June 5, 2008

Let’s understand that the term “gas prices” really reflects the cost of any type of energy (home heating oil, diesel fuel, jet fuel, etc.) based upon petroleum.  Crude oil is at historic highs, and because we Americans have such love affairs with our cars, we notice it first off at the gas pumps, where it now costs close to $100 for a tankful.

Crude oil has risen to more than $120 a barrel.  That roughly translates into about $3 for each gallon of gas produced.  The remaining $1 out of current pump prices of $4 per gallon goes to many functions:  pipelining, trans-oceanic shipping, refining, bulk storage in the U.S., truck distribution, the dime or so per gallon the station owner makes, and the biggest non-crude-oil category of all – you guessed it – TAXES!  Both state and federal.

So what can be done about the price of gas?  Not much, unless the cost of crude oil takes a nose dive soon.  Which it won’t.

The causes of this enormous price jump are very simple.  First, the dollar has become quite weak; it has dropped by 30% or one-third.  That adds as much as one dollar ($1) to every gallon of gas.  Second, the developing nations – primarily China and India – are buying oil as fast as it can be pumped to fuel their fast-growing economies.  They are bidding crude oil prices out of sight. 

As one small example, China is stockpiling oil for the entire summer so that there will be no power outages during the Olympics in Beijing.  In addition, they are retrofitting their key power plants to fire oil instead of coal, which will reduce air pollution while the visiting athletes are competing. 

As one very major example, China has a positive trade balance of several hundred billion dollars with us.  America has a sharply negative trade balance with China, because we buy so much from them.  That means we pay once for those Chinese “goodies” (whatever they may be), and again at the gas pumps, because China bids for more oil to produce and ship these “goodies” to us.  In a way, we Americans have done this to ourselves.

Yes, our calculations of these trends are very approximate, but we estimate they add about two full dollars ($2) to the current $4 cost of a gallon of gas.

Speculators aren’t causing this, contrary to what you hear.  Speculators bet on where oil prices will end up, but they don’t own any actual oil.  They are like bettors on a horse race, who place large, risky bets.  But in the end, the race is controlled by jockeys, trainers, and the owners, not the bettors.

Besides holding endless “hearings”, what can our elected officials do about gas prices?  Only three things:

1.- Reduce gas taxes (want to bet on this?), 2.- Put a part of the U.S. strategic oil reserve up for domestic sale (an excellent idea!), and 3.- Open more federal lands to drilling, which is controversial but must be considered. 

Why must this be considered?  Because many American families at or under the poverty line will be spending more than 20% of their income on keeping warm next winter if our elected officials don’t take swift action.  When it comes to polar bears vs. people, South Boston Online will choose people anytime.  But in an election year, don’t bet on that happening, either. 

What do you think of energy issues?  We’d like to hear from you.

In the meantime, it will be up to us as individuals to do what we can to conserve energy – lots of it.  We did it back in the late 70s, when President Carter declared that energy conservation was “the moral equivalent of war”.  Whatever you think of Jimmy Carter, that was one of his programs that worked.  We cut our energy consumption by 10%, much to the surprise of the rest of the world, and oil prices caved in as a result.

Start simply.  Consolidate auto trips – pick up the bread, the kids, and the take-out supper in one trip instead of three.  Turn the AC down (or off); use a fan instead.  Tune up your car, check your tire inflation frequently, and drive slowly and steadily.  Keep a log; make it a game to see how much you can improve your mileage.  Take the “T” whenever you can – despite all the corny jokes about the “T”, it’s fairly reliable and very inexpensive.  Take a walk every now and then.  No one is asking you to give up your summer vacation – just keep it simple this year.

You’re seeing the start of a green world already – hybrid cars, the wind generator down at Local 103, the LEED buildings in South Boston, and so on.  Take part in it.  In the long term, the future without being dependent on oil will be fun and challenging.  Above all, it will be clean, cheap, and reliable.  And it will provide tens of thousands of domestic jobs.

But we have to get through the short term.  South Boston Online will welcome your suggestions and ideas on conservation, and we’ll publish them so others can benefit from your thinking.  Please send them to us.

There will be other important benefits, too. 

For instance, Venezuela supplies around 10% of our imported oil.  It’s thick, foul, high-sulfur stuff from the oil fields around Lake Maracaibo.  If we reduce our oil imports by 10%, perhaps we can cut all ties with Venezuela’s oil and Hugo Chavez, who is South America’s leading blister.

Through U.S. manufacturing, engineering, and entrepreneurial efforts, we can supply the world with energy-saving devices that will benefit them and restore our balance of trade.

And if you’re discouraged by high gas prices here, just remember that European countries are now paying upwards of $8 a gallon, even though their currencies are strong.

Let’s roll!