OPEC has cried wolf again, but there’s reason to believe that this time, the cartel is serious about constricting oil production. Which, of course, will send the price — and thus the price of gasoline — upward. And there’s nothing American drivers will be able to do about it.
When it comes to oil companies and how they think, John Hofmeister knows of what he speaks. So when the former president of Shell Oil took to the lectern at the Hudson Institute’s “Fueling American Growth” conference in Washington, D.C., on Thursday and told the assembled that Big Oil actually doesn’t like high oil prices, it shouldn’t have come as a surprise.
And yet … let us gather that in: Companies like BP and ExxonMobil that post billions in earnings (or slightly less, as the price of oil slipped late in 2014 and into 2015) actually prefer a world in which a barrel of oil trades at a safe, predictable, boring price.
Here’s an excerpt from Hofmeister’s remarks:
Contrary to some popular belief, oil companies don’t actually like high oil prices. They like predictable, rational prices that deliver a return on investment over time. Companies do not like spiking, ever-higher prices, because of what happens as a consequence: The cure to high oil prices is high oil prices. People stop buying. Surpluses develop and prices collapse.
What’s the cure to low prices? Low prices. Because people stop producing and, sure enough, we run into shortages, and prices rise. This ever-continuing volatility is not good for the industry, it’s not good for national security, and it is horrific for the economy. And oil companies have been around for a long time. They see beyond the advantages of volatility either way, and look for those predictable price spots – they call them sweet spots, actually – where you can achieve an attractive investor return on investment, and you can maintain a stable workforce, and you can invest in R&D, and you can produce just enough energy to keep the nation well-supplied.
Hofmeister, who’s on the board of advisors with Fuel Freedom Foundation and is one of the stars of the foundation’s documentary, PUMP, has predicted that oil prices will continue to surge upward over the next year because U.S. drillers won’t be able to simply ramp up production quickly again after the recent downturn in prices forced many of them to suspend operations.
The foundation has argued that the best way to reduce oil consumption, end oil-market volatility and make prices gasoline permanently low for consumers is to open the transportation-fuel market to cheaper, cleaner alternatives like ethanol and methanol.
Hofmeister said: “We will never get past the volatility of oil until we get to alternatives to oil.”
The primary reason that I care so much about alternatives and future fuels is, as a person from the oil patch, I know the limitations. I know what’s possible and what’s not, and the appetite for oil worldwide will never, ever be satisfied from the oil patch. It can’t be. The risks, the costs, the geopolitics, really cannot begin to address the 2 billion people on this earth who really don’t have access to oil-based petroleum fuels, and most of them never will. There just isn’t enough.
You can watch the whole video clip here:
With the price of oil down from about $115 to $63 since last June, the impression has been created that the auto world is once again in the hands of the oil industry, and that the gasoline engine is here to stay.
But this week at the Bloomberg New Energy Finance Conference, there was the distinct impression that alternatives to the gasoline engine are moving up so fast that within another five years we may see big changes. Bloomberg Business wrote that the result is “Future transport is likely to look a lot different than what the major oil companies are fueling now. Instead of biofuels such as ethanol and green diesel making the internal-combustion engine fit into a world with greenhouse gas limits, wholesale new solutions are coming fast.”
“Where we are is in an age of plenty,” Michael Liebreich, BNEF’s founder, told Bloomberg. “We have cheap oil, cheap gas, cheap renewables. You do have an abundance of supply in a way you haven’t had for decades. We also are in an age of competition.”
The biggest piece of news is that gasoline consumption has leveled off over the last decade and now is lower than it was in 2006. This is a remarkable development that no one knows quite how to explain. Part of it may be the lingering recession. Fleet mileage improvement has definitely made a difference, improving from 24.5 in 2001 to 31.6 today, a dramatic surge of 29 percent in 13 years. The Age of the Hummer is over, and people are being more selective in shopping for better mileage, even as the vehicles improve.
