Kris Zyp's Questionable Assumptions

A gallon of gas contains 130 million Joules of energy, equivalent to the energy of lifting a man from sea level to the top of Mt Everest about 15 times, or 31,000 Calories, and equivalent to about two weeks worth of food. Being able to purchase something with this much energy for less than $30 is incredible and something that we should be extremely grateful for, and we may not always enjoy.

The price of gas is based on simple global supply and demand. Gas comes from oil, which is a fungible resource readily interchangeable on the global market. Supply is dominated by OPEC. The US portion of the supply is very small, it currently produces around 8% of global oil, and holds only 1.5-2% of global reserves (there are some debates on extents of provable reserves, so it is possible we have up to a percentage point higher). On the otherhand, the US provides a significant part of the demand (25% of global demand), thus the US’s primary influence on prices is in demand. Economic recession decreases activity thus decreasing demand and prices, economic growth increases prices. If you don’t like prices, just like any other commodity, the recourse is it to not buy. If you are a buyer you are a participant in demand.

There are a few other contributions to gas prices that either small, regional, short-term. One is the gas tax. George H.W. Bush raised the federal gas tax to 18.4 cents per gallon in 1993, and it has remained at the level ever since. This tax represented about 14% of the price of gas under (the first) Bush. With current gas prices, this federal tax now only constitutes about 5% of the price of gas. The gas tax under the Obama administration is also at the lowest amount in constant dollars in over two decades. This is also one of the smartest taxes that we have since it not only improves roads, but incentivizes lower consumption better than any MPG mandates can (I would love to see it increased). Oil futures and trading affects price, but this too has minimal long-term impacts, and can help cope with supply fluctuations. Like other global products, inflation and exchange rates affect the current price, but the last few years have seen lower than average inflation and a general strengthening of the dollar against other currencies. Finally, there are different state and local taxes, and different regional requirements on the quality gas, and different transportation costs due to proximity to refineries and sources of production, and these are the primary drivers of the differences in gas prices in different locales, but this isn’t related to the overall country gas price trends. For each of these factors the federal government has little control or avoided any price increasing policy changes.

To grumble about prices and make it political is generally either ignorant (the principle way the US reduces prices is through economic recession), or manipulative. Drilling or pipelining more has a negligible affect on global supply. And the US is depleting it’s proven reserves at least 4-5 faster than most countries in the world, drilling faster now as way to avoid foreign dependence on oil just shifts even greatere dependence to our next generation. As one concerned for children’s future, I don’t want to dump them further them into the dead end of oil addiction.

Specifically the supposed benefits of the Keystone pipeline towards lowering prices are particularly vacuous, pipeline don’t produce oil, they just move it around, and as many have pointed out, it will move oil to the gulf for easier export, making it likely to actually slightly increase gas prices in the midwest. The real question in regards to Keystone is simply the ethics of increasing efficiency of tar sand based oil transportation versus the ecological impact.

In reality, increased gas prices are basically due to increased economic activity and recovery (the dominant supply factors are mostly out of our control), increased spring/summer driving, and supply concerns with possible conflict in Iran. The primary effect America has had is in economic recovery (and possibly we’ve played a part in some short-term supply concerns by threatening military action against Iran). You can’t eat your recovery and have your cheap oil too.

When it comes to amazing amount of convenient energy in we can buy in a gallon gas, gratefulness is a better attitude than complaining and reduced usage is a better response than political manipulation.