[Calliope]: 216.Essays.Gas Prices

Gas Prices

  Many of us don’t even register how much we rely on natural gas in our everyday lives. So you don’t drive a car, you are still far from being unaffected by escalating prices on the crude oil and natural gas market. The majority of houses these days are heated by gas furnaces and even if they’re not, much of our electricity is supplied by gas so even electric heating isn’t immune to rising prices.
Despite this everyday usage of gas and oil, people are still ignorant as to why prices are exploding in such a manner. Why have the prices of crude oil and natural gas risen so much since 2004? The answer is not a simple one nor is it isolated to just one explanation. There are a variety of reasons regarding the escalation of value and each reason brings forth its own concerns.
  Experts have been predicting events in the oil and gas field for years now and amazingly enough they haven’t been that far off. A year and a half ago, back in September 2004, Energy Pulse published an article stating that natural gas was walking a thin line and that a few months of bad weather could cause severe shortages and peaking prices . Ironically enough, it was just a year later that Hurricane Katrina hit, part of an exceptionally bad hurricane season that shut down many of the refineries bordering the Gulf of Mexico. These closings caused gas and crude oil prices to rise, especially throughout North America. Even now not all refineries are working and many that are, are not yet producing at full capacity. This has caused prices to gradually rise even after they dropped once again in late 2005. Still, charts and statistics have shown that gas prices have been increasing for years so it can’t simply be a matter of a bad storm season.
  To fully understand all aspects that effect fuel price a person must dissect where all the money goes. Many people assume that the refineries receive 90% of the profit while the gas stations themselves receive the remaining 10% but that is not the case. Crude oil, the base from which natural gas is derived from, soaks up most of the pump prices. As of February 2006, approximately 59% of gas profits go to the suppliers of crude oil. This percentage is determined by the nations that supply the crude oil, mainly the nations of OPEC (Organization of Petroleum Exporting Countries). The amount of oil produced by these nations delegates the price of a barrel of oil but it also relies on a few other factors. The type of oil for instance. At this point in time light and sweet crude oil is less expensive and easier to refine and therefore results in lower prices per barrel and in the end, lower prices for gas. Unfortunately, light, sweet crude oil is in short supply and in its place heavy, sour oil is being excavated. This crude oil requires the expensive retooling of many refineries however, especially in the United States, and this causes an increase in price.
  Other costs included in your payment for gas include refining costs which take up 10% of the price of gasoline. Distribution and marketing, that is to say, the transportation of crude oil to refineries and from refineries to distribution points and from distribution points to gas stations, costs about 11% of the price of gas. Taxes also make up a large chunk of natural gas prices. Up to 20% of the entire price of gas in the United States is delegated towards federal and state / provincial taxes. Where all this money goes we aren’t entirely sure for it’s certain that our roads and highways aren’t maintained in as costly a manner as these taxes would allow. The last slice of this monetary pie is given to the stations selling the fuel. These service stations are capable of raising the price of gas to whatever they feel necessary in order to gain a profit. While there are laws in place to prevent large corporate stations from lowering their prices too low in order to get one over on the competition, there are no set laws for how much a station may or may not charge. Instead it is left up to supply and demand and how much consumers are willing to pay.
  Many people are content to blame the price escalations on the refineries and more specifically, OPEC. After all, they have the most to gain with high prices so it’s logical that this would be the case. Fortunately for OPEC, it isn’t. At the end of May, Iran informed the United States that if they continued to be pressured for the nuclear weaponry in Tehran, Iran would cut off oil supplies. Of course the West continues to push and as a result, the price of crude oil barrels is on the rise. This has OPEC concerned. OPEC president Edmund Daukoru has expressed the concern that overly high prices could result in investors seeking alternative areas to invest in. There is apprehension focused on the inflation of crude oil and natural gas prices and how this could lead to a drop in consumer demand and in the end, slow global economic growth. Despite these worries, Iran is still limiting American oil while Venezuela wants to cut production in order to boost prices. These nations are going against the wishes of other OPEC members such as Saudi Arabia who would prefer the price per barrel to remain around $50 to $60. While OPEC is able to refuse Venezuela’s production cut, they are limited when it comes to Iran. As a defense, some nations in OPEC have considered switching oil sales from dollars to euros in order to prevent contact with the failing American currency.
  As it stands, OPEC is producing at near full capacity and producing almost record amounts. While this is apparently not enough, there is nothing the nations can do about it. They have not changed their quotas and, as stated, refuse to cut product availability, so why is it that the United States and other heavy oil consuming nations are accusing OPEC of doing to little? While member nations such as Indonesia, Iran, Iraq and Nigeria are having “short term” difficulties boosting production, OPEC nations are still producing approximately the same amount of crude oil. The only problem now is that demand has escalated over and above production rates and that is why prices are rising so drastically. Until a solution can be found to boost production in nations such as these and to increase oil production world wide, or to find an alternate energy source, many hands are tied. But what sort of consequences will these indefinite increases cause?
  In Ontario, Premier Dalton McGuinty is warning electricity customers that they should expect to pay elevated rates this summer. Paired with this head’s up comes TransAlta’s warning which is much more disturbing. The Globe and Mail reported that potential brownouts are looming on the horizon if the province does not find a way that will help support energy demand . In recent years Hydro electric has been limited because of drought like conditions. If lack of rain continues in Ontario, even throughout Canada, energy suppliers are going to begin leaning more and more on crude oil and natural gas and this will only increase electricity prices.
  The Cambridge Energy Research Associates held their annual meeting which addressed much of this issue. It was said that North Americans will face rising prices regarding power and heating and cooling there homes until at least 2008. It is also a possibility that during particularly harsh winters, we could experience a natural gas shortage. It was addressed that "The rising demand for gas, coupled with flat production, has tripled prices in the last four years. Relief should arrive then in the form of liquefied natural gas, imported to alleviate shortages of the increasingly popular fuel.” With such a bleak outlook, it’s a wonder we haven’t all switched to solar power already!
  As previously mentioned, prices aren’t about to alleviate any time soon. There are distinct possibilities as well as potential solutions but none that will be satisfactory in the long term. So where do we find ourselves now? Here were are, discussing past trends, possible disasters and contemplating who’s more to blame. What we should be doing is discussing more economical and price efficient ways to energize and support our society. At this rate, people will become unable to support themselves or their families and the future that includes that scenario is one none of us wish to imagine.

© Angie O'Connor