August 31, 2005
Gas, oil, and conservation
Over the next few days and weeks, we are going to see some things happen in gas and oil that are unprecedented in my adult life. We’re going to see shortages. We’re likely to see many politicians calling for price-fixing. If they’re successful, we’ll have gas lines all over the country. If they’re not, we’ll have average prices across the country of well over $3/gallon. We’ve already had word from Bush that he’s going to tap the Strategic Petroleum Reserve (SPR) for more oil. Our airlines are going to cancel flights, lose money, or drastically increase prices in order to be able to survive the spike in jet fuel prices.
All told, it’s going to be a difficult time. In deference to ethne, I’m not going to place blame on Katrina or focus on that as the “cause” of this situation. As much as that might be a proximal cause, the devastation to lives of people down there dwarfs any concern I might have about temporary gas prices. I do want to push anyone who pisses and moans about rising gas prices to make sure that you donate some money to a worthwhile cause to help them (more on that tomorrow).
No, what we’ve got going on here started a long time ago. It can be classified as two distinct, though related, groups. The first group are the NIMBY folks (Not In My Back Yard). Offshore drilling? Oil refineries? Power plants (nuke, coal, or natural gas)? Reasonable people understand that these things need need to exist to fuel our economy. They just don’t want to see, smell, or generally acknowledge that these things should be placed within 100 miles of themselves. The NIMBY folks see to it that no energy facilities occur anywhere near people. These people are opposed to wind farms near their beachfront property, or oil derricks off the coast of Florida. The second group are the environmental wackos. These people either A) don’t want energy production anywhere where the “environment” might be affected or made less “pristine” or B) are actively anti-people and simply are against any energy production, and if people have to suffer, then too bad. These people are the ones who make sure that nuclear waste can’t be put into the depths of a mountain, who make sure that a tiny sliver of land in Alaska that 99.99% of the people in this country will never even see doesn’t have any drilling for oil. These folks cannot find a balance between humanity and nature, because they see nature as trumping every human activity.
20+ years of these policies have put us in a precarious spot (see Bloomberg’s article here). Demand here and worldwide has been growing the whole time, but American oil production and refinery capacity have not increased. Our refineries have been running at full capacity, and thus we cannot handle supply interruptions. Increased supply of crude oil are not the key factor for gasoline supply, refinement capacity is much more important. Katrina shut down about 8 of our refineries, and regardless of price levels, there is already talk of some gas stations here in Atlanta who will shut down due to lack of gasoline. Simply put, demand in the gasoline market is largely inelastic in the short term, and when you’re operating at full capacity, supply changes make for a highly volatile market.
Bush has decided to release oil from the SPR, but that is not refined gasoline, and it takes several weeks for that release to actually start flowing. If there is any effect at all, it might help this winter’s heating oil market, or have a psychological calming effect on the general public. But it won’t help us to get gasoline to the market any time soon.
In the short term, here is what each of us can do to help the situation:
1. Conserve as much as possible. I had originally planned a trip for the long weekend which has fallen through due to other reasons, but I would consider cancelling that if I hadn’t. I usually drive home each day for lunch, and will likely stop. The doggies will have to understand.
2. Check out gasbuddy.com. If you have to buy gas, you might as well buy it from the cheapest place. Competition might bring other stations down to their price. Conservation or not, there’s no reason to waste your money.
3. Change your behavior. I hate it when it’s really hot, but once I saw my $200 electricity bill, I’ve become a lot more careful about the air conditioning at home. Don’t do it out of some altruistic need to help the “common good”, do it because it’ll save you money, that you can put to use elsewhere.
4. On the government side, price controls are the *WRONG* idea. To encourage personal conservation, prices need to increase. Trying to control the price creates a disincentive towards conservation, which is the opposite of what is needed on the personal side.
In the long term, we need quite a bit of changes, and these need to be opened up on the government level:
1. Use nuclear power. It doesn’t pollute the atmosphere, and it doesn’t require oil, gas, or coal resources. It does generate waste, which needs to be transported and stored. But it is containable waste.
2. Build refineries and start drilling in ANWR. Oil and gas, whether you like it or not, are currently the lifeblood of our economy. We all wish it didn’t have to be so. But we need to ensure that it keeps flowing until we can find a suitable replacement. If our economy crashes due to oil concerns 10 years before the replacement technology reaches maturity, we’re in trouble.
3. Have a sane energy policy. I’m going to write a separate post about whether CAFE standards or gasoline taxes are better (hint: they’re both bad), but our government needs to understand that energy policy needs to follow logic and economics, not political wrangling and influence peddling.
The recovery is going to be a very bad time for our economy and our country. But if we at least learn from it, it may not be in vain. It is time to take the lessons that we’re being given, and apply them to policy to ensure that it does not happen again.
The AnarchAngel linked with A New Hostage Crisis
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That’s the thing that really honks me off the most about this… yes, Katrina is going to hurt us in the wallets for a long time coming, but the loss of life is something that shouldn’t be overshadowed by 3 dollars at the pump. Yes, it’s going to hurt for a while, but think about those who have lost everything, including the cars to put gas in.
Also, I think it may be a fair idea to build a refinery or two on the closed military bases - put that land to use… just a thought…
I agree with Ethne, why not use some of those closed bases? Brad, you didn’t mention car pooling, taking the bus to work or if you live close enough bicycle. I’ve seen the wind farms off of Hwy. 80 in Wyoming and I think they are beautiful. I guess it’s a matter of prespective. Good post!
A New Hostage Crisis
We are about to enter a new hostage crisis. The hostage? The entire United States economy.
Given the destruction and chaos in southern Louisiana, Alabama, and Mississippi we are already seing a short term minimum of 2o%, and up to 40% disruption i…
A friend of mine told me today that an oil refinery hasn’t been built in the United States since the 70’s because they pollute too much and are bad for the environment. Typically US Oil compaines drop them in Mexico, Venezuela and other S. American countries. I know I don’t want an Oil Refinery in my back yard - the potentially closing base in Maine.
Hoover -
If you don’t want the refinery in your back yard, you’re going to have to pay a price. If enough people all around the country don’t want refineries in their back yards, we ALL pay the price. (More rightly, we are all PAYING the price.)
The other problem here is not only that refineries are running at maximum capacity, it’s that they’re forced through idiotic environmental regulations to produce different blends of gasoline for different areas, making it even more difficult for refineries to meet the demands placed on them.
The first step in stabilizing gas prices can happen almost immediately - suspend the microblend regulations. Make it legal to sell California-blend gasoline in Nevada and vice versa. Eventually, go back to a single blend of gasoline.
The second step is allow more refineries to be built. The companies WANT to build refineries and sell gas for the lowest price possible. High prices aren’t good for them, no matter what the environmentalists, politicians, and media elites want you to believe.
You’ll notice, also, that the problem is most decidedly not OPEC. The thing that the politicians and media either don’t know themselves, or don’t want you to know, is that the price of gas in this country can be controlled by almost entirely by manipulating things within our own country.
Also - on another plus side for the economy - by building a refinery here in the states, the companies will be creating jobs. I agree with Quincy - make it legal to sell one (or two) types of gasoline everywhere in the states. NIMBY crap has got to stop. Closed military bases are probably the best place to start.