Gas pump blues: Realists see few short-term fixes to lower gas prices
For drivers in the St. Louis region who are watching gas prices edging upward at their local service stations, there is good news and bad news.
On the positive side, the average cost of gasoline in St. Louis -– about $3.62 a gallon this weekend -– was in the lower third of U.S. cities, ranking 50th lowest of the 165 cities surveyed by GasBuddy.com. The priciest gas ($4.43) was in Santa Barbara, Calif., and the cheapest ($3.16) in Colorado Springs, Colo.
Click here to see a map showing gas price variations.
Of course, the prices at the pump are better on the Missouri side of the Mississippi River, where lower state gas taxes kept the average price at $3.56 a gallon, ranking 11th lowest among the states. On the other side of the river, the average Illinois price was $3.94, the seventh highest average gasoline price among states.
On the negative side, energy and government experts say, gas prices are expected to keep rising this spring. And most proposals floated by politicians -– on Capitol Hill, on the presidential and state campaign trails, by Democrats as well as Republicans -– are unlikely to lower prices in the short term.
“There are no quick fixes or silver bullets,” President Barack Obama asserted in a speech Thursday in New Hampshire, warning people to deploy their “political bull detector” when they are told that politicians “have these magic three-point plans to make sure that you’re only paying $2-a-gallon gas.”
That seemed to be a veiled reference to GOP presidential contender Newt Gingrich’s “two-fifty plan," which contends that gas prices can be reduced to $2.50 a gallon by cutting regulations, increasing offshore drilling and other domestic production, and approving construction of the Keystone XL pipeline, which would run from Canada’s oil sands to the Gulf Coast.
But many energy experts say that international events and trends in the coming months -– ranging from Iran’s threats to close off oil-tanker traffic through the Strait of Hormuz to reports on China’s rising consumption of gasoline -– as well as speculation in the crude oil marketplaces are likely to have the biggest impact on prices. Also, the slow recovery of the U.S. economy has increased the demand for fuel.
Moreover, U.S. gas prices tend to be cyclical, spiking in the spring and summer, when demand is highest, and dropping in the fall and winter, when people travel less. So even if drivers are paying more at the pump in the next few months, those prices are likely to drop later in the year.
In his speech, Obama said, “America is producing more oil today than at any time in the last eight years,” and he asserted that his administration’s consistent, long-term energy strategy has been “to increase safe, responsible oil production here at home while also pursuing clean energy for the future. We don’t have to choose between one or the other; we've got to do both.”
But Republicans, many of whom plan to make gas prices and overall energy policy a major campaign issue this year, contend that it is Obama’s administration that is generating the “political bull.” They argue that excessive regulations by federal agencies during the president’s first three years have impaired what could have been far more energy production and increased gas prices, which have doubled since January 2009.
“The president said he was for an ‘all of the above’ strategy” on energy, Sen. Roy Blunt, R-Mo., said in the Senate last week. “Apparently, the regulators don’t know about this . . . [and] seem to have no clue that the ‘all of the above’ strategy of coal and natural gas and oil needs to be part of what we’re doing as we invest in the future.” He added: “We ought to be doing all we can to produce all the competitive energy we can on our own.”
On Saturday, the GOP response to Obama's weekly address
blamed rising gas prices on the administration's energy policies.
Complaining that spiking gas prices are "a huge drain on our economy,"
the chairman of the House Natural Resources committee, U.S. Rep. Doc
Hastings, R-Wash., called for more drilling in federally owned and
offshore areas as well as quick approval of the Keystone XL pipeline
and loosening regulations on the oil industry.
For her part, Sen. Claire McCaskill, D-Mo., says she backs more energy production, approving the Keystone pipeline, tapping oil from the Strategic Petroleum Reserve, investigating possible oil industry price-fixing and cutting Big Oil tax breaks.
But, in an “Energy Myths and Facts” statement that she posted Friday to her website, McCaskill argued that Republicans exaggerate the impact of current regulations, underestimate the increase in domestic oil production in recent years -– and overestimate the likelihood that more oil drilling would have a short-term impact.
Would Keystone XL pipeline lower prices?
One solution that many GOP lawmakers suggest to help lower gas prices -– at least in the medium term -– is granting approval to the proposed $7 billion Keystone XL pipeline.
