High crude costs remain the single biggest force behind rising gasoline prices, said John C. Felmy, American Petroleum Institute chief economist, on May 9. But the current increase also reflects record US demand for gasoline during the first quarter, he told a US House special committee.
“In addition, the annual switchover to ‘summer blend’ required by [the US Environmental Protection Agency] has occurred and this warm-weather gasoline is more expensive to produce,” Felmy told the House Select Committee on Energy Independence and Global Warming. “The switchover requires a large supply drawdown to meet regulations.”
His testimony came a day after the Senate Commerce, Science, and Transportation Committee added an amendment that would make gasoline price gouging a federal crime to a bill aimed at improving automotive fuel efficiency requirements (OGJ Online, May 9, 2007). Two separate House subcommittee chairmen also have announced in the past week that they would hold hearings to investigate rising gasoline prices.
Felmy said the US Department of Energy forecasts continued strong gasoline demand through the summer driving season. “Moreover, nearly half of US gasoline is blended with ethanol, so as demand has gone up, ethanol prices and the cost of ethanol-blended gasoline have risen as well,” he said.
There also is less gasoline available to import as European refineries undergo spring maintenance, he added. A 17-day strike in March by French port workers also led some European refiners to reduce production, he said.
Crude stocks grow
US oil producers and refiners are responding to consumers’ price concerns, Felmy said. “Crude oil inventories have been building and, as of today, are 8.9% above the 5-year average for this time of year. Year-to-date gasoline production is 8.85 million b/d, the highest ever,” he said.
“Thanks to the industry’s major investments in state-of-the-art refining technology, our companies are squeezing out more gasoline and diesel fuel from a barrel of crude oil this year compared to past years. Looking ahead, we expect to bring the equivalent of eight new refineries into operation by 2011,” Felmy continued.
While rising gasoline prices are a burden to consumers, they cannot be isolated from the overall US energy situation, he said. “The solution to the energy challenges we face is to increase and diversify sources of supply, including alternatives; reduce demand and expand infrastructure,” he told the committee.
“We have plentiful oil and gas resources remaining to be discovered in the US-enough oil to power more than 60 million cars and heat more than 25 million homes for 60 years, and enough natural gas to heat an additional 60 million homes for 160 years. Only government policies stand in the way of increasing access to these resources, facilitating refining capacity and pipeline expansions, and increasing energy security,” Felmy said.
Four other witnesses-Sylvia Estes, president of Pipeline and Industrial Group in Virginia Beach, Va.; Michael Mitternight, owner of Factory Service Agency in Metairie, La.; Terry Thomas, chief executive of Community Bus Services in Youngstown, Ohio; and Donn Teske, president of the Kansas Farmers Union in McPherson, Kan.-testified about the impacts of higher gasoline prices on their businesses.
