold natural gas from customers who wished to transport 
     the gas via pipeline to an Alaskan port. An agreement between 
     Exxon and British Petroleum not to sell their natural gas to 
     the Alaskan project would violate the antitrust laws.
       The Judiciary Committee has held two hearings this year to 
     consider the effects of concentration in the industry. The 
     most recent hearing in March considered whether concentration 
     had resulted, in increased prices for gasoline, other 
     petroleum-based fuels and natural gas.
       The witnesses at that hearing--two experienced and 
     respected antitrust lawyers, the attorney general of Iowa, an 
     economist from the University of California at Berkeley and 
     the Senior Assistant Attorney General from California--all 
     agreed that there were problems with market power in the 
     industry.
       Most of these witnesses testified that there was a serious 
     problem with tacit coordination and information sharing in 
     the industry made possible by having fewer players in the oil 
     and gas industry. Such conduct unquestionably leads to higher 
     prices.
       Based on the testimony the Committee heard, it is pretty 
     clear that increased concentration in the industry has led to 
     higher prices. In part, the antitrust agencies need to adjust 
     their enforcement posture to reflect existing conditions in 
     the industry, but I believe there is a need for legislation. 
     The Oil and Gas Industry Antitrust Act of 2006, which I am 
     introducing today, would require the antitrust enforcement 
     agencies, as well as the GAO, to take a close look at their 
     past merger enforcement and whether the standard for 
     reviewing mergers should be changed. The original draft of 
     this legislation would have increased the standard of review 
     for mergers in the industry, but we would like to give GAO 
     and the enforcement agencies a chance to look at how the 
     standard should be changed. The legislation:
       Amends the Clayton Act by prohibiting oil and gas companies 
     from diverting, exporting or refusing to sell existing 
     supplies with the specific intention of raising prices or 
     creating a shortage.
       Requires the FTC and the Attorney General to consider 
     whether the standard of review for mergers contained in 
     Section 7 of the Clayton Act needs to be modified for mergers 
     in the oil and gas industry to take into account the 
     concentration that has already occurred in this industry.
       Requires the Government Accountability Office to evaluate 
     whether . divestitures required by the antitrust agencies in 
     oil and gas industry mergers have been effective in restoring 
     competition. Once the study is complete, the antitrust 
     agencies must consider whether any additional steps are 
     necessary to restore competition, including further 
     divestitures or possibly unraveling some mergers.
       Requires the antitrust agencies to establish a joint 
     federal-state task force to examine information sharing and 
     other anticompetitive results of consolidation in the oil and 
     gas industry. Economic studies show that sharing price and 
     production information in a concentrated market will result 
     in increased prices. Oil companies frequently supply each 
     other with gasoline in areas where they have no source of 
     supply through so-called ``exchange agreements.'' Refiners 
     also frequently share terminals and pipelines, which 
     facilitates the exchange of information. These practices 
     alone do not violate the antitrust laws, but parallel conduct 
     in combination with information sharing could be enough to 
     establish a violation of the antitrust laws.
       Eliminates the judge-made doctrines that prevent OPEC 
     members from being sued for violating the antitrust laws by 
     conspiring to fix the price of crude oil.
       It is my hope that this legislation will help reverse the 
     trend toward less competition and higher prices. The 
     cosponsors of this legislation--Senator Kohl, Senator DeWine, 
     Senator Durbin, Senator Leahy, Senator Feinstein--deserve 
     enormous credit for having the courage to take on this issue 
     and for helping to develop this important legislation. I urge 
     other members that are concerned about consolidation in the 
     industry--and about the prices that consumers are paying to 
     drive to work and heat their homes--to support this important 
     legislation.
                                  ____

