Saturday, January 21 , 2017, 7:58 am | Mostly Cloudy 50º


Tam Hunt: Significant Solutions for High Gas Prices Are Right Before Us

At a time of severe pain at the pump at home, a ban of U.S. gasoline exports could have a dramatic effect

It is common knowledge that “there is no quick fix” for high gas prices. It’s going to be a long-term effort to reduce our reliance on oil and we’re probably in for higher prices no matter what we do in the short term or long term because we’re facing a number of macro trends, such as systemic tightness in global supplies (peak oil), ongoing international tensions with Iran, etc., and perhaps also some amount of speculation in oil prices.

But is it really true that we can’t do anything to bring down gas prices in the short term? Maybe not. There are in fact a number of policies that could have a rapid impact on demand and possibly even bring down gas prices dramatically.

One policy, in particular — banning U.S. exports of gasoline — could result in significantly lower prices for gasoline almost overnight. As far as I can tell, this policy is not being talked about at all, and it should be.

The United States became a net oil-product exporter in February 2011 for the first time since 1949. It’s important to stress, however, that “net oil products” refers to refined oil products, not to crude oil itself, which dwarfs net oil products. We still import about half of the liquid fuels we consume each year and, as I wrote recently, we only produce about 6 million barrels of crude oil per day and we consume about 19 million barrels of all liquid fuels (including biofuels and natural gas liquids, etc.).

While oil prices are subject to global markets, gasoline markets are far more regional. In the United States itself, gas prices range from $3.62 a gallon to more than $4.22 in California. Check if you’re curious. Regional markets are based on different blending requirements related to air quality and to local storage capacity, local production of oil, and other factors.

In 2011, U.S. companies exported 479,000 barrels per day of motor gasoline, which is up dramatically from recent years (see the nearby chart). This is a significant chunk of the 8.7 million barrels per day that the United States consumes in gasoline.

U.S. gasoline exports.
U.S. gasoline exports. (Source: Energy Information Association)

With gas prices at seasonal records this year, and approaching all-time record prices, why are U.S. refiners exporting gasoline and other oil products? Isn’t there a good rationale for keeping these products here in the United States to drive down gas prices?

Don’t our ongoing economic problems justify some limits on U.S. oil-product exports?  No one can say with certainty how much prices would drop if the United States banned oil-product exports, but it seems that prices would drop substantially.

Higher gas prices have a major impact on gross domestic product. Recent research from Mingqi Li at the University of Utah found that between 1971 and 2010 every $10 increase in oil prices resulted in a 0.4 percent to 1 percent drop in GDP. I haven’t seen similar research on gas prices, but presumably the same significant increase in GDP would result from a proportionate decrease in gas prices — which could be prompted by a ban on U.S. gasoline exports.

There are many other things that the federal government or state governments could do so bring prices down or to otherwise limit the impact of high prices on our economy.

In 2005, the International Energy Agency, the West’s energy watchdog, issued a report entitled “Saving Oil In a Hurry.” As the title suggests, it consists of a number of recommendations for reducing oil consumption when time is of the essence — kind of like now. The IEA arrived at the following recommendations, organized by the highest potential for reductions.

International Energy Agency recommendations for 'saving oil in a hurry.'
International Energy Agency recommendations for “saving oil in a hurry.” (2005)

Clearly, emergency carpool lanes and driving bans would require truly dire circumstances to be put into force and I don’t envision those circumstances happening any time soon. (We also have the Strategic Petroleum Reserve for truly dire circumstances, and coordinated international releases are being discussed by the United States, the United Kingdom and other countries).

The next three categories in the chart above are, however, more feasible as part of state or national efforts to dramatically reduce oil consumption if conditions warrant such measures.

Higher prices and a more efficient economy have resulted in “demand destruction” of 2 million barrels of oil per day since 2009. This change is remarkable and appears to be a sustained trend. We can see the remarkable impact of conservation and efficiency when we compare the decrease in oil demand to the increase in crude oil production in the United States over the last five years. In fact, over the last five years (2007-2011), we have “produced” more oil from conservation and efficiency than from increased production by a factor of three. Conservation and efficiency have “produced” a total of 1.85 million barrels per day of oil since 2007, compared to 0.57 million barrels per day from new production.

Comparing incremental U.S. reductions in oil consumption with incremental increases in oil production.
Comparing incremental U.S. reductions in oil consumption with incremental increases in oil production. (Source: EIA)

It’s clear that the sky-high oil prices we’re seeing in 2012, when combined with the substantial increase in efficiency of vehicle fuel economy and industrial procedures, will result in significant additional declines in U.S. oil demand. We are indeed “drilling” far more oil from increased efficiency and conservation than we can realistically hope to drill from the ground.

Summing up, President Barack Obama and Congress could exert a very significant downward effect on gas prices — quickly — by banning U.S. gasoline exports and keeping that gas here. We could also implement many policies to “save oil in a hurry” — if our leaders are serious about reducing the financial burden that high oil prices have on our economy.

— Tam Hunt is a renewable energy lawyer and policy advocate based in Santa Barbara. He owns Community Renewable Solutions LLC, which focuses on community-scale renewable energy consulting and project development.

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