Sunday, June 08, 2008
News

What’s up with the gas crisis?

1. Why does the U.S. pay so much less for its gas than European countries?

David McNew/Getty Images
Some European countries would kill to pay a mere $4 per gallon.

By Josh Clark

No doubt about it, Europe definitely has it worse than the United States. In fact, even with gas prices at $4, the United States ranks 108 out of 155 countries for the cheapest gas. Eritrea has it the worst at $9.58, and Venezuela’s got it the easiest thanks to its state oil company (we know it as Citgo), paying just 12 cents a gallon.
 
Europe’s gas prices aren’t much better than Eritrea’s. Marine diesel is up 40 percent across Europe’s ports since January, and on-road diesel fuel is past the $11 mark in Great Britain. The European Union on the whole is paying about $8.50 a liter for regular gas.

Europe would be even worse off if the pound (and the Euro) weren’t so sound. Since oil is still mostly traded based on dollar values, the exchange rate actually keeps gas prices from spiraling as high as they could in Europe.

Why is it so much worse in Europe? The biggest reason is the government. In France and the U.K., gas taxes account for 70 percent of the price; almost $6 of that $8.50 is tax money. This burden levied on European drivers is due largely to climate change. That’s right, folks—in contrast to the U.S., Europe is actually committed to doing something about reducing its carbon dioxide emissions. One of the better ways to do that is to reduce the amount people drive, and the absolute best way to do that is to tax the living hell out of gasoline.
 
Here in the colonies, we’re going in the other direction. Our own governor Sonny Perdue personally suspended the state gas sales tax increase, a move that will save us three cents a gallon. Drive, Georgians, drive!
 

2. Will gas prices ever be normal again?

Possibly, especially if you now consider $3 per gallon to be normal. There’s a certain psychology associated with grossly inflated prices: We get accustomed to $4 gas—as much as it pains us—and when gas prices go back down again in the fall and winter to $3, we don’t even remember what it was like to bitch about $2 per gallon.
 
Then again, prices could decline dramatically in the future. Nine years ago, crude oil was trading at $10 a barrel; it hit a record $135 a barrel on May 22. Since the economy’s in the toilet, people who make their money investing have planted their flags squarely in oil futures—it is, after all, money in the bank. The globe runs on oil—it’s not a luxury good, like that TV we can hold off on purchasing.

When we eventually emerge from this recession, investments should become more diversified again, devaluing oil, since it won’t be traded as heavily. Don’t hold your breath for $10 barrels of oil, though. It is, after all, a finite resource, and there are many industry analysts who believe we’re quickly running out. And the more precious oil gets, the more expensive it will be.

Of course, if oil companies do eventually make the switch to alternative fuels (before we run out of oil without a backup energy source), oil prices may drop to next to nothing; we won’t need it much anymore. But I’ll probably be writing a column about why biofuel prices are so high by then.
 

3. Aren’t these high gas prices really bad for our economy?

Sure they are. Anything that uses fuel for production or transportation gets more expensive when fuel prices increase. Fuel is attached to every part of our economy, including food—the price of which, you may have noticed, has gone up just a little bit recently. Flour’s up eight cents a pound over last year. Doesn’t sound like much, but milk’s up 80 cents a gallon. And you need both to make biscuits. Once you roll your shopping cart into the checkout lane, the price hike becomes painfully obvious.
 
This is significant because about 13 percent of what we spend our money on goes to food and 4 percent goes toward gas. These spending increases tend to have a dampening effect on consumers’ moods, and when we all get hacked off at high prices at once, things go to pot. Everything begins to slow down. We curtail our spending habits. We stop investing, stop splurging, and starting squirreling away money. Those genetic memories passed down by our Depression-era forebears kick in, and suddenly we know how to darn socks and raise chickens.

Things aren’t bad all over, though. The oil companies are getting along swimmingly. Shell Oil, for example, posted $27.56 billion in profits in 2007. That’s profit—after all the money for exploration, research, development, extraction, refining, transportation and salaries Shell doled out last year, it still managed to pocket a cool $27 billion.

There is something of a silver lining to painful times like these: They tend to spur innovation. Necessity is, after all, the mother of invention. Let’s go back to Europe again, shall we? Those poor bastards have had to put up with incredibly high gas prices for a long time, but those prices yielded world-class public transportation and cars that get unbelievable gas mileage.

We’re beginning to see those same cars—like the 49 mpg diesel VW Golf and the Smart Car—here now, too. The timing is not coincidental. As a wealthy consumer society, when we wave our money around and ask for something, like a fuel-efficient car, we usually get what we want. SP