35 comments on Hot Gas is a Bunch of Hot Air
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35 comments on Hot Gas is a Bunch of Hot Air
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GAIA Host Collective
I realise you are discussing 'hot' gas, but interestingly, in Canada, where the oil companies were on the wrong end of that 1 cent per gallon, 'cold' gas was a big enough issue that temperature compensation became customary in how fuel was handled in Canada -
'Five years ago major Canadian oil companies, with the approval of Measurement Canada, accepted a system devised by U.S. oil refiners for their upstream operations and set a retail industry standard of temperature compensation at 15 degrees Celsius. As such, most retailers in Canada now have temperature compensated equipment that adjusts to that standard. Unfortunately for consumers, the average temperature in Canada is 6 degrees Celsius. Thus, a wrong standard was imposed at the retail level and refiners are the net beneficiaries.
It is a fact that 15 degrees Celsius is the American Petroleum Institute's accepted standard at the time of product transfer between refinery pipelines, ships and terminals. However, in all northern US states where the average ambient temperature is below that mark, industry practice, or law, excludes the sale of petroleum on a corrected basis into tank trucks or retail. In most states where the average temperature is above 15 degrees Celsius, retailers sell product on an ambient basis. In either case, the method of sale at retail benefits the consumer while in Canada the opposite is true.'
http://www.cbc.ca/consumers/market/files/cars/gasprice/committee.html
Nice to see that Americans are finally getting 'hosed' like Canadians.
'By converting to 15 degrees Celsius, Ontario consumers, for example, over several months of the year, receive less gasoline for the same dollar spent than if they were to purchase product at ambient temperature. Through the use of temperature correction devices in tank and retail pumps, the Canadian major refiner-marketer has added in excess of $100 million a year to gross margins in the province alone.
That figure represents an absolute transfer of wealth from the consumer to the oil companies when compared to the situation prior to the implementation of costly ATC devices. As it now stands, purchasing gasoline that has been temperature compensated at 15 degrees Celsius is heavily penalizing consumers throughout Canada.
The Committee recommends that either Automatic Temperature Compensation be removed from use in Canada or, to avoid the losses incurred to install expensive ATC devices, that the 15 degrees Celsius mark be lowered to the average regional temperature in which product is sold at the tank and retail level.'
So considering that the equipment is so expensive, I'm sure you will detail why Canadian gasoline retailers should no longer be burdened with such overhead - or at least that in Canada and the northern America states, another standard than 15° C should be used.
Being cynical, though, I'm pretty sure we won't see that article. It is likely to be a bit too big picture, instead of quibbling over gasoline at 60 degrees F and gasoline at 64.7 degrees F. Though it seems as if in Canada, the free market works - the equipment was adopted voluntarily, while in the U.S., it is something which would make gasoline more expensive 'as every retailer tries to recoup the cost of temperature compensation equipment.' I guess in Canada, the equation worked out. The invisible hand at work, though pickpocketing sounds so uncouth.
However, in all credit, the amount of time wasted on this topic is already hard to imagine - I can't even imagine how European style fuel taxes could be introduced in a system where .25 cent a liter is thought of as a big deal. Germany's fuel prices increased 3% overnight, when the VAT was raised - and this issue is about .3%, it seems.
I realise you are discussing 'hot' gas, but interestingly, in Canada, where the oil companies were on the wrong end of that 1 cent per gallon, 'cold' gas was a big enough issue that temperature compensation became customary in how fuel was handled in Canada -
Perhaps in a different time, when oil companies owned a lot more of their own outlets, and when supply wasn't severely constrained, it may have made sense for an oil company to argue that such a system would be beneficial to them in very cold climates. Today, oil companies own very few stations, and supplies are tight. Under these circumstances, 1). The consumer won't benefit at all, because if tomorrow's gallon is definted to be slightly more than today's gallon, price is simply going to rise to compensate; and 2). It doesn't affect Big Oil anyway. They have very little exposure here.
Personally, I think retailers wasted their money in Canada. But, if some retailers did adopt the system, that would give them some advantage against other retailers without the system (in cold weather). So it may have had less to do with extracting more money from consumers than it was an arms race against other retailers who were able to get the same price for a slightly smaller quantity of fuel. In the U.S., the exact opposite is true. Anyone adopting this system is going to be at an immediate disadvantage to retailers who do not - as long as the temperate is above the standard temperature.
Your points are taken, and of course, Canada is not the U.S.
From the article, which was from 1998, in Canadian dollars, discussing Ontario alone -
'By converting to 15 degrees Celsius, Ontario consumers, for example, over several months of the year, receive less gasoline for the same dollar spent than if they were to purchase product at ambient temperature. Through the use of temperature correction devices in tank and retail pumps, the Canadian major refiner-marketer has added in excess of $100 million a year to gross margins in the province alone.'
100 million Canadian dollars, per year, in Ontario alone, is an amount of money which means that the investment in temperature compensation equipment has been worth a cool billion dollars over ten years - I think that the investment paid off for someone, and not merely the equipment manufacturers. It was not a waste of money by any stretch of my imagination. Even by ExxonMobil's exalted standards of money-making, it was probably worth a few campaign contributions and a couple of legislative astro-turf campaigns about how gas station owners were being strangled due to the harsh fact that Canada is cold, the poor owners being unfairly taken advantage of by everyone that bought a gallon of gas in the wintertime.
