Fuel Prices Soaring – Overlooked Causes?

Ok, so we have all felt a major kick at the gas pump lately. It’s not news to say “gas is expensive these days.” However, what I am not hearing is a good debate on why. I say there is not a good debate because the arguments do not tend to have any variety. Almost everyone blames “Big Oil”, or the war in Iraq, or OPEC, because crude oil prices are the highest they have ever been. Of course, that leads the consumer to the conclusion that higher crude-oil prices automatically cause higher fuel costs at the pump. Some media do talk about the lack of new refineries and how most are operating at capacity.

I think there are more wrinkles that are being missed. Every year the U.S. Department of Energy’s Office of Oil and Gas produces a report called the Motor Gasoline Market Implications report for the comparative year’s seasons. The newest version for April 2008 has a lot to say about the fuel costs and why there have been some wrinkles in our prices since 2006.

Here is an excerpt from the introduction of the report:

“While crude oil prices, which are set in the world market, continue to be a major factor behind gasoline price increases, other factors impact the wholesale price of gasoline relative to crude oil.”

What are the “other factors” that affect the price? They are “refinery outages, refinery run decisions, and import variations.” Not just the fact that new refineries are hard to build due to harsh environmental laws, as many would suggest, but the daily decisions made about running them. Another “other factor” is who we import gasoline products from, just like in everyday consumer life who you buy from matters. So what kind of refinery decisions impact your wallet? Well, one of them for this year was a tragedy that occurred at the BP Texas City refinery. According to BP.com “Texas City is BP’s largest refinery worldwide and the third-largest refinery in the United States, with a crude capacity of about 460,000 barrels per day. The facility is capable of producing about 10 million gallons per day of premium and unleaded regular gasoline – including low-sulfur Amoco Ultimate® fuels.” The report states “The Texas City refinery experienced an explosion and fire in March 2005, which resulted in a partial shutdown. After the hurricanes in the fall of 2005, the Texas City refinery inspections revealed damage, and BP determined that extensive maintenance and repair were needed “ According to Reuters Wednesday January 9th article the Texas City facility was still not back to capacity in late 2007. That means the largest source for fuel for the Southwest, East Coast, and Midwest was down for almost 2 years! Why isn’t that leading the news? In BP’s defense they retooled management and worked fully with investigators to solve the issue; but we still have to deal the after effects.

The other major factor I see being overlooked is our gasoline imports. Another excerpt from the report tells us:

“Imports increased steadily from 1995 until 2006, when they averaged 1,144 thousand barrels per day, more than 3.5 times the volume in the first part of the 1990s. . . . The largest part of this growth came from Western Europe, where refineries were producing more gasoline than the region could use. Europe has been encouraging the use of more efficient diesel-fueled light-duty vehicles in place of gasoline-fueled vehicles for many years in order to help reduce energy consumption. The switch has resulted in European Organization of Economic Cooperation and Development (OECD) gasoline demand declining an average of 92 thousand barrels per day each year from 2002 through 2006.”

So, where do these European imports due to excessive production usually come from? The report tells us that the chief exporters are the Netherlands, Italy, and Spain. These countries represent over half of the exports from Europe. The exports have been declining. Not in production, but in volume to the U.S. Instead the exports have been going to Nigeria and Mexico. “exports from the Netherlands, Italy, and Spain to the United States experienced a 50-thousand-barrel-per-day decrease, with Nigeria and Mexico experiencing an even larger increase from those countries.” is exactly how the report reads. As a capper, the area of the U.S. that receives the bulk of these imports is the East Coast. That’s right, the same area once supplied by Texas City. In fact, the East Coast Petroleum Administration for Defense District or PADD imports fell 120 thousand barrels per day (more than twice the U.S. total import decline) in 2007.

Gasoline is expensive. We know some of the price comes from crude oil rising. The world’s energy market is not so black-and-white as we are led to believe. It is time we find out why the fuel we have to buy to conduct our daily lives has become too costly. I am not an expert in the market, but I do know who is and they say very different things than what the talking heads have to say. On a closing note, we also need to examine who are friends are, at least, why our friends might be bilking us:

“Because California requires a very clean gasoline, not many refineries outside of the West Coast can produce the product. As a result, the West Coast sometimes attracts import volumes from very distant sources. Of the 85-thousand-barrels-per-day increase in {West Coast} imports January through May, notable were increases in volumes from United Kingdom (up 20 thousand barrels per day), Saudi Arabia (up 11 thousand barrels per day), Taiwan (up 8 thousand barrels per day), Finland (up 7 thousand barrels per day) and Singapore (up 5 thousand barrels per day).”

That’s right, the UK, Saudi Arabia, and Taiwan are among our rising suppliers for gasoline to the West Coast. If they are allies, are they giving us a fair price? If so, why the sudden surge, are there more refinery problems we don’t hear about?

I think its time to go back to when you were three and you didn’t get a satisfactory answer from an adult. Keep asking “why” till it all makes sense. I don’t care if people are making a profit and so we need to be more savy consumers to keep from being ripped off. What I am against is widespread ignorance that tell’s us there is no choice. We are in the land of choice, and it’s time we became informed enough to exercise that freedom. The fuel prices are not just because of OPEC, they are not just lack of refinement. Why are we allowing the UK and Taiwan so much power in our market? Why do we not hear about when the largest refineries are shut down or at lowered capacity for years? Why don’t I know where my gas at the pump comes from, so I can choose? Where is the consumer label on fuel imports? We boycotted things like tuna, or Nikes or sweat shop clothes because the consumers could find out the supplier. Why is that so hard with fuel?

Its time to get fed up with the racket.

If you want to see the report for yourself:

Click to access spgmogas2008.pdf

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