Why I love the price of gasoline

[Ivan Seeking]

Although I realize that the price of gas hits many of America's working poor the hardest, it is imperative that we wean ourselves from oil; and soon. My fear is that we will wait too long and will eventually be forced to engage in energy wars, or worse, because we will have no choice. As the world demand increases and supplies dwindle, there are difficult times ahead.

We now have maturing options to fossil fuels, some of which are clean such as the ideal Hydrogen based technolgies, and other more practical short term options that are relatively clean such as ethanol, biodiesel, salt-water algae extracts, biomass conversion techniques, clean coal, and so on.

The majority of mainstream energy alternatives are viable when gasoline hits $5.00 a gallon; at least this has been a common claim found for ten years or more. We are close to that price now, so I see this as a huge opportunity to act in our own best long term interest - to rush in the new OPEC-free era of US politics.

Edit:

More than $25 billion a year goes for Persian Gulf imports alone.

http://www.nrdc.org/air/transportation/aoilpolicy2.asp
In principle this would all go back into the US economy.

 

[scott1]

I do partially agree.We do need to swicth to form fossile fules.But I don't like it how gas compines are makeing record profits and it's also hard for the airline industry gas is very expensive for them.

 

[Ivan Seeking]

We can make these huge profits the death rattle of big oil.

 

[EL]

My fear is that we will wait too long and will eventually be forced to engage in energy wars, or worse, because we will have no choice.

I agree, and in some sense the energy war has already started. At least according to some people the war in Iraq is mainly about oil.

(And the $5.00 a gallon was hit here many years ago, so we're already there...)

 

[dduardo]

If you thought the gasoline price was crazy, BP is now offering 102 Octane in the UK for $20 British Pounds($16.32 US Dollars) per gallon:

http://www.autoblog.com/2006/04/25/bp-launches-16-a-gallon-fuel/

 

[Ivan Seeking]

I agree, and in some sense the energy war has already started. At least according to some people the war in Iraq is mainly about oil.

(And the $5.00 a gallon was hit here many years ago, so we're already there...)

Japan attacked Pearl Harbor and propelled us into WWII because we cut off their oil supplies. Already we can trace many or even most of the world's biggest problems and events, to oil.

See also:
http://www.wnbiodiesel.com/

 

[Astronuc]

I see that the transition will be quick. Big oil has a huge investment to recover (and huge profits to protect).

We certainly can switch to alternative is everyone is will to pay higher prices - and its not only gasoline, but just about every product is affected by higher energy prices due to increased transportation costs.

Then again, the US may be forced to switch - like it or not.

Apparently there is pressure to start exploring off shore in currently off-limits sites in Ca, the Gulf (near Ga and Fl coasts), and on the Atlantic Coast near Virginia/Carolinas, and off course, there's ANWR.

However, all that would add little to domestic production at current consumption levels, and it would take years to bring into production.

 

[edward]

I have a gut feeling that the same people who control and profit from fossil fuels will be in control and profiting from alternative energy sources.

It is very ironic that the big oil companies are the only ones who have the money to develop (or discourage the developement) of alternative energy sources.

 

[Pengwuino]

The big oil companies are probably on the fore-front of developing alternative energies for the very reason everyone blindly hates them! Profit! They have the money, they have the infrastructure, they know the market better then some $50 million outfit in Bakersfield (i don't mean anyone in particular) does and they can/will be the first to get to it. Thankfully liberals are doing their all to destroy the big oil companies, the 1 chance of getting mass transportation of say, hydrogen "gas"...

 

[scott1]

I agree, and in some sense the energy war has already started. At least according to some people the war in Iraq is mainly about oil

What they say is not turehttps://www.physicsforums.com/showpost.php?p=944849&postcount=17"
It should noted that I used 10 gallons but it's actully 42 gallons per barrel but
it's still not cost effictive.

 

[Manchot]

The big oil companies are probably on the fore-front of developing alternative energies for the very reason everyone blindly hates them! Profit!

I love how you place so much faith in the oil companies who are most likely engaging in illegal price fixing. They have no incentive profit-wise to introduce alternative energies. You can only conserve gasoline up to a certain point, which means that the demand for gas is inelastic. Therefore, consumers have no choice but to pay the piper, regardless of how expensive gas becomes. The only thing stopping gas prices from shooting up to $10 or $20 a gallon is that their price fixing would become obvious. Even as oil and gas prices climb higher and higher, they'll continue to make a healthy profit (as this past year proved).

