April 27, 2006
By Ben Lieberman
When the national average price for gasoline hits $2.90 a gallon
in April, that's a bad sign. That could be the cheapest
price we'll see for the rest of the year.
Worse, much of the recent increase could have
Prices often rise as we head into May and stay elevated throughout
the summer. One reason, of course, is that demand for gasoline
picks up from Memorial Day through Labor Day as millions of
families take vacations. But May is also the month when the fuels
industry must complete the costly transition to the more stringent
summer-grade gasoline standards, designed to fight smog.
These gasoline regulations have done little to improve air quality
-- the air was getting cleaner just as quickly before they were
imposed as after. But they clearly raise the prices at the pump,
above and beyond the already-substantial impact of high crude-oil
prices. Not only are these supposedly cleaner-burning blends more
expensive to produce, but the logistical burden of having to
provide so many different specialized fuel recipes (several cities,
states and regions have their own unique summer gasoline blends)
sometimes leads to localized shortages and price spikes.
Last year's big energy bill, passed as a response to high pump
prices, is actually making things
worse. Several of its provisions, including a requirement that
expensive ethanol be added to gasoline, already have tacked on a
few cents per gallon.
The energy law could do more damage throughout the summer,
especially as ethanol use expands. According to the Department of
Energy's Energy Information Administration (EIA), "as the summer
progresses and demand grows, the tight supply situation is not
likely to ease significantly, leaving the market exposed to the
increased potential for price volatility." EIA is particularly
concerned about summer supplies and prices on the East Coast and
parts of Texas, where ramping up ethanol use will be especially
Drivers usually get a price break after Labor Day when demand
declines and the summer regulations lapse. But that didn't happen
last year, thanks to Hurricanes Katrina and Rita. By knocking out
offshore oil wells (as well as onshore refineries and pipelines),
the storms extended the pain at the pump into autumn.
The federal government obviously can't be held responsible for
hurricanes, which threaten the coastal areas of the Atlantic and
Gulf of Mexico from June through November. But it can be blamed for
our over-reliance on energy from the hurricane-prone Gulf.
The central and western Gulf of Mexico provides fully 25 percent of
America's domestic oil, in part because so many other offshore and
onshore areas are off limits. If we allowed drilling elsewhere --
in currently restricted areas in the Pacific and in Alaska's Arctic
National Wildlife Refuge (ANWR), for example -- America would have
greater supplies and lower prices overall, but also less
vulnerability should a hurricane or other natural disaster strike
any one region.
As it is, if the Gulf of Mexico endures another active hurricane
season, gasoline prices could stay elevated well beyond the summer.
Colorado State University hurricane expert William Gray, who
correctly predicted a busy hurricane year in 2005, forecasts
"another very active Atlantic basin tropical cyclone season in
2006," though not as bad as last year.
On the other hand, it's always hard to predict oil and gasoline
price trends, and a decline is always possible. Some experts argue
that current prices already assume the worst for this summer and
could decline given any good news -- for example, if a few oil
wells and refineries still suffering from Katrina damage get back
online sooner than expected or if tensions with Iran ease a bit.
This is possible but not likely.
It's probably too late for the federal government to reverse the
likely jump at the pump over the next several months. But it can
begin the process of undoing the mistakes that contribute to high
gasoline prices. President Bush's recent announcement that he may
temporary suspend environmental rules for gasoline is a start. But
Congress needs to overhaul the regulations that require
unnecessarily costly summer gasoline formulations and restrict new
oil drilling. Eliminating the disastrous ethanol mandate also would
Gasoline prices don't have to heat up along with the temperatures.
If lawmakers take the right steps now, future summers could be a
little cooler -- at the pump, at least.
Lieberman is a senior policy analyst at The Heritage Foundation
(heritage.org), a Washington-based public policy research
Distributed nationally on the Knight-Ridder Tribune wire
Worse, much of the recent increase could have been avoided.Prices often rise as we head into May and stay elevated throughout the summer.
Senior Policy Analyst, Energy and Environment
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