KEY POINTS:
Fuel prices, like all other commodities, are constantly changing, and during the past couple of years the cost of petrol has more than doubled for drivers.
Everyone is talking about fuel costs but there hasn't been much explanation about the whys and wherefores.
For most of us, our gas bill has increased so much it's thrown our household budgets out the window.
Also affected by skyrocketing fuel costs are home heating oil, which right now probably costs about the same, if not a little more than car fuel.
As consumers, we understand the basic law of supply and demand. If we have a lot of a product, we can get it for less. If we have lesser amounts of product, we will have to pay more for it, since demand outweighs supply.
So now we can begin to see that the supply of crude oil can fluctuate from month to month depending on various causes, and petrol prices are raised or lowered accordingly.
Did you know after refining we only get 73 litres of petrol from every 159 litres of crude oil?
There are four major factors involved in petrol pricing. Added together, these total up to what you pay per litre for fuel.
Firstly, the cost of the crude oil used to get the petrol is the highest portion of the cost per gallon. If crude oil supplies increase, petrol prices are lowered.
If the supplies of crude oil decrease, petrol prices are automatically raised. The price of crude oil is determined by the countries that export the oil, many of which form the Organisation of the Petroleum Exporting Countries (OPEC). Crude oil can account for 53 per cent of gas per litre costs.
Second is the cost of refining the raw crude oil, which is no good to us in its natural form. The raw crude must be processed or broken up into different products that are useful. The refining of crude oil can account for 19 per cent of gas per litre costs.
Third are the taxes imposed on petrol by the Government, which can also make up a large part of the price of petrol you pay at the pumps. These levies total around 50 cents a litre and there's GST on top of that.
Finally there's the distribution and marketing of petrol, the cost of fuel delivery, the overhead of running the gas station and profit for the gas station. This can account for around 9 per cent of gas per litre costs.
Since all these factors combine to calculate the cost of petrol at the pump, a variation of any of these levels can cause prices to fall or rise.
Some of these factors are controllable, others are not.
While OPEC decides the number of barrels released on to the market, Mother Nature may wipe out a few oil rigs, mechanical breakdowns may occur and the odd tanker sinks.
Last month, crude oil hit an all time high price of US$140 ($184) a barrel, but it's anybody's guess at this point where it will end up in the next couple of months when we come into the Northern Hemisphere's high-demand holiday season.
REFINING THE RAW PRODUCT
Raw or unprocessed "crude" oil is not useful in the form it comes in out of the ground. "Light, sweet" (low-viscosity, low-sulfur) oil has been used as a burner fuel for steam vessel propulsion but for many other uses the oil needs to be separated into parts and refined before use in fuels and lubricants. It also needs to be separated before some of the byproducts can be used in petrochemical processes to form materials such as plastics, detergents, solvents and fibres such as nylon and polyester.
Petroleum fossil fuels are used in ship, automobile and aircraft engines. These hydrocarbons have different boiling points and can be separated by distillation. Since the lighter liquid elements are in great demand for use in internal combustion engines, a refinery will convert heavy hydrocarbons and lighter gaseous elements into these higher-value products using energy-intensive processes.
Oil can be used in so many ways because it contains hydrocarbons of varying molecular masses, forms and lengths such as paraffins, aromatics, naphthenes (or cycloalkanes), alkenes, dienes and alkynes. Hydrocarbons are molecules of varying length and complexity made of only hydrogen and carbon atoms. Their structures give them their differing properties and uses. The trick in the oil refinement process is separating and purifying these.
Once separated and purified of any contaminants, the fuel or lubricant can be sold without any further processing. Smaller molecules such as isobutane and propylene or butylenes can be recombined to meet specific octane requirements of fuels by processes such as alkylation or, less commonly, dimerisation.
Octane grade of gasoline can also be improved by catalytic reforming, which strips hydrogen out of hydrocarbons to produce aromatics, with much higher octane ratings. Intermediate products such as gasoils can even be reprocessed to break a heavy, long-chained oil into a lighter, short-chained one, by forms of cracking such as fluid catalytic cracking, thermal cracking and hydrocracking. The final step in gasoline production is the blending of fuels with different octane ratings, vapour pressures, and other properties to meet product specifications.
