By Tim Rudnicki, Esq
Historical GasBuddy.com price charts tell some contrasting stories about the average retail price of gasoline over the last eleven years. A gallon of gasoline skyrocketed from a low of $1.44, when a barrel of crude oil was selling for $29 just before the Iraq war, to $4.10 per gallon before the Great Recession when a barrel of crude oil was selling for $141. Then the oil and gasoline prices of the Great Recession plunged to $34 per barrel and $1.64 per gallon of gasoline. But those prices started to climb until they hit $112 per barrel and $4 per gallon of gasoline by the summer of 2011. And yes, the price for a barrel of crude oil and a gallon of gasoline has dropped again, but where do you think those prices will be headed and why?
The “why” part of the question, for the moment, is beyond the scope of this short column. Crude oil and gasoline prices stem from a host of global commodity market, economic, political, supply and demand and other rational and irrational factors. Analyzing the why prices fluctuate issue would involve many factors including the battle between Saudi Arabia and U.S. shale producers as explained in our blog “Cheap Gas May Not Last For Long.”
Focusing on the “where” are prices headed part of the question, however, might serve as a useful guide as we, as a society, attempt to make some timely, rational decisions about our energy future and concomitant quality of life. To be clear, the “where” part of the question is complicated, but one underlying factor will continue to drive where the price of petroleum, regardless of the short-term price swings, heads and that factor is: finiteness.
“Earth's endowment of conventionally reservoired crude oil is a large but finite volume.” See the Energy Information Administration (EIA) article “Long-Term World Oil Supply Scenarios: The Future Is Neither as Bleak or Rosy as Some Assert.” As the report explains, the future is neither bleak nor rosy for a couple of reasons. Based on a two percent crude oil growth rate, some predictions indicate the future recoverable amount of oil could meet demand for at least another 32 years or until approximately 2047. At that time, however, revised predictions show a steep drop in recoverable oil over a span of only another 13 years. In other words, we have a few years before life as we know it with crude oil ceases, but there really is a limited supply of crude oil no matter what oil producing nations do about short-term pumping strategies.
Put another way - crude oil, in all forms, will become increasingly scarce. As the finite crude oil resource becomes increasingly scarce, the price will rise. Eventually, the price per barrel of crude oil and a gallon of gasoline will rise to the point where the last few barrels on and in the earth will be too expensive to extract or use for a variety of purposes including transportation fuel. My take on the recoverable crude oil predictions is this: if we, as a society, were to allow our quality of life to be dictated by crude oil, the future is actually very bleak. Fortunately, we are liberating ourselves from the constraints of crude oil, a finite fossil fuel.
Thanks to the Renewable Fuel Standard and Minnesota’s Petroleum Replacement Statute, we are actually on a brighter, more rosy, energy path. That path is heading toward greater availability and use of clean, renewable biofuels. With renewable biofuels we can sustain a higher quality of life far into the future.
Biofuels, such as ethanol, are made from renewable plant material or biomass. Plants, the original solar collectors, use sunlight, soil nutrients and carbon dioxide from the atmosphere to grow. The plant material, or biomass, will be available for making biofuels and other products as long as good soil, adequate moisture and sunlight are available. Biofuels can supply our energy needs today and far into the future because, unlike crude oil, biofuels are made from renewable, regenerative plant biomass.
Finite crude oil will continue to escalate in price while biofuels actually help to suppress fuel prices. Professors Xiaodong Du and Dermot J. Hayes, Center for Agriculture and Rural Development, studied the impact the availability of ethanol in the fuel market has on the price of gasoline. Their findings, which examined wholesale gasoline prices within the fuel supply chain, are astounding. In the Midwest, for example, ethanol was found to offset the demand for petroleum and thereby had a price cascade effect which held gasoline prices down by as much as $1.69 per gallon.
Let’s continue to heed the warning signs about finite crude oil and upward trending price lines for both crude oil and gasoline. The prices may fall in the short-term, but historical pricing shows the trend line has been, and will continue to be, upward. On the other hand, the Renewable Fuel Standard and Minnesota Petroleum Replacement Statute call for giving consumers access to more renewable biofuels. So let’s not be lulled into complacency because the currently low gasoline prices will eventually shoot up again.
We still have some time to make a smooth transition from crude oil to greater use of renewable biofuels. Here is what you can do today to make sure all of us stay on a sustainable, greener, more affordable energy future path:
1. The next time you go to fuel up at your favorite retail station, use E15 in your 2001 or newer vehicle. If you don’t find E15 at your fuel retailer, (1) tell your fuel retailer you want E15 and ask when they plan to carry E15 and (2) tell me the name of your favorite fuel retailer so we can help them launch E15 for you.
2. If you have a Flex Fuel Vehicle, use E85. If you don’t find E85 or other mid-level ethanol blends at your fuel retailer, (1) tell you fuel retailer you want E85 and ask when they plan to carry it and (2) tell me the name of your favorite fuel retailer so we can help them launch E85 for you.
3. Contact your legislators and let them know you support the Renewable Fuel Standard and the Minnesota Petroleum Replacement Standard because biofuels are (A) good for the environment (up to 57% fewer greenhouse gas emissions compared to gasoline), (B) support 48,000 jobs in Minnesota, (C) inject $11.7 billion into the economy each year, (D) keep energy dollars in Minnesota and (E) help consumers save money. For more facts and where they come from, check out the MBA website at www.mnbiofuels.org .
From all of us at Minnesota Bio-Fuels Association, we wish you a Happy New Year.