Last week, pipeline builder TransCanada announced that it would start construction of the southern part of that pipeline, which does not require federal approval. But U.S. Rep. John Shimkus, R-Collinsville, and other Keystone proponents complained when Obama did not approve the entire pipeline in January, citing the need for an environmental review of a rerouting demanded by Nebraska.
Shimkus, who is in the GOP leadership of the House Energy and Commerce Committee, contended in an interview that “this administration bears some responsibility for high gas prices” because of its strict regulatory policies, including the Keystone decision. But he acknowledged that the pipeline, which would take years to build, would not have a short-term impact on gas prices.
The House already has approved legislation to override Obama’s rejection and require approval of the Keystone XL project, and the Senate is expected to vote on a similar amendment to the transportation bill this week. Several Democratic senators, including McCaskill, have said they back the project, so it could well pass.
While the Keystone project would create many construction jobs, there is far less clarity in its impact on gas prices -– even though the chairman of Shimkus’ energy committee, Rep. Fred Upton, R-Mich., predicted last month that the pipeline would “help bring down prices at the pump.”
A recent report by Bloomberg News quoted some energy experts as predicting that the pipeline might, in reality, lead to increased gas prices -– possibly by as much as 20 cents a gallon -– in the Midwest, Great Plains and Rocky Mountains. That is because the project would “create a new way to carry Canadian [oil] imports outside the Midwest and reduce the surplus that is depressing prices in the central U.S.”
Officials at TransCanada have predicted that the Keystone XL would “help reduce pressure on gasoline prices” in much of this country when completed. But a “fact check” article Friday in the Washington Post -– examining the truth of Upton’s “help bring down prices at the pump” statement -– found that “oil experts disagree on whether prices will be affected, but those who believe as a matter of economics that it will ease prices say the impact will be modest.”
How about oil from Strategic Petroleum Reserve?
Another option, backed by McCaskill and many other Democrats, would be for Obama to approve the release of oil from the nation’s Strategic Petroleum Reserve. With nearly 700 million barrels of crude now filling about 96 percent of the reserve’s storage capacity, they reason that releasing some oil could help drive down prices.
When Obama approved a release of 30 million barrels of oil last year -– as part of a coordinated international release of reserves to respond to shortages caused by instability in Libya -– gas prices fell temporarily by about 6 percent. The reserve was also tapped in 2005 after Hurricane Katrina toppled oil rigs in the Gulf Coast.
While a substantial release of oil might have a temporary impact on gas prices, many analysts believe that the reduction would be relatively small and short-lived. Last week, House Speaker John Boehner, R-Ohio, told reporters that “just releasing [oil from the reserve] without coordination with our allies throughout the world, all it does is shift where the supply is coming from.”
Some leading Democrats also have doubts, including Senate Majority Leader Harry Reid, D-Nev., who said last week that the reserve “is to be used in case of an emergency.” But Sen. Dick Durbin of Illinois, the second-ranking Senate Democrat, said he “would not rule that [release] out if there isn’t a move in the right direction” on gas prices.
While a White House spokesman Jay Carney says the Obama administration is keeping open the option, Boehner said after meeting with the president on Thursday that he was cool to the idea. “It didn't appear to me that the president believes using SPR would have any meaningful effect on gas prices,” Boehner told reporters.
Shimkus told the Beacon that many Republicans would oppose a release from the reserve now. “That oil reserve is there for an emergency, such as if there is an altercation in the Persian Gulf area and the sea lanes are closed,” he said. “It would be a mistake to tap into that reserve now.”
Would crackdown on speculation or price fixing help?
Another proposed option that might have an impact on gas prices would be a federal regulatory crackdown on alleged price fixing by oil producers and refiners.
Complaining that “higher gasoline prices are having a significant negative
economic impact on American consumers and on the American economy,” McCaskill and Sen. Chuck Schumer, D-N.Y., asked the chairman of the Federal Trade Commission in a letter Thursday to move quickly to wrap up its price-fixing inquiry, which they and other senators had requested when gas prices spiked last year.
Other Democrats also have joined in the call to scrutinize pricing schemes. Alleging “rampant speculation” in the oil markets, Reid and House Democratic leader Rep. Nancy Pelosi, D-Calif., also called for FTC scrutiny of the industry last week.
“The [FTC] investigation into whether refiners are actually manipulating the
market to keep prices artificially high is critical -- as is timely issuance of the results of such investigation,” McCaskill and Schumer wrote in their letter.
