As of June 16, the national average price for a gallon of gas was $5.009. The national average price for a gallon of diesel was $5.718. Unless we’ve lived in Europe, we haven’t seen gas prices like this before. What’s going on? Will it stay this way?
Pointing the finger
Biden keeps referring to the “Putin Price Hike.” After Russia invaded Ukraine in February, the White House banned Russian imports of coal, oil, and natural gas. Biden cut off trade, but he’s trying to blame Putin for the mess.
Sen. Elizabeth Warren blames corporate greed. While it’s true that ExxonMobil, for example, posted a record profit for the second quarter of 2022 at $25.79 billion, this comes on top of losing $20 billion back in 2020. “Corporate greed” doesn’t explain that.
Truthfully, a variety of poor policies have led to the current gasoline prices. To try and make sense of what’s going on, we can look at the four most significant factors that go into determining the price of a gallon of gasoline.
The four factors that impact gas prices
The first is the price of crude oil itself, which is an internationally traded commodity. That’s the biggest reason Americans have to pay attention to what happens in far corners of the world. The Organization of Petroleum Exporting Countries (OPEC), led by Saudi Arabia, controls roughly 60% of the world’s internationally traded petroleum.
Taxes play the second-biggest role, and that’s part of why prices vary so widely from state to state. Today, for example, a gallon of gas costs $6.428 in California and $4.497 in Georgia.
Distribution and marketing costs and profits also affect price. Think about oil refineries. Are there any down the street from you? No? Then that means oil needs to be transported by truck to the gas stations in your neighborhood, and obviously, the farther you are from oil refineries, the more this will contribute to gas prices in your area. This, along with lower taxes, is the main reason gas is so much cheaper in the southern states. The United States’ oil refineries are overwhelmingly located along the Gulf Coast.
And finally comes the cost of refining itself. Refining is incredibly complex, requiring many layers of highly skilled, highly trained engineers and technicians. Have you ever driven past a refinery? I have spent my adult life close to refineries for one reason or another. They look like little cities.
Refineries are complicated
You cannot turn a couple of switches off when you feel like using solar power and throw a couple switches back on when you get an unusually cold snap, and you decide you need petroleum products again. The same goes for the actual rigs. If you cap a well because a particular politician wants to end fossil fuel usage, you can’t necessarily reopen it once it gets cold and people decide they’d really prefer not to freeze.
Refineries take a long time to build. The permitting process is expensive, and if you have an administration like our current one, which canceled Keystone after it had been approved, it represents a gamble of many millions of dollars. These reasons, along with a NIMBY culture, are why no new refineries have been built in the U.S. in nearly 50 years.
(Worried about how rising gas prices will increase food prices? Check out our free QUICKSTART Guide to home canning.)
Energy drives civilization.
Since the end of World War II, the U.S. has been pushing its doctrine of happiness through fast cars, big homes, and eating whatever you want whenever you want across the globe. The rest of the world wants in on it, and they need energy. Energy to build and run the cars, energy to build and heat the homes, and energy to grow and transport the food. It all takes energy, and cheap energy is the reason so many of us work in offices rather than breaking our backs digging wells or harvesting by hand.
For something so vital to not only our lifestyle but our very survival, you’d think various governments would have coherent energy policies, but they don’t. In Biden’s Executive Order Protecting Public Health and Environment, issued Jan. 21, 2021, his first day in office, Biden made it clear that he intended to make oil and gas production more difficult and therefore more expensive. In Section 6c, he explicitly states that weather events have “increased the urgency for combatting climate change and accelerating the transition toward a clean energy economy.” In Section 6d, he states, “Leaving the Keystone XL Pipeline permit in place would not be consistent with my Administration’s economic and climate imperatives.”
Biden made it clear from his first day in office that he would not favor fossil fuel extraction. He’s not alone; the global finance community has further complicated the situation in its implementation of Environmental, Social, and Governance (ESG) scores.
ESG scores function like a social credit system for corporations.
The higher your ESG score, the easier it is to obtain funding for various business ventures. And ESG scores weigh heavily toward renewable energy sources such as wind and solar.
The WEF’s reasons for ending fossil fuel extraction are outside the scope of this article. I simply want to state that many powerful global players want to end fossil fuel usage, and from his first day in office, Biden has made it clear that he shares those priorities.
Imagine you’ve won the Powerball and are looking for ways to invest your $100 million. Would you pick an industry that the government hates and that the banking community doesn’t want to finance? I know I wouldn’t. And if I happened to manage said refineries, I would probably look at maintaining them minimally until I was able to transition them to more politically popular endeavors, like biofuels production. The international community has made it clear that they want to end fossil fuel usage. The energy community, quite reasonably, has not been investing much in increased production.
And yet now Biden has the nerve to scold energy companies for not producing enough.
