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Oil is cheap, so why is gasoline sky-high in some places?

Even with a surge the past two days, oil prices have been on the downward slide the past 14 months, dropping from about $115 a barrel to around $40. But that hasn’t translated to savings at the pump for all drivers.

In some areas of the United States, gas prices have remained stubbornly flat during the oil plunge, or have inexplicably risen. Fuel Freedom Policy Manager Gal Sitty has put together this informative graph that tracks the price of oil (an amalgam of Brent crude, the international benchmark, and West Texas Intermediate, the U.S. standard) compared with the average price of gasoline in three big states: California, New York and Ohio.

gas prices-guns

Experts have no shortage of explanations for these anomalies. They usually sound like this: Something-refineries-inaudible. Cue Charlie Brown’s teacher talking wah-wah speak.

It’s true that a unit at the BP refinery in Whiting, Indiana, one of the largest refineries in the Midwest, is back online after breaking down Aug. 8. Media outlets report that gas prices in the region already have begun falling again, but they’re sure not doing so as quickly as they shot up. And it doesn’t explain that gentle slope of a line for New York above.

In California, where gas prices pushed toward $5 in July after a sudden, insufficiently explained shortage, prices remain high, purportedly owing to the Exxon Mobil refinery in Torrance still being below capacity six months after a fire. As Sue Carpenter, automotive writer at the Orange County Register, explains:

Crude oil typically accounts for just 46 percent of the cost of a gallon of gasoline, according to U.S. Energy Information Administration. Taxes account for 16 percent, 13 percent is marketing and distribution, and 25 percent is refining.

In California, though, crude oil is just 34 percent of the cost of a gallon of gas, and refining is 35 percent, according to the California Energy Commission.

Still, it’s curious that just as California motorists were getting hammered, oil refineries weren’t sharing the pain: Refineries in the state collected $1.61 per gallon in July, the highest since the state began keeping records in 1999.

It’s clear that there isn’t enough refinery capacity in the U.S. (Raise your hand if you’d like one built in your back yard. There are people in Whiting who still remember what happened there 70 years and a day ago.) But even if refinery disruptions are partially to blame, it’s only further evidence that we’re too beholden to a volatile global oil market, and we’re dependent on an aging, infrastructure for refining.

The only way to make the fuel pricing structure sustainably affordable is to introduce fuel choice so gasoline has to compete with cheaper, cleaner alternatives like ethanol and methanol.

Until that happens, wild price swings and supply disruptions will be the norm in America.

Related posts:

 

 

 

 

The pot calling the kettle black: The AEA and alternative fuels

justice2I have great sympathy for the coal miners of this nation. Their job in supplying this nation with coal is among the toughest in the world. Their historical contribution to the nation’s economic well-being is well established. They were, and many remain, beset with long hours, moderate pay (currently $22,000 to $64,000 per year), negative health and safety problems, and, at times, an unsavory public and private sector bureaucracy.

The glory years for coal appear to be over. Increasingly, the public and environmental experts and policy leaders view coal as a dirty fuel. Succinctly, coal emits significant amounts of greenhouse gases and other pollutants. Most analysts believe the future of the coal industry is dim.

Clearly, in the past decade, market forces, not public policy, have forced many electric utilities to substitute natural gas for coal, and the competition with coal to date suggests coal will be the economic loser. The cost differential between the two, generally, has favored natural gas.

Without a bipartisan commitment to find transitional pathways for miners and/or successful economic development options for their communities, present-day miners will regrettably become part of America’s throwaway society — consumed and discarded by technological change and the fear of global warming. Congress, the White House and the American public have a moral — if not an economic, social and political– obligation to look hard at training and mobility initiatives for miners, as well as economic development strategies in their places of residence and work.

Regrettably, the conservative American Energy Alliance (AEA) has put its muscle behind a frontal attack on the president’s effort to substitute alternative fuels for coal to power utility plants instead of a well-defined effort to define workable strategies to help miners find other than declining mining positions. If a coalition cannot be built to find feasible solutions to expand job opportunities for miners, many miners, whose experience is often limited, will find themselves locked in place and will face a life of poverty or near-poverty — even when the economy returns to health and unemployment decreases. The structure of the American economy has changed, and the change does not favor mining.

Surprisingly, given its history in opposing social welfare initiatives, AEA indicates that the EPA’s recently announced Clean Power Plan, which requires the states to cut back significantly on GHG emissions, is “justice denied” to millions of minorities and low-income households. While analyses of the impact of the Clean Power Plan on different demographic and income groups are not yet precise, the AEA statement does not acknowledge the fact that alternative fuels, like natural gas, have been on a per-dollar kilowatt-hour cost cheaper than coal. The AEA also fails to note the potential savings in health and other societal costs (for low-income families in particular) resulting from lower GHG emissions and other pollutants. A disproportionate number of low-income people live near utilities, refineries and coal mines because of the absence of affordable housing and cheap transportation. Until relatively recently, gasoline prices limited the ability of many low-income households to travel from decent housing to their current or potential jobs. Several respected economists view the current drop in oil and gasoline prices as a relatively short- to intermediate-term phenomenon (1-2 years), and that the norm, once the world economy improves, will much higher than it is today.

The American Energy Alliance is pro-oil and pro-coal. That’s okay — this is its right. But in this context, its support of both fuels should mute its legitimacy as a research organization or the research of many of the organizations it supports or its supporters support. The AEA is, plain and simple, an advocacy group whose causes are predetermined by the self-interest and ideology of its donors.

