Saturday, May 06, 2006

Why Are Gas Prices So High?

On Gasoline - Past, Present & Future

(with excerpts from Richard Heinberg's book, "The Party's Over")

by Vachelle McFarland

"It's gasolicious!" -- American SUV owner, circa 2004 A.D.

"The oil industry is important to us." - Sen. Byron Dorgan (D-N. Dakota) 04/05/2006 via C-SPAN.

"Fraud is a crime of opportunity." - Rep. Gene Taylor (D-Mississippi) 06/13/06 via C-SPAN.

Sure is. I remember when corporate monopolism was considered by law to be deleterious to fair competitive struggle. It seems the laws have been changed to protect the strong. The rich can take care of themselves but those of us who live closer to the middle want our finances managed well by those we assign as caretakers.

I also remember the U.S. Constitution was written by 55 white men. Of course, I wasn't there but I read they gathered in a back room in a house in Philadelphia, PA., which was probably the first and only time political backroom dealings produced something good for this country. It's been roughly a couple of hundred years since it was written. Because of that hallowed and consensual document we tout ourselves as the greatest and most successful democracy in the history of humankind. But since that historically auspicious occasion what kind of a country have we become?

Responsible politics
means confronting real issues. There's much to be concerned about in today's world. We are a people who always talk about our Rights - how about some discussion of our wrongs? You know, it takes three lefts to make a right not two (or more) wrongs.

I'm sure (former) Secretary of Defense Donald Rumsfeld would characterize that as, "Stinkin' thinkin'."We may disagree on individual notions but we should all agree on what is fundamentally best for the majority of people here and elsewhere. We don't live in a vacuum. It's a mixing bowl/melting pot. But look at the stew we're making (menudo, anyone?).

It's a big, wide, world we live in and I'm enjoying life very much, thank you.
However, what of those who do not because of economic disenfranchisement with its attendant insecurities and hardships? What must that do to a person? I think it would cause much stress and unhappiness leading to anger and depression - i.e., chaos.

In a functional economy the goal is for everyone to work and contribute so all may prosper. In a dysfunctional and corrupt economy the goal is exploitation for profiteering purposes. Governments were created to manage populations. How and who does the managing is a most significant issue. The officials we choose (through votes) to administer this office are responsible for carrying out the wishes of the majority of the population (not just the voters) by the way they apportion our taxes.
I'm not one to "nickle and dime" things. As a downtown Los Angeles (micro-) businessman I understand the use of money as a tool - but to make large, speculative investments with the federal treasury to the point of bankrupting our nation is not something I can stand idly by watching with my mouth agape. As we spend literally $11 million dollars AN HOUR on the rapacious destruction of one of the greatest meccas of Civilization even as we shift the wealth of the U.S. into the hands of the superrich. (Bechtel? Halliburton?General Electric? )

I mean, where is all our money going? The CIA, the military, as well as the aforementioned corporate "contractors" are the main American occupiers, so perhaps their ledgers will yield some answers?

On the face of it--if you believe the hype--it appears most of us support the current administration. Being patriotic, being nationalistic , being proud of and loyal to your country are NOT right-wing notions - they are truly common left-wing American values that only appear co-opted by reactionary extremists. *Sigh* I only ask for something tangible to hold onto. Give me something real that I can feel, not some media-indulgent mass hypnosis to shape my view!

While we're waiting, I'd like to give you the 4-1-1 on the relatively short but aggressive history of the mechanics of oil and gas production in the United States. It may sound boring but surprises abound.

Let's begin with the present , look at the past , then extrapolate forward into the future.

I will illustrate 3 simple points:

1) The real price of gas for refiners.
2) The real cost of gas to the consumer.

3) The real chumps we Americans are.

U.S./World Fuel Prices

According to Dr Gerhard P. Metschies '
Guide to International Fuel Prices --{2005 4th Edition – 172 Countries ); Commissioned by the Federal Ministry for Economic Cooperation and Development (BMZ) Contact: Dr. Simon Koppers, Division 313 - Water, Energy, Urban Development, Tel.: +49 (1888) 535-3109}-- in 2005 the. . .

  • Price of Crude Oil on the World Market was 27 U.S. cents per Liter = 43 U.S. dollars per Barrel
  • Retail Price of Gasoline in the United States was 54 U.S. cents per Liter
  • Retail Price of Gasoline in Luxembourg was 119 U.S. cents per Liter

Note: The fuel prices of the United States are average costs covering retail prices including industry margin, VAT (Value Added Tax)and including approximately 10 U.S. cents for the two road funds (federal and state). This fuel price being without other specific fuel taxes may be considered as the international minimum benchmark for a non-subsidized road transport policy. The fuel prices of Luxembourg are the approximately minimum entrance level for new European Union accession countries.

