Unstable Gas Prices - 06.26.2011
[ASSURAS] Gaining control over soaring energy prices. The U.S. dips into its emergency oil reserves. Will it work? And why now? Reaction from the chairman of the House Energy and Commerce Committee.
[FRED UPTON] Releasing 30 million barrels is not, I don't think, a long-term solution.
[ASSURAS] As gasoline prices go up and down, what's driving those dizzying changes? Hint -- it is not the station owners.
[SCOTT BROWN] I'll make more money on the Cheetos than I will on the gasoline fill-up.
[ASSURAS] The facts on the gas going into your tank. You might be surprised.
And getting more miles from every tank of gas.
[SULLIVAN] Is that part of the hypermiling?
[RANI CARDONA] Yes. You try, again, not to brake.
[ASSURAS] Hypermiling -- extreme driving techniques for fuel economy. What works and what doesn't. We break down the myths. This is "energyNOW!"
Hello, everyone, I'm Thalia Assuras. Welcome to "energyNOW!", a weekly look at America's energy challenges and what we're doing about them. And, as we move full throttle into the summer driving season, it's those high gasoline prices that are challenging our wallets. Well, to help ease that pain for Americans, the Obama administration announced it's releasing 30 million barrels of oil from the country's emergency stockpile, the Strategic Petroleum Reserve, also known as SPRO. It's the largest release ever. Now, the move came as a surprise to many, in light of the fact that gasoline prices, though at least $1 higher than last year, have been edging down from spring's $4-plus high.
The action is part of an international effort to make up for the loss of 1.5 million barrels a day of light sweet crude from Libya, embroiled in conflict since February. Along with the U.S., 27 other countries of the International Energy Agency are releasing a total of 60 million barrels of oil over the next month, with the U.S. supplying the most, because it is the biggest oil consumer. The 30-day national stockpile contains 727 million barrels, located in underground salt caverns in Louisiana and Texas. President Gerald Ford established the SPRO in 1975, following the Arab oil embargo. Presidents have ordered the reserves opened twice before -- in 2005, after Hurricane Katrina, and during the Persian Gulf War in the early '90s. Some lawmakers are applauding this latest release, saying it's about time.
[REP. ED MARKEY (D) MASSACHUSETTS] We are sending a message to OPEC and the oil-producing countries, that we are not going to have our economy held hostage any longer.
[ASSURAS] Others, like Fred Upton, the powerful Republican chairman of the House Energy and Commerce Committee, are critical. I spoke to Congressman Upton right after the release was announced and asked him if it was the right move.
[UPTON] It's not. I'm glad that they're realizing that supply and demand does mean something, and they're trying to put more supply into the system. But there's -- this SPRO was designed specifically for when we get into a real emergency -- in other words, if something really tragic happened.
[ASSURAS] But the reasoning is that, essentially, this is an emergency, because of the loss of 140 million barrels so far of oil because of the strife in Libya. 1.5 million barrels a day. And also because gasoline prices are high. Those aren't emergencies?
[UPTON] Well, a couple things. The administration has so far blocked the permitting and plans in the Gulf, which allows 1/3 of our oil to come from that region. If they simply say -- and already it's hundreds of thousands of barrels a day, from projections that were made public just, you know, last fall. If they would simply say, "It's time to start again here in this country," whether it's from Canada, Alaska, the Gulf, I think that we could more than make up for what the disruption has been for the Middle East.
[ASSURAS] Thirty days, do you predict there'll be another release?
[UPTON] Well, we'll see. You know, we've got a number of different appropriations, spending bills, that are out there, but again, it completely undermines what SPRO was established for, and that is, you know, if there is a real serious disruption, we want a supply that will continue to help America. By doing this just on prices and ignoring long-term production of oil and gas here in this country is not the right answer.
[ASSURAS] Mr. Chairman, thank you.
To give us some more perspective on the decision to release oil from the Strategic Petroleum Reserve and what that could mean, I sat down with Rob Sobhani, president of Caspian Energy Consulting.
The reserve is being released now, when gas prices were higher in the spring, and the conflict in Libya blew up months ago. Why now?
