Green Laws Will Pump Gas Buyers in Summer
So far, 2003 has been a rough year for America's motorists. Labor unrest in Venezuela and uncertainty about Iraq sent the average price of gasoline up 35 cents since Jan. 1.
Fortunately, those problems are being resolved and prices are slowly falling. But before we see a return to early-year levels, we'll have to face the next big threat to affordable gas -summer.
And rather than help, Congress is taking steps that may exacerbate the risk of future summertime jumps at the pumps. Why is summer the cruelest season for gas prices? For one thing, consumption rises along with the temperatures.
Millions head into their cars and SUVs for vacations, and experts think the summer of 2003 maybe busier than usual. The Energy Department sees gasoline demand hitting a record 9.18 million barrels a day, up 150,000 from last summer. AAA says "pent-up demand for travel will gain momentum as we get closer to the start of the summer travel season, which is less than six weeks away." Recent events have shown that even modest supply-demand imbalances can translate into big price increases, and now we head into the months when demand could reach record levels.
Strangled By Rules
Greatly exacerbating matters are a host of environmental regulations, including several smog-fighting provisions that take effect every May through September.
These measures include reformulated gasoline (RFG), a specialized blend required in metropolitan areas with the highest summertime smog levels, as well as other unique motor fuels.
Washington's efforts to create cleaner-burning summer blends have earned a mixed environmental record, but have clearly added to prices.
They've also created logistical problems. Refiners have to make, and pipeline operators have to transport, a wide variety of distinct gasoline types to their specific markets.
Difficulties in doing so contributed to localized early-summer price spikes in 2000 and 2001, and pose a threat for this and future summers.
Washington created this costly maze of regulations, and Washington could fix it. But the House and Senate are planning to complicate matters by adding an ethanol mandate to the pending energy bill. If enacted, it would require minimum amounts of costly renewable fuels, mostly ethanol derived from Midwest corn, to be added to the nation's gasoline supply.
Though a boon to corn farmers and big ethanol producers like Archer Daniels Midland (as well as politicians interested in their support), this proposal will be bad news for motorists.
Ethanol costs considerably more than an equivalent amount of gasoline, which is precisely why the ethanol industry needs a federal law requiring its use. Some say the ethanol provisions will add no more than a penny per gallon. But recent price spikes associated with increased ethanol use in California do not bode well for a coast-to-coast mandate. Worse, ethanol's properties make it especially hard to use in hot weather, adding yet another summertime difficulty. To its credit, Congress also aims to streamline the RFG program. Still, most of the regulatory burden would remain, and the ethanol mandate "adds one more layer of regulatory complexity," according to a refining industry source.
We'll soon know if this summer will be good or bad one for gas prices. But unless Washington backs off from micro-managing the recipes for motor fuels, future summers will likely get worse.