Patrick DeHaan, senior
petroleum analyst at GasBuddy, an online site for gasoline consumers, has named
several reasons why gasoline prices are now high. I will address each of these
with my suggestions for correction.
Recent Refinery Fires - He mentions Chevron
in California and another in the Great Lakes area. These were accidents which seem to
be attributed to worn or outmoded facilities, rather than negligence in
operation. New refineries have not been built for many years and the old equipment
is in later stages of decay.
The solution is to modernize present
refineries, with replacement of equipment as necessary and also to build new
refineries. The difficulty is that the profit margin in refining is so low as to
make such investment unviable. That means addressing each of the negative
portions, contributing to such unprofitability.
Not in My
Backyard - Residents generally do not want a refinery geographically
close to them, because of obnoxious odors, risk of explosive danger, and
destruction of the residential ambiance.
Refineries are an operation
that pay local taxes. Tax receipts from a refinery could be used to lower taxes
of residential properties in the immediate vicinity. This would likely help
convince residents to accept a local refinery.
General Business
Regulations - These involve numerous mandates from the federal and
sometimes from the state or local governments. Examples are wage and hour laws
for labor, environmental restrictions imposed by the EPA, and OSHA standards for
safety.
While some of the above regulations are generally of value, most
business people and some private individuals agree it has been overdone.
Business restrictions should generally be reviewed and eliminated wherever
reasonable.
High Crude Oil Prices - This comes about
primarily because of crude oil import.
Reduce the necessity of crude oil imports by eliminating the federal
government's fostering development of renewable energy by restricting local
production of oil and gas. Tapping oil resources in Alaska and the continental shelf
of the US would make us less dependent on expensive crude imports. Ancillary to
that is working with Canada on pipeline importations.
Ethanol - Congress has mandated that every
gallon of gasoline must contain 10% ethanol. This mostly has a hidden tax,
because of federal subsidies in the production of ethanol from corn. Therefore,
it is not usually a direct increased cost of gasoline from a refinery. However,
the recent drought has increased corn prices significantly, which in turn
increases the price of ethanol and the price to the refinery.
Congress
should eliminate this ridiculous ethanol mandate.
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From Chuck:
ReplyDeleteThank you for sending along your commentary on gasoline prices. Kindly permit me to add a few comments:
1. It is clear that the major oil companies have decided that the margins on the distribution of petroleum products do not meet their corporate standards. As a result they have sold off that segment of their business to owners who will be satisfied at those levels. Most filling stations that carry a major logo are actually privately owned. Refining is still a profitable business and the majors pay careful attention to making that segment operate safely and efficiently. The high profit end of the business is discovery and development of crude oil. More recently with the technology to extract natural gas and gas liquids from the Marcellus shale that underlies a great portion of this country, the majors have moved into the development of natural gas resources big time.
2. Crude oil is a world wide commodity traded in dollars. As you well know, the Federal Reserve has been devaluing the dollar with its policy of increasing the money supply to maintain essentially a zero prime interest rate. There is a great deal of unrest in areas that supply the crude oil market and that adds volatility to crude coil prices. However, if crude oil were priced in terms of gold its price would have remained fairly stable over the past several years. We would be wise to increase our domestic production of crude oil by opening up known reserves to development. The price of crude oil would still be determined by the marketplace, but we would be paying our own people rather than countries who wish us harm.
3. Ethanol is a proven loser in respect to increasing our energy supply, damaging the environment, increasing food costs and adding to the federal deficit. Only the politicians and farmers in the midwest see it as a winner.