Gas prices

The average price of regular gas in the US has officially passed $4 a gallon.  Here in DC, I haven’t paid that yet, but may the next time I have to fill up.

Gallop polled people about the cost of gas last month, and a majority said they thought gas would hit $6 a gallon within the next 5 years, but only 19 percent thought it would hit $10 a gallon within that time period.  My personal guess is that it’s likely to hit $6 or $7 in the next year or so, as part of a speculative bubble, but then fall back to the $3-$4 range.  But that’s just a guess.  I’m pretty confident that gas-powered cars will still be around when my boys hit driving age, unlike the author of an essay I read recently.

My car needed some not-insignificant repairs to pass its inspection this month, so I spent some time crunching the numbers to see if it made sense to replace it with a hybrid.  The answer is no, at least not for economic reasons — I drive less than 8,000 miles a year, and even if I doubled the fuel economy, I just wouldn’t save that much money.  At the very minimum, it makes sense to hold out a couple of years so I can get a next-generation hybrid, which are supposed to have much higher fuel economy.

(I also read an article that suggested that a plug-in hybrid could be used as a backup power source.  Given the unreliability of power in our neighborhood, that would be a killer app for me.)

9 Responses to “Gas prices”

  1. dave.s. Says:

    I’m expecting very substantial devaluation of the dollar, so the price we see for petroleum products will go up a lot. Euro area, you may be right about the price future, for us, not so much. I don’t see a lot of increase in oil pumped out of the ground in the future, and BRIC demand for petroleum will go nowhere but up, so we will be competing for a same-size or shrinking amount of petroleum. That ‘s not a recipe for price declines, it suggests being colder in the winter, travelling less, extinction of Hummers (yes!) and much less mobility for poor people.
    Substitution: there are several things being worked on for fuel substitutes: algal biodiesel, liquid fuels from thermal decomposition of waste/plant products. Liquid fuels from coal. Electric cars. Compressed-air cars. We may well reserve petroleum for long-haul trips, use electric-powered jitneys to take the kids to school.
    The cheap-fuel era has been lots of fun. It depended on poor people abroad not being able to afford a decent life, and on the easiest petroleum to pump being sold at rock bottom prices. I think it’s over.

  2. Elizabeth Says:

    Dave, I don’t dispute that as a long-term scenario, but don’t think it will happen in the next 5 years. Do you? And if so, what are you doing personally to prepare for that world?

  3. jen Says:

    In Chicago we’ve been over $4 for gas for a while now; maybe a couple of months? And I’ve had the same conversation with many people — is now the time to replace with a hybrid? Many people are just like you, Elizabeth: they are not that impressed with mileage that goes from 20 to 30. I had one breathtaking conversation with a colleague of mine who drives 80 miles a day to commute. To quote: “It costs me $17 a day to get to work right now. If I bought a hybrid it would take that cost down to $12; it would never pay for itself. And so I just accept it as the cost of doing business.”
    As I don’t live in the suburbs, I have less trouble than Dave S. in simply removing cars from my everyday world; I can picture how that would work at home. I don’t think a lot about how I’ll need a compressed-air car to take the kids to school; we could clearly just bike or take the bus. Although it takes a lot longer, I can bike and bus to work if I need to. I’m trying to do it at least one day a week right now. I’m waiting for it to become OK within my office to shift your hours to accommodate pubtrans. I know it will happen.
    The biggest thing we’re doing with an eye to long-term is reinsulating the house. Also, although we’re flying to a family reunion this summer (and already have the tickets) we are openly talking about a reality where we no longer fly. Suddenly that train trip to Denver sounds like more and more of an option!

  4. Jennifer Says:

    Gas prices in Central Oregon have been over $4 for a couple of weeks, I think. We get super which is about $4.15.
    Lots of articles in the local paper about how people are dealing with gas prices. We have no public transport to speak of so people with longer commutes — like to a neighboring town — are talking about carpooling. People with shorter commutes try to bike more.

