Logistics, policies keep US gasoline prices high, Senate panel told

A combination of limited transportation choices, unplanned refinery outages, and outmoded federal policies helps keep US gasoline prices high despite continuing US crude oil production growth, witnesses told the US Senate Energy and Natural Resources Committee.

“Currently, transportation constraints are limiting the full impact of domestic crude oil production, but these constraints are expected to ease in the coming years,” US Energy Information Administration Administrator Adam Sieminski said.

Several pipeline projects that are either proposed or currently under way should increase crude deliveries from inland sources to major refining centers, primarily on the Gulf Coast, Sieminski testified. More Bakken crude also is moving by rail, he said.

Despite current limitations, however, increased US crude production is forcing members of the Organization of Petroleum Exporting Countries to increase spare production capacity, putting downward pressure on global crude prices and therefore making a repeat of the 2008 oil price spike to $147/bbl unlikely in the coming months, he added.

Regional price volatility is a result of unplanned refinery outages that only keep prices high for 6-8 weeks, Sieminski continued. “Lower US crude prices are going to be reflected in refining margins,” he said. “What the difference allows is for refiners to upgrade their facilities to allow better use of that light sweet crude.”

Policy problems

“We are in a world of $100[/bbl] crude oil. We do not expect a significant drop in prices this summer,” Valero Energy Corp. Chief Executive Bill Klesse said. The nation’s largest independent refiner has benefited from lower US natural gas prices and, with other US refiners, kept utilization rates high so some products can be exported while domestic demand is satisfied, Klesse told the committee.

Although it is also a major US ethanol producer, Valero expects problems with the federal Renewable Fuels Standard’s Renewable Identification Number fuel credit program will cost the company as much as $750 million this summer, Klesse said. “We believe ethanol will be part of this country’s fuel mix, but the RIN program needs to be fixed,” he said, adding that it supports substantial RFS reforms or outright repeal because of additional significant problems.

Jeff Hume, vice-chairman for strategic growth initiatives for Continental Resources Inc. in Oklahoma City, said restrictions on US crude oil exports should be lifted so lighter crudes can reach overseas customers wanting to replace imports from Iran and other foreign producers.

“To reduce costs at the pump and on the monthly heating and cooling bills, it makes economic sense to let the marketplace, not the federal government, determine where these barrels should be processed,” Hume said.

Contact Nick Snow at nicks@pennwell.com.

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