Key Issues > Petroleum and Alternative Fuels

Petroleum and Alternative Fuels

The nation's petroleum refining industry processes millions of barrels of crude oil per day into products such as gasoline and diesel fuel used to power vehicles and aircraft and provides feedstock for the petrochemical industry. The industry has changed in recent decades to produce cleaner burning fuels and blend increasing amounts of biofuels into gasoline.

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Key policy considerations that may affect the petroleum refining industry and the evolution of alternative fuels include:

Petroleum refining. The U.S. petroleum refining industry is the largest in the world. However, due to variations in the cost of crude oil and changes in consumer demand, the industry faces profit volatility and economic challenges. In some parts of the country, the use of specialty gasoline blends is required to reduce vehicle pollution, which can create difficulties for refiners. The future of the petroleum refining industry will depend on various factors, including the refining industrys capacity to adjust to changing demands as well as mandates such as the Renewable Fuel Standard which requires blending with renewable fuels.
Strategic petroleum reserve. The United States maintains the largest strategic petroleum reserve in the world. Managed by the Department of Energy, the strategic petroleum reserve enables the government to inject crude oil into the market to protect the U.S. economy from damage caused by severe price increases or supply disruptions. Policy considerations on the future inventory of the strategic petroleum reserve include the implications of a dramatic increase in domestic production of crude oil and potential leveling off of domestic demand, as well as changes in the global supply and demand balance of crude oil.
Gasoline prices. A number of key factors cause the retail price of gasoline to vary over time including fluctuations in the price of crude oil; changes in gasoline supply and demand; the cost of compliance with federal and state requirements calling for special gasoline blends to improve air quality; taxes levied on gasoline; and changes within the petroleum industry, such as mergers. The cumulative effect of regulation, taxes, and an evolving industry are among the policy considerations that can affect the price of gasoline for the U.S. consumer.
Alternative fuels. The Energy Independence and Security Act of 2007 requires that, by 2022, U.S. transportation fuels contain 36 billion gallons of renewable fuels¹. Under the mandate, 15 billion gallons of renewable fuel may come from corn ethanol but the remainder must come from advanced biofuels, such as ethanol made from cellulosic sources like switchgrass, and forest and agricultural residues such as sawdust and sugarcane. The nation faces several key challenges in meeting these requirements. There is not enough cellulosic biofuel commercially available to meet the mandate, and U.S. ethanol use is approaching the blend wall—the 10 percent ethanol blend that most U.S. vehicles can use under existing vehicle and engine warranties. Additional ethanol use will require substantial new investment, including additional warranted and certified storage tanks and variable pumps at gasoline stations.

¹Renewable fuels levels may be waived if meeting the required level would severely harm the economy or environment of a state, a region, or the United States, or there is an inadequate domestic supply.

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Changing Crude Oil Markets: Allowing Exports Could Reduce Consumer Fuel Prices, and the Size of the Strategic Reserves Should Be Reexamined

http://www.gao.gov/products/GAO-14-807

GAO-14-807: Published: Sep 30, 2014. Publicly Released: Oct 20, 2014.

Petroleum Refining: Industry's Outlook Depends on Market Changes and Key Environmental Regulations

http://www.gao.gov/products/GAO-14-249

GAO-14-249: Published: Mar 14, 2014. Publicly Released: Apr 14, 2014.

Biofuels: Challenges to the Transportation, Sale, and Use of Intermediate Ethanol Blends

http://www.gao.gov/products/GAO-11-513

GAO-11-513: Published: Jun 3, 2011. Publicly Released: Jul 8, 2011.

Energy Markets: Estimates of the Effects of Mergers and Market Concentration on Wholesale Gasoline Prices