Gas Prices – April 21, 2008

Posted on April 21, 2008. Filed under: Uncategorized |

Fed up with high gasoline prices? Blame “big oil”? Blame the government? Who is really to blame? What is the solution?

It’s true that the price of gas goes up when the price of the raw material it’s made from, oil, goes up. But why does the price of gas go up just before Memorial Day, summer vacation season and Labor Day, when people will be driving a lot? These seasons are upon us and gas prices are already high, so what’s in store for the next few months?

Probably greater pain at the pump. It’s entirely predictable. Even if OPEC increases production of oil, even if there is a glut of oil sitting around, gasoline prices will go up just before summer driving season.

Supply and demand always determines the price of goods and services. The product in greater demand during summer driving season and major driving holidays is gasoline. There will be a much greater demand for it, but there is no way to increase the supply. So, prices will go higher and higher.

Gasoline is made at refineries and refineries have been operating at full capacity since about 1995. There hasn’t been a new refinery built since 1976. Compare the demand for gas in 1976 with today’s. Besides the increase in population, new technology and a more mobile society, developing nations such as China, India, Japan and Europe are increasing their usage rapidly.

Refinery managers have figured out ways to increase their output by replacing old equipment with higher capacity pipes, pumps and cracking towers. They’ve identified “bottlenecks” in their systems and eleviated them. They’ve also developed new technology which made scheduled shutdowns for maintenance shorter, resulting in more productive days and more output of product. However, they will eventually run out of “fixes” for old refineries and then, demand will far outstrip supply. Gas prices will go through the roof.

The government, both national and state, have exacerbated the problem by requiring so many different blends of gasoline for area specific polution problems. That puts another bottleneck on refinery equipment that no one can remove by law. Why don’t they just build new refineries to keep up with demand? Because evironmentalists fight them over every possible location and have been successful in getting Congress to pass restrictive laws. There are also private citizens who object to having a refinery “in their back yard”. That’s hard to argue with. Then there’s the extremely high cost of building a refinery coupled with the risk that a different fuel will be the most popular choice in a few years.

This seems to be a government/environmentalist-manufactured crisis and the people can’t seem to get a handle on it. What if governements and environmentalists just decided that we need the gasoline and other by-products that refineries produce? What if “greenies” came to grips with the fact that people are not going back to riding bicycles and horses to work.

(Can you imagine what those people would smell like sitting in the little cubicle next to you? Spare us! And the weather! Just imagine getting caught in a Texas or Florida downpour or a mid-country tornado while riding your bike to or from work. Or how about the Texas August heat riding home from work! Egads!)

There can be an intelligent balance between everyone’s concerns, but the greenies and politicians have to do their part in compromising. Right now, I don’t see that happening. I see politicians bowing to minority groups and greenies suffering an acute case of myopia. Perhaps we should concentrate on a cure for myopia.



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