Gas heading toward $4

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February 1, 2013, 8:04 pm
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(NECN: Peter Howe, Wakefield/Chelsea, Mass.) - It’s a sign some analysts foresee coming up down the road: $4-a-gallon gas in much of New England.

After last month’s terrorist takeover of a natural gas plant in Algeria -– a key source of petroleum exported to East Coast U.S. refineries to be processed into gasoline –- gasoline prices have risen by 11 to 15 cents per gallon over the last six months in the six New England states, according to the AAA/Oil Price Information Service daily survey.

Chris Barber of Energy Security Analysis Inc. in Wakefield, Mass., said, "You've got some, I think, speculative pressure based on some risks in the Middle East with Algeria. They're all sort of pushing towards higher prices in the first half of the year."

Of special concern for New England motorists: Hess Corp.’s announcement this week it will shut down its refinery in Port Reading, N.J., alongside the New Jersey Turnpike and across the harbor from Staten Island, N.Y. It supplies 70,000 barrels a day of gasoline, but Hess said it’s often unprofitable and requires unaffordable, uneconomic upgrades to meet environmental laws.

"That’s obviously a baseload supplier of gasoline, and it typically produces a much higher yield of gasoline than some of the other plants, so with it going offline, it removes some of the baseline capacity" available to supply gasoline into the Northeastern U.S., Baber said, "When demand does start picking up again in the summer, there's some potential for needing some additional imports from Europe and elsewhere" of gasoline to meet demand, which will be more expensive than producing it in New Jersey, which has led to expectations of higher gas prices at the pump.

Two more factors also putting upward pressure on gasoline prices: East Coast supplies are already down about 10 percent from last year because of Pennsylvania and Virgin Islands refinery closings and Hurricane Sandy disruptions, and a trend always see this time of year: refineries gearing up for the May 1 switchover to more expensive summer-blend gasoline required by air-pollution laws. The switch to a formula of gasoline that evaporates less from tanks, reducing contributions to smog, keeps supplies tight, which can further aggravate rising gasoline prices.

According to AAA/OPIS, here’s the average price of a gallon of regular gasoline in the six New England states, and by how much that price has risen in the last month:

Connecticut: $3.79, up 11 cents.
Massachusetts: $3.59, up 12 cents.
Maine: $3.66, up 12 cents.
New Hampshire: $3.55, up 15 cents.
Rhode Island: $3.64, up 12 cents.
Vermont: $3.66, up 11 cents.

While some analysts think over-$4 gasoline could be common in New England this spring, Barber isn’t there yet, unless some currently unforeseen supply shock hits.

"I don’t expect that it will get to $4," Barber said. "I think it's unlikely that we get that high. I definitely see high $3.80s, potentially $3.90."

With videographer Bob Ricci and video editor Bob Leone

Tags: Peter Howe, gas prices, New Jersey refinery shutdown, Algeria natural gas plant takeover, Energy Security Analysis Inc, Chris Barber
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