New Jerseyans face ‘hot summer at the pump’

“I don’t think I’ve ever seen the stars align in this way to cause this much pain all at once,” Patrick De Haan, head of petroleum analysis for GasBuddy, told NJBIZ about the current situation at the gas pump. “There’s a lot of things working against us.”

Gas prices are on everybody’s minds as the national average, and the one here in New Jersey, crossed the $5 per gallon threshold for the first time. That has led to speculation about just how high the price can go, how long it will stay this high and what can be done to provide some relief.

Unfortunately, the news is not great on all those fronts. Because of several issues — from COVID-related production drops to lack of refining capacity, especially in this area because of a fire that closed Philadelphia Energy Solutions, to the Russian war in Ukraine and increasing demand emerging from the pandemic — De Haan says while there could be some dips in demand to provide relief later in the summer, high prices will persist for some time. “I think we’re going to be in a period of elevated prices, maybe not this high,” explained De Haan. “But a period of elevated prices could last a couple of years.”

De Haan said that the combination of losing nearly a million barrels a day in capacity from COVID has combined with the Russia-Ukraine situation and the summer driving demand to create a tight market. He said, though, that despite the prices, demand remains healthy as Americans remain eager to hit the road. “I think where we are today is going to be maybe a multi-year period where we are in a boom cycle for oil and higher prices,” said De Haan.

While there could be some dips in demand later in the summer, experts say high prices will persist for some time. – MATTHEW FAZELPOOR

While many New Jerseyans might choose to go electric rather than continue to pump gas, electric vehicle charging infrastructure remains in development, though help is on the way.

As for what can be done, that’s where things get sticky. While there is no silver bullet to relieve the pain overnight, leaders in the oil and natural gas industry are calling for an unlocking of US energy resources to help solve the problem and create more stability.

Last week, the American Petroleum Institute’s President and CEO, Mike Sommers, wrote to President Joe Biden outlining 10 immediate steps to help address the current challenges by increasing supply and underscoring the connection between energy security and national security.

“Unfortunately, Russia’s actions and the instability it created has contributed to an already forming global energy crisis. Several factors have led to a significant and sustained supply and demand imbalance in global oil markets,” Sommers wrote. “Demand for energy, specifically crude oil, has surged as global economies have rebounded from the early part of the COVID-19 pandemic. In part, supplies have not kept pace due to global underinvestment in recent years driven by geopolitical and market forces, public policies, and investor sentiment.”

The API plan calls for lifting development restrictions on federal lands and waters; designating critical energy infrastructure projects; fixing the National Environmental Policy Act permitting process; accelerating LNG exports and approving pending LNG applications; unlocking investment and access to capital; dismantling supply chain bottlenecks; lower carbon energy tax provisions; protecting competition in the use of refining technologies; ending permit obstructions on natural gas projects; and advancing the energy workforce of the future.

“While members of your administration have recently discussed the need for additional supplies to solve the energy crisis, your administration has restricted oil and natural gas development, canceled energy infrastructure projects, imposed regulatory uncertainty, and proposed new tax increases on American oil and gas producers competing globally,” Sommers wrote. “Respectfully, the American people need a different direction to solve this crisis.”

De Haan echoed many of those sentiments in his conversation with NJBIZ, saying that some of the actions and words from the Biden Administration have led to uncertainty and thus the reluctance by oil companies to invest and raise production. “Every day that goes by without giving the sector some sort of certainty is a day lost, is a day that prices will remain higher,” De Haan said. †[Biden] can provide a measure of certainty that would maybe get oil companies interested and raising production again.”

Biden and Big Oil

While the president does not directly control gas prices, critics say that demonizing the industry, especially at a recent news conference at the Port of Los Angeles, is not helping the situation. “Exxon made more money than God this year,” Biden said. “One thing I want to say about the oil companies. They’re not drilling. Why aren’t they drilling? Because they make more money not producing more oil.”

Biden wrote a letter of his own, turning up the pressure on major oil companies to boost supply while slamming their profit margins. “In the year before I took office, refineries in the United States reduced their capacity by more than 800,000 barrels a day, leaving American refinery companies today at their lowest level of capacity in more than half a decade,” Biden wrote. “I understand that many factors contributed to the business decisions to reduce refinery capacity, which occurred before I took office. But at a time of war, refinery profit margins well above normal being passed directly onto American families are not acceptable.

“There is no question that Vladimir Putin is principally responsible for the intense financial pain the American people and their families are bearing. But amid a war that has raised gasoline prices more than $1.70 per gallon, historically high refinery profit margins are worsening that pain,” Biden added.