From the link you posted above:
That sounds about right. But, as I said if your competitor has installed equipment that allows him to sell a slightly lower volume at the same price, you are probably going to have to follow suit.
And yet, strangely, according to the article (not the report - which I hadn't noticed as a PDF link), 'The recommendations contained in this excerpt were rejected by Industry Minister John Manley.'
The recommendations -
'The Committee recommends that either Automatic Temperature Compensation be removed from use in Canada or, to avoid the losses incurred to install expensive ATC devices, that the 15 degrees Celsius mark be lowered to the average regional temperature in which product is sold at the tank and retail level.'
Strangely, the result in Canada seems to be that the government forced the retailers to make an additional billion dollars over 10 years - and yet, not a peep from the oil industry screaming about such a heavy regulatory burden being forced on them.
I grew up near Washington, D.C., and though I respect facts, it is a stunning lesson when growing older to realize what an increasingly insignificant role facts play in such contexts. Or to put it differently - 100 million dollars in a year in one province is the sort of fact that trumps others, especially with some of that money flowing into the correct hands - for example, I'm sure that Industry Minister John Manley found gainful employment after leaving government.
Oh wait -
'Shortly after Manley announced his retirement from federal politics, Dalton McGuinty, Premier of Ontario and close friend of Manley, appointed him to chair a royal commission on the energy system of Ontario in the wake of the eastern North American blackout of 2003.
On May 26, 2004, Manley was named to the Board of Directors of telecommunications firm Nortel Networks. On January 27, 2005, he was elected to the Board of Directors of the Canadian Imperial Bank of Commerce. He is also chair of the Independent Task Force on the Future of North America, a project of the U.S. Council on Foreign Relations. In March 2005, the Task Force released a report that advocated a North American union, an economic union between Canada, Mexico and the United States which would resemble the European Union.'
http://en.wikipedia.org/wiki/John_Manley_(politician)#Post-political_career
I'm sure no one would question his commitment to the average citizen of Canada, especially if that average citizen just happened to be a fellow board member of Nortel, or the Canadian Imperial Bank of Commerce.
The simple fact remains, that in Canada, such systems were installed, and oil retailers profited at the gross margin, and that in much of the U.S., installing such systems will cause oil retailers to lose revenue, with the added burden of the cost of the system themselves.
It won't change the amount of oil being pumped from the ground, no question.
And such discussions add light to why in a German context, peak oil in terms of prices is not much of a theme. Most Germans expect oil companies to profit as much as possible, in part because most Germans would do the same thing if they were running an oil company - cynicism and no illusions about human nature are often hard to tell apart.
Your broad points are not actually in dispute in my eyes - the retail gasoline pricing/volume system in the U.S. as it exists today does not really require any change. As for motivation - well, it is a business, so it is all about the money. Call me cynical.
Strangely, the result in Canada seems to be that the government forced the retailers to make an additional billion dollars over 10 years
Key point: "seems to be." Prices aren't set in a vacuum. If I only sell you 3/4 a gallon and call it a gallon, I am not going to profit 1/4 a gallon. Price is still going to respond to supply and demand. It doesn't matter. I can call a liter a gallon. The amount you pay at the pump isn't going to make any difference. That's what these analyses can't seem to get.
Also, as pointed out, even if you accept the premise, we are talking about a penny a gallon across the country. And the profit margins for retailers - which are pretty darn slim - already have that factored in.
I think we just see things somewhat differently - in the case of 'cold' gas, the amount sold as a gallon was more than a gallon during colder periods, which meant that after the equipment was installed, a retailer was able to sell 'more' than they had previously, if not in physical quantity, then in terms of money received.
You are welcome to believe that the market then lowered it prices to adjust to this fact, and everything remained unchanged otherwise, apart from recovering the cost of the installed equipment. I'm cynical. There is a reason for weights and measures department, for example, one empirically demonstrated over generations. Though possibly, at some point, we may hear about that unnecessary regulatory burden, since the cost of ensuring that merchants actually deliver the amount they claim to sell is an overhead which can be removed for the benefit of the customers.
And yet, it is never the customers clamoring for higher prices for the merchant's profit, it is the merchant. The customer is always clamoring for lower prices at the merchant's cost. In Canada, it seems as if the merchant benefited by installing such equipment - in the U.S., the customer would seem to benefit (trivially at best). Strangely, in Canada such equipment seems to have been installed, somewhat voluntarily, by retailers. In America, it is being resisted by the retailers.
None of this is a surprise, and I notice neither of us needs to discuss the facts, as they apply equally with 'cold' gas as 'hot.' Except for cold gas, the equipment seems to have been installed at the behest of the oil retailing industry, after appropriate regulatory changes to use 15° C as the Canadian average (which appears inaccurate in terms of Canadian temperatures), as there does not seem to have been a groundswell of populist sentiment from Canadian gasoline customers to pay more for gasoline.
No surprise - everyone has interests they feel worth protecting, and in which facts are used to support their interests. Such tensions are part of the marketplace, after all.