Gasoline Price Changes - Federal Trade Commission

THE DYNAMIC OF SUPPLY, DEMAND, AND COMPETITION
refineries may change their product mix to increase gasoline production. Depending on the
timing of the shortage, refineries also may choose to delay maintenance or otherwise increase
capacity utilization. A long-run shortage could encourage investment in additional capacity by
either local refiners or pipeline owners that would like the ability to bring additional supplies in
from other areas.
Tight capacity does not necessarily lead to higher short-run prices, but a lack of “surge
capacity” may extend the duration of a price spike. 31 Although excess capacity could alleviate
price spikes, building and maintaining extra capacity that may be used only occasionally would
involve costs that could increase average gasoline prices to consumers. 32 Required excess
capacity could involve costs not only for refining, but also for other stages of gasoline production
and distribution as well, such as pipelines and terminals.
III. REGIONAL DIFFERENCES IN ACCESS TO GASOLINE SUPPLIES MAY
LEAD TO REGIONAL DIFFERENCES IN RETAIL GASOLINE PRICES.
The examples above highlight ways in which differential access to gasoline supplies,
including environmentally mandated fuel, can affect wholesale and retail gasoline prices in
particular areas. We next examine each region’s annual gasoline consumption, the refining and
gasoline transportation infrastructure through which each region obtains gasoline supplies, and
one region in which year-round environmental fuel specifications significantly limit the
availability of substitute gasoline supplies. Finally, we compare retail gasoline prices in different
regions of the U.S. to assess whether they reflect some of the differences we have described.
A. Regions in the U.S. Differ in the Amount of Gasoline Consumed.
In the following examples, we describe regions in terms of the Petroleum Administration
for Defense Districts (PADDs) delineated during World War II and still used by the EIA as a
basis for data collection. See Figure 4-4. The PADDs are defined as follows:
$ PADD I is the East Coast, defined as Connecticut, Delaware, District of
Columbia, Florida, Georgia, Maine, Maryland, Massachusetts, New Hampshire,
New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, South
Carolina, Vermont, Virginia, and West Virginia.
$ PADD II is the Midwest, defined as Illinois, Indiana, Iowa, Kansas, Kentucky,
Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, Oklahoma, South
Dakota, Tennessee, and Wisconsin.
$ PADD III is the Gulf Coast, defined as Alabama, Arkansas, Louisiana,
Mississippi, New Mexico, and Texas.
$ PADD IV is the Rocky Mountains, defined as Colorado, Idaho, Montana, Utah,
and Wyoming.
$ PADD V is the West Coast, defined as Alaska, Arizona, California, Hawaii,
Nevada, Oregon, and Washington.
CHAPTER 4: THE REGIONAL LEVEL 77