Why does gas cost so much?
Posted on May 2, 2008 by Jonathan Carr |
Yesterday morning I filled my Ford Expedition up at a local gas station. When the nozzle clicked, the gas attendant looked at me and said, “You are the 5th truck in a row over 100 dollars.” I turned over my shoulder and looked at the price of 87 octane and was amazed ($3.45 per gallon). The worst part is that the state I live in (New Jersey) has some of the cheapest gas prices in the country. I have heard media clips where people in California and other states were ranting about $4.00 per gallon. I have also heard people in Europe complain about $8.00 per gallon prices. What the heck is going on? Why does gas cost so much?
The major news organizations are quick to point out the $10 billion profits of Exxon Mobile at the end of every quarter. People are quick to blame OPEC and the War in Iraq. I find myself uncomfortable getting behind any of these claims without seeing clear evidence. Thanks to a very intelligent analysis by Jayson Morgan, companies like Exxon Mobil are not to blame. They are simply optimizing their operations, just as every business or corporation has the right to do. Are they price-gouging? No, they are not. They are simply in the spotlight because they are profiting in an industry which affects every vehicle-operating human being in the world.
For the cost of every gallon of gas, here is the breakdown which can hopefully answer the question. “Why does gas cost so much?” There are four cost-factors:
I. Crude Oil Extraction from Earth- 57%
Crude oil must be found and extracted from its location in Earth. This can be in a desert, under miles of ice, under an ocean, etc. This is a very expensive procedure which involves heavy machinery and highly-skilled labor. The oil must then be transported to a refinery where a reserve must be maintained. Transportation of crude oil involves oil tankers (which don’t exactly get the best MPG on water) and other large vehicles which cost a lot to operate. Since these companies do not work for free, there is a profit which gets added onto everything. This all equates to 57% of what you pay per gallon at the pump.
II. Refinement - 18%
Once the crude oil has been delivered to the oil refinery, it must be processed (refined) into various blends of what we know as gasoline (87,89,93 octanes) to meet government standards and clean-air acts. The gasoline must then be transported from the refinery to gas stations which again uses large vehicles (18-wheelers). Once again, refineries just like crude oil companies must profit in order to stay in business. When all the costs associated with refinement add up, it equates to 18% of what you pay per gallon at the pump.
III. Gas Station - 11%
The gas station must also operate with a profit. Gas attendants need to be paid. Marketing strategies must be implemented. This totals 11% of what you pay per gallon at the pump.
IV. Taxes - 14%
All federal governments and states within reserve the right to impose taxes on gas. As I said earlier, I live in New Jersey which has one of the lowest tax rates on gas. There are countries around the world that charge over $5.00 per gallon for gas tax. Gas taxes imposed by federal and state governments make up the remaining 14% of what you pay per gallon at the pump.
Now that you know where all the money goes to, it is important to consider why the price of gas fluctuates so rapidly. Of the four cost-factors, I and II are the most easily affected. Hurricane Katrina did massive damage to oil stations that extract crude oil from the Gulf of Mexico. As a result, supply and demand were altered and there was a big gas hike. The fact that oil is running out on our planet makes people nervous (people that bid on barrels of oil to profit off of). Places like Iran, Iraq, and Saudi Arabia have a lot of crude oil. When that region becomes unstable, it makes people nervous as well. For the most part, gas station operational costs and taxes do not change as much as crude oil extraction and refinement.
Right now, we are still very dependent on oil. America and China continue to rip through millions of barrels of crude oil per year. Remember, not just motor-vehicles contribute to oil dependency. Lubrication and plastics use a lot also. Auto-makers are pushing Hybrids and Bio-Deisel in-attempt to combat our dependency. An effort in awareness is being made, that’s for sure. But until we transfer our energy requirements to technologies such as solar, wind, and nuclear, the problem remains at large.
I in no way intended to provide a specific solution to the crisis with this blog. I simply wanted to spread the truth about where the money goes when you purchase gas and to answer the question many people have been asking for years now… Why does gas cost so much?
References:
Image (top) from Kiii TV
Image (Bottom) from from Del Freedom Riders
Roy, Rex. Gas Prices
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6 Responses to “Why does gas cost so much?”
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I came across your blog on Technorati. Nice site layout. I will stop by and read more soon.
Mike Harmon
[...] Atlas Editorials wrote an interesting post today on Why does gas cost so much?Here’s a quick excerptPlaces like Iran, Iraq, and Saudi Arabia have a lot of crude oil…. [...]
[...] Why does gas cost so much?Crude oil must be found and extracted from its location in Earth. This can be in a desert, under miles of ice, under an ocean, etc. This is a very expensive procedure which involves heavy machinery and highly-skilled labor. …Atlas Editorials - http://www.atlaseditorials.com/ [...]
Thank you for stopping by Mike. Hope to see you back here soon.
Very interesting!
I hope I am wrong but in the past years ( 59 ) it has been my observation that when a party is out of office, just before an election, they find multiple ways to up prices and change political residences, if they can. Of course normal progress and atrition factors in. However, I find it strange that there was more flu this year, higher food prices, attempts at anti war retoric ( dispite that the surge is working ) housing & market deflation, and last but not least oil increases. There was even an attempt to convince people that global warming and the end of the world was near. It is odd that when the congress and white house are not opposites this doesn’t happen and life goes on and we survive as we always have. Could it be that some parties will do anything to get ahead? Would one party distort the truth or initiate disaster to gain control? Will the world balance out a little after the elections? Will prices drop in oil, food, medicine, etc.? WIll bugs be cured? WIll hope return. I hope so and sincerely think a people are used for many reasons and a party just might do anything to turn the tables, even at the cost of their own people. Hopefully, the people are still smarter than disception and the truth will prevail. Only history will tell but I hope the elections come soon before this beutiful freedom and dream we called America, dies on the vine.
[...] finding technology, the good stuff is 5-80 miles off-shore. By drilling more we will lessen the price per gallon of gas and place more money in the hands of the people. This leads to more consumer spending which [...]