Are oil and gas companies monopolies? Why are these industries so profitable?
In her book Blowout, Rachel Maddow discusses why gas and oil company profits are so high. To understand, it’s important to first know the histories of both the oil and gas industries.
Keep reading to understand why oil and gas companies dominate the market.
Why Oil and Gas Are So Profitable
Why are oil company profits so high? Maddow argues that the problems oil and gas create for the world, both politically and environmentally, are not a side effect but inherent to these industries. With the discovery of oil and gas in the 19th century and the perfecting of mining techniques in the 20th, burning fuel became the world’s dominant energy source. Early American oilmen and gasmen saw profit from prioritizing vast production and cost-cutting over environmental concerns, and their wealth gave them significant power to manipulate the economy and even national politics.
The discovery of rock oil in America in the mid-1800s caused an energy revolution, and today oil powers cars, trains, jets, farm equipment, power plants, and factories more cheaply and easily than previous power sources like coal or whale fat. Maddow explains that almost immediately, the industry was controlled by a monopoly: John D. Rockefeller’s Standard Oil. By the end of the century, the company had effectively destroyed or bought out all competition, and Rockefeller remains the richest person in American history.
(Shortform note: Standard Oil used a variety of tactics to undermine its competitors, including buying out smaller companies and immediately shutting down those considered unprofitable, cutting deals with railroads to ship Standard Oil products more cheaply, and selling oil to consumers at a lower price than other companies could afford, which the sheer scale of Standard Oil’s operations made possible. Today, massive companies like Google and Amazon employ similar tactics.)
In 1911, the Supreme Court ruled that Standard Oil had violated the 1890 Sherman Antitrust Act. Its monopolization had crushed smaller businesses, inflated prices, and given Standard Oil the primary say in where American oil was sent, both domestically and abroad. The company was ordered to split into many smaller, competing businesses. Maddow argues that though this would seem like a solution, Rockefeller retained ownership in each of the offshoots, continuing to make money even in a healthier economic system. In addition, many of these companies built themselves back up to positions of similar power within a century—Chevron, BP, and Marathon all originate at least in part from Standard Oil. ExxonMobil is its direct descendant.
(Shortform note: Other monopolies targeted and dissolved by the Sherman Antitrust Act include the American Tobacco Company, General Electric and, more recently, AT&T. Though antitrust suits have been brought against tech giants like Facebook (now Meta), Google, and Amazon, as of 2023 none of these has risen to the Supreme Court or resulted in the breakup of the companies. Critics of these cases argue that monopolies can arise naturally when a company is particularly innovative or the product it handles is exceptionally rare, and so antitrust legislation punishes companies for succeeding.)
Although natural gas mining has taken place since the 1820s, Maddow argues that the industry made its most significant strides in the 1990s with the invention of new drilling tools and techniques. These developments made natural gas mining equally profitable as oil mining, and many American companies began to pitch gas as the superior alternative since it was supposedly safer and produced in high enough quantities that it could replace Americans’ dependence on foreign oil.
(Shortform note: Like oil, natural gas is a fossil fuel energy source. It’s composed primarily of methane and mined from rock formations like shale. Although the energy properties of this gas were known for centuries, natural gas wasn’t commercially available until the 18th century, and the first gas well in the US was dug in New York in 1821.)
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Like what you just read? Read the rest of the world's best book summary and analysis of Rachel Maddow's "Blowout" at Shortform.
Here's what you'll find in our full Blowout summary:
- A deep dive into the corruption and exploitation in the oil and gas industry
- Examples of how the discovery of oil can weaken a country
- Possible ways to protect the world from the energy industry