  Mr. LEAHY. Mr. President, I am proud to join with Senators Specter, 
Kohl, DeWine and others on a new bill, the Oil and Gas Industry 
Antitrust Act of 2006, which includes, as its centerpiece, our NOPEC 
legislation, which many of us have worked together on for years.
  This measure--The No Oil Producing And Exporting Cartels Act, NOPEC--
would make OPEC accountable for its anticompetitive behavior and allow 
the Justice Department to crack down on illegal price manipulation by 
oil cartels. It will allow the Federal Government to take legal action 
against any foreign state, including members of OPEC, for price fixing 
and other anticompetitive activities. The tools this bill would provide 
to law enforcement agencies are necessary to immediately counter OPEC's 
anticompetitive practices, and these tools would help reduce gasoline 
prices now.
  The Congress should pass this measure immediately instead of waiting 
until the price of gasoline at the pump is $4 a gallon. OPEC has 
America over a barrel, and we should fight back. If OPEC were simply a 
foreign business engaged in this type of behavior, it

[[Page S3215]]

would already be subject to American antitrust law. It is wrong to let 
OPEC producers off the hook just because their anticompetitive 
practices come with the seal of approval of this cartel's member 
nations.
  It is time for the President to join the bipartisan majority in the 
Senate which already said ``NO'' to OPEC by passing NOPEC and by 
sending it to the other body, where it was killed.
  The Senate has already passed this bill, which would make OPEC 
subject to our antitrust laws. In fact, the Judiciary Committee has 
approved the NOPEC bill three times. Regrettably, even though President 
Bush promised in 2000 that he would ``jawbone OPEC,'' the Bush 
administration and its friends in the House have scuttled the NOPEC 
bill and the direct and daily relief it would bring to millions of 
Americans.
  In addition, this bill makes it unlawful to divert petroleum or 
natural gas products from their local market to a distant market with 
the primary intention of increasing prices or creating a shortage in a 
market. This solves a real problem where products are being shipped for 
sale in that market but are later diverted and sold for less in another 
market.
  We have an obligation to address these and other issues caused by oil 
cartels and by greedy companies who have money--that they have 
extracted from the American people--to burn. That is why I am also 
pleased that the bill includes provisions to conduct several studies 
that address serious competition, information sharing, and other 
antitrust problem areas related to the oil and natural gas industries. 
The American people deserve answers, and this bill also provides a path 
to getting those answers.
  Authorizing tough legal action against illegal oil price fixing, and 
taking that action without delay, is one thing we can do without 
additional obstruction or delay.
  The artificial pricing scheme enforced by OPEC affects all of us, not 
the least of whom are hardworking Vermont farmers. The overall increase 
in fuel costs for an average Vermont farmer last year was 43 percent, 
meaning that each farmer is estimated to pay an additional $700 in fuel 
surcharges in 2006 alone. Vermonters know what the terrible 
consequences of these high prices can be: forcing many farmers to make 
unfair choices between running their farms or heating their homes. No 
one should be forced to make these choices, certainly not our hard-
working farmers.
  In summary, this bill will provide law enforcement with the tools 
necessary to fight OPEC's anticompetitive practices immediately, and 
help reduce gasoline prices now. I urge my colleagues to support this 
bill, and to say ``NO'' to OPEC as we have done in the past.
                                  ____

