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What Influences the Price of Gasoline?

In 2021, the United States imported about 8.47 million barrels per day of petroleum from 73 countries and at the same time exported about 8.63 million barrels per day to 176 countries.

About 51% of US petroleum imports came from Canada. Four other countries contributed the remaining majority of petroleum imports: Mexico (8%), Russia (8%), Saudi Arabia (5%) and Colombia (2%).

"Not in my back yard"

“While no new refineries have been built since 1976, the capacity of existing refineries has been expanded.”

While the number of operating refineries has decreased from 254 in 1982 to 137 in 2011, the operating capacity of 137 refineries has increased by over 830,000 barrels per day.

In 2011, 117 refineries closed while capacity has risen. Is the current capacity of about 19 million barrels per day sufficient?

Current Refining Capacity is Not Sufficient

The shortage of refinery capacity is a global problem. More than 3 million barrels per day in refining capacity went offline since the onset of Covid-19 pandemic. The United States contributed about one third to the refining capacity reduction.

At the start of 2020, the United States had the largest refining industry in the world with 135 operable petroleum refineries and total refining capacity of 19 million barrels per day. Today, we have 128 operable refineries with total crude distillation capacity of 17.9 million barrels per day—a loss of 1.1 million barrels.

“So why did the refining capacity in the United States decrease?.”

About 2/3 of the total decrease in refining capacity can be attributed to the closure of 3 refineries:

  • Philadelphia Energy Solutions closed its refinery in Pennsylvania (335,000 bpd) after an explosion and the operator went bankrupt

  • Marathon is converting the Martinez refinery in California (161,000 bpd) into a biofuels facility as part of California's energy transition program

  • Shell closed the Convent refinery in Louisiana (240,000 bpd) as part of its strategy for transitioning to a low-carbon future and when it failed to find another buyer

Even before the pandemic, many refiners were reluctant to replace obsolescent or damaged equipment let alone increase capacity because the prospective transition to more electric vehicles would reduce fuel demand.

In summary, US refineries are running very close to their practical limit. The ability to squeeze more fuel from the current system is very limited.

Back to the US Importing a Lot of Petroleum

“Crude oil is bought and sold on a global commodities market. When countries imposed #sanctions on Russian oil, that put a squeeze on global supply, which ultimately drove up prices.”

According to the EIA, there are four main factors that influence the price of gas:

  • Crude oil prices (54%)

  • Refining costs (14%)

  • Taxes (16%)

  • Distribution, and marketing costs (16%)

When crude oil prices go up, gasoline prices go up.

How Many Gasoline Standards Do We need?

“One. Just one. ”

  • California has the highest motor fuel taxes in the country

  • Due to “big-government energy policies,” California drivers pay a 37% premium for gasoline compared to the national average. Backing off these mandates would have saved drivers $9.6 billion in 2020 over 2019

  • Carbon cap-and-trade policy adds more than 14 cents a gallon to the cost of gasoline in California.

  • The state’s low carbon fuel standard increases prices 22 to 24 cents per gallon.

  • As requirements of cap-and-trade and the low carbon fuel standard become more demanding, their costs will continue to add up, reaching a range from 89 cents to $2.10 a gallon

With the refining capacity already reduced, California specific blend of gasoline is already increasing in price because there are few sources of gasoline meeting California low carbon fuel standard.

What if the entire country used California low carbon fuel standard? The prices would decrease because all refineries would be producing the same gasoline blend.

The reality can be different. Just ask your congressional representative or vote for a candidate who appreciates the facts.

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