Impact of Ethanol Production on U.S. and Regional Gasoline Prices and On the Profitability of U.S. Oil Refinery Industry



firms of Nt at year t. A market with an HHI less than 1,000 is considered to be a competitive
market; 1,000-1,800 to be a moderately concentrated market, and greater than 1,800 to be a
highly concentrated market.

We constructed an HHI for the five PADD regions over the period 1995 to 2007, and we present
this information in Figure 7. The HHI for the refinery market in PADD 1 increased from 1,558 to
2,335 from 1995 to 2007 and changed from a moderately concentrated to a highly concentrated
market using Department of Justice definitions. Since much of this region’s refinery product
supply is from other regions, the impact of this increased concentration may be small. The
refinery market in PADD II, the Midwest, suggests that this is a competitive market, although its
HHI increased to 960 in 2007. Similar to the Midwest region, PADD III, the Gulf Coast, also has
a competitive refinery market as of the end of 2007. The HHI for PADD IV, the Rocky
Mountain region, decreased from 1,025 to 930, which suggests that its refinery market became
less concentrated than before. The HHI for the PADD V, the West Coast region, increased from
914 to 1,155, and this refinery market changed its definition to a moderately concentrated market
by 2007.

Unexpected Supply Disruptions

On August 29, 2005, Hurricane Katrina hit the U.S. Gulf Coast at New Orleans. On September
24, 2005, Hurricane Rita hit at the border between Texas and Louisiana. Both were category four
storms when they did significant damage to the refineries’ facilities and pipeline in the Gulf
Coast region. Refinery operations were reduced by 1.8 million barrel/day in September and
October 2005. Retail gasoline prices jumped by $0.50 to over $3.00 per gallon on a national
average basis after Hurricane Rita. Prices were distinctly higher than before. In order to control
for the effect of this event on the gasoline and refinery profit margin, we include dummy
variables for September and October in 2005, when the disruptions were most severe.

Gasoline Imports

A significant share of total gasoline demand in the U.S. is met by imports. The net import share
of total gasoline consumption in 2007 is 14%. Figure 8 presents U.S. finished motor gasoline
imports from all countries over the period 1995 to 2007. Imports reached their highest level in



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