A process-based model for estimating the well-to-tank cost of gasoline and diesel in China

In this paper, we present a process-based model to estimate the well-to-tank (WTT) costs of vehicle fuels (gasoline and diesel). The model breaks down the WTT process into four stages, i.e., crude oil sourcing (import and extraction), crude oil transportation, crude oil refining, and vehicle fuel transportation and distribution, which can provide high-resolution data for the WTT cost components. Using this model, we further develop an empirical study of China. The results obtained from the study indicate that the price of imported crude oil is the dominant factor affecting the WTT costs of vehicle fuels in China and that the cost of crude oil refining also has a relatively large influence. By comparing the costs with the prices of vehicle fuels under the volatile price of imported crude oil, we illustrate the unstable margin caused by China's current pricing policy, which causes a distorted price signal and fiscal risks. The key findings derived from the empirical study reveal that the WIT cost is an essential guide for altering the vehicle fuel price with the aim of not only smoothing the impacts caused by the volatile price of crude oil price but also reflecting the correct oil price signal and reducing the fiscal risks. (c) 2012 Elsevier Ltd. All rights reserved.