Today, gas prices are at their highest since 2014, with the national average for regular grade currently sitting at $3.413 per gallon. But why? Why are we paying so much more than we were just one or two years ago? Why does gasoline cost so much? You can blame it on high oil prices or increased demand, but understanding where our gas comes from requires an understanding of the entire manufacturing process, which begins long before it reaches your local pump.
From Well To Refinery
Raw crude oil is pumped out of an underground well and delivered to one or more nearby oil refineries. Refineries are where crude oil is broken down into different parts that will later be used to make gasoline, diesel, plastics, paint, and other products. At each refinery, there are at least three basic processing units – (1) crude distillation (2) cracking (3) reforming – that work together to produce various refined products. During distilling, the crude oil is heated in a vertical column that separates the into components based on weight. The heavier components condense and fall out lower in the column while the lighter components, like gasoline, float to higher levels in the column before also condensing. Because there is a much higher demand for gasoline than any of the other products manufactured from the heavier components of crude there is an incentive to break down or “crack” longer chain hydrocarbons. Cracking units are separate from distillation columns and often introduce catalysts that speed up the process of breaking down these hydrocarbons. Lastly, not all gasoline molecules are shaped the same and this leads to different levels of efficiency and performance. This is why the molecules are reformed from paraffin and naphthene to higher octane aromatics and isomers. Afterward, the gasoline is treated and blended in order to remove contaminants, establish grades, and keep engines healthy. At this point, the crude oil has been turned into the form of gasoline that we are all familiar with, but it is still far from coming out at the pump.
From Refinery To Station
When gasoline is ready to leave the refinery it is usually transported by pipeline to large storage facilities near the areas that will consume the fuel. Sometimes blending occurs at these terminals to add the last components to the fuel so that it can be properly sold as finished motor gasoline. From here, it is usually loaded onto a truck that will transport the fuel to the tanks located underneath each gas station. Now consumers have access to the fuel so that they may fill their tanks.
Still, a conversation about gasoline would not be complete without mentioning ethanol. All gasohol (gasoline with 5% to 10% ethanol) comes from two sources: food crops like corn and sugar cane, or non-food plants like switchgrass. However, producing fuel from plants requires more than just planting seeds and waiting for them to grow. Processing plants need to be built, fertilizers need to be applied, water systems built out, and so on. Once grown, plants can also take up valuable farmland that could be used for growing food for humans instead. The reason why gasoline with higher percentages of ethanol is preferred over pure gasoline is that it burns more cleanly and produces fewer greenhouse gases in combustion. While it may produce fewer greenhouse gases in the engine, one must consider the amount of energy that went into growing and harvesting the grain. At the end of the day, ethanol is an additive that the government requires refineries to introduce into fuel. Grain prices have skyrocketed this year to levels not seen since 2013 and makes ethanol a more expensive additive.
There is a lot that goes on behind the scenes when talking about gasoline production, but at the end of the day there are a few factors supporting high prices:
-Demand for fuel returning faster than supply
-Increased cost of fuel additives (crude, ethanol, etc)
-Lack of investment in the conventional energy space
These factors work together to push prices even higher. Unfortunately, this analysis is lost on most as the government is now accusing companies of colluding to raise prices. Hopefully, this investigation will highlight the matters discussed in this article because one thing we can all agree on is cheap and abundant energy.
RARE PETRO Updates
Content Updates – News Pulse – Podcast
- A New Basin Breakdown for the month of September is available now! Be sure to check out the latest articles and Basin Breakdown Podcast!
- The ongoing oil crisis in the US has caused many people to ask why gasoline prices have skyrocketed to record highs despite the fact that the supply of oil available to the market has increased in recent weeks. The simple answer is that a great deal of oil has been shipped from overseas and stockpiled in U.S. ports, but the bottleneck getting the oil from those ports onto land has caused prices to rise anyway as labor bottlenecks transform into supply bottlenecks. Check out our latest periodical HERE to learn more!
- RARE PETRO is the tik talk of the town! Short-form content to educate both the public or industry professionals is available NOW! Check out our latest Tik Tok Video uncovering what Holywood does not understand about a blowout.
- RARE PETRO and Rainmaker GBD collaborate on a monthly newsletter highlighting everything you need to know about the energy sector. This is a video interview with RARE PETRO’s Anthony McDaniels as he speaks on the biggest stories and dives a little bit deeper into supporting data. Welcome to the second edition of “Side Chat”.
- Sam Gibbs revolutionized the way a rod pumped well would be managed dozens of times over. As a brilliant engineer, mathematician, and disciplined man he worked passionately to change the trajectory of rod pump technology for generations. Find out more in episode seven of Hydrocarbon History!
- Grab a drink and join us for our newest segment, Thirsty Thursday: An Inventory Report to see if we’ve been poured another tall glass of crude and whether or not the U.S. was thirsty enough to suck down another round.
- As Always, A New Monday Madness Podcast!
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