The Gasoline Business Is All About Location
Along with barbecues, parades and a day off of work, one of the Memorial Day traditions in the United States is to talk about the price of gas at what is still called the "start of the summer driving season." Readers who don't travel much may be surprised at the extent to which gasoline prices can vary from state to state - a byproduct of not only the number of refineries in a given region, but pipeline access, quality/formulation regulations and taxes. What's true in the United States is also true around the world. Gasoline prices vary remarkably around the globe, with some countries offering subsidized rock-bottom prices and others layering sizable taxes on every liter or gallon.

The Home Front
Across the United States, there are some sizable discrepancies in gasoline prices. While drivers in some Southern states pay as little as $3 a gallon, prices all along the West Coast exceed $4 a gallon. Not surprisingly, taxes make up a significant part of the difference. While only about 10% of the price of gasoline in Oklahoma goes to local, state and federal taxes, that rate almost doubles in New York. With relatively few exceptions, overlaying a map of the states with the highest taxes on gasoline correlates very closely with those states that have the most expensive gas.

Still, taxes don't explain all of it. Gasoline requires refineries to make it, and pipelines, barges and trucks to transport it. Nearly 40% of the country's refining capacity stands in the Gulf region, and that's where a lot of the country's cheapest gasoline can be found. While areas like North Dakota are currently producing a lot of crude oil, there isn't nearly as much refining capacity in the region. Consequently, fuel costs about the same in Fargo, N.D. as it does in Atlanta, Ga. Then there are cases like California. Not only does California have high taxes (69 cents per gallon of the $4.10 to $4.15 per gallon retail price), but there is very limited capacity in the state. What's more, California is very demanding when it comes to quality standards and that imposes still more costs at the pump.

A Similar Story Overseas
At an average pump price of $3.61 for the week ending June 4, U.S. gasoline prices are actually quite low on a global basis. Of the countries in the world with cheaper gasoline, all of them except Bolivia and Ghana are meaningful oil producers. In some cases, as in Indonesia ($3.44) or Mexico, a lack of the right kind of oil and/or adequate refining infrastructure has kept prices near the U.S. average. In other cases, like Iran (42 cents), Saudi Arabia (72 cents) and Kuwait (98 cents), gasoline prices are subsidized as a way of keeping the citizenry relatively content. Government control on refining and retail pricing is relatively common around the world. While most of the OPEC countries have national oil companies that also refine and market gasoline, countries like Brazil and China force corporations like Petrobras and Petrochina to abide by price controls.

On the other side of the spectrum, countries like Turkey ($9.35), Israel ($7.68) and virtually all of Western Europe pay twice as much or more than Americans on a like-for-like basis. Some of this can be tied to the availability of oil. Neither Israel nor Turkey are oil-rich, and relative few European countries have access to meaningful oil reserves that are both nearby and cheap to exploit. It's not all about access to oil. Norway has robust oil reserves, but the country still has some of the most expensive gasoline in the world ($9.31/gallon). The difference is taxation. Taxes routinely make up 50% or more of the at-the-pump gasoline price, and it is perhaps ironic that Norway is both the leading producer of oil in Europe and has the highest taxes as well.

The Bottom Line
Clearly, different countries have different philosophies about taxation and the ideal transportation infrastructure. It is possible to argue that the extensive public transportation systems in Western Europe offer some compensation for the heavy gasoline taxation, while the subsidized prices of oil-producing countries gives those citizens at least some of the benefit of their nation's reserves. It's also clear, though, that gasoline prices come down to more than just taxes. Countries or states also have to have adequate supplies of the right kinds of gasoline, adequate refinery capacity and the ability to get the gasoline to market at a reasonable cost.




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