  Mr. KOHL. Mr. President, I rise today with Senator Specter to 
introduce the Oil and Gas Industry Antitrust Act of 2006. This 
legislation will make several important and overdue reforms to our 
antitrust laws to give our Federal Government more of the tools it 
needs to take action to combat anti-competitive conduct in the oil and 
gas industry. It will also direct that our antitrust enforcement 
agencies undertake several actions to ensure that they are enforcing 
our current antitrust laws properly.
  We have all seen the suffering felt by consumers and our national 
economy resulting from rising energy prices. Gasoline prices are once 
again on the rise, with the national average price increasing more than 
thirty cents in the last month alone. Many industry experts fear, if 
current trends continue, that last summer's record levels of more than 
three dollars per gallon will be exceeded this coming summer. And 
prices for other crucial energy products--such as natural gas and home 
heating oil--have undergone similar sharp increases. These price 
increases are a silent tax that steals hard earned money away from 
American consumers every time they visit the gas pump and every time 
they raise their thermostat to keep their family warm.
  There is much debate about the causes of these gas prices. The role 
of increasing worldwide demand and supply limitations obviously play a 
role. But our investigation in the Judiciary Committee--including two 
hearings in the last several months--have made plain the facts that 
make many of us suspect that oil and gas markets are not behaving in a 
truly competitive fashion. The GAO has found that there were over 2600 
mergers and acquisitions in the oil industry since 1990, and that these 
mergers have caused the price of gasoline to increase from one to seven 
cents per gallon. Despite a substantial growth in demand, no new 
refineries have been opened in the United States in 25 years. Instead, 
more than half have been closed, so that overall national refining 
capacity declined by more than 9 percent from 1981 to 2004 while demand 
for gasoline rose 37 percent. Many argue that limiting refining 
capacity is actually in the oil companies' interest, as it enables them 
to gain market power over supply to raise price.
  And the oil industry has unquestionably enriched itself during this 
period of high prices. Oil industry profits reached record high levels 
last year, led by Exxon Mobil's record high profits of over $36 
billion. An independent study by the consumers group Public Citizen 
found that U.S. oil refiners increased their profits on each gallon of 
gasoline they refined by 79 percent in the five-year period ending in 
2004. While it is true that the world price of crude oil has 
substantially increased, the fact that the oil companies can so easily 
pass along all of these price increases to consumers of gasoline and 
other refined products--and compound their profits along the way--
demonstrates to many of us that that there is a failure of competition 
in our oil and gas markets.
  Indeed, at our hearing last month, the chief executives of our 
Nation's largest oil companies admitted they had no difficulty in 
passing along crude oil price increases to consumers. Rex Tillerson of 
ExxonMobil forthrightly testified that ``[t]he high price of crude oil 
has been passed ultimately along to the consumer of whatever the 
finished product may be . . . .'' David O'Reilly of Chevron agreed.
  It also seems clear that there has been a failure of our antitrust 
enforcement agencies to take action to restore competition to this 
vital industry. Vigorous antitrust enforcement is essential to restore 
competition to these markets, and it is now time to strengthen our 
antitrust laws to ensure that they are up to the job. This bill that 
Senator Specter and I are introducing today will significantly enhance 
our antitrust laws to ensure that the government has the necessary 
tools to take action to restore competition in this industry, and also 
direct that the government examine its enforcement policy to determine 
if additional changes are needed.
  Our bill has five elements, each essential to strengthening antitrust 
enforcement in the petroleum industry. It contains two important 
changes to existing antitrust law. First, it will amend the Clayton Act 
to prohibit withholding supplies of petroleum, gasoline or any other 
fuel for the primary purpose of increasing prices or creating a 
shortage. This provision will prevent the ability of oil producers and 
refiners to limit supply to manipulate price. Second, it incorporates 
our NOPEC bill--legislation I have introduced each Congress since 
2000--to make the actions of the OPEC oil cartel subject to U.S. 
antitrust law. This provision will, for the first time, establish 
clearly and plainly that when a group of competing oil producers like 
the OPEC nations act together to restrict supply or set prices, they 
are violating U.S. law. This provision will authorize the Attorney 
General to file suit under the antitrust laws for redress, and will 
remove the protections of sovereign immunity and the act of state 
doctrine from nations that participate in the oil cartel. Our NOPEC 
provision passed the Senate last year as an amendment to the energy 
bill, but was subsequently dropped by the House-Senate Conference 
Committee without explanation. It is past time to pass this much needed 
anti-cartel measure finally into law.
  Our bill also will direct that the antitrust enforcement agencies 
undertake several important actions to promote competition. The first 
two of these measures will address the government's response to the 
huge wave of consolidation in the oil industry. First, the bill will 
direct that the Justice Department and Federal Trade Commission conduct 
a study and report their

