Hot Gas is a Bunch of Hot Air

The Owner Operator Independent Drivers Association (OIDA) has launched a new website to “educate” people on the issue of hot gas. And by educate, I mean misinform and obfuscate. I can’t help but wonder about their headline story:

Hot Fuel Costs Consumers More Than 2.3 Billion Dollars Annually

Let’s see, Americans consume 140 billion gallons of gasoline and over 60 billion gallons of diesel each year. That means that even if their headline above was correct, the “rip-off” amounts to just over 1 cent a gallon. And given that pricing is set by supply and demand, what will happen with temperature compensation is that the average gasoline price will go up by just over 1 cent a gallon, plus a bit more as every retailer tries to recoup the cost of temperature compensation equipment. Who wins? The makers of the temperature compensation equipment, and the lawyers. Even in the best case, the average consumer who uses about 600 gallons of fuel a year would win $6 a year if you could suspend the laws of supply and demand.

Their new section on myths and facts is an excellent source of misinformation:

Hot Fuel Myths & Facts

Let’s look at some of their “myths”, and the facts as they see them. And of course the facts as I see them. 🙂

MYTH: Fill up in the morning when it’s cooler.

FACT: 35,000-gallon tanks do not dramatically change temperature in daily cycles.

Well, I agree with this one. 35,000 gallon tanks DO NOT dramatically change temperature in daily cycles. That means when the temperature outside rises to 90 degrees, the temperature of the fuel is about the same as it was in the middle of the night when the temperature was 60 degrees.

MYTH: In-ground tanks at gas stations keep fuel at 60 degrees Fahrenheit.

FACT: The insulated, fiberglass tanks tend to keep fuel at the temperature it was delivered… for a long time. Also, larger retailers turn over fuel supplies very rapidly, greatly reducing the time the fuel spends in the tanks.

And as I showed in an earlier essay, the NIST found that the average annual temperature of fuel stored in those underground tanks was 64.7 degrees.

The fuel temperature data was gathered by the National Institute of Standards and Technology from storage tanks at 1,000 gas stations and truck stops in 48 states and the District of Columbia during a period from 2002 to 2004.

The NIST data revealed that the average temperature of fuel across the country and year-round was 64.7 degrees Fahrenheit — almost 5 degrees higher than the government standard of 60 degrees.

So, how many gallons does the “ripoff” then amount to? The OIDA site discusses that in their next myth:

MYTH: Temperature only causes tablespoons of difference in amount of fuel delivered.

FACT: A 25-gallon fill-up of 75 degree F gasoline equates to a loss of nearly one quart. The same fill-up at 90 degrees F equates to nearly a half gallon.

But we aren’t filling up with gasoline at 75 degrees, are we? The NIST investigation – which started this whole thing – established that. And again, as I showed in the previous essay, the difference between gasoline at 60 degrees F and gasoline at 64.7 degrees F is 0.27%. Therefore, in a 25 gallon fill-up, the difference is 8.6 ounces (17.3 tablespoons). But suggesting that people are regularly getting gasoline at 75 degrees or even 90 degrees is just outright misinformation.

MYTH: 90 percent of fuel retailers are small “mom and pop” operations.

FACT: Several large oil production companies and refiners own 25 percent of the stations that sell their brand fuel.

You have to love this one. The myth is that 90 percent of fuel retailers are small, but the reality is that 25 percent are NOT SMALL. Or, according to them, 75 percent are small, but contrasting 90 to 75 must not have felt impressive enough. But they are wrong anyway, according to a 2007 report:

Who Sells Gas – and For What – May Surprise You

In reality, less than 3 percent of the more than 112,000 convenience stores selling gasoline are owned and operated by major oil companies.

Of course not all gas is sold at convenience stores, so we have to account for the stand-alone gas stations to get the total that are owned by Big Oil. According to the extensive report by the NACS, found here:

It’s estimated that less than 5 percent of the approximately 168,000 retail gasoline facilities in the United States are owned and operated by the major oil companies.

