Gouging by the Oil Industry? More likely, your government

by Jeffrey Robbins

Some interesting info from article I came across over weekend. Doesn't get to specifics of the environmental regs, but helpful in understanding why the government is the problem in regards to gasoline prices. Write your local congressman and Senators.

One gallon of oil can produce up to 2/3 gallon of gasoline pending formulation, grade of octane desired, etc.

Between 1977 and 2005, the rate of return on investment in gas refining was <7% (Carol Dahl, economist, Colorado School of Mines) compared to >11.5% for the S&P 500 Industrials.

From 1994-2003 refiners spent $47.4 Billion just to bring existing refineries up to compliance with environmental regs.

1980 U.S. had 300+ refineries. Today, less than 150!

In 1990 there were still 194.

Even with the government enacting such legislation, U.S. refiners have managed to grow refining capacity by about 1%/year over past decade by doing small add-ons at existing refineries.

Highest state tax is NY at 60.8 per gallon. Nationwide average was 45.8 as of spring 2007. It is estimated that the oil industry is making about .13 per gallon-some estimates are closer to .10. So all states with one exception, Alaska, are making more in tax revenue per gallon than the oil companies are in profits!

The Cato Institute points out that federal govt mandates oil refiners use at least 4 Billion gallons of ethanol regardless of cost of the ethanol product and regardless of cost to produce ethanol. At the height of summer 2006, wholesale ethanol was TWICE the price of wholesale conventional gasoline.

One interesting reason we didn't think about for cost increases is all the "boutique, government-mandated gasoline formulations" as the author of the article put it, that the refiners are required to produce, sometimes on a state by state basis, especially CA. So refining capacity is sucked up by specialty formulations that cannot be distributed in all states. You can't just produce three or four different (87,89,91,93), 100% oil derived octane fuels and sell them anymore. And anyone who runs large production lines will tell you cost involved with bringing a line up to produce on thing and then shutting down, and producing another product on that same line. there are also regs dictating a certain amount of low sulfer diesel formulation.