Friday, May 9, 2008

5 Ways to Lower Gas Prices

Here's a video from the Heritage Foundation listing 5 ways to lower gas prices... along with my comments, of course.

1. Understand the cause of high prices

This is a very key point. We all should educate ourselves on how oil (and food and other necessities) is produced and marketed. Here is an article explaining the basics.

Basic supply and demand is a main contributor to prices, but it is more complex than that. As the speaker noted there is potential for regional shortages due to refining capability and mandates for various formulations of gas. I believe there are environmental reasons for all the formulations. Less smog/particulates for higher pop. density areas, etc. I'm not real sure on how much it affects price, and if you pass that cost into externalities...smog, asthma, lung cancer, etc. are you actually saving anything? I don't know.

Supply and demand can explain a lot of the price increase...more people around the globe desire oil everyday (many middle-east countries subsidize it to their citizens), and there is a finite supply. We may have some downward price fluctuations in the near future, but I don't see how they can last. This brings us to increasing domestic supply...

End domestic drilling restrictions

I am not fundamentally opposed to drilling in protected federal reserves (although you have to chuckle when he claims there will be no environmental effects). However, I am skeptical of the 'enough oil to power 60 million cars for 60 years' figure. Estimates for the Arctic National Wildlife Refuge (ANWR) economically recoverable reserves are anywhere from 5 to 10 billion barrels. Considering the U.S. currently consumes over 20 million bpd, this would equate to 500 days. There may be other fields that provide more, but I'd have to do some more research on that. Seems a bit fishy.

It is my view that we should probably hold off on tapping our last reserves until we *really* need it. Let's use up the Saudi's oil at $120/barrel and use ours at 200+, which actually may not be too far off...hmmm....maybe we should start looking into it a little. It does take time to begin to exploit a new field.

Bottom line, drilling more only buys us a little more time. It will give us temporary lower prices, but may remove incentive for transition off oil.
We must begin to transition to cheap alternatives, which currently do not exist. After the 70s oil crises, large drilling efforts in Alaska and the North Sea led to a large oil glut that allowed us to get complacent again. There is only so long that can continue. If we could ensure that the oil was used for the transition (research, building infrastructure (nuke/solar/wind plants, maglev trains), industry, agriculture) and not for allowing folks to commute cheaply in SUVs, I'd be on board.

Allow refineries and nuclear plants

We need to begin construction of the latest generation nuclear plants ASAP. The latest technologies are much safer and produce much less waste than the 60s and 70s era technology that we currently are using. Considering the majority of our electricity is produced from coal and natural gas, and electric vehicles are going to increase demand in the near future, nuclear power will be imperative.

Refineries, on the other hand, may not do us much good. If peak oil is truly upon us, do we need more refining capability? There will only be less crude produced from here on out, so we should be able to handle refining it. Other than maintaining or slightly increasing the current capability, I don't see why this is necessary.

End expensive and wasteful mandates

By now, you should know my stance on ethanol. It is a fallacy to say ethanol is the main cause for U.S. food price increases, I'll leave it at that.

5. Free Market Alternatives

I agree that the free market is a powerful thing. It has already begun to lower demand. It will also provide alternatives to oil. Unfortunately, they may include horses and bicycles, however. Depending how gradual our transition is, the market may have time to find alternatives that continue a standard of living that is near what we currently enjoy. However, if we continue to stall and ignore the problem, the free market will solve it in sudden, and perhaps violent ways. One of the scariest statements the speaker makes is: "any fuel that needs a subsidy to compete with 120/bl oil is never going to be affordable for consumers".
He is correct. There are no alternatives cheaper than oil right now. There may never be, especially without providing resources for research and development. We may have to re-adjust what we consider 'affordable'. The Heritage Foundation is not making the Long Emergency seem any less likely in my eyes.

What do you think?

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