- The Washington Times - Tuesday, January 21, 2014

America is in the midst of an energy boom has left the country floating in crude oil and natural gas — but consumers are seeing only modest returns at the gas pump, where analysts said the chief benefit has been stability, not cost-cutting.

The conundrum has consumers scratching their heads and lawmakers on Capitol Hill promising investigations, saying it stands conventional economic wisdom on its head: More supply should mean lower prices.

Crude oil and natural gas supplies have risen dramatically in the past three years. In October, the U.S. produced more crude oil than it imported — a milestone last reached in 1995. Yet averaged nationwide, prices dropped 11 cents last year. GasBuddy, which tracks pump prices, projects a drop of only another dime this year, to average $3.39 a gallon.

“We’re not seeing that it’s having a tremendous impact on the retail price of gas at the pump, but we do see that consumers are saving. We saved a little bit of money in 2013, and we expect consumers will save a little more this year,” said Gregg Laskoski, senior petroleum analyst at GasBuddy.

While cleaner-burning engines, better electric batteries and alternative fuels are garnering increased attention, most cars still burn gasoline. Americans are spending a higher percentage of their income on filling their tanks than they have since the early 1980s.

What consumers are seeing since the oil boom began in earnest is better stability, analysts said — a reliable domestic supply translates into capacity to handle problems, which means more stability.

“There’s a lot less volatility,” said Michael Green, a spokesman for AAA, who said the spikes are easing. Two years ago, the average price peaked at $3.94 a gallon, while last year it peaked at $3.79.

Still, the disconnect between higher production and price stagnation is tough for some consumers to reconcile, and lawmakers on Capitol Hill have demanded an explanation.

“I just am troubled with the basic proposition that really questions what we’ve been told around here, and that is when you have new oil supplies, the consumer at the pump is supposed to benefit,” Sen. Ron Wyden, Oregon Democrat and chairman of the Senate Energy and Natural Resources Committee, demanded to know at a hearing last year. “We’re not seeing that in too many instances.”

Anthony Swift, who works at the Natural Resources Defense Council, an environmental pressure group, said he doesn’t see the extra crude supply reflected much, if at all, in gas prices.

Instead, he said, the biggest benefit to consumers has been under the car hood, where efficiency is improving.

Driven in part by federal and state mandates, vehicles are making major leaps in the number of miles they can go per gallon of gasoline consumed. Overall, that means consumers have been using 600,000 fewer barrels of gasoline a day since 2007.

“Consumers are able to drive more using less gas thanks to auto efficiency standards,” he said. “If you look at the latest data from the Energy Information Administration, it’s clear that while growing oil production hasn’t helped consumers at the pump, stronger efficiency has.”

But controversy has come with the mandates — particularly the Renewable Fuel Standard, which pushes for cleaner-energy products such as corn-based ethanol to be blended into gasoline.

Ethanol now makes up about 10 percent of motor vehicle fuel, and problems getting it from the Midwest to refineries on the East, West and Gulf Coasts can cause spikes — like the 26-cent jump last spring.

“Today, the most important thing that’s affecting us is the renewable fuel standard,” Bill Kleese, chairman and CEO of Valero Energy Corp., told Mr. Wyden and his Senate committee last year. “The [Renewable Fuel Standard] must be fixed. This cost is just skyrocketing.”

Congress is likely to wrestle with that question over the next few years, as well as with other green-energy incentives.

As for the gasoline market, the future is hard to project because of the many variables, including what OPEC leaders will do at a meeting in June. Analysts expect some of them to try to cut production.

But from the U.S. standpoint, the supply will be there. The question is whether the rest of an aging network can process it.

“There’s reason to believe this could be a sustainable trend because we have just an abundance of domestic production, but at the same time we need a lot of infrastructure to catch up,” Mr. Laskoski said.

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