How gas prices are impacting Utah and what, if anything, can be done

SALT LAKE CITY — Tom Holst learned that energy is a global commodity while working in the oil industry as a commodities trader during the time when Saddam Hussein invaded Kuwait.

"Events in one hemisphere — such as the invasion of the Ukraine — will affect prices in our hemisphere," Holst, senior energy analyst at the University of Utah's Kem C. Gardner Policy Institute, said Wednesday.

The institute's monthly Newsmaker Breakfast focused on this point, as well as current price trends, the impact of the Ukrainian war on Utah's economy and the effects global events are having on Utahns.

What drives prices at the pump and who's most affected?

The cost of crude oil is the largest factor in the retail price of gasoline, according to the American Petroleum Institute. Additionally, there are a number of cost elements that affect the total per-gallon price that Utahns see when choosing a gas station at which to fill up, Holst said.

These elements are:

• Crude oil: 53% of the the price of gas is due to the cost of crude oil purchased by a refiner. Utah is also the 10th largest producer of crude oil in the U.S., with much of that production coming from the Uintah basin, Holst said.
• Distribution and marketing: 21% of gas prices is related to the costs that come with delivering gasoline to consumer retail outlets, including truck and rail expenses.
• Taxes: 15% of gas prices is related to federal and state taxes. Together, federal (18.4 cents per gallon) and Utah state taxes (31.9 cents per gallon) contribute about 50 cents per gallon to the pump price, Holst said.
• Refining costs: 12% of the price of gas comes from the cost of refining crude oil into products such as motor gasoline, jet fuel, heating oil and marine bunker fuel. Refinery operating costs include labor, energy and catalysts to run refinery processing units.

"This is a global energy crisis and as a state, there are only a handful of levers that we can pull, if there are any, to help drive down cost," Thom Carter, executive director at the Utah Office of Energy Development, said.

Carter, who also serves as Utah Gov. Spencer Cox's energy adviser, said the state's biggest concern right now is the "demand destruction" as it relates to people's vehicle usage.

He said that people haven't traveled as much over the last two years due to factors related to the pandemic and more remote work opportunities, leading to "historic" levels of clean air but also a significant decline in oil prices.

Additionally, a majority of people aren't changing their behavior based on the price of gas at the pump — like they were during the Great Recession — which has led to concerns from state officials over a segment of the population believed to be getting left behind, Carter said.

"That's what's concerning to us. There are those that just can't afford the continued price increase," Carter said. "Because we still see an increased demand, we see a decrease in supply that we're unsure what the ceiling is going to be on the price of motor gas here in the country and along the Wasatch Front."

How increased oil demand impacts Utah

For an energy state like Utah, even when consumers are suffering from higher prices, the state's energy economy as a whole benefits from the higher prices.

"The way to drive down costs is to get more product on the market," Carter said, noting that all five of the refineries in northern Utah are producing at capacity.

While fuel refined in Utah does stay in-state, it also goes to states like Washington, Oregon and Nevada. Additionally, something like an outage on a pipeline or refinery in a neighboring state like Colorado or Wyoming can also impact Utah's fuel supply.

"We can't just shut down our borders and say, 'We're going to just refine what we produce and provide it for Utah," Carter said. "There's an ecosystem that all works together, but having the ability to extract and refine does put us in a position to be successful."

Essentially, even if Utah was extracting more, the state's refineries being at capacity means that the extracted product would just be sent to other refineries across the country.

Potential solutions

All of the panelists during Wednesday's Newsmaker Breakfast agreed with President Joe Biden ordering the release of 1 million barrels of oil per day from the nation's strategic petroleum reserve over six months. The move was an effort to control energy prices that have spiked after the United States and allies imposed steep sanctions on Russia over its invasion of Ukraine.

"I think it's a great move by Pres. Biden and the government," said Steve Bannister, director over the master of science in International Affairs and Global Enterprise at the U.

Additionally, the panelists were in consensus that elevated gas prices could lead to a wide-scale shift to electric vehicles.

"Before we had (electric vehicles), people would see higher gasoline prices (and) they'd go buy a smaller car," Holst said. "Now, I think it will accelerate the already strong trend towards implementing (electric vehicles)."

Bannister also pointed to a temporary motor fuel tax "holiday" as a way to lessen the impact of gas prices felt by Utahns.

"I think that would help lower the delivered price to households, so that's an advantage to consumers," Bannister said. "To some degree, you're borrowing from the future because those taxes are used to fund our state infrastructure. ... In the short run I think it's a really great idea."

Carter said that the state should tread delicately when thinking about whether to implement a motor fuel tax holiday.

"The problem with tax holidays — (and) we're seeing this from some of our other states that are doing this — is, at what point do you feel comfortable putting the tax back on?" Carter said. "We could remove the 30 cents tax tomorrow and something could happen and the price could go back up 30 cents and no one could feel the savings."

He confirmed that discussions around a motor fuel tax holiday are happening at "the highest level of state government," as well as how to do it in a way that is feasible, without hurting the state in the long-run.

Looking more big picture, Carter said that because oil is a globally traded commodity, the federal government needs to send a message to commodity traders that the U.S. is trying to find ways to stabilize the market.

One "stabilizing message," Carter said, would be to lift the ban on new oil and gas leases for federal public lands.

"The courts have told the Biden administration that they need to start issuing leases — they haven't," Carter said. "We believe as a government that it would send a message that we are open to increasing extraction in America that could then send a message to the exchanges."

Additional information and figures from April's Newsmaker Breakfast can be found here.

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