Why aren't gas prices falling?
By Adam Groff
If you're experiencing a bit of budgetary anxiety at the gas pump, you're not alone. Gas prices all across America are either on the rise or staying steady at well over $3 a gallon.
And, with most analysts predicting that gas prices will never drop below the 3-buck mark again, it's more important than ever to understand why prices aren't falling.
So, with gas gouging in mind, here are just a few reasons why the price at the pump isn't dropping as well as some of the things oil companies are doing to help cut costs:
Refining Hub Location
Over the past few years, oil production has skyrocketed in places such as Oklahoma, North Dakota, and Wyoming.
And, although you might think more oil production means more gas and thus lower costs, you're wrong. Why?
Well, it all has to do with the location of the refineries that turn all that crude oil into gasoline.
Refining hubs are usually found in largely populated areas, far away from the remote fields where the oil is extracted. Because of this, the crude oil has to be transported, which adds upwards of $20 to the cost of each barrel of domestic oil.
The Jones Act
An outdated cargo transportation law still in use today is also contributing to the fact that high gas prices are holding strong.
The Jones Act states that any cargo shipped between U.S. ports must be carried by U.S. vessels crewed by U.S. citizens.
And, because of these constraints, oil prices are $8 a barrel higher for the United States, which makes it cheaper to ship domestic oil overseas than to U.S. ports - as hard as that is to believe.
Oil and Politics
The price you pay at the pump has everything to do with global politics, especially considering the U.S. is oil-dependent on a global level.
For example, a fifth of the world's oil comes from Iran and due to political turmoil in the Iranian region; an influx in panicked oil purchases has led to inflation in terms of global gas prices.
Fuel Efficiency Backlash
Due to the recent success and popularity of vehicle fuel efficiency, gas prices are rising, not falling. And, unless you're a high mpg or hybrid vehicle owner, efficient cars are directly affecting the high costs at the pump.
In other words, because there are more cars on the road that sip less gas, the state and federal taxes collected with every gallon of gas purchased are taking a financial hit. And, considering those taxes are used for highways and public transportation, it results in tax rate hikes for you, the consumer.
How Oil Companies are Helping?
When oil companies help themselves save money on oil production and refinement, they also pass the saving on to you.
For example instead of oil companies outsourcing their frack-water treatment to costly specialists, they're building onsite water treatment centers, thus cutting the cost of fracking over time.
Likewise, oil companies are increasing their research and exploration efforts when it comes to potential oil production sites.
This includes finding the optimal drilling location in relation to the amount of oil produced from each well drilled and in terms of the nearest refining hubs.
From hybrids to global politics, it's plain to see that there are a number of factors keeping gas prices from falling.
About the Author: Adam Groff is a freelance writer and creator of content. He writes on a variety of topics including personal health, gutter heaters, and the environment.
Ofwat allows retailers to raise prices from April
Retailers can recover a portion of excess bad debt by temporarily increasing prices from April 2022, according to an Ofwat statement.
The regulator confirmed its view that levels of bad debt costs across the business retail market are exceeding 2% of non-household revenue, thereby allowing "a temporary increase" in the maximum prices. Adjustments to price caps will apply for a minimum of two years to reduce the step changes in price that customers might experience.
Measures introduced since March 2020 to contain the spread of Covid-19 could lead to retailers facing higher levels of customer bad debt. Retailers’ abilities to respond to this are expected to be constrained by Ofwat strengthening protections for non-household customers during Covid-19 and the presence of price caps.
In April last year, Ofwat committed to provide additional regulatory protection if bad debt costs across the market exceeded 2% of non-household revenue.
Georgina Mills, Business Retail Market Director at Ofwat said: “These decisions aim to protect the interests of non-household customers in the short and longer term, including from the risk of systemic Retailer failure as the business retail market continues to feel the impacts of COVID-19. By implementing market-wide adjustments to price caps, we aim to minimise any additional costs for customers in the shorter term by promoting efficiency and supporting competition.”
There are also three areas where Ofwat has not reached definitive conclusions and is seeking further evidence and views from stakeholders:
- Pooling excess bad debt costs – Ofwat proposes that the recovery of excess bad debt costs is pooled across all non-household customers, via a uniform uplift to price caps.
- Keeping open the option of not pursuing a true up – For example if outturn bad debt costs are not materially higher than the 2% threshold.
- Undertaking the true up – If a 'true up' is required, Ofwat has set out how it expects this to work in practice.
Further consultation on the proposed adjustments to REC price caps can be expected by December.
"While it’s great that regulators are helping the industry deal with bad debt in the wake of the pandemic, raising prices only treats the symptoms. Instead, water companies should head upstream, using customer data to identify and rectify the causes of bad debt, stop it at source and help prevent it from occurring in the first place," she said.
"While recouping costs is a must, water companies shouldn’t just rely on the regulator. Data can help companies segment customers, identify and assist customers that are struggling financially, avoiding penalising the entire customer in tackling the cause of the issue."
United Utilities picks up pipeline award
A race-against-time plumbing job to connect four huge water pipes into the large Haweswater Aqueduct in Cumbria saw United Utilities awarded Utility Project of the Year by Pipeline Industries Guild.
The Hallbank project, near Kendal, was completed within a tight eight-day deadline, in a storm and during the second COVID lockdown last November – and with three hours to spare. Principal construction manager John Dawson said the project helped boost the resilience of water supplies across the North West.
“I think what made us stand out was the scale, the use of future technology and the fact that we were really just one team, working collaboratively for a common goal," he said.
Camus Energy secures $16m funding
Camus Energy, which provides advanced grid management technology, has secured $16 million in a Series A round, led by Park West Asset Management and joined by Congruent Ventures, Wave Capital and other investors, including an investor-owned utility. Camus will leverage the operating capital to expand its grid management software platform to meet growing demand from utilities across North America.
As local utilities look to save money and increase their use of clean energy by tapping into low-cost and low-carbon local resources, Camus' grid management platform provides connectivity between the utility's operations team, its grid-connected equipment and customer devices.