Why gas prices are so high

[jimbee]

Eh, what's this nuclear thing? Some call this cheating.

Yeah, what do I know. Worked on utility generation systems for decades. I used to pretend being an electrical engineer.

Humans are just not rational.

 

[NW-Bound]

Just watching Germany having a hard time trying to go renewable using just solar and wind and not using nuclear, one does not have to be an engineer to see how hard it is.

European countries are now lighting up the old coal plants, and stockpiling coal for the winter. They don't do this unless they absolutely have to. When you are freezing in your dark and cold home and don't know how you will survive, you have to defer the problem of climate change.

 

[jimbee]

When you are freezing in your dark and cold home and don't know how you will survive, you have to defer the problem of climate change.

I was told that is a hoax.

 

[aja8888]

I was told that is a hoax.

The climate changes periodically all by itself as it has for 6 billion years on this planet.

 

[NW-Bound]

We are straying away from the topic of expensive gasoline, and into that contentious subject of climate change.

Independent of climate change, I still like renewable energy for many reasons. However, it is not that easy to cut out fossil fuel AND nuclear at the same time. In fact, current technology offers no tools to do it.

Germany is learning this, but they are not fully convinced of it. It will be interesting to watch.

 

[Exchme]

On the production side, the rise of US shale caused low prices and therefore low investment in oil and gas production worldwide since 2015. Companies needed to pull back to get out of debt and return money to investors. Then COVID collapsed demand and shut down exploration world wide. Supply chain problems are messing things up some more. Then Russia invaded Ukraine and send Europe scrambling for supply alternatives.

In refining, US refineries have been a bad investment for a long time. Many refineries have shut down as environmental and safety regulations tightened. Due to the poor financial environment, refiners have been disinvesting, pushing a bit more capacity here, stretching old equipment to run just a little longer there. Eventually many sold or shut down. A new refinery takes tens of billions of $ and five or more years to build and since fuels demand is declining in the US, it wouldn't be built here.

Think you are going to restart an idle refinery? Nah, these things don't shut down until they are worn out. It can take more to fix one up than to start over somewhere else.

Fundamentally, the low elasticity of demand and long project cycles mean we always have either too much supply to make industry happy or too little to make customers happy. Fortunately, we can go 15 years or longer between times when we have too little. Unfortunately, when we hit one of those supply crunches, it is painful since energy is in everything.

 

[ERD50]

Hybrid locomotives make a lot of sense, because the electric motor has a lot of torque to get the whole train moving from rest. And then, the diesel generator has high efficiency to keep the train going when it reaches the cruise speed. ...

Yes, and another advantage is that a big loco needs a lot of traction (difficult to achieve with steel on steel!) so therefore power to many wheels. It's pretty easy to put an electric motor on each axle, and have some flex in the cables so that axle can swivel. That's not easy with a mechanical drive train that has to handle all that torque from the engine.

-ERD50

 

[Winemaker]

That's got nothing to do with it.

I respectfully disagree. As aja stated, it's complicated. Summer/winter gas has cost differences for example. E10 and E15 gasoline as well, and I understand it is done to keep the air cleaner.

 

[jimbee]

I respectfully disagree. As aja stated, it's complicated. Summer/winter gas has cost differences for example. E10 and E15 gasoline as well, and I understand it is done to keep the air cleaner.

I agree that it's complicated.

 

[frayne]

On the production side, the rise of US shale caused low prices and therefore low investment in oil and gas production worldwide since 2015. Companies needed to pull back to get out of debt and return money to investors. Then COVID collapsed demand and shut down exploration world wide. Supply chain problems are messing things up some more. Then Russia invaded Ukraine and send Europe scrambling for supply alternatives.

In refining, US refineries have been a bad investment for a long time. Many refineries have shut down as environmental and safety regulations tightened. Due to the poor financial environment, refiners have been disinvesting, pushing a bit more capacity here, stretching old equipment to run just a little longer there. Eventually many sold or shut down. A new refinery takes tens of billions of $ and five or more years to build and since fuels demand is declining in the US, it wouldn't be built here.

