WASHINGTON – Austin businessman Chuck Fuller knows the price of asphalt, how far it is from the asphalt quarries to processing plants and construction sites and who his customers are.
But the vice president of Austin-based Ramming Paving Co., an asphalt supplier for construction projects, doesn’t know how much his delivery fleet’s gas prices will fluctuate from week to week, leaving him in the dark about how much profit he’s making and what to charge consumers.
“Just in the last couple months, we’ve gone up 13 percent in fuel expenditures,” Fuller said. “Between June 26 and July 10 for unleaded fuel, it’s gone from $2.65 per gallon to $2.88 per gallon.
“That’s 23 cents in two weeks.”
Fuller is not alone in feeling the pain of increasing gas prices. Consumers across the country are paying record high prices at the pump.
The irony? Domestic production of gasoline is higher than ever before thanks to advances in drilling technology and tapping new sources of oil along the Gulf Coast, the Plains States and Northeast.
This means the U.S. is relying less on international supplies of.
“At 7.4 million barrels per day as of April 2013, [oil production] is now at the highest level since October 1992,” said Adam Sieminski, head of the Energy Information Administration, at a hearing held by the Senate Energy and Natural Resources Committee on Tuesday.
In the last three years, Texas has doubled its gasoline production.
Simple economics might suggest that an increased supply of U.S. oil should be leading to a decreased cost of gasoline.
But according to Fred Lawrence, an economist with the Independent Petroleum Association of America, there’s a lot more to the story than supply and demand.
For one, the type of gasoline the United States is producing has changed.
A large part of the increase in U.S. petroleum is the use of hydraulic fracturing, which produced “light and sweet” oil compared with the “heavier, sour” oil that is often imported, Lawrence said.
Because it’s a different type of oil, there aren’t enough pipelines to handle it, he said.
“We have so much oil but we don’t have a way to take it,” he said. “For example, Kermit, Texas just doesn’t have the infrastructure to deal with this [new supply].”
Some industry experts blame government regulation for high prices, particularly the Renewable Fuel Standard, an EPA program that requires a certain percentage of transportation fuel be renewable, such as ethanol from corn.
If a refinery can’t meet the standards, it can opt to purchase credits called renewable identification numbers, or RINs.
This hasn’t worked as well as originally thought for some companies, including Valero Energy Corp, the world’s largest independent petroleum refinery.
“At Valero alone, we anticipate cost increases of some $500 to $750 million this year just as a result of volatility in the market for RINs,” Valero’s Klesse said. “It is nothing more than a federally mandated cost to each gallon of transportation fuel that may be passed on to the consumer” through higher gas prices.
Lawrence and others said there are no quick fixes. “This will take decades to fix.”
Until then, Chuck Fuller expects to continue to try to stay one step ahead of the game with pricing asphalt for construction. Ramming Paving Co. has considered price locks on gasoline to rein in costs, but it doesn’t look like he’ll be able to get to that state soon.
“When prices go up or down, I’m responsible,” Fuller said. “If the pricing of fuel has gone up this week, it affects my overall output. I don’t get to pass this increase.”