Wednesday, May 10, 2006

Nonsense NOPEC Legislation

On April 6, 2006, a bipartisan group of the US Senate Judiciary Committee members led by Chairman Senator Arlen Specter (Republican-Pennsylvania) introduced a legislation, “Petroleum Industry Antitrust Act of 2006” (S.2557), and asked it to be enacted by the Senate and House. (see here for Senate Records).

It is basically the same bill proposed (S.2270) in the US Senate on April’s Fool Day in 2004. Already two hearings (February 1 and March 14) were held this year to examine the issue and review the draft legislation.

The proposed bill aims at strengthening oil and gas antitrust laws. For that it defines and prohibits energy price gouging by withholding hydrocarbons unilaterally in order to raise prices or create market shortages, places restrictions on future petroleum industry mergers, and fosters competition by requiring the US Department of Justice and the Federal Trade Commission to consider whether future consolidations need closer scrutiny.

But the bill also permits OPEC Members to be sued in US courts (which in fact would displace sovernity protection of those countries) for conspiring to control output and for fixing crude oil prices. Hitler would call it USA über Alles! (above all things).

The Senate has already passed anti-competitive provisions in this bill that stem from the NOPEC (No Oil Producing and Exporting Cartels) Act approved by the Judiciary Committee several times, but have never been passed by the House of Representatives and signed into law.

In Senator Specter’s words the motive of the bill is “to protect the American consumer from enormous increases in gasoline prices and oil prices” He later on specifies that this enormous increase could be as much as $3 per gallon of gas. And supposedly that legislation is needed to ensure that Americans are paying a fair price at the pump.

Can you imagine $3 a gallon gas price in the United States of Wonderland?

In fact, there are two primary targets in the bill - oil and gas companies and OPEC.

Oil and gas companies are target because they are blamed on reaping record profits while gasoline prices are skyrocketing. And OPEC is the target because they think that it is an evil cartel. That is why Democrat Senator Patrick Leahy claimed that “OPEC has America over a barrel, and we should fight back.”

In a letter to President Clinton on April 11, 2000, signing senators (including Specter) said “we should explore every possible alternative to stop OPEC and other oil-producing states from entering into agreements to restrict oil production in order to drive up the price of oil.” [Emphasis added].

This is not all. They also suggested Clinton to make new law at the international level by giving “consideration to bringing a case against OPEC before the International Court of Justice at the Hague.”

Not finished. In another letter to President Clinton on June 15, 2000, they say “OPEC ministers seem to now believe the United States and the world will accept, and economically sustain, oil prices at $30 per barrel and above. Mr. President, it is simply unacceptable for us to allow our economy, and the world's economy, to be placed in jeopardy by a foreign oil cartel. With razor thin oil inventories and soaring gas prices coupled with new reports of a looming shortage of natural gas, we may be at the beginning of a serious and prolonged energy crisis that could send a chill through every economic sector of our country. The time to act is now.”

Since then almost 6 years passed by, oil prices reached $70 per barrel and yet the US economy and the world economy have been registering record growth rates.

Senators conveyed their same message to President Bush with a letter dated April 25, 2001.

Spectacular Skeptical Specter

US Senate Judiciary Committee Chairman Arlen Specter has put reducing US reliance on foreign oil, particularly from OPEC as one of his top priorities. He argues that “to rely on unstable regions, such as the Middle East, for our energy needs is to court disaster.” In fact what he has been doing with NOPEC bill is the disaster to court.

On his Website he argues “I have urged President Bush and then-President Clinton to take legal action against OPEC and its oil-producing nations to prevent them from entering into agreements to restrict oil production in order to increase oil prices. I cosponsored … the NOPEC Act, which would state explicitly that the price fixing activities of OPEC nations, insofar as they affect American consumers, are actionable under U.S. antitrust laws.“ In addition to NOPEC Act, Specter continues, “we have to use other means to get tough with OPEC, which I believe is an illegal cartel.” [emphasis added]. By the way, he also asserted seven claims about the assassination of JFK and is the inventor of the “magic bullet” theory, which was proved to be wrong. But he believed.

Open the other eye !

