Wednesday, February 29, 2012

Top Five Facts Why High Gasoline Prices Today Do Less Damage Than In 2008

Gasoline prices are up 40 cents per gallon since January, now average $3.70 per gallon, and may reach the record of $4.11 set in July 2008.  At that time, high gasoline costs were part of a perfect economic storm that nearly pushed the US already in a recession that started in 2007 into a depression.

Here are the top 5 facts why the economic impact this time of $4 gasoline will be much less, though still painful, as a 50 cent per gallon increase sustained for a year costs families $250 if they use 500 gallons annually or $500 more for 1,000 gallons.

5. New cars being sold today are more fuel efficient than in 2008.  In fact today's vehicles are 14% more fuel efficient than in 2008, and more than 30 million new cars have been sold since 2008. The gasoline price rising  from  $3.50 to $4 rise 14% and is offset almost completely by greater fuel efficiency that also averages 14% in new cars sold.  Of course, most motorists have not bought a new car since 2008, but they often do have two cars and start driving more frequently the higher mileage option.  Car pooling rates and public transit use also rises when gasoline reaches $4 as people find other strategies to save gasoline money.

4.  The USA has cut substantially its oil usage through efficiency and using substitutes for oil in vehicles, homes, and factories.  Ethanol and biodiesel consumption are up. Oil power plants such as those in Florida operated by FPL are converting to gas. Tens of thousands of homes across the Northeast are switching to natural gas from oil.  As a result, oil consumption is back to May, 1999 levels and gasoline back to September 2001 levels. The decreased oil consumption means that higher oil and gas prices in 2012 do less damage to the economy than in 2002.

3. Today electricity prices in many parts of the country like Pennsylvania are much lower than in 2008, and consumer savings in the electric bill approaching $500 per year for customers using 10,000 kilowatt-hours offset the household budget impact of $4 gasoline.  It should be remembered that electricity prices during the second quarter of 2008 in America's largest wholesale electricity market (the PJM power pool) reached the equivalent of 13 cents per kilowatt-hour just for generation.  High electric prices resulted from skyrocketing natural gas prices that were $13 for a thousand cubic feet in July 2008.

2. Today natural gas prices are $2.50 for a thousand cubic feet.  For the 51% of America's homes that heat with natural gas, the savings on the natural gas bill can be easily $400 to $1,000 and more than offset the price increases in gasoline. Again low natural gas prices have also shaved hundreds of dollars off annual electricity bills in many parts of America.  Combined natural gas and electricity bill savings of about $1,000 for many families exceed the $250 or $500 in new gasoline savings.  The key to the gas and electricity savings is the record gas production in 2011, driven substantially by shale gas wells.

1. The number one fact why $4 gasoline will do much less damage is that today our economy is growing and creating jobs and is not in a frightening fall, as it was in 2008. High oil prices shoved down an economy already plummeting. Remember that in 2008 our economy was already well into a recession that began in 2007; the stock market was falling; and the global financial system froze on September 15, 2008, when the federal government did not prevent the economic collapse that followed the disastrous Lehmann Brothers bankruptcy.  In the fall of 2008, monthly job loss immediately skyrocketed to 500,000 to 750,000. Truly scary.

In February 2012, our GDP has been growing every quarter since July 1, 2009.  Jobs have been added for 23 months.  And the stock market has roared back to 13,000 from below 7,000 in March 2009.

More fuel efficiency, less oil dependency, lower electricity bills, much lower natural gas prices, and a growing economy in 2012 all mean that America is today much better prepared to withstand $4 gasoline. Yet, to protect further our economic security, America needs to do even more to lessen its use of globally priced oil that is likely to go even higher in the coming years.

More natural gas, more biofuels, more electricity, and more energy efficiency is a recipe that works to innoculate Uncle Sam against high oil price illness.


  1. The public/news media needs to ask the House leadership why there hasn't been a vote on the "Nat Gas Act."

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