Some readers remember when gasoline prices reached $.50 per gallon and then topped $1. Others recall when prices first arrived at the $2 level. Younger drivers, however, may not have witnessed prices below $3 per gallon.
The fact is, gasoline prices have been high for several years. This is primarily because of the rising price of crude oil – a vital component in the production of gasoline – over the years. Crude oil comprises 67 percent of the cost of gasoline.
But pump prices could be much lower if certain steps were taken, according to energy economist Nicholas Loris. Loris has written about actions that Congress and President Obama could take to reduce gasoline prices. Let’s review some of his recommendations and see how they might work
First, he recommends removing government restriction on crude oil exports from this country. This could decrease gasoline prices by creating opportunities for oil companies to produce additional crude oil and cause the refinery system to become more efficient. One study indicates this could lower gas prices by 8 cents per gallon.
Loris advocates lifting the ban on oil exploration in the eastern Gulf of Mexico and the Atlantic and Pacific coasts as well as leasing additional tracts in Alaska. Opening these areas to exploration would increase the supply of crude oil. The Arctic National Wildlife Refuge contains 10.4 billion barrels of oil in a relatively small area.
Approving the Keystone XL pipeline, a project that has been stalled for several years, would allow the United States to import 830,000 barrels of oil per day from Canada to refineries on the Gulf of Mexico. Increasing the supply of crude would push down the prices of both crude and gasoline.
A fourth recommendation is repeal of the Renewable Fuel Standard (RFS), known as the ethanol mandate. RFS requires refineries to blend increasing amounts of ethanol into gasoline each year. The total will reach 36 billion gallons by 2022. The Congressional Budget Office recently estimated the mandate will increase prices by 13 cents to 26 cents per gallon as early as 2017.
What can be concluded from Loris’ comments? At first glance, they have merit and appear, for the most part, to be a common-sense approach. But like many other common-sense ideas, they may fall by the wayside.
Wayne Curtis, former superintendent of Alabama banks, is a retired Troy University business school dean. Email him at wccurtis39@gmail.com.
