Hot Gas Issue Heating Up

Several people have asked me about this recently, and it has been in the news quite a bit, so this is a good time for an update. I have previously written 2 essays on the “hot gas” issue:

Hot Gas Lawsuit in Utah

More on Hot Gas Lawsuit

If you are unfamiliar with this, this issue is that most gas pumps are not temperature compensated, so consumers are being “ripped off” on hot summer days. The funny thing is that gas is stored underground, and the temperature is very near the 60 degree temperature a gallon is based upon. Here is a story from USA Today explaining the issue:

Motorists sue oil titans, retailers over ‘hot fuel’ losses

Think gas is expensive? It’s even more expensive on hot summer days. Gasoline expands as temperatures rise. That means motorists get less energy from a gallon of so-called “hot fuel” than from a cold one.

When Brent Donaldson, a restaurant owner in Kansas City, Mo., discovered that fact earlier this year, he joined hundreds of consumers in more than a dozen states who are suing oil companies and gas retailers, alleging that they have been overcharged by billions of dollars.

“The consumer is repeatedly being ripped off and not given a fair deal,” Donaldson says. He says he spends $60 a week filling his Acura.

This is such a non-issue. The variation in BTU content from blend to blend is greater than any variation from hot gas. And of course if gas is hot in the summer, it is cold in the winter. What’s the overall effect? Not much.

A reader wrote and pointed me to the USA Today story, mentioning the claim that the industry fought for temperature compensation in Canada. My response:

I have asked and asked someone for any proof of the claims that they fought the practice in Canada, and every single time it traces back to a story in a Kansas newspaper. I swear, people don’t understand the first thing about supply and demand. First thing, the gas is in underground tanks near 60 degrees, so when people talk about their gas being at 90 degrees or whatever, they are full of crap. But second, let’s say that it was true. That would mean that people would be getting a bit more gas for the same price, effectively lowering their cost for gas. This will of course spur demand, and cause prices to rise until supply and demand are again balanced. On balance, if they are being “ripped off” by 1%, and this situation is corrected, then I expect gas prices to rise by 1% due to that correction.

What’s going to happen is that they are going to sue and potentially cause this equipment to be installed, then wonder why their gas prices are even higher. They simply can’t drive up costs for the oil companies and not expect their prices to go up.

There is no free lunch. Consumers who think they are going to get a bit of free gas are going to find themselves paying more for gas than they were. You can send your thank you notes to the FTCR, as they have been on this bandwagon for quite some time. Here they are saying oil companies are behaving like tobacco companies over this issue.

10 thoughts on “Hot Gas Issue Heating Up”

  1. Robert – any profit or losses for hot gas (if such a thing really exists). Is already figured into the retailers margin. Retailer’s set their markup on gasonline based on their profit and losses.

    I talked to our retail folks. They estimate the new Gilbarco pumps would cost about $4,000 each installed. For a typical 4-bay, 4-pump/bay installation that is $64,000.

    Let’s imagine that for each 20 gallon purchase, the retailer makes 50 cents from selling hot gas. That is the number FTCR is throwing around now. At the end of the first month with the corrected pumps, the retailer would have 50 cents less per sale. So he would bump up his margin by 2.5 cents per gallon to make up the difference. Plus then he’d have to add some to pay for the new pumps.

    The retailer makes the same either way, the consumer is out the cost of the fancy pumps, so the only one coming out ahead is the pump maker!

  2. The retailer makes the same either way, the consumer is out the cost of the fancy pumps, so the only one coming out ahead is the pump maker!

    And the lawyers. 🙂

  3. There is also a range of specific gravities for gasoline. Sometimes gravity is the limiting spec, sometimes it is not.

    Which means that legally, I can sell you lighter gasoline, that still meets specification regardless of whether it is hot or cold.

    We should just go to selling gasoline by weight. At $3/gallon that is roughly $.50/pound.

  4. I recall the thermal expansion coefficient for naphtha to diesel fluid range is around 950 to 1000 parts per million per deg C.
    So an 18 degree F increase in temperature is about 1 % or about 1.28 ounces per gallon. Or 3 cents per gallon for $3.00 gas, so for 9 cents per gallon it requires 54 deg F rise, or $9 dollar gas and an 18 deg F rise. IMO a 20 gallon tank may vary by 10 to 20 cents with today’s prices.

    Since pump calibration is based on 60 Deg F there is much more room for extra gas in the winter than for less gas in summer.
    The mid point of 0 to 100 is not 60 Deg F. So the consumer is actually ripping of the retailer.
    Cheers Dipchip

  5. Kingofkaty said, “We should just go to selling gasoline by weight. At $3/gallon that is roughly $.50/pound.”

    Good point and I concur.

    I flew jet fighters for several years and the fuel controls on a jet engines work by weight, not volume. When we did our flight planning we always calculated fuel flow in pounds per minute. Gallons per minute or hour mean little because the density and energy content per gallon changes as a function of temperature.

  6. it struck me as stupid, because you are probably returning more gas to their tank through the vapor sucker than they are getting via hot gas.

  7. In Canada, most pumps ARE temperature-corrected (I think, by law). The media in Canada runs stories about how consumers feel they are getting ripped off BECAUSE OF temperature compensation.

    The grass is always greener….

  8. I did not take advanced physics in college, but I did sell gasoline at the retail level for twenty years. I have no idea how you could purchase gasoline that was 90 degress F. It would have to be in an above ground storage tank in the southwest or something. Totally ignored is how much fuel is wasted every year from huge gas guzzling SUV’s, underinflated tires, poorly tuned engines, unnecessary trips, and aggressive driving techniques.

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