Posted on 10/06/2008 5:46:38 AM PDT by thackney
Now that the crisis is easing, who is to blame for the great gasoline shortage of 2008? Well, let’s think about that from the economic perspective of basic supply and demand.
Gov. Sonny Perdue signed an executive order on Sept. 12 enacting Georgia’s gas-gouging statute. The executive order meant that gasoline stations could only raise their price per gallon to reflect an increase in their costs per gallon; they could not increase their price to make bigger profits. Moreover, the Governor’s Office of Consumer Affairs recently subpoenaed sales records from 130 gas stations to determine if they illegally raised prices after Hurricane Ike. What would you have done if you were in the gasoline business? You would not raise your sales price.
What happened then? There was not as much gasoline to go around as before the hurricane, but there was still plenty of gasoline. There was no shortage in Oregon, in Wisconsin, in Ohio. Let’s say that you owned a company that delivered gasoline. Say you owned 5,000 trucks. Now let’s say that you could have gotten $6, $7 or $8 per gallon in Atlanta, but only $4 or $5 in Oregon, Wisconsin or Ohio. In other words, you could have made big profits in Atlanta. Don’t you think you might have diverted some of your trucks to Atlanta?
But what if you could have gotten only $4 per gallon in Atlanta, about the same as in Oregon, Wisconsin or Ohio? Was it worth it to divert some of your trucks from their regular routes? Of course not! No big profits meant no gasoline trucks driving to Atlanta. Is this all becoming clearer? Perdue and his consumer affairs office decided to play God with the price of gasoline so Atlanta didn’t receive needed gasoline supplies.
That’s the supply side. Now let’s think about the demand side. There was not enough gasoline around town to match the amount the buyers would like to buy at $4 a gallon, but there was enough to match the amount people would buy at $6, $7 or $8 dollars a gallon. People were exactly right to line up and top off their tanks. There was not enough gasoline to go around because the price was stuck at $4 a gallon!
At $4 a gallon, I was still taking my usual Sunday drive to the mountains and all of you were still taking your football trips or whatever you do, if you could find gasoline. But some of you could not get to work. At $8 a gallon, however, I would not take my Sunday drive and others would cut back, too. The gasoline that we did not use would have been there for the rest of you to get to work. There would have been no need to top off our tanks because there would have been no shortage.
Would it have been terrible to pay $8 for a gallon of gasoline in the short term? Well, two weeks ago, if I were to have offered you $8 to sit in a car line for two hours you probably would have told me your time was worth more than that.
So you decide: would you rather let the price go up to its natural level and not have to spend five or six hours per week searching and waiting for gasoline, or do you like the Perdue way of controlling how gasoline is distributed in Atlanta?
Who is to blame for the great gasoline shortage of 2008? The Georgia voter need look no farther than the mirror. When naive voters vote for naive government leaders, they get naive government policies and suffer the consequences. On the other hand, the Georgia resident need not feel too ashamed —- North Carolina, Tennessee and Alabama voters are no smarter, as they have similar, silly gas-gouging laws on their books. Of course, they have shortages, too.
Q&A: Why gasoline supplies went south
http://www.ajc.com/news/content/metro/stories/2008/10/05/gasanswers_1005.html
October 05, 2008
The frustration of finding and queuing up for gasoline left metro Atlantans with a lot of questions in the past few weeks. Here are some answers:
Q. Why is it taking so long to return to normal supplies?
A. A one-two hurricane punch of Gustav, which hit the central Louisiana coast Sept. 1, and Ike, which struck Galveston, Texas, Sept. 13, flooded and shut down refineries that supply virtually all of Atlanta’s gas.
“A lot of people don’t understand that refineries aren’t like light switches,” said Jeffrey Pillon of the National Association of State Energy Officials. “Once they go cold, you have to go through a whole start-up process as you work through the refinery. And that could take a week to 10 days under normal circumstances.”
On top of that, it can take 10 days to move gas by pipeline to Atlanta. Meanwhile, panic buying exhausted some local supplies.
Supplies began returning to normal last week. The U.S. Energy Department announced early in the week that 13 of 15 closed refineries have resumed production; one of two pipelines serving Atlanta was pumping at pre-hurricane levels by Tuesday.
