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Energy Basics: Fuels 101

Sponsored by

Tennessee Department of Agriculture

The University of Tennessee at Martin

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““Ingenuity is not the mother Ingenuity is not the mother of invention. Invention is of invention. Invention is driven by panic and proper driven by panic and proper reaction.”reaction.”Matthew Simmons, Chairman Simmons and Company InternationalMatthew Simmons, Chairman Simmons and Company International

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Average Oil Price (U.S.)

U.S. Oil Spot Price ($/Barrel)

0

10

20

30

40

50

60

70

80

Years

Pri

ce

FUTURE

PRICES

Source: Energy Information Administration, U.S. Department of Energy (www.eia.doe.gov)

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Factors Influencing Oil Production Costs

• Lifting costs– U.S. average

approximately $7/barrel

• Finding costs– U.S. offshore

average $63.71/barrel

• Technology

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Gasoline Supply and Demand

• Gasoline markets are influenced by changes in supply and demand.

• The price change patterns vary among regions.

Source: Energy Information Administration, U.S. Department of Energy (www.eia.doe.gov)

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May 2008

$3.60 gal $4.17 gal

Source: Energy Information Administration, U.S. Department of Energy (www.eia.doe.gov)

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Gasoline Price Fluctuations• Seasonality in demand• Changes in the price of

crude oil• Product supply/demand

imbalances• Proximity to supply• Competition in local

markets• Environmental programs• Operating costs at the

station

Source: Energy Information Administration, U.S. Department of Energy (www.eia.doe.gov)

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Diesel Price Fluctuations

• Crude oil price• Refining capacity and

international diesel fuel demand

• Product supply/demand imbalances

• Seasonality in demand for diesel fuel and distillates

• Transportations costs• Regional operating

costs and local competition

Source: Energy Information Administration, U.S. Department of Energy (www.eia.doe.gov)

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Why Are Diesel Prices Higher than Gasoline?

• Worldwide demand for diesel fuel and other distillate fuel oils has increased.

• Tight global refining capacity.

• U.S. transition to low sulfur diesel fuels has impacted the diesel production and distribution costs.

• Federal excise tax on diesel is 6 cents higher per gallon than gasoline.

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Closing Thoughts

• There are many factors that determine the price of energy products.

• Energy security will require increased technology advances and changes in demand side of energy.

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Special Thanks

• Tennessee Department of Agriculture• University of Tennessee at Martin