  5. dave.s. Says:

    How fast? Hard to know. Fuel use has historically had low short-term but reasonable large long term price elasticity. Makes sense: you’ve got a Chevy Suburban, it gets 15 mpg, it doesn’t cost anywhere near as much to commute as it would to buy a Yaris and dump the Suburban. So you keep the Chevy for a while, and when it gets to the end of its life you get the Yaris. Meanwhile, elasticity of supply is far less than it used to be. The Saudis have sold a lot of their 50 cent cost-of-production oil, and they are tapping far more expensive-to-produce oil right now. There’s not a lot of spare capacity sitting around waiting for buyers.
    This is a comment I put up here on April 13: “I’m going to bang on a couple of things – there are some constraints on how well individuals can do which are set by how well the country is doing. Here are some quotes from a jeremiad by Paul Volcker which I found on the blog Calculated Risk:
    “Homeownership has become a vehicle for borrowing and leveraging as much as a source of financial security.”
    “I come now to the heart of the problem, as a Nation we are consuming and investing, that is spending, about 6% more than we are producing. What holds it all together? – High consumption – high leverage – government deficits – What holds it all together is a really massive and growing flow of capital from abroad. A flow of capital that today runs to more than $2 Billion per day.”
    “What I’m really talking about boils down to the oldest lesson of financial policy in Central Banking: A strong sense of monetary and fiscal discipline.”
    So, why have people abroad been sending us $2 billion a day? Well, they were buying collateralized debt obligations based on bundles of mortgages on exurban McMansions – this doesn’t look like a smart thing to do, anymore – and Treasury bonds (not looking so good, with the dollar tanking against the Euro and the Yen), and ownership shares in US manufacturers (the Chrysler investment doesn’t look so swell to Daimler just now). And then folks here who had gotten onto the house price gravy train were doing home equity lines of credit and buying toys – new flashy cars and enormous televisions, etc…”
    So on the how fast, how soon question: we had an unsustainable phenomenon going on, of non-USA investors sending us $2 billion a day, and which kept our currency propped up, and this maintained the willingness of oil producers to sell us petroleum for dollars. And that’s something which can turn on a dime: non-USA investors simply have to think, ‘do I want to buy assets in a country whose currency is declining relative to my country?’. That contributes to further currency decline, as USA assets have to get cheaper before they find buyers. Oil sellers then think, why sell a barrel for a hundred dollars, when I can get 85 euros? As well, the middle class in BRIC countries is buying cars, and those cars need gasoline. So we have more competitors for each barrel.
    All this doesnt show that things will change fast, but it does seem to me to suggest that things could change fast.

  6. jen Says:

    Dave, it’s unusual for me to encounter someone who’s taking this energy crunch more seriously than I am, but you seem to have achieved that. I’m curious, what are you doing personally to respond? And are you mostly concerned about the economic impact (i.e. fiscal discipline with regard to spending more than you earn) or the environmental impact? Or both?

  7. dave.s. Says:

    Jen, it’s a mix. I’m kind of concerned about the social impact – we’ve had a kind of social equality in energy in everything that really mattered for a number of years – nobody’s mom died of heat stroke during the summer, or got frost bite in the winter, everybody could commute. You could commute in a shit-box Geo from ten years ago or in a swell Audi with nice leather-smell seats, but you had mobility. In the future, how well off you are impacts how comfortable you are, and your ability to move around. There’ll be some resentment, likely.
    Economic impact – we’ve been saving a lot of money towards retirement. I suppose maybe this slows us, but it’s hard to see it actually cutting out our ability to maintain the level we have for ourselves and the kids, in the near term at least. We live near a subway, so expect to be able to get around. Environmental impact? I expect that all the easy oil will be burned, if we refrain/can’t afford, BRIC will burn it. Maybe if we cut back, BRIC will burn more oil relative to coal, and that’s a good thing. We tend to be very US-centric, and to think our actions are all that matters. Twenty years ago, that was sort of true, now, not.

  8. dave.s. Says:

    here’s a today post from a sort of apocalyptical guy, Patrick Deneen (blog What I Saw In America):
    Monday, June 9, 2008
    Fear of Not Flying
    I’ve just finished listening to an NPR program, “On Point,” the subject of which was the prospect of “the end of cheap airfare,” or – to be more blunt – the end of air travel for most of us. Its host was incredulous that they could even be considering the possibility that Americans may have to start thinking about distances in making choices about where they live. He couldn’t repeat enough that oil prices were forcing a reconsideration about everything we assume about life as we know it in America. The realization is dawning that we’ve based a civilization on a fleeting and temporary substance. It is yet to occur to many that what an oil civilization allowed us was the luxury of thoughtlessness. A national seminar is underway, but at the moment many of us are just starting to study, though the lesson started some time ago. And there is no curve.

  9. dave.s. Says:

    Here are some photos of an earlier period of gasoline shortage/high price, showing pedicabs as part of how people adjusted. Very adjustable people, the French.

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