[SOBHANI] I believe it has most to do with domestic situation. I believe both the United States and oil-importing countries of the West feel that consumers may start feeling the pinch. We're getting into the summer months. It's the driving season. And so I believe, for the most part, we're looking at a domestic reason -- to help American consumers.
[ASSURAS] Well, then that leads to the question, what will happen to gasoline prices? Will we, in fact, see prices drop even more in the short term?
[SOBHANI] We already have seen prices drop, but I believe that, over the long run -- not the short run -- we are not going to see prices come down measurably, because taking reserves out of the Strategic Petroleum Reserves is not going to solve our oil dependence problem.
[ASSURAS] In this case, the amount of oil being released, at least in the United States -- from the United States -- is 30 million barrels. During Hurricane Katrina in 2005 or after, it was 11 million. Early '90s, in Desert Storm, it was 21 million. More now, 30 million. Is this more about the global economy than gasoline prices?
[SOBHANI] I believe it's a combination of both. What happens overseas affects us here at home. And we need to start thinking about how this link really happens and what we can do to effect foreign policy so that it doesn't hurt us domestically when it comes to the price of gasoline.
[ASSURAS] Well, what would you recommend, then? How do you deal with the gasoline prices' being so high in this global world? Gasoline is -- the price is set on the world market, but with conflicts and so much integration around the world, what do you mean, how do you solve it?
[SOBHANI] If you chart a graph from 1974 to the present day, you will find that the price of oil spikes on political events. So this tells us one thing -- we need to work on political solutions to the problems that we face, because it affects us. We need to start looking at the Middle East, for example, in a different light. How do we bring long-term stability to the Middle East, so that we can have $2 a barrel, not $3, not $4? And that's possible.
[ASSURAS] The administration says that it is going to reevaluate the release at the end of the 30 days of the release. If things haven't changed -- Middle East still in turmoil, if gas prices haven't gone down -- and you don't think they're going to, anyway -- do you expect we're going to be seeing more releases in the future?
[SOBHANI] You know, the release is akin to giving a one-shot radiation dose to a cancer patient. It's not going to kill the cancer. It's going to stay there. Our addiction to petroleum is going to stay there unless and until we find a creative way, with leadership, to address some of those fundamental stability issues in the Middle East, because that's where 67% of the oil of the world is located. There is no doubt that the president of the United States feels that it's important to make those releases, and I think we will see, if the price doesn't go down, because American consumers are being hurt.
[ASSURAS] Immediately after the administration announced it was going to tap into the SPRO, oil prices dropped. But as you know from filling up your tank over the last few months, prices have been on a roller-coaster ride. In fact, gas price volatility has become such an issue, the Federal Trade Commission just launched an investigation into price manipulation of all aspects of gasoline production. That's on top of an already existing Justice Department investigation into speculation and fraud. There is so much that goes into gasoline production and its price. "energyNOW!"'s Josh Zepps has this lesson for us.
[ZEPPS] Of all the things you buy on a regular basis, the one with the most visible price has got to be gas. I'm betting that a pint of milk could go up or down by 10 or 20 cents, and you wouldn't even notice, but that thing is in your face every single day. So we're going to look at some of the things that you probably don't know about that price. First, Shell gas station owner Scott Brown says, don't blame him for higher prices at the pump.
So when gas prices go up, do you make more money?
[BROWN] We actually make much less money, because our margins get very compressed. Typically, there's so many things where there's a metro tax, you know, which is basically 2% of the street price; credit card charges, you know, 3%; and you can never pass all those additional charges on to the consumer. As the price goes up, you know, I get really just crushed.
[ZEPPS] You can say, "screwed."
[BROWN] No, no, no, not at all.
[ZEPPS] How much are you making off a gallon of gas?
[BROWN] You know, it'll change from day to day, but on average, it'll be between one to three cents.
[ZEPPS] So if you're not making any money on gas, how do you make money?
[BROWN] Well, if you noticed, as you drove around, all the "gas and go"s are pretty much gone as a class of trade. And now, all service stations, gas stations, have to have alternative profit centers.
