Posted: Sat Jun 07, 2008 9:01 pm Post subject: What if gasoline cost $10 a gallon (in the US) ?
What if gasoline cost $10 a gallon (in the US) ?
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Forget pizza delivery. And cheap airfares. And bottled water. In fact, forget a way of life that looks much like today's. But would that be so bad?
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In four years, U.S. gas prices have doubled to more than $3.70 a gallon, and crude oil has tripled to around $125 a barrel. Allowing for inflation, that's higher than prices were during the 1978–83 oil shock that triggered a recession and sky-high interest rates. But . . .
What if gas cost $10 a gallon?
Thousands of truckers would go bankrupt. Airplanes would sit idle in hangars. Restaurants and stores would shut down. Car-pooling, hybrid vehicles, scooters and inline skates would swing into vogue. And telecommuting, rooftop vegetable gardens, home cooking and recycling would proliferate.
Yes, it would be painful. At $10 a gallon, filling a Ford Explorer could cost $225. Even gassing up a Honda Civic could set you back $132.
And suddenly the bus wouldn't look so bad.
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A large recession, not a depression
According to Todd Hale, a senior vice president for consumer researcher Nielsen, at $10 a gallon, the average family's gas bill would leap from 16% of its retail spending to about 40%. People would drive less, yes. But many have to drive to work or the supermarket, and they'd cough up the cash -- screaming all the way -- and cut back elsewhere.
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Businesses and farmers, meantime, would be squeezed as the costs of transport, petrochemical fertilizers and plastics rose. If an oil shock came quickly, sending gas to $10 a gallon and oil to roughly $350 a barrel, the chain reaction of spiraling prices and sliced consumer demand would hit us hard.
"It would be a large recession, not a depression," says Michael Englund, the chief economist for Action Economics in Boulder, Colo. That would mean tight budgets and unemployment until the economy adapted and growth returned.
Here are some likely effects:
* Consumer spending on eating out, clothing, electronics, vacations and other little luxuries would fall sharply. A Nielsen study found that even at recent gas prices, 41% of consumers were eating out less. In total, 18% of those surveyed were cutting spending to a "great degree." That would bruise companies such as Applebee's, Macy's, Gap, Best Buy and others. But discount retailers, particularly those selling food and gas, could do relatively well. Think Costco, Wal-Mart and McDonald's.
* We'd see "a lot of parked planes," says Bill Swelbar, an air transport engineer for the Massachusetts Institute of Technology. The U.S. airline industry pays out $465 million in fuel costs for every $1 rise in oil. At $350-a-barrel oil, the industry would pay more than $100 billion extra, almost as much as last year's total airfare sales. Even if airlines ratcheted up fares 50%, half of their airplanes would be grounded because they'd be too expensive to fly, Swelbar reckons.
* Many independent truckers, who pay for their own fuel, would go bankrupt as their costs soared and shippers switched to barges and trains. Taxis and FedEx would be strictly for the well-heeled. And home pizza deliveries would cease. Pizza delivery drivers also pay for their own gas. "It'd be brutal," says Joseph Miller, an assistant manager at a Domino's Pizza in Seattle. "I would think we wouldn't have any drivers."
* Food prices could jump by a third or more, experts estimate. About 80 cents of the $4.50 retail cost of a box of cornflakes goes to transport it, says Dan Basse, the president of AgResource, a Chicago research company. On top of that, there's the cost of fertilizers to grow the corn and diesel for farm equipment. In 2005, transportation and energy made up 8.5% of all retail food costs, but energy was far cheaper then. As $10 gas pushed up food prices, pinched consumers would give up pricey fresh meat and vegetables for cheap pastas and oils. Ranchers and dairies with energy-hungry milking barns would struggle. And cities might sprout to life as people planted vegetable gardens on their roofs and balconies and in vacant lots.
* Plastics for appliances, packaging, pacemakers and myriad other products would jump in price as the natural gas that plastic is made with rose in value alongside oil. Bill Wood, the president of Mountaintop Economics and Research in Massachusetts, says shoppers would have a choice: "Paper or paper?" Small plastic bottles of water would disappear. Glass and metal containers would make a comeback. And recycling would explode. Families might even have nine bins in the hall to separate their trash, as they do in Japan, where consumer recycling tops 90%.
