Gasoline Price Changes - Federal Trade Commission

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GASOLINE PRICE CHANGES: refinery did not rise above 60,000 barrels of crude per day, but average refinery capacity rose quickly once the controls were lifted: • 1983 – 65,300 barrels per day; • 1993 – 80,900 barrels per day; and • 2003 – 112,500 barrels per day. By 2004, the average total refining capacity of a U.S. refinery had reached 113,400 barrels per day. 33 The increased average capacity reflects the cost savings known as “scale economies” that are available to larger refineries. All else equal, scale economies make larger refineries more efficient than small refineries. A variety of references place the minimum efficient scale for a refinery – that is, the smallest size at which most cost savings from larger size are achieved – between 150,000 and 200,000 barrels per day. 34 This range is roughly equivalent to the range suggested by a survey of refinery operating costs in 1998, 35 and coincides with the minimum efficient scale identified during the FTC’s hearings on these issues. 36 See Box 3-5. Box 3-5: Trend Toward Fewer, Larger Refineries Despite the trend toward greater average size, there remains a wide range in capacities among operating refineries. The largest U.S. refinery had a capacity of 557,000 barrels per day as of January 2004, 37 on the other hand,14 refineries still were operating with capacities of 10,000 barrels per day or less during 2004. 38 A small refinery’s cost disadvantages from small-scale operation may be offset if it is located near an area of crude oil production or strong gasoline consumption, so that transportation costs are low, or if it is able to serve a niche market. 39 Nonetheless, the general trend toward larger refineries suggests that such offsetting factors are becoming less important. 40 52 As the average size and sophistication of U.S. refineries have grown, the number of U.S. refineries has declined. The number of operable refineries in the U.S. fell from 223 in 1985 to 149 in 2004, continuing a general trend of at least 60 years. Most refinery closures have involved small, relatively unsophisticated refineries. In addition to being small, many of the closed refineries could not produce higher-valued refined products. The National Petroleum Council found that about half of the refineries closed between 1990 and 1999 did not have facilities normally associated with producing finished gasoline. Some recent closures have related to large investments required to meet new fuel specifications. For example, in 2001, Premcor closed its Blue Island, Illinois refinery, with a crude distillation capacity of about 76,000 barrels per day, because it would have had to invest about $70 million to meet new refined product specifications. See generally PETROLEUM MERGER REPORT, infra note 23, at 181-82. FEDERAL TRADE COMMISSION, JUNE 2005
THE DYNAMIC OF SUPPLY, DEMAND, AND COMPETITION 2. U.S. refineries have adopted more efficient technologies and business methods. U.S. refiners have found processing methods that broaden the range of crude oils that they can process and allow them to produce more refined product for each barrel of crude processed. In addition, they have lowered inventory holdings, thereby lowering inventory costs. a. Downstream processing units have increased refineries’ abilities to process different kinds of crude and produce more high-value refined product for each barrel of crude processed. One way to assess a refiner’s capacity is to measure its capability to process crude oil by atmospheric distillation, which involves the separation of crude oil fractions by heating and cooling. This is the most basic and least sophisticated of refinery processes. The capacity of a refinery’s downstream processing units, which break down, build up, or otherwise treat the hydrocarbon molecules in crude oil, also influences a refinery’s production capabilities, however. Nearly all refineries have both atmospheric distillation and downstream processing units. Downstream processing units enable a refinery to use a wider array of crude oils, including lower-quality, lower-priced crude oil. For example, new technology in downstream processing has given some refineries the ability to make high-value products from sour crude. 41 This enlarges the universe of potential crude oil suppliers. 42 In addition, increased downstream capabilities generally allow refiners to make a greater amount of higher-valued products, such as gasoline, from a given barrel of crude oil. Downstream technology also has allowed refiners to make a broader variety of refined products, including gasoline with more demanding environmental specifications. The downstream capabilities of U.S. refineries have increased significantly since the 1980s. For example, Figure 3-8 shows that between 1997 and 2004, total industry downstream charge capacity increased from 31.6 million barrels per day to 35.9 million barrels per day, an increase of 6.3 percent. 43 Consumer demand for products such as gasoline and diesel has motivated investment in downstream processes that can increase the yield of these products from a given barrel of crude. Downstream processing units also have been important in allowing refineries to comply with new environmental regulations, as discussed in Section (IV)(B) infra. Other technological improvements also have permitted refinery operating costs to decrease. 44 CHAPTER 3: THE NATIONAL LEVEL 53
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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
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3. Gasoline prices in the East Coas
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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 79: Capacity (Million Barrels per Calen
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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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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THE DYNAMIC OF SUPPLY, DEMAND, AND
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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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