Along with recent speculation of profiteering in the wake of Hurricanes Katrina and Rita, some facts about the oil pipeline industry have been misrepresented. Here are some common myths about how pipeline shipping services are priced and regulated.
MYTH: Pipeline companies are to blame for price gouging.
REALITY: An oil pipeline company does not own or set the price of the oil it transports. The revenue received by pipelines is a few cents per gallon, regardless of the sale price of that gallon. Therefore, it does not benefit from any increase in the price of the oil.
MYTH: Pipeline rates increased because of the hurricanes.
REALITY: Oil pipeline rates are regulated by the U.S. Federal Energy Regulatory Commission. For example, Colonial Pipeline Company’s tariff from Pasadena, Texas to Atlanta is 82.82 cents per barrel, which is less than 2 cents per gallon. This was set on July 1 and remains unchanged.
MYTH: Oil and pipeline companies are charging unfair gasoline prices.
REALITY: Crude oil is a fungible commodity that is freely traded in the world market. Therefore, oil companies do not set the price, markets do. As crude oil goes up in price, so too does the cost of refined products, such as gasoline.
When the supply of resources gets tight and demand increases, prices will also increase, just as they do for other commodities. For instance, the price of oranges increases after there is a big freeze in Florida.
For additional information visit the Association of Oil Pipe Lines’ Web site at www.aopl.org.
