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What Goes into the Price of Gasoline?

Gasoline prices are one of the more mysterious consumer conundrums of modern life. Up, down, up down – it seems like you never know what to expect when you scoot into the station for your weekly fill-up. Many in the media associate gas prices with crude oil prices worldwide, but this is only part of the story. So when you buy gas, where does your dollar go? The answer lies in the supply chain.

Crude Oil

As the base product in the gasoline you pay for at the pump, crude oil makes up around 73% of your gasoline dollar. But the fluctuating cost of this precious resource is anything but crude. To start with, there are several different kinds and qualities of crude oil – all of which are priced differently. Sweet, sour, heavy and light are just a few of the types of crude oil – and all of them require very different refining techniques, with the overall cost of refining light, sweet crude hitting almost double that of its heavier counterpart, sour crude.

Distribution and Publicity

The cost of moving gasoline around – both physically and in terms of how it’s sold to a market inundated with choice – constitutes around 6 cents in every dollar you pay to fill your car. A truly global commodity, crude oil is shipped all around the world by suppliers competing for an ever-hungry market. Refineries compete for lucrative refining contracts which could see the base product travel thousands of miles before it becomes saleable gasoline. From refineries, gas is shipped to massive distribution sites where it’s stored for the next stage in its journey to your car – the trip to the gas station. Interestingly enough, remote gas stations pay up to 10% more for the final product, so it’s always worth stocking up in the big cities before heading out on a long trip.

Publicity is another big factor in the price of gasoline. We only need to switch on the TV or radio, or jump online for a few minutes to get an idea of the huge sums of money oil companies are willing to spend to create brand loyalty amongst consumers. When the cost of marketing campaigns driven by distribution companies – gas station chains – is considered, it’s easy to see how another 6% of your gasoline dollar is evaporated. This also underlines how price wars can break out as different brands fight for that ever valuable commodity known as market share.

Taxes

Taxes are the final piece of the puzzle when it comes to knowing where your gas money goes. In the United States, taxes vary from state to state but on average make up around 11% of the price of gas. If that sounds a bit heavy-handed, spare a thought for motorists in Europe and Australia, where taxes can reach as high as 30% of the total cost! Overall, gasoline taxes can include federal and state excise taxes, state sales taxes, fees for oil inspection, gross receipts taxes, storage tank fees and other miscellaneous environmental costs.

The next time you break out your cash or credit card at the gas pump, remember that it’s much more than crude oil that influences what you pay.

Will Drilling in the ANWR Really Help?

In this world, there are a number of questions that have no easy answers. There are arguments both for and against these topics, but there remain no clear deciding factors. In these cases, the answer becomes a judgment call – and the judgment is very subjective. So it is with this question – “Will drilling in the ANWR really help?”

The ANWR stands for the Arctic National Wildlife Refuge, which is located in Alaska. The ANWR is an area of over 19 million acres of protected land along the Northern Slope of the state – an area that is larger than a number of other states combined. Recently, it has been proposed that we drill for oil in section 1002, an area of about 1.5 million acres.

The primary arguments for drilling are that the estimated oil reserves here could be between 5.7 and 16 billion barrels. This would mean a substantial increase in our domestic reserves and could help the American economy by lowering the foreign trade deficit between now and 2030, in an amount somewhere between $135 billion to $327 billion. Drilling in the ANWR has wide support among the people of Alaska, and proponents of drilling point out that the area that would be involved in the drilling would have a smaller environmental impact than the Los Angeles International Airport.

On the other side, the criticisms against drilling in the ANWR are aimed at the nature of the oil experts speculate will be found in the area. Unlike in Texas, where there are liquid oil reserves you can drill down into, the oil in the ANWR is in oil sand and oil shale. Recovering it would require drilling not straight down, but at several different angles underground. Environmentalists argue that this would impact the area above ground in a negative way. There’s also the matter of extracting the oil from the sand and shale, a process many argue is not as well developed as the oil companies would like us to believe.

Finally, there’s the matter of the native Alaskan peoples who oppose drilling in the ANWR, saying that it will cause cultural harm that can’t be repaired. They worry that drilling will impact the native food animals that make up 60 to 70 percent of their diets. In fact, representatives of more than 229 villages have officially opposed any development in the ANWR. Several native villages have found issues with the oil companies’ proposed ability to protect native species, leading the Kaktovik village to pass a resolution against Shell Oil declaring it necessary to take legal and other actions to defend the community.

With these kinds of arguments, it’s easy to see why the issue of drilling in the ANWR is in political limbo at the current time. However, arguments from both sides may become moot, as current president Obama has said that he will not support drilling in the ANWR. Only time will tell whether he sticks by his decision or whether the issue will simply be raised again once his time in office is over.

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