But Bloomberg Energy sees alternatively fueled vehicles also making headway in a way that is just becoming visible. Electric car sales have quintupled over the last four years, although they did start at a very low base. But battery prices are coming down as rapidly as solar-panel prices, which means that they soon will be in a range where the average American can afford them. Tesla’s 2017 debut of the Model 3, priced in the $35,000 range, is going to be a real turning point, if everything goes right.
Also coming along rapidly is the hydrogen car, which the Japanese auto industry has chosen as its alternative to gasoline. Toyota and Honda are just beginning to market their models in Japan, and BNEF anticipates there will be 4,200 on the road in Japan by 2018. But California is another big potential market, and sales are scheduled to begin there sometime late this year. The California Legislature has responded by expanding the Hydrogen Highway initiated by former government Arnold Schwarzenegger, making it easier for drivers to refuel.
Of course, all these predictions are taking place on a world scale, and there the progress may be even more rapid than in the United States. One thing Tesla discovered in its relatively abortive attempt to crack the Chinese market is that China already has a thriving electric-car industry. The cars, moreover, are not scaled-down versions of powerful sports cars but slow-moving vehicles that have been designed from the ground up.
In an article in Forbes last week, Jack Perkowski outlined what he called “China’s other electric vehicle industry:”
While the global automotive giants struggle to find a winning formula for electric vehicles, approximately 100 manufacturers in China have already identified a large potential market undiscovered by the traditional players. The common problems faced by EV automakers — high cost, driving range, and the availability of charging stations — are not issues for these manufacturers because their target customers are satisfied with low-speed and limited range EVs, as long as they provide affordable transportation. In 2014, 400,000 so-called ‘low-speed’ EVs were sold in China, compared to only 84,000 conventional all electric and hybrid electric vehicles.
To get a glimpse of the size of China’s potential market, consider this: China is already the world’s largest vehicle market, accounting for 25 percent of all vehicles manufactured globally. Yet there is only 1 vehicle per 10 people in China, whereas in the United States there are 8 for every 10 – more than one vehicle for every person of driving age. China also has another huge market for other electric vehicles. It has sold 90 million motorcycles and 120 million electric bicycles.
Estimates are that China now has a million such low-speed EVs on the road now and might reach 3 million by 2020. These cars can do about 48 miles per hour and are used for short runs around town in smaller cities, so range is not a problem. They are doing wonders for air pollution. Manufacture only began in 2006, and already some provincial governments are starting to write requirements that they be preferred to the older gasoline types.
Surprisingly, the only government entity that has been slow to embrace the low-speed EVs is the national government in Beijing. The Central Government has not counted these EVs is their official automotive statistics and is only now starting to write regulations on how crash-worthy they must be and on what roads they will be allowed to travel.
Perkowski concludes: “Low-speed EVs may not fit the stereotype of today’s modern passenger car, but in China, where incomes remain low for a large part of the country’s population, affordability often trumps those values held dear in more developed countries.”
Could China’s low-speed EVs find a market in the United States? It’s certainly possible. In any case, the anti-gasoline revolution may be coming in ways we did not anticipate.
We asked, and you delivered.
At the start of our “Share Your Story” campaign, Fuel Freedom Foundation sent out the call: Tell us how volatile gasoline prices, which peak and plunge without warning or explanation, affect your daily life.
We got dozens of responses, from all age groups and all regions of the country. Here are some of the best:
“I would love cheaper gas prices, because my boyfriend and I share my van, and several days a week, I have to drive him to work, then go back home, run errands, or take kids to school, then go back and get him later. It takes a lot of gas to do that.”
— Eileen N., Selma, N.C.
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“I can’t raise my wage whenever I want. It’s hard to budget when you know they will raise the price every week — just ’cause they can, I guess.”
— Tim H., Coldwater, Michigan
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“Fuel prices are the only thing in my budget that I can’t consistently account for … it’s infuriating.”
