Forget About $5 Gas: $3 Gas Is Bad Enough
James Schlesinger famously said that Americans have two modes when it comes to oil: complacency and panic. This week, it seems, we're having both at the same time.
Today the national retail average for gasoline is $3.07 per gallon, which is higher than it's been since 2008. But instead of freaking out about that, the media has been focusing on the possibility of $5 gasoline in 2012, a claim made by former Shell President John Hofmeister. Hofmeister's point (he heads a non-profit called Citizens for Affordable Energy) is that the problem is that we're "essentially frittering at the edges of renewable energy, stifling production in hydrocarbon energy," leading to "blackouts, brownouts, gas lines, rationing."
When Platts printed Mr. Hofmeister's predictions the day after Christmas, he became an instant media sensation. Even Platts claimed to be surprised by the ruckus, since Mr. Hofmeister had predicted the same many times before, and it would imply that the price of crude reaches $180 a barrel, which even the boldest analysts think is too high.
Why are we panicking about unlikely $5 gasoline? Perhaps because it's more comfortable to think about something that probably won't happen rather than preparing to be clobbered by $3.25-$3.75 gasoline between now and May. By then, OPIS analyst Tom Kloza estimates we'll be spending $38-$44 billion a month on gasoline. That's about twice as much as we spent on gas in the month of December 2009. I mean, that's about $20 billion more!
This is not going to wallop all families equally. Consider the city of Atlanta, where the average commute length is 39.4 miles each way. I've mentioned before that the Department of Commerce estimates that a household making $50,000 a year spends more on their cars and fuel ($7,900) than on health care or taxes, but those numbers are low. Extrapolating out from the government estimates, I'd guess that an average Atlanta commuter, driving an average car (17.4 MPG) is spending an extra $35 a week on their commute today (over the government average) and at $3.75 a gallon they'll need an extra $55 a week. There was a time when people could put expensive gas on their credit cards (and pay it off at high interest later) but those "free" cards don't arrive in the mail as often now.
People will have to search for alternative transit, which is rarely available. If they can't find a carpool, they'll eventually have to figure out if they can continue to afford to get to their jobs, or if they can move or get a new car. (I'm working on a new project called the EnergyTrap to study how high gas prices affect middle income families and the economy at large. Please join us at the website, or on Facebook .)
Rather than talking about $5 gas, which Mr. Hofmeister thinks can be avoided by OKing more drilling in the US (a long-term project), we need to be planning about what to do in late February. On a local and national level, we need to think of new ways to get people to work--or let them stay home. Congress should discuss giving emergency tax breaks to companies that either encourage telecommuting or provide carpool incentives to their employees. Startup companies that help people find trustworthy carpool buddies, or otherwise get from A to B with less gas should be encouraged. We are now able to clearly see that prices are rising and they they will continue to be volatile for the next decade. While we can't remodel our spread out system immediately, we can certainly plan for the inevitable.
The last two years have seen a tremendous hullabaloo about creating "green jobs," we need to take the step of making every job greener by giving workers more ways to get to work than burning expensive gasoline.