[ZEPPS] It's what we're calling the Cheetos effect.
[BROWN] For example, if someone is to come in, fill up their tank for $70, and buy this bag of Cheetos, you know, for $1.50, I'll make more money on the Cheetos than I will on the gasoline fill-up.
[ZEPPS] Here's a breakdown of what you're paying for. The Energy Information Administration says that, on average, for each dollar you spend on a gallon of regular gas, 65 cents is paying for that light sweet crude. 14 cents goes into turning that crude into gasoline at the refinery. 13 cents is taxes -- federal, state, and some local -- and 8 cents goes into marketing. So, clearly, crude oil is the major factor in the price of gasoline.
But where does most of the imported oil in the U.S. come from? To find out from where America gets most of our oil, I'm joined by someone who knows all about this. Elliott Gue is the editor of The Energy Strategist. This is the Saudi Arabian embassy, Elliott. Do we get most of our oil from Saudi Arabia?
[GUE] [Shakes head]
[ZEPPS] How about Kuwait?
[GUE] [Shakes head]
[GUE] [Shakes head]
[GUE] [Shakes head]
[ZEPPS] There's no embassy of Iran. So, Elliott, you're telling me that this is the largest supplier of oil to the U.S.? Canada? It's been a fascinating conversation. Thanks for your time, Elliott.
[GUE] You're welcome.
[ZEPPS] We went inside to talk with Canadian ambassador Gary Doer about just how much oil we get from them.
[DOER] 2.5 million barrels a day go from Canada to the United States, but it's all in North America.
[ZEPPS] I guess this is just because of the logistical simplicity of getting it here?
[DOER] Logistical simplicity and supply.
[ZEPPS] But just because Canadian oil is closer doesn't mean it's cheaper. Oil is a global commodity. It's sold at prices that are set by traders on stock exchanges, and one quirk of the modern global economy is that wherever we get our oil from, even if we drill it and buy it from ourselves, every oil dollar still benefits Saudi Arabia. To explain this, imagine if the world's most important commodity were not oil, but chocolate chip ice cream.
Here I am. I am the world's number one owner of chocolate chip ice cream. I was born on top of underground oceans of the stuff. I am the Saudi prince of ice cream. Over there, that's Mitchell. He's the world's number-one consumer of choc-chip ice cream. He eats it by the gallon. He is the United States of ice cream consumption. And between us here is Noah. He's a trader on Wall Street. He buys ice cream from me. He sells the ice cream to Mitchell. Now, because ice cream is the most important commodity in the entire world, needed by everyone, everywhere, I personally don't really care where Mitchell gets his ice cream from. As long as he keeps shoving his face full of ice cream, I get to charge a premium price to the trader in between.
Here in the U.S., we consume about 379 million gallons of gas a day. And just like there are a lot of flavors of ice cream, there are also a lot of flavors of gas.
One thing you may not know is that there's no such thing as regular gas. The gas that you buy in Texas is different from the gas that you'll buy in Wisconsin. The gas that you buy in winter is different from the gas that you buy in summer. So I went to find an expert to explain how it all works.
[JESSICA NESTERAK, OIL PRICE INFORMATION SERVICE] Well, there's all different types of components that can be added to gasoline at various points of the year to bring it to a level that is considered acceptable for environmental standards. Federal EPA in the summertime sets what's called your Reid vapor pressure level, your level of volatility in your gasoline, has to be brought down to particularly low levels.
[ZEPPS] Which drives prices up.
[NESTERAK] In the wintertime, those levels can get a lot higher, and that's one of the reasons why you see prices change.
[ZEPPS] Also, different parts of the country and different states are using literally different types of gas.
[NESTERAK] Exactly. Between regular grades and premium grades and all the different specialty grades of gasoline that are coming out of the refinery, blend stocks and finish grade, there would be about 10 different types of gasoline.
[ZEPPS] All being used in cars all over the country.
[NESTERAK] Yes, exactly.
[ZEPPS] So the next time you're feeling pain, filling up at the pump, spare one tiny, fleeting thought for the long, complicated, convoluted process that made that number what it is. In Springfield, Virginia, Josh Zepps, "energyNOW!"