Unfortunately but understandably, the AEA is unlikely to ever support the considered use of high-octane alternative fuels or their independent study, whether for utilities or transportation. Placing alternative before fuels, even though it could mean improved choices and lower costs for low-income consumers, improved environmental conditions, less GHG emissions and greater overall economic benefits is and will not be in AEA’s lexicon. In this context, AEA seems to have hijacked the term or phrase “justice denied” in a manner that does not fit the intent of some of the original users — Martin Luther King, Jr., William Gladstone, and Frederick Douglass. Their respective purposes in using the term were to expand choices, to redress societal inequities and to lessen the burdens of the disadvantaged. It is time we consider alternatives to weaning the nation and the world off of oil and coal, and acknowledge the fact that justice denied diminishes justice everywhere, and in the ethicist John Rawls’s words, hurts the least advantaged among us.

How to choose an oil analyst? Be wary of snake-oil salespersons

I am often amused by stock-market pundits on cable or network television. Every day they are wired by their employers to claim great and instant wisdom. Most times, their interpretations of why the stock market went up, down or stayed the same during the day does not appear to come from serious analysis or even lucky or faked clairvoyance. Instead, the iterative quality of commentary seems to generate from a predefined checklist, snake oil3probably provided to them on their first day of work, to convert into their respective memory banks: “The stock market went down today because of a few negative annual reports,” or “The stock market went up today because of a few positive annual reports,” or “The stock market stayed pretty flat today as investors were unsure what the Federal Reserve would do with interest rates,” or “The stock market rose significantly because of today’s speech of the Fed Chair before the recently merged DAR and ‘Move On’ led investors to believe interest rates would stay stable.”

Let’s change the channel. “The stock market went down today because of the relatively high value of the dollar and the likelihood of decreased imports.” Switching the station to access a popular commentator, we hear, “The stock market went up slightly today because of the slight decline in the value of the dollar resulting in higher export expectations. Should it continue down, there would be a decrease in the fortunes of some domestic producers of” … etc. You get the picture! Single variables, blurred results.

Truth be told, most analysts don’t precisely know the reasons for daily shifts in the market. There are too many interrelated variables and, despite claims to the contrary, investor behavior (particularly non-institutional individual behavior) is often unpredictable. Sometimes, analyzing the market resembles a crap shoot more than a rational exercise, similar in character to political soothsayers, who, failing to project Donald Trump’s ascendance in the polls, are now providing vastly different scenarios concerning his decline or his possible political staying power. The newspapers and stations sell advertising and the not-so-astute analysts fill time or space. What’s the term? Bloviating. Some commentators sound like snake-oil salespersons.
Individuals writing or commenting on oil prices suggest many of the same characteristics.

During this past week, the so-called experts have been all over the place. Some got headlines for suggesting that because of the oil glut and falling demand, the price of oil could fall to $10-$15 a barrel. Others, subsequent to their presentations, were given the silent treatment in the media, because they suggested only marginal shifts in current prices (about $42 a barrel). Their content apparently didn’t excite and secure much attention. The brave souls who predicted a return to $70 were required to stand in the corner, go to church on Sunday to confess methodological sins and leave the American Economic Association. They were also censored by not-so-benign neglect.

While there are exceptions, oil pundits have not delved deeply into why the recent significant downward swing of oil prices has not resulted in uniformly lower prices for gasoline in many areas of the nation. The EIA suggests that prices of Brent crude, “an international benchmark, are more important than the price of West Texas Intermediate, a domestic benchmark, for determining gasoline prices in all four U.S. regions …” They are generally higher. Most analysts, usually parroting the industry line, suggest that supply-chain problems related to unanticipated issues with refineries going offline, and an absence of supply alternatives resulting from transportation costs, are the main culprits.

Sure, prices at the pump have trended lower since oil prices began their relatively recent decline. However, today’s gasoline prices are higher (and appear somewhat more volatile) than prices were in many areas (e.g., Midwest) when oil costs dropped to just below $50 a barrel in early 2015. In a similar vein, while there are stories about U.S. oil fields producing less oil and reduced drilling for new oil, oil production remains relatively high by historic standards in the U.S.

Yes, some small to mid-size companies are feeling the real strain of low oil prices, and there is an increase in bankruptcy filings. In a similar vein, larger companies are not in an expansive mood concerning new drilling, and they face lower profits. The Saudis and the Americans are playing a serious game for market share and all bets, except mine, are off in regards to who will blink first and significantly attempt to lower production. I, somewhat warily and more on faith than hard data, feel the Saudis will lose this one, given the link between their budget needs for social services and social stability.

Where are we? Are we seeing the demise in credibility of even the most respected oil analysts? No, not entirely? But as I have indicated in previous columns, oil and gas projections are more an art than science. Choose the best artist you can find and then have faith. Paraphrasing half of Pascal’s religious argument, if you win, you might win big. But unlike Pascal, if you lose, it matters, particularly if you are a policymaker, an investor, a consumer, a believer in alternative fuels and open markets … and yes, an oil company CEO. Readers should recognize in their search for a favored media analyst that only if they are lucky will the analyst know at least something about correlation. Generally, the analysts will have only minimal understanding of causation. It’s a tough world out there! Be careful! Think through the value of alternative fuels and choices at the pump to stabilize the fuel market and limit relatively large up- and downticks in prices. Reduce dependency on radio, TV, newspaper analysts (at least some of them) by reducing dependency on oil.

E85 pump

Alt-fuel stations growing, without subsidies or regulations

Without much fanfare, the number of fueling stations offering an alternative to gasoline has passed the 20,000 mark, according to the federal government’s Clean Cities program. The number of gasoline fueling stations, according to the American Petroleum Institute, is 153,000.

