Gasoline is a big piece of everyone’s monthly budget, and filling up the tank has gotten much more expensive recently. Year over year most places have seen more than a $1.00 per gallon increase, and the worse may still be yet to come. This increase is partly due to increased economic activity, partly due to reduced domestic production, partly due to increased regulation, partly due to barriers placed on importation, and substantially due to a crazy Russian autocrat who waxes nostalgic about a decades’ extinct oppressive government regime.
Oil and gas are also weird, and they are not something most folks think about despite using them nearly every day. Oil is primarily made out of long-dead fish, bugs and ocean stuff (conversely, coal is mostly long-dead plants and land stuff.It took about 1,862 metric tons of dead sea stuff compressed over millions of years to make enough oil to fill one barrel (1,862 metric tons = 4,105,007 lbs.). The U.S. uses about 19.78 million barrels of oil each day for everything from vitamin production to plastic manufacture to, of course, fuel.
The U.S. burns about 45 percent of all gasoline used worldwide each day. Gasoline in the U.S. is mostly made out of oil we pull from the ground, but at least 10 percent of the stuff you put in your tank is a bio-fuel ethanol mixture mostly made of corn. This sources some of our gasoline from renewable resources and results in a more expensive product that burns very slightly cleaner than gasoline manufactured from oil alone. It also reduces the shelf life of gasoline from between 6 to 12 months to 1 to 6 months depending on storage and additives.
Most people tend to think of oil as one homogenous thing. Oil is that black stuff that comes out of the ground and that made the Clampetts rich on TV. However, oil is quite different depending on where it comes from. It can be “sour” or “sweet” depending on how much sulfur is in it. The sweeter the oil is, the less sulfur it contains. Sulfur is bad for the air, and environmental regulations have controlled how much is released into the atmosphere for years. Therefore, the more sour the oil is, typically the more refining must occur to remove the sulfur and allow it to be used, particularly in the United States and Europe. Thus, sweet oil is more expensive than sour.
Oil can also be “heavy” or “light” depending on how long the carbon chains are when it is pulled from the ground. Gasoline is made from very short carbon chains and is thus very light. It takes a lot of refining to make gasoline out of heavy oil, but not much refining to make gasoline out of light oil. Sweet light oil is the easiest to use to make gasoline. The oil produced in the United States from the “fracking revolution” over the last decade or so was primarily light and sweet and dramatically lowered the cost of gasoline.
Diesel fuel is made from longer carbon chains than gasoline, and oil from fracking did not affect the price of diesel nearly as much. Bunker fuel used by large ships is very heavy and was hardly affected by increased fracking oil production at all.
Recently, the world has mostly decided to stop buying Russian oil. Russian oil is mostly heavy and sour, but Russia is good at pumping oil, and they have built pipelines to much of Europe to make exportation inexpensive. The recent sanctions against Russia were imposed in such a way that allowed just about all of the oil already pumped out of Russian soil and stored in tankers to be bought and shipped away prior to the prohibitions becoming effective. Russia is currently filling up all of its tankers and land-based storage before it decides to start shutting down wells.
However, once Russia reaches the point of having nowhere to store its oil, then it might begin to shut down wells entirely. That is not an easy process, because often when an oil well is shut down it may never produce at the same capacity if reopened. Thus, these current sanctions may affect Russia’s ability to produce oil for years to come depending on how long they last. Therefore, these current sanctions could affect the supply of Russian oil forever.
Oil is one of the world’s most important commodities, and it underpins our entire economy. It makes up nearly half of the cargo transported by sea worldwide and has been coveted by humanity for well more than a century. As we approach fuel prices that begin to choke our household budgets, now at least you know a bit more about what is going into your tank.
John Judkins is a Greenfield attorney.
