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Lower Gas Prices, But for How Long?

Gal Sitty's picture
Fuel Freedom Foundation

Gal comes to Fuel Freedom with a track record of being a trailblazer. After successful experiences in finance at Morgan Stanley and an AIG company, Gal continued to graduate school where he...

  • Member since 2018
  • 25 items added with 7,208 views
  • May 5, 2013
  • 653 views

Gas PricesBy now, who hasn’t heard about the oil boom in the United States? Higher oil prices and new extraction techniques are largely credited for creating a rash of new oil fields, resulting in domestic production soaring to levels that haven’t been seen in decades. In fact, many are attributing the slight dip in oil and gasoline prices in recent weeks to this production boom.

But how much of a boom is this really? How much can it actually influence the price of oil and America’s decades-old quest to become “energy independent?” To answer this, let’s take a brief look at the facts. U.S. oil production levels have recently surpassed 7 million barrels per day (mbpd) for the first time since 1990, while oil imports in the first three months of the year averaged 7.7 mbpd. This means that despite the new American oil boom, we are still not producing enough oil to meet even half of our demand.

In fact, it’s not just America that is consuming more oil than it can produce —the entire world is exhausting the commodity. The U.S. Energy Information Agency (EIA) estimates that global oil consumption is outpacing supply by 1.1 mbpd. With demand for oil so high, coupled with rapidly growing and modernizing populations in India, China and other countries, perhaps we shouldn’t focus on how long we can enjoy this ephemeral lull in oil prices, but instead worry about how fast and how high oil prices are guaranteed to rise once the calm has come to an end.

Let’s also not forgot that the U.S. economy, while still not stellar, is growing. This means more people are on the roads, almost all of whom are using transportation powered by oil. So even as our own oil production may or may not continue to rise, our appetite for oil most surely will.

That is, unless we look to ways to replace our need to rely on oil for our transportation needs. It seems that not only are we unable to sustain such a disconnect between oil consumption and supply, but we also cannot afford to maintain this, or any greater such disconnect in the oil market. In short, we cannot drill our way out of this.

The only way to fill the gap between the demand for transportation fuels and the supply of it is to use other fuels, besides oil, that can be produced in large quantities to safely and reliably (and preferably cheaply) power our transportation.

Discussions
Edward Kerr's picture
Edward Kerr on May 5, 2013

Gal,

Allow me to suggest that we could use “home grown” contemporary oil from algae instead of fossil oil from algae. It’s been calculated that if we were to cover an area about twenty % of the size of the state of, say…NM we could ‘grow’ all of the oil that we need. It would be ‘carbon neutral’ and a drop in for our present refinery system. Greenhouses could be placed all over the country and in closed growing loops water use would be minimal. The ‘extraction’ issue has been solved.

Sadly, the fossil oil industry monkey, with it’s hand wrapped around the prize in the trap, is sure to be caught by physics. When she spanks you you’re really spanked as she (physics) is brutal and remorseless when enforcing her laws. We are in violation of those laws and will pay a steep price no matter what we do from here.

Happy Cinco de Mayo

Ed

I K's picture
I K on May 6, 2013

Its risky for the oil monopoly countries and companies to try and keep oil so much more expensive than coal or gas for a prolonged time

Other industries or countries might have enough of an incentive to really crush oil. The two big ones could be natural gas powered cars or LNG aviation. Both could quickly and massively reduce oil demand. Likewise the computer driven vehicles woild see a quick reduction in oil demand

Gal Sitty's picture
Thank Gal for the Post!
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