Think you are going to restart an idle refinery? Nah, these things don't shut down until they are worn out. It can take more to fix one up than to start over somewhere else.

Fundamentally, the low elasticity of demand and long project cycles mean we always have either too much supply to make industry happy or too little to make customers happy. Fortunately, we can go 15 years or longer between times when we have too little. Unfortunately, when we hit one of those supply crunches, it is painful since energy is in everything.

Excellent analysis of the problem.

 

[Mark1]

On the production side, the rise of US shale caused low prices and therefore low investment in oil and gas production worldwide since 2015. Companies needed to pull back to get out of debt and return money to investors. Then COVID collapsed demand and shut down exploration world wide. Supply chain problems are messing things up some more. Then Russia invaded Ukraine and send Europe scrambling for supply alternatives.

In refining, US refineries have been a bad investment for a long time. Many refineries have shut down as environmental and safety regulations tightened. Due to the poor financial environment, refiners have been disinvesting, pushing a bit more capacity here, stretching old equipment to run just a little longer there. Eventually many sold or shut down. A new refinery takes tens of billions of $ and five or more years to build and since fuels demand is declining in the US, it wouldn't be built here.

Think you are going to restart an idle refinery? Nah, these things don't shut down until they are worn out. It can take more to fix one up than to start over somewhere else.

Fundamentally, the low elasticity of demand and long project cycles mean we always have either too much supply to make industry happy or too little to make customers happy. Fortunately, we can go 15 years or longer between times when we have too little. Unfortunately, when we hit one of those supply crunches, it is painful since energy is in everything.

+1 (Although, I might take exception to the "tightening in safety regulations" comment)

 

[Exchme]

I respectfully disagree. As aja stated, it's complicated. Summer/winter gas has cost differences for example. E10 and E15 gasoline as well, and I understand it is done to keep the air cleaner.

Yep, it's about air pollution. The patchwork of different grades of gasoline certainly does cost a lot of money to manufacture, blend, transport, test & certify all the different flavors (oxygenate, sulfur, aromatics, benzene, vapor pressure and other factors). All those costs of course end up reflected at the pump.

On the other hand, regulatory requirements are not (generally) applied randomly, places with the biggest air pollution problems require the cleanest and hardest to manufacture grades - typically crowded cities with thermal inversions that trap the air in one spot. No one would want the days of the brown clouds of NOx, ozone alerts and burning lungs to return, so if there were just one grade, it would have to be the cleanest burning, most expensive grade.

When you look at the patchwork of regulations as relaxations of the most stringent standards that would otherwise be needed, my bet is that with one standard super-duper-clean grade, we would end up with less overall gasoline and even worse prices.

So I don't think that the many grades of gasoline are the source of high prices.

 

[indiajust]

effects on supply

That's got nothing to do with it.

Narrowly specified gas grades have premium pricing, but are harder to schedule with lower volumes. In a market with tight supply, refineries simply do not make the low volume niche products since they can't keep up.

Net effect: specialized smog and winter gas can disappear entirely from the market under supply stress.

States can minimize the economic damage of over-specifying and over regulating gas with exemption clauses for lack of supply conditions.

It's a Perfection as the enemy of the good situation. Any gas is better than nothing.

 

[jimbee]

Narrowly specified gas grades have premium pricing, but are harder to schedule with lower volumes. In a market with tight supply, refineries simply do not make the low volume niche products since they can't keep up.

Net effect: specialized smog and winter gas can disappear entirely from the market under supply stress.

States can minimize the economic damage of over-specifying and over regulating gas with exemption clauses for lack of supply conditions.

It's a Perfection as the enemy of the good situation. Any gas is better than nothing.

Please read the post immediately before your comment.

