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Gasoline is the lifeblood of most American transportation systems. Petroleum products and internal combustion engines have helped propel the United States into a world power over the past century, and continue to power the vast majority of motor vehicles, whether they be on land, sea, or air. Large oil companies like Shell (NYSE:RDS.A), Exxon Mobil (NYSE:XOM), and British Petroleum (NYSE:BP) have all become business and political juggernauts, raking in billions in revenues annually, and spreading across the globe to increase production. The influence of these companies has also helped spread the use of automobiles to some of the more far-flung reaches of the world, and hooked the world’s superpowers on their sweet serum.
Even though most of us use gasoline in some shape or form multiple times per day, people are often unfamiliar with many of the product’s key characteristics. For example, most people are aware that gas prices bounce up and down, but they have no idea why. How does taxation effect the ultimate price you’re paying to fill your vehicle? What are biofuels, what vehicles can use them, and what advantages do they provide? Aside from popular questions like these, it’s fairly widely known that America’s oil addiction has us involved in many conflicts across the globe, although the effects of those conflicts are, for the most part, held out of public view.
Here are six things that are important to know about gasoline, and why they are important. From taxes to environmental impact, these are some questions many people have no doubt pondered, but never taken the time to look up. Read on to learn more about the gasoline that powers our daily lives.
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1. The Tax You Pay Per Gallon
The taxes individuals pay per gallon of fuel can vary wildly. The U.S. Energy Information Administration has an excellent cost breakdown from the month of March, when gas prices averaged out at $3.53 per gallon. Basically, total taxation comes to 12 percent of that overall price. Federal excise tax equalled 18.4 cents, and by averaging state taxes on top of it, the EIA came up with the figure of 23.52 cents per gallon.
Each state has a different rate of taxation per gallon of gas, so where you live is the most important factor in determining the total price of filling up your tank. States like California and New York generally have higher taxes, and the exact rates can boil down to a number of economic factors. Taxation can be used by legislators to encourage people to take public transportation to ease roadway congestion or as a measure to combat air pollution. The manner in which those taxes are applied also varies state to state through excise and sales tax.
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2. Where Does Your Gas Come From?
Tracking down exactly where the gas you are pumping into your car at a local refueling station is extremely difficult. There are numerous variables in gasoline production, and the product that ultimately ends up at your neighborhood gas station most likely saw its genesis at a number of locations. The EIA doesn’t collect information as to the source of gasoline sold at local outlets, so its origin cannot be easily determined.
The product you’re purchasing could have been developed at a number of different refineries, owned by any number of different companies. Gas producers also receive crude oil, which is refined into gasoline from a bunch of different sources, both foreign and domestic. Even after gasoline leaves the refinery, it often is blended with the products of other refineries through a pipeline, and then sold to gas stations in bulk. Basically, the fuel you’re putting into your vehicle can’t really be traced back to its definitive source.
Source: Flickr – Sergio Russo
3. How Much Fuel Comes From a Barrel of Oil?
You often hear in the headlines or read about oil and gas production in the number of barrels produced on a daily or monthly basis. For most consumers, that can be fairly nebulous and hard to quantify in terms of what comes out of a barrel and what goes into your vehicle’s gas tank. One oil barrel, commonly abbreviated to ‘bbl,’ can contain up to 42 gallons of crude oil. From that 42 gallons, a U.S. refinery can generally refine roughly 19 gallons of gasoline. The EIA says that those numbers can vary a bit, as producers respond to market trends.
If one barrel of crude oil can yield 19 gallons of gasoline, that generally means the typical consumer vehicle, with a gas tank capacity of around 10 gallons, can fill up twice. Of course, if you drive a large pickup truck, van, or SUV, you can also picture a single barrel of crude oil totaling up to one fill-up at your local Chevron (NYSE:CVX).
4. Why Does the U.S. Export Fuel When Prices Keep Climbing?
Recent studies have shown that the U.S. is taking big steps towards limiting its country wide dependence on foreign fuel, and that has come through a combination of increased domestic oil and natural gas production. As American oil producers ramp up production numbers, exports have been on the rise as well. The one thing we all find ourselves asking every time we roll up to the pump is, if production is increasing and the process is becoming more refined, then why do prices keep ascending? Why are American companies exporting fuel that we could use here to drive prices back down?
The answer is fairly complicated, but, in its purest form, basically gasoline producers can hit higher profit margins by sending their product abroad. There are other factors — like inadequate pipeline capacity and shipping constraints — that lead many companies to send petroleum products to easier-to-reach markets. Most U.S. production occurs on the Gulf coast, making for easy shipping routes to South America, Africa, and Europe. Essentially, the amount of production and gas prices aren’t as closely related as people might think, and things like taxation could have a bigger impact. Companies will sell their product where they can secure the biggest profit, which is why exports have continued despite higher prices domestically.
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5. Ethanol’s Role
Over the past decade, ethanol has become a popular term in the energy lexicon, especially when discussing fuel prices and production. Ethanol itself is short for ethyl alcohol, a main component in most gasolines that can be produced from biological sources, like corn or sugar cane. The actual process of producing it involves the distilling and fermenting of starch crops, making ethanol somewhat synonymous with terms like ‘biofuel.’
Ethanol is an additive to many fuels, and according to the EIA, makes up about 10 percent of overall gasoline consumption. Ethanol has grown to become a fixture in most gasoline sold at the pump, but the exact amount can vary by location. There are also different vehicle variations that can handle higher levels of ethanol-enriched fuel. The basic role of ethanol is to oxygenate gasoline, causing it to burn cleaner and more efficiently. There is still much debate over whether or not ethanol’s pros outweigh the cons, but ethanol has definitely secured its place in gasoline production.
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6. How Much CO2 Is Produced From Gasoline?
The chief concern for many — especially in a time where climate change is a real and growing threat — is carbon dioxide production. Burning fossil fuels is the main contributor toward increasing greenhouse gases in the environment, and motor vehicles are a big source of emissions. Burning a gallon of gasoline without any ethanol added produces 19.64 pounds of carbon dioxide, while burning a gallon of diesel produces 22.38 pounds, according to the EIA‘s data. With added biofuel content, those numbers are reduced depending on specific blends.
As consumers and businesses look for ways to lessen their environmental impact, vehicle emissions should start to see a reduction in coming years. Companies like Tesla (NASDAQ:TSLA) are taking steps to make cleaner technologies available to other car makers, which should add more competition and increase the number of electric cars on the road as well. Airplanes and water-based transport vessels are also huge producers of carbon dioxide, which will hopefully see increases in efficient technology in the near future. For comparison, the 16 biggest ships in the world produce more pollution than all the cars on Earth.
As technology advances, big oil companies will need to adapt with it. Chevron, Shell, and others will most likely be around for a long time, but change is around the corner.
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