Why Aren't We Seeing Long Gas Lines

An email from a friend recently got me thinking about why, despite rising prices and tight worldwide demand, we aren't seeing gas station lines this year, like we did during oil shocks of the early and late 70's.  I remember both well, but the later shocks resonate with me more because as a newly minted 16-year-old driver, I was given the family job of driving around town hunting for gas for the family cars.

My first thought was that it was related to the speed and sharpness of the supply discontinuity.  Certainly the 1972 embargo represented a sharp supply change which took the world market a while to absorb, and what we have seen of late has been more gradual.  This is certainly part of the explanation, but incomplete, as the gas lines of the late 1970's were not accompanied by a similar discontinuity.  I might add that many economists at the time might have said that the speed should not matter that much, since it was accepted at the time that energy demand was inelastic, that it did not change much with price.  Therefore, the speed would not matter, since the market's corrective mechanism of price would not work well anyway.  Since then, we have learned that energy demand is very elastic, and that usage will adjust itself based on price.

My second thought was that regulation has a role in the explanantion.  Usually, when you see people queing up for a product or service, it means that prices or supply or both have been artificially limited.  Certainly last year's gas lines we got in Phoenix were almost entirely due to regulation.  Here in Phoenix, the government requires a blend of gas used no where else in the country.  The gas comes in from another state via a single pipeline.  Mobil tried for years to build a small refinery here to produce this blend closer to the market, but were never allowed by state regulators.  So, last year when the pipeline broke, we had shortages.  Our intrepid governor, as most politicians love to do in an oil shortage, blamed greedy gas station operators and oil companies for the problem.  However, when it came time to issuing her plan for dealing with the crisis, here were the first three steps:

  • Temporarily repeal regulations setting the unique gas blend for Phoenix
  • Temporarily repeal regulations on truckers to allow them to better take up the transportation slack
  • Reevaluate regulations that have restricted the construction of a refinery in Arizona

LOL, so it is all the oil companies' faults but the solution was to repeal three sets of government regulations.  Much the same situation occured in the early 70's.  Richard Nixon was probably one of the worst presidents from an economics standpoint that we have had in the last half century.  Few people remember just how close we got to a government program of gas rationing and how loud the calls were for nationalisatoin of oil companies.  Fortunately this never happened, but other bad stuff did.  For example, the markets ability to close the supply-demand gap were limited by a number of pricing controls on oil and other energy subsitutes, regulations that were not repealed until nearly a decade later.  Even weirder, the US government put in place distribution rules that said that oil companies had to send each market (I think it was done county by county) the same proportion of supply as in the year before the embargo.  I am not sure what fear drove this rule, but the result was chaotic.  For example, the previous summer lots of people drove cross-country for vacation, filling up out on the interstate in the countryside.  With shortages, no one wanted to drive long distance.  As a result, rural areas typically had plenty of gas, and cities were running out.  Demand patterns shifted (duh) but the government would not allow supply distribution to shift to match.

The final, and perhaps most important reason, though, that we have not had long gas lines is because people are not expecting them.  Fear of gas lines is a self-fulfilling prophacy, for the following reason:

Take the example of 1972, and we will use typical numbers of that era.  Lets say there were 100 million cars each with an average 20 gallon tank.  Lets
say normally, people refill their tank when it is ¼ full, so on
average their tank is 5/8 full.  Doing the math, there are 5/8 times 20 times 100
million gallons actually in cars or about 1,250 million gallons.  That's right - one of the largest single inventories of gas in this country is in people's tanks.

Now, lets say
due to supply panic, everyone suddenly refills at ¾ full. No one wants to be caught short (I remember in the 1970's, people would wait in line to put a gallon or two in their tanks -- it was nuts).  In this case, on average they
are 7/8 full or there are a total of 1750 Million gallons in cars' tanks.  So, in the space of
what might be two or three days, people suddenly demand 500 million gallons above and
beyond their normal usage to increase their tank's inventory.  Boom, stations are
out of gas, which causes people to feel even less secure without a full tank, so
they inventory more (many in spare gas cans) and the problem gets
worse.

One of the conspiracy theories of the 1970's was that we had gas lines because oil companies were holding tankers offshore waiting for prices to rise (the early 1970's were the point in time where the leadership banner for conspiracy theory nuts was handed off from the right wing to the left).  The irony is that the answer to the "mystery" of where all the gasoline inventory went was right under people's noses.  If an average tanker of the time carried 500,000 barrels of oil, and each barrel of crude oil produces about 20 gallons of gasoline (in addition to all of the other fuels) then then the act of gassing up cars faster caused 50 tanker loads of oil to disapear into people's gas tanks.  The "missing oil" was right in their garage!

  • markm

    That finally explains why I didn't experience too much trouble finding gasoline in 1973 - I was in an area where there was normally a lot of tourism. Being able to afford it was another matter. Without tourists, the local economy was in quite bad shape. Apparently, by government decree our gas stations received more than enough fuel for the locals, whether or not they could afford to buy it.

    I do remember the news stories of people in cities driving all over town and waiting in long lines to buy a 1/4 tank. Besides the effect you noted of transferring inventories from oil companies to gas tanks, how much gasoline was being wasted in extra driving to gas stations, and idling while waiting in line?

  • markm

    At least during the Carter administration, there was another ill effect of regulation. Many of the OPEC countries were willing to exceed the production quotas assigned by OPEC, if the excess could be kept off the books. Under US regulations as I understood them, if one company managed to arrange an extra supply of oil from overseas they would then have had to divvy it up with the other oil companies. It gave no incentive to go to the extra trouble and expense of arranging off-the-books shipments, and probably of risking prosecution under American corruption laws when bribes had to be paid. Other countries may have had laxer attitudes towards bribery or that allowed oil companies to profit more from finding extra supplies recovered from the oil shock much sooner.

  • markm

    Finally, 1973 saw a large immediate reduction in the total supply of oil. What we are seeing now isn't so much that, as a failure of the supply to grow to match demand. Also, the shortfall is not in crude oil production, but in refinery capacity. I don't think anyone has managed to clear all the regulatory hurdles to build a new refinery in the USA since the 70's.

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  • Liz

    I would like to know why no one in the news has mentioned the most obvious way to win the war without firing a shot. If we don't need oil, won't the bad guys have no more money to live on? Sounds like the end of the war to me! Why doesn't the gov. put billions into alternative energy sources and in, maybe 10 years or so we would be free of this addiction. I realize 10 years is a long time, but we are going to be there a lot longer than 10 years if we keep fighting with them. Any comments?

  • Jack

    Oil was $30.00 a barrel when Clinton left office, now it's $66.00 a barrel.
    I would have rather seen Ketchup prices go up..................

  • Richard

    It seems like it's getting harder and harder to get buy. The increase in the gas prices doesn’t seem to help. I heard about a website last night on the news that is mapping gas prices. It's the same company that did mapsexoffenders.com. You just put in your street address and it will tell you what the cheapest gas station in your area. Maybe it will make gas stations lower the gas price or help people save a buck or two. The website is http://www.mapgasprices.com.