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What Reporters Are Getting Wrong about Gas Prices

Energy
What Reporters Are Getting Wrong about Gas Prices

Media Matters for America

By Jocelyn Fong

Last month the New York Times' public editor solicited reader input on whether reporters should challenge false statements made "by the newsmakers they write about." The overwhelming response from media commentators was, "Yes, of course." Even Jill Abramson, the executive editor of the Times weighed into say—"The kind of rigorous fact-checking and truth-testing you describe is a fundamental part of our job as journalists," adding, "Could we do more? Yes, always. And we will." 

That's good to hear because research out of Ohio State University indicates that passive reporting which "simply lists competing claims without offering any idea of which side is right," may cause readers to become disillusioned about their ability to determine the truth.

But in at least two recent articles, the Times uncritically reported Republicans' claims that the Keystone XL pipeline would hold down gasoline prices, giving no indication that in fact, experts say the effect would be miniscule at best.

This tolerance for unsubstantiated claims about gas prices is part of a larger pattern among many news outlets—In an effort to capture the political argument of the day, journalists often miss the larger, more interesting, and more important story.

What is the origin and the nature of our problem with gas prices? What can we do about it? Who supports and opposes those solutions? Who benefits from the status quo? If reporters aren't framing their gas price coverage around these questions, they're serving someone—but it's not the public.

THE PIPELINE AND PRICES

In addition to the New York Times, reporters at CNN, Politico, ABC News, and the Associated Press have served as a vehicle for politicians to link the pipeline to rising gas prices. And of course, Fox News is making the claim outright on an almost hourly basis now. Fox anchor Bill Hemmer said on Monday, "So long as gasoline is getting higher, that's all the Republicans have to say is 'Keystone." And that's from the purportedly "straight news" side of the network.

But does this narrative have any merit?

Ray Perryman, the economist hired by TransCanada to assess the economic benefits of the pipeline, told me that his analysis—the methodology of which has been questioned—points to an impact of "around 3.5-4 cents per gallon of gasoline at current prices" once the pipeline "was fully implemented and flowing reasonably close to capacity." Moody's economist Chris Lafakis estimates that when balancing out the different regional impacts, "the pipeline would lower US gas prices by 1.6 cents per gallon."

For comparison, the U.S. average gasoline price has increased nearly 30 cents in the past two months. Perryman, a supporter of the pipeline, added: "I should also point out that a modest change of this nature will often be swamped by the day-to-day factors that impact market prices."

Analysts say gas prices are currently rising due to expectations of global economic growth, concerns about Iranian threats to disrupt oil supply and an influx of speculators.

Energy economist Severin Borenstein, a professor at the Haas School of Business, believes the pipeline "wouldn't lower gasoline prices by any noticeable amount." Keystone XL, he said, would "bring additional oil to the world market, starting around 2020. The effect on oil prices then will be miniscule, the effect in the next couple years nonexistent."

There is currently surplus pipeline capacity for moving Canadian oil into the U.S. A report prepared by oil consulting firm EnSys for the Department of Energy found that "in every scenario studied, with or without KXL, the excess cross-border pipeline capacity persists until after 2020." 

Michael Levi, an energy expert at the Council of Foreign Relations said the impact of Keystone XL on gasoline prices "probably depends on the part of the country" but "would be very small either way." Levi wrote in a Washington Post commentary that the pipeline has a likely impact of "less than a dollar a barrel to the long-term price of oil, hardly a decisive factor when prices are already around $100 per barrel." 

Canadian economist Andrew Leach said, "I can't see any significant reason for KXL to lower gas prices," adding, "Long term, it's probably close to a wash, but if anything, it's a small increase from eliminating the crude glut in the Midwest." Borenstein said something similar—"If anything it will raise gas prices slightly in the Midwest by relieving the bottleneck on getting oil out of that area."  

They are referring to the shortage of pipelines available to carry oil from Oklahoma to Gulf coast refineries, resulting in a buildup of Canadian oil in the Midwest, which lowers the price that refineries there pay. Keystone XL would relieve the glut, and thus, shrink the discount. "But there are other pipelines planned that will probably do that long before KXL would get built," Borenstein added.

TransCanada told Canada's National Energy Board that in the Midwest, its pipeline would "increase the price of heavy crude to the equivalent cost of imported crude," which would provide Canadian oil companies with an added $2-3.9 billion in annual revenues. Energy analysts disagree about whether this would actually translate to measurable changes in the price of gasoline for consumers.

So at most, the pipeline would lower gasoline prices by a few cents in eight years or so, and it might raise prices in some parts of the U.S. Presenting Keystone XL as an explanation or a solution to the current price spike is simply not serious. So why are journalists who are covering gas prices treating it otherwise?

THE LARGER PROBLEM

The issue of Keystone XL is not the first time mainstream reporters have been complicit in a public discourse over gasoline prices that is riddled with misconceptions. Last spring when prices eventually rose to near-record levels, Republicans and conservative media blamed the Obama administration's temporary deep water drilling moratorium enacted after the devastating BP oil spill in the Gulf. Reporters from the New York Times, Associated Press, the Wall Street Journal, NPR, CNN, among others, provided the same he-said/she-said coverage we're seeing now.

Meanwhile, energy experts were saying that "it's not credible to blame the Obama administration's drilling policies for today's high prices because of the relative scales involved." That quote came from Michael Canes, former chief economist of the American Petroleum Institute, which represents the oil and gas industry.

