Gas Prices Across the Country
December 22, 2007
The new legislation to input ethanol comes from environmental standards
that have been in place in some parts of the country for several years.
In some areas, gasoline was required to meet higher environmental
standards in order to reduce the amount of smog created by burning
gasoline. Producing this cleaner-burning gasoline caused problems in
refining, distribution and storage, which increases the cost of gas.
“The result of this targeted approach to air quality has been to create
gasoline market islands,” John Cook, director of the petroleum
division of the DOE’s Energy Information Administration, said before
the U.S. House of Representatives Committee on Energy and Commerce on
May 15, 2001.
Cook pointed at California and the Chicago and Milwaukee areas as primary examples of gasoline-market islands.
The clean-burning requirements in each of these areas are unique to
that individual area, and only a few refineries can produce the
specialized products. High demand, a supply problem at a refinery or a
problem with a pipeline can cause pricing in these areas to surge.
In California, the state government has set its own
reformulated gasoline rules that are stricter than the federally
mandated clean-gas laws. This is why Californians pay a higher price
for cleaner fuels — this, plus a local sales-and-use tax of 20
percent, an 18.4-cent-per-gallon federal excise tax and an
18-cent-per-gallon state excise tax. California’s distance from the
refineries located near the Gulf of Mexico can also add to the cost of
gasoline if it chooses to obtain gas supplies from those refineries.
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Photo courtesy Phillips Petroleum Company |
The other area where prices can far exceed the U.S. national average is the Midwest.
In 1999, the Midwest region became subject to new reformulated gasoline
rules. The Midwest uses a special gasoline that is produced using
ethanol instead of methyl tertiary butyl ether (MTBE). Ethanol
is used in the Midwest because of the region’s abundance of corn, which
is the main raw material used to make ethanol. Few refineries outside
the region produce this type of reformulated gasoline, which means
there may often be a limited supply of the product. This is the same
problem resulting from the nationwide call for ethanol brought in the
spring of 2007.
Crude oil inventories have the single biggest effect on gas
prices, and the United States depends heavily on foreign oil supplies.
In January 2006, the United States imported over 9.1 million barrels
per day [Source: EIA].
We’ll look at exactly where that crude oil comes from next.
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