As gas prices continue to rise, I find my frustration increasing, as well. Is it just me, or is it discouraging to pay extortionate prices to fund foreign oil and pollute our environment at the same time? This has led me to wonder about exactly what is driving gas prices as well as the viability of some of the fuel alternatives that are bandied about by green pundits.
The high price of oil certainly has an adverse effect on our business sector, as it also impacts the price of shipping and transportation, thereby increasing costs of goods and services.
For starters, we always hear about the price of a barrel of oil. How much does a barrel hold, anyway? The U.S. Department of Energy (DOE) says that a barrel is about 42 gallons of oil, which yields about 20 gallons of gasoline.
Now that we have solved that mystery, let’s look at the anatomy of oil prices. According to the DOE, every dollar we spend on gasoline is broken down this way:
Taxes – 13 cents
Distribution and marketing – 8 cents
Refining – 14 cents
Crude oil – 65 cents
Clearly, the production and resulting supply and demand of crude oil is the biggest determining factor in the cost of gasoline. The price per barrel is, in part, determined by the oil producing nations, primarily the Organization of Petroleum Exporting Countries, which is made up of 13 different nations. When they wish to increase gas prices, these countries, who produce 40 percent of the world’s oil, must simply decrease production. Gas prices naturally rise due to short supply and concerns about shortages by oil speculators and gas companies. We all pay the bill for artificially inflated prices.
Oil production and prices are also volatile due to complications, like natural disasters, wars and stock market fluctuations. World events cause price swings, and long-term increases in the price of oil can lead to overall economic inflation.
Sometimes, there is plenty of oil on the market, but it is of low quality, or “sour.” Such oil costs more to refine, whereas “sweet” oil is cheaper to refine but may be less abundant, thereby driving up fuel costs.
In addition, the environmental standards imposed by our government on certain regions of the country, like California, have led to increased prices for reformulated, cleaner-burning gasoline. Such gasoline has presented challenges in refining, distribution and storage.
So why do we continue our dependence on foreign oil, when we are allowing forces outside our nation’s interests to influence our economic future? Most sources agree that the United States has an abundant oil supply of our own. In fact, we are the world’s third largest producer of crude oil. The limitations of domestic oil production include its accessibility and subsequent cost of drilling as well as U.S. environmental policies, which limit production.
So, now that we have a basic understanding of source and price of gasoline, let’s talk about alternatives. Interestingly, Henry Ford’s 1908 Model T ran entirely on ethanol. Ethanol is grain alcohol, and in the United States is made primarily from corn. Ford called ethanol the “fuel of the future.” He optimistically stated that “there is fuel in every bit of vegetable matter that can be fermented.”
Some argue that the Prohibition was really a ploy by Standard Oil to wean the car industry away from ethanol to fossil fuel dependency by banning any large-scale production of grain alcohol in the United States.
Arguably, ethanol burns cleanly and its production does not yield environmentally harmful byproducts. As a fuel additive, ethanol mitigates the emission of greenhouse gasses while reducing the amount of gasoline we consume.
Detractors of ethanol fuel state that the acres of land needed to keep up with fuel usage will negatively impact food yields and drive up food prices. The price of corn has recently surged as a result of farm belt drought conditions and over-farming. Government mandates requiring an increase in ethanol gasoline additives may be adding to our nation’s economic woes by conveying even more cost to consumers through food channels.
One proposed solution is production of cellulosic ethanol. This is made from non-food products, like corn stalks and wood chips. This small part of the ethanol industry has the potential to become not only a major fuel producer, but the solution to another environmental problem – providing a destination for green waste.
Clearly, this is a complicated issue. I am interested in exploring other alternatives and will report to you next month on the findings. I’d love to hear your feedback. Contact me at email@example.com.
Green tip for September:
Many people have opined that if Americans would just stop driving for a day, we could stick it to the oil companies and reduce gas prices. This is neither practical nor realistic. However, conserving gasoline is, and reduced consumption helps the environment. Check out these sites for gas-saving tips: