If you have plans to travel this Thanksgiving, you’re not alone. AAA predicts 53.4 million people will travel for the Thanksgiving holiday. That’s up 13% from 2020. Rather than the hassle of flying, many of us will hit the road instead, which means we’ll be subject to sky-high gas prices. This isn’t something new for residents of the Beehive State. At the end of last week, the national average price at the pump for a gallon of regular unleaded gasoline was $3.707, while Utah’s average price was $4.011, according to AAA’s gas price tracker. And Utah gas prices are consistently higher than the national average. It’s a fact that often raises some eyebrows, considering the five oil and gas refineries right in our backyard.
Can we blame California for high Utah gas prices?
Utah Governor Spencer Cox tasked the Utah Office of Energy Development (OED) to solve the mystery of why Utah’s gasoline prices are, on average, higher than the rest of the nation, and OED released their report last week. “After seeing historic gasoline prices across the country and that Utah’s prices were trending higher than the national average, it became clear that we needed a deeper understanding of the petroleum supply chain in Utah,” said Gov. Cox in a statement. “We’ll continue working with policymakers and [the oil and gas] industry to find ways to increase supply and reduce prices.”
According to the OED report, Utah’s gasoline market is seeing increased demand for its products both inside and outside of the state, and there is no way to make more gasoline locally, at least right now. Utah’s refineries are already producing as much refined product as they can, operating at 90% capacity or greater. “The additional demand seems to be caused by Utah’s growing population along with refinery closures and higher prices in other states,” said Greg Todd, the governor’s recently appointed Energy Advisor and Executive Director of OED.
Intermountain West Refining Capacity By State, 2022 (barrels per day)
- Utah: 206,714 (North Salt Lake, five refineries)
- Wyoming: 125,850 (New Castle, Evansville, Evanston, Sinclair)
- New Mexico: 110,000 (Artesia)
- Colorado: 103,000 (Commerce City)
- Nevada: 2,000 (Ely)
- Idaho: 0
- Arizona: 0
- Total: 547,564
Source: Energy Information Administration, via Kem C. Gardner Policy Institute
The report goes on to blame policies in other states for diminishing the supply of gasoline and thus increasing the demand for Utah gas products. Specifically, the diminishing supply on the West Coast is caused by refinery closures and biofuel conversions. According to the report, these closures and conversions are incentivized by state and federal government regulations as a part of decarbonization efforts to improve climate outlooks and air quality. In short, the report puts the blame on progressive energy policies in “West Coast” (read: “liberal”) states for reducing the supply of good old-fashioned gasoline in the region. That decreased supply in other markets where Utah products are sold creates more demand for Utah gas and upward pressure on prices.
It’s yet another thing Utahns hate (high gas prices) that we get to blame on California, but, as one might expect, it’s not quite that simple. There are many other factors that go into determining the price of a gallon of gasoline.
What else could be to blame for high Utah gas prices?
“No one likes high prices for their energy. Nobody does.” Thomas Holst is the Senior Energy Analyst at the Kem C. Gardner Policy Institute at the University of Utah. As far as the upward pressure on prices caused by Utah gas exported to out-of-state markets, he says, “If Utah refineries get higher returns by sending their product west, I can’t fault them for doing that.”
The price we pay at the pump is generally driven by both state and federal taxes (which account for about 15% of the cost at the pump), product distribution and marketing costs (21%), refining costs (12%) and the cost of crude oil (53%). “The price of crude oil and taxes are generally fixed. There’s nothing we can do about those,” says Holst. But what about product distribution and refining costs?
Consider another way of looking at the issue. Rather than asking “why are gas prices in Utah so high,” we could ask “why are gasoline prices in other places so low?” For one, it’s cheaper to refine and distribute products in other places in the country. Utah is the largest refiner in the Intermountain West. Utah’s five refineries in North Salt Lake account for 206,714 barrels of the Intermountain West’s total refining capacity of 547,564 barrels. “Compare that to the Gulf states, where there are 19 refineries and their capacity is 5.2 million barrels,” says Holst. “You have what is called an economy of scale.” This means you have a proportionate saving in costs gained by an increased level of production. “So, refining costs are going to be lower with larger operations.” And distribution? The Gulf state refineries distribute a good deal of their product by pipeline. Utah transports its refined products primarily by road (which means they also have to pay through the nose at the pump and that cost gets passed down to the price at the pump).
Is it always going to be this way?
So what policy options are available to us? It might not be what we want to hear, but the proven methods are already in play. Holst points to the Strategic Petroleum Reserve (SPR). The SPR was implemented in 1975 and it’s still active. The SPR is meant to be used as a buffer for emergencies such as acts of war—like the Russian invasion of Ukraine—and natural disasters. Without SPR assistance, the Gulf Coast region would have faced larger gasoline price hikes. In the spring, after the invasion of Ukraine, President Biden authorized the release of 180 million barrels of SPR reserves over a six-month period as well as an additional 15 million barrels in December, and that is putting downward pressure on prices, says Holst. While the average price at the pump in Utah is still hovering around $4 per gallon, “that’s coming off of a high of $5.25 on July 1st of this year.”
There are always alternatives as well. “Drive a smaller car, lower your freeway speed for maximum fuel efficiency, turn down the thermostat,” says Holst. And, there’s always public transportation. “UTA had Free Fare February and saw a big spike in ridership,” he says. “Now, going free fare year-round is a topic of discussion up on the hill.” Using mass transit also has the added benefit of reducing the amount of carbon emissions per trip. “It’s much lower than driving a single occupancy vehicle.” And, of course, there’s switching to an electric vehicle. “The sticker price has traditionally been an impediment to purchasing an EV,” says Holst. Electric vehicles account for only 5% of new vehicle purchases, he says, but that could change with the recent passing of The Inflation Reduction Act, which created a tax credit, worth up to $7,500, for consumers who buy new electric vehicles.
And, Holst says, it could always be worse. “I like to point out to people what the average price of gasoline is in Europe right now,” he says. “It’s about $6.50 per gallon.” It’s at least something to keep in mind when we’re talking about what we’re grateful for this Thanksgiving.