Gas Prices

[SkyTrooper]

I was unpleasantly surprised filling up my car yesterday, when I paid well over $3 a gallon. The explanation I found was that "strong consumer demand, reduced domestic output due to refinery problems and lower imports continue to push prices higher."

So basically this is being attributed to various refinery problems:

Gas Prices Hit $3 a Gallon

I can handle paying a few extra dollars, but now I have to deal with the annoying pleas for caps on gas prices and silly boycotts like "gasout day" that aim to put the evil oil corporations in their place.

[DavidOdden]

That's serious. That means that gas in Norway is only twice the US cost, where it has been three to four times the US price, before. A propos the thread title, I was actually wondering (just yesterday as I saw a sign at the local gas station), what causes the price of gas in a given instance? So the question that immediately came to my mind is, assuming that supply and demand are the dominant forces, what affects supply? My theory was that the problem in the US was more the refinery capacity problem and less the crude supply problem. Does anybody here have expert knowledge on this matter?

[aequalsa]

That's serious. That means that gas in Norway is only twice the US cost, where it has been three to four times the US price, before. A propos the thread title, I was actually wondering (just yesterday as I saw a sign at the local gas station), what causes the price of gas in a given instance? So the question that immediately came to my mind is, assuming that supply and demand are the dominant forces, what affects supply? My theory was that the problem in the US was more the refinery capacity problem and less the crude supply problem. Does anybody here have expert knowledge on this matter?

I do not have expert knowledge, but can confirm that there are major issues with the refinery end. no new significant refineries have been built since 1976 in the US. Further, the total number of refineries has gone from 325ish to about 150. This decreased capacity around 20% over the last 30 years while demand increases. Mainly this was an attrition of independent refineries. If i understand correctly, there are now 4 companies which refine the oil and due to environmental regulations no new refinery companies can enter the market. Further, the demand for gas is highly elastic, so the 4 companies which possess the government enforced oligopoly are not likely to push to increase their own capacity. Especially while enjoying record profits. $1,000,000/hour at exxon-mobile, for example.

[DavidOdden]

If i understand correctly, there are now 4 companies which refine the oil and due to environmental regulations no new refinery companies can enter the market.

Yeah, you see, this is what I understood the real problem to be -- not a lack of crude, but government meddling in the ability to turn crude into gas. Any links to the substance of government limitations on new, competitive refinery capacity would be much appreciated.

[Qwertz]

This 2005 article from the Christian Science Monitor cites an Oil & Gas Journal review of historical refining capacity. In 1981, the US had 324 oil refineries with a combined refining capacity of 18.6M b.p.d. In 2005, the US had 132 refineries and a capacity of 16.8M b.p.d. The article talks about a push to build the first new oil refineries in the US in 29 years.

The refineries have done a very good job of expanding their individual capacities, but I do not know enough to say whether they've reached a technological limit that would require new refineries.

My thinking on ANWR is this: Drilling ANWR might eventually reduce the cost of gas. Even assuming no change in refining capacity, ANWR oil could replace costly foreign oil, gas prices would probably go down. But ANWR cannot go into immediate production - it has to be developed, and development is costly. In the meantime, the average wellhead cost of crude will not be significantly affected by announcements to drill ANWR. The cost of gas, though, could go up as US oil companies raise prices to fund development of ANWR. I think any immediate drop in US gas prices following an announcement that ANWR is open for drilling would be purely political and very ephemeral.

-Q

PS: I was looking into electric cars (electricity generation in the US does not use oil), just to see where the industry is, and I found this sporty little thing. The idea seems to be to make electric cars suck less, so people will buy them.

[softwareNerd]

From all I've read, the main constraint on supply is a whole slew of "environmental" regulations. These have made the permitting process extremely difficult for new U.S. refineries. Also, these laws have put quite a bit of U.S. oil-supply out-of-bounds, but the latter is not yet a factor, since supply is available from elsewhere. Check this article, to read about a 13-year permit process. The title says it all: "Refinery permit hearings near end -- 13 years later". Note the word "near"! Also, from the article, it sounds like this process is the new streamlined one!!! Don't know if one should laugh or weep.

However, refining capacity is not the whole story. Crude has also gone up considerably, and most news reports attribute this to demand growth from China. Crude supplies can expand and are expanding, but it can take some years to bring supply online. I'm thankful that all the world's crude is not in Alaska or in the Gulf coast, but in the hands of sheiks who are willing to drill for it at the right price.

[Robert J. Kolker]

I was unpleasantly surprised filling up my car yesterday, when I paid well over $3 a gallon. The explanation I found was that "strong consumer demand, reduced domestic output due to refinery problems and lower imports continue to push prices higher."

So basically this is being attributed to various refinery problems:

Gas Prices Hit $3 a Gallon

I can handle paying a few extra dollars, but now I have to deal with the annoying pleas for caps on gas prices and silly boycotts like "gasout day" that aim to put the evil oil corporations in their place.

The high price of gasoline is driven mostly by insufficient refining capacity. The oil companies, for a variety of reasons, have not expanded the refineries in the U.S.. Also increases in gas taxes have added to the price.

Bob Kolker