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Gas Station Owner Kills Rival in Gas Price Fight
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While it sounds incredible, $10 per gallon gasoline is what we should expect only seven years from now. That is, if everything goes extremely well, between now and then.
When thinking about where to live, and what car to buy, the future price of gasoline should definitely be a consideration. Not many people will be able to afford to drive long distances to work each day. Not many people will be interested in cars that get poor or even average gas mileage.
Why should we expect $10 per gallon gasoline in seven years?
Because gasoline prices have been increasing for a while now, long enough that we should take for granted that prices will continue to increase at about that same rate.
How fast have prices increased?
In 2003, the average price of gasoline was $1.50 per gallon in the USA. Now, it is over $3.00 per gallon. This doubling in price happened over about four and a half years.
Let's take a look at a graph that shows the average price of gasoline in the USA since the start of 2002.
In red, is the average gasoline price for each week. These red dots show how gasoline prices tend to go up and down throughout the seasons. The black line helps to show the overall trend of increasing gas prices.
Prices are typically at their low for the year during the winter, and at their high for the year during the summer. In 2007, the lowest average price was $2.21 per gallon. That was in January. Over the following sixteen weeks, the price increased by 47% to $3.25 per gallon.
So far, in 2008, the lowest average price has been $3.01 per gallon. If we again see a 47% increase, then we'll be paying and average of $4.43 at the pump before the end of May.
There is no guarentee prices will increase this rapidly, but this number gives us an idea of how much belt tightening might be necessary.
Since price for gasoline doubled in four and a half years, how long will it be before we reach $10 per gallon?
The chart at right shows the price of gasoline over the past several years, and then simply extends the trend out to the $10 point. This graph shows exponential growth as a straight line.
The way things have been going, we will be paying $10 per gallon within seven years.
With that in mind, the thought of buying a poor gas mileage car, taking a job far from home, or buying that house in the suburbs or ex-urbs doesn't sound like the best idea.
But "the way things have been going" is a big assumption; actually, it is several big assumptions. Here are a few of them:
1. The world economy continues as it has for the past five years
2. The inflation rate stays about the same
3. World oil production stays about the same
4. The world remains in a state of relative peace
5. Other factors remain basically the same
Stagnant world oil production is the most likely cause of the increasing gasoline prices.
Over the past three years, world oil production has not increased. Instead, oil production is now at a plateau of about 84.5 million barrels per day. This is in great contrast to constant industry and economic predictions of continued growth in production.
With more people demanding gasoline, both because of population increases, and because nations are rapidly increasing their use of automobiles, the increase in the price of gasoline and oil is not a surprise. As production has remained constant, the prices must rise as demand increases. This is economics 101.
What is surprising is that world oil production has not increased in over three years.
Could it be that the oil producing countries and companies could produce or extract more oil, but they just aren't trying hard enough, or don't want to, for some reason?
The incentive in business is to make money, as much as possible, as fast as possible. If an oil company had more oil to sell, at today's prices, they would sell it to bring in the additional profits. There is no incentive for them to hold back on production.
Let's look at the prices of oil over the past few years:
We can see that prices rose from about $25 per barrel, to around $60 per barrel, over the period of only two years, being 2004 and 2005. After a brief pause during 2006, prices continued to rise in 2007, and are now around $100 per barrel.
This increase in the price of oil is driving many individuals and companies to try to increase oil extraction, so they can sell the oil at these all time record $100 rates.
In Alberta, Canada, a major effort is being made to extract oil from the earth by mining it. Here, tar sands are dug up using huge tractors, loaded on dump trucks, taken to a factory to wash the tar off the sand, and then the tar is mixed with natural gas to produce refinery grade oil.
In the deep oceans, oil companies have sent floating oil platforms, to attempt to drill through miles of water, and more miles of earth to get at smaller and smaller oil patches.
In Pennsylvania, the original oil boom state, people are trying to get the last barrels out, by pumping, digging deep holes, or whatever means necessary.
And yet, with these and similar efforts around the world, oil production has not increased, and the natural result has been a not-too-surprising increase in the prices.
If this plateau in oil production continues, we can expect some very high oil prices in the not too distant future.
Again, using a graph that shows exponential growth of prices as a straight line, we can see that oil prices may be $1,000 per barrel in ten years time.
If you look closely at the red dots, you may notice that ten years might not be the best estimate. Recently, oil prices have been increasing rapidly. Perhaps ten years to $1,000 is the lowest price we should expect.
What this all boils down to is that gasoline prices, oil prices, food prices, and all prices that depend on the transportation and production of goods and services, will be increasing. It appears that our oil producers are no longer able to increase production, and so the prices will continue to rise. That is what we should expect, in the best case scenario.
What makes this the best case scenario?
It is the best case because oil geologists and oil companies are starting to tell us that we will be unable to continue producing 84.5 million barrels per day for much longer.
Retired oil geologists Colin Campbell and Ken Deffeyes are but two of many who both state that 84.5 mbpd is either the ultimate maximum extraction rate, or very near to it. More importantly, they and others point out that it isn't getting any easier to extract the oil, in fact, the easy-to-get-at oil is mostly gone, and now even the hard-to-get-at-oil is in decline.
If the plateau of 84.5 mbpd ends, and world oil production begins to decline, then all bets are off. The best case $10 per gallon gasoline and $1,000 per barrel oil will look like the deals of the century. This possibility is concerning to a growing number of people, who have begun to learn about peak oil.
Peak oil is simply a shorthand way of describing the point at which world oil extraction reaches its all time limit, before going into a permanent and unstoppable decline.
Similar situations have happened before. In 1956, the most famous oil geologist in the world, Dr. M. King Hubbert, predicted that oil production in the USA would peak before the mid-1970's. He made his calculations by examining the amount of oil discovered in the USA, and noting that less and less oil was being discovered each year. Since discovery was declining, production would also have to eventually begin to decline.
Hubbert's prediction proved to be accurate. US oil production did peak before the mid-70's. The US was but the first of dozen's of countries to reach their personal bests in oil production. All these countries are now in production decline.
Hubbert later pointed out that the peaking of oil production would also happen to the entire world, since global oil discoveries were already beginning to decline.
What this all means for us is that we need to start adjusting to a new reality. Not only should we expect that increasing gasoline prices is normal, but we should also expect that other prices will increase as well. For those individuals on a fixed budget or a low income, it is particularly important to find ways to adjust to these price increases. This new reality is also a call to the rest of us to start considering what can be done.
In the 70's, after the peaking of US oil production, we began a wide effort to conserve energy and reduce oil consumption. We insulated homes. When it was time to get a new car, we bought one that got the best gas mileage possible. We started gardening to grow vegetables to keep our grocery bills in check. We shared rides to work and combined trips. We did what it took to take care of ourselves and our families.
Had oil prices remained high through the 80's and 90's, we would probably be in an okay place today. But prices did not remain high, and as they declined to record low levels, our rate of consumption reached new highs.
Today, we are in a similar situation to the one we found ourselves in during the 70's, but with one major difference: there is no likelihood we will ever see stable gasoline prices ever again. We have to expect that the prices will continue to rise, and we will have to continue to adapt, until someday, perhaps decades from now, we find that we have transitioned away FROM gasoline, in much the same manner that we transitioned TO gasoline in the first place.
The challenge is in making this transition, and in making it quickly and purposefully enough that we can continue to take care of ourselves, our families, and our communities. We don't know for sure when the decline in oil extraction will begin, how rapid the decline will be, or even how that will accelerate the rise in prices, but we certainly can think about it, and start planning now for this unique, unexpected and challenging future.
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Fossil Fuel
