This California license plate, “Gas Pain,” might be the sly joke of a gastroenterologist, but it’s not on a Mercedes. So let’s stipulate that it means pain at the pump, with a gallon of regular gas stuck for months at around $4.40. This kind of price is as usual fueled by investor speculation and an oil industry that cuts supply to drive up profit. But the license plate could just as well be about a different kind of gas–a big increase in greenhouse gas emissions by the state’s oil refineries.
California refineries “emit 19–33% more greenhouse gases (GHG) per barrel [of crude oil] refined than those in any other major U.S. refining region,” according to a recent report for the Union of Concerned Scientists. The reason is a corresponding increase in the amount of heavier, dirtier crude oil processed, including dark, sticky tar sands oil from Canada. The gasoline produced at the end of the process is no dirtier–but the gases that could otherwise come from your tailpipe are going up the refinery smokestack instead.
A story in Inside Climate Today points to requirements that refiners remove sulfur pollutants from gasoline and diesel fuels. Such scrubbing is harder to do with the cheaper, dirtier tar oil, and refiners may emit more carbon pollutants during a longer refining process, especially as they try to squeeze out more fuel from every barrel of oil.
California isn’t yet capping refiinery pollution, and this week delayed putting financial teeth in planned emission caps. Pardon us for thinking oil industry lobbying could have had something to do with it.
No one is forcing refiners to buy Canadian tar oil–refiners want because it’s cheaper than lighter oils and produces a bigger profit. It’s the same reason oil companies are demanding their high-volume Keystone XL pipeline from Canada to Texas, which could make California refinery pollution look like a clear day in spring. Exxon Mobil officials won’t even admit that the tar oil is dirtier to refine. From a Texas story on the pipeline:
An ExxonMobil spokesperson refused to specify how much heavy crude the company’s refineries are already processing in Texas or might process if the pipeline is completed. Nor would the company respond to questions about how refining tar sands oil affects the amount of air pollution created by the plants.
Extra profit also comes from U.S. refiners exporting gasoline and diesel fuel at record rates. Fuel is now America’s top export, even as refiners import the dirtiest oil to make it. Domestic pump prices go up and the refinery pollution burden on Americans goes up while other nations reap the clean fuel.
Californians are already buying and driving cleaner cars and cutting consumption. All families prize clean air, but those who live near refineries are suffering more, not less, pollution. There’s “gas pain” for everyone except the oil industry and its servants in government, as in a Congress that won’t even trim the industry’s billions in corporate welfare.
1. April 2012 at 7:28 pm
Do you really believe that the oil industry conspires to withhold supply from the market?
3. April 2012 at 3:54 am
Dear Rob, I’m amazed that anyone could write, link and post the five comments below in six minutes. That’s even harder to grasp than speculative effects in the oil and commodity markets!
3. April 2012 at 6:51 am
Simple copying and pasting, obviously, from previously written text.
Let’s not dwell on irrelevancies. I’d be more interested to hear your views on what the facts I posted say about oil industry supply manipulation.
3. April 2012 at 7:38 pm
Here is an authoritative study by Houston’s James A. Baker Institute, showing the effects of speculation and calling flatly for regulation of speculative trading. It’s not an outlier position.
http://www.forbes.com/sites/robertlenzner/2012/02/27/speculation-in-crude-oil-adds-23-39-to-the-price-per-barrel/
4. April 2012 at 5:52 am
I was not addressing speculation. I was addressing your claim that the industry intentionally limits supply to raise prices. The facts indicate you are wrong.
The link you provided was a Forbes Magazine article, not any study by the Baker Institute. The article doesn’t really define what it means by “speculation,” or whether that speculation is malicious in nature. You assume it is. But I think any premiums placed on a commodity, not just oil, is a reflection of fear in not obtaining sufficient supply and therefore the willingness to pay a premium to insure it. No one has proven, to my knowledge, that anything illegal is going on.
