NEW YORK (CNN/Money) -
The oil industry's top executives Wednesday head into dangerous public relations territory when they appear at a joint Senate committee hearing on energy prices and profits.
Not surprisingly leading Democrats have taken shots at big oil, but even some Republicans are expressing outrage over oil industry profits, which soared almost two-thirds to $25 billion in the third quarter alone, as oil and gas prices hit record highs. There have been proposals from both sides of the aisle for a windfall profit tax on the industry which cost the oil industry an estimated $79 billion during the 1980's, the last time there was such a tax.
The oil industry is already waging its own public relations campaign, arguing that profits as a percent of revenue are not out of line with other industries and that government regulations helped drive consumer prices up in the wake of Hurricane Katrina.
After talking to some oil industry experts and economists, here are some questions worth asking the oil industry executives at their hearing Wednesday if the point is to drive down consumer prices rather than score political points:
What can be done to create more investment in U.S. refining capacity?
It's true that there haven't been any new oil refineries built in the United States in 29 years, but even as the number of refineries fell by more than a quarter in the last 20 years, the nation's total refining capacity increased by 18 percent, according to figure from the American Petroleum Institute.
Sunoco (Research), Marathon (Research) and other oil companies have announced plans to spend billions to make major increases in their U.S. refining capacity, helping the industry to forecast that refining capacity should rise by 1 million to 1.3 million barrels a day, or about 6 to 8 percent of current capacity. That is the equivalent of six or seven new mid-sized refineries.
Still, total industry investment in refining is estimated at only $20 billion a year, or about a third of what it's spending on exploring for new sources of oil. And the industry can't say how much of the $20 billion in refinery spending goes for regular maintenance or repairs of hurricane damage, rather than expansion.
Oil analysts say returns are about four times as great from extracting oil than from refining it.
And many major oil companies see share repurchases and acquisitions as a far surer way to use their cash to raise their stock prices, rather than the longer-term investment in refining capacity that could be unprofitable if oil and gasoline prices fall.
In the first three quarters Exxon Mobil (Research) has spent $12.3 billion on exploration and refinery investments, with the lions' share of that going to exploration, and has spent $12.1 billion repurchasing its own stock.
Can't all gasoline just get along?
There are more than 50 different formulations of gasoline required to meet all of the nation's various local and state regulations. Some require ethanol. Some require other additives.
Coming up with a national or near national standard for gasoline would create economies of scale for the refining process, and reduce costs such as scrubbing out the million-gallon storage tanks as refineries switch from one type of gasoline to another. It would also prevent some of the spot shortages in some regions when a refinery outage causes shortage in specific grade of fuel.
The problem will be finding a fuel that all the various parties can agree upon, meeting environmental concerns for the smog choked cities as well as the more rural area's desire for the cheapest gasoline possible.
"I would argue that the economies of scale would give everyone cheaper gas, but I'm not sure I can prove my case empirically and people would argue with me," said Peter Beutel, oil analyst and president of Cameron Hanover. "But you're going to have to move to a highest common denominator rather than lowest common denominator."
What can be done to increase secondary storage capacity?
This is probably one of the least sexy questions that could be asked, but it's important to prevent gasoline and heating oil shocks that have become common in recent years.
Secondary storage holds the supply of fuel owned by those who sell directly to consumers, such as the owner of a chain of gas stations or a heating oil supply firm. Beutel estimates that environmental regulations have led to about a 60 percent reduction of that capacity in the last 20 years. That makes both markets more susceptible to short-term supply disruptions.
"This is a question very well addressed to the government as well as the oil companies about what can done to rebuild the capacity," said Beutel. "That's a question they probably won't get to, though, because there's no grandstanding involved."
How much more oil is out there?
This is a basic question, and one that might be raised by senators looking for debating points about opening up the Alaskan National Wildlife Refuge to oil exploration.
But no matter where new sources of oil are found, oil is a true global commodity and prices are far more driven by the amount of oil available, rather than its nationality.
That's why there's so much concern in world markets about some estimates recently that Saudi Arabia's oil fields are nearing their peak capacity and that they could soon see declines in production.
While that question is hotly debated, no one questions that worldwide demand for oil is poised for steady increases as China and India see their wealth, and their number of automobiles, grow rapidly.
The question of how many decades of readily-accessible oil are left is not an easy one for oil executives to answer.
If they project a plentiful, long- term supply, it could help to depress the price of oil in current markets. If they talk about the difficulties of meeting growing demand, they open themselves up to questions about what they are doing to prepare for a post-oil world.
"They need to answer if they are going to invest in additional capacity and whether that will meet the growing demand," said A. F. Alhajji, professor at Ohio Northern University. "Production has to increase to match that increased use or there will be a crisis."
For more on the oil executives scheduled appearance before the Senate, click here.
For a look at the chances for Congress imposing a windfall profit tax on the oil industry, click here.
An earlier version of this story incorrectly named professor A.F. Alhajji's university as Northern Ohio University, the correct name is Ohio Northern University. CNN/Money regrets the error.