Does Utah show how to lower gasoline prices? Nope

Apr 7 2012 - 10:20pm

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Charles Trentelman
Charles Trentelman

In a backward sort of way, the price Utahns pay for natural gas -- the lowest in the nation -- shows why nobody, not even President Barack Obama, can quickly lower the price of gasoline.

The price of natural gas is at a 10-year low because there's a glut. Because Questar buys natural gas for Utah customers, we're getting some pretty cheap gas.

Of course, when the market price rises, like during the Enron scandal, we get stuck.

But no matter what the market price, Questar still charges Utahns less than anyone else in the nation because Questar doesn't buy all the gas it sells on the open market.

When Questar was Mountain Fuel, it owned wells in Utah, Colorado and Wyoming. The wells are now owned by a subsidiary, Wexpro, and Questar buys gas from those wells.

Under a 1981 legal settlement that went all the way to the Utah and U.S. supreme courts, Questar buys that gas only for what it costs to drill the well and produce the gas.

No matter what the market does, Questar pays the same and must, by law, pass the savings on to its customers. Talk about built-in price stability.

Why?

In 1981 Utah's Public Service Commission argued that because Questar/Mountain Fuel owned those wells, and had already paid to drill them, customers should not have to pay market rates for the gas they produced.

Those wells also produce oil, which is sold at market rates. Because Questar owns part of Wexpro, the oil profits also are used to keep natural gas prices down.

The PSC is a Utah governmental agency. We're told government regulation is evil, but it keeps Questar from charging Utah customers more if the market price of its product from those existing wells (and any wells drilled in the same area) rises.

Talk about socialism.

Questar, to its credit, seems OK with this. Questar boasts the deal has saved customers $1.3 billion.

Yes, it would be great if we could do that with oil.

No, we can't.

Natural gas is a vital utility, so the PSC controls Questar's rates. Nobody controls oil companies. They charge whatever they can get away with.

I laugh when I hear Utah's lawmakers say that Utah "has" oil "we" could sell if only "we" could get Utah's federal lands.

No "we" couldn't. Privately owned oil companies would lease the land, pay a royalty and own the oil. Much of that oil is recoverable only if the price of oil stays high, so it wouldn't lower the price of gasoline.

I hear you saying: "If we pumped enough U.S. oil, we could create a glut like natural gas and the price would drop."

Nope.

As the New York Times reported recently, natural gas is much harder to ship overseas, so there's no world market. Prices here are dropping, but prices in England are rising.

Oil is easy to ship. Fleets of tankers are a seaborne pipeline to wherever the price is highest.

U.S. oil production is already up and demand is falling, but global demand is rising. If Utahns won't pay the world price, someone in China will.

The solution is simple: The government should limit the price of oil pumped in America to the actual cost of production.

Anyone here think that's going to happen?

Me neither.

Such a takeover would mitigate gasoline price hikes, but it would also be government interference in free enterprise and capitalism. It would also take away incentives to look for oil.

So what can we do about gasoline prices?

Short of getting the rest of the world to quit developing and buying cars, not much. That's why I keep my bicycle tuned up.

The Wasatch Rambler is the opinion of Charles Trentelman. He can be reached at 801-625-4232, or ctrentelman@standard.net. He also blogs at www.standard.net.

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