The figure shows that alternative infrastructure is gaining ground even as the number of alternative vehicles sold in the U.S. has slowed of late, an obvious result of falling oil prices. On the other hand, the sale of alternative vehicles has actually accelerated in Europe. China is also giving indications of a big push that will attempt to make it the leading market of alternative vehicles in the world.

Clean Cities is a 1993 initiative of the Department of Energy that has picked up steam in recent years. Its efforts to reduce gasoline consumption include 1) replacing petroleum with alternative and renewable fuels; 2) reducing petroleum consumption through smarter driving practices and fuel economy improvements; and 3) eliminating petroleum use through idle reduction and other fuel-saving technologies and practices. The goal is to reduce gasoline consumption by 2.5 billion gallons every year through 2020. The program claims to have already reduced consumption by 6 billion gallons since its inaugural.

In order to carry out its mission, Clean Cities has formed coalitions with nearly 100 major cities covering 82 percent of the population of the United States. Coalitions are comprised of local businesses, fuel providers, vehicle fleets, state and local government agencies, and community organizations. These stakeholders come together to share information and resources, educate the public, help craft public policy, and collaborate on projects that reduce petroleum use. There are networking opportunities with fleets and industry partners, technical training workshops and webinars, plus information on alternative fuels, advanced vehicles, idle reduction, and other technologies that reduce petroleum use. There are also funding opportunities from the Department of Energy.

Probably Clean Cities’ biggest initiative, however, has been a map of alternative fueling stations across the country. The Station Locator has now grown to a list of 20,000. These include: 12,334 electric recharging stations, 3292 propane stations, 2,956 gas stations that offer E85 (up to 85 percent ethanol), 1,549 compressed natural gas (CNG) outlets, 729 biodiesel pumps, 115 liquid natural gas (LNG) outlets and 41 hydrogen stations.

Dennis Smith, director of the Clean Cities program, says that both plug-in electrics and propane vehicles are becoming increasingly popular. “Plug-in electric vehicle sales for consumers have passed more than 300,000 since they were introduced in 2010, and an increasing number of fleets are using propane,” he told AgriMarketing.com. The growth of these stations is most likely in response to a need from these drivers. In addition, both propane and EV stations are less expensive to purchase and install than those for many other fuels.” Smith also said that the number of CNG and LNG stations understates their impact, since they tend to service heavy-duty trucks along interstate highway routes.

While the sale of alternative vehicles may have leveled off of late in the United States, they are burgeoning in Europe, despite the drop in world oil prices. Alternative fuel vehicle registrations rose 17.4 percent across Europe in the second quarter of 2015, and 24.6 percent over the first half of the year. There are now nearly 300,000 registered vehicles, according to the European Automobile Manufacturers’ Association. The United Kingdom led the pack in major markets with an increase of 62.4 percent registrations in the second quarter. Norway led the entire continent, however, with 77 percent of all 11,614 newly registered vehicles being electrically powered. The country has offered huge incentives to alternative fuel owners as its oil production from the North Sea begins to taper off.

Meanwhile, in China, the Beijing city government is considering investing tens of billions in a plan to make the Middle Kingdom the world’s largest manufacturer of alternative vehicles. China now has 18,000 EVs on the road, 10,133 public passenger vehicles and 8,360 owned by individuals and organizations.

To cut down on traffic, Beijing has a unique system in which cars with certain license plate numbers are forbidden from being within the city’s fifth-ring road from 7 a.m. to 8 p.m. from Monday through Friday. And it’s not automatic that a new car can receive a license plate. But electric vehicles are much easier to register and will be allowed to drive within the city at any hour, giving them a distinct advantage. BAIC, the principal maker of EVs, has become China’s largest automobile manufacturer, controlling 22.5 percent of the market.

So the initiative to cut down on imported oil is universal. In Europe, it comes from heavy-handed government subsidies and regulations. In China, it comes from government favoritism and outright prohibition. In the U.S., however, volunteer organizations, led by government initiative, seem to be achieving similar results.

Letter from a soulmate — Religion, oil and alternative fuels

FrancisDear His Holiness Pope Francis:

I have been impressed with your tenure as Pope. You have literally taken the road less traveled (Robert Frost) in the Catholic Church. You have succeeded in opening up the hearts and minds of many in your flock. For non-Christians, like me, your words have suggested great love for the diversity among people and a strong concern for the future of humankind and the quality of life in the world.

You have made religion meaningful for millions. Your willingness to raise concerns about the visible degradation of the environment, because we have not been good stewards, has granted new energy to environmental reformers in and out of governments around the world. Your courage in acknowledging our collective role in increasing GHG emissions, because we have regarded the air above us and the ground below us as free to use and misuse, public commons has stimulated a vigorous debate among leaders, religious and otherwise, and their constituents.

I am grateful for the policy and behavioral link you have made between environmental, GHG emissions, and poverty issues. Failure to aggressively respond to pollution and pollutants, as well as failure to significantly reduce GHG emissions, as you have indicated, will lead to a bleak future for our children and their children, etc. In this context, as you have indicated, it is the least advantaged among us who bear the heaviest burdens. Their low incomes and lack of mobility limits choices concerning living space, clean air and water, healthcare, work and recreation. It is the poor in many nations who most (and must) often live next to GHG- and pollutant-spewing industrial plants and utilities, as well as emissions from congested, dirty, auto-filled roadways. It is the poor, particularly in poverty-stricken nations, that also must live next to unregulated landfills, untreated sewage, polluted streams, ponds and lakes.