So if it cost U.S. oil companies 54 cents per liter to sell gasoline to the public in 2005, why did it cost us about two dollars and 50 cents a gallon to buy it? Maybe it's for the same reason audio CDs cost about 75 cents each to make but are sold to us for about $12 -18 dollars. Some people call it unfair profitting through price gouging; others say it's fair profit due to what the market will bear. I think it 's more along the lines of the erroneously attributed P.T. Barnum motto: "There's a sucker born every minute!"

I Can't Afford My Gasoline!

Now let's be clear about the definition of gasoline: It is a volatile mixture of flammable liquid hydrocarbons derived chiefly from crude petroleum and used principally as a fuel for internal-combustion engines.

Hydrocarbons are molecules of varying length and complexity made of hydrogen and carbon. Their various structures give them their differing properties and thereby uses. The trick in the oil refinement process is separating and purifying these. All these different hydrocarbons have different boiling points, which means they can be separated by distillation. Gasoline is produced in oil refineries from crude oil via distillation.

Crude oil
is the term for "unprocessed" oil - the stuff that comes out of the ground . It is also known as petroleum. Crude oil is a fossil fuel, meaning that it was made naturally from decaying plants and animals living in ancient seas millions of years ago -- anywhere you find crude oil was once a sea bed . Crude oils vary in color, from clear to tar-black, and in viscosity, from water to almost solid. Once oil has been produced from an oil field , it is treated with chemicals and heat to remove water and solids, and the natural gas is separated . The oil is then stored in a tank , or battery of tanks , and later transported to a refinery , by truck , railroad tankcar , barge , or pipeline . Large oil fields all have direct outlets to major, common-carrier pipelines.

American History X

The basic refining tool is the distillation unit. Crude oil begins to vaporize at a temperature somewhat less than that required to boil water. Hydrocarbons with the lowest molecule weight vaporize at the lowest temperatures, whereas successively higher temperatures are required to distill larger molecules. The first material to be distilled from crude oil is the gasoline fraction, followed in turn by naphtha and then by kerosene . The residue in the kettle, in the old still refineries, was then treated with caustic and sulfuric acid, and finally steam distilled thereafter. Lubricants and distillate fuel oils were obtained from the upper regions and waxes and asphalt from the lower regions of the distillation apparatus.

Therefore, in the process of refining oil and producing high-end products, gasoline, naphtha, and kerosene were waste by-products that used to be dumped into rivers and streams. It wasn't until the incorporation of gasoline as a fuel to power internal-combustion engines that it was seen as having real add-on value. To reiterate: Gasoline was not invented, GASOLINE IS A WASTE BY-PRODUCT of the refining process, kerosene being the principal product.

In the later 19th century the gasoline and naphtha fractions were actually considered a nuisance because little need for them existed, and the demand for kerosene also began to decline because of the growing production of electricity and the use of electric lights. With the introduction of the automobile, however,, the demand for gasoline suddenly burgeoned, and the need for greater supplies of crude oil increased accordingly. Before internal combustion engines were invented in the mid-1800s, gasoline was sold in small bottles as a treatment against lice and their eggs. At that time, the word "Petrol" was a trade name. This treatment method is no longer common because of the inherent fire hazard and the risk of dermatitis , and because gasoline is a carcinogen, causing those who repeatedly use it on the skin over significant periods of time to develop cancerous growths .

In an email exchange with author Richard Heinberg dated 06/10/06 I asked if my assertion that it costs practically nothing for refineries to make gasoline was correct? My argument has always been the price of gasoline is strictly arbitrary, for other than the costs of chemical additives, transportation, and storage the price of gasoline is pure profit for the oil industry! In reality, the price of gasoline today should be around fifty cents a gallon!

Heinberg responded, "Well, refining is not free. There are definitely costs involved for heat, storage, pumping, and so on. . . Altogether, refining costs represent considerably less than 20% of the final cost of the product."

Back To The Future

In his book, "The Party's Over, Oil, War, and the Fate of Industrial Societies," Heinberg writes, "Oil has been the cheapest and most convenient energy resource ever discovered by humans. During the past two centuries, people in industrial nations accustomed themselves to a regime in which more fossil-fuel energy was available each year, and the global population grew quickly to take advantage of this energy windfall. Industrial nations also came to rely on an economic system built on the assumption that growth is normal and necessary, and that it can go on forever. When oil production peaks, those assumptions will come crashing down.
"So when Mike Bowlin , former Chairman of ARCO, said in 1999, " We've embarked on the beginning of the last days of the age of oil," he was voicing a truth that many others in the petroleum industry knew but dared not utter. Over the past few years, evidence has mounted that global oil production is nearing its historic peak. . . As we move from a historic interval of energy growth to one of energy decline, we are entering uncharted territory. It takes some effort to adjust one's mental frame of reference to this new reality. . .

