Gas at $100 per Gallon
Posted by Max Dunn Tue, 27 May 2008 17:59:00 GMT
Here is an interesting thought experiment: how would our lives change if gas cost $100 per gallon?
Categories
- All About Me (9)
- Attempts at Humor (4)
- Books and Movies (7)
- Random Thoughts (42)
- Ruby on Rails (14)
- Tech Tips (24)
- Wine and Whiskey (11)
- Trips and Vacations (30)
- Electric Vehicles (56)
- Global Warming (46)
- Peak Oil (55)
- Sustainable Energy (31)
Interesting. I suppose everyone would have a scooter then, huh. At 100-200 mpg, you’d be paying about $1/mile, which is probably workable for most people. We’d have to get rid of The Beast for sure – our 6000 mile journey to Alaska this summer would cost $60k in fuel! We’d probably switch to tent camping from a motorcycle – that’s a fun kind of adventure too. I’d keep the jacuzzi and AC running full blast at home because my electricity price won’t go up (I have a solar PV system and I cannot sell it back to the power company). I’d continue to ride my bike whereever I can – it would be great because the streets would be empty! If that were the extent of it, it wouldn’t be so bad, but we’d have widespread economic havoc – Netflix would not be $12/mo anymore (but maybe for a internet delivery only plan).
If gas was $100/gallon, that would probably mean that natural gas was 20 times more expensive too, which would also probably mean that electricity was 10 times more expensive (since in California about half our electricity comes from natural gas). So we would probably cut back on our electricity usage since our bill would shoot up to about $500 per month. We would still probably drive our electric scooter a lot since it would cost only $0.10 per mile in electricity and our electric car which would cost about $0.40 per mile. Suzanne would probably work at home a lot more, since her round trip is almost 40 miles and when she did go into work, she would probably take public transportation. (There is a train that she can take now but it is a pain since it is 6 miles away from our home and about a mile away from her work.) We would probably also ride bikes to school with Claire when dropping her off and picking her up, and have Maxie ride his bike more to baseball practice and friends houses.
But if gas were $100/gallon, probably transportation would be the least of our problems. Assuming that 25% of the current cost of food is for fertilizer and other gas/oil usage, then food prices would be 5 times higher. Imagine paying $30/lb for meat!
I think it would be really interesting to get a better idea of how much oil it takes to produce different food products and other items that we rely on in daily life. I bet that it would not be very proportionate so maybe basic grains like wheat and rice wouldn’t be affected as much as meat and processed foods. And it might not be the case that exported items from China would be that much more since transporting a lot of items on a ship is a pretty efficient way of moving them.
Also, maybe mail wouldn’t go up that much. Our mailman walks around the neighborhood so it seems pretty efficient to drive the mail truck to a central point and then walk around to deliver the mail. Maybe there would even be more home delivery since it would likely be more efficient to load up a big grocery truck and make home deliveries than it would be for everyone to drive their cars separately to the market.
I wonder how the magnitude of our energy consumption compares to our GNP?
Wikipedia says that we spend $200 billion per year on imported oil. Our GNP is $14,000 billion per year. So our collective productivity creates enough wealth to more than pay for energy costs today, but if oil were 20x more, how much less of it do you think we’d use?
We’d certainly find ways to be more transportation efficient - scooters, public transport, etc. and cut use by half? But trucking, farming, and other(?) uses would probably not be able to cut back very much. If we were able to cut it in half overall though, then our oil costs would be 2,000 billion per year – that’s 14% of wealth produced would pay for the energy we need. At a very naive level, that sounds workable – all goods would increase in price by 14%. Not so bad really – civilization will persist.
J.R. – That was a great thought of looking at how much more of our GNP this increase in the cost of oil would consume.
Of course, the 14% increase would not be distributed evenly – energy intensive activities and products like transportation and meat would have huge increases, while less energy intensive areas like services would be less impacted or might even decline.
The big challenge would be the redistribution of economic activity because we are talking an increase of over 12% – and that will have to come from somewhere! Massive job losses and major shifts of economic activity would surely follow.
Ideally even before the price of oil starts skyrocketing, we would start putting a huge amount of money towards renewable energy – maybe getting it from taxing fossil fuel. This would cause economic pain sooner, but also start the conservation ball rolling and result in more money staying in the US as well as job creation.
Any advice about how to hedge against rising fuel costs? In other words, can I lock in today’s gasoline prices so I can keep using our camper-van even if prices double to $8/gal in the next few years?
To hedge against rising fuel costs, you can buy USO which is an exchange traded fund (ETF) that has a price that correlates with oil.
Say you want to hedge one year of driving, or 600 gallons. At $4 a gallon that is $2,400, so buy the same amount of USO. If oil prices double, you will pay $4,800 for gas but will make $2,400 on USO. Likewise if oil prices decline by half, you will lose $1,200 on USO but your gas will only cost $1,200.
In other words by hedging your gas consumption with USO, you are locking in a price of $4 a gallon for gas, no matter how the price of oil changes.
Thanks for the ETF advice. I think I will indeed lock in the price for a few years of driving.
By the way, our $4/gal is cheap compared to Turkey, Italy, Portugal, and Denmark, where it is hovering around $10/gal!!! The most expensive is Sierra Leone, where it is $18/gal. (Sierra Leone is a West African nation – The seventh poorest in the world).