Sunday, October 26, 2014

$2.99 Gasoline

Dave Ouzounian Photo on Facebook
     I filled up the tank of my Toyota 4Runner for about $45 the other day. It took 15 gallons and the gasoline was priced at $2.99. I thought I was doing well but then saw my old friend Dave Ouzounian having posted a photo on FB where the price per gallon was $2.89.  Darn Illinois gas taxes.  This is the lowest we have seen gasoline for years. It is amazing because every few years since 2006, there has been a prediction that gasoline was going to hit $5 per gallon and the impact that was going to have on our economy.
      More people talk about gasoline prices than any other product or commodity. If we had to choose one item replace the consumer price index it would be gasoline. It may not be the most accurate indicator from an economics standpoint, but it is certainly a very good emotional indicator. Gasoline is simply a large and visible expense. Based on 15 gallons per fill-up and 5 fill-ups a month, gasoline expenses would be $300 a month if gas prices were $4 a gallon but only $225 a gallon if gas prices were $3.  The savings of $75 is significant to most people.

      This drop in prices is certainly welcome news to most drivers.   It is the lowest prices we have seen since the winter of 2009 which was the pit of the Great Recession.  It is easy to forget, at least easy for me to forget, that gasoline was under $2 per gallon 11 short years ago.
      What is the reason for this drop in gasoline prices? It seems to our own domestic petroleum production. We have a massive, and until recently untapped, oil resource. There are billions of barrels of oil underneath our country.  For years, energy wonks have been saying that this oil could make us energy independent of the Middle East which is a most interesting proposition. The problem was that our oil, which had the potential to make us almost independent of imports, was shale oil. The oil was infused in rock and sand. Getting this oil had traditionally been more expensive than any imported oil, so it never was the economical choice. That all changed with the development of a new drilling technique called fracking.

What is fracking?
Hydraulic fracturing is the process of drilling for natural gas and oil underneath the ground. Water mixed with other components is pumped into the ground to create cracks (also referred to as fissures or fractures) to release the gas into wells that have been built for collection.
Groundwater protection remains a main goal and paramount to the success of and well operation. Both the well’s design, the casing, and the inherent risk associated with the hydraulic fracturing process itself all factor into new shale gas well development. Over the years, this technology has been used safely and successfully in over one million wells. Regulators together with operators have mitigated many of environmental risks. Shale gas, or natural gas, producers most often will leave a small wellhead behind on the property along with several storage tanks, and a metering system to measure shale gas production.
      I can almost hear the chants "Drill baby drill" which were a popular slogan from the Republican 2008 Presidential Campaign. Per Wikipedia, Michael Steele, at that time a former Lieutenant Governor of Maryland and soon to be Chairman of the Republican National Committee, used these words at the Republican National Convention. Shortly before the convention, Erik Rush titled a piece "Drill, baby, drill" in his conservative blog The Other Rush. It resonated with people both positively and negatively. Some have attributed it as the 2008 version of the 1964 slogan "Burn, baby, burn" used by radicals in the urban race riots of the 1960s. I know John McCain used the "Drill, baby, drill" slogan, but, in my head, I only hear Sarah Palin voice saying it.
       The slogan and, perhaps more so, the fracking technology have made oil more abundant and have brought prices down to levels not seen before the Great Recession. No one is currently talking about $5 per gallon gasoline these days. The only question is how long this will last. Every article and newscast reporting on the drop in gasoline prices finishes with the sobering "no one is sure how long this is going to last."
      Are there any problems with fracking? It all depends who you ask. Within in the industry, there are, of course, no negative reports. Amongst environmentalists, it is a different story. To them, fracking is a horrible thing that needs to stopped immediately.

The entire process of fracking — from drilling a well to transporting waste — endangers our water and the health of our communities. There is clear evidence of the growing damage caused by fracking:
  • Some people who live near fracking sites have become seriously ill from drinking contaminated water. Others can light their tap on fire due to the amount of methane in their water.
  • The oil and gas industry isn’t required to disclose the chemicals they use in the fracking process, but many are known endocrine disruptors and carcinogens.
  • Communities with fracking have seen declines in property values, increases in crime, and losses in local tourism and agriculture.
  • Methane, a potent greenhouse gas that contributes to climate change, leaks from fracking industry sites.
      So, what are we to do?
      The majority of the consumer public will probably enjoy the lower gas prices. Good or bad, we value convenience, prefer lower prices, and tend to think short term.  Maybe prices will go below $2 per gallon.  Maybe prices will get to the 1970 levels of $.55 per gallon... plus you get a free glass!  No fracking way this will happen.

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