7 Dollar Gas?

Here's a little more pessimism for you. This report, by CIBC World Markets, predicts $150-200/barrel oil and $6-7.00 gasoline in the next two years. The report also predicts that these prices will remove millions of cars from the roads; primarily older, less fuel efficient vehicles owned by the poor.

As gasoline prices climb inexorably, American driving habits are going to have to undergo a massive change, mimicking the driving habits long adopted by Europeans who have faced much higher gas prices. Average miles driven will likely fall by as much as 15%, while the market share of light trucks, SUVs and vans will be literally halved, reversing the trend of the last fifteen years. But the most fundamental, and unprecedented change will be in the number of vehicles on the road.

Over the next four years, we are likely to witness the greatest mass exodus of vehicles off America’s highways in history. By 2012, there should be some 10 million fewer vehicles on American roadways than there are today—a decline that dwarfs all previous adjustments including those during the two OPEC oil shocks (see pages 4-8). Many of those in the exit lane will be low income Americans from households earning less than $25,000 per year. Incredibly, over 10 million of those American households own more than one car.

Soon they won’t own any.

The article also touches on alternatives, mainly public transportation. We in America have loathed public transportation. There are many reasons for this. For one, we enjoy our freedom...to travel when, where, how and with whom we so choose. As this luxury becomes more expensive, many of us will no longer be able to have this freedom. The question then becomes, "Will we have any alternatives?".

Is this a realistic estimate? While $7 per gallon gasoline prices certainly took people off the road in Europe, you cannot simply impose Europe on America. Most
Europeans have access to public transport by virtue of the broad infrastructure policies European countries have pursued. In marked contrast, America built massive highways and freeways for a population that owned and used their own cars to get around.

Hence we must narrow our focus on those Americans where a European style shift in driving habits is currently feasible. People can’t simply abandon their cars if they
have no other means of getting around, particularly in terms of getting work. There must be at least a public transport alternative.

I agree with this assessment, and also offer this observation. Sure, we have invested heavily in roads rather than rail...we have made our bed and now must lay in it...but, population densities are much higher in Europe. We can leverage public transportation in high density areas, but the rural poor will have much fewer options. Well managed, sensible public transportation should be part of the solution, but it will only be a portion. We must employ a wide range of alternatives to keep our nation strong.