 

[indiajust]

I'd suggest that most people would cut bsck if they could. Our country was built around the car. People live dozens and dozens of miles from work, groceries, doctors, church and the like.

Even if they were able to, we rely on trucks to deliver just about everything we consume. Like it or not, we cannot go back to 1922....we just don't live like that anymore.

https://www.strongtowns.org/journal/2019/11/4/we-are-all-detroit-2019

Perhaps not 1922, but we don't have to purge money like 1950. Redesigning cities to be more productive and wealthier is a solution.

People do live dozens of miles from everything with a design premise of cheap gas, yours or delivery services.

What if these sprawling places become unaffordable due to energy costs, road costs, water/sewer piping costs? Or, perhaps zoning/permitting reform happens in a few states and they build new towns for the next era, instead of the past era?

Given Fed bankruptcy, DC won't be able to subsidize failure much longer.

I suspect we may be in the same place as smalltown 1922. They could not imagine zoning for parking lots. I doubt we can see the future any clearer. I expect some mean reversion for auto intensity.

 

[jurgs01]

Really you all think this is the problem? I won’t say it but there is obviously another reason nobody wants to say a name. But there is one person to blame for this.

Jay Powell?

 

[Koolau]

Jay Powell?

No, Elmo Puckett.

 

[rtroxel]

Okay, I'll say it...

I wonder if these are the same people that drive gas powered cars, fly on any planes (public and especially private), or use any of the thousands of products that are made from petroleum or work in one of the millions of petroleum related jobs.

Most people don't have a choice, because oil-based products are all that is available to them.

 

[Midpack]

^^^^^ I'd agree for the most part, oil is one of the things needed for most everything, one way or the other but now we're getting into the OP's original question: "Why gas prices are so high" .

Many people don’t realize how many products depend on crude oil, over 6000 including all plastics BTW. It’s not as simple as if we use less gasoline, we need less oil either - as crude breaks down into several major fractions that can’t be altered much (e.g. you can’t turn gasoline into diesel or jet fuel, they’re simply different fractions). The fractions vary a little based on the crude, but not drastically.

As you noted earlier, I wonder if the militant oil opponents realize what else they’d have to give up without crude oil? I’m all for reducing our dependence/use on crude oil, but we’ll have to give up or pay (way) more for many other things - all of them somewhat concurrently. As a (western) society we use far too much plastic unnecessarily, but I digress…

https://www.energy.gov/sites/prod/f...Made From Oil and Natural Gas Infographic.pdf

https://www.linkedin.com/pulse/partial-list-over-6000-products-made-from-one-barrel-oil-steve-pryor

 

[Chuckanut]

We are straying away from the topic of expensive gasoline, and into that contentious subject of climate change.

Independent of climate change, I still like renewable energy for many reasons. However, it is not that easy to cut out fossil fuel AND nuclear at the same time. In fact, current technology offers no tools to do it.

Germany is learning this, but they are not fully convinced of it. It will be interesting to watch.

Yes. There is a transition period. We must plan our way through that. I fear many are suffering from King Kanute Syndrom. They think because they order it, it must happen.

Note: King Kanute is supposed to have ordered the tide not to come in.

 

[travelover]

........ I wonder if the militant oil opponents realize what else they’d have to give up without crude oil?

I think this is a bit of a windmill tilt. What the not so militant oil opponents want is an honest admission of the severity of the climate change problem and an honest effort to solve it on a time scale that will make a difference. Publishing a few advertisements about how much they care while supporting politicians dedicated to denial and impeding meaningful progress is just deceptive. Some may have noted the recent Supreme Court decision re regulation of greenhouse gases, decided on essentially party lines.

The other less dire, but disgusting issue is plastic pollution. The farce of plastic recycling is just another example of greenwashing that is ongoing today. So, I don't think people are necessarily anti-oil, they are anti hypocrisy and pro actual timely solutions.

 

[braumeister]

Thanks for the interesting discussion.