$20 Per Gallon Gas Won’t Matter
I was listening to Marketplace yesterday when I heard something that was so dumb that it offended me. It was an interview with a guy named Christopher Steiner, the full text of which can be found here, about his book $20 Per Gallon, which is about what will happen to society as gas prices rise. Some of the classics were:
at $6 per gallon Americans will abandon SUVs forever.
at $12 we’ll all start living in urban condos and walking everywhere, roads will start closing and many of the remaining ones will start charging tolls.
at $14 per gallon big box stores like Wal-Mart will go out of business.
There are so many things wrong with this. First is the notion that gasoline could somehow get to $20. It assumes proportional demand. India and China will make a bunch of gas guzzlers just like we have, and want to buy just as much gas as we do. Of course, almost nobody in either country can afford to pay what we do in gas, and virtually none will be able to pay $10 per gallon. At some point in oil’s meteoric price rise those estimates, which are likely based on today’s gasoline prices, will all fall off a cliff.
But supply and demand is nebulous and impossible to gauge, so let’s just fast forward to a future where he’s correct, and that however many billions of BRIC dwellers suddenly have cars and the GDP per capita to bid gas prices up considerably higher than they already do. Then we get to the real reason the whole argument is stupid, which is that it assumes humans will adapt to the changing prices of gas by radically changing our lifestyles rather than developing new technologies to mitigate the costs. That’s like saying we’ll stopping having casual sex because AIDS is spreading. Despite the almost endless list of times humans were faced with technological hurdles and overcame them, this notion might just be mildly misinformed, rather than borderline-retarded, if not for the fact that those new technologies are already here.
Take ethanol, for instance. There’s a lot of controversy about it now because of government subsidies and the fact that it’s actually more expensive than gasoline for the same level of output without them. Those are true and valid criticisms, but it’s not that much more expensive and it still has to be factored in when discussing future gas prices. Unsubsidized corn-based ethanol already puts an upper limit on the cost of gasoline of somewhere around $5-$7 per gallon, depending on where you get your numbers from, and that’s rapidly becoming an outdated technology. We’ve got thousands of scientists at work on new biomass sources and production methods, but even if you discount that all as pie-in-the-sky optimism, our currently available ethanol production will stop the ascent of gasoline prices long before all Lowe’s locations turn to ghost towns.
And then there’s the even more exciting technology, electricity. We’ve already got usable electric cars on the road, with more coming out every year. There’s the Tesla. There’s the Chevy Volt, which is expected to get 50-60mpg when running on gasoline alone. There’s the new plug-in Prius.
Electric cars aren’t quite ready for primetime yet, but they’re close. Battery technology, which seems to be the limiting reagent, is rapidly improving. Our power-grid couldn’t handle everyone driving plug-ins yet, but we already have smart grid technology that could and we’re in the process of rolling it out. A process that would be sped up greatly by gasoline hitting $10. Nuclear power can provide us nearly unlimited cheap electricity, which again would advance quickly with high gas prices.
All of the pieces are there, we just haven’t had sufficient motivation to pay for them yet. But given the choice between that and not driving our SUVs 30 miles to work every day, it’s pretty clear what the First World will choose.
July 22, 2009 at 7:34 pm
I respect your opinion, but you gotta read the book before you go after specific talking points. Most of your questions are answered in the book, namely:
- India and China’s middle classes are growing at an alarming rate. There will be 2 billion more consumers on the globe by 2040, and they will demand gasoline and oil-based products (which encompasses way more than you’d think). This, coupled with the fact that our oil supply has peaked (no more big oil fields left to tap) presents a problem. In this sense, supply and demand is not “nebulous”. It’s quite easy to predict.
- Ethanol is still a huge wildcard. One cannot assume that and ethanol-based economy can work, therefore, one cannot assume that ethanol production will limit gas price increases. Ethanol is still tethered to oil (fertilizer for corn), gas (harvesting and production and transit), and volume constraints (our corn producers would have to DRASTICALLY increase production, somehow).
- Electirc cars are great…except we can’t produce them fast enough, and they’re still too expensive. There are roughly 200 million cars on our roads right now. Even if we produced 5 million e-cars a year (a ridiculous amount…right now we make about 100,000), it would take 40 YEARS to replace our gas guzzlers. Plus, they’ll cost like $40,000 – $50,000 each.
Even the author admits that $20/gal may never happen….but the book is structured to predict our lives IF it happened. I certainly don’t want gas prices to rise any more, but I think this book is an important eye-opening thought experiment on where we’re headed as prices inevitably creep upwards.
