Gasoline prices are affected by supply and demand side factors, as well as unregulated Wall Street speculation (See note at bottom of post). This post will show that the demand side does not explain increasing gasoline prices. Escalating price increases are due to a trifecta combination of exports, refinery closings on the supply side and fear-based speculation. These results bode well for Wall Street and oil company profits, but only exacerbate the economic plight of the 99 percent, who are struggling to survive in a weak economy.

The figure below illustrates the increase in gasoline prices from March 2008 through March 2012. From January 2010 through December 2011, gasoline prices rose from $2.61 per gallon to $3.24 per gallon. That is an increase of 24 percent over one year.

Supply Side: Exports and Refinery Closings

Exports: “The United States exported more than 500,000 barrels per day (bbl/d) of gasoline in 2011; this level represents a 57 percent increase compared to 2010, and a 266 percent increase compared to 2007.” The figure  below shows annual U.S. gasoline exports by destination. Clearly, gasoline exports have risen considerably from 2009 onward. A significant fraction of gasoline exports are destined for Mexico, as well as Central and South America. Notice that gasoline exports from 2009 onward mirror the upward gasoline price increases during that interval. This indicates an association between exports (i.e., reduced domestic supply) and domestic price increases.

Refinery Closings: “The closing of oil refineries in Philadelphia and its suburbs has led to higher prices at the gas pump and as it furthers the nation’s reliance on foreign oil, it becomes a national security issue…Sunoco has said it plans to close its South Philadelphia refinery, the largest on the East Coast, if a buyer isn’t found by July 1…The company already shut down its Marcus Hook refinery in Delaware County…ConocoPhillips shut down operations at its Delaware County refinery in Trainer…The three plants, which had 2,200 employees, including 1,200 United Steel Workers, account for 50 percent of the East Coast’s oil refining capacity.”

Demand Side: More Fuel Efficient Vehicles and Unemployed Workers

 Hybrid Electric Vehicles: From 1999 through 2011, approximately 2.2M hybrid electric vehicles were sold in the United States. Compared with a total of 182M vehicles sold in that period, hybrid electric vehicles are 1.2 percent of that total. That percentage is not sufficient to reduce gasoline prices.

Unemployed workers: In February 2012, the civilian labor force was nearly 155M workers. Unemployed workers were approximately 13M with an unemployment rate of 8.3 percent. Granted that unemployed people probably drive less, however, the percentage of unemployed workers has been relatively constant during the interval when gasoline exports increased sharply. Thus, unemployment (i.e., this component of demand side) does not explain rising gasoline prices.

Unregulated Speculation

Wall Street Speculation: According to policy analyst John Lippitt, “Although tension over Iran and concern about the oil it supplies to world markets affects oil prices, financial speculators see this as an opportunity to make money and jump into the market heavily, which drives prices up much more. Wall Street firms and other financial players dominate the trading of oil, even though they have no intention of ever taking possession of the oil they are trading. Ten years ago, producers and end users (airlines, oil refiners and retailers, etc.) were responsible for 70% of the trading of oil; now the financial speculators make up 65% – 80% of the market. The only reason they are in the market is to make money and the money they make comes out of our pockets through higher prices.”

Note: An analysis of 36 years of Energy Information Administration data shows no statistical correlation between domestic oil production and gasoline prices Thus, there is no reason for this post to consider oil price fluctuations and the price of gasoline.

In a recent article entitled, “Drill here, sell there, pay more,” Representative Ed Markey, wrote, “For the first time in 62 years, since Harry Truman was president, the United States was a net exporter of oil products. An estimated $88 billion worth of gasoline, diesel, jet fuel and other petroleum products was sent to overseas markets last year.”

A reader of my blog post on exporting gasoline commented,  “Remember when I said a few weeks ago that, unfortunately, no amount of conservation, nor of drilling, here in the United States will get us out of the energy crunch? Any demand we can eliminate by conservation will be more than made up for by the overwhelming demand from other countries, thus keeping the price high no matter what. We may end up pumping out the bulk of our own crude, only for it to be refined here (with the profit going to big oil) and then sold overseas (profit going to big oil again), while we the people lose out. And for THAT the oil companies receive subsidies, probably because they can claim they are helping our overall exports (i.e. improving the balance of payments). How badly do we want to export the very thing of which we are in most need ourselves? This could easily capsize our fragile economic recovery.” (Ro Pinto, Acton, Massachusetts.)

Representative Markey concluded, “An energy agenda that places oil above all is not helping Americans find work or achieve energy security. As we build America’s clean-energy future, we must also ensure that our domestic oil and natural-gas resources stay here in America.”

Note: There are 11 government agencies that support the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs. Solicitations from these agencies are published several times during the year and contain dozens of problem topics. For example, many topics from the Department of Defense (DOD) and the Department of Energy (DOE) have a keen interest in energy efficiency and renewable energy, some of which may overlap the issues raised in this post. Small businesses, sometimes teamed with universities, may submit proposals in response to these topics and possibly receive awards for technology/process development.

