Gasoline prices have been steadily climbing for several months and Americans are feeling the pain at the pump. The possible culprits (from greedy oil execs to Mideast turmoil) are as plentiful as the proposed solutions (more offshore drilling green energy or government reserves). But what is really driving prices up? And what if anything can be done about it? Lets take a moment to fill up on information about our fuel.
1. Fighting in Libya is sending gas prices higher.
Libya is not a big enough global oil supplier for the battles there to have a meaningful effect on gas prices. In the 1970s and early 1980s Libya was a major U.S. supplier selling us around 700000 barrels of oil per day. But today we import less than 50000 barrels per day from Libya a tiny fraction of the 9.2 million barrels per day the United States imported in 2010. Worldwide the story is no different: Of the 86 million barrels consumed globally each day less than 2 percent come from Moammar Gaddafis regime.
So why are gas prices up? Though Gaddafis fate is largely irrelevant to the oil market unrest throughout the greater Middle East is not. The Persian Gulf region produces almost 24 million barrels of oil per day more than 25 percent of global oil consumption. The Arab spring that has brought protests to Egypt Saudi Arabia Bahrain and Yemen makes markets nervous and when markets fret over a possible disruption to oil supplies gas prices rise whether the disruption materializes or not.
2. Tapping the Strategic Petroleum Reserve is a smart way to reduce gas prices.
The U.S. government maintains a 727 million-barrel oil reserve 38 days worth at current levels of consumption to protect against potential supply disruptions. But just about every time prices rise politicians want to access the oil in the reserve to increase supply and bring prices back down. Sen. Charles Schumer (D-N.Y.) for instance has been calling for oil releases from the SPR for more than a decade. In a letter to President Bill Clinton in 1999 he endorsed the release of several hundred thousand barrels a day from the SPR because according to a news release about the letter oil prices had made a meteoric ascent to nearly $25 per barrel."
Had Clinton dipped into the reserve then as Schumer requested we almost certainly would have gotten a raw deal. What if that $25-per-barrel oil could be replenished only at $75 per barrel? Tapping the SPR makes the government an oil speculator and any nation running record deficits that becomes a commodity trader is playing a dangerous game.
The SPR exists to buy time in a true supply emergency. If we use it as a political tool to keep voters happy by stemming rising gas prices we may be forced to buy back oil at even higher prices or we may be left with an insufficient supply in a real crisis.
3. Oil companies produce less in the spring to make gas prices increase.
Almost every year gasoline prices rise in the spring. At the same time refineries produce less fuel. This isnt because oil companies want to keep inventories low to drive prices higher. Its because whats in our gasoline specifically butane changes from season to season.
Butane is a cheap ingredient in gasoline that boils at low temperatures. In winter this isnt a problem. But in summer butane evaporates from gas polluting the air while leaving us with less fuel in the tank than we paid for. As temperatures rise refineries replace butane with more costly ingredients and draw down winter inventories just as beach season begins.
Chemistry not corporate conspiracy limits supply.
4. The Obama administration is driving up gas prices.
Sen. Mitch McConnell (R-Ky.) says EPA regulations are a back-door national energy tax" that pushes prices up. Former Alaska governor Sarah Palin says the White House drilling moratorium shows President Obamas culpability in the high gas prices hurting Americans."
Blaming the president for rising gas prices is nothing new and its a bipartisan tactic. In 2004 Sen. John Kerry (D-Mass.) blamed President George W. Bush for higher gas prices and for continuing to fill the Strategic Petroleum Reserve as oil prices climbed.
Just one problem: Even if domestic supplies were developed American presidents couldnt really control oil prices. The U.S. government has estimated that there are 18 billion barrels of oil in the outer continental shelf of the lower 48 states that are off limits to development. That may sound like a lot but it is only about 21 / 2 years of supply for the United States and it would take several years to allocate leases and drill exploratory wells. Even if the estimated 10 billion barrels of oil in the Arctic National Wildlife Refuge were available for development todays policy decisions would have no impact on gasoline supplies for as much as a decade. Obama cant dictate what youll pay for premium tomorrow.
5. Americans cant live without cheap gas.
Yes Americans love to drive and Americans love cheap gas. But across an ocean theres a continent filled with people a lot like us whove lived with high gas prices for years. Theyre called Europeans.
While U.S. gasoline heads toward $4 per gallon Europeans have been paying much higher prices for years because of high taxes on fuel. This month in Britain gas hit 6 pounds or about $9.76 per gallon. Because gas is so dear Europes per capita energy use is half that of the United States leaving Europe less vulnerable to oil price shocks yet not undermining its citizens standard of living.
The United States built on cheap oil is much less densely populated than the Old World with more wide-open spaces to traverse. But that doesnt mean we cant embrace some of the things that have helped Europeans keep their gasoline bills down such as high-speed rail public transportation and green energy.
In fact Americans have shown that they can adjust their behavior when faced with sticker shock at the pump. As gas prices rose from $2.31 per gallon in 2005 to $3.30 per gallon in 2008 sales of the Toyota Prius eclipsed those of the Ford Explorer and public transit use reached a 50-year high. When it costs $30 to fill up a Geo Metro with regular all options are on the table.
Robert Rapier is the chief technology officer of Merica International a privately-owned renewable energy company and writes for Consumer Energy Report.
