How Much Does It Cost To Produce One Gallon of Gasoline?
By Noel Bagwell
Jan 13, 2009
By now you’ve probably heard, or maybe even used, Ask Yahoo! to find the answer to a question you have about … something …
It’s a popular tool that Yahoo! seems to have released in response to increased advertising from Ask.com (formerly Ask Jeeves).
Well, I had a question, too: “How much does it cost to produce one gallon of gasoline?” I was surprised to find that the answer is one of the energy industry’s best kept (and oft-changed) secrets.
Ask Yahoo! breaks it down like this:
Unfortunately, there’s no simple way to determine the cost of producing a gallon of gas. This puts consumers (and Ask Yahoo! writers) at a disadvantage in trying to solve the puzzle.
According to the Oregon Department of Energy, the current wholesale price of gasoline is 90 cents per gallon. But wholesale prices are usually higher than production costs, so we kept looking.
Most online resources prefer to explain the components of the retail cost of gasoline. The Energy Information Administration writes that in 2004, when gas averaged $1.85 a gallon (good times, huh?), this is how the price broke down:
- Crude Oil — 47%
- Federal and State Taxes — 23%
- Refining Costs and Profits — 18%
- Distribution and Marketing — 12%
The production cost from 2004 would then be a combination of the component cost of crude oil (87 cents per gallon) and refining costs. But since profits are lumped in with the refining costs, it’s hard to get a pure production number. The total comes in at $1.20, which is significantly higher than the 90-cent wholesale the Oregon Department of Energy quoted.
The News & Observer’s Tuesday, January 13, 2009 Section B, Page 1 Headline reads: “Gasoline remains a bargain, but $4 fuel is a fresh memory”
“A bargain,” it says, but, above the picture of a woman filling up her GMC Yukon SUV with a dalmation poking its head out the rear hatch window, the article quotes Jim Evans, a banker, saying,
“We need to put a healthy gas tax on, to keep the demand as low as possible. Because a lot of our foreign problems are related to issues around petroleum.“
The question that came to my mind is, How can gas be “a bargain,” when we’re already putting a +23% tax on gasoline and geniuses (yes, that’s sarcasm) like Jim Evans are calling for MORE TAXES? The N&O article says,
“Prices plunged in the fall, and the Triangle average for regular hit a five-year low of $1.572 on Jan 2. Since then the local average has bounced back to $1.743 as of Monday.”
Amid the talk of rising and falling averages, tax rates that comprise about a quarter of the cost of each gallon of gas we buy, five-year lows and rising costs that are sure to peak surprisingly this Summer, American consumers deserve to know how much it costs for oil companies and distributers to produce and deliver a gallon of refined 87 – 93 octane gallon of gasoline. Without this information, how can we tell if we’re being Fleeced and formulate a plan of action to stop it?
The Energy Information Administration (EIA), part of the U.S. Department of Energy (DOE), has published, and made available for free download in .pdf format, A Primer on Gasoline Prices, but one is given to wonder, too, about the accuracy of the Primer, when the political interests of those who control the DOE are so closely tied to Big Oil and its powerful lobbying firms.
So, how do we come up with a reasonable cost of production? The problem still remains, but I think I have a tiny point of light to share – a little indicator of what a gallon of gasoline should cost.
Gasoline costs 5 cents a gallon in Iraq.
Well, that was the price in 2004. In 2004, the Associated Press reported:
While Americans are shelling out record prices for fuel, Iraqis pay only about 5 cents a gallon for gasoline – a benefit of hundreds of millions of dollars subsidies bankrolled by American taxpayers.
. . .
“The U.S. taxpayer has a right to be indignant, and Iraqis have to be warned about the long-run damages of this,” said Anthony Cordesman, an Iraq analyst with the Washington-based Center for Strategic and International Studies. “The minute the aid goes out, the party is over. And there’s going to be a hell of a hangover.”
The U.S. government paid even more last year for Iraqis’ gasoline – between $1.59 and $1.70 a gallon – when the imports were contracted to Halliburton, the Texas oil services giant formerly headed by Vice President Dick Cheney.
The cheap fuel is spurring unsustainable demand, promoting wasteful use of energy and transportation, and squandering Iraq’s oil output that might otherwise be exported, Cordesman said.
. . .
“If the price of gas goes up, we’ll see lots of anger in the street,” said cab driver Hashim, at a grimy filling station on Saadoun Street in central Baghdad.
Maybe that’s what we need, too: “lots of anger in the street.” Apparently, people will riot over the unjust “execution” of Oscar Grant III in Oakland, but they won’t protest being robbed by Big Oil and the U.S. government.
Now that Iraqis are enjoying many of the same freedoms we have come to take for granted, they have no problem deciding how they would solve the problem of gas prices rising to intolerable levels.
I’m not saying that gas should be 5 cents per gallon, here. I certainly wouldn’t want to see government subsidies. What I would like is a real tax cut from the new Obama administration, and I propose the opposite of what Jim Evans suggested. I propose a tax cut on gasoline… cut it to 3%. There’s no reason for it to be any higher.
Maybe it’s time for Americans to learn something from the Iraqi people. What good are freedoms, if you don’t put them to good use? We have a right to freedom of speech, and a right to peaceful assembly. We should put them both to good use to protest unreasonably high oil prices.
We may not know exactly how much it costs to produce a gallon of gas, but we do know when we’re being screwed. Now is the time for more transparency and lower taxes. Not more beaurocracy, higher taxes, and obfuscation. Obama promised “change,” now let’s see him deliver.
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