Oil firm: Gasoline shortages may stick around

Fuel shortages will become even more common unless the United States finds alternative ways of supplying the product or consumer demand decreases, a ConocoPhillips official said Tuesday.

The supply problem means current pump prices above $3 a gallon are probably here to stay, said Cody Larsen, region sales manager in wholesale marketing for ConocoPhillips. Larsen, who works in a Denver office, addressed business associates of local fuel distributor Acorn Petroleum at a luncheon in Colorado Springs.

“Gas and diesel are commodities, so we don’t set the prices — they’re set as a commodity in the market,” Larsen said.

The average price of gas in Colorado and in Colorado Springs hit record highs for three consecutive weeks in May. A gallon of regular unleaded Tuesday averaged $3.26 a gallon in Colorado Springs; the national average was $3.15 a gallon, according to figures from AAA.

After last month’s price spike, oil refiners recorded all-time-high gross profit margins of nearly $1 a gallon, according to an industry analysis of commodities prices. But industry officials justified the higher prices in tes- timony to U.S. representatives, who have voted to penalize companies found guilty of gasoline price gouging.

The lack of supply has become more apparent in Colorado in recent months, even though the state has had a fuel shortage for three years, said Harlan Ochs, president of Acorn Petroleum.

“It seems the shortage is getting worse,” he said.

Acorn supplies ConocoPhillips stations in the area, as well as some independent stations and fleet operations. The shortages have forced Acorn to seek fuel from sources other than local pipelines, and either truck the gasoline and diesel here or have it sent by rail, Ochs said.

Colorado’s situation is the result of several factors, Larsen said. Colorado has only one refinery, Suncor in Commerce City, which produces about one-third of the state’s gasoline consumption of 2.1 billion gallons a year, he said.

The remainder is delivered via pipelines from refineries in Texas, Oklahoma, Kansas, Wyoming and Montana. For the past several months, shipments have been spotty because of refinery outages and partial shutdowns for routine maintenance, Larsen said.

For the past four months, up to 4 million gallons of gasoline a day have been removed from the regional system because of an accident at a Valero Energy refinery in Texas — a major supplier to the Colorado Springs market. The refinery is still not at full capacity.

Because refineries that feed into Colorado also supply fuel to other states, and regulations on fuel composition vary from state to state, it hasn’t been possible to increase supply through the pipelines that run here, Larsen said.

Other states aren’t faring much better. While U.S. inventories of crude oil are in line with previous years, Larsen said, gasoline inventories are “tighter than they’ve ever been in the history of the industry.”

At 195 million barrels of gasoline inventory in May nationwide, “we’re scraping the bottom of the barrel,” he said.

The industry is limited in its production. A new refinery hasn’t been built in the U.S. in nearly 40 years, and expanding the nation’s 150 refineries is difficult because of government regulations and opposition from residents, Larsen said.

Demand for gasoline, however, continues to inch upward. In 2005, gasoline consumption grew by 0.3 percent to 150 billion gallons annually.

“That doesn’t sound like much, but it’s an increase of about half a billion gallons of gasoline a year,” Larsen said.

Last year, nationwide consumption increased by 1.4 billion gallons. In the 1970s, national consumption was at 80 billion gallons a year, he said.

To mitigate the tight supply, ConocoPhillips just launched a pilot program making it easier for Colorado’s 325 ConocoPhillips stations to add E85 pumps that dispense an alternative fuel mixture of 85 percent ethanol and 15 percent gasoline, said John Shellhorse, territory manager for U.S. marketing for ConocoPhillips.

“I never thought as an oil company we’d say we want to conserve energy, but we’re now an energy company, not just an oil company,” he said. “As we increase the use of alternative fuels, consumers have a choice.”

ConocoPhillips also is working with Tyson Foods to use fat from beef, pork and chicken to produce biodiesel, and is involved with several research projects to find new technology in producing alternative fuels, Shellhorse said.