Q. How much less gasoline was delivered or pumped in metro Atlanta this September, compared with last year?
A. No one seems to know for sure. Even if they did, it might not settle the argument over whether the shortage was hurricane-induced or panic-driven or both.
Government officials and oil industry executives agree on the best gauge of gasoline use: collections from the state’s motor fuel excise tax, which assesses 7 1/2 cents per gallon of gas delivered to retail outlets.
Figures for this September won’t be available for another week or so, said Charles Willey, a spokesman for the state Department of Revenue. But collections were already trending downward this year, apparently because of high gas prices.
The state collected $5.7 million less from the motor fuel tax this August than in August 2007. That means Georgians used 75.2 million fewer gallons of gasoline, a decline of 14 percent.
Q. How does gasoline get to metro Atlanta?
A. This region’s entire gasoline supply comes from refineries in Texas and Louisiana via pipelines operated by two companies: Colonial Pipeline and Plantation Pipe Line, both based in Alpharetta.
Plantation’s 3,100 miles of pipeline originate near refineries in Louisiana and Mississippi and run through Alabama, Georgia (with a stop in Doraville), South Carolina and North Carolina before terminating in northern Virginia. The 5,519-mile Colonial system comes from the Houston area and follows a similar path up the Eastern Seaboard, ending at New York’s harbor.
Colonial actually runs two parallel pipelines: one for jet fuel, diesel fuel, home heating oil and similar products, the other only for gasoline. The company operates a massive tank farm in Cobb County. From there, it redistributes gasoline to two terminals from which trucks deliver fuel to individual gas stations and pipes send jet fuel to the Atlanta airport.
Q. Did North Georgia’s requirement for “boutique” gas exacerbate the shortage?
A. Yes. That’s because when the hurricanes hit, refineries and gas suppliers were switching from summer gas to winter gas, and inventories were lower than normal.
The difference between the two is in the way they are manufactured. To improve air quality in metro Atlanta and comply with the federal Clean Air Act, the state requires gasoline in 45 North Georgia counties to meet an extremely low volatility standard from June 1 to Sept. 15. Low volatility reduces fumes emitted when the gasoline is pumped, transported and stored. Volatility is not an issue in cold weather.
Throughout the year, suppliers to this region must also meet a low-sulfur standard to reduce smog. The standard — 30 parts per million of sulfur — is the national requirement. But it is an average and suppliers have less flexibility to deviate in the relatively small metro area. For other East Coast metro regions, suppliers measure the average in a zone that runs from Florida to Maine.
Q. What have been the results of federal waivers on clean air regulations to ease the shortage?
A. State Environmental Protection Division Director Carol Couch said the waivers allowed “some very small and modest amounts of gasoline” to get into metro Atlanta via tanker trucks from Indiana, Ohio and Pennsylvania.
Q. Why have some stations had gasoline more frequently than others?
A.Big oil companies — Shell, Exxon, BP and the like — deliver first to the stations that operate under their brand. Some other big gasoline retailers, such as
QuikTrip and RaceTrac, have contracts with multiple distributors, meaning they’ve been able to get deliveries sooner than most, said Jim Tudor, president of the Georgia Association of Convenience Stores. If one distributor is out, another might not be.
Independent stations were hit the hardest. Instead of buying gasoline from specific distributors, most purchase supplies on the open “spot” market. That market, Tudor said, is much more volatile; in essence, it consists of the gasoline left over when stations with distribution contracts have been served.
Q. Does Georgia have strategic reserves?
A. No. The National Association of State Energy Officials says it not aware that any state has reserves.
The state has about 400 underground fuel storage tanks that average 1,500 gallons capacity, according to the Georgia Environmental Facilities Authority. That supply is designated for state government operations but could be tapped for local government emergencies.
It would cost tens of millions of dollars to build reserve storage facilities to serve Georgia, state officials said. And that does not include the cost of the gas. Georgia consumes 19.2 million gallons of fuel on an average day, reports the facilities authority.
There are other problems with reserves, said Steve Baker, a spokesman for Colonial Pipeline. He said stored gasoline begins to degrade after about a year.
Q. How widespread was the shortage? Was metro Atlanta the worst?
A. AAA auto club thinks so, though its information is strictly anecdotal. Nashville ranked No. 1 early on, AAA officials said, but the situation improved there, while Atlanta’s gas lines grew longer.