The energy flow diagram below depicts sources of energy and their utilization. For example, petroleum is used by transportation (70%) and manufacturing (30%). The energy output of these two services flows into rejected energy and energy services (i.e., energy conservation). Natural gas is used for electrical energy generation, as well as heating for residential, commercial and industrial sectors. Numbers associated with each energy consumption block are stated in terms of quads (1 quad = 1000 trillion British thermal units).  This chart, developed by the Lawrence Livermore National Laboratory, is used as dose of reality to understand the energy goals of the Department of Energy.

DOE Energy Goals and Reality:

DOE Goal: “Efficient transformation of the nation’s energy system and secure U.S. leadership in clean energy technologies”

Transformation Reality – Fossil Fuel Dominance: According to the energy flow chart, the United States is dominated by fossil fuel consumption with renewable energy sources playing an insignificant role. Renewable energies could help reduce green house gas emissions, but are not sufficiently plentiful to matter.

Transformation Reality – Imported Oil: The United States imports 60 percent of its crude oil needs. In about 11 years that figure will be 100 percent.

Transformation Reality – Millions of Passenger Cars Depend on Crude Oil: There are 250M registered vehicles in the United States and almost all operate on fuel derived from crude oil. Does the DOE have a plan to power that many vehicles based on a different fuel type? What about compressed natural gas as a fuel?

Transformation Reality – U.S. Leadership: “Denmark’s clean-tech investments equal 3.1 percent of GDP. Using that measure, China ranks second, spending 1.4 percent of GDP on clean tech. The U.S. ranks 17th, with clean-tech investments accounting for 0.3 percent of GDP.”

DOE Goal: “Enhance nuclear security through defense, nonproliferation, and environmental efforts.”

Reality – Unreliable Nuclear Plants: “Of all 132 U.S. nuclear plants built (52% of the 253 originally ordered), 21% were permanently and prematurely closed due to reliability or cost problems, while another 27% have completely failed for a year or more at least once. The surviving U.S. nuclear plants produce ~90% of their full-time full-load potential, but even they are not fully dependable. Even reliably operating nuclear plants must shut down, on average, for 39 days every 17 months for refueling and maintenance, and unexpected failures do occur too.”

Reality – Imported Uranium: The United States imports nearly 90 percent of its uranium needs. Russia supplies 23 percent, while Kazakhstan provides 15 percent, among others. Does that foreign dependency on uranium represent nuclear energy security for the United States?

Reality – Unsafe Nuclear Waste Storage: Storage of spent nuclear fuel has not yet been resolved. Spent fuel is stored at nuclear plants, and could lead to disastrous consequences caused by earthquakes.

Reality – Risk of Nuclear Plant Melt Down: Some nuclear power plants lie dangerously close to earthquake faults. Indian Point Energy 3 in Buchanan, NY and Pilgrim 1 in Plymouth, MA are examples. What plans do the DOE and the Nuclear Regulatory Agency (NRC) have for these and similar cases? Where is the nuclear security to prevent disaster?

Note: There are 11 government agencies that support the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs. Solicitations from these agencies are published several times during the year and contain dozens of problem topics. For example, many topics from the Department of Defense (DOD) and the Department of Energy (DOE) have a keen interest in energy efficiency and renewable energy, some of which may overlap the issues raised in this post. Small businesses, sometimes teamed with universities, may submit proposals in response to these topics and possibly receive awards for technology/process development.

My blog post of February 9, 2012 noted that the Seabrook nuclear plant in New Hampshire poses a serious safety risk regarding onsite storage of spent fuel rods and a degraded concrete foundation. These observations, coupled with recent headline accounts, do not inspire confidence in U.S. nuclear plant safety.

Regarding U.S. nuclear safety, The Hill reported, “A federal report recommending a suite of new safety measures at the country’s nuclear power plants lacks ‘rigorous analysis,’ the nuclear industry said. The Nuclear Energy Institute (NEI), the industry’s national trade group, faulted the 90-day report released by a Nuclear Regulatory Commission (NRC) task force last week for not including a detailed analysis of the disaster at Japan’s Fukushima Daiichi power plant.”

According to the Associated Press, “Japan’s nuclear safety chief said Wednesday the country’s regulations are flawed, outdated and below global standards, and he apologized for their failure when a tsunami crippled one plant last year. Haruki Madarame admitted Japanese safety requirements such as for tsunami and power losses were too loose and many officials have looked the other way and tried to avoid changes.”

Why western countries invaded Libya and why they will probably not invade Syria: Syria’s oil reserves are only 5 percent of Libya’s. Thus, there is only a 5 percent chance that Europeans and/or the United States will do anything of substance to prevent the slaughter of innocent children, women and non combatant men.