Cheap Gas, Ya Bet Yer . . .

Don't expect much movement in fuel prices over the next couple of decades. At least that's the sentiment expressed by many of those keeping tabs on where we've been and where we're headed.And thanks to this expected stability, don't expect a major transformation of our highway landscape anytime soon. We love big cars and trucks - and will continue to as long as we're allowed.In fact, Thomas Hogarty,

NATALIE NEFF

November 1, 1999

5 Min Read
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Don't expect much movement in fuel prices over the next couple of decades. At least that's the sentiment expressed by many of those keeping tabs on where we've been and where we're headed.

And thanks to this expected stability, don't expect a major transformation of our highway landscape anytime soon. We love big cars and trucks - and will continue to as long as we're allowed.

In fact, Thomas Hogarty, adjunct professor of economics at Virginia Polytechnic Institute, predicts the popularity of our beloved gas guzzlers will continue to increase over the next few years.

"The SUV and larger type of sedan may become a little more prevalent than they have in the past," he says.

Good news for automakers that count on the wide margins proffered by sport-utes to fatten their bottom lines. Good news, too, for the oil industry that for years has been getting signals from several fronts that it soon will be all but obsolete.

Oil has never been the environmentally prudent energy choice, in many minds, particularly for policy makers who in the last decade have instituted mandates such as California's electric vehicle quotas. And then there's always the fear of simply running out of the stuff.

Perhaps the biggest factor behind the desire to distance ourselves from oil-based fuels is our precarious dependence on foreign oil.

Which begs the question: Can a fuel crisis occur again on the scale of those in the 1970s?

Mr. Hogarty thinks not. "Twenty years ago, the collapse of Iran immediately preceded the all-time high in 1979. And prices were rising. Gasoline peaked in January 1981, crude oil prices peaked shortly before the Iran-Iraq war, following the collapse of the Shah's regime.

"Early 1979 saw the worst gasoline lines, extremely chaotic circumstances," continues Mr. Hogarty. "But in 1981, gasoline began a long-term decline that reached it's bottom in late 1998. That was a milestone in itself."

Ron Planting, an analyst with the American Petroleum Institute (API), concurs, noting that by December of last year crude oil prices - adjusted for inflation - hit their lowest point since the Great Depression.

And (OPEC) has since become a weakened cartel and continues to lose power, says Mr. Hogarty. "Its members cheat on one another. They've continued to cheat again."

Even if the state of affairs with OPEC was to sour again, the U.S. Dept. of Energy believes the country is better equipped today to counter such upheaval as was witnessed 20 years ago. In a report released this year, the DOE says the technology needed to find oil is cheaper and better than ever. It says that today it takes 22,000 fewer wells annually to develop the same amount of oil and gas reserves as it did in 1985.

"These advances have enabled the domestic petroleum industry to increase the efficiency of its exploration and production efforts, while improving its environmental track record," says the report.

That's not to say efforts to clean up gasoline as we know it today will stand still. Major urban areas will begin to use a federally mandated fuel next year, "which will be cleaner burning than conventional gasoline but will still be a little less clean and a little cheaper than California's formula," says Mr. Hogarty. "But the odds are pretty good that it will account for less than half of the nation's fuel for the next few decades. Conventional gas will continue to dominate."

Mr. Hogarty also believes there will be a lot of political competition between California and other states. "I wouldn't be surprised if by the middle of the 21st century, half the states are using cleaner gas and half are using cheaper," he says. "I don't think we'll end up with one national gas anytime soon. I think each individual state will go after it's own prerogative. California is a leader in that respect."

That means the kinds of cars we drive will vary from where we live, but the difference may go unnoticed. In California, where gasoline prices will continue to be highest, a higher per-capita income may nullify any forced change in driving choice. And in less affluent states, gasoline will continue to cost much less, making fuel-efficient driving less of a pressing issue.

No matter what state one lives in, we will all continue to drive - and drive a lot.

The Energy Information Admin., an arm of the DOE, projects in its Annual Energy Outlook 1999 report that petroleum consumption will continue to rise through 2020, reaching about 26.8 million barrels per day, compared with 18.6 million in 1997.

Corporate Average Fuel Economy (CAFE) numbers shouldn't be a factor, either. No one expects CAFE standards for light trucks to be tightened by any appreciable degree anytime soon. "By the same token, I don't envision great increases in gas taxes, and those taxes will continue to be used for transportation projects, not to reduce the deficit as in earlier this decade," says Mr. Hogarty. In an eventual recession, efficient cars will make a comeback, he believes, but not like they did in the 1970s. "The supply of great used cars makes that moot. A good used car makes more sense than a slightly more efficient new one."

All of these advancements in gasoline technology, affordability and availability will help to stave off the penetration of alternative fuel vehicles. The advent of the age of the non-gasoline-powered car appears to remain in our far-off future.

"It's not only way down the road, it's on the distant horizon," says Mr. Hogarty.

"And the U.S. consumer will be slow to purchase what PNGV (the Partnership for a New Generation Vehicle) will have to offer. It will be difficult to sell to consumers alternative-fuel or hybrid vehicles. I think in 2050 gas will still be the dominant motor fuel, and the market share of hybrids and alternative-fuel vehicles will be very low. Gas will continue to become cheaper and cleaner burning, and political competition will continue to drive it in that direction," he believes.

"In terms of the price of driving, fuel costs now run about 5 cents per mile. The rest is the cost of the car, insurance and maintenance. Driving is a bargain."

Hallelujah.

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