Gas Prices

Before I head back to the “perfect storm” of quarter-end work, the processing of 7/1 business, and other “fun”, I can’t help but pass along the following quote:

We demand more energy and complain about high prices, but we restrict energy exploration and production. We embrace the promise of energy efficiency, but we are slow to make adjustments in our energy-intensive lifestyles.

That comes from an open letter that the AP reports has been sent to various leaders and political candidates by a group of “elder statesmen” including Henry Kissinger and Colin Powell, calling for something to actually be done about the emerging energy crunch, rather than the impotent energy-themed bickering currently taking place in political circles.

I like the statement I’ve quoted above.  The “energy problem” isn’t one that can be solved just by tracking down new sources of existing forms of energy, or developing new “alternative”  energy sources and infrastructure.  At some point, Americans will be obliged – by fiscal realities at least, if not by prudent foresight – to realize that the lifestyle some (many?) feel entitled to is unsustainable.

Political grandstanding isn’t going to fix the problem.  People resisting being inconvenienced while publicly wishing that others would change their behavior also isn’t going to change anything.

The answer is going to involve reaching a public consensus on what should be done, and then acting upon that consensus.  Part of what’s involved in that consensus will not please some groups, while other parts of that consensus will displease others.  But at least corrective action would be taken, which is appreciably better than the status quo of talking about the problem without making changes until those changes are forced upon us.

The article mentions that the open letter includes about a dozen recommendations of action that should be taken sooner rather than later.  Unfortunately, a quick bit of googling didn’t turn up an actual copy of the letter.  I’d be interested in seeing what those recommendations actually are.

Of course, my quick web-search did turn up a web forum where a couple of posters quickly alleged bias in the letter due to the political affiliations of the sponsoring group and some of the elder statesmen…and where others quickly responded with vehemently opposing political thoughts.

Typical.

Maybe I should dust off an old Thomas Jefferson quote:

I tremble for my country when I reflect that God is just.

I think having record-high fuel prices at a traditional vacation week has really focused the media attention on national energy policy (or the lack thereof).   Many of the interesting articles I

have encountered in the past few days have been energy-themed.   Consider:

WSJ.com’s Deal Journal:

[JP Morgan CEO Jamie Dimon] On oil, which recently hit a record $143 a barrel: We almost deserve $4 gas. We knew in 1974 that we had a serious issue but we don’t have the political fortitude to do anything about it. That’s the issue, not Russia.

New York Times article, “Asleep at the Spigot”:

Over the last 25 years, opportunities to head off the current crisis were ignored, missed or deliberately blocked, according to analysts, politicians and veterans of the oil and automobile industries. What’s more, for all the surprise at just how high oil prices have climbed, and fears for the future, this is one crisis we were warned about. Ever since the oil shortages of the 1970s, one report after another has cautioned against America’s oil addiction. […]

“Much of what we’re seeing today could have been prevented or ameliorated had we chosen to act differently,” says Pete V. Domenici, the ranking Republican member of the Senate Energy and Natural Resources Committee and a 36-year veteran of the Senate. “It was a bipartisan failure to act.”

CNN:

Sen. John Warner, R-Virginia, asked Energy Secretary Samuel Bodman to look into what speed limit would provide optimum gasoline efficiency given current technology. He said he wants to know if the administration might support efforts in Congress to require a lower speed limit.

(Haven’t we tried the national speed limit before?  And, wasn’t it so poorly enforced and blind to local circumstances as to foster an entire culture of disregarding traffic laws?  You’d think that improving enforcement of existing traffic laws and improving education on optimal speed:efficiency ratios would be more effective.)

Wall Street Journal on GM’s plans to bring a mini-car intended for foreign markets to the U.S. (subscriber link):

General Motors Corp. said it is giving a higher priority to deciding whether it will bring the next-generation Chevrolet Beat mini car — a vehicle it sells overseas — to the U.S. market in the 2012 timeframe.[…]

GM is conducting major surgery on the product plans it had set for the next decade, scrambling to react to falling demand for vehicles that consume a relatively large amount of gasoline. The next generation of GM mini cars, on which the Beat is based, is slated to debut in several global markets in coming years and should be capable of at least 40 miles per gallon.

And meanwhile, regarding the ethanol kool-aid, from The Guardian:

Biofuels have forced global food prices up by 75% - far more than previously estimated - according to a confidential World Bank report obtained by the Guardian. […]

The figure emphatically contradicts the US government’s claims that plant-derived fuels contribute less than 3% to food-price rises. It will add to pressure on governments in Washington and across Europe, which have turned to plant-derived fuels to reduce emissions of greenhouse gases and reduce their dependence on imported oil.

