High Gas Prices and High Hopes

Oil surged to a new height today, almost reaching $114 a barrel. Retail gas prices rose to a new record of $3.38 per gallon. Diesel jumped to $4.19. And AAA is warning that these prices will continue to rise. The first reaction might be to panic, or make a mad dash toward a single technology solution. But a recent talk by John German, manager of environmental and energy analyses at American Honda Motor Company, suggested that we remain calm.

Speaking at last month’s Auto FutureTech conference in Vancouver, British Columbia, German first cautioned the audience about overreacting to today’s high gas prices. He said, “Right now, we have the highest fuel prices we’ve ever had, but that’s not the real story.” German demonstrated how the cost per mile of driving today, when adjusted for inflation and for average fuel efficiency, is slightly less than it was in the 1970s.

“Our standard of living has gone up. The cost of driving a car for 1,000 miles in the 1970s—as part of disposable per capita income—was 6 to 7 percent. Last year, it was about 4 percent.” He said that gasoline would have to reach $4.50 per gallon before it took the same chunk out your pocketbook as it did in the good old days before the first oil crisis. “Not to minimize the impact, but don’t expect high gas prices to produce a game-changer.”

Then, German warned against the very notion of scrambling to find any single “game-changer.” He outlined a long list of “technology du jour” choices starting with methanol 25 years ago; electric vehicles 15 years ago; hybrids 10 years ago; fuel cell vehicles five years ago; ethanol two years ago; and plug-in hybrids today. “This kind of changing, building up a technology and when it doesn’t meet expectations, moving on to the next, is very disruptive. It’s something that, if at all possible, we need to avoid.”

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  • uktiger

    We are in the midst of a forced technology change that will be quite painful. Forget global warming, western economies are being sucked dry by the Saudis and the Oil companies.

    The US is still the largest consumer of liquid petroleum and the majority of our liquid petroleum is used in transportation. At projected consumption levels, energy could destroy our economy in a generation. We are currently in WW3 and it is being fought with money on the battlefield of energy. Unfortunately without technological innovation, the US will run out of money.

  • steved28

    Well I don’t think I have as quite a grim outlook as uktiger. Probably because I lived through the (man made) shortages of the mid seventies. That was far more scary IMO, because even if you had the means, the product was not available. And even that pales to the shortages during WWII (which I was not around for). At least today we have some time to control our own destiny. Why we don’t teach recent history in our schools is beyond me. You don’t have to go back to the stone age to learn lessons.

    And of course there is a part of me that is glad to see gas prices go higher. I just hope I live long enough to be able to afford solar panels on my roof, and plug a car into my own power grid. We are witnessing what the people who depended on whale oil witnessed years ago. I hope I get to see the modern whalers go out of business.

  • uktiger

    Steve, this is not exactly the same issue as the 70’s although it was predicted by some (Carter). We imported about 1/3 of our oil in the 70’s and we did not have to compete with China and India for world resources.

    We now import more than 1/2 of our oil. The issue is not supply as much as it is demand competition. You may have noticed that our currency has lost about 1/2 of its value over the last 5 years. The US economy has been consuming more than it produces for many years fueled by easy credit markets and Chinese and Indian labour. Now those 2.5 billion people want “stuff” also. That stuff is energy (in the form of petroleum, food and other natural resources).

    The 70’s was a relatively simple fix of increasing supply. It is unlikely that Western economies will consume less energy. We can only hope for increased efficiency via technological breakthrough to save the day.

  • VaPrius

    It’s a little frightening to think that this guy is one of the lead Environmental analysts at Honda. These “technology du jour” that he refers to is the market trying out different solutions. These solutions can be, and should be, viewed as the evolution of the next long term solution or solution mix. HEV leads to PHEV, leads to EV for instance. Welcome to the free market. The companies delivering product evolve, the consumers evolve, therefor the market evolves.

    This is absolutely a game-changer. The oil industry says there there is no more cheap oil. Economists say demand is expanding across the globe and production can’t meet it — there is no more cheap oil. There are serious health and environmental problems with using oil, especially this much oil. Regulations are increasing to control these issues — there is no more cheap oil. Even if you personally believe in Global Warming, there are a host of other health and environmental issues.

    The 70’s was a simple problem with a simple fix. We have been lulled since then with cheap oil. Oil’s price has not kept pace with inflation. The problem now is that this is likely a “new reality” for world. Oil is now, and will likely be, considerably more expensive than we are used to. Probably even higher than where it is today. However, this higher price enables market alternatives. These alternatives could not easily come to market because there was no money in it. Now that there is money to be made, the market can evolve.

  • Anonymous

    VaPrius, I think you may have misunderstood the thrust of the article. He was not, from what I can tell, arguing against the deployment of any new technologies to help ease our dependence on oil in general and foreign oil in particular. What he was cautioning against is the all too real and frequently observed phenomenon of building up any one technology as THE solution to all our problems. This inevitably, as he indicated, leads to a situation in which the technology can’t help but fail to meet the unrealistic — not to mention unnecessary for success — expectations of the general public.

