Killing Demand
The price of oil increased significantly on Friday, climbing to $138.54 a barrel with the possibility of the price reaching $150 a barrel in July according to analysts at Morgan Stanley. This is not surprising given that summer is peak driving time for many Americans, but what happens after summer, will the price stabilize or should we expect further increases?
I was thinking about driving today and the difference between your typical Irish and American commute. When I lived in Worcester, MA, it would take between 45 minutes and 1.5 hours to drive the necessary 42 miles into Boston. Now that I live in Lucan, Ireland, it takes me about the same period of time to drive the 6.84 miles into Dublin. Given the vast discrepancies in distance, what is the actual cost in terms of gasoline?
- It costs $3.93 per gallon of gas at a station in Worcester, MA.
- For the same gallon of gas in Ireland, I would be paying $7.88 on average.
Yes, that is no exaggeration, but I used the current data available to come up with this unique figure:
- There are 3.8541178 liters in 1 Gallon.
- It costs someone in Ireland on average €1.32 per liter of gasoline.
- Therefore for 1 Gallon of gasoline you would pay €4.99 in Ireland.
- Using the current euro-dollar exchange rate, the typical Irish driver pays $7.88 per gallon for Gasoline.
- That is 49.8% more than the typical American driver.
There are a few caveats with this math of course:
- The euro-dollar exchange rate is not directly correlated to the price of gasoline therefore its inclusion does distort the real cost when comparing Ireland and America
- I rounded of all figures to two decimal places with the exception of the Gallon-liter conversion.
- The entire width of Ireland is a mere 138+- miles which his not anything significant compared to the size of the United States.
The point of all these figures and numbers is to illustrate how dependant society has become on every person owning a vehicle despite their detrimental effects to the environment. Ireland and America are both wealthy countries yet some people reading this must ask why it takes 45 min to drive a mere 6.84 miles into the city. The simple answer is traffic. People often joke around here, that Ireland is “Europe’s largest parking lot.” That may sound a bit nasty but there is significant truth to those four words, Ireland has been steadily increasing in wealth over the past 10 years with double digit GDP gains at some points. All this wealth has translated into more cars on a highway that was never meant to hold that many vehicles in any engineer’s imagination.
The government has been talking about instituting a city congestion charge for some time with no implementation to date however they have radically changed the vehicle registration tax. Basically you pay lower tax if your vehicle has lower emissions. I think that is quite fair, don’t you? It will certainly help to encourage consumers to drive vehicles that are more environmentally friendly.
No matter how environmentally friendly cars are, the fundamental problem of traditional gasoline exists and the only way to overcome that is through a significant investment in new and alternative energy sources. Billionaire Boone Pickens of BP Capital sums up the current situation simply and concisely:
“There’s nothing to it to start with,” Pickens said in interview at an American Wind Energy Association conference in Houston. “That’s not what’s happened. You have 85 million barrels a day of oil available in the global energy market and 86.4 million barrels a day of demand. So the price of oil is going to go up until you can kill demand.”
Mr. Pickens goes on further to reinforce his statement later in the interview:
“We’re using 400,000 barrels of oil less today than we did a year ago, but the Chinese are now using 500,000 barrels greater than they did last year,” Pickens said. “So whatever we kill in the way of demand, they pick up in their demand. You’re going to bid for the oil, and the highest bidder’s going to get the oil until you finally kill demand with price.”
In the West we are trying to find more oil, or different ways to more efficiently use what we already have but the problem is never going to go away. Oil is never going to go below the sub-$100 level because demand is going to perpetually increase. Nations like India and China are going to use more oil as their populations grow in wealth and prosperity and it is up to the West to find alternative methodologies to power our transportation systems to ensure a strong and stable macro-environment for future generations. I am not too sure on what technology to use, given the current food crisis, I am going to stay away from ethanol but perhaps hydrogen:
June 09 2008 04:20 pm | American Politics and Irish Politics
June 9th, 2008 at 6:46 pm
I’ll bet that is one expensive little piece of machinery, Crian!
June 10th, 2008 at 9:16 am
Hey Gayle,Hopefully they will make it cheaper but I saw an average “joe” on CNN make a hydrogen engine for less than $10,000 so I don’t understand why a big company like BMW can’t come up with a cheap/mass-produced hydrogen engine. I was talking to my uncle yesterday and he was speculating that the oil industry is behind BMW’s lack of implementation as far as hydrogen engine’s are concerned. They have been working on such a concept for a few years, why so long? Given that BMW’s are expensive, I doubt the middle-class family is going to be buying one of those cars.