Today, there is a lot of frustration on the excessive cost of gasoline;, who is to blame, who is profiting and what is the solution?
First, let’s consider how gasoline gets from it’s origins to the pump we use to fill our tanks. Oil, the main ingredient of gas, is termed a “fossil fuel” because it comes from plants, animals and other organic materials that decayed for millions of years underground. Most oil is hundreds, if not thousands of feet underground or underwater. Easy to get to oil was drilled and recovered in the early 20th century. Today, millions of dollars are spent to drill for oil fields in pristine gulfs and oceans, under remote land in hard to reach areas around the planet, and or in shale rock where complicated and expensive techniques are used (fracking) to use water pressure to force oil to the surface. Access to the oil fields can be complicated by inclement weather and geopolitical issues. The price of crude oil is set by nations who possess the oil. The oil is than sold to an oil company (Exxon, Shell, BP, etc.) who arranges for transportation hundreds to thousands of miles via ocean tankers, truckers or pipelines to refineries where the oil is chemically broken down to its basic elements; hydrogen and carbon. Using a distillation method of heating the crude oil to over 750 degrees Fahrenheit, the oil transforms from a liquid to vapor where elements are separated. When hydrocarbon vapors begin to cool, they are converted into liquid gasoline and collected on special evaporator plates. The gasoline is then collected and stored in holding tanks. In the final step of the gasoline manufacturing process, additives go into the fuel to make it ready for consumer use. Certain additives are required by the EPA and state environmental agencies to reduce emissions and improve mileage. Petroleum companies include other additives to give consumers better performance and to differentiate their gasoline from other companies on the market. Once the gasoline has all the required additives, it is ready for the retail fuel market. Bulk refined gasoline is transported hundreds to thousands of miles by pipelines or trucks to regional tank farms. From the tank farms, they are delivered by truck to your local gas stations.
The final retail price for each gallon of gas is driven by supply and demand, competition among the local gas stations and the federal and state taxes applied. State taxes vary by state. Some are a fixed rate while others are a percentage. Price of retail gas should only change when each delivery is made to the station. However, market conditions could result in changes throughout the day during times of panic buying or gas supply interruption (i.e. hurricanes, refinery fire, damaged pipeline, trucker strike, cyberwars, etc.).
For the first 70 years of the 20th Century, crude oil and gas was relatively cheap selling from $0.20-$0.35 per gallon. However, in 1973, a war in the oil rich Middle East between the Arab countries and Israel resulted in the OPEC (Organization of Petroleum Exporting Countries) resulted in restrictions of oil being sold to countries friendly to Israel (like the US) being curtailed. The price of gas doubled and rationing was forced on drivers including a federal mandated 55mph speed limit. In time, cooler heads prevailed and the supply of gas begin flowing again. Governments and Politicians received the message and begin talks on programs to ween themselves off foreign gas and to develop new resources to fuel our cars and economy. However, in 1979, we found ourselves in the same predicament for the same reasons. Again, cries to develop new oil resources, as well as a replacement for fossil fuels were heard in almost every country. The talk of fossil fuel’s impact on climate change became part of the conversation and the need for replacement of internal combustion engines became the lead for automakers when discussing the future.
Today, we have people complaining about the high cost of gasoline while at the same time, they are freely paying $1.25 to $3.00 for a 16 oz. bottle of filtered water. Water – one of the most abundant resources on the planet where potable water can be obtained in many places by simply turning on a faucet.
Now, for the meaning of this post. The above information was delivered by a speaker at a seminar I attended in 2000 shortly after gas rose from $1.15 per gallon to a shattering $1.50. Over 20 years later, the story of where oil comes from and how it gets to our local gas station has not changed. The main difference is that technology has allowed us to drive farther on a gallon of gas. We’re still being held hostage at the mercy of the oil producing nations, the oil companies who refine it, and the governments who impact supply and demand with their political motives. If we’ve learned one thing, we are not a society that learns well from history and takes measures to look ahead for a better future for ourselves or our children.
So the next time you want to complain about the cost of gasoline, just be glad you’re not paying what our friends in Europe and elsewhere are paying, or almost double the amount.
