Gas industry looks to show public cost of high prices

Post-hurricane cost spikes caused a dip in public opinion for the oil and gas industry, leaving execs wondering how to fix the problem - and spend profits.

Post-hurricane cost spikes caused a dip in public opinion for the oil and gas industry, leaving execs wondering how to fix the problem - and spend profits.

With yet another quarter of record profits behind them, oil and gas companies are once again awash in cash - and negative attention. In response, the industry has gone on the offensive, investing heavily in public education campaigns. But public opinion is unlikely to swing in the industry's favor any time soon, especially with gasoline prices still significantly higher than year-ago levels and home heating bills forecasted to reach record levels this winter.

Industry executives likely understand that they will never win any popularity contests. Often cast as villains in Hollywood and burdened by devastating mishaps, such as the Exxon Valdez oil spill, they learned a long time ago that negative publicity comes with the territory.
"The public generally has a very low opinion of the oil and gas industry. We all feel that every day," says Greg Schnacke, EVP of the Colorado Oil & Gas Association, a prominent industry lobby. "It's a very difficult industry to defend."

Despite these hurdles, oil and gas executives remain undeterred in the battle to educate the public and policy makers about their industry. That struggle took center stage two weeks ago, when the CEOs of five major oil companies appeared before a Senate panel to explain why gas prices had skyrocketed this year and how they plan to invest their record third-quarter profits.

The Capitol Hill hearing, ordered after Senate leaders recognized a growing unease among their constituents, turned out not to be the bloodbath many predicted. Senators were generally cordial in their questioning. Sen. Mary Landrieu (D-LA), treated the executives with great deference, thanking them and their companies for helping to save lives and property during hurricanes Katrina and Rita.

"It was not what some feared it might be - a big hostile engagement," says Jim Craig, media relations director for the American Petroleum Institute (API), the industry's top lobbying group in Washington. "It was quite collegial. I thought our CEOs did a really good job."

Conversely, some in the environmental movement weren't impressed by the senators' performance. "This was a kabuki play by the [Senate] leadership to save itself from plummeting poll numbers at least partially created by their unwillingness to address high energy prices in the energy bill that was passed last summer ... and their insistence on larding on subsidies for the world's largest energy concerns," contends Dave Hamilton, the Sierra Club's global warming and energy program director.

Pleading its case

An aggressive public issues campaign launched by API in mid-September has sought to influence lawmakers in Washington, where the trade association plastered The Washington Post, Roll Call, The Hill, and other publications with ads. The campaign has highlighted the challenges the industry faces in producing enough oil and gas to keep up with rising demand. "We want to make sure people understand that we're doing everything we can to continue to provide a reliable energy source," Craig says.

Interview requests from reporters have kept members of API's communications department busy in recent weeks. "We have spokespeople who are out communicating these points, not just here in Washington, but all around the country, both in person and through satellite tours," Craig explains. "We're talking to reporters to help them understand the situation."
Andy Weissman, a longtime energy industry analyst, worries that the public will never understand the extent of challenges.

"While concern [about high prices] is understandable in a certain sense, there's a critical need to make massive investments to develop additional energy resources," says Weissman, senior managing director at FTI Consulting in Washington. "I'd be very concerned if Congress did anything that reduced the ability of major energy companies to invest in new energy supply projects."

Before the hearings, bipartisan support emerged among lawmakers to place a windfall profit tax on the oil companies. At least eight such bills have been introduced in the Senate.
"I'm a little afraid that we're going through a little bit of diversion now by focusing on windfall profits taxes," Weissman says. "It's a good way for politicians to gain popularity, but it doesn't really solve our problems."

On the eve of the Senate hearings, API issued a special report, Industry Earnings in Perspective, that tried to put into context how oil and gas industry earnings for the third quarter were in line with other industries'. "This fact is not well understood, in part because reports typically focus on only half the story - the profits earned," the API report says.

API notes that oil companies make 7.7 cents in profit for every dollar of sales. By comparison, banks earn almost 20 cents for every dollar of revenue generated. Other industries aren't far behind, with pharma and software also earning close to 20 cents for every dollar of sales.

Individual oil companies also have gotten into the act. Chevron, one of the five oil companies represented at the Senate hearing, has launched a print and broadcast campaign urging consumers to join the company in taking steps to conserve energy.

"Corporations, governments, and every citizen of this planet must be part of the solution as surely as they are part of the problem," Chevron says on, its new website. "We call upon scientists and educators, politicians and policy makers, environmentalists, leaders of industry, and each one of you to be part of reshaping the next era of energy."

The media bear some of the responsibility for the public's lack of knowledge about oil and gas issues, industry officials say. "People just don't have a fair understanding, and they're certainly not getting it in the mainstream media. All they're get- ting is a heavy dose of vilification of the industry, vilification of administration policies that call for increasing production," says Schnacke. "The public has had a constant drumbeat of mainstream media-fed stories that are aimed at attacking domestic fossil fuel development."

Polling shows the "vilification" of the industry has contributed to a steep decline in enrollment in universities' petroleum engineering and geosciences programs, he adds.
But Craig suggests that the press has provided reasonably balanced coverage of this year's price spikes and industry earnings. "This is an emotional issue, and you'll see the emotion bubble up into the news columns as people talk about it," he says. "But I think we just have to keep trying to communicate. We're seeing signs that reporters are understanding our message, and it's reflected in their coverage."

The price issue

Some argue that the industry fears a price collapse far more than the negative public reaction to the current high prices. The more oil and gas prices rise, the less the industry believes the higher prices will last.

"These very high prices don't help the industry. It makes it very difficult for people to predict how much capital to lend to do projects," Schnacke explains.

Policy makers also might be drawing the wrong lessons from the recent hurricanes. The tight supply situation existed long before the hurricanes struck, Weissman says.

"There is a tendency to think that it's just a temporary problem with the hurricanes, and the notion of a windfall profits tax really speaks to that kind of mentality," he says. "Our energy supplies aren't sufficient to meet the needs of the US economy."

Tom Haywood, editor of industry publication Natural Gas Week, writes that windfall profits taxes are a bad idea unless the government wants to subsidize the industry during downturns.

But he notes that the industry could set aside a small portion of its profits for charitable agencies that help low-income families with energy costs. "That would go a long way to[help] the industry's public image and help thwart any politically expedient moves to strip away legitimate profits," he says.

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