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By Robert Rapier on Jul 5, 2007 with no responses

Hot Gas Issue Heating Up

Tags: FTCR, litigation

Several people have asked me about this recently, and it has been in the news quite a bit, so this is a good time for an update. I have previously written 2 essays on the “hot gas” issue:

Hot Gas Lawsuit in Utah

More on Hot Gas Lawsuit

If you are unfamiliar with this, this issue is that most gas pumps are not temperature compensated, so consumers are being “ripped off” on hot summer days. The funny thing is that gas is stored underground, and the temperature is very near the 60 degree temperature a gallon is based upon. Here is a story from USA Today explaining the issue:

Motorists sue oil titans, retailers over ‘hot fuel’ losses

Think gas is expensive? It’s even more expensive on hot summer days. Gasoline expands as temperatures rise. That means motorists get less energy from a gallon of so-called “hot fuel” than from a cold one.

When Brent Donaldson, a restaurant owner in Kansas City, Mo., discovered that fact earlier this year, he joined hundreds of consumers in more than a dozen states who are suing oil companies and gas retailers, alleging that they have been overcharged by billions of dollars.

“The consumer is repeatedly being ripped off and not given a fair deal,” Donaldson says. He says he spends $60 a week filling his Acura.

This is such a non-issue. The variation in BTU content from blend to blend is greater than any variation from hot gas. And of course if gas is hot in the summer, it is cold in the winter. What’s the overall effect? Not much.

A reader wrote and pointed me to the USA Today story, mentioning the claim that the industry fought for temperature compensation in Canada. My response:

I have asked and asked someone for any proof of the claims that they fought the practice in Canada, and every single time it traces back to a story in a Kansas newspaper. I swear, people don’t understand the first thing about supply and demand. First thing, the gas is in underground tanks near 60 degrees, so when people talk about their gas being at 90 degrees or whatever, they are full of crap. But second, let’s say that it was true. That would mean that people would be getting a bit more gas for the same price, effectively lowering their cost for gas. This will of course spur demand, and cause prices to rise until supply and demand are again balanced. On balance, if they are being “ripped off” by 1%, and this situation is corrected, then I expect gas prices to rise by 1% due to that correction.

What’s going to happen is that they are going to sue and potentially cause this equipment to be installed, then wonder why their gas prices are even higher. They simply can’t drive up costs for the oil companies and not expect their prices to go up.

There is no free lunch. Consumers who think they are going to get a bit of free gas are going to find themselves paying more for gas than they were. You can send your thank you notes to the FTCR, as they have been on this bandwagon for quite some time. Here they are saying oil companies are behaving like tobacco companies over this issue.