Posts

Minnoco fuels Minnesota’s drive for fuel choice

Lance Klatt, executive director for the Minnesota-based fuel-station brand Minnoco, is tired. During his time as the executive director of a fueling retail chain, he’s heard countless arguments back and forth, from both the oil and ethanol industries, about how one fuel is superior and how the other fuel is a detriment to his business, consumers, and the country. Read more

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:

 

 

 

 

Bryce (NY Times) and ethanol: The whole truth and nothing but the truth

E85 pumpWhat’s up with the Manhattan Institute for Policy Research? While I often don’t agree with the scholars who write for it, I find its articles and books thoughtful and provocative.

My question concerning the Institute derives from a desire to build a now absent civil dialogue concerning policy issues affecting the U.S. The Institute, when a reasonably informed national dialogue on policy existed, was an important participant. Now, that it has been lost, the Institute’s agenda and body of work offers hope that it can be resurrected someday soon. In this context Robert Bryce’s article in today’s New York Times, “End the Ethanol Rip-Off” concerns me. His article is filled with factual and interpretative errors that skew his conclusions concerning the Renewable Fuel Standard (RFS).

Bryce asserts that corn ethanol is responsible for significant environmental problems particularly related to land use, harvesting and processing fuel. He also states that it generates higher food costs, and that it damages small engines. Finally, according to the author, ethanol’s price has been and is generally higher, much higher, than gasoline. The only thing he left out is that ethanol is the cause of global warming, the Israeli-Palestinian conflict, unemployment, the trial and tribulations of Miss America contests and bouffant hairstyles in Texas.

No fuel used now in America is perfect. Certainly, the DNA of gasoline, which Bryce seems to champion, is much more harmful to the environment, and the nation’s need to reduce GHG emissions. Gasoline use also reflects significantly more public health problems and continues the nation’s dependence on imported fuels.

Let me try to summarize some of the facts that Bryce overlooks or does not seem to know:

  1. Although a cleaner burning fuel, E10 (10 percent ethanol) blended with gasoline does result in a small energy content gap that requires a purchase of additional E10 gasoline to secure mileage equivalency. But, up until recently, the lower price of E10, compared to gasoline, has more than made up for mileage differentials and slowed down the upward trend of the price of gasoline and put downward pressure on prices.
  2. E85, which the author does not mention, has been approved by the EPA for certain vehicle classes. Like E10, its use does result in lower mileage per gallon when compared to gasoline and also results in more mileage per BTU. The mileage gap is lower than the gap that Bryce indicates in his article. Again, before the decline of gas prices , the gap was more than made up by the lower costs of ethanol and its’ increased efficiency.
  3. There is no real consensus on the food vs. fuel debate. The World Bank has changed its position on this globally over the years and the Congressional Budget Office (CBO) has suggested that if there is a negative effect on food, it is very minor. Indeed, while the food vs. fuel argument has not yet been settled, most experts agree that increased oil prices contribute to increased food prices. The food vs. fuel argument has reflected an “on the one hand, on the other hand” dialogue. Perhaps more relevant, particularly with respect to corn, there are land use and processing techniques now being introduced that would mitigate possible problems. Certainly, corn is not in short supply and the price of corn to the consumer has not spiraled up significantly.
  4. The author also neglects the fact that natural gas- and cellulosic-based ethanol (as well as other feedstocks) maybe on the horizon. Investors have delayed involvement, primarily because of uncertainty concerning the market and gasoline prices. Its advent will likely lessen food vs. fuel issues and help lesson environmental concerns.
  5. Bryce suggests that ethanol, (again, he refers to E10 in his article), has a negative effect on engines. Most of the independent analysis of the impact of ethanol on engines, E10 as well as E15 and E85, suggest differently. The EPA has approved the sale of each blend with certain vehicular limitations with respect to E 15 and E 85.

Bryce spends much time talking about the cost to the consumer of ethanol and the so-called ethanol tax. Curiously, given his location in the Manhattan Institute, he neglects to mention the significant cost to the consumer of the failure of oil companies to open up the gasoline market to alternative fuels like ethanol. Try going to a “gas” station to buy E85 or to charge your electric vehicle. Good luck finding one near your home or easily on a long trip. Through tough franchise agreements, oil companies eliminate competition around the nation. I suspect the imputed tax caused by the oil companies’ monopoly or almost-monopoly position is quite higher, much higher, than the tax that Bryce suggests results from ethanol use. The Institute should pay for a copy of Adam Smith and give it to the author.

Bryce’s article does not really contribute to a needed transparent debate over Renewable Fuel Standards or the wisdom of alternative fuels. It mixes up concepts and facts concerning energy content, car performance and efficiency. It sweeps over serious issues with respect to food vs. fuel and the environment with a broken brush or broom. Its conclusion concerning ethanol and implicitly other alternative fuels is inconsistent with his assumed anti-regulatory position and belief in the market place. We need such a debate, one that reflects a comparison between alternative fuels such as ethanol and gasoline as well as one that accommodates a needed transitional strategy between alternate and renewable fuels.

 

Photo Credit: East TN Clean Fuels Coalition