Moreover, many alternative energy sources lend themselves to more competitive markets, which means reduced profit for Big Oil. Oil is concentrated in the hands of a few companies because of the high economies of scale. They have to speculate in foreign countries, deal with the locals, drill the oil, pipe the oil, process it into gas, and distribute it. There is no possible way that someone short of a billionaire could start an oil company from scratch. On the other hand, if something like ethanol or biodiesel became widely used, you'd have local farmers producing the raw material (eliminating the need for expensive foreign oil rigs), local factories processing the material into the appropriate form. Hell, biodiesel can be (and has been) made literally made in individuals' homes, with an investment of a few thousand dollars.

Putting it in economic terms, moving from oil to biodiesel would change the energy market from an oligopoly to a nearly perfectly competitive market. Not only would this mean a huge reduction in profits, it would also mean that the big oil companies would essentially dwindle down to nothing.

But yes, I'm sure that they have an incentive to innovate.

 

[Pengwuino]

I love how you place so much faith in the small cap companies involved in alternative energies. You can NOT charge a whole lot more for gasoline (look at europe, and no, there is no price-fixing contrary to popular belief, prices are set by local stations) and ethanol is hardly the future. It's pretty much a temporary fix towards hydrogen energy which cannot be created by someone inside their house. They pretty much know they'll run out of product soon enough and the first that can supply hydrogen to the market will make tremendous profits since $7 equivalency-gallon of hydrogen just can't lose to some $10 gasoline, especially when governments aren't as likely to put a 50% tax on it like they do with gasoline.

 

[Tzemach]

LPG is becoming increasingly popular here in Australia, probably because the price is one third that of petrol ($1.40 per litre = about $6.50 per gallon). Australia's NW shelf has sufficient LPG reserves to supply the World for an estimated 300 years, then all us Aussies can be as rich as Arabs. The same old oil companies of course will handle distribution so the price will soon go up.

 

[Ivan Seeking]

The big oil companies are probably on the fore-front of developing alternative energies for the very reason everyone blindly hates them! Profit! They have the money, they have the infrastructure, they know the market better then some $50 million outfit in Bakersfield (i don't mean anyone in particular) does and they can/will be the first to get to it. Thankfully liberals are doing their all to destroy the big oil companies, the 1 chance of getting mass transportation of say, hydrogen "gas"...

The point is to make energy a domestic issue. There will always be the ultra-rich, but I think the diversity of options will eventually force energy back to a free market [not limited to only four or five companies]. We see this already with the mom and pop alternative companies, such as with Bio-Willie.

 

[Anttech]

(look at europe, and no, there is no price-fixing contrary to popular belief, prices are set by local stations)

errmmm... every heard of OPEC?

 

[daveb]

While it's true that local stations are the ones who determine the final price, the oil companies charge them a certain amount for the gasoline itself. In order to survive, the stations must by necessity increase prices as they are charged more, so ultimately, the oil companies can control prices.

 

[Manchot]

I love how you place so much faith in the small cap companies involved in alternative energies. You can NOT charge a whole lot more for gasoline (look at europe, and no, there is no price-fixing contrary to popular belief, prices are set by local stations) and ethanol is hardly the future. It's pretty much a temporary fix towards hydrogen energy which cannot be created by someone inside their house. They pretty much know they'll run out of product soon enough and the first that can supply hydrogen to the market will make tremendous profits since $7 equivalency-gallon of hydrogen just can't lose to some $10 gasoline, especially when governments aren't as likely to put a 50% tax on it like they do with gasoline.

The gasoline station market is considerably more competitive than the gasoline-producing market, but that's not saying much. Most of the gas stations you see are Mobils, Texacos, Chevrons, BPs, Shells, or Phillips 66. Surprise, surprise, when someone says "Big Oil," they are usually referring to ExxonMobil, Chevron Corporation, British Petroleum, Royal Dutch Shell, and ConocoPhillips (notice a correlation?). The smaller gasoline station companies which are not affiliated with any of the Big Oil corporations must remain competitive to stay in business, but considering that their suppliers are their primary competitors, they are manipulated into paying up to the point where they cannot undercut their competitors. So, while Big Oil can claim all they want that local markets set prices, this is certainly not the case.

