JIM LEHRER: Finally tonight, the third in our conversation series on the high cost of oil. So far, we have talked to two writers who have reported and commented on the subject. Ray Suarez has the third conversation.
RAY SUAREZ: Tonight, we get the perspective of a major oil producer. Chevron Corporation is one of the largest oil companies in the world, the second-largest in the U.S., and one of the most profitable, too. Last year, it posted a profit of nearly $19 billion.
For the record, Chevron is also one of the NewsHour’s corporate underwriters.
Peter Robertson is vice chairman of the board. He was in Washington recently to testify before lawmakers on Capitol Hill and joins us now.
With supplies steady, pretty much the same as they were last year, demand not really spiking, but also staying steady, why is oil over $100 a barrel?
PETER ROBERTSON, Chevron executive: Well, I think when you say demand is steady, it’s demand in the United States that’s steady. In fact, in some cases, demand in the United States is down a little bit. Certainly, gasoline this year is lower volumes than this time last year.
But the demand of the world is not down. And we’re part of the world. And so the emerging countries of the world, the non-OECD countries of the world that are growing rapidly, are demanding more and more energy.
Billions of people that are emerging from poverty are raising their standards of living. And they want energy to meet those standards of living. And so the demand is outstripping our ability to keep up with the supply.
RAY SUAREZ: But oil is a commodity that’s priced day to day by the market. And the sources I talk to say that stocks are healthy in the places where oil pools up in the world. There’s plenty of supply on the spot market where some of that price-setting is done.
PETER ROBERTSON: Yes. But there’s — I mean, if you look at it from our perspective in the United States, one of the things that’s happened is — I mean, I mentioned the demand, the dramatic demand increases in the world, but there’s also been several geopolitical sort of disruptions which sort of threatened the disruptions, and in some cases real disruptions, to the supply of oil.
And also the dollar has strengthened — or, excuse me, weakened dramatically here over the last few weeks and months. And if you look at it from an American perspective, oil has really tripled over the last three or four years. From a European perspective, it’s doubled.
Adopting energy-efficient practices
RAY SUAREZ: When something that an American family buys changes in price, often they try to do with less of it, milk or bread or even dessert. But you can't necessarily do without less gas, not immediately anyway.
What are the consequences for the country when you have to price a commodity that way?
PETER ROBERTSON: Well, I think the consequences are not good. I mean, this is, like you say, a basic need for people that's going to cost more. So I think we've got some choices to make in the United States.
And we've made some choices over the years that have resulted in us being in this position. We're going to have some choices to make in terms of going forward. And one of the main choices we need to make is to become a lot more energy-efficient.
Now, I recognize what you're saying is you can't do that in an hour-and-a-half. But we can get a lot smarter about the way we use energy. And we can -- some of it we can do fairly quickly.
We can get a lot smarter about simple things like keeping our tires inflated, driving at the speed limit, instead of over the speed limit, keeping our houses, watching when we have lights on, putting energy-efficient light bulbs.
I mean, there's lots of things that we can do to reduce our energy bill. And, frankly, if America gets behind that, it can make a big difference. It can make a big difference in America and it can make a big difference in the world.
Investing in alternative fuels
RAY SUAREZ: But has this marketplace forced your company and others in the same business to start thinking now about what the mix of energy sources is going to be five years from now, 10 years from now, and forced changes on you that maybe you wouldn't have made this year?
PETER ROBERTSON: Well, I mean, I think there's no doubt in our minds and there's no doubt in most of my colleagues' minds that we're going to need all the energy that -- that the world is going to need all the energy that we can produce.
Whether it be oil or gas or biofuels or nuclear or hydro power, we need all of those things. So we need to be investing in all of them.
And at Chevron, we're investing at least in certainly our share of them. Obviously, we're an oil and gas company. But we're the largest geothermal energy company in the world. So we're investing significant amounts of money in geothermal fuel.
In the biofuels area, we obviously blend a lot of biofuels, ethanol that is made by other people, but we're in the -- trying to develop a second generation of ethanol, which means converting waste products, farm, corn stalks, switchgrass, wood chips, all of those kinds of things into ethanol.