“I think you took over for Nashville,” said AAA spokesman Randy Bly. “It just seems like the worst areas are still in Marietta, Buckhead, Norcross and Alpharetta.”
Gas shortages were reported throughout the Southeast but were spotty. Cities throughout Tennessee, in western North Carolina and in South Carolina and Florida reported panic buying, long lines at the pumps and service stations without gas.
Q. Why did this recovery take longer than the post-Katrina problem?
A. Atlanta experienced gas shortages and rising prices after hurricanes Katrina and Rita in 2005. But the region recovered more quickly because those storms were about a month apart, giving the industry time to recover. Also, the storms this year hit a wider area, shutting down refineries that produce most of the region’s gas.
“It’s the breadth of where the refineries were out, from Houston all the way over to Louisiana,” said Doug MacIntyre, senior oil market analyst for the federal Energy Information Administration.
However the libs in my office say that the reason for the long lines/no gas at the pump is because of Big Oil greed.
Thanks goodness there hasn’t been a duct tape shortage. My head would have exploded a month ago.
My, my, my.
Good article, but let’s not forget that FL and the Carolinas could let oil companies explore off their own coasts and let some refineries be built on that side of the country instead of depending on 75% of oil refining being done in Hurricane Alley in the Gulf of Mexico. Pipelines running from those states to GA would make a lot more sense to everyone but Democrats.
Do they claim that was new or different following the hurricane?
Now, now, no fair being rational here.
Funny what price controls will do when a product’s demand exceeds its supply.
''It's amazin'! ''
Why not build refineries in Georgia? Oh, I forgot GA does not allow off shore drilling.
The Carolinas, Georgie, Florida, California and others do not allow offshore drilling. Supply and Demand has become Politically Incorrect for these states.
It is hard to reap what you don't sow!
75% of refining is done in Hurricane Alley?
Grandma said "Don't put all your eggs in one basket!".
> It is hard to reap what you don’t sow!
Too true... but we have people that think entitlements/handouts are the norm.
>75% of refining is done in Hurricane Alley?
>Grandma said “Don’t put all your eggs in one basket!”.
Oh, I have an idea... let’s build some on the San Andreas fault-line! Or in the middle of wildfire country! (Then we could have “crises” when those natural events happen too!)
Oh, I have an idea... let’s build some on the San Andreas fault-line! Or in the middle of wildfire country! (Then we could have “crises” when those natural events happen too!)
I didn't see your sarcasm tag.
A little information about how gasoline is delivered from Texas and Louisiana refineries by pipeline to the southeastern states. (many of whom do not allow off shore drilling).
U..S.. Product Pipeline Overview Map on page 3, www.ftc.gov/bc/gasconf/comments2/jacobsstevee.pdf
Same pdf page 4 shows a map of the Colonial Pipeline Co "Transports refined petroleum products from 30 refineries in the Gulf Coast to markets in the Southeast, Mid-Atlantic and Northeast."
The other pipeline from the Louisiana Gulf Coast Refineries is transported by Plantation Pipeline http://www.plantation-ppl.com/
Only 3 years ago Katrina caused interruptions in the distribution system.
http://www.cnn.com/2005/WEATHER/08/31/katrina.gas.prices/index.html
Suprize, Surprise all Gov Sony Perdue (GA) had to do was change the date from 2005 and his press statement was ready to be released. Gov Easly (NC) was singing the blues back in 2005 as well.
Econ 101, drill, build refineries, build pipelines. All create jobs.
Lower prices for gasoline means more money for consumers to spend. Lower prices for Diesel Fuel means lower prices at almost every local retail store.
Why buy refined gasoline and diesel fuel from other countries when we can drill and refine it here in the USA?
I thought the sarcasm was intuitively obvious.
But you’re right, keeping things in “accident prone” places WOULD create jobs for all the times you have to go back and repair things... Ewww.
>Lower prices for gasoline means more money for consumers to spend. Lower prices for Diesel Fuel means lower prices at almost every local retail store.
Correct, because the costs of transporting, mainly via Diesel semis, would go down.
>Why buy refined gasoline and diesel fuel from other countries when we can drill and refine it here in the USA?
I think it has a lot to do with “environmentalism” ... and therefore is political. I do think it’s past time to at least build some more refineries... and who says we won’t be researching better methodologies to do that refining?
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.