Biden told the oil producers that the crunch families face requires immediate action and that they need to work together on concrete solutions, writing that the administration is prepared to “use all reasonable and appropriate Federal Government tools and emergency authorities to increase refinery capacity and output in the near term, and to ensure that region of this country is appropriately supplied.”

Further underscoring the urgency and political pressure of this moment, Biden has done an about-face and is planning to meet next month with the leaders of Saudia Arabia, a kingdom he once called a “pariah,” about ramping up production.

At the state level, Gov. Phil Murphy has been asked repeatedly about instituting a gas tax holiday, as several states, including New York, have done. Murphy said he was reluctant do so because of how those funds are allocated. “Those moneys are tied directly and constitutionally to infrastructure projects, which you then have to stop,” Murphy explained on his “Ask Gov. Murphy” radio show. “And then when you restart them, it would cost a lot more money. So, I continue to believe that the feds should give us a federal gas tax holiday because they can print money and we can’t.”

The White House has reportedly been considering what Murphy alluded to, a federal gas tax holiday. But no decision had been made as of mid-June.

Murphy also has said he is open-minded on the long-debated issue in New Jersey of moving to self-serve gas stations to provide some relief, but said he is not sure how much of a bang for the buck the state would get. “Here’s the part of it that concerns me, and that is, it’s not in our control,” he said. “The issue with self-service gas is you’re literally handing the keys over, no pun intended, to the gas stations and to the oil companies or gas companies. And so, I suspect most of them would behave honorably. We’ve got good folks in those businesses. But it would not prevent someone from maybe colluding with others, raising gas prices 15 or 20 cents, just to cut them back down again. I hope that wouldn’t happen, but we would have no control over that.”

gas prices

gov. Phil Murphy said he has an open mind about the potential for allowing self-service at gas stations, but is not certain that the change would make any difference. – MATTHEW FAZELPOOR

Senate Republicans have called for the state to issue rebate checks directly to New Jersey families as a way of allocating the unprecedented budget surplus while offsetting some of the record-high gas prices. State Sen. Edward Durr, R-3rd District, sponsored Senate Bill 2290, the “Gas Price and Inflation Tax Act Credit,” which would provide New Jerseyans with a $500 rebate.

The budget negotiations and what to do with that windfall of surplus money, which NJBIZ has previously reported on, are continuing between Murphy and legislative leaders before the new fiscal year begins on July 1.

Another burden

For New Jersey businesses, already contending with myriad issues from COVID to shortage of workforces to supply chain disruptions and inflation, pricey gas is yet another test.

Siekerka

“Now you layer on top this gas crisis and it only exacerbates what’s already a challenging situation,” said Michele Siekerka, president and CEO of the New Jersey Business & Industry Association. “I think everyone is just so resilient to what they’ve experienced over the last few years that it’s just like another knife thrown at them.”

Siekerka said that the situation is causing business owners to sharpen their pencils and look at their balance sheet and bottom line to figure out how to make ends meet. “I think right now it’s all about resilience and survival mode,” she said.

As for the sectors being hardest hit, Siekerka cited trucking, logistics and distribution, as well as delivery businesses and gig workers, among others. And she added that employers are facing increased costs across-the-board to move any product down the supply chain.

“So, the cost of any of those products that are being delivered, be it retail, be it food — that wholesale type of product that’s showing up on your doorstep every day — that cost is going up because of the cost of transporting the product to you,” she said. “Anybody that’s delivering a product or service is dramatically impacted.”

Siekerka also pointed out that the current gas situation has affected the return-to-work plans at many companies. “You had employers who were just starting to get people back to the office. People picking up their commute again,” said Siekerka. “Now you have those same employees, the workforce saying, ‘let me work from home and you’ll save me 50 bucks a week.’ That’s real for people. And so, you have some employers saying, ‘well, here’s a way for me to help my workers. I’ll just continue their remote or hybrid working.’”

Siekerka said business leaders are waking up every day wondering what will be thrown at them next. “I would really ask our policymakers, at this point, to be extremely empathetic to what the business community is experiencing,” she said.

As for where the situation goes from here, De Haan said he believes we should see some relief at the pump in the second half of July and into August and September. But he cautioned about other potential headwinds. “My concern is a major hurricane, or any refining disruption could send us skyward even more than we’ve seen already. “It’s not impossible that the national average could get [to] $6 if there are shutdowns related to a hurricane or something,” he said. “So, it’s going to be a hot summer at the pump and not a whole lot of relief until potentially this fall.”

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