We had several major universities working with us on it. And we have a joint venture with Weyerhaeuser that we just announced the other day, again, attempting to take forest products and turn them into fuels.
But all of these things, to do them at scale, sufficient scale to really make a difference in the marketplace is going to be a long time, but we're working on them.
Tax incentives to spur growth
RAY SUAREZ: During the early years of the Bush administration, the then-Republican-led Congress voted a series of tax breaks for your industry. Now this new, Democratically led House and Senate is looking at taking them back.
At a time when your company is making record profits and the government is also running big deficits, isn't that a reasonable move?
PETER ROBERTSON: Well, first of all, I'm not sure they voted tax breaks for the oil companies. I mean, I think the one that you're talking about was actually the change in the tax code that applied to all manufacturers in the United States. And the idea was to create jobs in the United States.
And so in order to create jobs, a law was passed that progressively reduced the income tax rate from 35 percent down over a series of years to something lower than that. We're just one of many manufacturers in the United States and we benefit from that.
If the proposal to take it away from just five companies -- it's not to take it away from the oil industry. The proposal is to take the benefit away from five companies. So, in fact, what would happen is that we would have a higher tax rate than foreign oil companies operating in the United States.
The real problem in the United States is we need more energy, not less. So more taxes create less energy. It's been demonstrated in the past and I'm afraid it's the case, because we, in fact, invest -- we invested more than all of our earnings.
You know, those companies has earned actually a huge number, $73 billion over the last six years. We've invested $73 billion. So significant tax changes will reduce our earnings after tax. And, frankly, it will reduce our investments, which will result in less energy.
RAY SUAREZ: But you were making money before this new tax regime came into force, weren't you?
PETER ROBERTSON: Well, I'll tell you, I was responsible for our North American company in 1999. And in one particular month, when oil was $11 a barrel and we closed the books, and we earned zero. And I will never forget that.
So, you know, there have been times when -- like just now, when we're earning a lot of money. We're reinvesting it all because the cost of everything has gone up so dramatically that our cost of our projects has gone up. We're reinvesting it all. We're reinvesting the capability of our country.
But I can tell you there have been times -- I've been in this business for 37 years now -- and there's times when you -- that things don't look so good at all. And there was nobody -- and that was about, frankly, the time that this tax bill that you're referring to was passed.
Doing business in foreign countries
RAY SUAREZ: Has that hunger for supply forced not only Chevron, but also your competitors, to do business in countries where there are political problems, where property rights and the rule of law are not necessarily secure, where the governments don't govern with the consent of the people in those countries? Chevron's in Burma, for instance.
PETER ROBERTSON: Well, you know, we do business in lots of places around the world and have done for many, many years. I mean, we've done business in Angola when it was -- you know, long before the Cold War ended.
We've been -- and what we've done is we've stuck to our business. We've tried to stay out of the politics. And we've produced our own gas, frankly, for the world's consumers.
In Burma, I've been there. I've looked at our facilities, although the operators, Total, I've been -- we have an ownership in it -- I've been around all those facilities. I've walked a lot of the pipeline route in Burma, which is getting a lot of -- had a lot of criticism in the past.
I can tell you for a fact that the people in that area are better off than most of the people in Burma. I mean, they've got jobs. We've invested in hospitals. We invested in small businesses. I've seen their medical statistics.
I mean, the infant mortality rate is a third of what it is in the rest of Burma. The malaria rate is down tenfold over a period of time. So we know that, when we go to work in the location, wherever it is in the world, that we will do the right thing for the community where we operate and to the extent we can for the country where we operate, but we stay out of the politics.
You know, if every time there was a regime that we didn't like, we left, we wouldn't be doing any business. And, frankly, the world would have a lot less energy.
So we have to stick to what we do. We work well with whoever's in charge. And we try to generate energy and oil and gas for the world.
RAY SUAREZ: Peter Robertson of Chevron, thanks for joining us.
PETER ROBERTSON: I appreciate it. Thank you.
JIM LEHRER: Our next oil conversation will be with an environmental activist who advises California Gov. Arnold Schwarzenegger.