• 3 minutes Could Venezuela become a net oil importer?
  • 7 minutes Reuters: OPEC Ministers Agree In Principle On 1 Million Barrels Per Day Nominal Output Increase
  • 12 minutes Battle for Oil Port: East Libya Forces In Full Control At Ras Lanuf
  • 2 hours Oil prices going Up? NO!
  • 1 day Could Venezuela become a net oil importer?
  • 3 hours Renewables to generate 50% of worldwide electricity by 2050 (BNEF report)
  • 3 hours Reuters: OPEC Ministers Agree In Principle On 1 Million Barrels Per Day Nominal Output Increase
  • 1 day Gazprom Exports to EU Hit Record
  • 8 hours Oil prices going down
  • 11 hours Could oil demand collapse rapidly? Yup, sure could.
  • 1 day Oil Buyers Club
  • 2 days Why is permian oil "locked in" when refineries abound?
  • 9 hours Tesla Closing a Dozen Solar Facilities in Nine States
  • 1 hour China’s Plastic Waste Ban Will Leave 111 Million Tons of Trash With Nowhere To Go
  • 8 hours Saudi Arabia turns to solar
  • 1 day Russia's Energy Minister says Oil Prices Balanced at $75, so Wants to Increase OPEC + Russia Oil by 1.5 mbpd
  • 10 hours Battle for Oil Port: East Libya Forces In Full Control At Ras Lanuf
  • 2 days EVs Could Help Coal Demand
  • 3 hours Are Electric Vehicles Really Better For The Environment?
Alt Text

Why Natural Gas Prices Just Tanked

Natural gas prices crashed again…

Alt Text

Thanksgiving Travelers Smash Records

The U.S. is preparing to…

Alt Text

Gas Wars: The First Energy Conflict In 2018

Territorial disputes over newly discovered…

James Hamilton

James Hamilton

James is the Editor of Econbrowser – a popular economics blog that Analyses current economic conditions and policy.

More Info

Trending Discussions

If Oil Production is Growing Why are Pump Prices not Falling?

If Oil Production is Growing Why are Pump Prices not Falling?

Those who have been told that oil production is booming may be wondering why the prices of oil and gasoline are climbing again.

Price of Brent crude oil, dollars per barrel
Price of Brent crude oil, dollars per barrel, daily, Jan 4, 2005 to Feb 5, 2013. Data source: Quandl. Click to enlarge.

According to the EIA, world petroleum production in the first 10 months of 2012 averaged 88.8 million barrels a day. That's 2 mb/d, or 2.3%, higher than in 2010. The IMF estimates that world GDP grew by 7.1% between 2010 and 2012. If we used a global income-elasticity for petroleum demand of 0.75, we might have anticipated that a 5.3% increase in petroleum production over the last two years would have been necessary to keep the price of oil from rising. Ongoing conservation, for example, in the form of continued improvement in fuel economy, has been a key factor keeping the oil price from rising more in the face of world income growing much faster than world oil production.

China likely consumed nearly half of the global 2 mb/d increase. The EIA reports that China increased its petroleum consumption by almost 500,000 b/d in 2011, and preliminary estimates are that China added another 420,000 barrels to its daily consumption in 2012.

Moreover, about a quarter of the 2 mb/d supply increase reported by the EIA over the last two years came in the form of natural gas liquids. These hydrocarbons are in gas form at ambient pressure and temperature, but become liquid with less pressure than is required to liquefy single-carbon methane.

Related Articles: Why U.S. Energy Independence Means Pump Pain

Components of total world oil supply
Components of total world oil supply, monthly, January 2000 to March 2012, in millions of barrels per day. Blue: crude oil including lease condensates; purple: refinery processing gain; brick: natural gas plant liquids; yellow: other liquids. Data source: EIA.


About 80% of natural gas plant liquids are in the form of 2-carbon ethane or 3-carbon propane. Ethane is primarily used to make ethylene for petrochemicals and manufacturing, while propane has a variety of uses. But neither ethane nor propane is used to make gasoline. That's why the boom in production of NGL's has meant rapidly dropping prices for ethane and propane but not for the price of gasoline.

Ethane Prices
Source: Growth Stock Wire.

Related Articles: 2013: Cheapest Gas in 4 Years?

Propane Monthly Price
Source: IndexMundi.

Gasoline Price Chart 1 

It's obvious from the above price charts that it makes no economic sense to add gallons of ethane or propane to gallons of crude oil to try to summarize global oil supply. But growth of natural gas liquids has been a key factor in the reported increases in "world oil supply" over the last few years and is also a key component of recent optimistic assessments of future oil production by Leonardo Maugeri and the IEA.

There is no question that the boom in production of natural gas liquids is providing a great benefit to industrial users of ethylene. But if you're waiting for it to lower the price you pay for gasoline at the pump, you may have to wait a while longer.

By. James Hamilton

Source: http://www.econbrowser.com/archives/2013/02/dude_wheres_my.html




Back to homepage

Trending Discussions


Leave a comment
  • MrColdWaterOfRealityMan on February 12 2013 said:
    What you're purchasing when you buy a barrel of oil is positive NET energy, which is declining. The laws of economics are all you need to understand what's going on. NET energy is getting scarcer. Scarce commodities get more expensive.

    The formula is simple. Lower net energy per unit volume demands a higher price. Instead of focusing on the price of a quantity of petroleum, a more honest measure would be a focus on the price of net energy per barrel of petroleum.

    This isn't the only factor, of course. What we're getting now cost much more to locate, extract, refine, and distribute, and this factors in too, but we're paying for is positive net energy. Peak oil or not, this is getting rarer.

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News