Sign Up for FREE Daily Energy News
Canadian Flag CDN NEWS  |  US Flag US NEWS  | TIMELY. FOCUSED. RELEVANT. FREE
  • Stay Connected
  • linkedin
  • twitter
  • facebook
  • youtube2
BREAKING NEWS:

Vista Projects
Hazloc Heaters
Copper Tip Energy Services
Copper Tip Energy
Hazloc Heaters
Vista Projects


Why Expensive Gasoline is Here to Stay


English Español 简体中文 हिन्दी Português
These translations are done via Google Translate

“Future presidents and administrations are going to be absolutely bedeviled by high gasoline prices.”

A gasoline price board is shown at a gas station.

The political pain that high gasoline prices have inflicted on President Joe Biden offers a potential warning to future presidents: It’s likely to happen to you, too.

The reason: The United States’ capacity for refining oil into gasoline is declining, a trend that appears irreversible — for reasons that include climate change. But the nation’s appetite for fuel is holding firm, no matter all the predictions of a future filled with electric cars.

The result is a domestic gasoline supply on a hair trigger, making the nation more vulnerable to fuel panics that would resemble last year’s hacker-driven shutdown of the Colonial Pipeline, while feeding inflation and angering voters. Since early 2020, the United States’ fuel-producing capacity has fallen by nearly 1 million barrels per day, or about 5 percent.

“We are going to be operating a shrunken, old and in-need-of-repair refining system a lot harder,” said Bob McNally, head of consulting firm Rapidan Energy and former senior director for international energy on the National Security Council in the George W. Bush administration. “Future presidents and administrations are going to be absolutely bedeviled by high gasoline prices.”

Republicans have pummeled the Biden administration for record high gasoline prices, blaming the jump on the president’s focus on climate change and his promises to reduce the nation’s reliance on fossil fuels. But instead of being a modern outlier, the high prices may signal a new norm that future residents of the White House of either party will have to face down.

A much-forecasted drop in demand for oil-derived transportation fuels has yet to arrive, even as the capacity for the United States to produce such fuel is falling away, McNally said in an interview.

Oil prices are the biggest component of gasoline prices, but as refinery capacity shrinks, it can create bottlenecks in fuel production that worsen price spikes when supplies are tight. Average regular gasoline prices peaked above $5 per gallon in June — and while they have fallen since then to $4.35 as of Monday, prices at the pump have fallen more slowly than the cost of oil.

Biden has moved to try to limit both economic and political fallout from the high prices, releasing a million barrels of crude a day from the nation’s Strategic Petroleum Reserve, relaxing restrictions on summer ethanol sales and calling for a temporary lifting of the 18-cent-per-gallon federal gasoline tax. The administration has also sought to take credit for the recent price dip — but analysts warn the pullback may be temporary, especially if Russian oil shipments decrease or U.S. refineries suffer unexpected outages during hurricane season.

GLJ

And over the past three years, a confluence of factors has prompted more refineries to either shut down or retool to produce only renewable diesel.

GLJ

Many refining companies, burdened with heavy debt, became extremely unprofitable as the pandemic sapped fuel demand for more than a year. Climate change increased both the physical hazards their plants faced and their insurance costs. Meanwhile, investors were more willing to open their wallets for alternative energy projects than upkeep on decades-old fossil fuel refineries.

In all, the 130 U.S. petroleum refineries had combined capacity to process nearly 18 million barrels a day in April, according to the Energy Information Administration, down from a peak of nearly 19 million in 2020. The higher costs of labor, steel and energy itself will pressure others to close, said Anne Slattery, senior analyst with consulting firm RSM US.

“The cost of heating the buildings, everything they use to run their refineries,” has gone up, Slattery said. “Refining capacity has really decreased significantly in the U.S. and globally. That really discourages and prohibits our ability to meet demand and contributes to volatility of prices.”

Energy Secretary Jennifer Granholm broached the issue with heads of refining companies at a meeting in June, a senior department official said in an interview.

“The conversation was focused on what did you do with that refining capacity and how are you thinking about it now given the current price environment,” the official said. “I think for some of the ones that idled [capacity] rather than shut down, I think they’re reconsidering what could come back. We’re continuing to work with folks like that.”

One option for the Energy Department is to help refinery owners convert their plants to manufacture biodiesel, the official said.

Some analysts have argued that fuel efficiency and the increasing number of electric vehicles on the roads of Europe and the United States will lower gasoline demand at a faster pace than the drop in refining capacity. Both the International Energy Agency and the U.S. Energy Information Administration have forecast a steep drop in fossil fuel demand in the United States and other developed countries, predictions that are persuading investors and even some refinery executives to put their money into renewable energy.

“This is a problem that technology is solving,” said David Goldwyn, president of energy consulting firm Goldwyn Global Strategies and a former State Department special envoy for international energy affairs in the Obama administration. “You have an internal combustion engine phase-out in Europe. You have the U.S. reaching the tipping point on electric vehicles. I think it will either fall on the refiners or government to build some [fuel] reserves for resilience purposes, but long term, no one is going to build a new refinery.”

But at least in the short term, the expected drop in gasoline demand has yet to emerge. Electric vehicle makers, beset by their own supply chain issues, haven’t been able to sell enough cars and trucks to offset a potential major shock to the U.S. gasoline market.



Share This:



More News Articles


GET ENERGYNOW’S DAILY EMAIL FOR FREE