On June 15, he sent a letter to energy companies insisting that they were earning too much money and charging Americans too much. First, Biden blamed Putin for high gas prices. Now, he’s blaming the oil companies.
Furthermore, he threatened to use “all tools at my disposal” to force oil companies to lower prices. One of the tools at his disposal would be to activate the Defense Production Act, which we’ve written about here. Another would be the windfall profits tax, proposed by Oregon Senator Ron Wyden, which would impose an additional 21% tax on whatever the government deemed an “excess” profit.
Heavy-handed government interventions such as these never go well, regardless of what our current administration may think. Price controls have been implemented many times by many governments. Price ceilings, which is what Biden wants, always lead to a scarcity of resources.
Other options to address the crisis are out there.
ExxonMobil sent a concise, well-reasoned letter to Biden, listing steps that the government could take to ease the pain at the pump. Chevron, as well, issued a statement about future oil and gas production. Both companies highlighted the need for a clear, consistent energy policy that would make it more practical to form long-term investment decisions.
Increasing capacity can cost hundreds of millions of dollars. The permitting process and physical construction often take a decade or more. You cannot make these kinds of investment decisions with a high likelihood of the regulatory environment changing every four years. The violent swings in public mood regarding whether fossil fuels are the villain or the savior cripple the industry’s ability to make needed long-term investments.
So, will Biden listen to the industry experts telling him how to move forward in stabilizing the U.S.’s energy supply and, ultimately, the price of a gallon of gas?
I’m not holding my breath.
Biden, along with many other politicians and government officials, seem to see this crisis mostly as an opportunity to blame their opponents for everything and to tell everyone to drive electric cars.
Why say no to electric vehicles?
Let’s set aside the argument over whether or not electric vehicles are better for the environment (I don’t think they are). They’re just not practical for many of us. For one thing, they take a long time to charge, so for people in the trucking industry who rely on frequent refueling and timely deliveries, this is a distinct disadvantage.
Also, while proponents like to talk about how convenient it will be when everyone can just plug their cars in at night rather than going to a gas station, this, again, isn’t realistic for everyone. My house only has a 100-Amp power supply. And yes, my house is pretty old, but other people have less-than-ideal electrical situations too. What about a multigenerational household with four or five drivers?
Like so many other things that have come out over the past two years, electric vehicles will mostly work for urban/suburban households with no more than two drivers and a reasonably nice, up-to-date house.
And money. Lots of money.
Electric vehicles cost, on average, about $60,000. The average combustion vehicle runs about $45,000. However, since combustion engines have been around longer, a low-income buyer has a lot more options when it comes to buying used. I was able to buy a 2002 Suzuki Esteem for my kids to drive around town for $1500 in cash. Do I have to spend money fixing it? Oh yes. But is it $60,000? Or even $25,000, which is about as cheap as EVs get? Not even close.
For all Joe Biden’s blustering about bringing down gas prices for American families, his administration seems to have no clue about how the bottom half actually lives. Telling someone to go electric when they don’t have a place to charge and have a vehicle budget of $5000, not $50,000, is asinine.
(Want uninterrupted access to The Organic Prepper? Check out our paid-subscription newsletter.)
I don’t think the political class actually cares.
And unfortunately, all signs point to things getting worse before they get better. Energy executives have offered practical solutions, which, even in a best-case scenario, would take time to implement. I don’t think we’re in a best-case scenario; I think it’s more likely our administration will continue to blame others, avoid responsibility, and eventually enact some kind of price control. Whether it’s through the Defense Production Act or something else doesn’t really matter. We’ll wind up with shortages either way.
So, what does a prepper do?
Start by learning about your own energy usage. Anyone reading this website is probably somewhat aware of their household needs, but learn as much as you can about what you, personally, need to get by. Think about food storage. Dry goods are going to be your best friend. Think about what you need to stay warm or cool as needed. If you have the opportunity to buy heating fuel in advance, do it.
This may sound funny, but pay attention to your health and make sure you have good shoes. My oldest son, bless his heart, is willing and able to run ten miles, and there have been a few times where that’s come in handy.
I hate to sound so negative, but I also insist on honesty.
All signs point to worsening gas prices and/or supply problems for the foreseeable future. Most of us can’t control a lot. But we can pay attention to our needs. Become more food-secure by gardening, even in urban and suburban areas. Be aware of what kind of lifestyles our leaders envision for us. We can continue to nurture our own families and communities in the hope that we’ll be resilient enough to handle whatever comes next. But we need to do it now.
What about you?
How much is gas where you live? How much does it cost you to fill your tank? Do you have any tips to share regarding living with these outrageous prices? Let’s talk about it in the comments.
A lover of novels and cultivator of superb apple pie recipes, Marie spends her free time writing about the world around her.
Source: The Organic Prepper
Provide, Protect and Profit from what’s coming! Get a free issue of Counter Markets today.