As it turned out, any decline in offshore production caused by the deep water drilling moratorium was more than overcome by a boost in onshore output. Increasing each year since 2008, U.S. oil production is higher than it's been in eight years and the number of oil rigs in operation is soaring, which complicates Republicans' messaging on gas prices.

"As far as drilling and production, it's going to be really good and robust," energy economist Michelle Michot Foss recently told the Houston Chronicle. "But consumers will be upset because gasoline prices will continue to be high."

Which brings us to the truth of the matter—Ramping up drilling and oil infrastructure can provide some economic benefits, but holding down gasoline prices is not one of them. If we want to be less vulnerable to price spikes, we have to use less oil. Period. That is the context that should pervade news coverage of gas prices.

Economists and energy analysts have repeatedly made this point:

  • Michael Levi: "Since oil is traded on a global market, the effects of volatility are reflected in the price of every barrel of oil regardless of its origin. This problem can be addressed only by making the U.S. economy more resilient to oil price swings, which includes—most significantly—lowering total U.S. oil consumption."
  • Severin Borenstein: "We should avoid the fantasy of thinking that by choosing a different seller, we are somehow offsetting the impact of Middle East production. To fix the problem, we just need to use less oil."
  • Tom Kloza: "This drill drill drill thing is tired ... It's a simplistic way of looking for a solution that doesn't exist."
  • Richard Newell: "We do not project additional volumes of oil that could flow from greater access to oil resources on Federal lands to have a large impact on prices given the globally integrated nature of the world oil market."
  • Doug Holtz-Eakin: "You can't change the oil price very much with the U.S. exploration."
  • Ken Green: "We probably couldn't produce enough to affect the world price of oil. ... People don't understand that."
  • Lou Crandall: "Higher oil prices today are a global phenomenon, and the additional supply from increased drilling by the U.S. would not alter the global balance of supply and demand greatly. ... The only difference is that a somewhat larger share of the revenue would accrue to domestic interests (governmental and private) rather than to foreign suppliers." 

Contrast those facts with the framing we're getting from countless news reports:

Beyond the shame of being used by political operatives to distribute a powerful and thoroughly inaccurate message, news reports that privilege the myths over the facts help cement a short-sighted perspective on our energy challenges.

THE REAL MEANING OF INDEPENDENCE

To the extent that Americans continue to rely heavily on oil, our economy remains latched to a price that will, for the foreseeable future, be pushed up by Asia's rapidly expanding demand. According to the International Energy Agency, China alone accounted for the majority of the increase in global oil demand last year. The number of cars in operation worldwide surpassed 1 billion in 2010, with half of the growth over the previous year coming from China.

Energy expert Chris Nelder said in an interview that "The rest of the world is pulling on price and we are essentially the losers in that contest because nobody is using gasoline at the level that we do or as inefficiently as we do." The bottom line? "We're not going to do anything about price. What we can do is consume less," Nelder said.

While we remain far and away the world's largest oil consumer and drive several times more cars than China, we are using less than we used to. In large part due to the recession, but also because of conservation efforts, U.S. liquid fuel consumption has not returned to pre-2008 levels and the Energy Information Administration expects "only small increases" in the next two years. Reflecting the differences in demand growth between the U.S. and developing economies, refiners here are now selling more fuel to other countries than we import.

As financial writer Greg Ip noted, a result of slowing U.S. oil consumption "is that the economy will be less sensitive to changes in the oil price." Although much of the media debate focuses on the prices posted at the pump, what matters more for policy purposes is how vulnerable we are to these inevitable price spikes. Given that our vulnerability is based on how much oil we use, news reports on gas prices should, across the board, be talking about cutting consumption.

"Increasing efficiency is going to be a far more productive policy tool than increasing supply," Nelder stated. CFR's Levi also said "fuel economy standards will probably have a substantially larger impact" than Keystone XL.

That's because, as Chris Lafakis explained, higher average fuel economy, "be it through electric vehicles or improved efficiency on conventional vehicles," lowers "the percentage of consumers' incomes that they spend on gasoline."In the same way that changes in gas prices matter less to someone who drives a hybrid than to someone who drives Hummer, economies using oil more efficiently are more resilient to price spikes.

Congress created Corporate Average Fuel Economy Standards (CAFE) in 1975, following the OPEC oil embargo. The standards were not updated until 2007. According to energy analyst Vaclav Smil, "this failure to pursue greater fuel efficiency was an irrational choice and, hence, an irresponsible policy. It came about because of low oil prices, and it led to a higher dependence on imports."

Here's how our fuel economy (grey line) compares to other countries:

The 2007 energy law raised the standards to an average of 35 miles per gallon by 2020. The Obama administration pushed compliance up to 2016 and later enacted standards for heavy-duty trucks. Most recently, the administration proposed another set of standards for model year 2017-2025 cars, requiring "increases in fuel efficiency equivalent to 54.5 mpg." Major automakers agreed to the rules, which work out to a real-world average of about 40 mpg.

The National Highway Traffic Safety Administration estimated that by 2025, the rule would "reduce oil consumption by 2.2 million barrels per day—enough to offset almost a quarter of the current level of our foreign imports." An analysis by the Consumer Federation of America  indicates that the standards will result in substantial savings for consumers.

Fuel economy improvements should be a major part of the gas prices story. Policies that encourage the production and adoption of hybrid and electric cars are also relevant, as are investments in transportation infrastructure and alternative fuels. These are not quick remedies, but when it comes to oil dependence, if we're not talking about long-term solutions, we're not talking about solutions at all.

For more information, click here.

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