Despite energy infrastructure, Utah still faces high fuel costs

Brice Wallace

Utah is America’s 10th-largest oil producer. It also has five fuel refineries. However, experts say, that’s not enough to make Utah self-sufficient when it comes to gasoline prices, leaving individual consumers and businesses to face price spikes at the pump.{mprestriction ids="1,3"}

“We’re not an island in and of ourselves,” Thom Carter, senior energy advisor to Gov. Spencer Cox and executive director of the Governor’s Office of Energy Development, said during a recent Kem C. Gardner Policy Institute Newsmaker Breakfast about gas prices.

“We can’t just shut down our borders and say, ‘We’re going to just refine what we produce and provide for you in Utah.’ There’s an ecosystem that all works together. Having the ability to extract and refine does put us in a position to be successful, but we do rely on other states’ crude to create the gasoline we need.”

“We’re not isolated from the world, in spite of the fact we produce quite a bit here,” agreed Steve Bannister, associate professor of economics and director and chair of the Master of Science in International Affairs and Global Enterprise at the University of Utah. “We can’t cut ourselves off from the rest of the world.”

The Newsmaker speakers said Utah is just part of a global energy system with lots of factors affecting consumer prices. Those prices early last week were an average of $4.50 per gallon in Utah, just a penny from matching the high of $4.51 on April 22 and comparing with an average of $3.14 a year ago. Meanwhile, the national average was at $4.12 early last week.

But why can’t Utah go it alone? Mathematics tells the story. The state can extract 100,000 barrels of oil each day, primarily from the Uinta Basin. Of that total, 80,000 barrels are shipped to Utah refineries, with 20,000 barrels sent out of state. And those refineries, now operating at capacity, refine 200,000 barrels a day, meaning roughly half of their supply comes from outside Utah, and the product is shipped across the Intermountain West, Carter said.

That input and output from other states leaves Utah consumers at risk of price swings. Compounding matters is the Russian war in Ukraine, which is causing uncertainty throughout the markets and has contributed to overall inflation.

“Prices have trended upwards in a big way, and as these events continue to unfold in Eastern Europe, Utahns are feeling the squeeze, both at home and at gas pump,” said Natalie Gochnour, the Gardner Institute’s director.

Thomas Holst, senior energy advisor at the Gardner Institute, noted that oil is a global commodity, meaning impacts elsewhere in the world affect the price in Utah. The price of crude oil accounts for 53 percent of gasoline prices at the pump. For comparison, distribution and marketing costs account for 21 percent, refining costs account for 12 percent, and federal and state taxes make up 15 percent.

For context, as high as national prices have moved, they still have not reached the levels of the 1980 global recession and the 2008 “Great Recession” — the latter saw $5-per-gallon prices in 2022 dollars, Holst said. “We’ve been here before,” he said.

What has not been seen before are factors related to extraction and consumer behavior. Higher gas prices in the past typically have prompted producers to invest in more drilling. Demand has been hampered a bit by work-from-home, a relatively new phenomenon, but unlike in the past, a large segment of motorists aren’t curbing their consumption because of high prices.

“Energy demand destruction may be occurring, when remote workers decide not to return to the office, driving down demand for motor gasoline and diesel, and the second factor may be large oil and gas companies may be reluctant to invest capital for fossil fuel projects based on signals given by the current [Biden] administration,” Holst said.

Carter said that the past two summers, people lessened their amount of travel, primarily because of the COVID-19 pandemic.

“Now, as we’re pulling out of the pandemic and as people are looking towards the summer, as they’re looking at getting out of their house, as the school year is coming to a close, we’re not seeing people alter their behavior based on the price at the pump — we’re not seeing everyone alter their behavior,” he said.

Back in the ’70s and during the Great Recession, people based driving decisions on the price at the gas pump. Now, a certain segment of the population does not care about the price and is willing to pay whatever it is, he said.

So, how to get lower prices? It’s elusive. Holst noted that “we’ve been seeking solutions for high motor gasoline prices over the last five decades.”

Speakers said freeing up the U.S. strategic petroleum reserves will help “bridge a gap” and said a short-term lowering of state and federal taxes on gasoline — perhaps in the form of a tax “holiday” — also is a good idea. More people working from home or using mass transit also could help.

As for longer-term solutions, Bannister proposed increased usage of electric vehicles. “It used to be, before we had EVs, people would see higher gasoline prices, they’d go by a smaller car. Now I think it’ll accelerate the already strong trend toward implementing EVs,” he said.

“It’s an inevitable transition. … This is an opportunity to really accelerate that. We’re going to have to make the change, sooner or later. I think getting an early start is a very wise thing to do for this state as well as the rest of the world, frankly.”

But that energy world likely will continue to be interconnected, speakers said.

“We are just a small cog in this giant international problem,” Carter said. “This is a global energy crisis, and as a state, there are only a handful of levers, if there are any, to help drive down [gasoline] costs. What we can do is help identify and understand what those issues are.”

But, he cautioned, better identification and understanding does not mean that prices can be predicted.

“Because we still see an increased demand, we see a decreased in supply,” Carter said, “we’re unsure what the ceiling is going to be on the price of motor gas here in the country and especially along the Wasatch Front.”{/mprestriction}