State 15th in cost of gasoline

Oil industry blames lack of refinery capacity for galloping price increases

Gargi Chakrabarty, Rocky Mountain News

Published May 24, 2007 at midnight

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If you think you're paying more for gas in Colorado than folks are paying in other states, you're right.

The state hit another record-high gasoline price Wednesday, for the 17th day in a row in a stretch that began May 7. At $3.341 a gallon for regular unleaded, Colorado's average was more than a dime higher than the nationwide average of $3.221 and 15th highest among all states.

Blame refineries, not crude oil, for the raging prices.

"The problem is refining capacity," said Terrance Tschatschula, who heads a Denver energy company - Blue Sky Energy - and also is a trustee at the Colorado School of Mines.

There's plenty of crude oil but not enough refineries in the United States - and Colorado in particular - to process that crude into gasoline products.

Colorado's two refineries, both in Commerce City, east of Denver, are more than 60 years old. Canadian company Suncor Energy owns both of them, which together supply one-third of the state's gasoline.

A majority of Colorado's demand of 5.5 million gallons a day is met by refineries in Texas, Wyoming, Kansas and Oklahoma.

Any disruption in those out-of-state refineries or pipelines has a bigger impact on Colorado than on New Jersey, for example, which can access imported gasoline from Europe because of its proximity to the New York harbor.

"Colorado oftentimes gets pinched at the pumps because we have only two refineries and largely depend on pipelines to deliver us gasoline from outside," said AAA Colorado spokesman Eric Escudero.

When adjusted for inflation, the highest U.S. average retail gasoline price had been $3.079 a gallon in March 1981, the Energy Information Administration said.

Colorado's previous record was on Aug. 11, 2006, when the average price hit $3.076.

The recent run-up at local pumps began more than two months ago after Valero's Mc-Kee refinery in Texas was closed following a Feb. 16 fire. That refinery, which supplies nearly 17 percent of Colorado's market via a pipeline, is back online but operating at only partial capacity.

Since then more refineries have reported problems, squeezing gasoline supply even tighter.

A new refinery has not been built in the U.S. in more than two decades, though some have expanded to keep up with growing demand. Hence, an adequate supply of crude oil hasn't been able to calm the pump price.

From Jan. 1 through Wednesday, the average price of gasoline nationwide jumped 65 percent, though the price of crude oil rose only 5 percent over the same period.

"The gasoline price increase is not due to increased cost (of crude) but due to more demand relative to a fixed supply," Tschatschula said.

New refineries are not being built because it's difficult to obtain environmental permits for construction, said Stan Dempsey of the Colorado Petroleum Association.

In addition, it's not easy to raise the billions of dollars needed for a new refinery from investors.

For example, a proposed refinery in Arizona already has been delayed by several years.

"Refiners need to prove to investors that they will have a good return on their investment over 20 to 30 years," Dempsey said, "and refining has not been a good example of consistent return on investment over a long payback period."

Meanwhile, the U.S. House of Representatives on Wednesday passed H.R. 1252, the Federal Price Gouging Prevention Act.

The bill makes price gouging or market manipulation a federal crime punishable by 10 years in prison. The oil and gas industry says the bill, which has yet to pass Congress, could distort markets and create problems in the long run.

"Gas prices are the highest in U.S. history - we just passed the 1981 record, even adjusted for inflation," said Ilyse Hogue of moveon.org, an Internet-based group lobbying to pass the bill. "As consumers suffer, the oil industry continues to reap the windfall - breaking profit records on an almost quarterly basis. It's outrageous."

chakrabartyg@RockyMountainNews.com or 303-954-2976

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