 

[Schrodinger's Dog]

In the UK we pay a tad under $6.80 per gallon(taking into account the US's smaller gallon) I don't see us clamouring for hydrogen fuel and I doubt the US will until the price becomes considerably higher than it is now. The US should feel glad there oil is so cheap

 

[Ivan Seeking]

I had to laugh at the logic used by a reporter last night. He was trying to make the point that local stations have no incentive to engage in price gouging. The logic was that the station owners primarily make money from the mini-marts found inside most stations. If they raise their gas prices, the reporter reasoned, people wouldn't have as much money to spend inside. :rofl: :rofl: :rofl: :rofl:

 

[dduardo]

On NPR today there was a call in from a gasoline station owner and he said he makes about 10 cents per gallon in profit.

If that is true, that means if he has 150,000 customers per year (~14 customers per hour) who buy 15 gallons of gasoline he'll be making a profit of $187,500 per year.

 

[Ivan Seeking]

Insurance, EPA inspections, taxes, employees, advertising, loan payments, building and land costs...

 

[Astronuc]

On NPR today there was a call in from a gasoline station owner and he said he makes about 10 cents per gallon in profit.

If that is true, that means if he has 150,000 customers per year (~14 customers per hour) who buy 15 gallons of gasoline he'll be making a profit of $187,500 per year.

That maybe EBIDTA.

 

[russ_watters]

To Penguino and Manchot:

Actually, it is more up to the car companies to provide the alternatives. One of the main reasons Japanese cars are outselling American cars today is because the gas price/shortage problems in the '70s got people buying small, energy efficient cars. In the '80s and '90s, gas prices went down to historic lows and so the Big3 sold a lot of SUVs, but people who bought cars still mostly bought Japanese cars. With gas prices going up again, the Big3 have a simple choice: produce more efficient cars or go bankrupt. They are already 5 years behind on hybrids, so they are off to a bad start...

Fuel efficiency is only a temporary solution to the problem, but it would help a lot and it isn't that much of a stretch to raise average fuel efficiency by 30% or so.

If today's vehicles were the same, in terms of average weight and speed, as those in 1981, but had today's more fuel-efficient engines and transmissions, they would, theoretically, see a 30.5 percent improvement in fuel economy, according the EPA.

That would be a heckuva good start.

http://money.cnn.com/2005/09/01/Autos/fuel_efficiency_trends/index.htm

In any case, being a capitalist, I agree with Ivan's central premise: capitalist market forces are what is required to push the needed changes.

 

[BobG]

On NPR today there was a call in from a gasoline station owner and he said he makes about 10 cents per gallon in profit.

If that is true, that means if he has 150,000 customers per year (~14 customers per hour) who buy 15 gallons of gasoline he'll be making a profit of $187,500 per year.

I doubt very many gas stations makes that big of a profit.

I wouldn't mind owning an oil company for about 2 minutes. Exxon Mobile had first quarter profits of 8.4 billion dollars. That's a little over $1000 per second.

 

[ray b]

http://www.energybulletin.net/12125.html

the value of a dollar was pegged to gold but that was ended
the new international system pegged the dollar to oil

'''n 1971, as it became clearer and clearer that the U.S Government would not be able to buy back its dollars in gold, it made in 1972-73 an iron-clad arrangement with Saudi Arabia to support the power of the House of Saud in exchange for accepting only U.S. dollars for its oil. The rest of OPEC was to follow suit and also accept only dollars. Because the world had to buy oil from the Arab oil countries, it had the reason to hold dollars as payment for oil. Because the world needed ever increasing quantities of oil at ever increasing oil prices, the world’s demand for dollars could only increase. Even though dollars could no longer be exchanged for gold, they were now exchangeable for oil.'''

but iraq wanted to shift to euro based prices
that may be the real reason behind the war with iraq
and now the threat of war with iran