OK, now that the media…and presumably the American public… is aware of some of the issues of our addiction to petroleum, one wonders if political leaders and the public have the stomach to make some of the more difficult changes that will be called for.

This should be interesting to witness.

And now, I’ll go back to my weekend project of improving my “summer office” (the basement) for telecommuting.

The folks over at RedState have been having a grand old time Dem-bashing through use of this graphic from the House Minority Whip’s office:

Now, I think the GOP does have a point by pointing out a lack of action being proposed by the congressional majority which would have a material impact on the price of gas at the pumps.

However, the GOP, I think, is more interested in playing politics than in seriously advocating real action, or real remedies (if there were any).

For example, I note that all of the high-value options in the GOP agenda slide above are not ones that will deliver overnight.  They all require exploration and investment, and presumably will require years before supply is impacted.

However, more seriously, the tapping of nontraditional domestic oil reserves seems to be the only solution being advocated by the GOP and its minions through the above slide.  Yes, it’s probably reasonable to assume that an optimal, long-term strategy will require adopting many, if not most, of the items highlighted in the graphic above.  But they will/should be only some of the tactics pursued.

If Republican politicians were serious about at least stabilizing, if not reducing, Americans’ energy costs over the short-term, offshore drilling and tapping oil shale would be accompanied by more aggressive pushes for other, more sustainable technology.  

Where are the calls for nuclear power plants?  What about accelerating the viability of switchgrass or algae-based biofuel?   How come there are no calls for financing assistance for lower-income homeowners to update home heating systems…especially those which are oil-based?

I’m not a fan of either major party, and I am really looking forward to the change in administrations in January.  However, if the GOP was seriously looking to stake a claim on the high ground on the energy issue, the party would push a well-rounded energy program.  Oil can be a part of it, but it should be presented as only one part of  a larger plan, lest the public dismiss the plan as being the utterance of the old oil lobby, seeking to protect its franchise.

It’s a shame that this election cycle is probably headed towards an outcome which will be interpreted by pols and pundits alike as “Americans’  rejection of Republican policies”…when a correct interpretation should be “Americans’ exhaustion with political gaming”.

It looks like the state’s fearless leaders will do anything, including failing to consider the consequences, in order to appear to be doing something about gas prices.  Seen in the Courant:

State legislators joined the crush of politicians eager to act on gasoline prices Thursday by permitting cash discounts and repealing a July 1 tax increase. [...]

The cash-discount provision was sought by retailers, who complained that some franchise agreements barred lower prices for customers paying cash.

Fox said the savings would come from eliminating credit card fees and other costs associated with credit. Retailers now lose two or three days of “float,” the time it takes to actually collect revenue on credit sales, he said.

“The cash customer now subsidizes the credit customer,” he said.

About 75 percent of retail gas purchases in Connecticut are made with credit cards.

Well, at least someone finally acknowledged the subsidy.

In an earlier post on the subject, I hypothesized a 50/50 cash/credit split, which would imply a dime discount for cash customers, and a dime increase for credit customers.  At a 75 credit / 25 cash mix…well, that’s a bit less of a hike for the plastic-wielders.

Still, I think this is quite a bit of fuss being generated over the privilege of charging us more for gas, disguised as an attempt to drive petrol costs down.

I think someone needs a math lesson.

The Courant has an article about Connecticut legislators’ latest attempt to “fix” the state’s honor of having the highest gas prices in the country:

Gasoline prices could drop 10 to 20 cents a gallon if the legislature passes a bill Wednesday that would allow stations to offer cash discounts.

With the support of Republican Gov. M. Jodi Rell and Democratic legislative leaders, the bill will be debated at a time when lawmakers are under increasing pressure to do something — in an election year — about gasoline prices that have blown past $4 a gallon. A special legislative session is scheduled for Wednesday to debate the cash discounts and other issues.[...]

Insiders could not agree Monday on exactly how much consumers could save at the pump, saying that the final prices would be set by the retailers. Attorney General Richard Blumenthal predicted the savings at 10 to 12 cents a gallon, while Fox said that it could be as high as 20 cents. Among the tiny number of stations currently offering discounts, the average savings is now 16 cents a gallon, Fox said. A Hess gasoline station on the Berlin Turnpike was offering a discount of 20 cents a gallon Monday for cash customers.

I see one major flaw in the article and premise of such a measure — there is no such thing as a free lunch.

Currently, gas stations have the expense load coming arising from credit card transaction fees baked into the prices  they charge.  So, if a gas station started offering a discount to cash customers, the revenue to fund that discount would have to come from someplace else — specifically, the prices charged credit/debit-card wielding customers.