So much for the idea of sticking it to Big Oil. I understand that this is why this issue has taken off, but that’s not who is going to get stuck.

MYTH: The cost to retro-fit the pumps will far outweigh the benefit to the consumers.

FACT: The one-time cost to retro-fit retail pumps is very close to the extra amount consumers already pay annually for hot fuel.

Yet that doesn’t contradict the “myth”, does it? That doesn’t mean that after the retro-fit, consumers won’t be paying even more. And based on the estimates that I have seen, to put temperature compensation on all of these pumps will cost in the range of $6 billion to $12 billion ($3,000-$4,000 per pump times 2-3 million pumps). So even if we accepted the premise of $2 billion extra from consumers each year, I have a hard time accepting that this is “very close” to the cost of the new equipment.

And they close with one supported by nothing by a great big dose of wishful thinking:

MYTH: The cost of retro-fitting the pumps will raise the price of fuel for all consumers.

FACT: Consumers have borne the burden of hot fuel sales for decades. Once the problem is fixed they will reap the benefits for future decades.

Sadly, another story at the OIDA website said that that on July 11, 2007 the National Conference on Weights and Measures failed to approve a measure to approve guidelines for states, should they ever decide that they wanted temperature compensation. Again, they couldn’t even pass a measure for a non-binding guideline. Those voting against must be in the pockets of Big Oil.

Stuff like this really drives me crazy. A waste of time for the parties who are supposed to reap benefits, an annoyance for people trying to run service stations, an issue that allows politicians to pander, while the real beneficiaries are the attorneys.

12 thoughts on “Hot Gas is a Bunch of Hot Air”

  1. There you go again making too much sense!

    Thanks for the NACS reference. I knew that independent retailers made up the vast majority of the gasoline outlets, but had no idea it was 97% selling 80% of the gasoline.

    People who drive off without paying erroneously think that they are sticking it to big oil.

    Check out the latest from your friends at FTCR. They are blaming the high midwest prices on oil company greed. Guess they missed the story about Coffeyville flooding and the July 5 BP Whiting shutdown of their distillation unit.
    Troubles at BP Whiting

  2. An analogy I’ve come up with that I like is that forcing station owners to install temperature compensation equipment is like forcing grocers to sell eggs by weight, rather than by the dozen, because after all some “large eggs” are smaller than others.

  3. Check out the latest from your friends at FTCR.

    I read a few of their recent postings, as well as some comments afterward. They are starting to take some pretty good shots from the commenters. Liberal arts major Dugan doesn’t know how to respond to commenters who are hitting her with actual facts and figures.

  4. Oh my gosh, I just read a hilarious comment over at the FTCR. Recall when they were complaining about oil companies donating money to universities to research alternative energy. Now, they are complaining that oil companies are funding geology research . So, one person responded:

    Lots of industries have been giving grants to lots of universities for decades. The fact that this is a news flash for Oil WatchDog tells me lot about your knowledge of …. well…. the world in general. And it’s not a new major. The University of Texas has been granting geology degrees for a long long time. What is your point here exactly? It’s bad to study geology?

    But then the hilarious line:

    Is this blog a high school project?

    That’s priceless.

  5. Robert,

    Your calculation of $6 loss per 600 gallons at a 1% rate is $1 a gallon. Let me know when you find that station. Professional Owner-Operators have 1.5 trucks each, drive each one 110,000 miles a year, and get 6 miles per gallon. The resulting 27,500 gallons per year, at say $2.60 per, totals over $71,000. 1% of $71k is $710 the trucker is out a year.

    The NIST data also showed that CA fuel temp, in the station tanks, averaged being 75 degrees F., and never in the year reached 60 degrees. AZ was even worse.