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* As drivers began to switch to 100-mile-per-gallon plug-in hybrid cars (already expected to launch by 2010), the electricity grid could come under strain. Theoretically, if everyone had one and plugged it in at night, the grid could handle 84% of the nation's car fleet. But to avoid the risk of city brownouts, the grid capacity would have to rise. Solar, wave and wind power would ramp up. Giant solar thermal power plants, which use mirrors to concentrate the sun's energy, would be built. But in the rush to get power, we'd probably also step up the use of cheap, dirty coal (50% of our electricity generation now). Even nuclear power (21%) could be considered anew.
* Resistance to drilling for oil in Alaska's Arctic National Wildlife Refuge and off California would shrink. Environmentalists might stand their ground. But as James Williams, an energy economist for WTRG Economics in Arkansas, says, "Let's put it this way: Y'all wanna drive?" Oil reserves in both areas are thought to be more than 10 billion barrels, double the proven reserves in Texas. That would help feed America's 21-million-barrel-a-day appetite.
Joined: Jun 05, 2005 Posts: 350 Location: Portland Oregon, USA
Posted: Sat Jun 07, 2008 9:05 pm Post subject: Re: What if gasoline cost $10 a gallon (in the US) ?
Agreed, Drifter. He's really not seeing the big picture. It won't just be a reduction in spending here and there on life's little luxuries. Think war. Think starvation. Think disease. It's coming at some point. Hmmm...better check my potatoes.
Posted: Sat Jun 07, 2008 9:08 pm Post subject: Re: What if gasoline cost $10 a gallon (in the US)?
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Not if $10 per gallon, but when $10 per gallon. At $10 per gallon, things will be a lot worse than this guy believes.
Perhaps......just maybe not. Demand destruction might occur and costs might stabilize.
For me on a personal level oil at $10/gallon would mean nothing , assuming I still have a job. I spend $40 a month on gas. At $10 a gallon it would be about $100 a month. No big deal. _________________ I play the cards I'm dealt, though I sometimes bluff.
Posted: Sat Jun 07, 2008 9:10 pm Post subject: Re: What if gasoline cost $10 a gallon (in the US) ?
You are right, IanC. I don't even want to think about what will happen the current US infrastructure at $10 per gallon.
This part of the article bothers me most:
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* As drivers began to switch to 100-mile-per-gallon plug-in hybrid cars (already expected to launch by 2010), the electricity grid could come under strain. Theoretically, if everyone had one and plugged it in at night, the grid could handle 84% of the nation's car fleet. But to avoid the risk of city brownouts, the grid capacity would have to rise. Solar, wave and wind power would ramp up. Giant solar thermal power plants, which use mirrors to concentrate the sun's energy, would be built. But in the rush to get power, we'd probably also step up the use of cheap, dirty coal (50% of our electricity generation now). Even nuclear power (21%) could be considered anew.
I love how optimists always blindly ignore scalability and costs when making their rosy predictions.
Posted: Sat Jun 07, 2008 9:12 pm Post subject: Re: What if gasoline cost $10 a gallon (in the US)?
venky wrote:
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Not if $10 per gallon, but when $10 per gallon. At $10 per gallon, things will be a lot worse than this guy believes.
Perhaps......just maybe not. Demand destruction might occur and costs might stabilize.
For me on a personal level oil at $10/gallon would mean nothing , assuming I still have a job. I spend $40 a month on gas. At $10 a gallon it would be about $100 a month. No big deal.
Venky, you are not looking at the whole picture. It's not just gasoline. The cost of everything would go sky-high. Especially food. Many jobs would vanish. The entertainment and food service sector would largely disappear, and that's where most of the US jobs are.
Demand destruction equals job destruction.
