Tuesday, May 02, 2006

So tempting

After my week of sipping the US News Media cocktail, I became well informed that paying $3 per gallon of gasoline really sucks. CNN and Fox News had nearly round the clock coverage of how much it sucks and how much it will continue to suck because all the politicians are doing nothing. This featured heavyweights on both sides of the political spectrum, including Ted Kennedy, with a lot of talk about "middle class families". (I know there are other sources of news in the US, but this was all that was available to me at the time).

Fox Fact: Regulations requiring ethanol to be added to gasoline raises gas prices.*

Relevant Fact: 3 years ago, the price of oil was about $27/barrel, and it's now $74/barrel. That new price is 2.75 times the old one. 3 years ago, the price of gas in the US was about $1.45/gallon. The price of gasoline is now $2.90/gallon. The new price is 2 times the old one. Gasoline comes from oil. (I know that doesn't fit at the bottom of the TV screen so well. It may actually need to be spoken.)

Go here and draw yourself a chart with the oil price box checked over 3 years. You'll see how the prices follow each other.

Let's do some math: About half of what people pay at the pump is for the cost of the oil. If people paid $2 for a gallon of gas, $1 went to oil. If the oil costs double to $2 and all the other costs stayed the same, the price of gas becomes $3. But all the other costs don't stay the same. Sales taxes are going to increase along with the overall gas price depending on where you live. And if there's a hurricane on top of some refinery, then the refining costs go up.

If you do the same example calculation using the real numbers for the past 3 years, it works out that gas should cost $2.71/gallon, assuming there was no hurricane Katrina or Rita and taxes stayed the same per gallon.

So is $2.90 that unbelievable?

Not once in all the discussion did I hear anyone say anything about public transit. There was some talk about selling your Hummer or Escalade, and buying a hybrid. Thanks for that useful bit of insight. The only mention of the bicycle came from a woman driving a Hummer who said she wouldn't want to be seen in a hybrid. She'd rather ride a bike everywhere, and she actually sounded like she was considering it.

In the meantime, the commenters on Peak Oil web sites are stocking up on canned goods. I have to admit, this did cause me to buy an extra can of beans last night when I was at the store, but it was probably just because I had canned food on my mind. And I'd like to make some of my new favorite soup: spicy black bean.

On the peak oil subject, Fed Chairman Bernanke made some comments that were relevant. He pointed out that the high energy costs would start to have a detrimental effect on the economy once they start to be translated into higher priced consumer goods. This was not part of his official speech, but one of his responses to a question. This response didn't draw any attention from the CNBC commentators while I was listening.

As for gas prices, the latest solution is to tax the oil companies' profits and distribute it to the people. This idea seems nice on the surface, but I expect there to be some hole in the plan. It would at the very least give the US less of a leg to stand on when trying to stop countries from forcing majority ownership of their resources. It wasn't clear whether this profit-tax would be applied to worldwide profits, meaning the US citizens would receive profits from the gas buying public from around the world. That would be something worth whining about. Or, all of a sudden, the oil companies will be doing a lot of reinvestment, so the profits would no longer exist to be taxed. I don't mean that in a cynical way; it would be expected of any corporation to do that.

The massive profits of the oil companies comes from the fact that they have access to a limited resource that is in high demand. If prices dropped, consumption would increase meaning production would need to increase, but production is already at its limit. Pumping the oil costs about the same as it did back when oil cost $27/barrel, so it's easy to see why selling the product for $74 leads to a lot of profit.

Instead of a tax, one part of a solution is for everyone to do what they can to own the world's limited resources. This doesn't need to mean that we should send soldiers into our nations' oil fields. Fortunately for most of us, we live in free countries where we can own part of that profit by owning part of the company. (Yes, I'm just one more guy speculating on the energy market).

The other solution is for everyone to support bicycle plans and public transit infrastructure so we have choices now and in the future, assuming energy costs get even higher.

I'm getting preachy, so I should stop now. Thanks for reading this long-winded comment.

* By the way, the Fox Fact about ethanol in gasoline is probably referring to the switch from using MTBE in gasoline to using a product created from ethanol. MTBE contaminates ground water and it's eventual removal from the gasoline supply is not really up for debate any more. Canada does not ban it, from what I understand, but Canada never required it to be added either. It was originally required to be added in California and elsewhere to reduce emissions. I only just learned about this MTBE issue from a friend this weekend. Do a search on MTBE and I'm sure you'll find more.

Darren J 5/02/2006 08:21:00 p.m.


1. I was considering a post like this (and I noticed the same thing on the Toronto Gas Prices website - which I love watching the prices go up on that chart...), but you did a far better job than I could've. Great post!

2. "I have to admit, this did cause me to buy an extra can of beans last night" made me laugh and laugh and laugh. Thanks. :)
I'm amazed that more people aren't buying diesel vehicles. For about $150 you can convert them to take cooking oil, of which there is a near limitless supply.

You can even use the used stuff, which might mean a whole new perspective on the drive through thing. McGas here we come.
Petrol prices in the UK are currently running at just under a pound a litre, which works out to about CDN$2/litre. Seeing Americans complain about US$3/gallon gas shows they don't know how good they have it. Admittedly most of the UK price is tax (and it's there explicitly to discourage people from driving), but even so the gas price is cheap - and massively subsidised, from what I understand.

I don't think buying canned goods is a valid solution for Peak Oil - I'm looking into setting up a garden here at home, which is a longer term solution. There's options for apartment dwellers and the like as well, using containers.

Plus canned goods don't taste too great, in my opinion, but I could just be picky!

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