What am I paying for in the price of a gallon of gasoline?

What am I paying for in the price of a gallon of gasoline?
 by Ken Cohen

I’m asked this question a lot. And I know a lot of drivers ask themselves this question when they pull up to the pump.

The answer is based on the economics of supply and demand and how products are manufactured and sold – along with what the government takes in taxes. Let’s take a look, based on the U.S. Energy Information Administration’s breakdown of the estimated average price of a gallon of gas in December 2011, which was $3.27.




Raw materials = $2.62

The cost of the raw materials used to make a product has a major impact on the final product price. The raw material for gasoline is crude oil. The price of crude oil is set by global markets, where buyers and sellers constantly react to supply and demand factors. Oil is just one of many commodities traded every day in the global market. Others are the corn that affects the price of food and the cotton that affects the price of clothing.

Crude oil is by far the largest factor in the price of a gallon of gasoline – accounting for 80 percent of the $3.27 average retail price per gallon in December, according to the EIA.

To put that in another way – about $2.62 of the average gallon of gas in this example is set before a refiner even touches the raw material.

Where I find many people get confused is that they assume oil companies are producing all the oil that goes into their own refineries – and therefore can control gas prices by controlling the supply chain. That’s not the case.

U.S. crude oil production in 2010 was 5.5 million barrels per day. But U.S. refineries processed 15.2 million barrels of oil per day – almost three times more oil than was produced in the U.S. That means U.S. refiners, like ExxonMobil, have to purchase millions of barrels of crude oil – at market prices – to produce gasoline and other products for American consumers. For example, in 2010, ExxonMobil spent $198 billion purchasing oil around the world for its refining operations.

Manufacturing the product

Like any product, there are costs to manufacture it – so the manufacturer tries to recover those costs, plus make a profit, when it goes to sell the product.

The refining portion of a gallon of gasoline has, on average, accounted for about 11 percent of the price in 2011, according to the EIA data through December. That means a little less than 40 cents per gallon would be due to refiners’ costs – wages, equipment, financing and others – plus their profits.

As the EIA figures show, however, refining doesn’t always produce a profit. In December, the data indicate that the U.S. market price for gasoline coming out of refineries was on average about 7 cents per gallon (-2 percent) below the refiners’ cost of crude oil alone, and before accounting for their costs of upgrading the crude into gasoline. In other words, refineries faced a market where domestic gasoline prices were very weak relative to global crude prices.

How does that happen? Refiners are “price takers” that operate on relatively low profit margins that are highly dependent on the market demand for petroleum products. That means at times, the value of a petroleum product coming out of the refinery isn’t enough to cover the costs of obtaining and refining the crude oil.

Distributing and marketing the product = $0.33

Products then have to get from the manufacturing site to the retail site. When gasoline leaves the refinery, it is shipped largely via pipelines to local terminals. There, distributors load their trucks and transport the gasoline to a service station. Naturally, each step in the distribution chain includes labor, capital equipment and other expenses that must be recovered by operators. Of course, these operators must also compete to sustain their profitability while also paying taxes.

Retailers then set the price at the pump, based on recovering these costs of getting gasoline to the service station and the costs of marketing it to consumers. They also have to generate enough money to pay their taxes and make a profit to keep their business running. And on top of that, they have to collect mandatory state and federal gasoline taxes from the consumer (which we’ll break down in the next section).

So who are the retailers setting the prices? When consumers pull into an Exxon or Mobil station, they assume it’s ExxonMobil. But we own only about 5 percent of the stations with our name on them. About 95 percent of the stations carrying the Exxon or Mobil brand are actually owned by network retailers or local business owners – not ExxonMobil.

Taxes = $0.39

So how much does the government make on a gallon of gas?

In this example, retailers collected state and federal gasoline taxes of 39 cents per gallon on average. Total gas taxes per gallon range by state – from lows of less than 30 cents per gallon to highs of more than 60 cents per gallon in places like New York and California.

