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The Solution to the Gasoline Crisis and Other Problems
For instance, if we take a particular date such as June 7th, 2004, we can see that the average price of regular gasoline in California was $2.316 per gallon, according to the figures posted on the California State Energy Commission’s website. This represents a 33.72% increase from the same time of the previous year. From 1999 to 2004 the average increase from year to year on or near this date was 12.99%. If we project what the price of gasoline will be on or near June 7th, 2005, it will be $2.617 per gallon if based on the average yearly increase. If based on the increase from 2003 to 2004 of 33.72%, it will be $3.10 per gallon.
If we pick another date such as October 25th, 2005 and do similar projections, we obtain a price of $2.722 per gallon if based on an average yearly increase of $13.69% from the same time of the previous five years. If we base the projection on the increase from 2003 to 2004 of 37.82% for this time of the year, the price will be $3.299 per gallon of gasoline.
We can also make predictions based on other factors. For instance, Goldman Sachs, the largest trader of energy derivatives in the world, recently predicted that the price of crude oil will rise above $100 per barrel. The price of crude is the largest factor in determining the price of gasoline. If $1.21 out of a total price of $2.38 for a gallon is attributable to the price of crude as was the case on March 28th, 2005 according to the CEC website, we can logically conclude that if the price of crude on which this gallon is based on were to double, the cost of the gallon attributable to the price of crude would also double. In this example, the price of a gallon of gasoline would rise to $3.59. The CEC also has a formula for predicting the effect that crude prices have on gasoline: 25 cents for every $10. So if the price of crude were to ascend $50, the price of a gallon of gasoline would increase by $1.25 according to this formula.
Rising global demand is the primary reason cited for rising gas prices. In order to consider the impact that this rising global demand will have in the near future, consider the following figures from the BP Statistical Review of World Energy. In 2003, the U.S. with roughly 4% of the world’s population, consumed 25.1% of the world’s oil. In contrast, China and India, each with populations exceeding 1 billion people, consumed 7.6% and 3.1% of the world’s oil respectively. These are rapidly industrializing societies that will continue to compete for the world’s available supplies. The effect they will have will be to inevitably push the price up. What these figures reveal as well is that the U.S. is the country that has the greatest impact on the supply and demand relationship that affects the cost of oil.
The chaos in Iraq, home to 10% of the world’s proved oil reserves, and the threat of terrorism will not vanish overnight either, and these factors will continue to push the price upwards as well. Saudi Arabia, home to 22.9% of the world’s proved oil reserves, has demonstrated its vulnerability to terrorism numerous times. The war being fought in Iraq, purportedly to establish democracies in the Middle East, but suspected by others, including Chief U.N. weapons inspector Hans Blix, to secure a low price of oil for the U.S. economy, should provoke some questions: If true democracies were established in the Middle East, would its citizens administer their oil wealth in a manner that favors the lifestyle and economy of the citizens of the United States? That is, would they sell us all the oil we demand for a low price? I raise this because Americans seem to have a sense of entitlement over what they pump into their vehicles.
Ultimately, we must grasp the concept that the world does not contain an infinite supply of oil. According to the BP Statistical Review, the world contained 41 years of proved oil reserves at the end of 2003, known as the reserves-to-production ratio, which is derived from dividing the total amount of proved oil reserves by the amount of production for that year. This figure has only diminished 6% from the peak of 43.7 years in 1989 as probable reserves are converted to proved reserves. As production of oil increases in order to satiate worldwide demand, it is inevitable that this figure will diminish, and the effect it will have on prices will be to push them upwards. The only logical response is conservation. An economy based on the gratuitous consumption of gasoline is not sustainable.
