Fortunately, an Incorrect Prediction
Back in April, I took a futuristic look back as the price of gasoline from the vantage point of April 2009. The point was to suggest how the price of a gallon of gas got to $7.33. In that post, I wrote:
â€œJuly 2006 There was general outrage at the pump and on the airwaves, when Americans hit the road for the July 4th weekend paying an average of $3.60 a gallon. The Bush administration tried to channel this anger into getting public opinion around opening up Alaska and other places for the drilling of oil. It was reported that major auto dealerships had an average of a five month supply of SUVs and large pick-up trucks on their lots, the greatest inventory backlog ever.â€
Fortunately for all our pocketbooks I was wrong on the high side. According to the United States Department of Energy, the national average price for a gallon of regular was $2.93 for the July 4th weekend. In a number of states the average price was over $3.00, with California being the highest at $3.19. In Chicago where I live, the price in the city seemed to be around $3.20 for regular and $3.35 – $3.49 for high octane. All of these numbers are roughly $.75 more per gallon than a year ago, or roughly an increase of 30%, which is a huge one year jump.
The other part of the prediction seems to be close to the truth. It is impossible to see a newspaper, or watch TV without seeing some sort of huge rebate plan for purchasing a new SUV. Who wants them when gas is this high? Time to look at changing your product lines Detroit.
What about my prediction that gas will be over $7.00 a gallon in 2009? I think it is still quite valid. If you take the 30% increase year to year and project forward, then the average price of a gallon of regular in 2009 would be $6.37, with premium over $7.00. Why would the price continue to go up at that rate? Because of several things that are certain to occur in the years ahead: Chinaâ€™s continuing and growing voracious appetite for energy, tropical storm damage to the drilling and production infrastructure of the petroleum industry and price destabilization due to terrorism and unstable political situations in oil exporting countries. Finally, I agree with a number of petroleum experts that we are passing through â€˜peak oilâ€™ right now. Peak oil is simply when we have extracted 50% of all oil in the earth. This means that we only have 50% of oil left. When you compare world wide consumption levels of today with those over the past 100 years when we used the first 50% of oil, it becomes clear that we have only decades of oil left. When this market reality becomes clear to all, then the conserving of the remaining reserves in the world will begin, putting a powerful upward pressure on pricing.
Repeat after me many times: alternative energy sources, renewable sources of energy, energy efficiencyâ€¦â€¦â€¦
Finally, I once recommended a great book on this subject in a prior post. It is James Howard Kunstlerâ€™s â€œThe Long Emergency: Surviving the Converging Catastrophes of the Twenty-First Centuryâ€ If you are someone who does not believe that innovation on alternative energy will get ahead of the petroleum consumption curve then read this book for a glimpse at what America will be like in the decades ahead. And you think life and commuting in exurbia is a pain now, just wait!