Monday, July 11, 2011
Perspective and Gasoline Prices
Last time I referred to organizations that obstruct efforts to build oil refineries. These, for the most part, are well-meaning organizations run by well-intentioned people. The problem is that they often get so wrapped up in their cause that they lose perspective, the balance between the necessary and the extraordinary; they lose the concept of moderation. In the case of gasoline prices they protest and challenge in court each proposal to build a new refinery or drill a new well on the basis of safety or environmental conservation. This leads to a chokepoint in the gasoline supply line, which leads to higher prices.
Refining is a necessary step in producing petroleum products. The crude oil is pumped out of the ground or extracted from oil sands, then transported to the refinery where it is converted into gasoline, lubricating oil, diesel fuel, kerosene and a number of other products. These are then transported to market. When refineries are concentrated in one part of the country, as they are today, problems arise. First, severe weather can shut down many of them. Also, the cost of the second leg of the transportation adds to the price. When a hurricane hits the Gulf Coast, much of the refinery capacity in the US is in peril. People in other states who have supported the fight to ban refineries have contributed to the resulting high prices. Alternative refinery capacity is limited. There may be plenty of oil at the time, but not enough can be processed into gasoline – so prices rise.
Everyone pays for the cost of these decisions. Some have contributed to these special interest groups, giving them the funds to carry out the court challenges and to produce ad campaigns soliciting public support for their cause, that of forbidding the construction (or drilling) in a particular location. As the system works today, it is then up to the companies to prove they will not cause problems (assumption of guilt), rather than the interest groups to prove that they will. At the end of the day, all end customers for gasoline, you and I, pick up the legal costs, which are passed along in higher prices, plus the cost brought about by the supply and demand imbalance. It is our basic weakness of perspective, buying into the arguments that the air is never clean enough or the environment never safe enough that drives these problematic outcomes. Behavior has consequences, and we pay more at the pump.