Posted on 05/31/2004 6:41:24 AM PDT by Sixcar
Last week, I posted an op-ed piece explaining what I believe to be a major contributing factor to the high cost of gasoline. My opinion was in response to an internet email campaign circulating the net titled “don’t buy gas on May 19.” The motive of the one-day boycott was to punish the oil industry for gouging prices to maximize profits, as some believe.
Respondents provided mixed reviews of the article. A clear majority agreed with my assessment. Others expressed disbelief, and in some cases, disdain. One respondent concluded that I must be employed within the oil industry, and reasoned that I was standing in defense of my livelihood. The truth is, my job has no relation to the oil industry in any way.
Another respondent countered that the oil industry has increased profits by 926 percent! If 6.9 cents of every dollar is profit, as I stated in the article, then 926 percent equates to 75 cents profit per dollar you spend to buy gasoline. Anyone who would believe that to be accurate, is certainly ill-informed and I would question the source of the claim.
The purpose of the first installment on this subject was not to challenge the opinion of others. But, to shed light on the fact that too often, frustration from some, as evidenced by the boycott, is a result of misinformation from others. As we sometimes prefer not to admit, there are two sides to every story, and each carries its own objective or agenda.
There can be no argument that OPEC plays a significant role in the cost of gasoline in this country. That’s a given. But OPEC is not the sole contributing factor in determining what you pay at the pump. No matter how you slice the apple, other forces are at play. Government regulation, taxation, distribution, marketing, and refining capacity among others, all effect the end price. But, none of these contributors have done more to choke the industry’s ability to produce, than environmental regulations.
In June of 2001, Secretary of Energy Spencer Abraham visited Marathon oil refinery in Garyville Louisiana. Built in 1976, Marathon is the nations newest and last refinery ever built. During his visit, he clearly outlaid the problems the industry faces in meeting the challenges to supply gasoline. “The energy crisis in this country is not caused by lack of product,” he said. “An outdated regulatory environment has discouraged capital investment from flowing into the refinery business.”
Since 1991, fifty oil refineries have closed, and those that remain are in dire need of upgrade and maintenance. They are running at or near full production capacity every day, and the likelihood of them getting the upgrades they need to survive into the future, doesn’t look good. Over the next decade, the industry faces an onslaught of overbearing and expensive environmental regulation.
To start, on January 1 2004, laws in California, Connecticut, and New York mandated the elimination of the gasoline additive, and ground water contaminate, MTBE. These states represent one-sixth of the total U.S. gasoline market, and 45 percent of the reformulated gasoline sold nationwide. As a result, the industry paid dearly to comply with new requirement. However, this was only the beginning.
In the decade ahead, several new clean air mandates will require enormous capital investment and additional government permits, to comply. Clean fuel production standards will require a multitude of different kinds of gasoline and diesel fuel blends with significantly lower sulfur content. Eighteen different blends exist today, and each carries its own unique retooling and formulation requirement to produce. Changes that cost the industry an additional 4 to 8 cents per gallon. With each new blend, the cost per gallon increases.
As each state focuses on the “green” movement, there will be a growing demand for distinct regional and state product standards that require even more government oversight and permitting. Compounding the problem more is the fact that each state and region is unique in its own right. There is no streamlining or consistency considered between laws. Compliance to these new laws will not only require enormous investment, but will also require unacceptable periods of production down time to upgrade and refit existing facilities.
With this level of intrusive mandate and oversight, how is it possible for any business to exist in a free market society? And if the industry was reaping the profane profits as claimed, why would so many refineries close their doors? The answer lies in the Secretary’s comments, “we’ve got the oil, what we don’t have is the infrastructure to refine it.”
If the industry cannot grow to meet the demand for its product, then we need to give serious thought to addressing the issue now. Otherwise, the future of supply and demand economics in the oil industry, is bleak. Heading to the year 2020, gasoline consumption is estimated to grow by 6 million barrels per day. If oil refining capacity follows the trend it has been on over the last 10 years, it will decline by 1.5 million barrels per day. This trend will create a critical shortfall by 2020. And you think gas prices are high now?
Creating more havoc for the industry is the environmental regulators. Agents tasked with enforcing the laws are often at odds with each other over intent and interpretation of the law as it is written. From agency to agency no two interpretations are the same, and jurisdictions often cross boundary lines. The result is a locked stalemate referred to the courts. Imagine the frustration and setbacks this causes the industry. The red tape and litigation required to sort it all out, is not worth the risk of appeal or the expense. So, why bother?
Some answers to future refining problems already exist. The National Energy Policy has advised the President to direct the EPA to work with congress to provide regulatory certainty to allow the industry to make modifications to their refineries without fear of new litigation, and to streamline the permitting process to limit regulatory overlap.
These measures alone may not be enough to stem the tide of a shrinking industry. As a result of the regulatory assault today, oil companies will face monumental financial hurdles if they intend to survive tomorrow. They will either find the investment capital and take the risk to comply with the laws, or they will join the growing list of companies that have already given up the ghost to the environmental juggernaut. So far, it has been easier to give up.
