Wood River Refinery, Roxana, Illinois
It’s been a freakishly warm winter and spring, and with warmth and sunshine men’s hearts turn to thoughts of rising gas prices. Last night it was the lead on the Tribune’s website; today, it’s the print cover story for the Sun-Times. Not that it’s anything unusual, it just seems to have arrived earlier than usual this year, in part because of the generally inexorable rise of pump prices. It’s also an evergreen (or, I guess, deciduous) point of confusion: why do the prices go up in the summer? And why is it even worse in Chicago?
First: understand that crude oil is like a cocktail. Or, more specifically, a reverse cocktail: it comes out of the ground a toxic, unsophisticated mix of chemicals, like a Long Island Iced Tea. Refineries are there to separate the ingredients: like, say, refining the disgusting blend down to something less horrible, like a rum and coke.
One of the ingredients in the toxic soup is butane, the same stuff that powers your lighter:
First, butane is a cheaper blending component than most of the other ingredients. That makes fall and winter gasoline cheaper to produce. But butane is also abundant, so that means that gasoline supplies increase in the winter because more butane is thrown into the mix. Not only that, but this all takes place after summer driving season, when demand typically falls off. These factors normally combine each year to reduce gasoline prices in the fall (even in non-election years).
Like vodka, it’s cheap and plentiful: it both lowers costs directly by being cheap and indirectly by increasing the supply. The problem with butane is that it evaporates easily. When it’s warm, more butane evaporates into the air, creating higher levels of ozone—which, on the ground level, is bad for you—and smog. The government regulates the evaporation of gas by the Reid Vapor Point, which is measured in psi; the max psi during the summer is nine psi (well below atmospheric pressure), and butane has a psi of 52 (way above). Benzene, which is problematic for similar reasons, is also capped during the summer, and must be refined out. A summer blend might have two percent butane; in winter, ten percent.
So summer gas is “heavier,” reducing the amount that evaporates during warm weather. This doesn’t make the gasoline worse—in fact, it makes it better for use on a practical level during the spring and summer, and it’s why stocking up on winter gas doesn’t really do you any good:
Remember that winter gasoline will pressure up as the weather heats up, and the contained butane will start to vaporize out of the mix. You will end up with less gasoline than you paid for, and you will be contributing to the air pollution problem that summer gasoline was designed to avoid. If, on the other hand, you were to buy summer gasoline and try to store it until winter, you might find yourself having problems getting the fuel to ignite, due to the lower vapor pressure. This would be like putting a little bit of diesel in your gasoline – not very good for your car. So buy and use gasoline in the correct season.
Broadly speaking, that’s why summer gas is more expensive. It’s more refined—literally—and it reduces smog as well as providing more effective gasoline for the season. But summer gas is not the same across the nation.
Summer gas has to be nine psi throughout the nation. But in big cities prone to severe smog problems, it has to be lower than that: cities like Chicago are required to be below 7.8 psi, as well as southern states, though winter-grade fuel can be sold during the summer in case of emergencies, like refinery explosions or hurricanes. By virtue of living in big cities, then, residents have to use more refined, more expensive fuel during the summer.
It gets more complicated still. States, cities, and counties can set their own regulations. Throughout most of Illinois, the max summer psi is nine. But in Madison, Monroe, and St. Clair counties, the max psi falls to 7.2 psi between June and September 15th. The same is true in Indiana, where the max psi is nine save for Clark and Floyd Counties, where it drops to 7.8 from May through September 15th; most states have exceptional counties or cities like this.
The 1990 amendments to the federal Clean Air Act required that “reformulated gasoline” be used in nine geographic areas with the worst smog pollution, to reduce harmful levels of ozone in air. At that time, reformulated gasoline (RFG) had to contain two percent oxygen by weight. Refiners met the oxygen requirement by adding ethers or alcohols that contain oxygen to gasoline. The two most commonly used additives were MTBE (methyl tertiary butyl ether, which was used in about 87 percent of RFG) and ethanol (which has been used primarily in the Midwest where it is produced from corn).
It’s not just that Chicago is one of the few metro regions using reformulated gasoline (or oxygenated gas, if that helps distinguish it). It’s also that different metro areas use different blends of gas. Chicago, being so close to the corn belt, uses lots and lots of ethanol, unlike any other city:
Chicago doesn’t use just any reformulated gas. It requires a unique blend of summer gasoline made at relatively few refineries. The blend is special because its recipe calls for heavy use of corn-based ethanol — politicians who made the rules wanted to support corn farmers, experts say. Illinois is the nation’s No. 2 grower of corn.
The blend is used in a relatively small region, essentially a contiguous strip of counties from Chicago to Milwaukee. In fact, the blend has a descriptive name, called the “Chicago/Milwaukee RFG with Ethanol,” with RFG standing for reformulated gasoline.
Nobody else in America uses this blend of summertime gas, even in Illinois. The only other area that does is near St. Louis, and that’s a different concoction based on summer-gas formulation rules for Southern cities, while Chicago’s formula is based on federal rules for a Northern city.
As a result, most of the Chicago blend comes from just a few refineries near Chicago. They include a BP refinery in Whiting, Ind., an Exxon Mobil plant near Joliet and a Citgo plant near Lemont.
In 2001, John Cook, then the head of the petroleum division of the Department of Energy, called Chicago/Milwaukee an “island,” along with California; you may recall that, over the years, Chicago often competes with different California cities for some of the nation’s highest gas prices:
The result of this targeted approach to air quality has been to create gasoline market islands. The primary examples are California and the Chicago/Milwaukee areas, in which the required gasolines are unique, and only a limited number of refineries make the products. The inventories of gasoline used in these regions can be drawn down rapidly in response to unusually high demand or a supply problem at one of the few refineries producing the specialized products, or in one of the pipelines delivering the products. Prices for gasoline in these regions then surge. If other gasoline markets are not tight, the prices surges may be limited to the specialized gasoline regions, as we have seen historically in the case of California.
Virtually all of the Chicagoland area is a reformulated gas area. And though ethanol is currently cheaper than gas, it does interact with the price of gas in complex ways, arguably driving its price up: it can’t currently be transported by pipeline, adding infrastructure costs, and it evaporates easily, meaning that to get under psi regulations it reduces the flexibility of using cheaper blending ingredients.
We’re in an odd market in Chicago, due to the overlapping effects of nature, development, and politics. We’re in a big city, so our gas is more expensive not just because of demand, transportation, and cost-of-living influences, but also because of regulations. We’re in the Midwest, so we use an ethanol blend that may increase the price of gas (depending on who you ask). The combination of all the above—and the fact that Chicago is not just a gas island, it’s a small one compared to California—means that we’re a niche market for gas, and niche markets are always going to be a bit more expensive.
Photograph: Ran Yaniv Hartstein (CC by 2.0)