Is the U.S. petrochemical industry responsible for the current spike in gas prices? During today's OnPoint, Charles Drevna, president of the American Fuel & Petrochemical Manufacturers, weighs in on the politics of rising gas prices and explains why he believes international factors are to blame for the latest spike. He also explains why short term fixes will not have a significant impact on prices and calls on policymakers to consider a long term approach on energy.
Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Charles Drevna, president of the American Fuel and Petrochemical Manufacturers. Charles, it's great to have you back on the show.
Charles Drevna: Thanks for having me, Monica. It's always a pleasure to be here with you.
Monica Trauzzi: Thank you. Charles, based on current supplies and the refining ability of U.S. producers, why are gas prices so high right now?
Charles Drevna: Well, Monica, we have no control over gas prices, because 85 percent, again, fully 85 percent at the price of the pump is directly attributable to the cost of crude and taxes. So, when the price of crude goes up significantly as it has, the price of gasoline inevitably has to rise too.
Monica Trauzzi: So, are you at 100 percent refining capacity? Is everything working as it should be working?
Charles Drevna: Well, as far as refining capacity, we are still around 85, 88 percent. The operative question ought to be is there ample supply for the American consumer and that is unequivocally yes, absolutely. We are providing all the fuel that the consumers need. Now, the real -- and, again, the second question is what can we do? What can we, as a nation, do about gasoline prices, about energy and national security? Unfortunately, in the short term, no matter what you hear from some politicians, no matter what you hear from some pundits, there's little or nothing we can do right now. The problem being is, Monica, we probably had this conversation a year ago. We had the same conversation two years ago, three years ago, four years ago. And if we don't stop using political rhetoric rather than reality, we'll have the same conversation next year.
Monica Trauzzi: For many, your facts don't square up because many people blame the oil industry for these high prices. These are unusually high prices for the wintertime though. I mean usually we see these spikes happening during summer driving season. It was also a warm winter in many parts of the country. So, how do you account for all of this?
Charles Drevna: Well, again, it's the price of crude on the international market. We are absolutely, you know, up into the $120 a barrel range for Brent, which is the world crude. WTI has been rising. We've got -- first of all, the value of the dollar plays a significant impact on it. We have geopolitical tensions. If you can tell me what's going to happen in the next two, three, four months in the Middle East. The market is nervous. We have -- other than the United States, there is actually demand growth outside the United States. So that plays -- that has a pressure point on global prices. So, again, we are subject to the price of crude and taxes. Now, what can we do about it? Again, in the short term very little. But in the longer term we need an energy policy in this country that will send a message, in our opinion, to the rest of the world that the United States is absolutely serious about our energy security and about our national security, Monica. That we're absolutely serious about keeping manufacturing jobs here in the United States, about continuing to have companies pay good, high salaries to their employees, pay taxes and keep the economy going. Again, we've had this discussion. The theory is, well, it's going to take four years, it's going to take five years to do it. Why bother? Well, if we would've had that same mentality in the 1800s, we probably wouldn't -- we know we wouldn't have the intercontinental railroad.
Monica Trauzzi: So then something like the all-of-the-above strategy that the president has spoken about at length, that's something that you're in favor of then?
Charles Drevna: Absolutely, but the all-of-the-above strategy also has to take basic economics into consideration, if all of the above means an open market, a free market and consumer choice. Let's do what's best for the consumer and not for the politician. Let's do best what's for the consumer and not some preordained company or preordained product that may or may not be able to compete on its own. Let the consumer decide what he or she wants to put in their automobile. Let the consumer decide what is best for their families, what kind of automobile and what kind of fuel. We've bastardized the system right now to say we're going to pick this winner. We're going to subsidize this particular energy source or whatever at the expense of another. Let them all get big, but let -- allow the free market to dictate.
Monica Trauzzi: So it sounds like you feel that a lot of the international factors are what's having an impact on gas prices today. So then is President Obama not to blame? Because many Republicans are quick to say that he's to blame, prices have doubled since he came into office and we should be pointing our fingers at him.
Charles Drevna: Well, the president, unfortunately, has locked up and continues to lock up the reserves of oil and gas on federal lands. We have -- if you look at a map, we have, up and down the East Coast, around the eastern part of the Gulf of Florida, up the West Coast, up through Alaska and all the federal lands in the interior, they're locked up. Now, the president will tell you and the administration will tell you, oh, we've got more oil and gas production going right now than we've had in any administration. That's partially true, but why? Because it's being done on private lands. It's being done in Marcellus and Utica. It's being done up in the Bakken area. We need to open up all of our lands. We need to explore and develop in an environmentally sound way, Monica, what we have here in our own country, send a message to the rest of the world that we are absolutely convinced and absolutely determined to develop our own resources for energy and national security. And that will send a message to the market.
Monica Trauzzi: Are you encouraged by the fact that the administration seems somewhat supportive of this latest move by TransCanada on the Keystone XL pipeline?
Charles Drevna: Yes, I mean the short answer is yes. Maybe the longer answer would be, well, gee, then why don't you just sign the paper and let the whole pipeline be done and let TransCanada do their job all at once? Let's get that 700,000 barrels a day coming from Canada with the additional 100,000 or 200,000 coming from Bakken, fix the bottleneck at Cushing. And, again, that sends a message to the market.
Monica Trauzzi: I want to talk about tailpipe standards quickly.
Charles Drevna: OK.
Monica Trauzzi: Because that's another factor, a potential factor in gas prices.
Charles Drevna: Right.
Monica Trauzzi: EPA has these tailpipe standards that would regulate sulfur more stringently. They say that this will not have an impact on gas prices. They say maybe a one cent impact by 2017. Why do you think that these standards could have major impacts on prices?
Charles Drevna: Well, for a couple of reasons. One, we've reduced sulfur in gasoline over 90 percent, to the cost of about nine or $10 billion. To reduce it another 90 percent is going to cost 20 billion. So getting that last little bit out, you're at the point of diminishing returns. That money has to be put into a refinery somehow. So, just on that, how EPA can say it's only going to cost a penny or two, now, I can't predict what the prices are going to be.
Monica Trauzzi: But there are refineries that can handle this right now?
Charles Drevna: Most refiners are going to have to do significant upgrades for those hydrotreaters to take out that last little bit of sulfur. So, in essence, you may have some refineries not be able to do it. You may have some refineries that will shut down. So what happens then? Then you have more of an upward pressure, more of a supply problem. So, the tailpipe standard, as EPA would tell you right now, they're not planning on regulating additional RVP, but that was part of the process. I am sure that the NGOs are going to say we, as a nation, should do RVP. So eventually the refiners are going to look at lower sulfur standards. We're going to look at lowering RVP and yet the autos want us to raise octane. It doesn't work that way. Unfortunately, it doesn't work that way. That's why the rhetoric is more prevalent than the solution.
Monica Trauzzi: All right, lots of moving parts here. Never a dull moment with this industry.
Charles Drevna: Absolutely.
Monica Trauzzi: Thanks for coming on the show. Good to see you.
Charles Drevna: Monica, thanks for having me. It's good to see you again.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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