Source: AJC 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? Let’s 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 about 700,000 barrels of oil per day. But today, we import less than 50,000 barrels per day from Libya — a tiny fraction of the 9.2 million barrels per day the United States imported in 2010. So why are gas prices up? Though Moammar Gadhafi’s 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, SPR, 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.
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 isn’t because oil companies want to keep inventories low to drive prices higher. It’s because what’s 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 isn’t 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.
Former Alaska Gov. Sarah Palin says the White House drilling moratorium shows President Barack Obama’s “culpability in the high gas prices hurting Americans.” Blaming the president for rising gas prices is nothing new, and it’s 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 SPR as oil prices climbed. Just one problem: Even if domestic supplies were developed, American presidents couldn’t 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 2 1/2 years of supply for the U.S., 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, today’s policy decisions would have no impact on gasoline supplies for as much as a decade. Obama can’t dictate what you’ll pay for premium tomorrow. 5. Americans can’t live without cheap gas.
Yes, Americans love to drive, and Americans love cheap gas. But across an ocean, there’s a continent filled with people a lot like us who’ve lived with high gas prices for years. While U.S. gasoline heads toward $4 per gallon, Europeans have been paying much higher prices for years because of high taxes on fuel. Last month in Britain, gas hit about $9.76 per gallon. Because gas is so dear, Europe’s per capita energy use is half that of the U.S., leaving Europe less vulnerable to oil price shocks yet not undermining its standard of living. The U.S., built on cheap oil, is much less densely populated than the Old World, with more wide-open spaces to traverse. But that doesn’t mean we can’t embrace some of what has 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, all options are on the table.
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