Even as the United States continues to produce gasoline at a pace that surpasses the most optimistic production forecasts in recent years, the American Automobile Association says that Americans will never again see gas prices below $3 per gallon.
“The days of a national pump price below $3 is probably a thing of the past,” Chris Plaushin, director of Federal relations with AAA, told the Senate Energy and Natural Resources Committee.
This week, gas prices in the United States have spiked for the second time this year, up an additional 15 cents to a national average of $3.64 per gallon.
Chief Executive Bill Klesse of the oil refinery Valero told the Senate panel that the gas price hikes result from a complicated combination of circumstances that exist in the international oil market. Not the least of the causes of U.S. gas price hikes, Klesse said, is a government mandate called the Renewable Fuels Standard (RFS) that requires refineries to blend biofuels into petroleum products in the United States or buy biofuel credits, or RINs, from renewable fuel producers.
“Today the most important thing affecting us is the renewable fuel standard,” Klesse said. “The renewable fuel standard is out of control.”
Currently, the law is close to mandating more ethanol than can be effectively blended into fuel at 10 percent per gallon, causing fuel refiners to have to purchase RINs. Prices for the renewable energy credits reached record highs of $1.29 each this week, a cost passed on to the consumer.
“This has led to higher prices and substantial uncertainty in the gasoline market,” Klesse said in his prepared testimony. “The RFS needs to be completely redone.”
Senate Democrats largely rejected the idea that RFS was at the root of higher U.S. gas prices.
“I don’t think it’s fair to blame the renewable fuel standard,” Senator Al Franken (D-Minn.) said, pointing out that biofuel facilities are starting to pop up throughout America.
Senator Debbie Stabenow (D-Mich.) said that refiners simply disliked RFS because biofuel producers could impact petroleum profits.
“Why would you want competition? You want to control the market,” Stabenow said.
Chairman of the Natural Resources Committee, Senator Ron Wyden (D-Ore.) suggested that, while the government requirements are driving up fuel costs, refineries might also be reaping windfall profits.
“Supply is up, demand is down, but prices at the pump are still stubbornly high,” Wyden said.
But oil industry representatives present at the hearing said that global supply and demand must be taken into consideration as well.
“Refiners such as Valero are in the position of being price takers, not price makers,” said Klesse.