Tuesday, April 3, 2012

There's No Cavalry Coming to Reduce Gas Prices


The latest gasoline price brouhaha makes me feel like Bill Murray in Groundhog Day: living the same day over and over again. Seriously you could take news stories about virtually every gas price spike, change the dates and run them again without edits. In fact, I think that’s what the media is doing: I sure can’t find much in the way of thoughtful and fact-based analysis (this article from the April 1st New York Times – and, no, it’s not an April Fool’s joke – is a noble exception).

At least this time we may actually set a record price. With the exception of the summer of 2008, when we actually did hit a record, most of these “spikes” haven’t brought gas prices in line with their historic highs as adjusted for inflation. And the complaining about “high” prices has always stuck in my craw when I consider how low prices are in the U.S. compared to every other major industrialized economy. The only countries with lower prices are nations that produce petroleum and/or subsidize prices. (Of 137 countries on MyTravelCost, the U.S. has the 21st cheapest gasoline.)

And yet here we all are screaming for politicians to do something about it. Republicans blame Democrats for not allowing more drilling offshore or in the Arctic National Wildlife Refuge, and for increasing regulation (although the 2005 Texas City refinery fire – a major incident but hardly the only accident at a refinery as any Google search will demonstrate – and the 2010 Deepwater Horizon disaster just might suggest that the oil and gas industry doesn’t necessarily look after itself). Democrats blame evil oil companies for gouging consumers, and call for repeal of tax breaks for the industry and a greater focus on green energy.

If we could figure out a way to convert hot air into automobile fuel, we’d be energy independent tomorrow with all this bloviating from commentators and politicians of political stripes, not to mention the whining from Joe and Jane Average.

What part of “Oil is a finite resource, often sourced from volatile parts of the world, whose price is mostly dependent on factors out of our control” did people not get from the 1973 oil crisis, the 1979 oil crisis, the first Gulf War spike, and the continual jumps since 2003? Instead of doing something about it, we’ve continued to buy larger vehicles (although the recent price jumps and economic meltdown have dampened demand for some larger vehicles, the number one vehicle in the U.S. is still the Ford F-150), expanded the number of vehicles per capita (from 583.89 vehicles per 1,000 people in pre-oil crisis 1972, to 841.67 in 2008), sprawled farther and farther out in the countryside to build larger and larger homes, leaving us with longer and longer commutes.

And the politicians or oil companies are to blame? Puh-lease… Look in the mirror, folks. About the only people I have sympathy for are independent contractors and other small-business people who have to rely on larger vehicles and don’t have the size or income to hedge their fuel costs – it’s tough enough running a small business - and those working-class folks who are squeezed already and have no choice but to drive to work.

Our politicians can do almost nothing to reduce gasoline prices. Nor should they. (If anything, we should be raising the gasoline tax significantly and indexing it to inflation so we at least have a prayer of repairing and upgrading our increasingly third-world infrastructure. But that’s a topic for another day – and another reason why I’d never get elected.) It’s a free market. Oil goes to the buyer who’s willing to pay the most. Demand is increasing significantly, particularly in the so-called BRIC countries as their populations rush to own that great symbol of success (as pioneered in America): the personal automobile. Supply has, according to most experts, plateaued and will only go down from here. The oil that’s left (think of the tar sands in Alberta) is increasingly more difficult and therefore more expensive to extract.

As for “drill, baby, drill,” it’s highly unlikely to have any impact on price. Do a Google search and you’ll find dozens of energy market experts who’ll tell you this (and no one who’ll say differently who either understands the industry or doesn’t have another agenda). The Associated Press recently did an analysis that showed basically no correlation between U.S. production and gasoline prices. But let’s do the math ourselves. The U.S. has got proven reserves of 22.3 billion barrels and estimated undiscovered potential of 134 billion barrels. There are six countries alone (Venezuela, Saudi Arabia, Canada, Iran, Iraq and Mexico) with proven reserves greater than U.S. potential! Finding this oil and extracting it will take years, if not decades, and even if it leads to a doubling of production, it would simply be a small amount of additional production that wouldn’t necessarily go to the U.S but to whichever buyer is willing to pay the price. And Saudi Arabia or Venezuela need simply reduce their production slightly and we’re right back where we started.

More drilling and refining in the U.S. would provide some jobs and some additional profits flowing into U.S. companies, but at a potentially high cost to our environment (as the Exxon Valdez and Deepwater Horizon catastrophes have shown) and, worse, it would do nothing to deal with the big issue: oil is not the fuel of the future. Yes, we have to rely on it for the immediate future, but every year that passes without us taking steps to reduce the role of petroleum-based products in our energy mix is another year in which we fall farther and farther behind in the race to create an alternative and sustainable energy future – not to mention greater increases in pollution and greenhouse gases.

Unfortunately, our current political environment of hyper-partisanship and extreme short-termism, plus the fiscal mess, makes it very difficult to address the issue. There’s no money for major transit expansion. Hybrid technology is growing slowly, and electric and other alternatives are still a long way from practicality for most people. I love high-speed rail but the U.S. is simply not structured for it (with the exception of the northeast corridor where the high costs of land acquisition and Amtrak’s incompetence make it unlikely) and it would have minimal impact. 

Which brings us back to the beginning: high gasoline prices are here to stay so we’d better learn to deal with them. If you don’t like the price, use less. (Duh!) Carpool with someone. (Right there you could cut your commuting costs in half. According to the U.S. census bureau, a stunning 77% of Americans drive to work alone.) Take public transit (if it’s available), walk or bicycle. If your job has the option, try to work at home a day or two a week. Buy a more fuel-efficient vehicle.

There are options. More for some than for others. But we’re on our own here: there’s no cavalry coming over the horizon.

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