    John Siebert

  6. Your calculation of $6 loss per 600 gallons at a 1% rate is $1 a gallon.

    Come again? The $2.3 billion loss, even if true, amounts to a difference of about 1 cent a gallon. If a consumer buys 600 gallons a year, the difference is $6.

    The resulting 27,500 gallons per year, at say $2.60 per, totals over $71,000. 1% of $71k is $710 the trucker is out a year.

    Two things. You are now talking about diesel, and the thermal expansion is lower. You even show that on your site – only 60% as much change for diesel. So, you can cut that $710 by 40%. But more importantly, you are assuming that fuel is priced in some kind of weird vacuum. It is priced based on supply and demand. If you define tomorrow’s gallon to be slightly greater than today’s gallon, then the price will rise accordingly.

    The NIST data also showed that CA fuel temp, in the station tanks, averaged being 75 degrees F., and never in the year reached 60 degrees. AZ was even worse.

    Do you have a link to that data? That seems highly unreasonable, given the very large fraction of the nation’s fuel that is consumed by Californians. But I would certainly like to peruse that data. Regardless, temperature compensation is not going to cause the laws of supply and demand to be suspended.

    Cheers, RR

  7. John – Robert is right. As the number of carbons in the fuel goes up, the coefficient of expansion goes DOWN. So diesel fuel expands and contracts even less with temperature.

    You are missing a key point, just like your members, service station owners are independent business people, not major oil companies. Any “hot gas” profit or loss is already calculated into their profit margins. Any differences in temperature correction will be made up in raising or lowering the margins charged at the service station.

    In the end your members will be charged more for the temperature corrected diesel because now the retailer has to pay off the cost of installing the new pumps plus any overhead for permits and litigation.

  8. Robert,

    Before I go on, I just want to say that I don’t beleive either side yet, there isn’t enough information yet, and I’m not a chemist, however I have a question.

    How do you explain that Hawaii has pumps that measure the gasoline at 80 degrees. And that in Canada the retailers voluntarily installed temperature controlled pumps? Another interesting argument that you ignored in your blog: the oil companies compensate for temperature when they sell to themselves but retailers don’t when they sell to us.

    Mr. Seibert,

    Your “one time cost” isn’t true. Those temperature controlled pumps i’m sure cost alot to maintain, and will use more electricity.

    Bottom line is, there isn’t enough solid scientific data yet to argue either way, we’ll just have to see what they say in the courts.

    A 3rd view point: the US average is 42 cents in gasoline tax:

    So the more gas you buy, the richer the government gets.

    Look at the average retail profit margins, they have slightly (very slightly) higher margins in the cooler months and significantly lower margins in the summer months, while the government gets their guaranteed 42 cents per gallon all year long. and if Mr. Seibert’s scientific measurements are right, the government is making 1% more exponentially with temperature increases.

  9. Robert-
    It’s funny that you mention the comments on OilWatchdog….I registered to comment and I’m now on the email list. I received this in an email from them the other day:

    If you are wondering whether the oil industry cares about what we have to say, just check out the recent serial comments from a suspiciously prolific 9-5 pro-oil industry voice. It’s pretty clear Big Oil wants its side heard. If you want to add your comment to any post, just login with your email here and browse the articles.

    They must be worried if they went out of their way to bash the poster. I don’t know whether to laugh or cry.

  10. Like you said we keep seeing facts and figures that are “designed” to scare us and yet no one will come out with the basic numbers to prove their own views.

    OK so we all know that gas and diesel expand in warm weather and contract in cold weather. There is no argument there.

    The issue is with hot fuel being deliverd to the end users since in most (MN doesn’t allow temp comp any where in the chain) states temp compensation is used until it’s deliverd to the filling station.

    All right then. Lets start seeing numbers of the actual temp the fuel is being delivered at from many different areas and through out the year.

    That is really the only way to know if this hot fuel is a problem is the actualy temp as it goes into my gas tank.

    Though I have searched and tried to find those numbers, I can’t seem to find any figures on actual delivery temp.

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