A year ago, the Arizona Republic published an article on how consumers weren't
getting what they paid for because they were buying "hot" gasoline. Last Friday,
they did it again.
Each time drivers fill their fuel tanks in Arizona's simmering summers, they
likely see $1 or more evaporate.
Because gasoline expands in the heat, that's the estimated dollar amount of
energy they purchase but they never receive...
"Arizona is the epicenter of hot-fuel rip-offs," said Judy Dugan,
a founder of OilWatchdog.org, which is calling for gas stations to compensate
for the
temperature of gas they sell. "With the weather Phoenix is experiencing
now, every time you fill the tank, you could be losing a dime a gallon. It's
an extra penalty for living in the desert imposed on you by the oil companies
and oil refineries."
A year ago I sent in the following letter to the editor which they declined
to run.
No, Arizona consumers probably haven’t paid $115 million extra for “hot” gasoline.
Even if they have paid extra, one thing is for certain, they haven’t
paid it to “big oil.”
The basic claim is that gasoline expands at higher temperatures and hence
a consumer gets less mass (and energy) for the same volume of gasoline
at a higher temperature than at a lower temperature. Since Arizona consumers
buy
higher temperature gasoline, the assumption is made that they aren’t
getting as good a deal as they would at a lower temp.
That’s probably not true.
As noted in the Arizona Republic’s article, dealers buy gasoline in
bulk so they pay a temperature adjusted price. This ensures that they get
the mass and energy they contracted for regardless of the temperature and
hence
volume.
That means that through the distribution chain, up to and including the
dealer, “hot” gasoline
is not an issue. It is only the next transaction in the chain, from the dealer
to the consumer, that may have a problem.
Let’s suppose that dealers are selling customers a “mini-gallon” instead
of a temperature adjusted gallon. Since all of them are doing basically the
same thing, the “mini-gallon” is essentially the same size in any
given area like Phoenix. Since dealers compete with each other, they set their
prices based on what their competitors are doing. If one store realizes that
they are selling a “mini-gallon” and can sell it for a bit less
and still make money, they will lower their price to gain market share. The
competitor across the street or down the road will also lower their price
in order to remain competitive and retain their customers.
In very short order, given the competition, every dealer will be selling
a “mini-gallon” for
less than a temperature adjusted gallon. Are you really paying more for “hot” gasoline?
Probably not.
The other assertion is that “big oil” is making a killing off
of “hot” gasoline. For that to happen, two things have to be true.
First, the competitive mechanism I described above must not work. Second, “big
oil” must own the dealers.
Most of the gasoline retailers in Arizona are not owned by the major oil
companies. They may sell a national brand, but they are independent and set
their own
prices. You can check this for yourself by looking at the business license
posted in each store. It will tell you who the owner is, and with a few minutes
on the internet, you can figure out if they are part of “big oil” or
not. Mostly, they are not. So if anyone is making money off of “hot” gasoline,
it’s the dealers, not “big oil.”
While the Arizona Republic’s articles on “hot gas” have
gotten the physical science right, they have made some incorrect assumptions
about the economics.
I had to chuckle when I read about how gasoline expands and contracts due
to temperature, resulting in some sort of windfall for oil companies or station
operators ("Not getting what you pay for at the pump," Republic,
Friday):
It's simple economics that if costs to deliver gasoline are raised as the
result of requiring temperature compensation, the price of gasoline will go
up to pay for it. That's in the article, but you have to read the whole thing...
