Not All Gasoline is Equal!
by Harry Hall

I recently saw the documentary; ”Over a Barrel, The Truth About Oil,” that appeared on ABC News by Charles Gibson on Friday, July 24th, 2009. While I commended their efforts to try and explain the complex picture of oil usage in the US, ABC unfortunately did not report certain facts correctly. This is a very difficult and complicated subject, and very few really understand the complete industry. While I cannot address all of the misconceptions in an article, I will try and address some of them.

A. All gasoline is the same
With the comments from the so called “experts”, viewers were led to believe that all gasoline is the same. It is true that to increase efficiency and to reduce cost, (the US has the most efficient fuel product transportation system in the world), gasoline at terminals can be and is exchanged between companies. However, not all gasoline is equal.

First, several companies use very distinct detergents in their gasoline that is uniquely theirs. This is added at the Marketing Terminal, and is different for each company. For example, Chevron uses Techron.

Second, the concentration and “effectiveness” of these detergents are different for each company. While it is true that the US government requires a base level and effectiveness that all gasoline must contain, certain companies (such as Chevron and Shell) add much more of the detergent than is required, resulting in much cleaner fuel injectors, valve intakes, etc. (The chemistry of the detergent for Chevron, Techron, has also been proven more effective by actual car driving programs). Result: better mpg, and if used rigorously, better engine maintenance costs over the life of the engine. Ask the US Auto Companies and they will tell you who has qualified for their top tier fuel designations.

Third, refineries are configured (designed) differently from each other and they use different crude oils. Since gasoline is literally made up of thousands of hydrocarbon molecules, the gasolines coming out of each refinery are different. While I managed the Fuels Quality (Product Engineering) department for Chevron (1995-2004), we discovered that certain refineries produced gasoline that actually negated the effectiveness of our detergent. These refineries we refused to buy product from. In addition, the auto companies (AMA) run fuel samples from products at the gas station annually, and they have verified that certain oil companies produce very inferior gasolines...(they have been pushing for years for better and more uniform fuel standards at ASTM).

Fourth, Even though the Federal Government does establish, in conjunction with ASTM, required gasoline quality standards, some companies (such as Chevron) actually have internal fuel quality standards that result in even better fuel quality than required by law.

I hope that you can see from the above that not all gasoline is the same!

B. Oil Companies set and control the price of oil.
The “experts” in the program implied that since the oil companies set the price at the Marketing Terminal, they effectively controlled pricing. I did agree with their views that speculators (not oil companies) did drive up the crude price artificially high last year. But normally, price really does reflect Economics 101; Supply & Demand. See my article, “Airlines Beware: Is the Price for Jet Fuel too High?” (VCAM October 2008 Newsletter). The truth is very simple: the world is demanding more and more energy, and we are finding less new oil. It's too bad that folks always want a conspiracy, blaming the oil companies, when its really an increasingly global supply & demand situation. It is a very competitive market at the pump. Consider this,if any one company reduced their prices just pennies/gallon below the competition, all of the independents would draw on that terminal and quickly cause it to run out of product, resulting in not enough gasoline for their own stations. It is a Very tight balance, and does truly reflect the concept of supply & demand.

C. Oil companies shutdown refineries to control supply and thus cost.
They suggested in their dialog that the oil companies deliberately shutdown refineries in the 70's & 80's to control supply and thus control pricing. The truth is they were shutdown because they were obsolete in design and inefficient compared to the more modern refineries of today. With all of the costs required to improve fuel quality (less sulfur & benzene, etc), and reduce emissions (government regulations on pollution), the owners were not willing to throw their money away on a facility that was already less profitable than just placing their money in a bank. Many of the refineries that were shutdown were really only topping stills, and not complete refineries. Local and state regulators, local environmentalists, unions: all made it difficult to obtain permits for construction and operation, sometimes taking years to obtain, made it very difficult and expensive to build or modify. No, it wasn't the oil companies that shut them down, it was really us (the public). The country as a whole just did not (& does not) have the foresight and vision for what was really needed for the future, plus had a NIMBY (not in my back yard) attitude when it came to oil refineries. For years, the USA has not had a real energy policy, leaving us in the mess that I describe in my 2005 article.

Summation

The long term solution to reduce our need for oil is not to point accusatory fingers at the oil industry. They are just another industry, trying to make a reasonable profit. They have done a truly amazing job in producing energy products that fuel our entire way of living. Not only that, they have tremendously reduced pollution, accidents, and reduced costs since the 70's. Accounting for inflation, the cost to drive ($ per mile driven) is actually LESS than it was in the 1920's. They have always responded to what the government has asked them to do. The Real Solution is to produce alternative energy that is “cheaper” than oil and just as good or better with regards to emissions. The sad reality is that we are not there yet, (although I am an optimist, and believe that we will get there). Of course in the short term, if we would just use nuclear energy to supply our electrical needs, that would reduce the demand for oil and thus reduce costs. Unfortunately, we have too many “Chicken Littles” in our society who are afraid of the risk (even though it is very small). So, we stay in the existing situation. In addition, continuing emphasis on solar and wind power (although MORE expensive than using oil, can also help us reduce our dependence on oil

So, I did applaud ABC's efforts to try and understand, and then explain an incredibly complex and technical industry to the public. Too little has been said in the past. I encourage everyone to continue to look a little deeper. The more knowledge that all of us have on our energy problems, the better that we can work together to make improvements.

-Harry L Hall PE (MS)
President, HLH Consulting LLC

About the Author:

Harry Hall has written several articles for Valentine Capital’s High Net Worth Newsletter. He has 38 years of experience in the downstream oil business, 33 with Chevron. He served 3 years as Chevron's Board member to the CRC, Coordinating Research Council, a joint Auto/Oil research effort to improve both autos and fuels to meet the new regulations on auto emissions. He also served on the ASTM D2 Committee for hydrocarbon fuels standards for ~9 years, and was a participant on several industry symposiums regarding fuel quality, autos and emissions. He also worked with API in responding to the original EPA regulations on the Clean Air Act revisions of 1990).