1. WHAT MAKES
GAS PRICES
RISE?

2. in the production of gas:
It is important to know
that there are 5 steps
in the production of gas:
EXPLORATION
TRANSPORTATION
PRODUCTION
DISTRIBUTION
CONSUMPTION

3. 1
EXPLORATION
WEATHER:
Oil exploration and production – on and off shore – can be affected by storms, hurricanes, or difficult terrain.

4. EXPLORATION continued…1
EXPLORATION continued…
ECONOMIC FORCES:
Two-thirds of the increased demand for energy is in rapidly growing Asian countries such as Indonesia, China and India.

5. 2 TRANSPORTATION PIPELINES:
Most crude oil is moved by pipeline (the most cost-effective means) to ports and loaded onto tankers.

6. TRANSPORTATION CONTINUED2
SHIPPING:
Oil tankers are safer and more reliable than they used to be. These improvements come at increased cost, which affects prices. Oil companies are also responsible for fines and clean up of oil spills due to negligence or accident (ex., the 1989 Exxon Valdez disaster).

7. TRANSPORTATION CONTINUED2
GEOGRAPHY:
It costs more to ship oil to Houston from Saudi Arabia than it does from Venezuela. Also, oil shipped from one U.S. port to another must be shipped by an American vessel and American crew, which costs more than non-U.S. ships and crews.

8. TRANSPORTATION CONTINUED2
WAR:
Fighting in the Middle East sends insurance rates up says Allen Mesch of the Maguire Energy Institute at SMU. War can also affect oil prices because of the high demand for fuel for military vehicles.

9. 3 PRODUCTION ENVIRONMENTAL COSTS:
Along with basic refining costs, (.50 to $3 per barrel) gasoline prices are also affected by environmental laws requiring cleaner emissions and removal of elements such as lead and sulfur.

10. 3 PRODUCTION RESEARCH AND DEVELOPMENT:
Research costs are minimal and do not generally increase the price of gasoline, says Allen Mesch of the Maguire Energy Institute at SMU.

11. DISTRIBUTION 4
TRUCKS:
When gas prices go up, it costs more for the truckers who deliver gasoline and those costs are passed on to the consumer.

12. 4 DISTRIBUTION PIPELINE:
Dozens of pipelines crisscross the United States, including the 5,349-mile Colonial pipeline system that carries 80 million gallons of petroleum products a day between Houston and New York. Although the cheapest way to distribute gasoline, increases in labor, maintenance, and other costs are passed on to the consumer.

13. 5
SEASONS:
Gasoline costs more in the summer when school is out and people take vacation trips, typically rising by about 2 cents a gallon, according to Severin Borenstein of the University of California Energy Institute.
Consumption

14. 5 Consumption GAS GUZZLERS:
The more high-consumption vehicles that are on the highway – SUVs, Hummers, limousines – the greater the demand and the higher the cost of gasoline.

15. 5 Consumption VEHICLE AGE:
Older cars tend to be less efficient and not as well maintained. Both factors cause higher gasoline consumption.

16. 5 Consumption COMPETITIVE PRESSURES:
Mass merchandisers, discount chains and off-brand gasoline dealers keep gasoline prices down.

17. 5
TAXES:
U.S. consumers pay 18.4 cents per gallon in Federal taxes and 23.1 cents per gallon, on average, in state taxes. Add local sales taxes and a “severance tax” assessed when oil is taken from the ground, and taxes typically will account for 30% of the cost of a gallon of gasoline, according to Allen Mesch of the Maguire Energy Institute at Southern Methodist University.
Consumption

18. Consumption
ZONE PRICING:
Gas prices are based on secret formulas that include a dealer’s location, affluence of the area and local conditions. Although legal, the practice has been criticized by the Federal Trade Commission. 5

19. 2 1 3 4 5 TRANSPORATION PRODUCTION CONSUMPTION DISTRIBUTION
Review: 5 Steps
in Gas Production 1 3
TRANSPORATION
EXPLORATION 4 5
PRODUCTION
CONSUMPTION
DISTRIBUTION

20. O P E C
rganization of
etroleum
xporting
ountries
A permanent, intergovernmental oil organization, created at the Baghdad Conference on September 10–14, 1960, by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela.

21. OPEC
OPEC’s objective is to coordinate petroleum policies among member countries to secure fair and stable prices for producers, an efficient and regular supply to consumer nations, and a fair return to investors in the industry.

22. Opec’s five Founding Members were later joined by ten other Members:
Qatar (1961); Indonesia (1962); Socialist Peoples Libyan Arab Jamahiriya (1962); United Arab Emirates (1967); Algeria (1969); Nigeria (1971); Ecuador (1973–1992); and Angola (2007).

23. OPEC
In the 1970’s, OPEC rose to international prominence when oil prices rose steeply due to th Arab oil embargo in 1973 and the outbreak of the Iranian Revolution in 1979.

24. STOP!
Double click on the globe to view the OPEC interactive map.

25. Bibliography