By Steve Timko
RENO, NEVADA:
Gasoline prices are still 15 cents a gallon
away from last May's all time high for Northern Nevada, but
new highs could be set this summer, an American Automobile
Association spokesman said Tuesday.
Prices tend to rise in early spring, decline in late spring
and then spike in summer, said Michael Geeser, spokesman for
AAA in Nevada.
"The question no one can answer is where that leveling
off is going to be," Geeser said. "We had predicted
it would level off before now, but we didn't foresee some of
the geopolitical issues."
Middle East tensions are blamed for rising fuel costs, but
a $10-a-barrel increase in oil translates roughly to a 25-cent-a-gallon
hike at the pump, said Severin Borenstein, director of the
University of California Energy Institute.
A major factor driving up gasoline prices is lack of production
capacity at U.S. refineries, Bornstein said.
"We just have a real refinery squeeze going on right now," he
said. "It's worse in California than in the rest of country."
There has not been a refinery built in the United States since
1975, and there hasn't been one built in California since 1969,
Bornstein said. Northwestern Nevada gasoline comes from a Kinder
Morgan Inc. fuel line in California to the tank farm in Sparks.
Since price hikes are often tied to a shortage of gasoline,
building refineries would be the simple solution to reducing
prices, he said.
But efforts to promote different automobile fuel sources, such
as electricity and ethanol, and interest in cars that get better
gas mileage give refiners less incentive to build refineries,
Borenstein said.
Refiners are reluctant to put out the huge investments needed
to build more refineries, he said.
"Particularly if they realize the goal is moving away
from gasoline in the next couple of decades, because the payback
from refineries is in decades, not in years," Borenstein
said.
The refining industry is complex, and it's hard to peer in
and analyze if shortages are caused by problems like maintenance
and changeover in fuel blends, Borenstein said.
"When these scarcities occur, it's very difficult to tell
if they are real scarcities, because to some extent they surely
are, or artificial," Borenstein said.
If the supply won't increase, then Borenstein said the path
to lower gasoline prices is to reduce demand with different
fuel sources, higher-mileage cars and reductions in driving.
California refineries are making about 80 cents a gallon gross
profit on gasoline, more than double per gallon profits of
a few years ago, Bornstein said.
Profit figures cited by Borenstein are not the net profits
that refiners make in producing gasoline, said Joe Sparano,
president of the Western States Petroleum Association. Crude
oil costs, which rise because of problems including tensions
with Iran and taxes account for 70 percent to 80 percent of
the cost of gasoline, Sparano said. He noted that Nevada's
gasoline taxes of 51 cents a gallon were ninth highest in the
nation.
The cost and profit of refining gasoline and the cost and profit
in distribution and marketing accounts for the rest of the
price, Sparano said.
Refineries are not artificially manipulating prices, Sparano
said.
"There have been two dozen or more investigations in the
last 20 years by everybody from the Federal Trade Commission
to the California Energy Commission to ... attorney generals
in a number of states," Sparano said. "None of them
have found any illegal or improper conduct or any evidence
that companies have engaged in market manipulation."
California refiners are also switching from winter fuel in
which butane is allowed to remain in gasoline to summer blends
in which butane must be removed, said Susanne Garfield, a spokeswoman
for the California Energy Commission.
With spring comes a higher seasonal demand from regular drivers,
plus California's farmers are buying fuel so they can plant
crops and maintain their fields, Garfield said.
It's hard to speculate about whether prices will continue to
rise, she said.
"I'm optimistic that the refiners who are experiencing
problems are starting to pull that production back up," Garfield
said.
Reno Gazette Journal
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