High Gas Prices

With gas prices approaching $4.00 per gallon, where will it all end? And where, for that matter, does it begin? Who is responsible for these high prices?

A lot of people are convinced that the oil companies are the ones responsible, padding their pockets at the expense of drivers all across the nation. Enough people are convinced of this that Congress recently called for hearings with executives from the five biggest oil companies in the country: BP America, Chevron, ConocoPhillips, ExxonMobil, and Shell. One topic the hearings focused on was the $123 billion (that's $123,000,000,000.00 for perspective) in gross profits earned by those companies in the past year, while at the same time consumers are paying record prices for gas at the pump. The executives denied responsibility for the high prices, citing that part of the problem is that approximately 85% of America's coastal waters have been made off limits of drilling. The fact of the matter is the nine major oil companies in this country only control about five percent of the world's oil, hardly enough to significantly affect the cost of crude oil on the open market.

In addition to off-shore waters, the Alaska National Wildlife Reserve (ANWR) is also off limits to exploration. Opponents of drilling in ANWR cite environmental concerns for wanting to keep the lands off limits to exploration. Advocates counter that only 1.5 million acres would potentially be affected by exploration, while the remaining 17.5 million acres (or 92% of ANWR) would remain permanently off limits. If oil were to be discovered, only about 2000 acres of that 1.5 million would be affected by drilling. In the end, less than one-half of one percent would be affected by drilling. In exchange for opening this small portion of ANWR to exploration and drilling, it's projected that 1.5 million barrels of oil could be recovered every day, accounting for 25% of domestic production. From a conservative estimate of 9 billion barrels available under ANWAR, that's over 16 years supply. Some estimates project there could be as much as 16 billion barrels under ANWR. That's over 29 years' supply. While neither estimate can amount to a long-term solution to our fuel problems, it would go a long way to make the situation manageable for consumers while other alternative energy sources are explored.

So is that it? Just a supply/demand issue, or is there more to it? Over the past year, we've watched the price of oil skyrocketing. In June, 2007, oil was trading for about $65 a barrel. One year later, it's trading for about $135 a barrel, an increase of 108%. Why? Well, for one thing, we need to look at the fact that the value of the American dollar has plummeted in value over the past year, due in part to the problems in sub-prime mortgage market. So, it's the sub-prime mortgage market that has caused high gas prices, right? Well, not as such. The fact of the matter is that there is a great deal of confusion as to just how many subprime mortgages are in foreclosure. This has led to a great deal of insecurity in the banking industry, as banks, both large and small, are facing losing billion of dollars as a result of these foreclosures. This turmoil in the banking industry has, in turn, led to insecurity in the American dollar and a nosedive in its value. When the dollar falls in value, it buys less, thereby taking more dollars to buy. Add to this, speculators in the market betting on the price of crude going up and up. When it does, you can bet that they're making money off of this whole deal.

So now, we have several concepts being blamed for the high pump prices – executives padding their pockets at the expense of the consumers; simple supply/demand economics; a weakened American dollar; stock market speculation. Are any of these the true, underlying problem? What's the solution?

One proposed solution involves nationalization of the gas companies. Essentially, let's put the federal government in charge of the recovery, processing, and delivery of oil to fuel stations. Personally, I'm not big on this solution. The federal government does a few things well. Allocation of resources to the people who need them in a timely matter isn't one of them. With all of the bureaucracy already running rampant through the federal government, it's obvious all the average consumer would get from nationalization of the oil companies would be higher prices, brought on by additional costs and taxes rolled into the price of a gallon of gas, and longer lines, as gas stations run low on supplies while they wait for trucks to get around to replenishing their tanks.

So what will it take to change the course of fuel prices? Time, for one thing. It will take time for the banking markets to recover from the issues in the subprime mortgage market, allowing the value of the dollar to increase. Conservation of resources is another piece to this puzzle. As prices have risen, people have altered their driving habits: combining errands to save gas, accelerating from stops more steadily, driving more slowly as most cars run most efficiently at around 55 mph. While we're doing these things, the fuel companies are already researching new technologies to make cars that run on alternative fuels or different types of engines. Some of these include hydrogen power, fuel cell engines which emit exhausts consisting only of water vapor, and even a compressed air engine technology which pushes the pistons with bursts of compressed air rather than exploding fuel.

While there has been much talk about using ethanol mixed into gasoline or pure ethanol as fuel, this idea has recently fallen into disfavor as it's being discovered that the ethanol isn't particularly more efficient than gasoline to begin with. Additionally, it takes even more energy to produce the ethanol. In the end, ethanol actually brings a significant inefficiency to the equation.

One idea getting a lot of talk these days involves a "Manhattan Project"-style effort in the area of alternative fuels research. Using the same efforts that were used to develop the atomic weapons of World War II, scientists could research different ideas, possibly even one day developing the successor to the internal combustion engine.

So what do you think? What do you see as the cause or the solution? Give us your comments and ideas.