Your Holiness, you have put us all on notice that if we continue to behave as we have in the past, we will risk global calamity and increased human suffering. Here my own theological beliefs as a Reconstructionist Jew match your Catholic or universal view of our obligations to each other. There is a part of God in us, and our role in life is to bring out the Godliness. Paraphrasing the Jewish scholar Hillel, if not us, who, and if not now, when?

By your words, you have accepted the fact that none of us is perfect but that we all are perfectible. I suspect that this is how we must look at policy and behavior responses to GHG emissions and environmental crises. Permit me, in this context, to focus my words on something the nations of the world and their citizens can do relatively quickly to make the world a better place.

Right now the world produces nearly 90 million barrels of oil every day. In my own country, the United States, oil accounts for 95 percent of all energy used by transportation every day. One of oil’s derivatives, gasoline, provides the fuel we use to power most of the vehicles used by industry, commerce and households.

Gasoline is a dirty fuel, meaning that it generates GHG emissions and other pollutants. Alternative fuels either that exist or are on the horizon (like ethanol,  batteries for electric vehicles, fuel cells, biofuels and natural gas) could reduce the oil and gasoline dependency for many nations and simultaneously lessen emissions that despoil the lands we live on, the water we drink and the air we breathe. The expanded use of alternative fuels could also reduce the need to go to war to protect oil supplies and transit, thus making the world safer for both secularists and non-secular families and children. Finally, their increased use could reduce the costs of travel for low-income folks and help extend their means to acquire needed basic goods and services.

Please forgive me for using the word agnostic, but I believe we must be fuel agnostic and grant a range of alternative fuels status as long as each one on the fuel spectrum can provide cheaper, safer, environmentally better power for vehicles than gasoline.

For God’s or people’s sake, we can do better! You have begun to stimulate our minds and hearts. Your recent encyclical on climate change, while controversial and provocative, provides each of us with the normative guidelines to make a difference with respect to securing a healthier planet for future generations. While your criticism of capitalism and free markets is very severe, and while I must confess disagreement with its implication that market mechanisms should not and cannot be used to impede global warming and GHG emissions, I applaud the encyclical’s implicit (if not explicit) support of actions to reform market systems.

Your Holiness, I would hope that religious leaders led by you would encourage reform and, as with alternatives to gasoline, accept perfectibility, not perfection. If we don’t, the enemy of the good will be the perfect. Certainly, if the church, under your outstanding leadership, secured the support of other organized religions, as well as secular leaders from many countries, including the U.S., and the group subsequently urged oil companies to open their gas station franchises to a range of alternative fuels, the results could provide a big step in the journey toward GHG emission and pollutant reduction and a better world. Similarly, if the group urged the world’s auto manufacturers to both produce more vehicles able to run on alternative fuels and support development of innovative ways to convert existing cars to flex-fuel vehicles, the impact would provide consumers, including the poor, lower-cost fuel choices and reflect another step toward healthier people and a cleaner planet.

You have opened the door to increased ecumenism among religious faiths and a positive dialogue between the very religious, less religious and non-religious institutions and people concerning social welfare and environmental problems. I suspect that you find sympathy for the writings of one of my favorite authors, Ralph Waldo Emerson. “I do not find that the age or country makes the least difference; no, nor the language the actor spoke, nor the religion which they professed, whether Arab in the desert, or Frenchman in the Academy. I see that sensible men and conscientious men all over the world were of one religion of well-doing and daring.”

Thank you!

What do Ann Landers and Abigail Van Buren have to say about marriage and oil strategy?

Landers_BurenAnn Landers and Abigail Van Buren, well-known advisors and columnists for people with relationship issues, were, at one point in time, distant cousins of mine. So I was willingly exposed to daily columns about the lovelorn, love-confused and folks in need of love. Ms. Landers and Ms. Van Buren were actually sisters. They, however, didn’t like each other much. I bet you didn’t know that! Their words were generally wise; their advice was mostly cautious; and, at the time, their words were from a puritan bent. Sometimes they were funny, and rarely did they cater to the prurient interest. They were G-rated!

Last night, I caught up on reading my favorite newspapers and journals and, out of the blue, my mind wandered to my now-deceased former cousins – Ms. Landers and Ms. Van Buren. I bet either one could have addressed questions from depressed oil executives due to a lack of love for the industry from the general public. I think the last poll concerning reputations placed oil industry executives close to land speculators, exotic animal poachers, football deflaters and wife- or husband-beaters. The oil company executives appear to shoulder much of the blame for past high gasoline prices and the possible return of high prices, as well as increased GHG emissions and pollution. While other variables are involved, increased numbers of the public appear to hold oil executives responsible for America’s iterative need to risk boots on the ground or in the air in the Middle East to protect our access, or our allies’ access, to oil. Some executives appear to have taken the public’s negative perceptions to heart. My psychiatrist friends believe they carry much hidden guilt.

I have created a fictional letter from an oil executive going through therapy for depression because of his job and the possible related breakup of his marriage, and imagined the response from both Ann Landers and Abigail Van Buren. I wanted to help the poor executives. On reading my draft, the words seemed so real and so sad. The guy seemed to have manic-depressive characteristics. His letter and a response from one of the sisters follows:

DEAR ANN OR ABBY:

I have a terrible problem. It’s affecting my marriage. I love my wife, even though sometimes I don’t understand her.

I should tell you that when I left college with a Wharton MBA, I wanted to change the world for the better. I thought I could do good and also make some money. Isn’t that what’s meant when political leaders say that America is an exceptional place? Capitalism with a heart and soul!
I honestly disagree with the economist Milton Friedman (or was it Alfred P. Sloan?) when one or the other said something like “the business of business is business.”

