Before the oil runs out: How can US cope when gas prices surge?

Sep 18, 2005 02:00 AM

by John Dillin

Gasoline prices set a new record earlier in the wake of hurricane Katrina, but costs were already rising fast before the super storm collided with the Gulf Coast.
The average price of regular gasoline has more than doubled since 2002, when it stood at just $ 1.36 a gallon. Since reaching $ 3.01 earlier, topping the 1981 high of $ 3.00 (adjusted for inflation), consumers are worried. Will this four-year price spiral stop? Or could we be headed for $ 5 gas?

Right now, prices are falling as the summer driving season ends and Gulf Coast refineries return to service. Yet the long-term outlook appears shaky. That's because the future price of oil, which hinges on everything from OPEC policies to Chinese energy demands, could easily keep going up.
But there are at least four areas where oil-importing nations can dampen the effects of a rise in oil prices. The United States has fallen short in anticipating all four, energy experts say. For example:

-- Refining capacity.
"Oil companies want to make money with refineries, and they did not want to get excess capacity by over-investing," says Lehi German, president of Fundamental Petroleum Trends, a weekly newsletter. Oil companies felt that if America suddenly needed more gasoline or diesel fuel, "then import it." So today, even if the Saudis and their oil allies filled up 1,000 tankers and sent them steaming to the US, it's not clear that gas prices would fall very much.
The problem is twofold: US refiners' lack of capacity to handle the extra load, as well as technical problems with the types of heavy crude produced in much of the Middle East.
US firms are expected to rectify these shortcomings, but it will take years. Meanwhile, supplies of refined product are so tight that the US is now importing gasoline, not just oil, from Canada and Europe.

-- Government policy.
Back in the 1970s energy crisis, which included an OPEC oil embargo, Congress got tough with actions that included creation of the Strategic Petroleum Reserve, minimum gas-mileage requirements for cars and trucks (CAFE standards), and "double nickel" (55 mile-per-hour) speed limits.
By comparison, this Congress and president took less decisive measures. They have subsidized alternative energy and passed an energy bill this year. The White House has proposed raising CAFE standards slightly. But it was too little and too late to head off the price spike. Both branches of the federal government could become more active if prices keep moving up.

-- Auto efficiency.
The nation's Big Three automakers -- General Motors, Ford, and DaimlerChrysler -- have made the bulk of their profits in recent years with large and not particularly fuel-efficient trucks and SUVs. Very often, technical improvements to engines, which could have been used to boost gas mileage, went instead to increase horsepower and speed.
There were exceptions to the trend, especially among Japanese automakers Toyota and Honda. Both developed hybrid-model cars (the most popular of which is the Toyota Prius) that combine gasoline and electric engines to increase mileage into the 47-to-66 miles-per-gallon range.

Source: The Christian Science Monitor
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