Gasoline Price Changes - Federal Trade Commission

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GASOLINE PRICE CHANGES: did not build any new refineries during this time, however. Rather, they added this capacity through expansion of existing refineries. See Box 3-4. Box 3-4: No New U.S. Refineries for <strong>Gasoline</strong> Since 1976, But One Is Now Planned. Since 1976, no new refinery has been built in the U.S. with the primary purpose of producing gasoline. Of the variety of factors that likely contributed to this, one may be economies of scale. Because an existing refinery may become more efficient by becoming larger (up to a certain point), it may make more economic sense to expand existing refineries than to build a new one. Another factor may be declining U.S. crude oil production. In earlier years, U.S. refiners often sited refineries near crude production facilities to reduce transportation costs and ensure a steady supply. The opportunities for such economies have declined with the decline in U.S. crude production. Other factors likely include costly and extensive permitting and licensing requirements mandated by various federal, state, and local environmental and other laws, as well as community opposition. In addition, relatively low refinery profitability may not justify the investment required to surmount these hurdles. The EIA reports that, from 1977 to 2003, the return on investment in refining and marketing assets averaged 6 percent per year. This is just over one-half the average return on investment in crude oil production assets (10.3 percent) and pipeline assets (10.9 percent) during the same time period. See PETROLEUM MERGER REPORT 72, 193-95 (updated with EIA data through 2003). Although new entry into refining in the U.S. has been widely regarded as very unlikely, plans for a new refinery in Arizona are now moving forward. The output of such a refinery could ease West Coast gasoline prices. See Tony Illia & Tom Armistead, $2-Billion Petroleum Refinery in Arizona Would Be First in 28 Years, MCGRAW HILL CONSTRUCTION ENGINEERING NEWS-RECORD, Nov. 1, 2004, at http://www.construction.com/NewsCenter/Headlines/ENR/20041101e.asp. a. Historical background: government regulations in the 1970s encouraged excess crude oil refining capacity and overbuilding of U.S. refineries. Figure 3-7 shows total U.S. crude refining capacity on a yearly basis for 1949-2004. Between 1949 and 1969, total crude oil refining capacity gradually increased, from 6.2 million barrels per day in 1949 to 11.7 million barrels per day in 1969. The number of U.S. refineries during that period generally declined, from 336 refineries in 1949 to 279 in 1969. 50 FEDERAL TRADE COMMISSION, JUNE 2005
Capacity (Million Barrels per Calendar Day) 20 18 16 14 12 10 8 6 4 2 0 1949 1951 Source: EIA THE DYNAMIC OF SUPPLY, DEMAND, AND COMPETITION Figure 3-7: U.S. Refining Capacity (Atmospheric Crude Distillation) and Number of Operable Refineries (1949 to 2003) 1953 1955 1957 1959 1961 1963 1965 1967 Refining Capacity Number of Refineries 1969 1971 1973 1975 The 1970s, by contrast, saw rapid increases in both total crude refining capacity and the number of refineries. In 1973, total U.S. crude refining capacity was 13.6 million barrels per day, produced by 268 refineries. By 1981, total U.S. crude refining capacity had peaked at 18.6 million barrels per day, produced by 324 refineries. During that time, government controls on crude oil prices and allocation favored small refineries, which provided incentives for companies to open and operate small, inefficient refineries, including many that produced little or no gasoline. 30 After the government controls were eliminated in 1981, a large number of small, inefficient refiners exited over the course of a number of years. By 1991, the total refining capacity of U.S. refineries was reduced to 15.7 million barrels per day, and the number of U.S. refineries had fallen to 202. 31 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 b. General trends: the increased size and capacity of an average U.S. refinery reflect economies of scale. Over the entire 55-year time period from 1949 to 2004, one trend remained relatively constant: the average crude refining capacity of a U.S. refinery has continually increased. This trend goes back at least as far as 1918, when the average refinery capacity was only about 5,000 barrels per day. 32 In 1949, the average U.S. refinery could process only 18,500 barrels of crude per day. By 1969, that had increased to 41,900 barrels of crude per day. During the period of government controls favoring small, inefficient refineries, the average refining capacity of a U.S. CHAPTER 3: THE NATIONAL LEVEL 51 2001 2003P 500 450 400 350 300 250 200 150 100 50 0 Number of Refineries
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Federal Trade Commission DEBORAH PL
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GASOLINE PRICE CHANGES: The vast ma
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GASOLINE PRICE CHANGES: $ The World
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GASOLINE PRICE CHANGES: expect incr
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GASOLINE PRICE CHANGES: Figure 3-6:
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GASOLINE PRICE CHANGES: $ Increased
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GASOLINE PRICE CHANGES: $ Since 199
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GASOLINE PRICE CHANGES: increase lo
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GASOLINE PRICE CHANGES: England and
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Table of Contents EXECUTIVE SUMMARY
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C. In 2004, the Geopolitical Outloo
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CHAPTER 4: SUPPLY, DEMAND, AND COMP
Page 27 and 28: 3. Gasoline prices in the East Coas
Page 29 and 30: CHAPTER 1. SUPPLY (INFLUENCED BY OP
Page 31 and 32: To obtain the additional supply the
Page 33 and 34: THE DYNAMIC OF SUPPLY, DEMAND, AND
Page 35 and 36: Price (Cents per Gallon) 220 200 18
Page 37 and 38: words, short-run demand for gasolin
Page 39 and 40: Endnotes THE DYNAMIC OF SUPPLY, DEM
Page 41 and 42: CHAPTER 2. WORLDWIDE SUPPLY, DEMAND
Page 49 and 50: Thousand Barrels per Day 18,000 16,
Page 55 and 56: Million Barrels per Day 0.9 0.8 0.7
Page 61 and 62: such as ethane, ethylene, and propa
Page 65 and 66: CHAPTER 3. SUPPLY, DEMAND, AND COMP
Page 75 and 76: Year-over-year Percentage Change in
Page 77: THE DYNAMIC OF SUPPLY, DEMAND, AND
Page 91 and 92: Endnotes THE DYNAMIC OF SUPPLY, DEM
Page 97 and 98: CHAPTER 4. SUPPLY, DEMAND, AND COMP
Page 99 and 100: Price Difference (Cents per Gallon)
Page 107 and 108: Millions of Barrels 1,500 1,250 1,0
Page 111 and 112: Millions of Barrels per Day 9 8 7 6
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THE DYNAMIC OF SUPPLY, DEMAND, AND
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CHAPTER 5. STATE AND LOCAL POLICIES
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Percentage of Customers Lost to 1%
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Retail Price (cents per gallon) 220
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Share (Percent) 80 70 60 50 40 30 2
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Price (Cents per Gallon) 200 190 18
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6. GAO, supra note 5, at 20. 7. Id.
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Herfindahl-Hirschman Index (HHI) Th
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Gasoline Price Changes - Federal Trade Commission

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