''''The man that actually did demand Euro for his oil was Saddam Hussein in 2000. At first, his demand was met with ridicule, later with neglect, but as it became clearer that he meant business, political pressure was exerted to change his mind. When other countries, like Iran, wanted payment in other currencies, most notably Euro and Yen, the danger to the dollar was clear and present, and a punitive action was in order. Bush’s Shock-and-Awe in Iraq was not about Saddam’s nuclear capabilities, about defending human rights, about spreading democracy, or even about seizing oil fields; it was about defending the dollar, ergo the American Empire. It was about setting an example that anyone who demanded payment in currencies other than U.S. Dollars would be likewise punished.'''

note the timing of the iran switch and the resent price spike

'''The Iranian government has finally developed the ultimate “nuclear” weapon that can swiftly destroy the financial system underpinning the American Empire. That weapon is the Iranian Oil Bourse slated to open in March 2006. It will be based on a euro-oil-trading mechanism that naturally implies payment for oil in Euro. In economic terms, this represents a much greater threat to the hegemony of the dollar than Saddam’s, because it will allow anyone willing either to buy or to sell oil for Euro to transact on the exchange, thus circumventing the U.S. dollar altogether. If so, then it is likely that almost everyone will eagerly adopt this euro oil system:'''

I think the BuSh war plans real root cause is now known
not oil or WMDs but the value of the dollar

 

[Art]

http://www.energybulletin.net/12125.html

the value of a dollar was pegged to gold but that was ended
the new international system pegged the dollar to oil

'''n 1971, as it became clearer and clearer that the U.S Government would not be able to buy back its dollars in gold, it made in 1972-73 an iron-clad arrangement with Saudi Arabia to support the power of the House of Saud in exchange for accepting only U.S. dollars for its oil. The rest of OPEC was to follow suit and also accept only dollars. Because the world had to buy oil from the Arab oil countries, it had the reason to hold dollars as payment for oil. Because the world needed ever increasing quantities of oil at ever increasing oil prices, the world’s demand for dollars could only increase. Even though dollars could no longer be exchanged for gold, they were now exchangeable for oil.'''

A good article but it omits some very pertinant reasons as to why the world's major economies are not yet ready to sink the US dollar.

In no particular order of importance some factors to consider are;

1) The only serious alternative currency is the euro but the european central bank is not currently set up to accept the challenge. The euroland bond market is still tiny compared to the US treasury market. It would take many years to develop to the point where it could become a serious competitor.

2) The major economies have massive dollar reserve holdings and although these are being 'taxed' annually by the US the alternative is to take a massive hit by collapsing the US dollar.

3) In the late 70s many countries dumped US dollars in protest of Carter's foreign policies. America responded by increasing interest rates to 20% triggering a consumate interest hike around the world resulting in a global recession and mass unemployment. Presumably the US would do the same again if the dollar became seriously threatened.

4) The US spends ~$650 billion a year on defence whereas the entire european community combined spends only ~$75 billion. Given that the US has already shown itself willing to use their agencies and armed forces in defence of their 'empire' it is unlikely many countries will be rushing to be the first to stick their heads over the parapets.

Over time an Iranian oil bourse denominated in euros could indeed be a threat to the US but for that very reason it will never be allowed to develop whether by the US exerting pressure on potential customers or by the US exerting a more 'direct form of pressure' on Iran.

 

[selfAdjoint]

) In the late 70s many countries dumped US dollars in protest of Carter's foreign policies. America responded by increasing interest rates to 20% triggering a consumate interest hike around the world resulting in a global recession and mass unemployment. Presumably the US would do the same again if the dollar became seriously threatened.

What countries were those, and what policies?

 

[Art]

What countries were those, and what policies?

Carter promoted human rights as the cornerstone of his foreign policy. Inevitably this brought him into conflict with the USSR and it's eastern european allies leading to the US cutting off grain exports and eventually to the US boycott of the Moscow olympics. He also criticised many other countries human rights records including Chile, El Salvador, Nicaragua, and Uganda and then of course there was Iran. He even criticised american allies such as S Korea. In fact conservative republicans like Jeanne Kirkpatrick used these 'attacks undermining US allies' against Carter in the 1980 election. Even european leaders of traditional american allies such as Giscard and Helmut Schmidt of France and Germany were reputed to hate Carter although in this latter case the strained relationship was due to what the europeans saw as american interference in their european domestic economic policies.. resulting in what was deemed 'malicious' manipulation of the US dollar by France.