[[Page S3216]]

findings to us in nine months, as to whether the Clayton Act needs to 
be amended to ensure that mergers which truly lessen competition in the 
petroleum industry are prohibited. Second, the bill directs a study by 
the GAO to be completed within six months to examine whether the 
consent decrees and divestitures obtained by the Justice Department or 
FTC in the oil industry have been effective in protecting competition. 
The Attorney General and FTC are directed to consider additional action 
be required to restore competition upon completion of this report. 
Finally, the bill directs that the Attorney General and FTC Chairman 
establish a joint Federal-State task force to investigate information 
sharing among companies producing, refining, or marketing petroleum, 
gasoline or any other refined product.
  As Ranking Member on the Senate Antitrust Subcommittee, I believe 
that this bill is an important step to reforming our antitrust laws and 
restoring competition to the oil and gas industry. All of us can agree 
that anticompetitive conduct leading to higher prices for gasoline and 
other energy products simply cannot be tolerated. It is essential that 
we give our government the necessary tools to do the job, and I am 
certain our bill is a long overdue measure to do just that.
  I urge my colleagues to support the Oil and Gas Industry Antitrust 
Act of 2006.
                                  ____

  Mr. DeWINE. Mr. President, I am proud to join as a co-sponsor of 
Senator Specter's Oil and Gas Industry Antitrust Act. This bill should 
help us curb the skyrocketing energy prices that have been an 
increasing burden on our Nation's consumers and businesses. It also 
should help us figure out how we can address these problems in the 
future.
  High fuel costs are affecting every family, whether they are driving 
across town or heating their homes, and we must continue our efforts to 
do something about it. This bill would take immediate steps to help 
decrease possible price manipulation by oil companies and allow 
government enforcement agencies to take action to prevent price-fixing 
by oil producing nations.
  I have been working on this problem for a long time. In fact, Senator 
Kohl and I have worked hard in our Subcommittee on Antitrust, 
Competition Policy and Consumer Rights to encourage FTC monitoring of 
gas prices and their careful investigation of oil industry behavior. I 
believe that those efforts have helped limit the fuel price increases; 
unfortunately, we still face enormous problems in this area, and we are 
all paying higher and higher prices for gas and heating oil. So, we 
need to continue our efforts and try some different approaches, and 
this legislation does just that.
  Specifically, this bill calls for the Government Accountability 
Office to undertake a thorough study of the past enforcement actions 
taken by the Federal Trade Commission and the Department of Justice in 
prior oil industry merger investigations. This study will provide much-
needed information on how effective the antitrust agencies' actions 
have been in preventing harm to consumers from mergers within the 
petroleum industry. Even more important, this bill also will call on 
the FTC and DOJ to use the findings from that study to examine those 
specific mergers and determine if they need to take further enforcement 
action regarding those deals. In addition, the antitrust agencies will 
utilize this information to take a close look at the petroleum industry 
and to determine whether they require special antitrust rules--
applicable specifically to the oil industry--to give the agencies the 
tools they need to promote competition in the oil industry. This would 
be a very significant step, of course, but it is something they will 
consider.
  Another important provision of this legislation creates a Joint 
Federal and State Task Force to investigate information sharing in the 
oil industry that may lead to artificially high prices for gasoline, 
electricity, and heating oil. The Federal Government and the various 
States have worked very effectively in the past to look into price 
spikes, supply disruptions, and a host of commercial arrangements that 
can harm consumers, and this bill provides a valuable framework for 
continuing and increasing this very effective cooperation.
  Moreover, this bill will put an end to certain types of activities 
that oil companies may use to drive up prices or create shortages for 
all types of fuels. Specifically, this bill makes sure that oil 
companies cannot manipulate prices by refusing to sell their products 
in particular markets or diverting oil products away from American 
shores to artificially create a shortage and pad their profits. I am 
particularly pleased that the bill includes a provision that Senator 
Kohl and I have pursued since 2000--a provision that would make it 
clear that the Antitrust Division can prosecute OPEC for its price-
fixing.
  I believe that some of the provisions of this bill will help right 
away, like limiting the ability of the oil companies to refuse to sell 
petroleum in markets that need it and putting OPEC on notice that they 
can be prosecuted if they violate our laws. These provisions should 
help in the short-term. And, the other provisions, which require 
studies and review of past enforcement actions and analysis of possible 
changes in the antitrust laws, may help us address this problem in the 
long-run.
  This bill will make a difference and help consumers. I strongly 
encourage my colleagues to join in support of its passage.
                                 ______