Minor Thoughts from me to you

Biofuels Make Gas Expensive

The Times is surprised to learn that the recent emphasis on biofuels is making our gas more expensive.

In hearings before Congress last year, oil executives outlined plans to increase fuel production by expanding existing refineries. Those plans would add capacity of 1.6 million to 1.8 million barrels a day over the next five years, for an increase of 10 percent, according to the National Petrochemical and Refiners Association.

But those plans have since been scaled back to more than one million barrels a day, according to the Energy Information Administration, an arm of the federal government.

"If the national policy of the country is to push for dramatic increases in the biofuels industry, this is a disincentive for those making investment decisions on expanding capacity in oil products and refining," said John D. Hofmeister, the president of the Shell Oil Company. "Industrywide, this will have an impact."

The concerns were echoed in a recent report by Barclays Capital, which said the uncertainty about the ethanol growth "will do little to accelerate desperately needed investment in complex United States refining units."

"Indeed, it is likely to deter and further delay investment, if not rule out many refinery investments completely."

The oil companies say their views on the longer-term prospects for fuel reflect simple economics. Because of the enormous investments required to expand refineries, they say they have no other choice but to re-examine their plans in light of the calls for more ethanol fuel, regardless of how realistic they may be.

Not that any of this matters to Congress. Now that they've injected a huge dose of uncertainty into the gasoline market and driven prices sharply upwards, they're prepared to tax away any profits that might enable the oil companies to actually handle the market uncertainty. (High profits might give the companies enough of a margin to both invest in refinery capacity and invest in ethanol production. Unfortunately, profits are evil so we can't let that happen.)

Let's not forget the other place that oil industry revenues have been going:

The refining industry has also spent vast amounts "” more than $50 billion in the last 10 years "” to meet requirements to produce cleaner fuels, according to the American Petroleum Institute, the industry's main trade group.

That's a lot of money. And Congress could mandate something else in the future that will cost just as much -- or more. These are the risks that oil industry executives have to face every day of every year. When uncertainty about future expenses goes up, so do prices.

In case you think that everything will be solved if we just move from corn based ethanal to cellulosic ethanol, not so quick:

The economics of cellulosic ethanol, made from nonfood crops and agricultural waste, are also unclear. Since cellulosic ethanol, still at an experimental stage, is twice as expensive as corn-based ethanol, there are currently no commercial-scale cellulosic plants.

In addition, Mr. Goldstein said, an emphasis on ethanol might lead to increased volatility in fuel prices.

"If we get a bad corn crop, we will end up paying for it at the pump and on the food shelves," he said. "We are not buying security. We are increasing volatility."

While Congress was busy thinking about reducing our dependence on foreign oil, they forgot to think about reducing our dependence on fickle weather patterns. When was the last time that the entire nation had to worry about whether or not the farmers would have a bumper crop of corn? Thanks to Congress, we'll be able to experience this old-fashioned form of worry all over again.

Rather than blaming the oil industry for high gas prices, Congress needs to take a long hard look at their own behavior. Then stop it.

This entry was tagged. Gasoline Oil Taxes