Gas prices 101
The folks at the Foundation for American Communications in Pasadena held a phone seminar today about gas prices with oil expert and Boston University professor Robert K. Kaufmann. Here are his answers to your burning questions about pump prices.
Q: Why do gas prices rise faster than they fall?
A: As demand declines, producers slow refining and sell from stocks, which slows the price drop. As demand rises, refinery capacity limits supply response. So it's a lose-lose situation? Yes. Take the bus.
Q: Have environmental regulations slowed the building of new refineries, which could increase the supply of gas?
A: No, there's very little evidence that environmental regulations have slowed refining capacity growth in the US. Reduced capacity has mirrored reduced demand.
Q: Why are gas prices so high?
A: Demand has grown significantly since 2003, but not so dramatically that it is the main culprit...
...Supply is. The supply of crude can be divided into two categories - oil from OPEC and oil from non-OPEC sources. OPEC production is barely back to 1970s levels. Non-OPEC sources made up the difference in meantime, but "since about 2004 non-OPEC production has not increased at all, in fact it is down," Kaufmann said.
Q: What will prices do in the long term?
A: In the short term they may come down but they won't collapse like they did in the 80s, when the US significantly increased their reliance on other types of energy, like coal. Production has been declining even though prices are skyrocketing because we are depleting our oil sources. Even if we found oil in off shore regions it would take five to 10 years to get that oil into your gas tank.
Q: What about drilling in the Arctic National Wildlife Refuge in Alaska?
A: In the best case scenario at peak production the ANWR would produce 1 million barrels a day, according to the United States Geological Survey of 1999 Open File Report. This would probably not significantly reduce prices or US imports of oil.
Q: So what is the Alaska argument about?
A: Money, Kaufman says. A new pipeline would connect the ANWR oil to the existing Trans Alaska pipeline that lets oil flow from the National Petroleum Reserve to ports in Valdez, Alaska. The new pipe will pay off the cost of the pipeline, which is a good business decision for those invested in the pipeline.
Q: Will OPEC increase production?
A: It's not really in their best interest to increase production.
Q: What about significantly reducing demand for oil?
A: This would help but the US is not the only country using oil. China and other countries are expected to increase their demand for oil.
Q: Will we run out of oil?
A: Taking today's usage patterns into account that day will come Nov 23, 2042. But reporters will never write the story "today the world ran out of oil," Kaufmann said. That's because there are geographical limitations to extracting oil from the planet. It's more important to look at when oil production will peak.
The supply of oil is finite and production will eventually peak between 2014 and 2035. That may seem a long way off but within a decade after the peak production will fall below 10 million barrels a day - the current level of production by Saudi Arabia. So in less than a decade after global production peaks we need the equivalent of a new Saudi Arabia once at least every decade.
Once the peak happens that's when we will face major supply decreases and tremendous price increases. If alternatives are not available it will create "tremendous economic disruption," Kaufmann said.
Q: How will the end of the oil age effect the economy?
A: For the first time we are going from a good fuel - oil - to a less good fuel. What's critical to an economy is not the total energy available but the net energy gained. In other words, the amount of energy minus the amount of energy it takes to get the fuel out of the earth and in usable condition.
Q: What should we do about the oil crisis?
A: "We really have to start thinking about what the alternatives are, what we're going to do and start acting on it," Kaufmann said. "Because prices may go up and down in the near term, but over our lifetime this is a transition that we are going to have to make and our children are going to have to make."
Q: When was the last time the US met it's own oil needs?
A: In 1947.
Look for a recording of the seminar later today or tomorrow. The Foundation is a non-profit devoted to educating journalists.
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About The Bargain Hunter
Daily News staff writer Julia Scott loves to find bargains on everything from groceries to Gucci. Her tips will help keep your hard earned cash where it belongs - in your pocket.
Interesting Q&A Julia, thanks for posting.
"this is a transition that we are going to have to make and our children are going to have to make." I hope by the time my kids are adults, we will have very little dependency on foreign oil. Until then, like you said, ride the bus!
great story, I've never read those dates, 2014-2035, as when oil production peaks before, that's too soon for comfort
Julia, some of that makes sense and some of it just plain doesn't.
For example, contrast "There's very little evidence that environmental regulations have slowed refining capacity growth in the US. Reduced capacity has mirrored reduced demand" with the very next paragraph, "Demand has grown significantly since 2003." Huh?
Also, anyone who can conclude that environmental regulations have not slowed refining capacity (or oil exploration and production, or the development of truly clean sulfur-free coal and nuclear power alternatives) is clearly completely biased.
If you want real answers, you're going to have to find someone who offers a more balanced, and less one-sided and distorted, analysis.
Although ANWR might only produce one million barrels a day, it would reduce our trade deficit by $50 billion each year at the current price. That's approximately ten percent of the annual trade deficit. Even if ANWR comes on line ten years from now, there will be a continuing need, even then, to reduce trade deficits. We didn't get into this myth of free trade over night and I am sure we won't get out of it in ten years. I would rather spend those billions on US wildcat rigs than some foreign oil workers. In addition, if oil goes higher, which I am sure it will, the dollar will stay weak, and we will need to do a lot more purchasing of goods made at home. The proposed ANWR exploration area is equvalent to the letter 'T' on the front page of the NY Times.