Regional differences in gas prices
Date posted: April 16, 2012
Among different areas of the country, there are big gas price differences. Why are many East Coast gas prices higher than Midwest prices? N.C. State University economist Mike Walden explains.
“I think this is a result of a couple of things. First of all, there is a boom going on in the Midwest — particularly in the upper Midwest and Dakotas — in the production of oil, primarily oil from shale. So the Midwest has seen an increase in the supply of oil. Of course, that can be refined into gasoline, and that has tended to moderate gas prices in the Midwest.
“Now you might say, ‘Well, can’t we ship some of that oil from the Midwest of the U.S. to the East Coast of the U.S.?’ Two problems there: First of all, we don’t have the pipelines to do that. And secondly the refineries in the East Coast were built to refine oil from Africa and from the Mid-East … not the oil from the Midwest of the U.S. And there are actually two different kinds of oil.
“And so what we have right now is a problem. We have a problem of oil supplies going up in the Midwest of the U.S. but that oil not being able to be used on the East Coast, and that’s resulted in a difference in … prices on the East Coast being much higher than prices in Midwest.
“Now eventually this will be resolved. Eventually new refineries will be built — probably on the Gulf Coast — to handle that Midwest oil. And also pipelines will be built, but this is not going to happen for a couple of years. So we may very well see this price disparity linger into something like 2014.”
Category: Economic Perspective