"When the global peak in oil production is reached, there will still be plenty of petroleum in the ground - as much as has been extracted up to the present, or roughly one trillion barrels. But every year from then on it will be difficult or impossible to pump as much as the year before ."
Clearly, we will need to find substitutes for oil. But an analysis of the current energy alternatives is not reassuring."

Solar and wind are renewable, but we now get less than one percent of our national energy budget from them; rapid growth will be necessary if they are to replace even a significant fraction of the energy shortfall from post-peak oil.

Nuclear power is dogged by the unsolved problem of radioactive waste disposal. [Click here to participate in a Virtual Nuclear Plant Crisis demonstration.]

Hydrogen is not an energy source at all, but an energy carrier: it takes more energy to produce a given quantity of hydrogen than the hydrogen itself will yield. Moreover, nearly all commercially produced hydrogen now comes from natural gas - whose production will peak only a few years after oil begins its historic decline.

"Unconventional petroleum resources - so-called "heavy oil," "oil sands," and " shale oil" - are plentiful but extremely costly to extract, a fact that no technical innovation is likely to change.

"The oil peak will impact international relations," writes Heinberg. "Resource conflicts are nothing new: pre-state societies often fought over agricultural land, fishing or hunting grounds, horses, cattle, waterways, and other resources. Most of the wars of the twentieth century were also fought over resources - in many cases, oil. But those wars took place during a period of expanding resource extraction; the coming decades of heightened competition for fading energy resources will likely see even more frequent and deadly conflicts."

In the hands of the irresponsibly powerful the end results can be lethal to all humanity.Heinberg continues: "The US - as the world's largest energy consumer, the center of global industrial empire, and the holder of the most powerful store of weaponry in world history - will play a pivotal role in shaping the geopolitics of the new century.To many observers, it appears that oil interests are already at the heart of the present administration's geopolitical strategy.

"Here's a suggestion: Spend at least 20 minutes appreciating energy's role in the life of your city; imagine what the scene you are viewing would look like if there were 10 percent less energy available. What substitutions would be necessary? What choices would people make? What work would not get done? Now imagine the scene with 25 percent less energy available; with 50 percent less; with 75 percent less.

"Assuming that the peak in global oil production occurs in the period from 2006 to 2015 and that there is an average two percent decline in energy available to industrial societies each year afterward, in your imagination you will have taken a trip into the future, to perhaps the year 2050.

"The hard math of energy resource analysis yields an uncomfortable but unavoidable prospect: even if efforts are intensified now to switch to alternative energy sources, after the oil peak industrial nations will have less energy available to do useful work - including the manufacturing and transporting of goods, the growing of food, and the heating of homes.

"The consequences for global food production will be no less dire. Throughout the twentieth century, food production expanded dramatically in country after country, with virtually all of this growth attributable to energy inputs. Without fuel-fed tractors and petroleum-based fertilizers, pesticides, and herbicides, it is doubtful that crop yields can be maintained at current levels.

"This suggests a fundamental change of direction for industrial societies - from the larger, faster, and more centralized, to the smaller, slower, and more locally-based; from competition to cooperation; and from boundless growth to self- limitation.

"The likely economic consequences of the energy downturn are enormous. All human activities require energy - which physicists define as "the capacity to do work." With less energy available, less work can be done - unless the efficiency of the process of converting energy to work is raised at the same rate as energy availability declines. It will therefore be essential, over the next few decades, for all economic processes to be made more energy-efficient. However, efforts to improve efficiency are subject to diminishing returns, and so eventually a point will be reached where reduced energy availability will translate to reduced economic activity. Given the fact that our national economy is based on the assumption that economic activity must grow perpetually, the result is likely to be a recession with no bottom and no end.

"There is much that individuals and communities can do to prepare for the energy crunch. Anything that promotes individual self-reliance (gardening, energy conservation, and voluntary simplicity) will help. But the strategy of individualist survivalism will offer only temporary and uncertain refuge during the energy down-slope. True individual and family security will come only with community solidarity and interdependence. Living in a community that is weathering the downslope well will enhance personal chances of surviving and prospering far more than will individual efforts at stockpiling tools or growing food.

"Meanwhile, nations must adopt radical energy conservation measures, invest in renewable energy research, support sustainable local food systems instead of giant biotech agribusiness , adopt no-growth economic and population policies, and strive for international resource cooperation agreements."


If you've read this far, I thank you. And if you want to know more about Oil Depletion and The Collapse of the American Dream then I suggest the video, "The End of Suburbia," produced by documentarian Barry Silverton. If you're really ready to go down the rabbit hole of this worldwide culture change allow the following web link to be your starting place. Caution: the hole goes deep...The End of

(c. 2006) Vachelle McFarland