I am an executive at Exxon. I usually feel good every morning when I go to work. I believe that Exxon, through its oil and gas operations, has helped to power the United States. It’s provided mobility to residents, whether rich or poor. It generated jobs and income all over the world. What’s good for Exxon is good for the U.S.! Isn’t it? (Bring back “Engine” Charlie Wilson … do you remember the ex-secretary of defense?)

But my wife disagrees with me about Exxon. She has her Ph.D. from Harvard (you know, that school in Cambridge). She is a believer in alternative fuels, like ethanol. She thinks – or, I forgot, feels – that oil and gasoline are the scourge of the nation: bad for the environment, America’s security, personal health and well-being and the economy, and bad for what, I thought, was once a beautiful and romantic marriage.

Our present differences have resulted in large bills for marriage counselors. At our last session, which cost $350 for the hour, she told the counselor that she was happy that the oil company revenues have gone way down because of depressed demand, a surplus of global oil supplies, increased costs for drilling, the rise in value of the dollar and OPEC’s effort to sustain both production and relatively low oil prices. She seemed overjoyed, almost manic, that companies have reduced exploration for oil. The counselor’s response was, “Well you must feel good! Ending exploration will help save pristine sensitive areas like the Arctic Circle.” She seemed to have gone over a professional line. The counselor, to me, reflected a new breed. My wife and I were paying for part therapist, part advocate. She clearly was a Democrat. I was worried.

During our session, my wife seemed mean from time to time. At one point, in front of the therapist, she indicated that she was pleased that jobs are being lost in the oil sector. When I interrupted her to meekly note that my own high-paying job could be on the line if the oil market continues to be a downer, she gasped, full-throated, and said, “I told you so. It’s a lousy industry, a polluting industry and an industry that contributes to global warming. You should have left the company a long time ago.” After I started to cry (men do cry), she added, “I wouldn’t let our daughter [we don’t even have a daughter] go out with an oil executive and, if she married one, I would disown her.”

Our counselor was no help. All she could say were things like, “look at each other,” “think of good memories,” “talk to each other from your heart, particularly before you go to bed.” Hell, I just got a heart transplant, and it knows nothing. I also sleep on the couch since my wife got on the E85 kick! Please help me. We have a loveless, sexless, talk-less marriage. We are on the brink. What can I do? – DESPERATE OIL EXECUTIVE

DEAR DESPERATE OIL EXECUTIVE:

My sister and I don’t want to say there is no hope for your marriage. We don’t often agree on anything, and we have relationship issues ourselves. Generally, when we are alone, however, both of our cups are half or more than half full. For you and your wife to survive as a couple, I think (and on this one, I am sure my sister would agree,) that you need to work a lot harder at understanding one another. It seems like you have not heard how strongly your wife feels about ending U.S. dependence on oil and gasoline. Give her respect! Her opinion is not yet a majority one, and it is courageous. She is a real thought leader. Be proud of her! To her, the need for alternative fuels has become both ideology and compelling wisdom. It’s part of her persona.

It appears that your wife has not heard about your passion for doing good while you work hard to bring home a large payroll stub every month. Maybe you have neglected your youthful passion and how important it was to you after college. Maybe the lack of passion in your love life relates to your own forgotten passion as a human being and professional. I can’t tell from here, but it’s worthy of examination.

Meanwhile, to help save your marriage, if you’re a believer, pray; if you are an agnostic, have faith; and if you are an atheist, believe in yourself or yourselves. Maybe you could do good and please your wife by helping convince your oil company to favor opening up its franchises to competition from alternative fuels and provide charging and blending pumps at each station. Talk to her! If she will let you, hold her tight (or at least hold hands), and while doing so tell her you both can find common ground. Buy her an electric-powered Prius or Tesla; maybe even an E85 high-octane EPA-approved Chevrolet. Give her the keys and say, “I love you”! Try to begin a new beginning. Maybe it will get you off the couch and help the nation move toward alternative fuels. I wish you and your wife good luck. Indeed, my friend Dinah Shore would want you both to “see the USA” in your new environmentally friendly, alternative-fuel Chevrolet. Many miles of happy driving, and may your renewed marriage be full of love and affection.

ISIS-oil

Oil still a major source of revenue for terrorist groups

Oil prices continue to plummet, owing to an oversize inventory and the prospect of still more crude coming onto the market from Iran. But that doesn’t seem to have turned off the spigot of revenue flowing to extremist groups.

At one point last year, the Islamic State (also known as ISIS) was believed to be raking in $3 million a day in black-market sales of oil the group pumped from territories in Syria and Iran it took over during a swift campaign. ISIS once controlled several Iraqi oil fields, but thanks to a counteroffensive involving U.S. airstrikes and an American-backed campaign by the Iraqi security forces, the group now has only one, according to Agence France-Presse.

But ISIS’s oil operations have only been scaled back, not thoroughly halted. According to a story in The New York Times this week, ISIS has transformed from a simply bloodthirsty terrorist group, the successor to al-Qaeda, into a fully functioning government. It has a complex economy that relies not just on stolen oil, but other revenue sources, including kidnapping, extortion and an assortment of taxes and levies.

That complexity is evident in the way ISIS pumps and transports oil: Based on a BBC2 program called “The World’s Richest Terror Army” that aired this spring, ISIS even sells the oil it gets from fields in eastern Syria back to the Syrian government, even though the group is a sworn enemy of Syrian president Bashar al-Assad.

