Wednesday, April 25, 2012

Rising Gas Prices, Part One: Pain at the Pump, World Markets

Nothing speaks louder to our addiction to oil than the panic over rising gas prices. I've felt it too, I am driving a lot, and I mean A LOT to and from work these days. Just check out the tab I ran up at the pump during a recent fill-up. For the past two months, gas in Connecticut has steadily risen to just under $4.00/gallon when the above pic was taken. The upward trend hasn't slowed though, and more and more stations have surpassed the $4.00 mark for regular unleaded. Even when I shop for the very best price among the nearly two-dozen filling stations I pass during my commute (it's true, regional variation doesn't change that much), I can't best the $4.00 beast. Soon I'll be living and working in a place where I won't need to own a car, but that day hasn't come just yet (and it won't stop GM from enlisting MTV to help draw us young whippersnappers into the showroom).

If you follow me on twitter (@agmaynard) you'll remember I began on this train of thought a few weeks ago in a series of tweets about the origins of the pain at the pump panic. My thinking out loud went like this:
The response "use less oil" to those worried about rising gas prices must sting to the subset whose livelihoods depend on driving to work//But keeping costs cheap perpetuates dependency on that system, hmm... (assuming we can have any control over oil markets in the 1st place)//Hint: no single agent does, really, especially not @BarackObama//Doesn't the question then become, how do we gradually increase cost to shift paradigm while assisting the most impacted?//Increasing costs = decreasing oil subsidies, transfer the difference to fund renewable tech? But then there's the problem of design...//...that facilitates long car commutes in the first place and is a longer-term fix. Need to do some more thinking on this.//This comes to mind for some reason: "The only way not to think about money is to have a great deal of it" - Edith Wharton, House of Mirth//Panic comes partly from the pain at the pump, but I'm guessing more so from the anxious feeling that they have no other choice but to pay.//That panic goes away if there are viable (and cheaper) alternatives.
The parts I want to focus on are the beginning and the end, where I attempt to identify the motive of those beating the cheap gas war drums. For the purposes of this post let's ignore the middle bit about transferring oil subsidies to renewables R&D. What I meant to say there was more along the lines of assistance programs for those most impacted by rising gas prices, but regardless I don't think that'd be an even 1:1 exchange. Then of course there are the obvious political ramifications and deadlocks necessary to thwart Obama's socialist agenda ;)

SO, pain at the pump. What is it? Fear. Anxiety. A sense of being trapped, locked into a system, at the mercy of fluctuating global markets. Is anything more maddening, or hopeless, for a household struggling to pay the bills, who simply can't afford a bigger bite out of their income? Especially in this economy. This is a very real fear for those living from month to month, paycheck to paycheck. Budget dependability? What a pipeline, er-- I mean pipedream.

This panic reminds me of a similar fervor displayed by some residents from my hometown over a proposed Costco development two years ago. The retail giant would provide jobs and economic development, they said, and thus the proposed megastore should be unanimously approved by the Planning and Zoning Commission. During interviews with local planning officials for a paper I wrote on the plan, they told me that for these residents Costco symbolized relief from the sometimes crippling financial stress associated with the recession. It didn't matter if the developer's jobs and salary claims were overstated or that much of Costco's labor force doesn't originate in its host communities. It represented stability, and an escape from the doldrums of a down economy.

What's important to realize though is that I grew up in small-town Connecticut. We have a Walmart that was only approved because it was an as-of-right development (aka it conformed to all existing zoning regulations). What this means though, is that we are home to one of the smallest -- if not THE smallest -- Walmarts in the country at just over 85,000 square feet. A request at the time to expand the building into the surrounding parking lot was denied. The proposed Costco would have been almost double the size at 150,000 SF. In my opinion (when do well-researched opinions become facts, anyway?) it would have been disastrous for the intimate character of the town that, ironically, makes Guilford such a vibrant economic landscape in the first place. I digress; this is a post about gas prices, after all. The takeaway from this anecdote, though, is that sometimes people jump at short-term fixes to chronic problems because they don't have the luxury of looking further into the future. Their immediate needs aren't being met, or there's a very real threat that in the near term they won't be met.

CNN's John King summarized this message well during a broadcast a few weeks ago: "Your views on energy are driven by your bottom line."

So the next logical question is what can we do about alleviating pain at the pump, or avoiding it entirely? Drill baby drill, right? Riiiiiiiiiiight? I say no, and here's why. I'll be the first one to admit that I am not an authority on global oil markets, but I've been sifting through the literature for the last month or two and if I've learned one thing it's this: We're all connected. Take this graph, for example.

The United States is connected to other global economies through the intricate web of petroleum production and distribution networks. It is incredibly difficult for one nation, even the US which admittedly uses a disproportionate amount of global supply, to tip the scales through increased domestic production. When prices go up for us, they go up for (most) everybody else. The same goes for when prices drop, but there may not be much reason to hope for cheaper gas in the future.

Here's the reality as we move further into the 21st Century: Gas prices are not going to go down. At least not over the long-term. As developing countries like China and India continue to industrialize and as their bulging populations rise into the middle class, they are going to demand a higher standard of living (implication here, powered by fossil fuels). They have quite the role models (U-S-A, U-S-A!) and Econ 101 says that when demand for a product increases, so does price.

So if we're locked into the global market and prices will steadily go up and up and up regardless of an increase in domestic production, what are our other options? How do we get some relief from that pain at the pump?

In my next post I'll explore some of the alternatives to emptying your wallet at the gas station. I'll focus mainly on efficiency, hybrid/electric vehicles, and algae-based biofuels. Stay tuned for Part Two of this Rising Gas Prices series.