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February 13, 2013

HEARING PREVIEW: IER's Simmons to Testify on Gasoline Prices

February 13, 2013
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IER Director of Regulatory and State Affairs Daniel Simmons will testify on Thursday, February 14, 2013 at 1:00PM before the House Oversight and Government Reform Subcommittee on Energy Policy, Healthcare, and Entitlements. The hearing is on “The Effects of Rising Energy Costs on American Families and Employers.” Simmons’s testimony will focus on the various components of gasoline prices and how regulations and supply issues affect these components. Highlights from the testimony include:

 “World crude oil and liquid fuels consumption grew to the highest level ever in 2012, with an estimated 89.2 million barrels per day (bpd) consumed in total… China is the second-largest consumer of oil behind the United States and as of 2009, China became the second-largest net importer of oil.”

“According to the EIA, the U.S. produced 6.4 million bpd of crude oil in 2012, up from 5.6 million bpd in 2011—the largest one-year increase ever…96 percent of the increase in domestic production since 2007 has come from non-government lands. This increase could be much larger, but for government policies.”

“The second main cost of the price of gasoline is federal and state taxes. In December 2012, federal, state and local taxes accounted for 13 percent of the price of gasoline. The federal tax on gasoline accounts for 18.4 cents per gallon, while the volume-weighted average state and local tax is 30.4 cents per gallon as of January 2013. This amounts to a 48.8-cent nationwide average tax on gasoline.”

“The third cost to factor into the price of gasoline is the refining process… It is becoming harder and harder to refine oil in the United States. Over the past 30 years, refineries have dealt with a huge number of ever-stricter regulations. Between 1981 and April 2012, the federal government has promulgated 65 major regulations and 755 non-major regulations that affect the subset of manufacturers that includes refineries.”

“Since 1990, refineries have spent $128 billion to comply with federal environmental regulation. To put that in context, that works out to over $850 million per operating refinery in 2011.”

“The last component of the price of gasoline is the retail dealer’s costs and profits, which constituted a combined 11 percent of the cost of a gallon of gasoline in December 2012. From the refinery, most gasoline is shipped first by pipeline to terminals near consuming areas and then loaded into trucks for delivery to individual stations. Ethanol must also be transported by truck or train because it cannot be mixed with gasoline prior to delivery.”

“The federal estate contains vast energy resources, but the federal government allows energy production on a very small percentage of taxpayer-owned federal lands. The Interior Department has leased just 2 percent of federal offshore areas and less than 6 percent of federal onshore lands for oil and gas development.”

“It takes 307 days for the federal government to process a permit to drill, but only 27 days for Colorado and 10 days in North Dakota. It should come as no surprise why North Dakota’s oil production is rapidly increasing while energy production on federal lands is stagnating.”

“The federal government’s land use policies have reduced oil and natural gas production on federal lands because federal regulations make it much more difficult to work on federal lands… These technically recoverable resources total 1,194 billion barrels of oil and 2,150 trillion cubic feet of natural gas that is owned by the federal taxpayer… the value of the estimated oil resources is $119.4 trillion and the value of the estimated natural gas resources is $8.6 trillion for a grand total of $128 trillion.”

“IER commissioned a groundbreaking paper highlighting the larger economic effects, including economic growth, wages, jobs, and federal and state and local tax revenues, of opening Federal lands and waters to oil and gas leasing… The study finds that if the federal government opened up additional federal lands and waters to exploration and production, the increase to GDP would be $127 billion annually for the next seven years, and $450 billion annually in the long run. Most impressively, the opening of federal lands would have a cumulative increase in economic activity of up to $14.4 trillion over a period of 37 years.”

 

To read the full testimony, click here.

Tomorrow’s hearing can be seen live here.

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