ISIS sells some of its oil to the people it governs — some 8 million in the territory it controls — and smuggles more of it across the Turkish border. According to a story in U.K.’s Independent, around the time of the BBC special in April:

A Syrian source involved in oil smuggling for Isis explained how oil brought in one of the group’s biggest streams of revenue. “Isis controls the oil wells in our region of Deir Ezzor, which is rich in oil,” he said. “My family, friends and members of my tribe by oil from Isis and smuggle it to the refineries and then to civilian markets.” The US treasury estimates Isis is still earning $2 million a week by smuggling oil in spite of a sustained bombing campaign by the US-led coalition.

The documentary reveals that militants have developed ways of pumping oil hundreds of metres across the border and floating it in barrels down rivers in order to export it into areas not held by Isis.

ISIS is far from the only extremist group that finances its activities through oil, one way or another. According to the Institute for the Analysis of Global Security, Saudi Arabia — a U.S. ally that also hates ISIS — is home to many financiers of global terrorism:

This Gulf monarchy is a … state in which no taxes are imposed on the population. Instead, Saudis have a religious tax, the zakat, requiring all Muslims to give at least 2.5 percent of their income to charities. Many of the charities are truly dedicated to good causes, but others merely serve as money laundering and terrorist financing apparatuses. While many Saudis contribute to those charities in good faith believing their money goes toward good causes, others know full well the terrorist purposes to which their money will be funneled.

Oil not only underwrites terrorism, it gives oil-exporting nations in the Persian Gulf an outsize influence on the world stage. The United States and other Western countries devote inordinate amounts of resources and attention to dealing with the Middle East and its many internecine struggles, at the expense of other parts of the world.

Also, the task of defending the flow of oil from the region routinely falls to the United States, and using less oil would absolve us of the need to send in troops and keep up military bases to protect supply routes.

“As long as we keep buying oil from the Middle East, our enemies can continue to fund terrorism,” oil and gas tycoon T. Boone Pickens wrote in TIME earlier this month. “For too long we have spent the lives and limbs of thousands of young men and women fighting in the Middle East, and we still bear most of the cost of protecting the about 17 million barrels that flow through the Strait of Hormuz every day even though only about 10% of that oil comes to us.”

Some say we can drill our way to oil independence, but the reality is, the U.S. still needs about 19 million barrels of oil a day to function, and the “shale revolution” only restored U.S. production to a peak of about 10 million barrels. The rest has to come from somewhere.

If the U.S. used more alternative fuels for vehicles, instead of primarily oil-based gasoline and diesel, we could reduce our dependence on oil — and shrink the influence of the countries that supply it.

To learn more about the connections between oil and terrorism, visit our National Security page.

And here’s the BBC’s “World’s Richest Terror Army” doc:

tanker-Persian Gulf

U.S. answer to Mideast violence must include reducing oil dependence

Over the last month, the following incidents have taken place in the Middle East:

  • On July 4, a car bomb exploded in a crowded market in Baghdad, killing nine people and injuring 24. Although no one took credit for the attack, suspicion fell on ISIS, which had been responsible for previous bombings in Baghdad. The incident was described as one of the deadliest in recent memory.
  • On July 12, a series of car bombs and suicide attacks killed 35 people and injured more than 100, mainly in Shi’ite neighborhoods. In the deadliest attack in the northern Shaab neighborhood, a car bomb exploded and then a suicide bomber detonated another explosion once police and crowds had gathered at the scene of the first explosion. Once again, ISIS was believed to be responsible. The incident was described as the deadliest in recent memory.
  • On July 18, a truck loaded with explosives was detonated in a busy Baghdad market, killing 120 and wounding 130. The explosion occurred while the local populace was celebrating the festival of Eid al-Fitr, which marks the end of the monthlong Ramadan holiday. The explosion destroyed 50 stores and 75 cars, and leveled two buildings. It was said to be the worst incident so far this year.
  • A month earlier, terrorists struck in France, Tunisia and Kuwait on the same day, June 26. No one knows whether the events were coordinated or just occurred by coincidence. In Kuwait, an explosion at a Shi’ite mosque killed 25 worshippers and destroyed the mosque. In Tunisia on the same day, a lone gunman wielding an assault rifle killed 38 people, mostly tourists, on a public beach. ISIS claimed credit for both incidents, although it did not say they had been coordinated. In France, a lone terrorist made it past security at an American-owned chemical factory, set off a gas explosion, and then decapitated a company executive and posted his head on a gate next to two Muslim flags. At the beginning of the holy month, Abu Mohammed al-Adnani, a spokesman for ISIS, had exhorted his followers: “Muslims, embark and hasten toward jihad. O mujahedeen everywhere, rush and go to make Ramadan a month of disasters for the infidels.”

Many American think all this violence started with the U.S. invasion of Iraq in 2003. In fact, it’s been going on since the 7th century. The original argument began with the succession to Muhammad’s leadership when he died in 632 A.D. There were two claimants to his legacy. The first was the Umayyad Caliph, made up of the followers of Muhammad’s entourage in Medina and Baghdad. The second was Hussein, the grandson of Muhammad, who claimed to be his legitimate heir.

In 680, Caliph Muawiyah I of the Umayyad died and tried to pass his rule on to his son, Yazid, despite a written agreement with Hussein to honor his claim to the throne. Yazid demanded that Hussein acknowledge his rulership, and Hussein refused. Instead, he mounted an army and headed toward Baghdad, where Yazid was seated. During the march, however, Hussein’s supporters dwindled, and when he arrived at Karbala, about 50 miles south of Baghdad, he only had 75 followers left. There he was met by an army of 1,000 men sent forth from Baghdad by Yazid.

