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Op-Ed: Setting the record straight on U.S. gas prices
Posted 17 April 2013 in
Setting the record straight on U.S. gas prices
Politico 4/16/13
By: Tom Buis and Bob Dinneen
Last month, the Energy Information Administration announced that U.S. crude production will soon top oil imports for the first time in almost 20 years, and at the same time production of ethanol — which costs less than gasoline — has been increasing because of lower corn prices. That news was predictably followed by a drop in gasoline prices across the U.S. This is in marked contrast to predictions just a few weeks ago that an arcane trading market controlled by oil refiners and hedge funds would push gas prices to the stratosphere and wreck the economy. What’s going on?
The story here is simple. Opponents of renewable fuel, led by the oil industry, want to convince Capitol Hill that renewable identification numbers, or RINs, are the harbingers of doom for U.S. gas prices. Three facts every member of Congress should know about RINs: They are free, they are primarily traded by oil refiners to oil refiners, and they were created at the oil companies’ insistence. Early this year, the price of RINs rose dramatically, but since oil companies dominate the RINs market — and since ethanol supplies are increasing — we are hard-pressed to see a reason for that spike in prices.
Many in Congress agree that the market fundamentals do not account for that increase in prices and have called for investigations — a move that we support. But before the witnesses swear in, let’s set the record straight on RINs and gas prices.
First, RINs are not raising America’s gas prices. A new analysis conducted by Informa Economics showed that RINs are most likely contributing no more than $0.004 (four-tenths of one cent) to the retail price of a gallon of gasoline. Meanwhile, Informa found that ethanol costs significantly less than gasoline at the wholesale level, providing an average discount at the pump of $0.044 per gallon discount so far this year. So ethanol is still making gasoline cheaper than it would be if we had 100 percent petroleum fuel.
Second, we cannot drill our way to cheap gasoline in the long run. But don’t take our word for it. The International Energy Agency, in the same report often cited as proof that the U.S. can become “Saudi America,” also noted in a less-quoted section that even if the U.S. becomes “all but self-sufficient” thanks to domestic drilling, the price per barrel will still exceed $215 in 2035 — more than double today’s price. That’s because oil prices are set on a global market and global demand is skyrocketing.
So if drilling isn’t going to lower gas prices, what will? If you ask API, they’ll tell you that killing renewable fuel is the key, since it will free us from the perils of RINs. In fact, the opposite is true — we need to expand renewable fuel to save at the pump.
One way to do that is to make E15 widely available. Since E15 is a higher ethanol blend, it would save consumers — and cost oil companies — even more money, so it is no coincidence that API is also fighting to block E15. Ironically, widely available E15 would create an additional 6.5 billion RINs, driving RIN prices back down. In other words, oil companies are paying a premium to reject renewable fuel.
The real story here is oil’s determination to crush all forms of renewable fuel this year. API and its allies are spending millions of dollars on studies, PR and advertising and lobbying to block their competitors — all while hoping that Congress overlooks the fact that the oil industry created the very renewable fuel policies, including RINs, that they are now attacking.
To lower gas prices, we must ensure that the infrastructure needed to integrate more cheaper-than-gasoline ethanol is built. In 2007, the oil companies effectively pledged to invest in the facilities needed to meet the RFS obligations they agreed to. They have not kept up their end of the bargain. As soon as the oil industry stops obstructing the change mandated by the law, we will see choice at the pump increase, and prices at the pump decrease.
Tom Buis is CEO of Growth Energy. Bob Dinneen is the president and CEO of the Renewable Fuels Association.
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