It takes about four years to build a large refinery so any substantial additional new capacity from new plants would have had to begin by the mid-1990s, energy experts acknowledge.
Internal documents from some of America's biggest oil companies suggest higher prices at the pump may, in part, be a result of a deliberate strategy to limit domestic gasoline production, reports CBS News Correspondent Bob Orr. Sen. Ron Wyden, D-Ore., who has been investigating oil prices for two years obtained the documents.
"These documents say point blank, look if you really want to boost your profits, you have to reduce refinery capacity," said Sen. Wyden. "This industry went to great lengths to limit refinery capacity, control markets, restrict supply to boost their profits, increase costs to consumers, and then argue we should relax environmental laws."
"If the U.S. petroleum industry doesn't reduce its refining capacity, it will never see any substantial increase in refinery margins (profits)," said an internal Chevron document in November 1995.
The memo cited warnings given about refinery profits by a senior analyst from the American Petroleum Institute, the industry trade group, at an industry conference that year.
API spokesman Jim Craig said Thursday, "We don't know about these alleged internal company memos, but the idea that the API would warn member companies on profits is ludicrous."
A year later, an official at Texaco, in a memo marked "highly confidential," called concerns about too much refinery capacty "the most critical factor" facing the refinery industry - resulting in "very poor refining financial results."
The Texaco memo, written in March, 1996, concluded that "significant events" were required to deal with the excess refinery capacity problem and suggested one solution might be to get the government to lift clean air requirements for an oxygenate in gasoline. Removal of the additive would require more gasoline to be used in each gallon of fuel, tightening supplies.
While refinery capacity now has become tight, the oil industry is still pressing for an end to the federal requirement for an oxygenate in gasoline, arguing new blends of gasoline can meet the same clean air requirements.
API says refiners overall are turning out more gasoline than when the memos were written.
"If you look at the Department of Energy's own data, you'll find from 1995 to the current day, industry refinery capacity has increased over a million barrels a day," said Red Cavaney, President of the American Petroleum Institute.
But Wyden charges oil companies could still be producing more. 24 small refineries, some under pressure from Big Oil, have been shut down since 1995.
"The documents suggest that major oil companies pursued efforts to curtail refinery capacity as a strategy for improving profit margins," said Wyden, who released the papers at a news conference Thursday.
Wyden also says the documents show some cooperation between companies that are supposed to be competitors. While he stops short of charging collusion, he is now calling for a full-scale congressional investigation.
Texaco and Chevron are awaiting government approval to merge, creating the nation's fourth largest oil company.
The need for more refinery capacity has been the focus of President Bush's energy plan. Vice President Dick Cheney frequently has blamed gasoline prices increases on tight supplies caused to a large part, he says, by the fact that no new refinery has been built in 25 years.
In fact, 24 refineries - many of them small independents - have shut down since 1995, according to the Energy Department, accounting for the loss of 831,000 barrels a day of refining capacity. Individual refinery expansions at the same time have added 1 to 2 percent of capacity annually.
At a House hearing on gasoline supplies Thursday, the National Petroleum and Refiners Association said both financial and regulatory constraints make it difficult to build new refineries in the United States. While refinery profits have improved recently, the group said the rate of return on investments in refining has averaged a modest 5 percent over the past decade.
The president's recently released energy policy blueprint calls for incentives to boost refinery production. It blames the loss of refinery capacity to a variety of reasons from low profit margins to burdensome environmental regulation and industry consolidation.
Too much capacity also "may have deterred some new capacity investments in the past," the Bush energy plan acknowledges.
Wyden said the documents he obtained - including the internal Texaco and Chevron memos - suggest that oil companies in the '90s "sought to eliminate excess capacity to improve profits.
He said some of the refineries that were closed may have been shuttered "specifically to tighten supply and drive up costs" to consumers, although he provided no specific documentation of this.
But Wyden obtained a confidential 1996 e-mail from Mobil Corp., which has since merged with Exxon, that suggests major oil companies were not reluctant during the 1990s to try to force smaller independents out of business.
A California refinery owned by Powerine Oil Co., had ceased operation in 1995, but was trying to start up again a year later hoping to compete in production of a special, cleaner gasoline required by the state.
This gas was selling at a premium and Powerine's re-entry intthe market could cause the price to drop as much as 3 cents a gallon, a Mobil executive warned in the internal e-mail.
"Needless to say, we would all like to see Powerine stay down," the memo continued. "Full court press is warranted in this case." The refinery remained closed.
Attempts to reach Exxon Mobil spokesmen were unsuccessful.
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