Hussein deliberated for a week before deciding once again to refuse Yazid’s leadership and join him in battle. By this time, Yazid’s army had swelled to 6,000. Hussein went to battle with about 75. Hussein’s army was slaughtered, and he was himself beheaded and his head sent to Baghdad. Hussein’s followers set up a rival caliphate in Medina, however, and the schism between the Sunni Umayyad Empire and the rival Shi’ites began and continues to this day.

The Shi’ia, who eventually established their dominion in Persia (Iran), still celebrate the holiday of Ashura, in which they flagellate themselves because they were not there to help Hussein at the Battle of Karbala. As one scholar has put it, the Shi’ia are “born martyrs.” Iran is the one country you can imagine starting a nuclear war, even if it meant nuclear suicide.

All this would be only of antiquarian interest if it were not that more than half the world’s oil comes from the Persian Gulf. And all that oil is continually riding on the chance that the two sides will not disrupt the flow of oil — or destroy whole oil fields — in their endless, ongoing battles. The stakes are only getting higher. Last week, ISIS rebels in the Sinai Peninsula claimed to have hit an Egyptian naval vessel with a guided missile offshore in the Mediterranean. How long will it be before rival factions are firing guided missiles at oil tankers sailing through the Strait of Hormuz?

It is impossible to choose sides in the Middle East. For instance, ever since the 9/11 attack, the United States has considered al-Qaeda to be its prime adversary in the world. Yet last week, Americans found themselves on the same side as al-Qaeda in backing Saudi Arabia’s efforts to expel the Shi’ite Houthi rebels from Yemen. Yet at the very same time, we were negotiating a nuclear agreement with Iran that is widely perceived as supporting the Shi’ite faction in the Middle East, in defiance of Sunni Saudi Arabia. The Saudis have said they may seek a nuclear weapon themselves if Iran is able to secure one. Imagine a nuclear-armed Iran and Saudi Arabia facing each other across the Persian Gulf while our oil tankers try to escape into the Indian Ocean.

The only reasonable strategy here is to reduce our dependence on Persian Gulf oil. We still import 20 percent of our oil from the Persian Gulf, with 13 percent coming from Saudi Arabia. This is down from over 30 percent a decade ago, but we can still go further. America’s amazing improvement in oil production has played a part, but we are still dependent on oil for 80 percent of our transport sector. Substituting other kinds of fuels to power our vehicles is the obvious answer.

The Middle East tinder box isn’t going to go away during our lifetime. The obvious solution is to disassociate ourselves as much as possible. Freeing ourselves from our dependence on oil for our transport sector is the first and foremost step forward.

What does Shakespeare have to do with California gas prices?

ExxonWilliam Shakespeare once said that there are “occasions and causes why and wherefore in all things” (Henry V). I would edit the Bard of Avon and add, except when trying to readily understand recent oil price increases in California.

Put two analysts in a room and ask about the cost of oil and you likely will get three or more answers. Many parents send their kids to college to study the hard economic sciences only to find out that their hopes and dreams are often dashed by ideology or weak methodology — sometimes both. Conservative economists argue it’s the fault of unnecessary environmental regulations and taxes. Liberals respond that high prices result from oil speculators and price management by oil companies. Non-ideologues merely respond with, “I don’t know,” and then give a lecture on probable causes, most times, without empirical data related to correlation or causation to back up their statements.

We now have lots of conflicting facts and observations without any real strategic comprehension of what both mean. For example, gasoline prices in California have increased relatively fast and by a large amount, while the cost of oil per barrel has stabilized or even decreased. Daily oil prices per barrel fluctuate, but the variations have been relatively small, and oil costs remain quite low.

The per-gallon price of gasoline in the state has surpassed $5 per gallon in a few stations and is well over $4 per gallon at many other stations. Consumers are dazed, depressed and angered by the severity and quickness of price increases. (Manic depression has likely set in, in light of recent exposure to the previously lower prices at the pump. The New York blackout generated more babies, and the gas crisis of 2015 will probably lead to more visits to psychiatrists.)

Guesstimates of the why and wherefore of price increases reflect more the skills of a carnival barker than that of a skilled economist. Step right up and name your selection of one or more factors leading to the significant and comparatively high gas price increase in California, compared with other states. California has earned the right to claim the title of most expensive regular gas in the nation. Maybe, like in the early ’60s, the Golden State can install an electronic sign celebrating its achievement on the Bay Bridge, in the “left my heart” city of San Francisco, as it did when its population surpassed New York’s. Of course, I am just kidding. It’s not a feat the state is proud about.

Forget the ideologues for a minute! What are respected observers saying about the whys and wherefores of the severe spike in prices in California?

Many journalists writing for newspapers (happily, we still have print!), in and out of California, grant causal status to increases in the state and federal gas taxes, now adding nearly 70 cents to the price of a gallon of gas. Approximately, 10 cents of the total in most stations reflects a new carbon tax on wholesalers.

Others suggest that frequent breakdowns and poor conditions of refineries, as well as recent fires at refineries in California, add up to production and inventory limits. These assertions make some sense, given the marginal room in existing refineries to build more capacity and production.

Some political leaders point to the fact that there are only a relatively small number of refineries in the state. Added to this fact, some say, is the almost oligopolistic control of refineries by two major oil companies. Did you know that Chevron and Tesoro together control nearly 60 percent of California’s refinery capacity? Some oil analysts say the percentage is much, much higher than that — up to 80-90 percent.