July 23, 2009 at 4:54 am
When societies actually feel an energy consumption/production tipping point is imminent, you’ll likely see developed countries make these adaptations to varying degrees to keep cost within a range of acceptability:
Domestic and commercial power primarily via nuclear energy, and to a lesser degree, still oil & coal. Wind and solar will still lag a bit but will be reasonably viable in accommodating regions, e.g. wind in the plains, solar in the south/southwest, hydrothermal on the coasts. As Matt points out, biomass is a possibility, and biofuel algae will still be nascent but promising.
Commercial transport via CNG.
Non-comercial transport via electric, including slight lifestyle changes by way of greaters use of public transport and wiser choices with respect to home/work proximity. Nothing like the author imagines, but a shift nonetheless.
Though it may not always seem like it, society is highly adaptable if born of necessity.
July 24, 2009 at 2:50 am
Lol, Ethanol.
While biomass and cellulosic ethanol show promise corn-eth is a joke. There is a very hard, very low (in the large view) limit as to the production of corn-eth. Corn takes a lot of space to grow, many resources to cultivate and ultimatley uses more petroluem products to grow than are produced. Couple that with the fact that food prices skyrocket whenever ethanol use increases means that corn-eth is basically just a big-farm subsidy.
The other ways of producing may, eventually, take off. Corn-eth has no shot and in the end will just cause more food riots in the third world like the last time oil prices were high. Hardly a solution.
July 24, 2009 at 4:51 am
> India and China will make a bunch of gas guzzlers just like we have, and want to buy just as much gas as we do. Of course, almost nobody in either country can afford to pay what we do in gas, and virtually none will be able to pay $10 per gallon.
You need to do much more research. Petrol in India is currently much more expensive than the United States, and has been for a while, at around $4/gal.
The majority of Europe pays more for petrol as well.
> But supply and demand is nebulous and impossible to gauge, so let’s just fast forward to a future where he’s correct, and that however many billions of BRIC dwellers suddenly have cars and the GDP per capita to bid gas prices up considerably higher than they already do.
No, this is completely incorrect. The supply/demand is not only possible to gauge, but has already been done.
July 25, 2009 at 5:09 am
*Unsubsidized corn-based ethanol already puts an upper limit on the cost of gasoline of somewhere around $5-$7 per gallon, depending on where you get your numbers from, and that’s rapidly becoming an outdated technology.*
There is a huge hole in your thinking. Imagine it costs two gallons of oil to produce one gallon of ethanol of equivalent energy content. The ethanol will be twice as expensive. But it will never be a suitable replacement for oil. As the price of oil rices, the price of ethanol also rices. As oil rises to $10 a gallon, ethanol rises to $20 a gallon.
You really need to understand the concept of Energy returned on energy invested. The elephant in the room is that no scalable renewable source is anywhere close to the EROEI of the fossil fuels (hydro and geothermal have great EROEI but all good locations have already been tapped). Many of them actually consume more energy than they produce. Solar panels cost a lot of energy to construct, and do not produce that much in return. Most of tree hugging environmentalists who put solar panels on their houses are actually consuming more fossil fuels than if they just hooked up their house to the grid.
Read this article: http://www.theoildrum.com/story/2006/8/2/114144/2387
And in particular look at this graph: http://www.theoildrum.com/uploads/244/smill_power_density.jpg
That graph scares the hell out of me. Look at the gap between photovoltaics and oil. It’s huge. Can our best minds close it in time?
The other thing that alarms me is that there is no long term money in oil. You cannot buy a futures contract for oil thirty years out. Companies that own oil pump has fast as they can to meet quarterly profits. Governments are under political pressure to pump at high rates. No one is driving up the current price by investing in long term stockpiles. This means that when supplies start to dwindle, the price could shoot up in a very short period of time. In five years the price could easily go from a manageable $3 a gallon to a catastrophic $20 a gallon.
July 27, 2009 at 9:26 pm
I see it more likely that we will see 1 gallon/$20 than $20/gallon gasoline, as the value of the dollar in petro-dollar will diminish greatly over the next decade. China will just use all the dollars we have sent them to buy useless crap, to subsidise their middle class development. Oil starts trading in euros, and the value of the dollar will just get worse, as the dollar is not backed by gold today, but it is backed by all the worlds oil reserves.
As stated, sugar EtOH is a net loss undertaking, but cellulosic would work if the tech becomes feasible.
Electric cars are a decade-long transistion at least, to which the grid will need to adapt with distributed generation or nuclear.
The two sides of this issue are markets and tech, and both will be very tumultuous through 2020.