Eight Reasons Why $2 Gas is Gone for Good

Sky-high gas prices have many armchair economists thinking about the bubbles of yore: Tulips, dot-coms with no revenue model, and gated communities in suburban Phoenix. While the “what comes up must come down” rule usually applies, there’s no guarantee we’ll ever see $3 gas again—much less $2. Here’s why:

8. Peak production is a matter of “when,” not “if.” Though there is a hot debate among energy analysts over how much higher daily crude production can go, it’s almost universally accepted that we’re closing in on the end of limitless new oil discoveries. 1978 was the last year that more oil was discovered than was used, meaning that available oil we know about at a any given time has been dropping annually.

7. Speculation. After the collapse of the housing market triggered inflationary fears, investment banks, hedge funds, and commodities traders began looking to oil trading as a hedge against inflation. Sure, the dramatic increase in trading volume for oil futures has added demand to market, but there’s little reason to expect it to cool down before demand outpaces supply. Goldman Sachs says $200 barrels are on their way, and based on the way energy traders have been acting recently, it would appear that many others are in agreement.

6. The falling dollar. Since oil is traded in dollars, inflation for us means that many poorer countries can effectively buy oil cheaper. That’s good news for developing economies like China and India whose growth has spurred an explosion of new oil demand. It’s bad news for the United States, Europe, and carbon emissions.

5. Alternatives are pricey. Ethanol, oil sands, and natural gas liquids are all alternatives to light sweet crude that can be refined into gasoline. The problem is that these fuels take an incredible amount energy to extract and refine, making them viable supplements to crude when oil prices are high, but ultimately much more expensive.


  • Skeptic

    “Ding, ding, ding goes the trolley!”

    The sooner we start rebuilding our electric transportation infrastructure, the better off we’ll be.

  • Shines

    Well gasoline may fall below $3 a gallon in the winter, but I’m not optimistic.
    Seattle Times had an article in the auto section on scooters. Some are only for city streets. Others can navigate freeways with ease. Their fuel economy ranges from 50 to 95 MPG and are available right now. With the high price of fuel I started riding my bicycle to work 1 day a week (it’s 12 miles each way) weather permitting. Anybody else use or considering a scooter or small motorcycle?

  • Eti

    Why not electric scooters?
    High Power/Weight ratio allows using little – so less expensive – new generation battery or normal lead battery – bigger and heavier, but cheaper;
    Useful mileage with only a little kWh;
    Very low complexity for the whole battery-controller-engine (I think not more then a washing machine!!);
    Higher reliability.

    They are not available right now for a large market – I know it – but makers will not need years (until 2012) to well develop them.

  • Matt Miller

    I ride my scooter to work ( weather permitting ) and around town for things like trips to the bank and store or visit people. I’ve had it for a year now and love it. It gets between 75 – 80 mpg and goes a top speed of 55 mph so I can drive it on any road with no problems.

  • Need2Change

    A lot needs to change at once. We are all aware that cars and trucks need to get more efficent, and they will. But the increased number of vehicles in the world will more than make up for the efficeincies.

    Homes need to get smaller and more efficient. This will take decades. I don’t see us destorying 4,000 sq. foot homes.

    People need to live closer to where they work, or work closer to where they live. This will take time. I don’t see the suburbs closing down.

    Businesses and industries will need to reduce utility costs. I work in a high rise. I’m unaware of any conservation effort. I also don’t see Las Vegas reducing the number of lights.

    I agree that the solution is the electric grid. Not only for the automobile, but for heating, A/C, lights, etc. The source needs to be efficient as well.

  • Indigo

    I think what really needs to happen is that fuel efficiency needs to go up — a lot. Gas prices are never going to come down. The Saudis have been maxed out for the past three years. We could have already been well on our way towards energy independence if King Bush had funded hybrid/EV technology instead of corn-ethanol and the Iraq War.

    American culture also needs to change. Why do we need to go from 0-60 in 7 seconds? Why do we need a top speed of 145 when the speed limit in most places is 65? Does a 7-passenger people-mover really need a 460 HP engine? Or can 230 HP reasonably do the job? For two-car households, why not have at least one of the cars be a high efficiency compact?

    And PLEASE, stop driving the Hummer as a commuter vehicle! (Yes, I actualyl do have a neighbor who is a mean/nastly 4’10″ specemin of humanity and drives this great big Hummer to work every single day. Can we cay “Napoleonic Complex” boys and girls?”

  • Gary

    I think that it is possible to make a serious cut in demand in a relatively short time. We cut our total energy use in half, including transportation and home energy use. This only took about 2 years.
    http://www.builditsolar.com/References/Half/Half.htm
    Its pretty easy to do, involves zero lifestyle change, and has a very very good economic return.
    Its really in OUR hands.

    But, I don’t really see a whole lot of interest.

    Gary

  • Anonymous

    The sooner we start building an electric transportation infrastructure, the better off we will be. PHEV can cut our vehicle gas consumption by 50%, but we must still put the long haul shipments on rails, and we are not working in that direction at all. Short haul plug-in trucks appear viable.

    But who is building the battery production facilities? Who is building the electrical supply for rapid charging of all these vehicles.

    Ding, ding, ding goes the alarm clock…

  • Neil DeWitte

    Overall I agree that $2 gas is not coming back. One day in the distant future when our energy sources covert to electricity we will be on these forums discussing the price of kilowatts of electricity…

    To Shines, Eli & Matt Miller:

    Good for you for riding a scooter or bicycle! Don’t overlook the electric bicycle. They are available now and the only oil you will need is to lubricate the chain. These bikes generally max out at 20mph, so they are not that fast, but if you live in an area where the topography is too challenging for a regular bicycle, they are great.

    If you could ride a non-electric bicycle, then for heaven’s sake do that instead of using electricity to charge a bicycle. I ride my electric bicycle occasionally to the local post office, coffee shop, etc. It is several miles away with a big elevation change, so I would never ride it on a regular bike. Unfortunately there are so many trucks and SUVs near where I live it is a bit scary.

    Maybe in the future there will be smaller cars and more bicycles and scooters on the road so the situation might be a little more friendly for sharing the road.

    My car insurance agent has told me that each time gasoline goes up, he sees more people insuring scooters or motorcycles along with a corresponding increase in accidents, especially among people who are trying to save gasoline as opposed to people who have ridden motorcycles their entire lives.

  • Jay

    All,

    ever heard of the Flyer-bike. A hybrid electric bike! This might be an alternative to replace regular bikes for longer commutes. It is said that people regularly drive them with 30 Mph even over longer distances. They are available now and can replace your car right this very moment.

  • Zero

    The number one reason is because the election is coming up. I trade in oil…. take a look at any oil stock for the past 4 years from an American oil company. When elections come around, those prices drop.I think I should post this on my Hoods blog.July’s lows always equal June’s highs.

  • Prognostications ‘R Us

    Yup, $2/gallon gas is gone for good. Looks like you guys nailed it. Oh, wait a minute, I see it for sale for LESS than 2 bucks. Good job, geniuses. You’re as clueless as the ex-hippie teachers I had in grade school in the ’70s. They told me we were moving a period of global cooling and that the world would be out of gas by the early ’80s. Oops.

    My ’08 Audi with the 350 hp V8 cancels your Prius. Just FYI.