In Face of Oil Glut, Execs Testify About Continued Pain at the Pump
(WASHINGTON) -- The days of $3 gasoline may be gone. That was the takeaway message from oil industry executives and analysts called before Congress to determine why petroleum prices have steadily risen for consumers despite massive increases in domestic production.
Chris Plaushin of the American Automobile Association, which tracks gas prices, told the Senate Energy and Natural Resources Committee on Tuesday that external factors, including hurricanes, overseas unrest and increased demand from countries like China and India meant the current levels were here to stay.
“The result of these myriad factors is a ‘new normal’ where the days of a national pump price below $3 is likely a thing of the past and state and regional price spikes that see retail prices move violently in a span of days are more common,” he said.
“Consumers are still getting hammered, they’re getting hammered today at the pump,” committee chairman Ron Wyden, D-Ore., later retorted, adding that it was happening, “at a time when their newspapers are filled with stories about how there’s new oil supplies and the consumer is saying, ‘How’s it going to get to me?’”
According to the Department of Energy, the number of refineries in the U.S. has steadily dropped in the last two decades – but recently, advances in drilling technology, increased production at existing facilities, and less demand at home has flip-flopped the country from a net importer to an overall exporter of petroleum products. The United States now ships about 60 percent of its oil, compared to 40 percent in 2007.
Adam Sieminksi of the Energy Information Administration called it a “dramatic change” that “continues to surpass even the most optimistic forecasts of recent years.”
Sieminski suggested the sudden influx of new American energy had “stressed” parts of the supply infrastructure.
Meanwhile, the chief executive of the world’s largest independent oil refiner, Valero Energy Corporation, pointed the finger at federal biofuel mandates as the biggest obstacle to his industry.
“The most important thing that is affecting us is the Renewable Fuel Standard. Valero is the third-largest corn ethanol producer, but the Renewable Fuel Standard is out of control. It is broken,” said Bill Kleese, adding that the costs associated with producing and blending the fuel additive were “skyrocketing.”
“Any advanced ethanol has to be imported. This is not in the interest of our country,” he added.
The oil industry has long claimed ethanol requirements to be an undue burden.
The ranking Republican on the committee, Sen. Lisa Murkowski, agreed Congress needed to revisit the program and her colleague, Sen. John Barrasso, R-Wy., mentioned he had penned a bill to repeal the Renewable Fuel Standard in entirety.
While Sen. Wyden admitted meeting the mandate’s target may not be feasible, he and other Democrats suggested U.S. refineries could be quietly collecting a boon in profit.
“Hamburger probably has more regulation on it than gasoline and yet the fact that this price spike can happen without real supply and demand issues is a problem we have to address,” said Sen. Maria Cantwell, D-Wash.
Cantwell also focused particular criticism on Citigroup’s Faisal Khan, who alleged to the committee in his prepared materials that a 93-year old maritime law represented an unnecessary burden on petroleum shipping costs, among other external factors.
“Citigroup has been under investigation and paid penalties both for fraud in the mortgage market and is now under investigation by the [United Kingdom] for manipulation of gas prices, and the fact that you come here and blame the Jones Act as some reason why we have high gas prices is just amazing to me,” she said.
The law, dating to 1920, requires ships operating between domestic ports to fly U.S. flags and be crewed by American citizens. Industry and the EIA have claimed there aren’t enough vessels to move oil products between coastal collection hubs and areas of need.
Lawmakers and their guests mainly agreed that, although the high cost of fuel was a burden on American consumers, the increased domestic production had still acted as a cushion against potentially more volatile overseas markets.
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