Earlier this year, the regular-grade gasoline versus diesel fuel price spread was virtually nil, but recent checks at several locations in the Chicago-Milwaukee area show a 50-cent to 70-cent difference. This, in effect is the “real” non-crude oil cost-increase factor for gasoline that has a good portion of the nation in an uproar.
At press time, gasoline in many parts of the Midwest was well more than $2 per gallon.
Illinois Environmental Protection Agency (EPA) director Tom Skinner reportedly says the Midwest's new blend of RFG (reformulated gasolne) adds, at most, 3 cents to 5 cents to the cost, although the U.S. EPA is quoted by the media that the increased cost is 5 cents to 8 cents.
A potpourri of views on why gasoline prices have instead increased 50 cents to 70 cents are emerging hourly.
A Wall Street Journal editorial says most of the price jump, “is due to the hyperzealous application of the 1990 Clean Air Act amendments of EPA administrator Carol Browner,” resulting in new summer RFG blend that became effective June 1. As a result, the Journal says Wisconsin is filing a suit against the EPA and the American Automobile Assn. has asked Ms. Browner for a 90-day reprieve on adopting the new RFG.
Meanwhile, gasoline producer groups say ruptured pipelines, high demand at a time of low inventories and the “much more costly ethanol blend” must be blamed. But the National Research Council reports that oxygenates like ethanol in RFG have “little impact on air quality and have some disadvantages.” Producers also say they have spent a lot of money tooling up for the new RFG and don't want another change. WEVTU's sources, taken together with other published reports add the following to the picture:
Gasoline producers are said to be steamed that the U.S. Patent Office granted what they regard as a non-invention, non-unique patent to Unocal Corp. on a blend of common ingredients (with a 5.75-cent/gallon royalty added) that kicks in with EPA's new RFG. Producer resistance to paying the royalty reportedly has taken 300,000 bbl/day of gasoline out of the system and the producers have been ordered to pay $69 million in back royalties.
Federal, state and local regulations reportedly ended new refinery construction after 1970, hence, with existing operations now running at capacity, any small disruption can trigger supply/demand price consequences.
There are four RFG formulas required by the EPA for different air-quality areas — and with three grades of gasoline that means twelve different fuels must be segregated and can't be exchanged one for another in cases of local shortages. In effect, a traditional fundamental of gasoline distribution appears to have been neglected.
The EPA reportedly has been funding activist groups through its TEA-21 program, part of which is to seek limits locally on new road construction in urban areas as a way to limit vehicle use. EPA calls this “Early involvement in transportation planning to foster demand management and protection of open spaces.” With this as an objective, the consequences of high gasoline prices can hardly be counted as unwelcome by the Agency.
Gasoline producers are bracing themselves for the potential expensive consequences of a number of legal actions already in progress against them for alleged environmental damage, notably groundwater contamination from the use of oxygenate MTBE, which the EPA effectively mandated and defended as safe for many years (until recently).
The Federal Trade Commission has launched a “price gouging” investigation; a common action of FTC whenever there is a gasoline price hike. Past investigations of this type have gone nowhere.
The Organization of Petroleum Exporting Countries (OPEC) is doing its best at this writing to push up the price of crude oil to a level above the recently advertised point at which higher production would kick in. The Wall Street Journal quotes analysts as saying that near 10-year highs in gasoline prices indeed have helped lift crude-oil prices.
Considering the many powerful factions that have a stake in the predicament, its economic importance and that the nation is counting down to a national election, it will be remarkable and refreshing if the public ever learns the whole story behind the “gas shock” of 2000.