To encourage competition and prevent oil and gas companies manipulate the market at the expense of consumers either by withholding their oil and gas or by having a monopoly power is a good endeavor. But the US Senators should first try to get things right at their home country. OPEC Members, at least Venezuela and Iran, are not colonies of the US.
“Nothing special will come out of it” asserts the most respected oil industry magazine Oil and Gas Journal’s Editorial in April 2006. The editorial adds that “the NOPEC bill will waste public money and distract officials from real energy problems.”

The bill should have sufficient resistance in the US anyway, since the US oil majors argue that restrictions on mergers would be a disadvantage for US companies in competing with state owned companies. That is also a behind the door reason why the US oil majors lobby governments and international organizations to push some OPEC countries, where the cheapest oil lie, to open their reserves to foreigners. If they cannot access then some time in the future they will have to face the same future as Standard Oil – split.

The proposed bill is also another proof of American Chameleon Policies. No country’s courts besides the US’s can have right to sue an American soldier but the US courts have right to sue foreign countries. It shouldn’t be hence surprising if the US later on proclaims that oil is a public good and cannot be monopolized. But intellectual property right can still be monopolized!

It is a US political habit to look for scapegoats always outside the US. Effects of depreciation of the US dollar, rumors, gossips, announcements, interviews, Wall Street traders and funds are mostly overlooked. We are forced to believe that today prices are determined by supply and demand fundamentals in free markets. This is tried to be justified as prove, evidence and fact by dirty use of some numbers, even though the number say contrary.

Since intelligent mainstream media could not explain why oil prices hit $75 dollars they had to be creative, for example on April 20 - Car bomb in Nigerian military barracks drove the prices higher. This is how they deceive the world.

If Americans want to continue their irresponsible patriotic oil consumption, then they should pay the real price at gas pumps. Currently they pay only half the price consumers pay in Europe.

If they want to reduce the price of oil, the futures markets should be closed down, or t types of players in the market should be restricted to only commercial players.

In fact, if the bill were serious it would have added fuels derived from nonconventional oil, from coal and gas, and ethanol. Upps, but that would hurt especially US companies.

Americans should stop looking at the world with only one eye open. Open the other eye!

Proposed Petroleum Industry Antitrust Act of 2006
I. Amend the Sherman Act by adding a section on “Oil and Natural Gas” which prohibits unilateral withholdings of those commodities.

The section says that “it shall be unlawful for any person to refuse to sell, or to export or divert, existing supplies of crude oil, refined products derived from crude oil, or natural gas with the primary intention of increasing prices or creating a shortage in the market where the existing supplies are located or intended to be shipped.”

Except “(1) the cost of acquiring, producing, refining, processing, marketing, selling, or otherwise making such products available has increased; (2) the price obtained from exporting or diverting existing supplies is greater that the price obtained where the existing supplies are located or are intended to be shipped.”

II. Amend the Section 7 of the Clayton Act by adding the following which prohibits certain mergers in the oil and gas industry:

“Notwithstanding any other provision of this section, no person engaged in, or assets of a person engaged in, commerce in the business of exploring for, producing, refining, or otherwise processing, storing, marketing, selling, or otherwise making available petroleum, products derived from petroleum, or natural gas in any section of the United States may be acquired by another person, if the effect of such acquisition may be to appreciably diminish competition.''

III. Ask the Government Accountability Office to evaluate whether divestitures required by the Federal Trade Commission or the Department of Department with regard to oil and gas industry mergers have been effective in restoring competition, and take further steps if necessary.

IV. Ask the Attorney General and the Chairman of the Federal Trade Commission to establish a joint Federal-State task force to investigate the information sharing practices and other anticompetitive results of recent consolidation in the oil and gas industry.

V. Amend the Sherman Act by adding the following section on “No Oil Producing and Exporting Cartels Act of 2006 (NOPEC)”

The text says that it will be illegal for any foreign state, or any instrumentality or agent of any foreign state to act collectively or in combination with any similar identity or any other person, whether by cartel or any other association or form of cooperation or joint action (1) to limit the production or distribution of hydrocarbons (oil, natural gas, or any other petroleum product); (2) to set or maintain the price of them; (3) to otherwise take any action in restraint of trade for them, which has a direct, substantial, and reasonably foreseeable effect on the market, supply, price, or distribution of hydrocarbons in the US.

VI. Remove Sovereign Immunity.
Under that bill a foreign state engaged in conduct in violation will not be immune under the doctrine of sovereign immunity from the jurisdiction or judgments of the courts of the United States in any action brought to enforce this section.


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