Clearly, there is a negative impact on prices generated by a lack of real competition. Significantly, many observers from in and out of the state have warned about the possibility of managed prices in light of the structure of the industry (and its secrecy). In a similar vein, investor speculation on oil has been raised as a variable leading to higher costs at the pump by Sen. Diane Feinstein and others. A few years ago, Sen. Feinstein sought hearings on possible skullduggery. Interestingly, despite assumed inventory shortages, refineries exported nearly 3.5 million gallons a day just before recent major gas-price increases. Gasoline is traded on a global market governed by profits and price disparities — not social welfare.

Coming around third and heading home! Both the costs associated with the state’s requirements to shift from one blend of fuel used in the winter to another in summer, combined with the apparent costs of California’s baseline environmental-blend requirements, are seen by some experts as factors generating higher gas costs and negligible imports from other states.

Blend and seasonal shift mandates normally do increase the costs of gasoline. They probably create extra costs, particularly when the inventory is short, as it is now.

California exports ideas, fashion and lots of other things. But generally, when shortages occur — real or not — the state must import gasoline. It is isolated from refineries in the U.S. and foreign refineries. California must rely on ships, trains and trucks to secure imported oil. No pipelines exist that move gas beyond the boundaries of the state or into the state. No swimmers are strong enough to carry oil on their backs. Pre-spike low prices and blend requirements appear to have muted the incentive to send gasoline to California among would-be exporters.

Surprisingly, there is no consensus-based factor analysis determining the various causes and their relative impact on the upward spike of gas prices. If I had to place a bet on the major causes, I would bet on the likelihood of managed prices and investor speculation, current limited statewide refining and pipeline capacity, and absence of storage capacity.

Are there antidotes to California’s problems? Maybe, but not one that can or will be available tomorrow! But they could be available relatively soon, with political courage and changes in consumer behavior and perceptions. Increased competition at the pump from alternative fuels, including ethanol, electric vehicles, natural gas and, perhaps in the near future, fuel-cell technology and a range of biofuels, would generate more stability and lower prices in the gas market. Public support for applied research into alternative fuels, particularly options that currently aren’t ready for prime market time, is also necessary. Congressional willingness to pass open-fuels legislation, converting gas stations to, in effect, fuel stations, would help.

The EPA’s willingness to lessen the expenses and speed up the process associated with certification of kits able to convert internal combustion engines to run on E85, and to test and increase the number and classes of potentially convertible flex-fuel vehicles, would create demand and supply. Detroit’s willingness to increase production of new flex-fuel vehicles would provide a real “fuel additive.”

William Shakespeare’s whys and wherefores could become a happening? If so, California Dreaming (The Mamas & the Papas) about lower fuel costs and environmentally friendly fuel could become a reality. Oh, and I just paid $4.33 for regular gas at my friendly gas station!

E85 nozzle_2

Some drivers are blending their own ‘premium fuel’

This week I wrote about the sudden, inexplicable rise in gasoline prices in Southern California, and much lower prices for E85 ethanol blend is.

E85 is meant to be used in flex-fuel vehicles (FFVs), or vehicles that have been converted from gasoline-only to run on higher ethanol blends. But we’ve been hearing from drivers around the country who use E85 even if they don’t have an FFV. Although E85 isn’t approved for these vehicles, some consumers, enticed by the many benefits of E85 — the price point, the fact that it’s cleaner and made in America — are happily using it anyway.

Older cars might not be able to use higher ethanol blends (what we call regular gas is E10, meaning it has up to 10 percent ethanol) and run efficiently. There’s a potential for damage to engine parts of some older cars. But some pro-ethanol drivers, especially those who own newer vehicles with sophisticated on-board diagnostics (OBD) computers, have reported no problems.

“Both of my gasoline vehicles use E85 and perform flawlessly,” Jeffrey Matthews of Murfreesboro, Tennessee, wrote in a comment to a lively FFF Facebook post this week. “And both pass the annual emissions test with flying colors.”

Cheryl Near, who with her husband Phil co-owns two fueling stations in Wichita, Kansas, that sell both E10 and E85, says some customers fill up with E85, regardless of their make and model.

“We had a lady that had an older model car, before 2001,” Near, who also appears with Phil in our documentary film PUMP, wrote on Facebook. “I went out to ask her if she knew that she was filling with E85. She told me that she did and that she loves it. Her son logged her mileage for her and they found that her car got BETTER gas mileage on E85. Our pumps are clearly marked so if I see somebody filling with E85 in a non FFV, I will go talk to them. They all know and choose to fill with E85.”

Of course, not everyone has easy access to a station that sells E85. (There are 2,639 such stations in the U.S., according to the Alternative Fuels Data Center’s locator, which you can access through our Fuels 101 section.) There needs to be more stations, that’s one of our goals as a foundation.

Even among those who can find the fuel, what if you wanted to use more ethanol than just puny E10, but weren’t prepared to go full bore with E85?

Some drivers “splash blend” E10 with E85; the sensors in the OBD can determine the properties of the fuel in the tank and adjust the oxygen intake accordingly.

“I use 30-50% E85 no problem,” Jason Fritsche on Facebook.

John Brackett, an automotive engineer who also appears in PUMP, wrote in an e-mail: “Since most E85 actually tests as E70-75, and all other gasoline is E10, the blend is usually about E35-E40. This is a great way to make your own ‘premium fuel.’ ”

E85 is technically any concentration between 51 percent and 83 percent ethanol, depending on the season and the part of the country where it’s sold. Because ethanol has less energy content than pure gasoline, drivers might see anywhere from a 15 to 35 percent dropoff in mpg using E85 compared with E10. Which means you’d have to fill up an extra time every couple weeks.

To achieve a certain target level of ethanol blend, you can use one of several smartphone apps to perform the calculations: E85 Mix Calculator is available on both iTunes and the Google Play store for Android. Another is E85 Calculator on Google.