Energy Experts Discuss Rising Petroleum Prices
CAROL LIN, CNN ANCHOR: A lot of people are battling sky rocketing gas prices. We're paying $1.46 here in Atlanta, folks in California are paying upwards of $2, but the people who are getting hit hardest are the people who actually need fuel to make a living. We're talking about truckers; the more they pay to get goods to market, the more you're likely to pay at the store. Let's go to CNN's Eileen O'Connor. She is in Jessup, Maryland. She's talking with some of these truckers and seeing what they can do about this -- Eileen.</s>EILEEN O'CONNOR, CNN CORRESPONDENT: Well we're seeing a lot of truckers here, Carol, because this is the travel store along Route 95 near Jessup, Maryland. Route I-95, as you know, goes north and south along the entire East Coat of the United States. So it's a very popular route for truckers. They're saying that they are very worried about these rising prices. One of the reasons is that profit margins for trucking companies are only about 2 percent or 3 percent. Also, fuel costs are 5 percent to 20 percent of their expenses, and in the first half of the year 2000, when fuel prices were as very high, as high as $1.61 a gallon, there were more than 1,300 bankruptcies, and that was more than in all of 1999. Prices peaked at $1.67 a gallon in November, but they're rising back up. Here, they're $1.55 a gallon already. With me is Bob Costello. He's an economist with the American Trucking Association. Thanks for joining us, Bob. Why are prices going up so much now?</s>BOB COSTELLO, AMERICAN TRUCKING ASSOCIATION: One of the reasons is right now you have a very tight capacity situation at refiners. So if even one refiner goes down, due to a fire or -- they're running at near 100 percent capacity, and when you run something that strong for that long, you're bound to have problems -- you're seeing price spikes in that particular area.</s>O'CONNOR: And there haven't been refineries built in a very long time.</s>COSTELLO: Not in over 25 years.</s>O'CONNOR: That's one of the things the Bush administration is looking at, how to pique or build up more investment in refineries. What does diesel fuel actually mean to me as a consumer? What about the products in the local Wal-Mart? How many of them came in on truck?</s>COSTELLO: The trucking industry moves America. Over 87 percent of the freight transportation market is the trucking industry. Over 75 percent of towns and communities in the United States only get their freight via truck. So it's very important to you and me as consumers, but even more important is that one out of every 14 Americans is employed in a trucking-related job. So if these companies start going out of business because they can't afford the $450 to $500 to fill up their trucks, that's going to have significant consequences for everybody.</s>O'CONNOR: Why don't they just pass this cost on to consumers? A lot of them go bankrupt instead.</s>COSTELLO: One thing is that this is a highly competitive industry, and that's actually good for you and me as consumers -- when we go to the store, that helps to keep prices down. But one of the consequences of that is when we get some price spikes like this -- actually, prices have been high for over a year now -- that's going to impact you and me. In fact, 10 percent of the price of goods we buy is transportation costs.</s>O'CONNOR: One of the things that the Bush administration talked about is more drilling and more investment in refineries, and also conservation: What's the trucking industry doing about conservation?</s>COSTELLO: There are a couple of things. One is trucks have become more fuel efficient over the years. Another one is that this is really a high-tech industry. You hear everything about the Internet and the information superhighway; the trucking industry is really no different. They're using computer systems to tell them where to fuel up, where they can get the best prices, and when to fuel up.</s>O'CONNOR: Thank you very much, Bob Costello from the American Trucking Association. One of the truckers we were talking to earlier said you have to imagine that if these price rises in gasoline mean maybe an additional $4 or $5 to you when you fill up at the tank, imagine what it takes to fill up one of these: about $450. So when they see a 10-percent price rise, that's $45 every time they fill up. I'm Eileen O'Connor, reporting live from the truck stop outside of Jessup, Maryland.</s>BRIAN NELSON, CNN ANCHOR: Thank you, Eileen. Why are gas prices so high, and how much higher might they go? Arjun Makhijani is an energy policy analyst and the president of the Institute for Energy and Environmental Research. He's in our Washington bureau this morning. Thank you for being with us, sir.</s>ARJUN MAKHIJANI, ENERGY POLICY ANALYST: You're very welcome...</s>NELSON: You heard our previous guest just a moment ago. Are rising gas prices a supply problem?</s>MAKHIJANI: It is not an oil supply problem. That's the thing that people should understand. It's a little bit different than last year: Last year, prices were rising because crude oil supplies were tighter and the Organization of the Petroleum Exporting Countries prices were rising. Secretary Richardson was doing shuttle diplomacy in the Middle East. Last September, west Texas crude prices were $10 higher than they are today. So over the last many months, crude prices have declined, and over the last few months, they've been pretty steady between $25, $24 and $30 a barrel. This price rise does not have to do with the supply of oil. It does not have to do with OPEC, and it does not have to with oil imports. It has to do with the domestic situation of tight refining capacity and people making more money from existing refining capacity.</s>NELSON: Is it a case of the market leaders manipulating the supply, or is this just a natural phenomenon resulting from years of neglect?</s>MAKHIJANI: I don't think there is any kind of conspiracy. At least I haven't seen any evidence of people sitting in hotel rooms fixing pricing, or anything like that. As the previous economists said, there is a tight situation with refining; however, runs to refineries have increased over the last month. It hasn't been tight for months and months. There were 15 million barrels a day going 1 1/2 months ago to refineries, and it's nearly 16 million barrels a day today. That's pretty close to capacity. However, this situation cannot be changed in the short term. I think refiners are taking advantage of the tight situation and making more money. Every penny increase in prices of gasoline mean over a billion dollars in additional profits in the current situation.</s>NELSON: Mr. Makhijani, the Bush administration seems to be focusing long term, in terms of an energy policy. It is telling California the residents are just going to have to put up with rolling blackouts this year. The rest of us are going to have to put up with high gas prices this summer. Is that the wisest thing to do? Should there be a short-term energy policy coming out of Washington?</s>MAKHIJANI: Well, I think you can't build refineries overnight, even if that's the energy policy. If you start drilling today, you still won't have significant return for many, many years. So I don't think the Bush administration is doing anything in the short term. There are lots of short-term measures that can be taken to ease the situation. The federal government has, for instance, a very large fleet of cars. I think this fleet of cars can be converted to natural gas. I think it would be a good thing to ease up on the gasoline supply in that way. Also, the government's fleet of cars can be made more efficient. I think the government can mandate efficiency standards. I'll give you an example. The cars on the road today that are being sold, the new ones, average about 25 miles to the gallon, but you can buy a car on today's market that will give you 60 miles to the gallon. It's made by Toyota. It's available on the market.</s>NELSON: So are you saying there are some things that can be done?</s>MAKHIJANI: Yes. I think the government should mandate efficiency standards. This has fallen by the wayside. Nelson: OK. It's much easier to recover a barrel through efficiency than it is to build new refineries.</s>NELSON: Thank you for taking the time this morning, sir. We've run out of time. Arjun Makhijani is an energy policy analyst in Washington. Thank you for being with us.</s>MAKHIJANI: Thank you very much. TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com