Rising gas prices threaten economic recovery

What’s that old saying? “One step forward, two steps back.”

Just as our economy is starting to move again, rising gas prices threaten to put the brakes on the recovery.

Gasoline is at the highest price ever for this time of year. AAA reports the average price in Washington on Feb. 22 was $3.68 a gallon. That’s up 14 cents in a week and 21 cents in a month. Analysts say gas could hit $4.25 a gallon or higher by late April.

Rising prices for gasoline, diesel and jet fuel increase the cost of virtually everything because millions of products worldwide use refined petroleum somewhere along the way.

Take food, for example. Farmers use fuel to plant and harvest crops, processors use fuel to package those products, distributors use fuel to run their warehouse operations, and truckers use fuel to get the products to your local grocery store. Rising fuel prices increase costs at each step of the production line.

So, what’s going on?

Fuel prices always go up in the spring as refineries temporarily shut down to switch from their winter fuel blends to the more costly summer blends mandated by the EPA. But to make matters worse, several refineries have closed, further limiting gasoline supply.

Analyst Brian Milne says two refineries in the mid-Atlantic area have permanently closed and a third will shut down this summer. Also, European refiners export a significant amount of gasoline to the United States, and Switzerland-based refiner Petroplus recently closed five of its refineries.

The recent fire at BP’s Cherry Point refinery in northwest Washington state will further reduce supplies. BP is a critical part of our fuel supply, processing 230,000 barrels of crude each day.

Internationally, Iran, the world’s third largest oil producer, has cut off oil supplies to England and France in retaliation for international sanctions against its nuclear program and threatens to expand the embargo to all of Europe.

So what is the solution?

In truth, there is no “quick fix” that will immediately reduce prices at the pump and marching the oil company CEOs up to Congress and the White House to dress them down about high prices and profits does nothing to solve the problem. It may be good election-year grandstanding, but it deflects meaningful discussion about long-term solutions.

There are things we can do to reduce the chance that we’ll find ourselves in this pickle again.

First, we need to ensure that we have adequate refining capacity to meet growing demand and to compensate for lost production if a hurricane shuts down our Gulf Coast refineries or an accident puts a major refinery offline.

Second, we need to develop our domestic oil reserves to create a secure supply of crude oil. Opponents complain it will be years before those reserves show up at the pump, but they’ve been saying that for 30 years. If we had developed those reserves 30 years ago, we would have a stable domestic supply of crude oil by now. Yes, we live in a global marketplace and oil producers may put U.S. oil on the world market, but any increase in world oil supplies moderates prices, regardless of where it’s sold.

Third, we need to expedite approval of the Keystone Pipeline to bring more oil from our friends in Canada to Gulf Coast refineries. Remember, Canada historically has been our best friend.

Perhaps most importantly, our political leaders, from President Obama down to local elected officials, need to understand the link between a stable energy supply and a strong economy.

A secure supply of reasonably priced energy is essential if our economy is to provide jobs and fairly priced consumer goods for struggling families.

Don Brunell is the president of the Association of Washington Business. For more about AWB, visit www.awb.org.