Gasoline Price Changes - Federal Trade Commission

THE DYNAMIC OF SUPPLY, DEMAND, AND COMPETITION
Access to gasoline supplies varies within PADD V itself. For example, two states in
PADD V – Alaska and Hawaii – are not contiguous with the U.S. and therefore must rely on instate
refineries and marine transport for gasoline supplies. Washington state has refineries;
Oregon has none, but receives gasoline from refineries in Washington state and California.
Washington state and Arizona receive some small pipeline shipments from the Gulf Coast and
the Rocky Mountain states, and Arizona has pipeline connections through which it can receive
gasoline from California refineries. Some deliveries of Gulf Coast gasoline arrive in California
by tanker, but California relies heavily on its own refineries. 59
In recent years, new projects have been planned, and one completed, to increase access to
gasoline supplies in the Southwest. Arizona may benefit from gasoline deliveries by the newly
completed Longhorn pipeline, which moves gasoline from Houston to west Texas, and thus
permits Gulf Coast gasoline to be shipped west of El Paso on other pipelines to destinations such
as Phoenix and Tucson. 60 Plans have been announced to build a refinery in Arizona, which
currently has none. 61
California, however, remains relatively isolated from other regions, in part because it
lacks pipeline connections with other major refining regions in the U.S. 62 and in part because of
its environmentally mandated fuel. The Clean Air Act Amendments of 1990 mandated three
specialized fuels in order to improve air quality – RFG, wintertime oxygenated gasoline, and
conventional gasoline. 63 As noted in Chapter 3, the air quality within the U.S. has greatly
improved due to the clean fuel programs. 64 In addition, California instituted its own, more
stringent fuel requirements. In 1992, Phase I of the California Air Resources Board (CARB)
gasoline regulations went into effect and required new specifications for less volatile
summertime gasoline and detergents and began the phase-out of leaded gasoline. Additionally,
as of 1992, California’s winter maximum oxygen content by weight was lowered to 2.0 percent,
lower than the 2.7 percent allowed in other states. Since 1992, CARB has continued to require
cleaner, and thus more expensive, gasoline in California than is required in other states. In 1996,
California started Phase II of its CARB program. The CARB Phase II program incorporates a
stricter quality and emission standards than mandated in other states by the federal RFG Phase II
program, which began in 2000. As of January 1, 2004, California also banned the use of MTBE
as an additive in gasoline and requires the use of ethanol as an oxygenate instead. 65
C. Regional Differences in Annual Average Real Retail Gasoline Prices by
PADD over the Past 20 Years Suggest that Less Ready Access to Gasoline
Supplies, Especially When Combined with Boutique Fuel Requirements,
Contributes to Higher Annual Average Real Retail Gasoline Prices.
Demand and supply conditions differ across the nation, as discussed above. In particular,
regional differences in ease of access to gasoline supplies from refineries or pipelines, as well as
some boutique fuel requirements, appear to influence gasoline prices. Table 4-1 below shows
annual average real gasoline prices, excluding taxes, for each PADD from 1984 to 2004.
CHAPTER 4: THE REGIONAL LEVEL 87