— Manny L., Daly City, California
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“My new granddaughter lives in Odessa, and I can’t afford to take my medications AND go to see her on my fixed income. Groceries and goods are transported to stores by truck, and higher fuel prices are passed on to the consumer by increased food and goods prices. My dollar isn’t worth as much with the higher fuel prices. If gas goes up to $4 a gallon again, I will barely afford food and clothing, much less any traveling to see my granddaughter. Our economy will suffer greatly if fuel prices don’t stabilize around $2 a gallon or less.”
— Gary S., Rowlett, Texas
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“I spend about $300 to $500 a month in fuel. There are some months that we are struggling to pay for food. The trade-off is that the rent is cheaper the further you are from the city, but the gas is killing us.”
— Abe F.
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“I’m on SSDI [Social Security Disability Insurance]. When fuel prices go up or stay high, it’s really simple to explain: I have less food to eat, and I might not be able to buy all my medicine. I have also had to cancel some appointments. Sometimes doctors have to be put off for a later date!”
— Steven D., Des Plaines, Illinois
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“I drive a car with 40 miles to the gallon, and I am still struggling with gas prices. Especially soaring gas prices in Arizona. During the Super Bowl, gas prices dropped to $1.70 a gallon. It was such a stress relief having to pay $15 to fill up my gas tank for the week. But after that week was over, gas prices went up to $2.49 in just a week. It is unfair that big companies do this to people. I can’t even imagine how people live with bigger engines. Having to shovel $80 for a tank that lasts a week.”
— Thomas M., Phoenix
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“Gas prices have kept me from seeing my brother, who is 75 years old and lives 240 miles from me. He won’t be around forever, but the jerks screwing us with high gas prices will. I hope they someday get judged on making travel for the retired so hard. They need to lose all their money and see what it’s like.”
— Calvin
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We’ll be posting more responses over the next week or so. If you’re wondering what you can do about the unending rollercoaster of oil and gas prices, there’s plenty, so visit our Take Action page, where you can learn more about our mission to reduce oil consumption. You can sign our petition asking major fueling retailers, like Costco, to offer consumers alternative fuels.
Also, check out our companion site, which is all about the stupendously great documentary film PUMP.
PUMP is an inspiring, eye-opening documentary that tells the story of America’s addiction to oil, from its corporate pump 2conspiracy beginnings to its current monopoly today, and explains clearly and simply how we can end it – and finally win choice at the pump.
Some time in the future–perhaps a decade from now–we’ll all be driving around in electric cars (probably). Battery technology will have evolved to allow longer trips on a single charge, and they’ll be significantly cheaper than they are now.
A decade from now, though? That’s a long way off. In meantime, we’re going to need other ways to reduce our dependence on oil–both because oil increases instability in the world (look at Russia’s current oil-fueled adventures) and because it contributes to climate change, a problem that really can’t wait.
Our rank: Oregon’s gas prices are third most expensive in the nation for the second week in a row. Only Hawaii ($4.30) and Alaska ($4.06) are more expensive, making Oregon’s prices the most expensive in the 48 contiguous states.
Average retail gasoline prices in Fort Wayne have risen 11.1 cents per gallon in the past week, averaging $3.53 a gallon Sunday, Augus t10, 2014 according to GasBuddy’s daily survey of 201 gas outlets in Fort Wayne. This compares with the national average that has fallen 1.7 cents per gallon in the last week to $3.47 a gallon, according to gasoline price website GasBuddy.com which powers wane.com’s Gas Gauge.
In the US, ethanol production for the week before last averaged 902,000 barrels per day, or 37.88 million gallons daily. The four-week average for ethanol production stood at 940,000 b/d for an annualized rate of 14.41 billion gallons.
Even as electric vehicles gain in popularity, we’re told again and again that internal combustion engines aren’t going away. While that may be true, it would still be nice to kick our addiction to gasoline. Pollution, international turmoil and energy insecurity are getting a bit tiresome. It’s good news, then that Navigant Research is predicting a decline in the amount of gasoline we use.
