Gasoline Price Changes - Federal Trade Commission

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GASOLINE PRICE CHANGES: Private Inventories (million barrels) 450 400 350 300 250 200 150 100 50 0 Source: EIA Jan-81 Jan-82 Figure 3-9: Crude Oil and Gasoline Monthly Inventories (1981-2004) Jan-83 Jan-84 Jan-85 Jan-86 Jan-87 Jan-88 Crude Oil, excluding SPR Motor Gasoline Jan-89 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 3. U.S. refineries have high rates of capacity utilization. Utilization rates measure the level of output a facility produces relative to that facility’s capacity. For example, a 100 percent capacity utilization rate would indicate that a factory is producing at its peak output level. Utilization rates reflect various factors, such as the relative strength of supply and demand, the ability to perform routine maintenance on the industrial system, and the amount of entry and capacity expansion that has occurred over time. Annual average rates of U.S. refinery utilization, based on atmospheric distillation capacity, have averaged above 90 percent in each year since 1993, when U.S. gasoline consumption first climbed above the levels of the late 1970s. At times, average domestic refinery capacity utilization has reached 95.6 percent. 45 U.S. refineries have had utilization rates above 90 percent before – for example, during the last half of the 1950s and from 1963 to 1973. 46 A variety of factors may contribute to high utilization rates, such as long run demand increases and lack of new entry. Moreover, several operational changes in recent years have encouraged higher utilization rates. Increased hardware reliability, more efficient maintenance procedures, and better-performing catalysts for downstream processing units have enabled refineries to operate more reliably at sustained rates of high capacity utilization. 47 One recent survey of refining executives indicated that a utilization rate of 96 percent is the maximum sustainable level. 48 56 FEDERAL TRADE COMMISSION, JUNE 2005
THE DYNAMIC OF SUPPLY, DEMAND, AND COMPETITION Based on EIA data, annual average capacity utilization rates have dropped somewhat from the peak levels of 1997 (95.1 percent) and 1998 (95.6 percent). 49 From 1999 through 2004, U.S. refining capacity utilization rates ranged from a low of 90.3 percent (2002) to a high of 92.8 percent (2004). These somewhat lower utilization rates may reflect the increased refining capacity, discussed above, which came into operation after 1998. 4. Nonetheless, new environmental regulations have required substantial investments in refineries, and a gallon of environmentally mandated gasoline costs more to produce than a gallon of regular gasoline. Gasoline use is a major factor in air pollution in the United States. 50 Consequently, Congress has enacted a variety of laws to attempt to ameliorate the effect of gasoline use on air quality. Beginning with the Clean Air Act Amendments of 1970, 51 and continuing with further Amendments in 1990 52 and the Energy Policy Act of 1992, 53 Congress has mandated substantial changes in the quality of gasoline, as well as diesel, that can be sold in the U.S. Many areas within the U.S. now are required to use reformulated gasoline (RFG) during certain times of the year to meet the Environmental Protection Agency’s (EPA) clean air requirements. 54 The EPA testified that there “have been tremendous improvements in U.S. air pollution” and that the clean fuel programs will continue to “play a significant role in helping keep our communities’ air clean.” 55 With the benefits of cleaner air, however, come the cost of higher gasoline prices. New environmental regulations required substantial investments, particularly at the refining level of the industry to refine a cleaner gasoline. Figure 3-10 shows environmental capital expenditures at the refining level during the 1990s and beyond, when many new environmental requirements were implemented. Refinery environmental investments peaked at $4.1 billion (in 2004 dollars) in 1992. During the 1990s, refinery environmental investments accounted for about 25 percent of total domestic refinery capital investment. Moreover, the American Petroleum Institute (API) estimates that slightly more than half of the oil industry’s environmental expenditures between 1992 and 2001 – estimated at $102 billion in 2004 dollars – were related to refining. CHAPTER 3: THE NATIONAL LEVEL 57
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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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CHAPTER 1. SUPPLY (INFLUENCED BY OP
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To obtain the additional supply the
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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 and 80: Capacity (Million Barrels per Calen
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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
Page 131 and 132: CHAPTER 5. STATE AND LOCAL POLICIES
Page 133 and 134: 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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