Why gas prices aren’t dropping

Your bloggers have frequently reported that our country is now the largest producer of natural gas. We’re a net exporter of refined gasoline and it’s estimated that we will be the world’s largest producer of crude oil by 2020.  As a result of the ongoing economic malaise and the continued improvement of gas mileage (primarily a consequence of high fuel prices, not government fiat), fuel consumption has dropped dramatically over the past decade. Economics 101 tells us that as production increases, and consumption drops, surpluses are created, driving prices down. This is true, however, only in a free market free of government meddling.

While global demand for U.S. gasoline exports tends to dampen the downward pressure on what we pay at the fuel pump, one of the key reasons we’re not seeing lower prices is due to more unintended consequences from ethanol mandates.

GAfuels blogger Dean Billing commented recently on the reason that speculation using RINs has helped keep our fuel prices higher than one would expect. He was reacting to an article that appeared in the Wall Street Journal on Aug. 13 titled “An Alon USA Energy refinery in Louisiana was the only one — out of 143 — exempted from an EPA mandate. Why?” The article included this paragraph:

“Last week, the Environmental Protection Agency issued its annual renewable-fuels mandate, telling refineries how much ethanol they must blend into the nation’s gas supply. This quota, which grows each year, is becoming a horrific financial burden on the industry, forcing many refineries to buy federal ethanol ‘credits’ to satisfy the rules. The skyrocketing price of those credits is adding hundreds of millions of dollars to refineries’ annual costs.”

To which Dean Billing commented:

There is no such thing as a “federal ethanol credit.” This author does not understand the RFS [ethanol mandates] or what RINS are and how they work. A RIN [Renewable Identification Number] can only be created when an ethanol producer makes a gallon of fuel ethanol and attaches it to that gallon. It is nothing more than a tracking number. It is NOT a credit. When a gasoline producer buys the gallon of ethanol and blends it, the RIN is retired against the producer’s quota. If the producer blended more ethanol than their quota, they could strip the RIN and sell it. But as of next year producers will have to blend more than 100% of their ethanol quota and there will be no stripped RINS, except for a minuscule few that are generated from loopholes, so there will be no way for any producer to buy a RIN for ethanol they didn’t blend to meet their quota. They will have to buy ethanol and blend it or pay a fine and the fines are huge and are daily. The reality is that no one is talking about what they are going to do with all of the extra ethanol for which they won’t have any gasoline to blend it into, and what they are going to do about the mounting fines. That’s what the media should be discussing; that and the fact that nobody is producing Renewable Fuel [E85] as defined by the RFS.

This is precisely why that small producer in Louisiana asked for a waiver, and in fact every small producer should apply for one. And the big producers are going to have to ask for a waiver for all the ethanol they can’t blend. Of course I have no idea what is going to happen when there is no ethanol-free fuel at all because there can’t be.

Dean Billing

Comments

  1. gas prices will keep on increasing as we know that the its production is less but its is consuming at much higher rates.

  2. Kent Misegades says:

    Credit for this information goes to Dean Billing, one of the few people in our country who really understands the laws concerning ethanol, and the impact these are having on our fuel supply. As one oil expert describe America’s ethanol policies a few years ago, it is all a train wreck in progress. Unfortunately, aviation is caught in the middle of a multiple train wreck with the pressures to curtail the use of leaded avgas. Few among our well-paid aviation alphabet leaders seem to understand the reality faced by the true sport aviator in the United States today.

  3. I just want to say thanks for the information. It is really difficult to understand the insanity of the government, and the environmentalists.

    As Greg pointed out, follow the money, it’s greed and robbery in it’s rawest form!

  4. I think the government is taking advantage of the citizens of The United States.

    The price of aviation fuel is over $ 6.50/gallon.

    In 1978 it was $ 1.25/ gallon

    It’s putting General Aviation out of business

  5. General Aviation: The future? No more 100LL, no more mogas without ethanol. Now what?

    • Dietrich Fecht says:

      As long as it`s insisted on special fuels for GA the future is dark. Special fuels are and will ever be much more expensive than auto fuels form street gas stations. In the long run the only way for a less dark future for private and sport flying is to have planes which are able to consume the same fuels as street autos. And when street auto fuels are not offered at airports one solution are roadable planes which drive to auto gas stations.

      • I agree with you on the fact that planes and cars should use the same fuel. Although Roadable airplanes are not ready yet and the ratio of airplanes to car is probably 1 to 500.
        But definitely corporate america has a hand in this. Prices should not be that high at the pump.

  6. Coming from Europe, where we pay the price of Gas at the pump, more than twice what you pay in the US (today, imagine when you were paying 2 USD per US Gal), I can tell you that the real reason behind this is taxation. People must buy gas, hence the state, the corporations make sure they getting the max out of your pocket.

    • Kent Misegades says:

      Good point Greg and what I experienced working as an engineer for a decade in Germany. Gasoline is a world commodity, so fuel distributors must all pay essentially the same price for refined fuels, regardless of the country. Sales and excise taxes vary widely by country and state. Our own federal and state governments make a huge amount of money off fuel sales, 57.6 cents per gallon in my state of NC, compared to a few pennies per gallon that the gas station sees as a net profit. Plus, the government did nothing to locate, extract, refine and distribute the fuel. In many cases today, these governments actively block oil company attempts to find more oil that would ultimately lower prices. Everything the government touches turns to excrement.

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