Wednesday, April 26, 2006

Why Are Gasoline Prices Going Up?

Damn those big oil companies, gouging us for every last penny at the pump! Well... They are... But you might be surprised to hear that it's the EPA that is largely responsible for the gas price crunch. How?

In 1979, the EPA began to use a chemical called MTBE in our gasoline in order to make it burn cleaner and pollute the air less. In 1990, to fulfill the requirements set by Congress' Clean Air Act, they bumped up the amount of MTBE in our gasoline. And as far as cleaning the air up is concerned, MTBE works! Just what'd you'd expect from those "crazy liberals" over at the EPA--they had a plan to clean up the air and by golly they did it!

Here's the kicker--MTBE has been found in drinking water all over the place and it is a carcinogen. "Oh, it won't kill you that much..." the EPA says... The EPA should have perhaps done some more thorough tests before they decided to saturate us and out gasoline with MTBE. They cleaned up our air, but polluted our water... Robbing Peter to pay Paul, anyone?

So now they are phasing out the use of MTBE as a gasoline additive. They will be replacing it with Ethanol, which oxygenates gasoline and makes it burn cleaner. Why they don't use Acetone is beyond me... But anyway... What this will do it require that refineries do not use MTBE, and instead use Ethanol. We simply don't have enough Ethanol to create enough gasoline this way. So there will be a supply crunch. Google search for MTBE + gasoline + stock.

In addition to the MTBE-phase-out induced supply crunch, refinery capacity itself is limited by the EPA. Due to environmental restrictions set by the EPA, no new refineries have been built for the past 3 decades. Instead existing refineries have had to handle the extra load created by our increased demand for gasoline and other refined products. And they are operating at or near full capacity, and have been for years. Refining oil has never been a very profitable business. Refineries are basically the middlemen, and can only mark up their products so much... And the EPA has made it very difficult for them to do business, imposing regulations up the wazoo. Of course these regulations are meant to protect you and me, but we saw how good they did with MTBE...

When hurricane Katrina knocked out some refineries in the Gulf, gas prices shot up overnight and stayed high until the IEA told Europe to release 2mbpd (including refined products) to the US... We literally use gasoline as fast as we can make it... And that puts the market in a very tenuous position. So any disruption in the supply side (like phasing out MTBE) or increase in the demand side (like the summer driving season) will affect prices. And when both of these things happen simultaneously... Well... Prices may well top $4 per gallon this summer. Bush said he would release some oil from the SPR (a very modest amount). This had a small effect on oil prices, but doesn't do a thing to help refinery capacities...

So the EPA is looking like quite the culprit here. And I'll bet you're shocked that I would be trying to deflect the blame from big oil, but allow me to don my tinfoil hat and you will see how they are actually orchestrating the whole thing. Of course I can't prove this, and if I could I'd likely disappear rather quickly. The EPA is a government agency. And (here's the crazy part) the government is more or less a business agency. So if the oil lobby were to say "Hey EPA, we need more refineries, make it happen," it would magically happen. But they have not said this. Why? Because they have us exactly where they want us. Everyone is casting the blame at them, but of course all of the intelligent people know the EPA is to blame, so they're not worried.

In the mean time, Americans are totally addicted to their products. We see gasoline consumption as an integral part of our way of life, and we would rather believe in stupid hoaxes like this rather than realize that if we all just scaled back our usage, demand would go down, the supply crunch would be over, and high prices would ease up... But as Americans are addicted to their cars like crack rock, prices are going up and up and they will continue to do so. And big oil likes it that way, and they have engineered it to be that way. There IS a supply crunch and it IS due to EPA messups and regulations, but if big oil wanted it changed, it would be changed. They have one of the most powerful lobbies in the world.

Things are they way they are because that is they way big oil wants it. And until a majority of the people say "We are sick of this crap," and decide to start walking more, biking more, and/or using public transportation more--nothing is going to change.

4 Comments:

Blogger smilerz said...

"So the EPA is looking like quite the culprit here. And I'll bet you're shocked that I would be trying to deflect the blame from big oil, but allow me to don my tinfoil hat and you will see how they are actually orchestrating the whole thing. Of course I can't prove this, and if I could I'd likely disappear rather quickly. The EPA is a government agency. And (here's the crazy part) the government is more or less a business agency. So if the oil lobby were to say "Hey EPA, we need more refineries, make it happen," it would magically happen. But they have not said this. Why? Because they have us exactly where they want us. Everyone is casting the blame at them, but of course all of the intelligent people know the EPA is to blame, so they're not worried."

Tinfoil hat indeed. How come they can't manage to snap their fingers and open up the Florida coast and ANWR for drilling? If production were to increase the oil companies would make far more oil than they currently are so I find it implausible that companies WANT supply restrictions and high costs of doing business.

4:56 PM  
Blogger and i said...

keep in mind, opening ANWR would not ease the gasoline supply concerns. it's not a crude shortage creating the price increase. it's a combination of refineries having no excess capacity and MTBE being phased out.

and also, as i've got my tinfoil hat on and i'm not trying to prove anything as factual... they don't want it to be transparent or obvious that they are controlling the regulation of their industry. if they had every single piece of legislation that seems on the surface to be favorable passed for them, it would be suspicious. so they do what seems to be disadvantageous to them--such as EPA restrictions--understanding the effects it will have on their market, and reaping record profits as a result of the tightness in the supply vs demand relationship for refined products such as gasoline...

really the MTBE issue is more of what i'm trying to get across here. if you don't want to believe that big oil has their hands in the regulation of their industry, i can't really argue that from any factual standpoint. so i understand your skepticism. thanks for your comments.

7:32 PM  
Anonymous Anonymous said...

Check out Ben Stein's comment on this blog. The investors have been taking supply and demand out of the equation.

http://christophersobjective.blogspot.com/

Gary

9:13 PM  
Blogger smilerz said...

I certainly think that business has a hand in legislation - that is the very nature of lobbying. Agencies always become captive to the industry that they are supposed to be regulating - which is why I am generally opposed to regulation in general. It never meets the ends that you are trying to impose, they merely become a tool for companies to protect themselves.

The restrictions on new companies entering the industry has a signifigant impact on the price at the pump - but try convincing ANYONE that those limits on entry should be restricted and you will get laughed at.

11:55 AM  

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