By James A. Gibbs

Recent political events and natural disasters throughout the world have caused considerable loss of life and property to millions, and continuing anguish and uncertainty about the future to their families and friends.  It seems that each day delivers a new crisis that captures our attention and sows the seeds of concern about an outcome that could significantly alter our lives.

Each unsettling event has been reflected in the financial and commodity markets that have responded with increased volatility and rising prices.  Oil futures have continued their pattern of reacting in spades to volatility, recently peaking to prices not experienced since August 2008. Gasoline prices have risen in near lockstep, reflecting oil price increases almost immediately. Frequently asked questions are, “How much higher can it go?”, and “What can I do about it?”

A new book entitled $20 per Gallon:  How the Inevitable Rise in the Price of Gasoline Will Change Our Lives for the Better by Christopher Steiner explores the questions.  With the premise that gasoline prices may ultimately reach $20 per gallon, the author offers scenarios of public responses that could occur at various price levels on the way up. Rather than decrying the changes that will come at considerable social and economic cost, Steiner envisions a future where human ingenuity will spur greater efficiency and less waste. 

He points out that the United States imports 67% of its oil, but that only 40% is used for transportation fuels.  The rest is used to make, fortify and shape almost everything in our lives.  With every penny that gasoline moves up, so does the price of most other commodities and items we consume.  The mounting cost of gas will dictate cultural changes, housing changes, civic changes, education changes. Each increase in the price will bring new pain that will force us to adapt.  Our lives will transform on innumerable fronts as a gallon of gasoline goes from $4 to $6 to $8 and beyond.

We’ve already experienced the first volley of high gasoline prices.  During 2008, a year when gas prices touched historical highs, Americans drove 100 billion fewer miles than they did the year before.  That’s the first such decrease in thirty years, and easily dwarfs the driving decreases during the 1970s oil embargo.  Now, with gasoline prices of $4 looming just over the horizon, we should expect an increase in the popularity of smaller cars, closer to home vacations, and fewer miles driven. Long distance auto travel to far-away destinations for many may become only a dream.

At $6 per gallon, the increased comparable price of jet fuel will raise ticket prices of air travel to levels that will exceed the budgets of all but the most affluent passengers.  We’ve already seen airlines raising prices, reducing flights and services, and retiring planes. We could next expect mergers and consolidations, and finally financial failures and bankruptcies of all but a few carriers.

At higher prices, fuel costs will curtail the quantities of truck delivered commodities and manufactured goods to stores, and make long auto commutes too expensive for most workers.  Big-box stores, filled with goods produced in China and elsewhere, could disappear as the cost of distributive transportation makes products unavailable or non-competitive.  Manufacturing in the U.S. will revive, as quality locally produced goods replace those now made overseas.  

The author suggests that we may eventually live in a society more like the past than the present. People will leave their mini-mansions in distant suburbs and re-urbanize the cities, living together more densely in energy efficient, high-rise condos and apartments. Those with yards will have gardens in which they raise their own fruits and vegetables.  Fewer of us will own cars, and we’ll travel more on subways and surface rail. We’ll own more bikes and walk much more than today.  Now-vacant buildings and storefront shops will reopen, serving local residents.  With fewer large cars and trucks on the roads, our air should be cleaner, people leaner and healthier.

Steiner’s scenarios are interesting to ponder. With his underlying premise that the price of crude oil and its many derivative products may rise over time, perhaps to levels that seem almost unimaginable now, the outcomes may truly come to pass. During my own career as a petroleum geologist, spanning fifty years, the price of oil has risen 3500% from $3 to $105 per barrel, and gasoline 2000%, from 18 cents to $3.60 per gallon.  It’s not difficult for me to believe that with trends projected into the future, the price of gasoline could ultimately reach $20.