I currently live in the state with the lowest gas prices in the nation (according to the
AAA daily fuel gauge report. Today's average for regular unleaded was $2.41. Hawaii has the distinction of having the highest prices ($3.11).
This started me thinking about why Utah has the lowest gas prices and what drives local variation in gas prices. So here's what I've found (based on information from the
Department of Energy.)
Here's what makes up the cost of gasoline:
1999
Crude Oil %37
Federal/state taxes %36
Distribution and Marketing %14
Refining costs %13
2004
Crude Oil %47
Federal/state taxes %23
Distribution and Marketing %12
Refining costs %18
Let's talk about
taxes first:
Federal taxes on oil are approximately 19 cents/gallon. From what I've been able to find, that's been fairly stable over the past few years.
State taxes average at 21 cents/gallon, but there's a fair amount of variation in that. (The range is from 8 cents in Alaska to 33 cents in Wisconsin. See the full list
here.) In addition, eleven states charge sales tax on top of the regular gasoline excise tax.
Refining costs vary quite a bit from region to region. Part of the reason gas in California is more expensive is the level of refining mandated by the state. (Of course, this means the gas burns cleaner and causes less pollution.) As an interesting note, most of the refineries that produce gas that meets California's standards are actually located in the state; and those refineries generally need to operate at full capacity to meet demand. Big state, lots of people, big economy, lot of need for gas.
And on
distributing and marketing...this is the cost of getting the gas from the refinery to the pump, plus whatever profit margin tacked on to that. The gas stations owned directly by oil companies (Exxon, BP, etc.) obviously have a much larger profit margin at the pump than independent gas stations (and the profit goes directly back to Exxon, etc.). But here's the catch, most gas stations are actually independently owned, but have contracted with a major gas company to sell "brand" gasoline, and advertise themselves as Exxon (for example). These independents must enter into a contract to purchase their gas at certain prices in order to be able to advertise as being a "brand." And the prices they are contractually held to are higher than if the independent had purchased gas on the open market. Of course, the gas giants are good at selling the "advantages" of carrying their brand, and many of us tend to prefer a name-brand station to a no-name local. But here's the point of this: the high gas prices we pay at the pump do some to benefit the actual owner of the gas station, but in reality (surprise, surprise) the vast majority of the profit goes to the big gas company.
Next,
crude oil:
The cost of crude oil hit another high today of over $70/barrel. Even adjusting for inflation, this is higher than during the oil crisis of the 1970's.
This is a really interesting webpage correlating crude oil prices with world events, oil production and various other things.
So why is crude oil so expensive? Well, that's the million dollar question, ain't it? And many long treatises are written on it, but here are a few issues: price controls from OPEC, changes in amount of oil production in OPEC countries, political instability in oil-producing regions, decreasing availability of easily accessible oil deposits, increasing demand, etc.
This last bit is an important one. Increasing demand. There are a wide range of estimates on how much oil is left worldwide, but the issue isn't just how much is left and how long it will last, but also how will production match demand.
Here's a quote from, my favorite politician, Dick Cheney in 1999:
"By some estimates, there will be an average of two-percent
annual growth in global oil demand over the years ahead,
along with, conservatively, a three-percent natural decline
in production from existing reserves. That means by 2010 we
will need on the order of an additional 50 million barrels a
day."
The current global production is about 75 million barrels/day. Most reliable sources say we have between 20 and 50 years worth of oil left, but the cost will continue to rise as the resource becomes more scarce.
And this is all happening when oil companies are posting record profits. Imagine what their profits will look like in ten years when oil is even more scarce and demand has increased dramatically.
Life After the Crash is a really excellent (very well researched) blog on oil, running out of oil and what everyone is saying. It's interesting reading.