On the other hand, Americans have an insatiable desire for gasoline, and a never ending love affair with the automobile and the powerful internal combustion engine that comes with it. Benefits of a free society. At the same time, we also have a growing desire to live in an environment of clean air and water. For the time being, the two desires clash, and eventually, one will over power the other. Until then, or until modern technology allows the two to coexist, gas prices will continue to rise and fluctuate. The days of cheap gas are gone. In the meantime, let us understand the driving forces behind why we are paying so much at the pump, and not falsely accuse the oil industry of “gouging prices.”
Live Free
The company I worked for in 1993 spent $260 million to make the new on-road .05 percent diesel. Think about that; $260 million just to stay in a business they were already in.
Refineries have been a lousy business investment over the years. The return on investment has averaged 6% or less, and there have been many times when they've lost money, essentially selling gasoline for less than what it costs to refine it.
Traveling across the country there is a wide disparity in the price per gallon.
Remembering that this is all the same gasoline with only the additives being different, it's not logical that one vendor can charge .$20 less per gallon than a vendor fifty miles down the road.
Rather than boycott certain oil company service stations the proper way to protest this gouging is to boycott those vendors who are using the oil scarcity myth to elevate their profits to an unreasonable amount.
Ethanol blend is an answer. Low emissions bio fuels should have replaced the oil companys toxic version of oxygenated additives years ago. If 10% ethanol is added to every gallon of gas, we have already cut our dependence by 10% with a domesticaly produced, non toxic fuel that actually enhances the octane rating of regular gas by 2 points or more.
10% ethanol blend also reduces refining capacity demands.
And the myths about ethanol blends damaging your engine are generated by the oil companys to discourage patronizing the competition. I have used ethanol blend gas for years and never had an engine failure. So have millions of other motorists.
That's mostly because of the difference in state taxes.
I was referring to prices in the same state.
Did you check out that gassbuddy.com site?
Of course, and that's what makes this whole argument about price gouging so nebulous.
In a free enterprise system, at what point do you restrict merchants or vendors to a ceiling price for any commodity?
In my opinion, you don't, but if blame is to be attached for the higher gasoline prices, let's look at the vendors instead of the oil companies.
Case in point:
Day before yesterday I paid $2.259 per gallon in Columbus, TX.
Eighty miles down the road I paid $2.029 for the same gasoline.
People aren't dumb. They see the same thing I see, and the market will adjust the prices.
I've been in the oil field all my life, and I agree.
We get hit with new regs constantly which, if we can understand what they say, contradict the previous regs of six months ago.
But this is all dictated by the bureaucrats in Washington.
When have they ever gotten anything right?
Why just 10% ethanol blend? Why not 100%. Then the entire USA cropland could be planted to corn for ethanol and we could import all our food. Which would be healthful..we could all lose weight. It's a win win situation.
That's what gasoline is all about, storing energy.
High pressure fuel injection is the best way to use all that stored energy.
Done right, it surrounds each molecule with enough air for complete burn, no pollution by-products.
How much do we spend for military subsidy to protect oil fields in the Middle East? Seems to me we shouldn't be subsidizing big oil with the lives of our troops either.
At least ethanol subsidy is spent in our country and not exported to purchase "favors" from backstabbing countrys.
Keeping money in America is good for everyone. Shipping our money by the boatload to unstable foreign governments subsidizes terrorists.
A major by product of ethanol is a high protein corn feed that makes for excellent tasting steaks! :)
We produce more food than we can eat so I don't think we import too much other than some fruit and coffee.
Why not convert our subsidized exports to benefit America?
You may care to read this:
http://www.sciencedaily.com/releases/2001/08/010808135444.htm
Excerpt from the article........"Among his findings are:
o An acre of U.S. corn yields about 7,110 pounds of corn for processing into 328 gallons of ethanol. But planting, growing and harvesting that much corn requires about 140 gallons of fossil fuels and costs $347 per acre, according to Pimentel's analysis. Thus, even before corn is converted to ethanol, the feedstock costs $1.05 per gallon of ethanol. "
This is totally bogus. If it took 140 gallons of fuel to produce an acre of corn every farmer I know would have been broke years ago. The actual range of fuel consumption for planting and harvesting per acre is more like 14-20 gallons of fuel.
Anytime a professor from Corn-y-ell leads off an article with a statement:
"Abusing our precious croplands to grow corn for an energy-inefficient process that yields low-grade automobile fuel amounts to unsustainable, subsidized food burning,"
...he is showing his Green loyalty. I can always tell the Green weenies because anytime anyone make money off the land the enviro-commies scream. When a researcher already has bias against a process it can usually be concluded that the process will be detrimental. And I find it strange that the good professor, who served as a cabinet advisor on renewable energy a few years back apparantly was not credible enough to be retained.
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