In a statement to the media last week, the FTC confirmed that its price-fixing investigation “is active and ongoing. We are keenly aware of the impact high gasoline prices have on consumers.” However, a spokesman declined to predict when the inquiry would be finished or to speculate about its findings.
Experts say that, based on past experience, it would be difficult for the FTC to find clear evidence of anticompetitive practices or efforts to manipulate oil prices. And even if it does, they say, any quick impact on gas prices would be questionable.
A similar FTC inquiry in 2006 found that oil firms did not cause an increase in prices by restricting refining capacity or reducing inventories. And last fall, an FTC report said that crude oil prices were the main contributor to U.S. gasoline prices, with far less impact from consolidation in the oil industry.
Charles T. Drevna, president of the National Petrochemical and Refiners Association, told the Beacon during the gas-price spike last year that a drop in the dollar’s value and concerns about future Middle East oil supplies had increased oil prices.
He denied allegations that U.S. refiners and distributors had taken advantage of oil costs to burn consumers. Drevna said U.S. refiners "are doing everything we can to trim costs and prevent a total pass-through [of crude oil price hikes] on to the consumer."
What about cutting tax breaks for Big Oil?
In his speech Thursday, Obama urged Congress to repeal billions in tax breaks now enjoyed by the oil industry. “Every time you fill up the gas tank, they’re making money,” he said of the Big Oil companies. He also called for repealing those tax breaks in his weekly address on Saturday.
While the president and many Democrats hope that the Big Oil tax debate will strike a chord with people who are paying more for gas but seeing oil company profits soar, it appears unlikely that such a move would have much impact on prices at the pump.
In fact, Boehner said last week that removing tax breaks might increase gas prices.
“A freshman-year economics student could tell you that increasing taxes on energy production would make gas prices go up, not down,” Boehner said.
Another problem is that Congress is not likely to approve the tax change, mainly because oil-state Democrats are aligned with Republicans to oppose the bill. Last May, the Senate failed to advance a bill that McCaskill, Durbin and other Democrats had advocated to end tax breaks for the five biggest oil companies, which earned a combined profit of $137 billion in 2011, despite producing 4 percent less oil than in 2010.
Other than the tax fairness and deficit reduction, the main arguments for removing the subsidies – projected to cost the government about $40 billion over a decade – are that such subsidies boost profits rather than production.
McCaskill and Sen. Susan Collins, R-Me., introduced a bill in December that proposed rescinding Big Oil’s tax subsidies, but the bill has gone nowhere. Democratic leaders have signaled, however, that another vote may be sought on a measure to end the tax subsidies.
Would relaxing ‘boutique fuel’ restriction lower prices?
This week, Blunt hopes to offer an amendment to the transportation bill that aims to make so-called "boutique" gasoline blends more reliable and affordable.
Such blends, required by St. Louis and many other cities during warm months to help meet federal air quality standards, help limit chemical emissions. But because so many different blends are required around the country, Blunt and other lawmakers, including Sen. Mark Kirk, R-Ill., contend that they can lead to higher gas prices if some blends are in short supply.
Interest groups such as the Association for Convenience and Petroleum Retailing -– which represents the nation's 117,000 convenience stores that sell fuel -– predict an impact on pricing because “the proliferation of boutique fuels has significantly deteriorated the efficiency of the domestic motor fuels distribution system.”
But others say that capping boutique fuels won't have much of an impact on gas prices. And environmental groups say eliminating such blends would hurt clean air quality. An energy bill approved in 2005 already limited the future growth of new boutique fuels and gave the EPA some authority "to waive boutique fuel requirements when necessary to help alleviate unexpected supply disruptions."
Drevna of the National Petrochemical and Refiners Association told the Beacon last year that he did not think boutique fuels are having much of an impact on gasoline prices and will have even less of an impact “as we go to cleaner and cleaner gasolines and blends with ethanol all over the country.”
In a Senate colloquy this week, Blunt said rising gas prices were having “a dramatic impact on families” in Missouri and across the country, and he backed an “all of the above” approach to hiking energy production and, hopefully, lowering gas prices.
While Blunt said he backed various efforts to conserve on fuel usage, he argued that “we cannot just conserve our way out of this” problem. “Let’s price our way out of this...We ought to be doing all we can to produce all the competitive energy we can on our own.”