The question I get the most from pilots is “why are the oil companies charging so much for gasoline?”
The simple answer? Because they can.
Actually, there are a lot of reasons, but the main three causes of higher prices are high crude prices, lack of refinery capacity, and the culture of the gasoline sales organization.
The crude oil price is set by the international market and OPEC, the Organization of the Petroleum Exporting Countries.
To understand how they operate, just ask yourself: If I could get paid any amount for my work, how much would I ask for?
It probably wouldn’t be $10 an hour. You’d probably ask for as much as you could, but not so high that it would bankrupt the company you work for.
That is what OPEC and the crude oil market is doing. With the Russian invasion of Ukraine, the market saw a shortfall, so the demand for crude oil from non-Russian sources went way up — and so did the price.
On the refinery side, I do not believe a new refinery has been built in the United States in about 50 years. However, several have shut down.
That means that all of the increased demand needs to be covered by existing refineries or importing refined product.
Most people think a refinery can just increase output when demand goes up. But it’s not that easy to change output and maintain the best efficiency.
To significantly increase output at existing refineries or build a new refinery would cost billions or maybe even trillions of dollars and take many years to do. So, the amount of gasoline available in the United States is basically a fixed amount.
And with the worldwide shortage, the availability of imported refined product is very limited and high priced.
That brings us to the culture of marketing gasoline. Everyone from the service station operator to the vice president of sales have their performance and pay based on the amount of money they return to the house (i.e., the company).
This means when there is a fuel shortage, every stage of the organization must maximize the price/return to retain their position and/or get the next promotion. This is true for the service station operator to the district salesman on up to the CEO.
At each stage of gasoline sales — from the refinery on down to the pump where you get your fuel — prices are raised as much as possible. That is until demand finally drops. Once sales slow down, prices drop.
What About Avgas?
Refining and selling avgas is different than automobile gasoline.
The biggest difference? The size of the market.
During a presentation on unleaded fuel at SUN ‘n FUN 2022, it was noted that 180 million gallons of avgas are burned each year around the world.
“That’s equal to between three and four hours of car gas,” said Mark Baker, president and CEO of the Aircraft Owners and Pilots Association (AOPA).
Another striking difference? Avgas is batch blended, as opposed to in-line blending for mogas.
What is in-line blending? To create mogas, crude oil comes into the refinery and goes through distillation and other refining processes to blending and then out a pipeline without ever seeing a tank.
But 100LL avgas is a specialty product, which means it is tank blended to ensure that it meets all of the applicable requirements before it is released for shipment. It is then shipped by rail or truck to distribution plants or FBOs.
So the price you pay for fuel at the airport is dependent on the price of crude oil, competition — or the lack thereof — and how far your airport is from a refinery that produces 100LL.
Today there are only three companies producing 100LL at a handful of refineries. And all of it must be shipped by rail or truck because 100LL cannot be shipped by pipeline because of the lead component.
The next stage is the FBO, which doesn’t have much choice as to where to get fuel, so competitive pricing is out.
And, of course, the FBO then has to add in its mark-up to cover its costs and keep the doors open.
A lot of people in general aviation think that going to an unleaded fuel will reduce the price since it will be able to be shipped by pipeline.
Maybe.
Looking at just one of the unleaded fuels, General Aviation Modification Inc.’s 100UL, it will all depend on how many refineries can — or will — produce the ultra-high octane alkylate.
Many refineries are capable, but the increase severity of the process will reduce yield. With increase severity, the process is run slower so that more of the lower octane components are lost, more energy is used, and the octane is increased. It is like boiling a pot of coffee to enrich the flavor, but the amount of coffee decreases.
Other questions also need to be answered, such as what will be the availability of the high octane supplement? Will the reduced shipping cost offset the savings of getting rid of the leading process?
I applaud GAMI’s efforts and wish them well as they have many hills to climb.
But even with the lead out, the price and competition in the avgas market will probably not change much.
all of the miltary aviation around the world is stockpiling gas for training an the high chance of world war.
FEAR and GREED set the prices. As said in this article if you can set your own salary how much would you want to be paid? GREED is the motivator setting the unacceptable high prices. If you can collectively stop or at least reduce substantially the consumption FEAR takes over and prices drop. Sometimes they drop to or below the cost of production. The key is a balance, a price low enough to bring in purchasers and make enough profit to continue production. Unfortunately energy producers in our capitalist society shoot themselves in the foot. Honestly and fair trade practices are almost impossible to find today. When you fail to govern yourself you invite government regulation. We all know how well that works, right? Until a better system is discovered we will have to continue with GREED and FEAR.
I am so glad I burn no alky mogas AND that I can buy it locally.
They need to careful, there are only so many geese that lay golden eggs, and they are getting rarer as they are killing them off.
Back in 2020 when the US oil industry was on the ropes because of CovID and Trump saved it with some serious negotiations to cut world wide oil production thru second quarter of 2022 (that’s right, 2022 – a coincidence that gas prices are dropping now? No… it’s partially because that agreement that saved Texas is now ending and supply is ramping back up – albeit slowly because it is one heck of a long supply chain).
But, if you read carefully on the subject, you’ll also read that several other pragmatic factors are at play. In the past, there have been spikes in refined gas prices that coincided with maintenance at major refineries (regular refinery maintenance is required that reduces output). When these maintenance schedules coincide across refineries, the supply is reduced. Since CovId, maintenance workers are harder to find and these maintenance periods have increased in duration.
For the speculators and to satisfy that emotional “because they can charge more”, there is the realization that sank in during 2020 that low prices are not the friend of the US oil industry.
Gas prices are making flying your private plane economically unacceptable.
Used aircraft prices are unreasonably high. The bubble will burst just like the real estate crisis of 2008.
Definitely not a good time to buy and operate a private aircraft for general aviation.
I imagine that it’s a few factors;
– high crude oil prices
– higher crack spreads
– higher shipping costs by truck – higher fuel costs
– higher cost to ship TEL from England.
using G100UL will eliminate the TEL and maybe the trucking cost, but the other costs will remain….at least for the near future.