Gouging Revisited

Can you believe these gas prices? It’s like deja vu all over again. As I’m sure you recall, we’ve been down this road before, most recently right after Katrina last fall. I had a few things to say back then.

Now, it’s more of the same, but this time, the supposed reasons for the increases are even more vague, and the outrage less defined, which means that the oil companies will simply get away with it again. Yeah, I mean the $3 to $4 per gallon gasoline.

Thing is, OPEC today said that there is no shortage. (You have to really look for the fine print in the news stories to pick that one up, by the way, but it’s there.) The media says that the skyrocketing prices are due to some vague, ambiguous, and undefined fears related to the continuing situation in Iran, and the continuing unrest in Iraq, and the continuing situation in the Middle East, and blah-dee-blah. What’s all that mean? It means that there is no real basis for these prices. It’s a manufactured situation that just happens to coincide with the summer driving season, when oil consumption in the US goes up as more people drive, fly and otherwise travel to their vacation destinations.

Don’t you get the feeling that last fall was just a test run by the oil companies? They took advantage of the situation created by Katrina to see what they could get away with as far as gas prices were concerned. Gas prices hovered in the $3 to $4 range for a month or so, and guess what? People kept buying it because they had to. Now, those prices don’t seem so outrageous because we’ve already faced them. The winter time lull was just temporary. Now that Big Oil knows we’ll keep paying, they can charge what they want to because they know they can get away with it.

Actually, the fact is that, apart from the world unrest that’s been blamed for the price jumps, Big Oil has chosen this time to voluntarily undertake a change in how they produce and blend gasoline. Not to get too technical, but MTBE is an additive that oil refineries had been using in their gasolines. Now, all of the refineries – all of them – just coincidentally decided, at the same time, to voluntarily stop using MTBE in favor of ethanol. MTBE has been linked to groundwater pollution; ethanol has not. Now, Congress has not mandated this change, nor is there any reason to make the change. But, in order to use ethanol, you have to have ethanol, and guess what, some reports suggest that there is not enough ethanol to go around.

Now, regardless of whether that fact is true or not, the mere suggestion that there’s not enough ethanol to go around is enough to spur unrest in the powers that trade in commodities like oil. Throw a little fear into the law of supply and demand – like there might not be enough supply – and you get to where we are now. If folks believe that there’s not enough ethanol to mix with the gasoline, there won’t be enough gasoline. Speculators will then drive the price of oil up, and we all pay. And you can trace that all back to Big Oil because it elected to make the change to ethanol, it elected to do so at this most opportune time (for Big Oil), and it elected to do it without ensuring that there was enough ethanol to meet the need. (By the way, the ethanol producers say it’s not their fault and that there is plenty of ethanol, as you can see here.)

Oh, one more thing about ethanol, which adds to the problem of ensuring that there’s enough to go around. Ethanol is generally not transported via pipeline. Why? Well, the primary reason is that ethanol absorbs waters and impurities that can be find in standard pipelines. See, water and rust particles exist in pipelines generally used to transport gasoline. Gasoline traveling the pipeline by itself won’t ordinarily pick up the water and the particles in it because of the chemical composition of the gasoline. However, when you blend gasoline and ethanol, the chemical reaction of the blend creates a “scouring” action within the pipeline that can pick up the water and particles in the water, thus creating dirty fuel that will reduce engine performance. Betcha didn’t know that, did you? But you know who did? Big Oil. (I mean, if I can find it out in 10 minutes on the internet, I’m guessing Big Oil might have had an inkling, don’t you think?) This is a fascinating little piece about the problems in transporting ethanol blends, in case you’re interested.

What does all that mean? Well, before you transport ethanol blended fuel, you’ve either got to clean the pipeline, or transport by tanker truck. And guess what? Each method takes time, and if it takes a day or two longer than expected, the result is: no fuel to certain areas. That’s one of the reasons you’re hearing about spot shortages in places here and there. They’ve got to transport the new blend of gasoline – the blend that no one made Big Oil undertake – to places that used to receive MTBE blends. Human nature being what it is, once word of some spot shortages occur, people panic, and panic buying occurs, either in the commodity markets, or in your local gas station.

I’m still thrashing about for something meaningful and effective that I could do to resolve this situation, or expose it for the sham it is, but I got nothing. That’s a very frustrating feeling, because I like to believe that the good guys can win battles like this. But things like the internet “boycotts” suggested by some good-hearted but unrealistic folks are only a blip on the radar. The reality is, we’ve all got to drive, and after a one- or two-day boycott, we’ve got to start buying gas again.

I figure the controls have to come from the top and, much as I hate to call for government intervention, perhaps some sort of temporary federally mandated cap on prices is in order (especially since the feds certainly aren’t pushing for any other meaningful resolution or alternative energy sources). We certainly can’t trust Big Oil to police itself, and there aren’t any other realistic alternatives that I can see. But I’m always open to suggestion.