Rising Gas Prices
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RAY SUAREZ: To walk us through the problems at the pump, we’re joined by, Joseph Coughlin, director of the MIT Transportation Center; Ed Murphy of the American Petroleum Institute, which represents the nation’s major oil companies– he specializes in refining and fuel issues; and Anna Aurilio, legislative director of the U.S. Public Interest Research Group, a consumer and environmental advocacy organization. Ed Murphy, in your view, what are the push factors behind these rising gasoline prices?
ED MURPHY: Two push factors. First of all, the gasoline prices on average are now about 20 cents a gallon higher than they were at this time last year. About one-third of that increase is due to an increase in the cost of crude oil, the cost of the raw material from which we make gasoline.
The remaining two-thirds though, reflects the fact that we have not paid adequate attention to our refining capacity in the United States and expanded the infrastructure in a way that would enable us to supply consumers with an adequate supply of – at affordable prices – of petroleum products. We are operating refineries essentially flat out; there is no excess capacity left in the system and that in fact has forced prices up because of the reductions in supply, relative to the amount that consumers are now demanding.
RAY SUAREZ: Well, we’ve had several straight years of economic growth, robust car sales. Who goofed?
ED MURPHY: Well, nobody goofed. What we’ve done now is we haven’t paid attention to our energy supply infrastructure over the last ten years. We have put policies in place, which are very good and worthwhile and have environmental benefits, but we haven’t asked the question of ourselves – is how are going to supply this energy and what sort of national policies do we need that are going to allow us to supply energy that consumers need to drive cars and to enjoy the lifestyle that they’ve – that they’re entitled to.
RAY SUAREZ: Anna Aurilio, when you look at the situation, what do you see pushing gas prices?
ANNA AURILIO: I think we see things a little bit differently. We see in terms of overall energy problems that the country is facing that consumers right now are at the mercy of giant corporations that are manipulating markets to generate enormous profits, and just as an example in the world of gasoline prices the world price of oil, as we know, is controlled by OPEC, but U.S. oil companies benefit greatly when the world price goes up. It’s not in their interest for the price to go down, and they’re reaping enormous profits. Exxon Mobil last year had, I believe, the highest earnings of any company ever in the world, and in the last quarter alone through March of this year they reported $5 billion worth of profits. So these companies are benefiting handsomely, while we’re paying the price at the pump.
RAY SUAREZ: But this in your view a supply problem.
ANNA AURILIO: I don’t think it’s so much a supply problem as it is – and I’ll agree with Mr. Murphy – it is a long-range planing problem in that the biggest thing that we can do to reduce our dependence on oil and to reduce the shock that we get at the pump is to have cars that go further on a gallon of gasoline. And the auto industry has known how to make cars that would go up to 60 percent further. This would save us more oil than we import from the Persian Gulf, than we drill off California’s coast combined, and even 15 times as much oil as there is potentially in the Arctic National Wildlife Refuge, which is at risk under President Bush’s energy plan. So this would do all this, plus it would save us money at the pump, and we have technology to do this now, so that’s what I would think is the best solution and the best way to insure against future sticker shock at the pump.
RAY SUAREZ: Ed Murphy.
ED MURPHY: I think there’s no question; conservation has to be a very important part of any national energy strategy; there is no question about that. We can conserve. We should conserve. We in fact have made tremendous progress since the first Arab oil embargo in producing a great deal more with less energy than we used to use back in the pre-1973 period, but it’s not the only answer. We also need to pay attention to supply. We need to ask the question of how are consumers going to be provided with environmentally acceptable fuels at reasonable and affordable prices. That’s the question that hasn’t been asked in the last ten years. And that’s the question that’s now being asked, and I’m encouraged that something may be done about it.
RAY SUAREZ: Joseph Coughlin, if we look not at this week or this month’s price spikes but at American life over a broader period, is the way we use our cars, the way we organize our daily lives making us vulnerable to price increases?
JOSEPH COUGHLIN: Well, I think we’re kidding ourselves if we really think that the discussion here is solely on transportation or the cost of fuel. In fact, transportation is a lot more than just getting from point “A” to point “B.” Indeed, it’s the glue that holds all these little activities together that we call life. And in fact over the long-term, is this – is our lifestyle completely sustainable? Probably without the supports of alternative transportation beyond the car, new fuel sources, and new technologies, perhaps not; but the strategies that we need to think about right now is how do we keep the lifestyle, the American dream, if you will, that all of us have bought into and probably is one of the chief exports of this nation – alive and working well?
RAY SUAREZ: Well, is gasoline different from other working commodities then? Is the demand as an economist might say inelastic? Can we not do without it the way we might do without the way we might do with something else that is going up in price?
JOSEPH COUGHLIN: Well, you know, unlike a lot of other things, transportation or the fuel that provides it is more indicative of other of life’s activities. You know, the fact that there’s more congestion on the road and that in fact there may be more demand for transportation is a sign that the economy is actually robust, and it tends to feed on itself. The structure of our communities where 70 percent of us live in more rural America or suburban America, where transportation alternatives are really not in place or not as elastic and flexible to meet the needs of getting to all those things– the cleaners, the store, dropping kids off at the school– possible.
RAY SUAREZ: You can’t necessarily walk to do your marketing if gas goes up 10 cents per gallon.
