Federal Recipe for Gasoline Helped Drive Up the Price

[WhiteTara]

http://www.nytimes.com/2006/05/06/washington/06fuel.html
By MATTHEW L. WALD
Published: May 6, 2006

WASHINGTON, May 5 — Nine months after Congress passed major energy legislation, one provision affecting gasoline formulas is helping to drive the price of gas up much faster than the rising price of crude oil.

And because the new gasoline recipe contains less energy, mileage per gallon is declining.

On Friday, the 270th day after President Bush signed the Energy Policy Act of 2005, the law ended the requirement that gasoline sold in areas prone to air pollution include an "oxygenate," or a molecule including hydrogen, carbon and oxygen. A result is that refiners over most of the country's big gasoline markets, anticipating the rule, have already dropped the chemical MTBE.

The refiners were not explicitly required to drop MTBE, but virtually all have done so because it has polluted groundwater and exposed them to liability suits. By dropping it, they can offer the defense in water pollution lawsuits that they used the component only for as long as it was required.
snip
Ethanol, which is made from corn, costs more than gasoline, though, and shipping it from the Midwest, where it is made, is cumbersome and expensive, because it has to go by barge, railroad tank car or tanker truck, rather than pipeline.

we are so screwed

[Toucano]

1. Flawed. Oil profits are responsible for high gas prices. Period.

Here's the nutshell Econ 101 analogy.

Say I sell bananas. This year there's a shortage of bananas and the cost of my bananas goes way up. To stay in business and make a profit, I have to increase the price I charge for bananas.

At the end of the quarter, the higher price I charge for bananas has increased my gross sales dollar amount, but because I have also paid more for my bananas, my NET PROFIT is essentially unchanged (if anything it's less because people chose to eat fewer bananas).

The NET PROFIT of the oil companies is not unchanged, but RECORD SETTING.

To make the analogy equal to the oil companies, you have to imagine that I control the growing, distribution, and sales of almost all bananas the world over, and every household must consume 10 kilos of bananas each week to conduct their daily lives. All industries must consume bananas daily in order to manufacture, distribute, and sell everything that is produced. Farmers must use bananas to raise their crops.

If this were true, then I could have record setting NET PROFIT because I could charge whatever the hell I pleased for my bananas. So what if my cost went up? I can take the cost increase and multiply by 300 % to get my retail price. Then I can pay myself and my shareholders obscene amounts of money, contribute to all political candidates who will support my banana monopoly, or force my employees to contribute. My shareholders will also contribute to the candidates who protect me because their fat, untaxed dividend check will come with a letter explaining how everything they love depends on my continued success.

To keep the public from being outraged and provide political cover to my allies, I could tell everyone that bananas are very expensive to produce because of government regulations.

I would say that I need to spray the bananas with gold powder to prevent fungal infections.

I would report that political instability in banana producing countries is driving up costs for consumers.

For unimaginable reasons, freedom-hating terrorists are setting fire to my banana plants, so I need money to fight the terrorists.

I would say that the growing demand for bananas in China is causing shortages.

I would lobby congress for tax credits to explore other banana rich planets and develop lower-cost banana alternatives.

I would lobby congress to allow me to plant bananas in the National Parks to help reduce our dependence on foreign bananas. Won't you help me defeat the banana-hating tree huggers?

I would blame the labor unions and their fat wage demands and health care costs for driving up everyone's banana costs. I would lobby congress to permit me to hire illegal lower primates as "guests" to harvest the bananas because homosapiens are unwilling to do the job.





Make no mistake. The oil companies are gouging the consumers and the Bush administration is helping the oil giants do it. Every other explanation is a diversion. It's the way Banana Republics work.

[Broken_Hero]

2. Good analogy...

I'm not a economics buff, in the least bit, but that made a lot of sense to my ignorant economic rear end...

[NYC]

3. So, we're not a banana republic; we're an oil republic.

No surprise.

[newswolf56]

9. This should be a post of its own. It is the best explanation...

I have ever seen anywhere of the geopolitical reality of petroeconomics and -- by implication -- of how corporate capitalism functions. In fact your example should be in every econ 101 textbook ever written.

[Toucano]

13. That is very kind of you to say.

Thank you.

