There are two things I really hate: high gasoline prices and daylight saving time (DST). You may not connect the two topics but if you were riding a bus to school in rural Pennsylvania during the energy crisis of the early 70s, the two might be indelibly linked in your memory. In 1973, OAPEC (Organization of Arab Petroleum Exporting Countries) implemented an oil embargo against countries who had opposed them during the Yom Kippur War, and the energy crisis began. Gasoline prices nearly tripled and gas became scarce as rationing developed in many states. Congress passed legislation to make DST permanent, aimed at cutting energy consumption, to help alleviate the situation. Since the January sun normally rises in Pennsylvania around 7:30 a.m. EST, the change meant sunrise occurred around 8:30 a.m. EST, so school buses operated in total darkness. This combined with single-digit temperatures created a miserable and dangerous experience for many school children. The government’s solution was to issue small reflective stickers for clothing, called “Hot-Dots,” to make children across the state more visible to traffic. More than fifty years later, we no longer have Hot-Dots, but the surges in gas prices remain.
Why am I talking about the energy crisis, OPEC and the 70s? It’s because the single most often asked question to those of us in the energy industry these days is, “Why does a war in the Middle East still create surging prices at the gas pump in Houston? Isn’t the U.S. a net energy exporter and the world’s largest producer?” Gasoline prices increased by about 50% this year, similar to the changes in 1974, so the question is a valid one. When the DoE was formed a few years later, one of the primary reasons given was to stabilize energy security which many of us interpreted as gasoline availability and prices. It was reasonable for Americans to believe we would take long-term actions to stabilize one of the most important consumer products and to lessen our dependence on a very unstable region of the world, which is not exactly enamored with America to begin with. So, what happened?
The standard answer to the question is that oil is a commodity, and no matter where it comes from, the price is determined by global supply and demand. Since crude oil represents about half of the cost of gasoline, the impact is felt globally at the gas pump. The government has limited if any ability to impact pricing, even if they wanted to, since conservation during shortages is important. The current Strategic Petroleum Reserve contains about 100 days of crude oil at current consumption rates, with limited daily withdrawal available, as a benchmark.
Another critical factor is that gasoline is a refined product and refineries are designed for specific types of crude oil, typically heavy crude oil from Venezuela or Canada in the case of the U.S. The lighter and more valuable Texas oils are typically not used for gasoline production and are exported at similar rates to foreign imports. The Jones Act is another contributor to high gasoline prices. Under the Jones Act, only U.S.-flagged and -manned ships may leave and subsequently enter a U.S. port. Since there are very few U.S.-flagged oil tankers (or LNG tankers), it is simply not legal to transport oil from one U.S. port on the Gulf Coast to New Jersey, for example.