[ASSURAS] Still ahead, two congressmen mix it up over how to keep the price at the pump down. Plus, how to stretch every gallon of gas. Meet a hypermiler with tips on how to save money.
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[TEXT ON SCREEN] Viewer question
[SARAH THOMPSON] Hello, my name is Sarah Thompson, from Greensboro, North Carolina, and my question is for the congressmen. We have no real comprehensive energy policy in the United States. When are our representatives going to get serious about finding an alternative for our energy while putting Americans back to work and getting our nose out of the Middle East?
[ASSURAS] Welcome back to "energyNOW!" That question, from Sarah Thompson, who is fed up with high gas prices. A couple of months ago, she created No Gas Day on Facebook, asking people to avoid all gas stations on March 31st, and she had more than a million followers. Joining me for theMIX, Republican congressman Michael Burgess from Texas. He sits on the House Energy and Commerce Committee. And Democratic congressman Earl Blumenauer from Oregon is chairman of the Congressional Livable Communities Task Force, which just released a report titled, "Freedom from Oil." So, congressmen, could you answer that question? Congressman Blumenauer?
[BLUMENAUER] I want to be clear that what we need to do with energy, I think, is something the majority of the American public would agree with. It's not -- it's about providing choices for people, not forcing them to either drive or ride a bike.
[ASSURAS] And how is that going to affect gas prices?
[BLUMENAUER] Well, that is largely dependent on supply. Getting petroleum from farther and farther away or using more and more technology costs more. We're not making any more, but there is nothing that is going to change a 100-year trend of higher oil prices, higher gas prices. What needs to happen is to give people more choices, not -- and not be held hostage.
[ASSURAS] Back to Sarah Thompson's question --
[BURGESS] Well, her question was on national energy policy, and in fact, we've had, in my brief tenure in Congress, one that was passed in 2005, which I was in favor of, one that passed in 2007, which I opposed. The difficulty is the consistency in our energy policy, and we will change direction on a dime, depending upon political equations. And that's what's got to be frustrating to people. I think the realistic approach that needs to be taken is all of the above. But we tend to pick winners and losers in our tax code. We tend to pick winners and losers with subsidies. That's what has distorted the market.
[ASSURAS] If I could get just a quick answer to this one question from both of you, what do you think is the key to the high volatility of gas prices? What is causing that volatility? Congressman?
[BURGESS] Well, ultimately, it is supply, and I realize there are other things that intersect with that, and certainly the traders and speculators do play a role, but as long as the supply is tight, the market is going to respond to those signals in the very volatile ways that we've seen.
[BLUMENAUER] I would agree with that assessment. There are questions about how much speculation enters into it. But at the end of the day, we aren't creating any more dinosaurs that lead to the oil supply, and there is a dramatic increase around the globe. The United States, even though we consume more petroleum than anybody, by far, now it's down to about 21% of the world's supply, so we're competing with the Chinese, with the Indians...
[TEXT ON SCREEN] To see the entire interview with the Congressmen go to energynow.com.
[BLUMENAUER] ...European Union, and inevitably gas prices and oil prices are going to go up, as the supply continues to become tighter.
[ASSURAS] You know, we could keep going. Thank you very much for joining us.
So how bad do you think prices will get this summer? For the past few weeks, we've asked you and our Web site visitors at energynow.com this question -- What level do you think average national gasoline prices will peak at this summer? Now the answers. Almost half said $5 a gallon. Nearly 35% said the peak will be $4 a gallon. Far fewer, only 10%, believed it will top 6 bucks. And even a few said it will go above $6 a gallon. We'll see. When we come back, gas mileage myths debunked.
[PHILIP REED] When you see trucks on the road and they have their tailgate down, it's like, "That guy thinks he's saving gas." And he's not.
[ASSURAS] Do's and don'ts -- how to get the greatest mileage out of your gas tank.
