The Gas Price Hike

By Michael T. Klare, AlterNet. Posted May 2, 2001.

Americans are discovering to their dismay that the price of gasoline is rising all over the country, foreshadowing a summer of costly fuel use. Some experts predict gas prices will rise to $2.50 or even $3.00 per gallon in some areas of the country -- a level that will put many American businesses, and American family budgets, into trouble. Typically, politicians and the media are blaming the rise in prices on refinery overload and stiff environmental regulations. But it is clear that the dramatic spurt in prices is due as much to deep structural problems in the U.S. energy supply system.

Americans use more petroleum products than any other population on earth. According to the U.S. Department of Energy (DoE), the United States consumed about 7.1 billion barrels of oil in 1999, or one-fourth of the world’s total consumption. Much of our oil intake is devoted to transportation -- especially to road (automobile and truck) transportation. To produce sufficient gasoline for this purpose, U.S. refineries are now operating at near-capacity levels.

In the first instance, then, the current hike in gasoline prices is caused by increased pressures on America's overburdened refineries. With summer coming on, Americans are driving more, and this, in turn, is pushing demand ahead of supply -- an automatic impetus for price increases. Environmental regulations also mandate a switch to cleaner-burning fuels in the summer (so as to reduce the risk of smog), and this, too, is contributing to the imbalance between supply and demand.

One can conclude the easy solution to our gas price problem is to quickly expand U.S. refinery capacity and to soften or eliminate existing environmental regulations. In fact, this is the solution favored by many in the Bush Administration. But it will not be possible to expedite the construction or expansion of refineries without trampling upon many state and local land-use restrictions, and a weakening of environmental standards will increase the risk of severe pollution. Clearly, this is not the easy solution it might appear.

Furthermore, the construction of new refineries (assuming that all regulatory obstacles can be overcome) will only lead to another, more complex problem: how to obtain sufficient crude oil to satisfy the growing U.S. demand for gasoline and other petroleum products.

The United States was once self-sufficient in the production of oil, but rising demand and declining reserves have long since obliterated that happy condition. According to BP Amoco, U.S. oil production dropped from 9.2 million barrels per day (mbd) in 1989 to 7.8 mbd in 1999, a drop of 15 percent. At the same time, U.S. consumption rose by 11 percent, from 16.7 to 18.5 mbd. This means the United States has had to import an ever increasing share of its petroleum from abroad -- jumping from about 45 percent of total consumption in 1989 to 58 percent in 1999.

It is likely, moreover, that the share of U.S. oil coming from abroad will continue to rise in the years ahead. Although increased drilling in Alaska and the Gulf of Mexico may help to slow the decline in U.S. production, it will not be possible to prevent a long-term slide as most major fields in the United States have already been fully or substantially depleted. Like it or not, we will have to import more petroleum from Latin America, Africa and the Middle East.

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