A numeric example:

Assume, for the sake of simplicity that 50% of all gas customers pay by plastic.  (That’s a made-up number; I don’t know what the real stat is, and Google isn’t being helpful.)   Assume also that gas is running $4.35/gallon and that credit/debit transaction fees are 5%.

So, that $4.35/gallon could be broken down as:  4.35 ÷ [1+(5%×50%)] = 4.24 in actual underlying cost for gas, and $0.09 in “plastic load”.

If a gas station were to go to a two-tiered cash vs. plastic pricing system, then arguably it could charge $4.24/gallon to cash customers, and (4.24×1.05)=$4.45/gallon to credit card customers.

In reality, the actual prices would obviously vary.  Some gas stations might see some additional revenue bump from having additional customer traffic inside the store (rather than many folks just paying at the pump), but perhaps there would also need to be an offset due to a possible need to hire an extra cashier to handle the additional cash business, etc., etc., etc.

Also lost in the discussion is the fact that many people (myself included) prefer to use plastic these days rather than cash because of the fees associated with withdrawing funds from ATMs (true, they can be avoided, but…), as well as the rebates we get for card use.

And finally, we still have the matter that higher gas prices are still not necessarily a bad thing, if they get people to adopt a conservation-oriented mindset, start living in a more sustainable manner, and stimulate growth in new/alternative power technologies.   I realize that that’s a difficult argument to stomach when filling up a gas tank will seriously eat into your gadget budget, but maybe it’s worth listening to the global warming hype (and to consider that air temperatures in New England are flirting with 100°F a week and a half before the official start of summer) to consider why some pain now might do us all some good in the long term.

Here’s an ominous thought buried in a Star-Ledger story:

Inside, Empro Products makes the ubiquitous numeric signs found at gas stations. The phone rings quite a bit these days.

“In the last two weeks we’ve been getting hit hard for digit number 4,” said Vinnie Verma, Empro’s general manager. “We’ve also gotten a very limited number of calls for 5s.”

It has become a question of when, not if, gas prices hit $4 per gallon, and station operators want to be prepared.

The company supplies signs to most service stations in the mid-Atlantic and New England states.

(emphasis added)

I think $4/gallon is a given.  Yesterday I paid $3.859/gallon in a Hartford suburb, because I was running a little lower than I’d like (I topped off later for $3.799); while pumping my precious standard unleaded, I got to see the numbers “4.099″ staring at me from the premium unleaded side of the pump.

Mercifully, there wasn’t a diesel pump on that island at the gas station.

I know that gas is still comparatively cheap in the U.S., but $5/gallon is till not pleasant to think about, when some of my earliest memories are of $0.289/liter gas in one of the gas crises in the 70’s, followed later by $0.599/gallon after normalcy returned.

A few months ago, I had a bout of indigestion when I realized that the new pumps installed at a nearby gas station appeared to be capable of displaying gas prices in excess of $10/gallon.

However, it appears that appearances can be deceiving, at least for those with analog pumps.  Seen in the Seattle Post-Intelligencer:

As gas prices rise, some stations with older pumps are encountering an unexpected challenge: They can’t be set to charge more than $3.99 9/10 per gallon.[...]

The pump problem hit Engels about 10 days ago, when he boosted his diesel price to $4.25 to keep up with the competition. He said he planned to raise prices Thursday for all three grades of gasoline, as well as diesel, to more than $4 per gallon.

Ooops!

I suppose that now would be the wrong time to mention that the affected pumps could in all likelihood be adapted to sell gas in liters, rather than in gallons, thereby buying some time to upgrade the pumps.

For quite a while, I’ve been wanting to put together a chart examining the cost of gas in terms of something harder than the U.S. Dollar…but I’ve never gotten around to tracking down the hard data myself.

So, I was pleased to see that Rick Powell posted the average price in US Dollars of a gallon of gas and an ounce of gold at the start of each year from 1998 through 2008 in a discussion on oil prices on misc.transport.road.

Raw data like that can be used to make an interesting-looking chart:

I should admit that the chart is, arguably, a little “dishonest”, in that one makes some potentially inappropriate assumptions when assembling a chart like this.   Specifically, there’s an implicit assumption that an ounce of gold is a stable unit of value, which ignores some of the distorting effects of speculation, investment, and industrial demand on the commodity.

However, I think it does help make the point that the high prices we pay for petrol at the pump are somewhat distorted by other financial trends which also impact us.  For example, the real buying power of an American dollar is not what it once was.