Why Is Gas So Expensive Where I Live? Taxes, Composition, Regions And How It Affects You

What affects the price of gas in different parts of the United States?

Everybody complains about gasoline prices. We all see the almost daily fluctuations of gas prices in our area and accept it as normal, even if we don't like it. Those of use who travel a lot also see that gas prices vary widely from one region of the United States to another. Some of us feel victimized when we see that our gas prices are higher, sometimes by 15 or 20 cents per gallon, than what people are paying in other areas of the country. There are several reasons for the regional variations in gas prices.

Gasoline is an essential product that Americans consume in massive quantities. Gasoline use accounts for nearly 20 percent of the total energy usage in the United States. It is used to fuel cars, trucks, vans, and SUVs. Other uses for gasoline include buses, boats, recreational vehicles, diesel locomotives, farm equipment, construction equipment, and mining equipment.

Gasoline is refined from crude oil and is produced year-round, with some seasonal variations in production, like increased production to allow for increased use in the summer months. From refineries located near the oil fields and ports, mostly in the Gulf Coast area, gasoline is delivered through a system of pipelines, ships, and trucks to more than 167,000 gas stations across the country. Gasoline is available to consumers in three grades: regular, mid-grade, and premium. Each grade has a different octane level. The price at the pump varies by grade, with higher octane grades costing more, and the difference in price between grades usually remains fairly constant.

We all know that the price of gas at the pump varies according to the price of crude oil, but that does not account for regional differences. The price of crude oil only accounts for about 45% of the price of a gallon of gas at the pump. Other factors that have a large impact on the price of gas where you live are Federal, State, and local taxes, the composition of the gasoline, and the cost of distribution.

Taxes

Gasoline taxes make up a significant portion of the price of gas. The U. S. Department of Energy estimates that Federal, State, and local taxes make up more than 25 percent of the price at the pump. Federal excise taxes are 18.4 cents per gallon. State excise taxes average around 21 cents per gallon. Some states also charge additional taxes that they use to pay part of the Federal taxes. Local sales and other taxes vary widely and have a significant impact on local prices.

Composition

Some states, like California, and many major metropolitan areas require specific gasoline blends as part of their pollution control strategies. These blends are costly to produce and increase the price significantly in these areas.



In addition, many states now ban the use of methyl tertiary butyl ether (MTBE) as an additive, after it was detected in ground water. In these areas, ethanol is used as a substitute. Production of gasoline without MTBE is more expensive and requires refineries to change the way that they operate, which is also very expensive. The changeover from MTBE to ethanol has caused some service disruptions, with associated gasoline shortages and price surges, in some areas.

Many areas are now mandated by Federal and/or State law to use gasoline blends that are oxygenated and have a lower volatility (that is, they evaporate more slowly).

Regions

Distribution costs are a major influence on regional differences in gasoline prices. As the distance from the refinery increases, so do the costs of moving the product. Factors that have an impact on distribution costs include the acquisition, maintenance and licensing of tanker trucks, building and maintenance of pumping and storage facilities, and the cost of hiring, training, and employing the drivers, maintenance staff, administrative staff, and all the other people required to operate a large, high-volume distribution system.

Another regionally oriented cost associated with gasoline prices is market competition. In rural or sparsely populated areas, there are fewer dealers competing for the limited business available, and prices will be higher than in markets with many stores and stations in close proximity to each other.

Many areas also have stricter regulation of storage and transportation of gasoline as part of their environmental protection programs. These regulations are intended to reduce leakage or spillage and to reduce the dangers of storing and moving an explosive fuel.

Where you live affects the price you pay for gasoline. Beyond the base price of crude oil, taxes, environmental regulations, and distribution costs have the most effect. If you pay ten cents per gallon more than the people who live in the next state, nobody's picking on you. It's just that old bug-a-bear "economics".

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