[salin]

16. I agree - great explanation

especially demonstrating the problem with monopolistic (or collusionary practices making the industry behave as a singular monopoly) structures - especially when what is controlled is a product/service that is a necessity. So what do we do? Let's privatize water! Let's privatize roads (Mitch Daniels style) Let's privatize... and allow additional collusionary monopolies to develop.

[IChing]

14. But, but, but ......I get my facts and logic from my gut...LOL

Profits and costs are two things rarely disgust by pundits...good analogy

[azureblue]

4. MTBE is poison

"On Friday, the 270th day after President Bush signed the Energy Policy Act of 2005, the law ended the requirement that gasoline sold in areas prone to air pollution include an "oxygenate," or a molecule including hydrogen, carbon and oxygen. A result is that refiners over most of the country's big gasoline markets, anticipating the rule, have already dropped the chemical MTBE."

MTBE, when leaked into the ground, easily gets into the water. it is hard to filter out, too. CA had a lot of instances of MTBE leaking from storage tanks & showing up in the tap water. Because of this, CA pressed to drop the MTBE requirement years ago.

Dropping MTBE did not contribute to the rise of gas prices nor does it effectively change MPG. It is primarily a chemical to reduce exhaust pollutants. The problem with Ethenol is that it reduces octane, unlike MTBE. Ethenol reduces MPG.

[TheMadMonk]

5. Really? Ethanol reduces mileage?

Care to explain this then?

http://seven.com.au/todaytonight/story/?id=24813

<snip>
Certified mechanic and senior manager with the Motor Traders Association David Smith said many in the industry believed ethanol gave less mileage, but he was adamant ethanol at 10 per cent would not ruin fuel lines and seals.

Surprisingly, the car using premium unleaded ran out of fuel first. Second to break down was the unleaded. Of the ethanol blends, the E5 conked out first, with the E10 victorious 40 minutes after the premium unleaded car pulled over.
<snip>

edited to wield scissors. And again to make title more informative.

[louis-t]

7. I thought ethanol increased octane.

Watch for this to be the next lie about ethanol. "Ethanol actually REDUCES mileage, you tree hugging morons".

[modrepub]

6. What a load of crap

Every year they do this. "...gee every things changed and I can't produce enough..." Imagine if you were a manufacturer and your customer changed his order. You'd probably bust your hump to get it right and on time because if you didn't your customer would find someone else. Not the oil industry. Why? because there isn't "somebody else" to produce the refined petroleum. Besides scarcity creates more profits.

Three possibilities why refineries haven't been built:

1) Why bother? The ones you have are paid for and the less you make the more profit you get.

2) Cry hardship to get the Clean Air Rules relaxed so you don't have to pay as much to build new ones.

3) It takes ~30-50 years to pay off the capital expenses needed to build one of these (probably less with today's prices). There may not be 50 years worth of any one particular grade of crude to run through them (peak oil).

[louis-t]

8. Everyone keeps 'forgetting' about

the smaller refineries that were purposely put out of business or swallowed up by the big refineries. Control the market, then scream you're being persecuted. A very effective repuglican tactic.

[goforit]

10. More propaganda from the NYT.

[high density]

11. Twice a year the oil companies give us a sob story about the

blends of gasoline. Evidently they're a bunch of dumb fucks over at those refineries with memory loss problems, since every year they seem to be surprised when spring or fall rolls around and it's time for the the blends to change.

[Clovis Sangrail]

12. I smell bullshit /nt

.

[oNobodyo]

15. Ya something is gonig on alright...

U.S. mulls ending ethanol import tariffs

WASHINGTON - The Bush Administration is considering lifting import tariffs on ethanol in a bid to alleviate any supply crunch of gasoline ahead of the peak summer demand driving season, Energy ...

http://www.msnbc.msn.com/id/12634911/from/RSS/

Drunk on Ethanol

Our addiction to corn-derived alcohol is not only costing us a lot of money, it's also wiping out fish and wildlife habitat, and polluting our air, soil, and water.

http://magazine.audubon.org/incite/incite0408.html

Ethanol Fuels: Energy Balance, Economics, and Environmental Impacts are Negative

http://www.energyjustice.net/ethanol/pimentel2003.pdf

Thermodynamics of the Corn-Ethanol Biofuel Cycle

http://petroleum.berkeley.edu/papers/patzek/CRPS416-Patzek-Web.pdf

[woodstockny]

17. When people are examining you, throw out an explanation

Standard operating procedure.

[Supersedeas]

18. Incompetence abounds