JOSEPH COUGHLIN: Well, in fact, the biggest problem is that the majority of us live in places where there is nowhere to walk to. It’s not just that we’re driving more miles. We need to make more trips. In fact, transportation maybe one of the few areas where demographics is truly destiny. Women going to work in large numbers since the 70s have started their own transportation demand, continuing to have to transport kids around, no longer just to school, but to a play date or to various events – and in fact, even the nation’s aging population is contributing to greater use of the automobile. Only 25 percent of our travel is related to going to work. The other 75 percent, it’s called life.
RAY SUAREZ: Well, Ed Murphy, is it not just a question of how much we drive, but what Americans drive?
ED MURPHY: There’s no question that Americans have made choices in the vehicles they have purchased and there’s no question that as a result of government regulations, which put a limit on the fuel efficiency of passenger cars, that there’s a shift to light duty trucks and to SUVs. That has occurred; it reflects abundant petroleum at relatively cheap prices.
Consumers over the long term are able and in fact do make choices to adjust their consumption of petroleum, just like they adjust their consumption of other products to reflect the prices that they’re facing. The data that we have now shows that there has in fact been some adjustment. We think demand for gasoline is down somewhat largely as a result of the gasoline price increases that we’ve seen. Consumers do adjust and will adjust and will conserve when faced with higher prices.
RAY SUAREZ: But Anna Aurilio, if you’ve just bought an SUV, it’s not like you’re going to turn around and turn it in if gas goes up in price.
ANNA AURILIO: That’s right. We actually think that we’re at an energy crossroads right now. These skyrocketing prices should really force us to reconsider the road that we’re on and choose a path of new technology, of new energy future. We have the technology to build cars that will go further on a gallon of gas so that we are less dependent on these price spikes, on these fluctuating markets, where some people make a lot of money and the rest of us pay a lot of money at the pump; and then the other thing is, let’s not forget, that producing oil and refining oil have enormous costs.
One of the things that I hear the oil industry saying in this debate, as they happily whistle their way to the bank, one of the things I hear them saying when they talk about building more infrastructure and refineries, one of the things they’re actually lobbying for is relaxing standards, health standards.
ED MURPHY: No, I’ve got correct you on that. We are not… That’s based on a false premise. There is no reason… And we should not have to choose between a clean environment, a safe environment, and adequate and affordable energy supplies. We are opposed, adamantly opposed, to a relaxation of pollution standards in response to this energy problem that we’re facing right now. So that is not correct.
RAY SUAREZ: Well, in the states where they have reformulated gas, that’s being blamed as one of the factors for these price rises. How would the API handle that critique?
ED MURPHY: Well, one of the reasons, the driving forces, behind these energy prices is that we have a wide variety of fuels in the United States that are needed only in certain localities. We have 15 what they call boutique fuels – the underlying – this makes the system more complex and reduces flexibility and thus leads to higher prices.
One of the things that we have strongly recommended, in fact, one of the things that’s agreed upon by our environmentalist friends as well as the petroleum industry is to do away with the requirements in law that require particular chemicals to be added to the gasoline and I’m referring to oxygenates. There was an EPA blue-ribbon panel last year that recommended that that requirement be eliminated, that we be– which we have agreed– we in the petroleum industry make a commitment which we have agreed to do to maintain the environmental quality of the gasoline; removal of that mandate – the law, which serves no environmental purpose – in fact does in some cases damage the environment – and certainly leads to some of the supply problems that we have now – that should be eliminated. That’s a good first step to eliminating some of the problems that we’re looking at right now.
RAY SUAREZ: And you leave us in what kind of boat, Anna Aurilio?
ANNA AURILIO: I’m happy to hear you say that you want a clean environment, the same as we do. However, what I’ve heard is that the oil industry is actually arguing that refineries should be able to allow – allowed to increase operations and also increase pollution at the same time under the so-called new source review standards.
ED MURPHY: I don’t know who you’re hearing that from. We have not argued for any relaxation of pollution standards. We have argued to maintain the pollution standards; they are necessary and appropriate. Like I said, it’s based on a false premise. That false premise is that we needed to choose between adequate, affordable energy supplies and a cleaner environment; we don’t need to make that choice. We have the technology to provide both and we are really anxious to do it.
RAY SUAREZ: Joseph Coughlin – you wanted to say –
JOSEPH COUGHLIN: I would suggest that both of my colleagues get out of the box. Essentially, what we’re talking about is short term policy argument as to whether we use one technology that may be cheaper or another – or identify another source of petroleum, when in fact, my colleague is right — we are at a crossroads now of energy policy and indeed transportation policy.
This is an agenda setting opportunity to think about alternatives to the car, how we structure our community, and to think about all these things that may be necessary for a sustainable energy and transportation policy. Indeed, we need to have fuels now for the lifestyle we have, but keep in mind it took us 50 years to have the infrastructure in place to live the way we do today. It will take easily ten, 20, 30 years to come up with an alternative that is truly sustainable, so use the opportunity wisely. Use this as a method of getting out a vision of what the future is going to be, a more compelling vision perhaps then of the next American dream.
RAY SUAREZ: Joseph Coughlin, Ed Murphy, Anna Aurilio, thank you all.