While Chuck Schumer leads Democrats in a push to put oil and gas mergers in the FTC’s sights, Mitch McConnell and senate Republicans are pushing back.
Last November, Chuck Schumer and 22 of his democrat colleagues sent a letter to FTC chairwoman Lina Khan expressing their disapproval of two major oil and gas mergers underway. Specifically, they took issue with ExxonMobil’s announcement that they would be acquiring Pioneer Natural Resources in a $60 billion deal and Chevron’s announcement that they would be acquiring Hess Corporation in deals respectively worth $60 billion and $53 billion
Earlier this month, Schumer once again doubled down on his fears of the oil and gas industry becoming too concentrated, claiming these mergers are "likely to harm competition" and will inevitably lead to increased consumer prices.
In response, Senate Republican leader Mitch McConnell and 37 other senate Republicans wrote a letter to the FTC on Tuesday, urging the body to assess the merger “under a fair and unbiased standard grounded in sound economics and law that protects American consumers, and does not impose policy preferences to further political ends.”
They’ve got a point. The FTC shouldn’t force extraneous non-consumer-welfare-related objectives, including political and social policy goals like climate policy, into antitrust/competition law and enforcement. This could harm consumers, increase arbitrariness, and undermine the rule of law (by reducing business certainty and putting the responsibility for weighing competing non-empirically measurable objectives in the hands of unelected bureaucrats bound by their subjective preferences). The FTC should make judgments based on sound economics and the consumer welfare standard through tools of economic analysis. Politicians should not view antitrust enforcement as an opportunity to impose certain policy and political preference at the cost of the American taxpayer.
Schumer's assessment appears to reflect a misunderstanding of present oil market dynamics and suggests that he and his colleagues prioritize political gains over actual consumer welfare.
The truth is America participates in a global market where both crude oil and refined products are imported and exported in significant quantities. In a globally interconnected market, the notion that U.S. producers could set prices above market equilibrium or establish monopolies is unrealistic.
In addition, while standard economic theory says monopolies tend to produce less (restrict output), both ExxonMobil and Chevron are poised to increase production to record levels in 2024. Not to mention that prices that Americans pay for at the pump are influenced by many factors, including global supply and demand geopolitical events, and economic trade policies of various nations.
Senator Schumer's assertion that oil and gas exports would harm American consumers overlooks the beneficial effects of U.S. crude oil exports. These exports contribute to lowering oil prices by increasing competition while reducing OPEC's dominance in global markets, which accounts for roughly 80% of the world’s oil reserves. For instance, with the acquisition of Pioneer, Exxon's Permian Basin production would significantly increase to 1.3 million barrels of oil, more than doubling its output. This surge in production would not only help to decrease prices but also push American energy away from OPEC reliance. In fact, the very threat of competition from OPEC prices abroad will serve to keep American energy prices in check.
Given the regulatory and litigious assault on fossil fuel producers, it should come as no surprise that major producers of oil are interested in merging. Satya Marar from the Mercatus Center highlights that “Businesses will be forced to expend more resources in dealing with regulators, courts, and enforcement agencies, rather than on improving products, services, or business processes.” Not only would larger producers be better equipped to withstand the ever-rising barriers to entry, but joining forces allows for increased economies of scale. Reduced cost-per-unit will further translate into lower prices for the consumers, a welcoming prospect for Americans paying incredibly high energy prices.
Make no mistake. The Democrats have an agenda. As the Majority leader of the U.S. senate, Chuck Schumer not only represents his party’s vested interests in green energy, but certainly believes there are political gains to be made if the merger is broken up. Last summer, Schumer attempted to lobby FERC so that red states could foot the bill for green-energy costs.
We will wait to hear the FTC’s results on the analysis of the merger. In the meantime, consider the benefits of the merger. Despite what Schumer and his pals believe, green energy is costly, and not a viable substitute for oil and gas today. This merger is good for the American consumer, period. Let’s hope the FTC puts that in front of political interests from the left.
