- The Washington Times - Monday, May 1, 2006

Don’t like that $3 price tag at the gasoline pump? Don’t buy gas.

It sounds harsh. But other than cutting back, there isn’t much drivers or politicians can do to send pump prices down this summer, despite all the proposals being tossed around on Capitol Hill.

The high cost of gas is caused by supply and demand, as seen last week on the gasoline markets in New York, where the price fell 5 percent as drivers began conserving and gasoline supplies grew.

The 32-cent spike nationwide last month was caused by four major factors, according to energy analysts:

• Gas stations are required to pump environmentally friendlier gas during the summer than the winter. When the stations switch, around this time each year, they are required to completely empty their pumps before refilling, adding some cost to the pump price.

• Last year’s Energy Policy Act mandated the switch, by May 5, from gasoline additive methyl tertiary butyl ether (MTBE) to ethanol, which is supposed to be better for the environment. But ethanol, unlike MTBE, cannot be mixed with gasoline at the refinery and cannot be transported through pipelines, prompting the need for some new terminals, where the ethanol and gasoline can be mixed, and requiring separate shipping by rail, truck or barge. Ethanol, too, requires stations to empty and clean storage tanks.

• Some refineries damaged by last year’s hurricanes are still not running; others are now doing maintenance that should have been done in the fall.

• The standoff between the United Nations and Iran over the oil-rich country’s nuclear program, and political unrest in other oil-rich countries, such as Nigeria.

Politicians last week rushed to propose solutions to calm irate consumers.

President Bush offered a plan that included Federal Trade Commission investigations into price gouging, improving fuel efficiency, halting deposits to the Strategic Petroleum Reserve, granting Environmental Protection Agency waivers to relieve fuel shortages, drilling in the Arctic National Wildlife Refuge and increasing the use of ethanol and alternative fuels.

Senate Democrats proposed a 60-day reprieve from the 18.4-cents-per-gallon federal gasoline tax and a 50 percent tax on “windfall profits” of U.S. oil companies to fund a one-time, $450 rebate to low- and middle-income families.

Senate Republicans proposed a $100 rebate to all taxpayers.

Industry analysts say those plans will do little to solve the real problem: demand. They say making gas cheaper will only fuel the problem because consumers won’t have any incentive to cut back.

“Although it is a short-term measure that might decrease gas prices, in the long run, it’s largely seen as having negative consequences … it makes gas cheaper, thus promoting greater gasoline demand, and simply leading to a tighter gas market in the long run,” Michael Burdette, senior analyst at the U.S. Energy Information Administration, said of the proposed federal gasoline-tax reprieve.

The federal and state gasoline taxes, which Maryland Gov. Robert L. Ehrlich Jr. has suggested temporarily repealing, fund road construction.

Windfall-profits taxes undermine any incentive to solve gasoline problems by finding a better, profitable solution, said James Hamilton, professor of economics at the University of California at San Diego.

“Oil companies are being punished for having oil that people desperately want right now,” Mr. Hamilton said. “They spent a lot of money in the past at times when the oil market didn’t look that promising.”

And while rebates will refuel drivers’ checkbooks, they do nothing to ease the price at the pump.

Two proposals — to stop deposits into the Strategic Petroleum Reserve and to grant EPA waivers when requested — could provide a few cents of relief at the pump.

“It’s going to be pretty modest,” Mr. Hamilton said. “Neither are thought of as a complete panacea … . There is nothing that the president or anyone else can do that would make a huge change in gas prices in the immediate future.”

Analysts said no one can do much to help the price of gasoline outside of setting up an oil refinery on their front lawn and producing gasoline.

“A gasoline tax [reprieve] doesn’t create any more gasoline,” Mr. Hamilton said. “It’s a shortage of gasoline that’s responsible for the high prices. Congress doesn’t make any more gasoline from lowering the tax.”

Some say consumers haven’t gotten the jolt they need to start conserving.

“One of the reasons you don’t see the big customer response, even though you hear complaints, is that people … are more successful today than during the last two energy crises,” said David Dismukes, associate director for the Louisiana State University Center for Energy Studies.

The Energy Information Administration’s weekly forecast predicts the recent price spike is coming to an end.

“The worst is probably over … . It appears gasoline prices might be cresting [last] week, at least temporarily,” said Mr. Burdette, adding that summer prices will depend largely on supply and demand and world crude-oil prices.

“Right now, I don’t see momentum in the market to get us to [a national average of] $3,” he said, adding that another Hurricane Katrina-like situation could throw prices out of whack again.

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