Last edited by Hogan on Sat Jun 07, 2008 9:18 pm; edited 1 time in total
Joined: Sep 16, 2004 Posts: 4280 Location: Southwest WI
Posted: Sat Jun 07, 2008 9:17 pm Post subject: Re: What if gasoline cost $10 a gallon (in the US) ?
I'd guess food prices would double at least, if not triple. So take your monthly grocery bill and double or triple it. _________________ "Oil is going up because we use too much oil, and the capacity to replace reserves is dwindling"
-President Bush 11/07/07
Joined: Oct 23, 2004 Posts: 5509 Location: New Jersey
Posted: Sat Jun 07, 2008 9:18 pm Post subject: Re: What if gasoline cost $10 a gallon (in the US) ?
IanC wrote:
Agreed, Drifter. He's really not seeing the big picture. It won't just be a reduction in spending here and there on life's little luxuries. Think war. Think starvation. Think disease. It's coming at some point. Hmmm...better check my potatoes.
Yes, it's easy to forget that increases in energy is built into the price of everything. The price of oil, natural gas, coal, etc., are basically moving up together, as they are alternatives to each other, so narrowly focusing on gasoline, for example, makes us miss the big picture.
Because so much of the US was built with cheap oil, the effects of oil going from $10 to $140 may not be fully felt for years. More specifically, on average only about 80% of the price gain for energy is past on within two years to consumer level. In my state, utility energy price costs are banked for up to four years, so my utility bill doesn't even fully reflect what happened a few years back.
Now that energy prices have risen for about 8 years in a row, at an a accelerating rate, we can unpleasantly look forward to two to four more years of accelerating price rises for almost everything - especially food, which has many energy inputs. _________________ It's already over, now it's just a matter of adjusting.
Joined: Apr 05, 2005 Posts: 1620 Location: Springsteen Country (NJ)
Posted: Sat Jun 07, 2008 9:38 pm Post subject: Re: What if gasoline cost $10 a gallon (in the US) ?
The blindness of those high priests we call "economists" is plainly evident in this quote:
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"It would be a large recession, not a depression," says Michael Englund, the chief economist for Action Economics in Boulder, Colo. That would mean tight budgets and unemployment until the economy adapted and growth returned.
Pray tell how does "growth return" with decreasing energy, as would be the case at $10/gallon? Economists must get some really potent drugs to make the weird pronouncements that they make. One day each of them will have the revelation that growth is the problem, not the solution. _________________ Joe P. United Political Debate
"Only when the last tree is cut; only when the last river is polluted; only when the last fish is caught; only then will they realize that you cannot eat money." - Cree Indian Proverb
Posted: Sat Jun 07, 2008 10:29 pm Post subject: Re: What if gasoline cost $10 a gallon (in the US) ?
No mention of the specter of shortages just increased prices. I suspect that just when people are really starting to hurt shortages will appear and everything will accelerate. People who are expecting the best and planning for it are going to die or get lucky.
Posted: Sat Jun 07, 2008 11:01 pm Post subject: Re: What if gasoline cost $10 a gallon (in the US) ?
IanC wrote:
Agreed, Drifter. He's really not seeing the big picture.
$10 gasoline would equal at least $300 / barrel oil (add in taxes and refining) to get gasoline
Almost the entire roadway system was built using asphalt that came from oil at $30 / barrel or cheaper.
I just love it how nobody bothers to factor in the cost of the roads when calculating the cost of driving.
//
Suburbia will die-off not because society could not afford gasoline but because society could not afford freeways.
Posted: Sat Jun 07, 2008 11:11 pm Post subject: Re: What if gasoline cost $10 a gallon (in the US) ?
Folks mentioned how this would affect trucking, airlines, and retail. It would also lead to declines in rv, boat, and pickup sales, break the suv fad, be coincident with the ultimate decline of the big 3 auto makers, and lead to greatly reduced incomes for tourist-related operations.
g
Joined: Mar 26, 2008 Posts: 1032 Location: Seattle
Posted: Sat Jun 07, 2008 11:21 pm Post subject: Re: What if gasoline cost $10 a gallon (in the US) ?
joewp wrote:
The blindness of those high priests we call "economists" is plainly evident in this quote:
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"It would be a large recession, not a depression," says Michael Englund, the chief economist for Action Economics in Boulder, Colo. That would mean tight budgets and unemployment until the economy adapted and growth returned.
