Gasoline Price Changes - Federal Trade Commission

GASOLINE PRICE CHANGES:
other times, as consumers take more driving vacations. The pipeline supplying gasoline to
Denver, Colorado, from the east generally was full and thus did not have the capacity to meet
increased summer demand in 2001-2004. To obtain additional gasoline supplies sufficient to
meet increased summer demand, Denver gas stations had to look to other, higher-cost suppliers.
This effect can be seen in Denver’s wholesale price of gasoline at different times of the
year. During the non-summer months in 2001-2004, Denver obtained its marginal gasoline
supplies by pipeline from the east, from an area linked to the Gulf Coast. Thus, during the nonsummer
months in 2001-2004, the wholesale price of gasoline in Denver reflected the wholesale
spot price for gasoline on the Gulf Coast plus pipeline transportation costs. In the summers,
however, the pipeline generally was full and unable to meet demand. Thus, Denver retailers had
to pay wholesale gasoline prices set by a higher-cost marginal supplier. 12 Differences during the
summer months averaged $0.114 per gallon between 2001 and 2004, but only $0.045 over the
other months during those years. 13
C. Boutique Fuel Requirements Can Affect Gasoline Prices.
The final examples in this section show how boutique fuel requirements may affect
gasoline prices. The first example illustrates price effects from limits on the ability to substitute
conventional for boutique fuel when a supply shortage hits. The second illustrates that, with
adequate planning and proper incentives, a transition between different types of fuel can be made
without price spikes.
1. In Detroit, the need to use environmentally mandated gasoline
exacerbated gasoline price spikes due to a pipeline break in June 2000
and refinery shutdowns during the blackout of August 2003.
In Michigan, only the greater Detroit area (basically, southeast Michigan) uses nonconventional
gasoline. In the late spring and summer, to reduce air pollution, consumers there
must use gasoline with less volatility. Using less volatile gasoline reduces the gasoline
evaporation rate and thus reduces the level of ozone-forming hydrocarbons released into the
atmosphere. 14 The environmental requirements for summertime gasoline in the greater Detroit
area mean that, when a pipeline break or refinery shutdown disrupts Detroit’s usual supplies of
less volatile summertime gasoline, Detroit wholesalers cannot substitute the conventional
gasoline that the rest of Michigan and many of the surrounding states use. Indeed, according to
then-Attorney General, now Michigan Governor Jennifer Granholm, when the Wolverine
pipeline broke in June 2000 (discussed above), the requirement for less volatile gasoline in the
greater Detroit area limited wholesalers’ ability to substitute gasoline supplies from Ohio,
Indiana, and Illinois, and therefore slowed the eventual decline in Detroit gasoline prices. 15
In August 2003, Detroit was part of a blackout during which 50 million North Americans
lost electric power. A Marathon Ashland refinery, which had been processing gasoline to meet
air quality requirements in the greater Detroit area, shut down for eight days. Other refineries
that supply the greater Detroit area also shut down due to the power outage. With refinery
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FEDERAL TRADE COMMISSION, JUNE 2005