Gasoline Price Changes - Federal Trade Commission

THE DYNAMIC OF SUPPLY, DEMAND, AND COMPETITION
Box 4-2: Pipeline Transportation of Gasoline
Refined product pipelines typically are regulated by the Federal Energy Regulatory Commission or
state regulatory agencies. The price of transportation on regulated pipelines represents a small
percentage of the total cost of gasoline. For example, the average cost of moving a gallon of gasoline
by pipeline 1,000 miles from the Gulf Coast to the Chicago region is approximately $0.02. At typical
pipeline speed of between 3 and 8 miles per hour, such a trip would take approximately 12 days. See
Cooper 8/2 at 1; Jacobs 5/8 at 109; Coleman 8/2 at 129. See PETROLEUM MERGER REPORT 164-65 for
discussion of pipeline regulation.
Pipeline owners and others report that pipeline expansion is difficult for many reasons, including the
difficulty of obtaining construction permits. Cooper 8/2 at 4; see also Jacobs 5/8 at 117, 171; Morgan
5/8 at 125. Nonetheless, several pipeline expansion projects to allow Gulf Coast gasoline to reach the
Midwest and the Southwest are underway or have been completed; such projects can significantly
improve access to gasoline supplies in those areas.
If an area must obtain refined petroleum from marine transport, a federal statute known
as the Jones Act 36 increases the transportation costs. The Jones Act requires that any product
transported by vessel between U.S. ports be carried in domestically-built ships staffed by U.S.
crews, which is more expensive than carriage by foreign-built, foreign-staffed ships. A recent
government estimate of the total welfare cost of the Jones Act for all tanker shipping is $656
million dollars a year, based on the assumption that a foreign ship has operating costs of only 59
percent of a Jones Act ship. 37 The observed cost of transportation of refined petroleum products
from the Gulf to the West Coast, $0.10 to $0.25 per gallon, 38 implies that the Jones Act imposes
an additional cost of about at least 4 cents per gallon when it is necessary to transport gasoline
using Jones Act ships. 39
1. The Gulf Coast (PADD III) has plentiful access to gasoline supplies.
The Gulf Coast has long had the greatest number of refineries, as well as the largest
amount of refining capacity, of any region in the United States. 40 Gulf Coast refineries together
have the capacity to produce a much greater quantity of gasoline than the region demands. As
Figure 4-6 shows, PADD III’s gasoline production in 2003 (roughly 1.3 trillion barrels of
gasoline) far exceeded its gasoline consumption in 2003 (roughly 479 million barrels).
As a result, the Gulf Coast supplies a large proportion of the gasoline sold in the U.S. As
shown in Figure 4-7, in both 1986 and 2005, Gulf Coast refining capacity represented
approximately 46 to 47 percent of the refining capacity in the U.S. Although the relationship
among PADDs in terms of percentage of U.S. refining capacity has changed relatively little since
the 1980s, PADD III’s increase in refining capacity from 1986 to 2005 – from around 7 million
barrels per day to just over 8 million barrels per day – was the greatest of any PADD. See Figure
4-8.
CHAPTER 4: THE REGIONAL LEVEL 81