Pain Per Gallon

In addition to the normal Labor Day traditions of barbecues and department store sales, this year’s holiday treats travelers to gasoline prices moving beyond the $3 per gallon posted when the Commentary section went to press. Worldwide costs for crude oil, a major component of gasoline prices, have been driven up in recent years by red-hot demand from U.S. and Asian sources. That situation was made all the more difficult by the strains Hurricane Katrina placed on the refining and distribution system just in time for a holiday weekend. While many of the factors leading to record gasoline prices seem beyond everyday control, things can be done to help create both long- and short-term solutions.

To begin, the energy bill recently signed by President Bush may be a good start, but there was a glaring omission. It did not open Alaska’s Arctic National Wildlife Refuge (ANWR) for oil exploration. Extracting oil from ANWR would help increase the domestic oil supply, thereby reducing American dependence on foreign oil. This can be done on a small percentage of land in the refuge, as well as in a manner that minimizes the impact on wildlife. To meet public demands for energy independence, it makes little sense for this not to be part of the equation.

Further, the U.S. needs to increase domestic oil-refining capacity — bigtime. The National Petrochemical and Refiners Association reports that there are 148 domestic refineries operating — these are the factories that turn crude oil into gasoline. That number is down from the 324 producing refined petroleum products in 1981, or a 54 percent decrease. The 148 working refineries operate at or near full capacity these days trying to meet rising consumer demands for gasoline. That can continue only so long before the system stretches too thin. Even if a way to increase crude oil supply magically appears, that crude does consumers little good if it cannot be quickly and efficiently processed into fuel. This choke- point could squeeze the economic life out of consumers if not addressed soon. With eight major refineries of the nation’s 148 out of commission thanks to Katrina, consumers are getting only a taste of what may happen if gasoline demand is long allowed to out-strip supply.

Marketplace conditions would seem primed to spur the creation of new refineries. Increased demand for the product should encourage others to build new refineries. Yet almost no new refineries sit on the horizon. Such an anomaly is usually caused by one thing: government over-regulation. Take the example of Arizona Clean Fuels Yuma (ACFY), a Phoenix-based company, that wants to build the first new U.S. refinery since Gerald Ford was president. Its goal: to build a refinery to “produce the cleanest burning gasoline, diesel, and jet fuel in all of North America.” That’s apparently not an attractive proposition to regulators, who have been tying up the plan since 1999. ACFY faces a gantlet of regulatory resistance that has scared almost all other potential refineries off the drawing board. Regardless of any amount of blame oil companies may deserve for gasoline prices, it’s unwise to forget the role played by overzealous regulators.

The public should also know that environmentally kissed fuels make for pricier gas. Although producing cleaner fuel may be an important goal, it does increase costs at the pump.

Gasoline costing $3 or more (perhaps much more) is not something anyone wants to wrap up and save with the Labor Day potato salad.