Energy: Industry Official Points to SUVs as
Part of Price Spike
The price of gasoline has blown sky-high.
Gasoline prices have been rising steadily in San Diego County since Jan. 1. As of May 1, the average price rose 2.6 cents to $1.89 a gallon , about 26 cents higher than the rest of the nation, according to the Utility Consumers’ Action Network.
Prices at the pump varied widely throughout the county, from $1.73 to $2.19. However, of more than 400 gas stations in UCAN’s weekly survey, only two had lowered their prices.
“There is no cheap gas in San Diego,” said Charles Langley, gasoline analyst for UCAN. “This is the most aggressive spring price hike that UCAN has seen in many years.”
This summer, prices may rise as high as $2.40 a gallon , perhaps even more, he said.
“We are hopeful that oil industry predictions of $3 to $5 a gallon are just posturing and an attempt to lower expectations (and) make us feel good about $2.40,” Langley said.
Jodie Muller, external affairs coordinator for the Western States Petroleum Association, declined to provide an estimate of how high prices are expected to go, citing antitrust regulation. However, she did provide an explanation of why prices are expected to rise.
First of all, demand for gasoline is increasing, Muller said.
“We’ve seen more SUVs on the road, and during the spring and summer, there tend to be more vacations and trips on the highways, which actually increases the demand for gasoline,” she said.
And yet this is happening at a time when supply is tight.
“The refineries in the state of California are at full output right now. And as demand increases during the summer, which it generally has in previous years, it creates a supply-and-demand situation,” Muller said. “There really isn’t much more supply out there when they’re cranking out at full output.”
Adding to the mix is the threat of rolling electricity blackouts this summer. If a sudden two-hour power outage hits a refinery, the equipment could be knocked out for days, she said.
“You can’t just shut it down for two hours and then immediately bring it back up,” she said. “(It’s like) driving your car down the highway at 60 mph and then throwing it into park. You can probably start up your car again, but it’s not going to run as well as it might have before that. And it does take time to get back in shape, and back into running in the same condition. A refinery runs the same way.”
Muller said she hopes California experiences mild weather this summer so blackouts don’t enter into the equation.
There are other factors, as well. California’s more stringent environmental regulations prevents in-state suppliers from importing gasoline refined elsewhere, she said.
“So if there’s a glitch in the system , if there’s a refinery fire, if there’s rolling blackouts that affect refineries, and supplies go down , we can’t just go knock on Nevada’s door and ask for some supplies, because it doesn’t meet the specifications for the state of California,” Muller said.
Another factor is MTBE, an “oxygenate” commonly added to gasoline. MTBE is made from natural gas, so the increasing cost of natural gas has pushed up the cost of manufacturing gasoline, she said. Muller noted that MTBE will be banned from California gasoline starting Jan. 1, 2003. But this could create other problems, since the most likely replacement for MTBE as an oxygenate would be ethanol.
“It’s not in real high supply in the state of California. It’s made from corn, from the Midwest. So there are definitely some concerns about supply if that is needed,” she said.
Muller pointed out refiners can manufacture gasoline meeting California’s requirements without oxygenates. The WSPA, with the backing of Sen. Dianne Feinstein, is lobbying both Congress and the state Legislature for a waiver from having to add oxygenates, she said.
These explanations don’t sit well with Langley, however. He fears the oil industry will learn a few lessons from electricity generators, coming up with a number of convenient reasons to raise prices.
“I’m concerned the oil companies are going to use the introduction of ethanol as a replacement for MTBE as an excuse to really gouge the market,” he said. “Or, they may even blame the electricity crisis itself, saying, ‘Well, we’re going to have to shut down the refineries for a month just because we were hit by a rolling blackout.'”
If that happens, the price for gasoline could spike in the spot market. The result will be extremely high prices, far beyond the $2.40 figure, Langley said.
Based on past performance, the price for gasoline will fall after the high-demand summer months. However, the decline will not be as rapid as the increase, and will bottom out at roughly the $2 level, he said.
Langley predicts if gasoline prices continue to increase, consumers will be attracted to more fuel-efficient autos, much in the same way that the high energy prices of the 1970s gave rise to the smaller Japanese cars of the 1980s.
However, the oil industry might have enough market power to create shortages even if everyone were to conserve, he said.
