Sun, Oct 30, 2005 - Page 10 News List

Despite pressure, US oil firms unlikely to boost supply


Don't expect the US oil industry to boost fuel production merely to deflect criticism from Congress about soaring prices and profits.

Energy executives and analysts insist that in spite of the supply crunch that has kept oil above US$50 a barrel for much of the year, demand and prices are still prone to ups and downs, so the industry should not rush to drill wells and expand refineries just because it is flush with cash.

"A surplus of supply is not good for the industry," Shell Oil Co president John Hofmeister said in an interview on Friday. "Just as a surplus of demand is not good for industry. We strive for balance."

Hofmeister, speaking by phone from his corporate jet upon leaving Washington, said "we will continue to work as an industry to increase supplies to the American people."

But he said Shell executives were still debating whether it makes economic sense to expand the capacity of refineries it owns jointly with Saudi Refining Inc.

The companies said last month they were considering adding 100,000 to 300,000 barrels per day of capacity to plants in Louisiana and Texas.

Keep in mind, Hofmeister said, that "high-priced oil at 60-plus dollars leads people to seriously question their use of energy. And as they question that use of energy, they use less ... let the market do its work."

Washington's complaint that the market might not be working well, however, grew this summer after hurricanes Katrina and Rita exposed the industry's vulnerabilities, causing supply disruptions that sent gasoline prices above US$0.80 a liter. The backlash reached a bipartisan crescendo this week after Exxon Mobil Corp., BP Plc, Royal Dutch Shell Plc and Chevron Corp. reported combined third-quarter profits of US$29 billion.

A congressional hearing on energy prices and profits is scheduled for Nov. 8.

With oil hovering above US$60 a barrel and home-heating costs expected to surge this winter, some analysts believe the industry may have no choice but to work with the government to make the world's largest petroleum-consuming market more secure and less volatile.

"There have been a flurry of proposals, some of which will undoubtedly lead to some kind of innovations," said Antoine Halff, director of global energy at Eurasia Group in New York. But he added that "investment decisions are going to be made on commercial grounds."

Congressmen say they are worried about the economic hardship soaring energy costs are placing on average Americans.

Senator Bill Frist, the Senate majority leader, said he would support a federal anti-price gouging law. Senator Chuck Schumer introduced a bill that would place additional taxes on oil company profits to help reduce the deficit and pay for hurricane relief. Some want the industry to assist low-income families with their heating bills.

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