    Even today debate is raging on whether it is wise to transition entirely to ethanol or bio-diesel from gasoline and diesel. Of course it would not be wise, but the problem is that the premise offers a false choice. It does not need to be feasible or even possible to replace all petroleum with biofuels in order for biofuels to be a technology worth pursuing. In fact, whether it is biofuels, nuclear, or free high-energy liquid fuel that spontaneously condenses out of the air, it would not be wise to transition COMPLETELY from petroleum to ANY other type of energy source.

    The problem we have here is not that we chose the wrong energy source to be completely dependent upon for transportation. It is that we are completely dependent on a single source. Consider the fact that we don’t have the kinds of problems in electricity generation that we have in transportation. That’s because we can generate electricity in a number of different ways. If we were to have supply problems with any one of these sources it would inflict some pain, but would not be anywhere near as bad as the situation with transportation fuels.

    This is one argument for PHEVs. They would offer immediate diversification benefits, since the electricity coming off the grid is already diversified in terms of energy source. Now PHEVs, when they’re economically feasible, still will only be able to go so far on electricity, leaving something that needs to be burned in the tank at least some of the time. Biofuels are one way to help diversify the liquid fuel portion of the transportation equation.

    Bottom line — stop knocking [choose one of – biofuels, nuclear, natural gas, solar, wind] because it alone can’t eliminate our dependence on foreign oil. There will probably never be any single source that can completely replace oil. But each of the many alternatives being worked on will play a part in a compound solution.

  • Jeff

    This will all sort itself out through free market. Blaming the Oil rich countries for our meat headed view on energy is a hypocritical endeavor. WE created the energy economy and set an industrial benchmark for the world. Now we whine when China follows in our footsteps and blame Saudi Arabia when oil prices go up. I am no tree hugger but the communes of the 60’s were far more sustainable than our current economy is. Let gas go to $10 a gallon and see how the world changes. It will not be pretty but it will happen.

  • uktiger

    Let me give you a scary parallel. South Africa, late 70’s. Rand/US Dollar = 1/2 while labour was dirt cheap. The most beautiful homes in the world were in South Africa where even middle managers could build mansions.

    SA Today, ZAR/US$ = 7/1. Don’t forget that the US currency has lost half its value in the last 5 years.

    Those South African mansions??? They are crumbling through years of neglect. All of the nicest neighborhoods in Sandton, Joe Berg and Pretoria have homes that are boarded up.

    Now think about all of the McMansions we have built in this country that require $10k to $15k a year in property tax and another $10k to $15k to power. What will be their fate in 10 years.

  • VaPrius

    Anonymous– I don’t think I did misunderstand the article. While to be far, he did bring up some good points. I do disagree with the characterization that we, as a whole, are blindly infatuated with failed and failing products. His list included the only proven, best, solution we have at this time. Also, my point was that this is the way a product/solution is fully vetted in a free market.

  • Anon

    Funny how NO ONE has pointed out the real cause of the higher gas prices being the speculators and the restrctions Congress has put on energy development. “I just want to plug into my own power grid…”, is what the general consensus seems to be among those who favor conservation, but they never happen to mention WHERE that energy in that grid would come from or how much it would cost! Conservation has never been a sound energy policy because it’s not the only answer. And the “alternative” sources like biofuels have proven that they do nothing but cause food shortages or are too far away to help us now. The cold facts are that there is not a shortage of oil, there is a shortage of refned gas! Gee, how can that be? The last new refinery we built in the US was over 30 years ago! And as far as “alternative” energy, WHY are we not building more nuclear plants? France seems to doing very well with all of theirs. Yet NOTHING has been built in the US because of “environmental concerns”. The Democrats in Congress and their failed energy policies are to blame for all of this. The higher gas prices also produce more windfall taxes for the states. While the oil companies are making 7% profit, the state and federal governments are taking 15 and 20 % of the price per gallon. But do we hear a WORD from them about relaxing the double, triple, and multiple taxation they tack on to every gallon of gas sold? NO!

    So, we can drive our hybrids all we want and pat ourselves on the back for “saving the planet”, but all we’re really doing is making the government richer at our expense.

    If we were REALLY interested in saving the planet, we would stop all production and end our policy of feeding, clothing and medicating the rest of the world. THAT should save all the gas we would ever need!

    Come on, enviromentalists! At least admit that you really don’t care about any other part of the world except where you live!

  • petty

    I think one of the biggest factors to consider in this case is the price elasticity for gas. We know that the higher the gas costs, the better mileage cars will have, isn’t it? And big oil companies are making most of their money by producing crude oil, where prices were much lower. Check out for more at autopartswarehouse.com blog.

  • concerned student

    gas prices need to be lower. BOTTOM story. lets do oversea drilling!