The top recommendation in the aforementioned joint agency report is that California reduce its petroleum consumption by 15% below the 2003 level by 2020 and maintain that reduction for the foreseeable future, relying primarily on vehicle efficiency improvements and the introduction of alternatives to petroleum. Considering the economic impact that $3.50 and $4.00 per gallon gasoline will have on our economy, such a recommendation seems to have little practical application to reality. It would appear that we need to conserve much more than this, much sooner, and have viable alternatives to driving. Otherwise, the average Californian will be left severely economically burdened by the cost of gasoline, and if we don’t have adequate mass transit, our economy will face severe challenges. The main problem with the CEC’s approach is that they have made their goal of reducing petroleum demand subservient to their commitment to not recommend tax increases. Assuming the rest of the U.S. was to reduce its consumption by a similar amount and world production levels were to remain the same, the U.S. would still consume 21.84% of the world’s oil. Considering the industrialization of the world and the patterns of oil consumption, we must seriously question whether this is sustainable.
If the price of gasoline is constantly fluctuating, but inevitably increasing, it does not make much sense to object to an increase of 10, 20 or 30 cents in the gas tax if such a tax has the potential to moderate the price of gasoline by providing the population with alternatives to driving that will reduce demand, as well as provide other significant benefits. Simply encouraging Californians to inflate their tires will guarantee that the price of gasoline will ascend to $3.50 and $4.00. It is ironic that people who may oppose paying a few extra cents per gallon may end up wasting comparable or greater amounts idling on our crowded streets and freeways. A situation which mass transit can ameliorate.
Demand for gasoline exceeds California’s refining capacity, but only by a small amount. According to the CEC, California refines 90% of its gasoline, and it imports the rest of it, at a higher cost. Based on this information the Southern California Auto Club was urging drivers to conserve gasoline a year ago. According to spokeswoman Carol Thorp, "Demand for gasoline outstrips supply in California, which helps push prices upward. Reducing consumption could eventually result in lower prices." The SCAC’s top recommendation was to carpool or to use mass transit.
This is a good short term goal for California, to reduce our demand for gasoline to within our refining capabilities. Considering the numbers, it is achievable, and it is the only thing we can do to moderate the price of gasoline. Beyond this, we should consider reducing our demand for petroleum within what domestic supplies can provide. According to figures from the CEC, 36% of the oil we consume in California is from foreign sources. Judged strictly on the percentage, it seems achievable. Of course, in the context of our political, social, and economic structure it may be considered laughable and unachievable. We must consider that if our economy depends on cheap gasoline, and we are no longer able to get cheap gasoline, we must either change or collapse.
We are underutilizing mass transit in California, largely because it doesn’t exist. There isn’t a single city in California that has an efficient transit system. Those of us who live in urban centers along transit corridors can debate whether it’s worthwhile to wait half an hour for a bus to go somewhere. Perhaps during certain times, bus service is frequent, but at other times it is dismal and unreliable. For Californians who live in the majority of cities and towns, however, this isn’t even an option. For them a more realistic option is, do I want to take 3 hours to run an errand?
I e-mailed Carol Thorp of the SCAC twice and discussed the concept of increasing the gas tax to fund mass transit and presented her with the comments made by CEC members regarding the potential effect that mass transit can have on reducing gasoline demand. It would have been odd if a spokesperson from the Southern California Auto Club were to defend mass transit. The SCAC advocates the use of mass transit in order to reduce demand for gasoline and moderate prices, but most Californians have access to either mediocre or poor mass transit. So I asked her, how can enough people be persuaded to use mass transit in order to conserve enough gasoline to make a difference? Would it not be in the interest of drivers to support a tax that could provide this alternative to people, in the name of moderating gas prices, reducing traffic, and reducing pollution?
She did not respond. She is probably one of those people that is married to the notion that a tax is bad. Perhaps she did not want to publicly acknowledge her untenable position. The SCAC would like to see gas prices moderated, and supports the use of mass transit to do so, but most likely does not support a gas tax to do so, and has no suggestions for how to fund mass transit. The result for the SCAC and people who have similar positions is that there is nothing they can do to achieve their goal of moderating gas prices.
Neglecting investment in mass transit and solely relying on anticipated or hoped for improvements in fuel efficiency will keep us locked in to the cycle of petroleum dependence and spiraling gasoline prices. And as anyone who lives in Los Angeles knows, relying on the car as the primary mode of transportation will inevitably result in major traffic congestion. Communities that solely rely on the car as an efficient means of transportation will inevitably replicate Los Angeles’ unsustainable model and all of its problems: traffic congestion, pollution, a depressed economy.