In fact, the EIA said the opposite. It said in a 2006 study that speculation could be expected to increase in times of high price volatility because sellers and buyers need to insure themselves against extreme price swings. In times of low volatility, the demand for insurance is much lower.
Here are a few quotes from the Baker study you referenced:
“If the story was as simple as “its all because of speculators” then it would be difficult to explain other markets, for example the natural gas market. A variety of issues must be true, which leads us to a perfect storm argument, see “Speculation: A Cause or Symptom” available at http://www.bakerinstitute.org/publications/EF-WWT-Speculation-091808.pdf.
“Another dangerous misconception is that “excessive speculation is creating a bubble so vast that it has become the sole driver of oil prices.”
– This refers to the lunatic fringes of the argument.
– A more appropriate argument is that speculation has exacerbated underlying signals in the fundamentals.”
and finally…
“So, it should be reasonable to examine this issue. The trouble is we simply do not have the market transparency to make any definitive conclusions.
– This makes the issue hotly contested, and to both sides the answer is obvious.”
I would not say that this is a glowing endorsement of your speculation as driver hypothesis. No one has definitively proved speculation is a) a major factor, or b) price manipulative. You just assume it is. The Baker study doesn’t support you in this at the present time.
3. April 2012 at 12:51 am
As to your comments on intentional supply manipulation, there is plenty of evidence that this is untrue.
3. April 2012 at 12:52 am
Like this for example:
Total wells drilled in the US have increased by 102% (from 2,085 to 4,217) since the depths of the economic collapse in early 2009. The count is up by 301% since the last oil price collapse in 1998/1999. I have a feeling that the reason all of these wells were drilled was to increase supply, but we can check that next.
Source: http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=E_ERTW0_XWC0_NUS_C&f=M
3. April 2012 at 12:52 am
Or this:
US oil production has increased by almost 20% in the past 5 years. Pardon us for thinking that oil industry investment could have had something to do with it.
Source: http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MCRFPUS2&f=M
3. April 2012 at 12:53 am
Or this:
US proved oil reserves have increased by 60% in the past 5 years.
Source: http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=RCRR9907NUS_1&f=A
3. April 2012 at 12:53 am
Or this:
In the past 8 years, the US seismic crew count has soared by 76%. This is a leading indicator which implies an intent to continue along the path of accelerated upstream supply investment.
Source: http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=E_ERTCES_XS0_NUS_C&f=M
3. April 2012 at 12:54 am
Or this:
US refinery inputs are up by 34% since 1986, about in keeping with ovulation growth. It costs billions of dollars to make the refinery capacity upgrades required to bring this extra supply to the US public. Ms. Dugan would have readers believe that the American refining industry invested billions in expansion, only to turn around and shut it in to reduce output. If the intent of a conspiracy is to reduce supply, wouldn’t it have been a lot more lucrative for the conspirators if they had simply agreed to not make the investment and keep supply down?
Source: http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MGIRIUS2&f=M
3. April 2012 at 12:55 am
Or this:
15 years ago, the US was importing about 500,000 barrels of gasoline per day. By the peak of demand in 2007, that figure had risen to a maximum of 1,569,000 barrels per day. Currently, the US oil and gas industry imports 576,000 barrels per day. If the intent of the conspiracy is to reduce supply to drive up profits, why do they import any gasoline at all, let alone triple imports between 1997 and 2007?
Source: http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WGTIMUS2&f=4
3. April 2012 at 12:56 am
Or this:
As of 2009, US natural gas reserves had increased by 66% since 2000, due to innovative new technologies combined with a 414% increase in the number of gas wells drilled since 1999. As a result of the vastly increased supply of natural gas, wellhead prices have collapsed by about 65% in the past 5 years as production has climbed by 20%. Ms. Dugan’s charge that speculators and a supply-manipulating industry create high gasoline prices is flatly contradicted by natural gas data: the same companies and speculators trade in both commodities. Ms. Dugan ignores the obvious.