Energy & Resources
At the pump, part II
Mineral Resource of the Month: Copper
At the pump
The cost of a gallon of regular gasoline is at its highest non-adjusted level
ever, reaching a national average of $1.94 per gallon in early May. As discussed
in Part I of this column (May 2004), the laws of economics
are controlling the current high prices: The globally high demand and low market
supply for crude oil are driving up prices. While the cost of crude oil accounts
for almost half of the cost of a gallon of gas at the pump, state and federal
taxes also account for a large portion, with refining costs not far behind.
Over the past 20 years, federal and state taxes, which account
for 24 to 30 percent of the cost of a gallon of gasoline at the pump, are
the only cost component that has risen when adjusted for inflation, according
to the American Petroleum Institute. Currently, federal taxes average just
over $0.18 per gallon, and state taxes vary from less than $0.08 per gallon
in Georgia to almost $0.33 per gallon in New York, with most states coming
in over $0.20. On top of that, states and counties can choose to levy additional
sales taxes on gas. Altogether, average federal, state and local taxes collected
on a gallon of gas amounted to almost $0.43 in April 2004, in comparison
with $0.30 in 1981, when adjusted gas prices were at their highest ever,
at $2.77 per gallon. MS
Today, refining costs and company profits generally comprise 13 to 19 percent
of the price of a gallon of gas, according to the Energy Information Administration
(EIA). Although refiners are producing gasoline at record levels this year, says
Rayola Dougher, a senior analyst with the American Petroleum Institute, American
refineries cannot produce enough to supply all of the gas needed. Production this
spring was at almost 93 percent capacity nationwide 3 percent higher than
at this time last year with some regions running at nearly 100 percent,
which is just amazing, she says. But even if all refineries were operating
at 100 percent, it wouldnt be enough to meet demand.
Despite the increased production at individual refineries, tougher environmental
regulations and the closure of many U.S. refineries have necessitated more importation.
Refiners now must supply 18 different formulations of gasoline, but can produce
only one formulation at a time. It is a tough balancing act, says John Wood, director
of the reserves and production division at EIA.
In the spring, production is usually lower as refiners perform routine maintenance
of their facilities and start switching production from winter- to summer-formulation
fuels (lower-emission fuels for the summer driving season). New laws coming into
effect this year have also forced refiners to switch some formulations entirely;
California, New York and Connecticut no longer sell fuel with MTBE, instead rolling
over to fuels with ethanol (for cleaner and lower emissions). Refiners must make
new reformulated gasoline to blend with the ethanol. The United States has always
imported some of its reformulated gasoline from Canada and countries in Europe
and Latin America, Dougher says, but some of those countries appear to be reducing
exportation because of their own low inventories and the new U.S. fuel specifications
they must meet this year, which further increases the cost to the consumer.
Another problem, Dougher says, is that refiners operate under seriously constrained
capacity growth: A new refinery has not been built in the United States since
1976, and more than half of the countrys refineries have closed since 1980.
Further tightening an already strained market, some refineries are scheduled to
close this year, including a large Shell refinery in California. Even though existing
refineries production capacity has increased slightly each year, the gap
is growing larger between what is being produced and what is needed. And
its not going to get any better anytime soon, Dougher cautions, because
companies are not likely to build new refineries.
Not in my backyard politics are at play, she explains; no one wants
a new oil refinery near their homes, so finding a place to build one is very difficult.
Furthermore, refineries are a massive economic investment for low rates
of return, Dougher says. The new government fuel specifications and higher
costs of crude oil and transportation make it exceedingly difficult to operate
at a profit. Companies are not likely to invest in such a project or operate one
at a loss.
Random problematic events at refineries can also cause prices to soar, Wood says.
Last spring, for example, a couple refineries in the West shut down longer than
expected for scheduled maintenance, which caused a price spike. Fires at some
U.S. refineries also halted production temporarily, as did a transportation breakdown
on the Mississippi River, both spiking the price again. Theres always
something happening, Dougher says leaving the fate of future gas
prices even more uncertain.
Read part I of "At
the pump" in last month's issue of Geotimes.
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Resource of the Month: Copper
Daniel Edelstein, the copper commodity specialist for the U.S. Geological Survey,
has compiled the following information about copper, a metal closely tied to the
development of ancient and modern civilization.
Copper, which was first used more than 10,000 years ago, was the first metal used
by humans. The alloying of copper with tin to form bronze a harder, stronger
and more readily cast metal gave rise to an era bearing its name. Copper
(pure metal and its alloys) became a major industrial metal due to its properties
of high ductility, malleability, thermal and electrical conductivity, and corrosion
resistance. It now ranks third after iron and aluminum in terms of quantities
consumed. The United States was the worlds largest user of refined copper
until 2002 (about 2.4 million tons, 16 percent of world total), when it was surpassed
by China, whose apparent consumption nearly doubled over a four-year period.
At least 160 copper minerals have been identified in nature, of which chalcopyrite
is the most abundant and economically significant. Geologists have grouped economic
copper deposits according to their mode of origin into broad generic classes.
The most important of these porphyry copper deposits and their associated
deposits account for about two-thirds of the worlds resources, including
most of those found in the Western United States. Approximately one-fourth of
the worlds identified resources are in strata-bound sedimentary rocks, such
as in the African copper belt and the Nonesuch Shale of Michigan. About 5 percent
of global copper resources are in volcanic rocks as massive sulfide deposits,
such as those that were mined in the Ducktown Basin in Tennessee.
Current U.S. mine production of copper is mostly from the processing of the low-grade
porphyry copper deposits in Western states. Historically, however, native copper,
sedimentary and massive sulfide deposits have contributed significantly to U.S.
copper production. The earliest large-scale domestic production came from the
native copper deposits in Upper Michigan, where modern production began in 1844.
By the beginning of the 20th century, the United States was by far the worlds
largest copper producer.
By the start of the 21st century, however, the United States relinquished its
role as the worlds largest copper producer to Chile. U.S. mine production
in 2002 was only 1.14 million tons (down from its peak in 1997 of 1.94 million
tons), while Chiles production rose to 4.58 million tons. Large investments
in foreign production and global recession led to surplus production, a sustained
period of low prices and a series of U.S. mine production curtailments. Consequently,
the United States is dependent on imports to meet more than one-third of its refined
The United States, however, has substantial copper reserves (35 million tons),
and an estimated 260 and 290 million tons, respectively, of identified and undiscovered
copper resources, based on a 1998 mineral-resource assessment by the U.S. Geological
Survey. At yearend 2003, world copper prices began to rise as production restraint,
recovery in global demand outside of China and continued growth in China led to
a copper production deficit. Consequently, annual U.S. mine output is poised to
expand by about 200,000 metric tons per year.
In 2003, 13 mines in three states (Arizona, Utah and New Mexico, in descending
order) accounted for 99 percent of U.S. domestic copper production. Because of
its infinite capability for recycling and the economic advantage of processing
secondary materials over mined ore, copper scrap has always been a significant
component of domestic copper supply. Brass mills, rod mills, foundries, ingot
makers and chemical plants were consumers of refined copper and directly melted
Uses for copper and copper alloy products included building construction (46 percent),
electric and electronic products (23 percent), consumer and general products (11
percent), transportation equipment (10 percent), and industrial machinery and
equipment (10 percent). More than 75 percent of copper within these end uses was
used in electrical applications.
For more information on copper, visit the
USGS Minerals Division online.
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