BY KATHERINE LING, Medill News Service, Times of Northwest Indiana
WASHINGTON | As the U.S. waits for alternative fuels like ethanol to break America's "addiction to oil," consumers are in for a bumpy ride when it comes to filling up their car's gas tanks.
Gasoline and oil are out of favor at the Capitol these days, identified as main contributors to climate change and causes of political and economic vulnerability.
But before legislators shove the fossil fuel aside in the rush to adopt alternatives, it would be good to remember that drivers are going to be dependent on gasoline for the foreseeable future. And the oil industry is having a few problems that could critically affect gas prices.
"This industry is entering a very difficult time going forward," Roger Diwan, a partner and leader of financial advisory at PFC Energy, an international energy consulting firm, said at a U.S. Federal Trade Commission conference on energy markets.
The oil market is as tight as it has been in a long time and it does not have any wiggle room, either on the crude oil supply, which provides the raw material for gasoline, or the refining side, which produces and distributes gasoline.
"We are driving a car with worn-out shock absorbers, and we are feeling every bump," Anne Korin, co-director for energy think tank Institute for the Analysis of Global Security, said at the conference.
Gasoline at the pump fell steadily from the average of $2.98 per gallon last July to $2.10 in January.
But gasoline climbed 60 cents in the past two and a half months. Disruptions in refineries and tensions between Iran and Britain instantly affected prices because there was no capacity to absorb the shocks.
But the notion that the oil industry is in crisis is a bit hard for motorists to take when looking at the companies' income statements. Exxon Mobil Corp., Chevron Corp. and ConocoPhillips were ranked in the top 10 in the 2007 Fortune 500 companies. Exxon Mobil managed to even beat its own record by achieving the highest profit in history, reaching $39.5 billion.
It is hardly a number that encourages sympathy.
But Diwan claims, "The oil profits are masking the crisis. We are facing an anorexic industry" that may not have the ability to meet the growing demand.
The excess capacity world markets enjoyed for the past 20 years has been wiped out, Diwan said, by a sharp rise in demand by China in the last few years and poor investment by oil companies in technology and capacity while gasoline prices were low.
The large inventory of oil was a leading reason why gasoline prices previously remained low.
And it is becoming more difficult for multinational companies to keep crude oil in sufficient stocks as government-owned or national oil companies claim a bigger piece of the market.
"There are bigger players but a much smaller industry" dominated by national oil companies, Diwan said.
The question that affects consumers going forward, he said, is whether the national oil companies have the technology and ability of private companies to efficiently get crude oil onto the market, also known as oil production.
If national oil companies don't have that ability, oil supplies could get even tighter in the future, again putting significant upward pressure on gasoline prices.