How does this compare to what a company like ExxonMobil makes on a gallon of gasoline? As we saw earlier, sometimes a company or an operation may lose money. Other times, it may make money. A competitive market just provides an opportunity, not a guaranteed profit. In the first two quarters of 2011, for example, ExxonMobil made 7 cents and 8 cents a gallon , respectively, on the gasoline, diesel and other petroleum products it refined and sold in the United States.

What actions could help lower gas prices?

Again, let’s go back to the economics of supply and demand that govern the crude oil market, since it’s the largest determinant of the price at the pump.

There are many global factors that affect the crude oil market. But adding more supplies of crude oil to the global marketplace can help put downward pressure on the price of a barrel of oil. The United States has abundant supplies of oil, from the deep-water regions of the Gulf of Mexico to the tight oil resources throughout North Dakota and Montana. Combined with Canada’s oil resources (one of the largest in the world), North America has enormous potential to add new reliable supplies to the market. And, the U.S. has one of the largest and most advanced refinery systems in the world.

But first, the oil needs to get to market. There, we’ve often seen economics trumped by politics – even as the U.S. economy remains weak. The recent moratorium in the Gulf of Mexico, as well as the decision to deny the permit for the Keystone XL pipeline from Canada to U.S. refineries, are just two examples of U.S. political decisions that serve to keep supplies out of the market.

The economics behind a gallon of gas are pretty straightforward. It’s the policies behind access to U.S. energy resources that are less certain – but critical to our energy future.

Reflections on America’s Gun Culture

by Jessica Stahl

“Shootings in high schools and colleges are unfortunately very ‘American’ things in my mind,” Nareg once wrote on this site. “Maybe it’s because of the media coverage, but I’m not sure if I’ve ever heard of such tragic incidents with such regularity in other parts of the world.”

Nareg was reacting to a 2010 incident in which a student at the University of Louisville was arrested after pulling a gun at a meeting with faculty. Luckily no one was hurt in that incident, but it certainly wasn’t the first gun-related incident at an educational institution – universities are still reeling from the 2007 shooting at Virginia Polytechnic Institute, when student Seung-Hui Cho killed 32 people – and, as we found out last week, it’s far from the last.

On Friday, December 14, the U.S. and the world were shocked by news that 20-year-old Adam Lanza had opened fire at a Connecticut elementary school, killing 20 young children and six women.

“I heard the news of this unfortunate event on Friday afternoon as I was coming from my final exam for my first semester in an American college,” said Phillip, a Zimbabwean freshman at Bates College. “I wanted to cry for the loss of the young lives. I wanted to cry for the loss of the creativity, intelligence, talent and enthusiasm for life in those young boys and girls.”

He also said he began to think about the gun culture in America, as did many other international students.

“I arrived in August, just a few weeks after the shock of the Colorado massacre [in which 12 were killed and dozens wounded at a screening of "The Dark Knight Rises"], and yet this ugly and tragic issue has come around again so soon,” reflected Tom, who comes from England and is studying at the University of Maryland.

“I have to admit, one of my earliest concerns when coming to America was my vulnerability to gun crime.”

“I feel safer in my country,” agreed Silu, a Chinese graduate student at Michigan State University. “In China, no individual can own a gun.”

Silu added, “Of course, violence can be presented in different ways,” a fact underscored by a knife attack that wounded 22 children at a Chinese primary school on the same day as the Connecticut shooting. But for her the response to the massacre in Connecticut was simple: “Maybe it is time for the U.S government to reconsider gun control, after all these tragedies.”

A complicated issue

For Americans, however, the issue is not necessarily so clear-cut. While many are vehemently calling for stricter gun control laws to prevent future violence, those defending gun ownership rights react with equal intensity, arguing that self protection is the best way to stop incidents before they turn to mass violence.

It’s not the easiest position for many international students to understand.

