Big Five gasoline squeeze
BP, ExxonMobil, ChevronTexaco, Royal Dutch Shell, and ConocoPhillips: these five companies control 62% of the US retail gasoline market. The same companies control 50% of the refinery capacity in the US, and 48% of the oil production. About the only area where they don't dominate is in worldwide petroleum production, where they own only 14% of the production, only because of the domination of national oil companies in OPEC and elsewhere. Even there, the big five oil companies have close relationships with these national companies.
These vertically integarted compenies companies are the product of a series of mergers that culminated in the 1990s but is still going on. Ironically, this is the business that was the recipient of the first great antitrust effort, the breakup of Standard Oil in 1911. A century later, the US oil and gas business is reaching the same level of concentration. Standard Oil was dissolved into over 35 companies, much like AT&T in the phone business in 1984. But as in the telephone, the scattered pieces have steadily reassembled themselves.
The concentration in the oil industry is getting more attention given the current gasoline sticker shock. Clearly, the rise in gasoline prices has much to do with worldwide production shortfalls and growing demand in places like China and India, along with the lack of energy conservation policy in the SUV-clogged US. But a major part of oil prices are under the control of the oil companies.
After all, the price of crude oil makes up only 45% of the cost of gasoline. Government takes account for 23%. The rest goes to refiners and (to some degree) retailers. That's according to a USA Today article ("Gas costs rose after big mergers," 5/27/2004. That story details a recent US General Accounting Office (GAO) report that tracked 2,600 petroleum mergers from 1991 to 2001. Most of the mergers led to price risers on average, two cents higher (on the West Coast up to seven cents higher).
The GAO report says that the concentration in the market lessened competition, drove out generic drug companies, and cut consumer choice. The big companies formed an oligopoly to the independent gasoline companies that they used to compete to sell excess refining capacity to, using their power to demand higher prices and to restrict their operations.
Notable US oil mergers of the last ten years
- 1997 Ashland Oil combines most assets with Marathon Oil
- 1998 British Petroleum (BP) acquires Amoco
- 1998 Pennzoil merges with Quaker State Oil
- 1999 Exxon and Mobil join to form ExxonMobil
- 2000 British Petroleum (BP) acquires ARCO (Atlantic Richfield)
- 2001 Chevron acquires Texaco to form ChevronTexaco
- 2002 Conoco merges with Phillips
- 2002 Royal Dutch Shell acquires Pennzoil-Quaker State
Note the history of these companies. After the 1911 breakup, Standard Oil of New Jersey was Esso, later Exxon. Standard Oil of New York is the basis for Mobil. Atlantic Oil was part of the breakup (basis of ARCO), Amoco used to be Standard Oil of Indiana. Chevron is the old Socal, Standard Oil of California. And Sohio, Standard Oil of Ohio, became part of BP in 1987,
