What Price Gas?

New GAO report details factors affecting retail fuel costs

Published in CSP Daily News

WASHINGTON -- A new report from the Government Accountability Office (GAO) provides an explanation of why gasoline costs so much and why it is not likely to get any cheaper, said a report for the Gannett News Service.

Among other factors, there is a processing bottleneck. The number of operating refineries that turn crude oil into gas and other petroleum products has fallen from about 300 in 1980 to about 150 in 2004. As a percentage of consumption, the U.S. imports about 10 times more gasoline refined overseas than 25 years ago.

Energy industry mergers and the drop in sales locations have dampened competitive pricing. While the number of vehicles on the road has multiplied, the number of gas stations in the country fell from 202,000 in 1994 to 167,000 in 2003, according to the GAO.

Some key data from the GAO report:

The average per gallon cost of federal and state taxes rose from 24.5 cents to 37.5 from 1990-2004, but almost all of the increase was before 1994, the GAO said. In the United Kingdom, consumers pay more than $4 a gallon in taxes, and consumers in Germany, France and Italy pay nearly that much. Japanese drivers pay more than $2 a gallon. About 48 cents of every dollar you spend goes to the cost of crude oil, 23 cents to taxes, 17 to refining costs and 12 to distribution and marketing. The U.S. consumes about 20.5 million barrels of oil a day, up from 15.2 million in 1983. One in every four barrels of oil pumped from the earth is consumed in the United States. The U.S. consumes 380 million gallons of gas a day in this country, 56% more than in 1970. Americans use nearly 15 times the amount of gasoline consumed in the entire continent of Africa. One reason why gasoline prices have risen so steeply is that China's growing appetite for energy has increased world demand. China's energy use for the first quarter of 2004 was 18% higher than a year earlier. In 1970, about 23% of the world's oil came from the United States; about 10% is produced here now. The Organization of Petroleum Exporting Countries' (OPEC) 11 members supply only 40% of the world's oil, but the cartel holds disproportionate sway over world oil markets. Big oil producers like Russia and Canada are maximizing production. But OPEC has such huge reserves, it has a far greater flexibility to adjust its production to respond to supply and demand. The United States has 22.7 billion barrels of known reserves, while Saudi Arabia has 261.8 billion and all other OPEC nations have 557.2 billion. Iraq alone has five times the known reserves of the United States.

To view the complete 61-page report, Motor Fuels: Understanding the Factors That Influence the Retail Price of Gasoline, click here.