[TEXT ON SCREEN] International Gas Prices (U.S. dollars per gallon)
Source: International Energy Agency May 2011
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[ASSURAS] There are probably more people than you think who save gas by turning off the engine when they're stopped. It may seem silly, but the EPA estimates drivers waste almost 4 million gallons of gasoline a day, idling -- whether at a red light or waiting for a child as school lets out. Reduce the idling by just 5 minutes a day, and you can save $250 a year. And there are more tricks people use to make every drop of gas count -- some that work, some that may just be myths. "energyNOW!"'s Lee Patrick Sullivan went looking for the truth and met one driver taking charge of her miles per gallon.
[SULLIVAN] You know, with the price of gasoline these days, consumers are trying all types of tricks of the trade to help save a couple dollars. For me, it's filling up early in the morning. That's because...well, watch the rest of the story and get back to me. This is going to take a while.
In the era of extreme gas prices, an extreme driver has emerged. They're called hypermilers, and Los Angeles driver Rani Cardona is one of them.
Do you like the term "hypermiler"?
[CARDONA] Yeah --
[SULLIVAN] 'Cause you don't seem very hyper to me.
[SULLIVAN] The goal of hypermilers is to squeeze every little drop out of every ounce of gasoline.
Now, you took that corner a little fast for my liking. Is that part of the hypermiling?
[CARDONA] Yes. You try, again, not to brake. You try not to dump any of the speed or momentum you've built up.
[SULLIVAN] Think of it as like driving a roller coaster, using as little gas as possible uphill, and then coasting downhill, anticipating lights. For Cardona, she takes it as far as circling a parking lot until she can pull through a parking space. Why?
[CARDONA] I simply turn on the gas, and I go. I don't have to throw the car into reverse, go enh, enh, enh.
[SULLIVAN] Cardona says her Honda Civic hybrid gets an EPA estimated 45 miles per gallon, but she has gotten as high as 68 miles per gallon, using her hypermiling techniques. That's a savings of around $900 a year. But not all hypermiling is that hyper. The majority of the technique is simply driving a little slower than the posted speed limit, something Cardona says can be annoying to other drivers.
[CARDONA] We've been trained in this pattern and this habit of, "Go, go, faster!" [Laughs]
[SULLIVAN] For the rest of us, what really works, and what's a myth? We asked Philip Reed from the online automotive site edmunds.com. He recently tested some of the more popular techniques. Here's one we've all done to save gas -- shut off the air conditioner and lower the windows.
[PHILIP REED] It used to be that air conditioners in cars were not particularly efficient.
[SULLIVAN] Today's car air conditioners use very little gas and have almost no impact on fuel economy. And for all you pickup owners that drop your tailgate to get better mileage and think you're making your truck more aerodynamic...
[REED] Well, first of all, it looks pretty goofy to drive around with your tailgate down.
[SULLIVAN] I used to do this a lot. Thank you for that, Philip.
[REED] But, you know, when you see trucks on the road and they have their tailgate down, it's like, "That guy thinks he's saving gas." And he's not.
[SULLIVAN] The edmunds.com test did find some winners. One of them is cruise control.
[REED] If you put it in the hands of the onboard cruise control, you find that you're able to get into a lane, hold your speed.
[SULLIVAN] Another is properly inflated tires. Some drivers have taken the tire inflation a step further, filling them up with nitrogen. That's because nitrogen molecules are larger than compressed air, making them harder to leak out, keeping your tires properly inflated longer. That's why nitrogen is used by NASCAR. But it does come with a price. To replace the air in your tires with nitrogen is about 30 bucks. But according to Reed, the best way to see real savings at the pump doesn't cost anything.
[REED] Don't accelerate rapidly. Don't do, you know, high-speed lane changes. And also, don't be an aggressive braker. So, in other words, you know, look farther down the road. If there's a stop sign or a stop light coming up, start to coast. You know, and you put these three things together, and it results in a 30% savings.
[SULLIVAN] So, in short, properly inflate your tires, turn on your air, set your cruise, close that tailgate, and slow down and relax.
So why am I filling up early in the morning? Well, that's because gasoline is sold by volume, not weight. So you actually get more gasoline on cold mornings. Gasoline pumps in Canada are actually re-calibrated during winter months to make up for the difference. In Los Angeles, Lee Patrick Sullivan, "energyNOW!"
[ASSURAS] Talk about gas mileage and saving at the pump -- how about getting more than 80 -- 80 -- miles a gallon? A team of students from Virginia Tech has just snagged top honors for doing just that in the three-year EcoCAR Challenge. And that's this week's "energyNOW!" hotZONE.
And here's their baby, powered by both gasoline and a battery that can be juiced up at existing charging stations.
[LYNN GANTT, VIRGINIA TECH TEAM LEADER] We have a 54-mile EV range. And that, along with our charge standing mode, ends up being about 80 miles per gallon gasoline equivalent.
[ASSURAS] Virginia Tech beat 15 other teams from across North America, all of whom were challenged to improve the fuel economy and emissions of a GM compact crossover vehicle. The contest was cosponsored by the Department of Energy and General Motors, which, by the way, has hired six members of the Virginia Tech team, including its leader. Congratulations to all of you.
And that's it for this week's "energyNOW!" We want to know what you want to know, so please reach out to us on YouTube, Facebook, or Twitter. Search for us at energyNOWnews. You can also read our blogs and get plenty of extras at our Web site at energyNOW.com. I'm Thalia Assuras. I'll see you next week.
Leading off this week, President Obama has ordered the release of 30 million barrels from the nation's Strategic Petroleum Reserve, created more than 35 years ago as an emergency stockpile to prevent an economic disaster if the nation's oil imports are suddenly cut off. The president says the release of oil from the U.S. and another 30 million barrels from its allies is needed because of supply losses created by the conflict in Libya. But is this an emergency that warrants tapping the SPR? And what effect will it have on gasoline prices? Anchor Thalia Assuras hears from lawmakers on both sides of the aisle on whether the move is warranted, and whether it will help U.S. consumers – and the president.
Rep. Ed Markey, (D-MA) says the move is a signal to OPEC that the United States will not be held hostage to high oil prices. However, Rep. Fred Upton (R-MI), chairman of the House Energy and Commerce Committee, says the move by the president only proves that the country needs to increase domestic production. He believes the same results would come from approving stalled permits for drilling in the Gulf of Mexico, without tapping into reserves he believes were meant for a true emergency.
Then, what's behind the timing of the president's move? Thalia talks with Rob Sobhani, president of Caspian Energy Consulting, to ask why policymakers released oil from the SPR now, instead of when prices were higher, and if Middle East turmoil is enough to justify it. Sobhani says the release is not a long-term fix for high oil prices, and the U.S. needs to develop political solutions that will have lasting effects on oil markets.
Next, most Americans know the price of gasoline better than the cost of almost anything else they buy regularly. But do they know all the factors that go into that price, or even the source of the crude oil used to make their gas? Special Correspondent Josh Zepps takes an inside look at everything that goes into the price of gas -- from the ground to your tank. Josh also explains why crude oil costs so much in the first place, where most of that oil comes from, and why the gas you buy varies from season to season, and place to place.
On this week's Mix, domestic gasoline prices have been rising and falling for years, but in the long-term, they always seem to get higher. So what’s driving the ups and downs? Is the main cause of volatile prices high domestic demand, or unstable foreign sources of oil to supply American markets? Thalia interviews Congressman Earl Blumenauer (D-OR), and Congressman Michael Burgess (R-TX), to discuss the causes of high gasoline prices in the U.S. and potential ways to the drive them down.
Then, with all the concern about gas prices, drivers are trying to get more miles for their money. Correspondent Lee Patrick Sullivan travels to California to interview “hypermilers” about the tricks they use to squeeze every last inch out of a gallon of gas. He also finds out which of these techniques really work, and which are a waste of time.
Finally, in this week's energyNOW! Hot Zone, a team from Virginia Tech recently cruised to victory in the in the three-year “EcoCAR Challenge,” with a car that gets 82 miles per gallon. The leader of the crew tells us what it took to beat teams from 15 other colleges across North America in the competition co-sponsored by the U.S. Department of Energy and General Motors.
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