Gasoline prices have been steadily climbing for several months and Americans are feeling the pain at the pump. The possible culprits (from greedy oil execs to Mideast turmoil) are as plentiful as the proposed solutions (more offshore drilling green energy or government reserves). But what is really driving prices up? And what if anything can be done about it? Lets take a moment to fill up on information about our fuel.
1. Fighting in Libya is sending gas prices higher.
Libya is not a big enough global oil supplier for the battles there to have a meaningful effect on gas prices. In the 1970s and early 1980s Libya was a major U.S. supplier selling us around 700000 barrels of oil per day. But today we import less than 50000 barrels per day from Libya a tiny fraction of the 9.2 million barrels per day the United States imported in 2010. Worldwide the story is no different: Of the 86 million barrels consumed globally each day less than 2 percent come from Moammar Gaddafis regime.
So why are gas prices up? Though Gaddafis fate is largely irrelevant to the oil market unrest throughout the greater Middle East is not. The Persian Gulf region produces almost 24 million barrels of oil per day more than 25 percent of global oil consumption. The Arab spring that has brought protests to Egypt Saudi Arabia Bahrain and Yemen makes markets nervous and when markets fret over a possible disruption to oil supplies gas prices rise whether the disruption materializes or not.
2. Tapping the Strategic Petroleum Reserve is a smart way to reduce gas prices.
The U.S. government maintains a 727 million-barrel oil reserve 38 days worth at current levels of consumption to protect against potential supply disruptions. But just about every time prices rise politicians want to access the oil in the reserve to increase supply and bring prices back down. Sen. Charles Schumer (D-N.Y.) for instance has been calling for oil releases from the SPR for more than a decade. In a letter to President Bill Clinton in 1999 he endorsed the release of several hundred thousand barrels a day from the SPR because according to a news release about the letter oil prices had made a meteoric ascent to nearly $25 per barrel."
Had Clinton dipped into the reserve then as Schumer requested we almost certainly would have gotten a raw deal. What if that $25-per-barrel oil could be replenished only at $75 per barrel? Tapping the SPR makes the government an oil speculator and any nation running record deficits that becomes a commodity trader is playing a dangerous game.
The SPR exists to buy time in a true supply emergency. If we use it as a political tool to keep voters happy by stemming rising gas prices we may be forced to buy back oil at even higher prices or we may be left with an insufficient supply in a real crisis.
3. Oil companies produce less in the spring to make gas prices increase.
Almost every year gasoline prices rise in the spring. At the same time refineries produce less fuel. This isnt because oil companies want to keep inventories low to drive prices higher. Its because whats in our gasoline specifically butane changes from season to season.
Butane is a cheap ingredient in gasoline that boils at low temperatures. In winter this isnt a problem. But in summer butane evaporates from gas polluting the air while leaving us with less fuel in the tank than we paid for. As temperatures rise refineries replace butane with more costly ingredients and draw down winter inventories just as beach season begins.
Chemistry not corporate conspiracy limits supply.
4. The Obama administration is driving up gas prices.
Sen. Mitch McConnell (R-Ky.) says EPA regulations are a back-door national energy tax" that pushes prices up. Former Alaska governor Sarah Palin says the White House drilling moratorium shows President Obamas culpability in the high gas prices hurting Americans."
Blaming the president for rising gas prices is nothing new and its a bipartisan tactic. In 2004 Sen. John Kerry (D-Mass.) blamed President George W. Bush for higher gas prices and for continuing to fill the Strategic Petroleum Reserve as oil prices climbed.
Just one problem: Even if domestic supplies were developed American presidents couldnt really control oil prices. The U.S. government has estimated that there are 18 billion barrels of oil in the outer continental shelf of the lower 48 states that are off limits to development. That may sound like a lot but it is only about 21 / 2 years of supply for the United States and it would take several years to allocate leases and drill exploratory wells. Even if the estimated 10 billion barrels of oil in the Arctic National Wildlife Refuge were available for development todays policy decisions would have no impact on gasoline supplies for as much as a decade. Obama cant dictate what youll pay for premium tomorrow.
5. Americans cant live without cheap gas.
Yes Americans love to drive and Americans love cheap gas. But across an ocean theres a continent filled with people a lot like us whove lived with high gas prices for years. Theyre called Europeans.
While U.S. gasoline heads toward $4 per gallon Europeans have been paying much higher prices for years because of high taxes on fuel. This month in Britain gas hit 6 pounds or about $9.76 per gallon. Because gas is so dear Europes per capita energy use is half that of the United States leaving Europe less vulnerable to oil price shocks yet not undermining its citizens standard of living.
The United States built on cheap oil is much less densely populated than the Old World with more wide-open spaces to traverse. But that doesnt mean we cant embrace some of the things that have helped Europeans keep their gasoline bills down such as high-speed rail public transportation and green energy.
In fact Americans have shown that they can adjust their behavior when faced with sticker shock at the pump. As gas prices rose from $2.31 per gallon in 2005 to $3.30 per gallon in 2008 sales of the Toyota Prius eclipsed those of the Ford Explorer and public transit use reached a 50-year high. When it costs $30 to fill up a Geo Metro with regular all options are on the table.
Robert Rapier is the chief technology officer of Merica International a privately-owned renewable energy company and writes for Consumer Energy Report.