Pray tell how does "growth return" with decreasing energy, as would be the case at $10/gallon? Economists must get some really potent drugs to make the weird pronouncements that they make. One day each of them will have the revelation that growth is the problem, not the solution.
The blindness of those low priests we call "peakers" is plainly evident in your quote.
Energy is just one of many factors in economic growth. It is possible to have economic growth while having flat - and even declining - energy use. Really!
Here is a chart showing Canadian energy consumption per capita. Notice that since 1980, it's essentially been flat. And yet, the Canadian economy has grown substantially since then.
source
Same thing with Denmark. Between 1972 and 1994, energy use per capita essentially remained flat. And yet, the Danish economy grew quite a bit during this time.
In fact, you may be stunned to learn that the same is true of the US between 1986 and 2004. If that weren't enough, energy use per capita declined in Germany during this time.
Posted: Sat Jun 07, 2008 11:26 pm Post subject: Re: What if gasoline cost $10 a gallon (in the US) ?
cube wrote:
Almost the entire roadway system was built using asphalt that came from oil at $30 / barrel or cheaper.
If the roads last 20 years before they need to be resurfaced, and it costs 10 times the previous amount to do the job, .05x10=.5 = it costs half as much PER YEAR to maintain the roads as it did to build them in the first place.
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About 80 cents of the $4.50 retail cost of a box of cornflakes goes to transport it,
corn flakes are freaking $4.50/box???
for the price of 4 boxes of corn flakes I can buy 9 chicks, feed them weeds, and have 6-9 eggs/day (0-5 in the winter), organic with the weeds, mind you.
If I had no weeds, 2 boxes of cornflakes/month would get me 50# of scratch grains, would feed the hens for a month.
With wear and tear on the trucks on unmaintained roads, $10 gas, unemployed people looking for cheap versatile foods, I can see the cost of many foods increasing far more than the 30% this fool is saying.
Say a potato plant takes up about 2 sqft of space, puts out an average of 3-4 pounds. at $.50/pound, that plant is worth $2. Double the price of potatoes, that plant is worth $4, about $2/sqft for the 3-4 months it takes to grow. 500 sqft of garden space becomes prime real estate. If planted back to back with greenhouse starts, I can get 4 full crops/year, no problem at all.
This article, although not particularly mainstream, is starting to get the idea. _________________ If you want a picture of the future, imagine a boot stamping on a human face--for ever."
-George Orwell, 1984
Joined: Aug 03, 2006 Posts: 4073 Location: Graceland
Posted: Sat Jun 07, 2008 11:43 pm Post subject: Re: What if gasoline cost $10 a gallon (in the US) ?
The devaluation of the dollar at the same time oil has been going up has distorted things a little. Without the dollar devaluation, $4.00 a gallon gas would probably be more like $3.00 a gallon gas.
Thus, to know what $10 a gallon gas would do, you would need to know where the value of the dollar was at the time. If we continue on the devaluation road, $10 a gallon gas might not be a big deal.
It's hard to say. Trying to analyze this situation is very difficult because at every price point for oil you have to ask yourself how much of it is dollar devaluation and how much of it is a real oil price increase.
I almost wish that the media (or someone) would report the price of oil in terms of an index of world currencies or something like that to help take out some of the U.S. dollar devaluation.
OTOH, since all world currencies appear to have too much liquidity floating around looking for a home, maybe the old gold/oil ratio is a good barometer for the real amount of price increase we are seeing for oil.
The idea that one barrel of oil will always be worth an amount of gold within some range is false. Since oil is consumed, and gold typically is not, over time a shortage of oil due to consumption should translate into a higher cost when measured in the amount of gold needed to buy a barrel of oil.
I think that studying the 1970s is probably the closest we can get right now to some useful lessons about where we are headed. You just need to take where we were in about 1979 and extrapolate that trend forward as if there hadn't been an oil glut on the other side of it.
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