To support the falling dollar Carter brought in Paul Volcker to head the Federal Reserve in 1979. In October 1979 Volcker boosted the dollar by allowing interest rates in the US to rise some 300% in weeks, to well over 20%. This ultimately led to a global recession.

 

[SOS2008]

I agree high prices at the pump may finally force development of alternative, and hopefully cleaner energy that is produced domestically. Even countries like Brazil have done better than the U.S.

I also agree it is sad that the consumer must be hit with more inflation in order for this to take place, especially when it's not necessary. The current high prices are due to speculative trading (beyond reasonable futures hedging) and ever increasing profits for large oil companies that to date have invested little if any of these profits into R&D for alternative energy. The public should be angry and fed up with this kind of greed.

One suggestion on PBS this evening is to impose a windfall tax with the revenue going to develop alternative energy. Certainly subsidies/tax breaks, or paying royalties to oil companies when they drill on federal land (WTF?), must end.

In the meantime, one may notice American auto makers also have been negligent. Low mileage or alternative fuel vehicles are coming from Japan, not domestic companies. SUVs are being discounted like crazy right now. In his pow-wow with the major auto makers (including Chrysler), I hope Bush tells them there will be no more subsidies to bail them out unless it is toward cheaper, cleaner, alternative fuels.

Nonetheless it is too little too late regarding an issue that has been debated for decades. No doubt the consumer/tax payer will pay the price to play catch up. That's sad and unfortunate.

 

[motai]

Although I realize that the price of gas hits many of America's working poor the hardest, it is imperative that we wean ourselves from oil; and soon.

Yes but that means that future oil executives won't have as nice of a retirement as this guy: https://www.physicsforums.com/showthread.php?t=117966

I don't know whose idea it was to have most American cars have such low fuel efficiency, but it certainly was a rather bad choice...

 

[franznietzsche]

In the UK we pay a tad under $6.80 per gallon(taking into account the US's smaller gallon) I don't see us clamouring for hydrogen fuel and I doubt the US will until the price becomes considerably higher than it is now. The US should feel glad there oil is so cheap

How many people commute more than 30 miles to work everyday in London? Now, how many could afford to do that if there was almost zero public transportation in London?

More than 3 million americans have 90 minute commutes to work. Probably close to that many in Los Angeles County alone drive more than 25 miles each way to work every day. When both my dad and I had to commute more than 50 miles to work every day it cost us almost $4,000 a year each. And we weren't driving gas guzzling SUVs either (not that my car was particularly fuel efficient anyway, Chrysler Sebring). Its damn expensive.

 

[Anttech]

How many people commute more than 30 miles to work everyday in London? Now, how many could afford to do that if there was almost zero public transportation in London?

Actually Millions do, London is too expensive for the majority of people to live in, and thus people live outside London and commute. There is a serious problem in London where people cannot live near to the place they work. One example is Nurses, who cannot live near to Hospitals in the center of London...

 

[Astronuc]

Actually Millions do, London is too expensive for the majority of people to live in, and thus people live outside London and commute. There is a serious problem in London where people cannot live near to the place they work. One example is Nurses, who cannot live near to Hospitals in the center of London...

Same problem for many in San Francisco and cities and towns in Silicon Valley, where some houses are $500,000 - $1,000,000's. Nursing staff, emergency people, and teachers cannot afford housing!

 

[Ivan Seeking]

One thing that could be done is to strongly encourage telecommuting. I know that companies such as Dell are doing this more and more [caught the sales agent's dog barking while on the phone] but I am sure that millions of people in the US alone could simply stop commuting, as the norm.

Also, the time spend idle in trafffic is a huge liability. If work hours were staggered to allow better traffic flow - avoiding impulse loads - a great deal of gasoline would be saved. We had the numbers for this in another thread, IIRC. And in many cases this would be a piece of cake. Factories with large populations of workers often work 24-7. So the hours chosen for shift changes are mostly arbitrary.

 

[Ivan Seeking]

Here is another mom and pop company. They [or a local competitor?] say that sales are up 300%.
http://www.ethanolstill.com/

It seems that Tennessee is particularly well suited for this particular industry.