“The gun culture of this country is probably the most bewildering thing about America to me,” said Tom.

The U.S. is divided almost down the middle on the issue of gun control, according to the Pew Research Center for the People and the Press. In their most recent survey, 47% said it was more important to control gun ownership, while 46% said it was more important to protect the rights of Americans to own guns.

The Second Amendment of the U.S. Constitution is interpreted as providing the right to bear arms, and as a result some pro-gun groups argue that the government does not have the authority to restrict gun ownership. Gun rights groups also argue that gun ownership is a crime deterrent, and that restricting ownership will only prevent law-abiding citizens, not criminals, from obtaining guns.

Tom described his classmates’ views on gun control like this:

“We have debated this issue a few times in one of my history classes, but in this class full of Americans we always reach the same couple of conclusions; either that ‘this is America, we are free, we are entitled to do what we want’ or that ‘too many people have them now so it would be impossible to suddenly outlaw them.’”

A 10-year federal ban on assault weapons expired several years ago, and the Associated Press wrote that ”since that ban expired in 2004, few Americans have wanted stricter laws and politicians say they don’t want to become targets of a powerful gun-rights lobby.”

The massacre in Connecticut seems to have revived some of the momentum for instituting federal regulations around gun ownership.

How prevalent are guns on campus?

College campuses have been a central focus of the fight over gun control in recent years, with several states reopening the question of whether weapons should be allowed on campus.

Like many other public policies in the U.S., most gun regulations are currently set at a state or local level, rather than by the federal government.

According to the National Conference of State Legislatures (NCSL), in 2012 16 states introduced legislation to allow concealed carry of firearms on campus, and three states introduced legislation to prohibit concealed carry. All of those measures failed, save two that are still pending.

Legally, the issue of whether guns are allowed on college campuses isn’t always decided on the basis of whether guns on campus is a good idea, but rather by whether universities can go against the laws of the state. This was the deciding factor in a 2011 case in which the Oregon Court of Appeals ruled that the state’s Board of Higher Education could not prohibit weapons on college campuses. “The courts are not considering the sort of philosophical or policy issues. They’re looking at the statutes,” University of Denver law professor David Kopel told the Wall Street Journal.

In March 2012, the same reasoning decided a case overturning the University of Colorado’s ban on firearms. As of this year, students 21 and older may carry a gun on campus, as long as they hold a concealed carry permit and keep the weapon hidden. Guns are still banned from sporting events and dorms, and the university has created a special dorm for students who want to bring their guns into their residence.

But Gawker reported that as of November 25, not a single student had elected to move into that special dorm.

In fact, despite the U.S. having the highest rate of gun ownership in the world, weapons are not a common site on college campuses. Firearms are banned at the overwhelming majority of colleges and universities.

Twenty-one states currently ban carrying a concealed weapon on campus, and in 23 additional states the decision is made by each college or university individually, according to the NCSL. There are only five states in which legislation and/or court rulings have allowed the carrying of concealed weapons on campuses.

Feelings of safety

“Today, as I sit writing this, at the Mount Holyoke College campus, I feel very safe,” reflected Javaria, a Pakistani undergraduate student. “I feel that I can walk out of my room and not fear getting shot or robbed by thugs. Yes, the elementary school shooting occurred just a few miles away from me, but I still feel safe.”

She’s not alone. Our bloggers reported their colleges or universities have a number of services to help students stay safe while on campus.

“Living in College Park, I am frequently reminded by the locals that I have to be vigilant since this is a rough area. Having said that, I have never felt particularly unsafe around here as our university has emergency phone booths dotted all around the campus, as well as CCTV and well-lit paths,” reported Tom. “Our student organization has a program to walk home with students who leave after 9 o’clock in the evening,” added Silu.

Phillip shared a link to his college’s protocols for dealing with an active shooter situation. He said finding that information “gave me some relief because it showed that the responsible authorities were somehow equipped to handle such a situation.”

And Nareg and Sebastian, a Bolivian student at the University of Kansas, both reflected that their campuses offer mental health services to help any student who is having a hard time. “If a student shows worrisome tendencies, they usually become clear to those around him, who can hopefully take responsible measures,” said Nareg.

Added Javaria, “It is impossible for them to watch out for any Adam Lanza or Seung-Hui Cho, but I know they will watch out for as long as they can.”

Saudi Arabia Stakes a Claim on the Nile

After draining four-fifths of its massive underground aquifer for unsustainable agriculture, the Saudi Kingdom turns to verdant Ethiopia.

Fred Pearce in Ethiopia
For National Geographic News
Published November 30, 2012

Papyrus reed boats cross the Blue Nile River in Ethiopia, where some people claim their water is being handed over to Saudi business interests.

Photograph by Peter Guttman, Corbis

This piece is part of Water Grabbers: A Global Rush on Freshwater, a special National Geographic Freshwater News series on how grabbing land—and water—from poor people, desperate governments, and future generations threatens global food security, environmental sustainability, and local cultures.

The cows appear on the horizon like a mirage. Drive about a hundred miles (160 kilometers) through the Arabian Desert southeast from Riyadh, and you will come across one of the world's largest herds of dairy cattle. Some 40,000 Friesian cows survive in one of the driest places on the planet, with temperatures regularly reaching 110°F (43°C).

The cows live in six giant air-conditioned sheds, shrouded in a mist that keeps them cool. They churn out 53 million gallons (200 million liters) of milk a year, which heads off down the highway in a constant stream of tankers.

Welcome to Al Safi, one of the world's largest and most improbable dairy farms, the creation of the late prince, Abdullah al Faisal, eldest son of Faisal, the Saudi king from 1964 to 1975. It is not alone in one of the largest bodies of sand in the world, more than three times the size of Texas. Down the road is the Almarai dairy farm, almost as big, the creation of a racehorse-breeding Saudi prince and his Irish chum, dairy magnate Alastair McGuickan.

Saudi Arabia's Glass Is Four-Fifths Empty

Anyone flying over Saudi Arabia today will see the desert dotted with cow sheds and huge circles of green, where crops to feed both the cows and Saudis are grown. The water to irrigate those fields, and cool those cows, does not come from rivers. There are no rivers. It comes from what was once one of the world's largest reserves of underground water. More than a mile beneath the sand, the water was laid down tens of thousands of years ago during the last ice age, when Arabia was wet.

The sheikhs of Saudi Arabia have been farming the desert in this way for 30 years, spending hundreds of billions of dollars of oil revenues to pursue their dream of self-sufficiency in food. The Saudi government has been paying farmers five times the international price for wheat, while charging nothing for the water, and providing virtually free electricity to pump that water to the surface. Fortunes have been made as the giant pivots green the desert, and cows graze in their mist-filled sheds.

But now many of the pumps are being silenced and the spigots turned off. The Saudi government says wheat-growing must cease by 2016, and the water-cooled cow sheds may be abandoned soon after.

The water is running out.

The mirage of water in the desert, and of food self-sufficiency for a desert nation, is fading. (See "Kingdom on Edge: Saudi Arabia" in National Geographic magazine.)

Forty years ago, when the farming started, there was a staggering 120 cubic miles (500 cubic kilometers) of water beneath the Saudi desert, enough to fill Lake Erie. But in recent years, up to five cubic miles (20 cubic kilometers) has been pumped to the surface annually for use on the farms. Virtually none of it is replaced by rainwater, because there is no appreciable rain.

Based on extraction rates detailed in a 2004 paper from the University of London, the Saudis were on track to use up at least 400 cubic kilometers of their aquifers by 2008. And so experts estimate that four-fifths of the Saudis' "fossil" water is now gone. One of the planet's greatest and oldest freshwater resources, in one of its hottest and most parched places, has been all but emptied in little more than a generation.

Parallel to the groundwater pumping for agriculture, Saudi Arabia has long used desalination of seawater to provide drinking water. But, even for the cash-rich Saudis, at about a dollar per 35 cubic feet (one cubic meter), the energy-intensive process is too expensive to be used for irrigation water.

But the Saudis have not abandoned their dream of growing their own food. If they no longer have water of their own, they are looking to someone else's. They are scouring the world for well-watered lands where their desert farmers can move to grow wheat, rice, and other crops that can be shipped home. But will their actions bring another tragedy, this time a human one as much as a hydrological one?

Grabbing the Headwaters of the Nile?

To find out, in mid-2011 I traveled some 1,500 miles (2,400 kilometers) south of Riyadh, across the Red Sea, to meet some poor Africans who say they are paying the price for the Saudi dream. They live in Gambela, the most impoverished corner of Ethiopia, at the headwaters of the Nile River, the world's longest. One of Ethiopia's nine kililoch (divisions), Gambela is a horn-shaped region that protrudes into South Sudan. (See a map of the region.)

Here, amid the wet pastures and forests, unrest is brewing. Locals say the Saudis want their water.

I met Omot Ochan, a tall, dark-skinned member of the Anuak tribe, wearing combat shorts and sitting on an old waterbuck skin in a forest clearing. He was angry. He said the lush forests and marshlands where he and his ancestors have hunted for generations were being taken by Saudi Star, a company owned by one of Saudi Arabia's richest men, Sheikh Mohammed Hussein Ali al Amoudi.

Yards from his hut, the company was digging a canal that Ochan said would drain the nearby wetland, where he fished. And nearby, al Amoudi's 24,711-acre (10,000-hectare) farm had taken over a reservoir built by Soviet engineers in the 1980s.

Government officials had told Ochan and hundreds of others that they had to move out of the forest and into government villages. Ostensibly the purpose was to provide better services, but Ochan believed the real reason was to clear the land for al Amoudi, a friend and sometime campaign financier of Ethiopia's prime minister at the time, Menes Zenawi.

Half an hour later, I drank tea in the shade of a huge mango tree with one tribal elder who spoke to me quietly about how he and his fellows had been forcibly moved from their fields. But he told me: "We have decided, each of us, that in the rainy season we will go back and cultivate our ancestral land. If they try and stop us, conflict will start."

And they were as good as their word. Months after my visit, in April this year, unnamed local gunmen invaded Saudi Star's company camp near the town of Abobo. They killed at least five workers. In an effort to root out the culprits, government soldiers allegedly went on a rampage in local villages, rounding up and torturing men and raping women.

The group Human Rights Watch interviewed some of those who fled to neighboring South Sudan afterward. The people said that their original raid was in retaliation for the company grabbing their land and water. A local churchman told me: "My son has gone but wants to come back and fight."

Wildlife at Risk?

This may be a wildlife tragedy, too. The waters of Gambela are vital to millions of white-eared kob, antelopes that cross from South Sudan in the dry season in search of the open water and wetlands at the head of the Nile. These animals—along with a scattering of elephants, an endangered antelope called the Nile Lechwe, and the giant shoebill stork—were the main reason for the creation back in the 1970s of the Gambela National Park. But the park has not been fully secured and much of its land has been given to Saudi Star. The migrating animals now face tractors, canals, and fenced pastures.

All this for water? The Saudis are determined that they will continue to feed their own people. They have plenty of land, but no water. They fear that, without water, even their oil will not save them from a perilous future of food insecurity. As one senior Saudi official told me: "We cannot eat oil." So they are determined to buy foreign land that has access to plentiful water.

Asked about the Saudi Star water grab in Gambela earlier this year, the Saudi minister for agriculture, Fahd bin Abdulrahman Balghunaim, said: "I honestly never heard any complaint coming out of Africa. What I read were some articles written by foreign correspondents about things happening in Africa, which we did not see happening."

Saudi Star declined to comment for this article.

Courting Foreign Governments

The King Abdullah Initiative for Saudi Agricultural Investment Abroad, launched in 2008, is providing government credit and diplomatic support for Saudi companies buying up foreign land and water to feed Saudis. Schemes are under way from the banks of the Senegal River in West Africa to the rain forests of Indonesian New Guinea. In most deals, Saudi investors have generous access to water and the right to export at least 50 percent of the harvest back to Saudi Arabia.

Some host governments are happy with these terms. Ethiopia's Zenawi, who died in August, had an instant answer to those who criticized his largesse toward his Saudi friend. "We want to develop our land to feed ourselves, rather than admire the beauty of fallow fields while we starve," he said.

Fair enough. But a 2012 report from one of Africa's biggest banks, Standard Bank in South Africa, suggests he was wrong and that Saudi investments may be bad value for the continent. "For African countries courted by Saudi agribusiness firms, a clear appreciation of the value of the asset on which they rest is necessary," it said. "Under-selling of agricultural assets (both land and, perhaps more critically, water) remains a profound threat."

Ochan and his fellows in the forest say they agree with that.

Fred Pearce is a journalist and author on environmental science. His books include When the Rivers Run Dry and The Land Grabbers, both for Beacon Press, Boston. He writes regularly for New Scientist magazine, Yale Environment 360, and The Guardian, and has been published by Nature and The Washington Post.

Maine’s lobster catch a record 104 million pounds last year

Lobster cannibalism a cruel new fact of crustacean life, says UMaine professor

By Jason McLure, Reuters

Posted Dec. 04, 2012, at 6:53 a.m.

LITTLETON, N.H. — Researchers studying Maine’s lobster population, booming in recent years amid warming waters and disappearing predators, have detected something never before seen in the wild: lobster cannibalism.

It has long been known that lobsters will attack and eat each other if confined together in a small space — hence the banding of claws on lobsters in supermarket tanks.

That aggressive behavior had not been thought to occur in the wild, but with the increasing density of the crustaceans in the Gulf of Maine it seems big lobsters are feasting on little lobsters once the sun goes down.

“We’ve got the lobsters feeding back on themselves just because they’re so abundant,” said Richard Wahle, a marine sciences professor at the University of Maine, who is supervising the research. “It’s never been observed just out in the open like this,” he said.

Maine’s lobster catch rose to a record 104 million pounds last year, compared with 23 million pounds in 1981. The 2012 catch is expected to shatter that record as overfishing and other factors have led to the collapse of populations of cod, halibut and other groundfish that feed on lobsters.

Warming waters in the Gulf of Maine due to climate change have also bolstered the population even as the same phenomenon has led to more disease and lower populations in Long Island Sound and southern New England, Wahle said.

A graduate student working with Wahle, Noah Oppenheim, has been documenting the phenomenon using a special infrared camera that allows him to observe a juvenile lobster tethered with a rope to a spot on the ocean floor.

During the daytime, it is fish that typically feed on the tethered juvenile lobsters, but at night the researchers were stunned to see that most of the attacks on the small lobsters were by their larger brethren.

“The population of lobsters in Maine has skyrocketed and there have been some interesting changes in abundance, demographics and, we believe, behavior,” Oppenheim said. “Eight out of nine times at night, predation is due to cannibalism.”

Wahle said Canadian researchers studying the contents of lobsters’ stomachs had also recently found evidence of cannibalism in the wild.

“There are these cases where encounters with each other are becoming so frequent, they result in more than just a bit of competition but in a predator-prey interaction,” Wahle said.

Falling lobster prices due to this year’s abundant catch have led to tensions between Canadian and U.S. lobstermen. In August, New Brunswick lobstermen picketed processing plants and temporarily blocked shipments of inexpensive Maine lobster from being brought to the Maritime provinces in Canada for processing.

Editing by Barbara Goldberg and Christopher Wilson.