Why Gas Costs so much

However; because the price of crude oil is set by the petroleum exchanges, the cost of crude oil does not track with the amount of oil the US imports. Unfortunately, as more countries [china] compete for the same limited supply of oil, it will track. As China and other countries continue to grow and use more oil, the limited supply will cause the cost of oil to increase as the US imports more and more each years [2% increase usage per year].

US Oil Imports

US Crude OIL Imports[4]

The US imports oil because the country consumes more oil then they can produce. Take note of the drop in consumption of oil around the last oil price increase [1979], it lasted for years. Some would say the increase in imports begin to surge after the US drooped its nationally mandated 55mph speed limited in 1987. Many people refuse to admit that driving slower saves gas. The increase in crude oil imports after 1987 is unmistakable, it's an addiction, after people forgot the last crash.

The Department of Transportation [DOT] indicated in August 2008 that motorists consumed nearly 400 million fewer gallons of gasoline, or about 1.3 percent less than during the same period in 2007 by driving 53.2 billion miles less than they did over the same period a year earlier [2007]. The US imports 10,031,000 barrels/day of crude oil, and another 3,437,000 barrels/day of oil products.

US Oil Reserves

US Crude Oil Reserves[4]

Are we really running out of oil, the short answer is yes, the United States is running out of oil. Note the graph on proven oil reserves, and its decline. We now have just as much oil that we had in the 1940, with just a few more cars on the highway. The spike around 1970 is Prudhoe bay Alaska; however oil production at Prudhoe Bay has been declining since 1989 [peak oil]

Oil consumption increases 2% a year, so to break even you need to find at least 2% more oil each year. The graph indicates the reverse as proven oil reserves are decreasing as we consume it faster than we discover it. The previous chart showed a chart of US crude oil production which is different that proven reserves [oil in the ground].

Strategic Petroleum Reserve

SPR Storage Sites[10]

Oil contained within the Strategic Petroleum Reserve [SPR] is not counted as a proven oil reserve, that oil has

SPR Crude Stock in Days[5]

already been pumped from the ground. The reserve holds 700 million barrels of crude oil as an insurance policy against future supply cutoffs. The Government does not pay to fill the reserve, oil [or dollars] is provided to the government; Royalty oil is owed to the U.S. government by operators who acquire leases on the federally-owned Outer Continental Shelf. Under current law, federal ownership ranges from 12.5 percent to 16.7 percent of the oil produced from federal leases. 

The SPR only holds about 58 days of oil at current consumption rates. 

Note that the Strategic Petroleum Reserve is not the same as the Naval Petroleum or Oil Shale Reserves.

Peak Oil

The Peak Oil theory has been around for decades and relates to how oil fields produce oil. Basically an oil field's production follows a bell curve. There's a ramp up period, followed by maximum oil production [peak oil], then a gradual decline in production. The term Peak Oil is used to describe an individual oil field, an output from a country, or the entire planet's production.

The US reached peak oil in the seventies, and oil production has been slowly declining, and yes, that includes the North slope and Gulf oil fields. However the US still produces a great deal of oil, but we also consume three times that amount. And yes we still find new oil fields, but when you read the data you find that we consume more than we find [net oil in the ground is decreasing].

So anyway, the debate over the last decade has been when will the world hit peak oil. What year will global oil production flatten out or start to decline. The other tick is that usage increases 2% per year, so how could usage increase at the same time production stalls. Most countries have already reached their own peak oil, so production is falling in almost every oil producing country. I think world production has been flat for three years now.

Of course there are those people that would say we could just discover some great new field that would save us. Sure, but it will be 400 miles of some coast in 4 miles of ocean and cost 100 billion to produce. All the cheap oil has already been found, others would say. The cost is never going to come down, in the long run. Some would say we will never run out of oil, which will be fine because oil is used for a great many products. But as long as cars run on gas......

OPEC Oil Crude Production[6]

So what, well a number of people have predicted that peak oil will occur between 2005 and 2010. Like I said, I think world production has been flat the last few years so I'd guess I shoot for 2006. Regardless of what the price of a barrel of oil goes to, consumption will exceed production... The graphic to the right shows oil production by OPEC for 2002 to 2006, the production rate is flat [or max-ed out].

So far 500,000 hybrids have been sold to date [mid 2008]; however, many large hybrids don't really save that much gas. err, they are only several mpg better than a normal car. The normal size hybrid cars do a lot better and get twice the mileage ~ up to 50mpg. The full hybrids, or battery cars are not slated to be released until 2010. The cars running almost completely off batteries get well over 100mpg, but only run up to 60 miles before they require a recharge.

I think the only thing that will slow the coming of peak oil is the cost. Now that gas is $3.80 people will drive less and consume less oil, so demand does not increase, or reduces [same thing happened in the 80's]. Of course this just occurred during mid 2008, but the cost of oil has now fallen back down to 2005 price levels so consumption should start to increase again......

The web sites relating to peak oil have jumped over the last few years, as more people discover the issue. If your driving a large gas guzzler start thinking about dumping it before it's value drops to $0. I really want to predict gas lines in 2009, but with the price increasing consumption may drop off.

Off-Shore Oil drilling

National Petroleum Reserve[7]

Why can't we drill off-shore?
This is the rational; Drilling off-shore won't reduce the cost of gas, we don't want a rig in sight of a beach, or there may be an oil spill on some beach and hurt tourism.
However the truth is a bit different. Yes it would take years for a new site to produce oil. There's a five year back log for ship born rigs, than there's the drill time, running the pipe line and so on. But in the end the oil is still needed, more so five years from now. There are substantial crude oil reserves located in Federal Offshore fields: 3.7 billion barrels in the Gulf of Mexico and 441 million barrels in the Pacific. Offshore refers to that geographic area that lies seaward of the coastline. The Jack 2 'test' well in the Gulf of Mexico may contain 3 to 15 billion barrels of crude as of the original 2006 estimate.

Wind Resources

Potential Wind Resource[8]

The attached map [left]  of the United States shows the available wind resources in the US. The map colors indicate the amount of wind power available, with blue indicating the highest wind speeds. The color red indicates the next highest wind speed, followed by purple, pink, and orange.

Compare this map with the one that shows Wind Power Capacity [below]. The two maps seem to track, as the states with the highest wind speed also have the most wind generation plants. At some point it's just not cost effective to put up a wind mill if the available wind resource does not return the investment.

Wind Production

Current Wind Production[8]

 Wind generated energy is increasing in the US. Note that the states generating the most energy from wind power in the map to the left also happen to be the same states with the most resources as seen in the previous map. What seems to be missing is off-shore wind generation, but that simply may be due to the high cost of operating in the ocean, or the eye-sore effect which also keeps oil rigs off some of the coasts.

The graphic shows wind generated power for 2007 in the US. There's been a large increase over the last 5 years; but remember, power generation plants burn coal not oil ~ cars burn oil... Those states that have no wind production are shown in white ... there are other maps that show wind speed [not shown], the states in white don't have 'much' available wind resource.

The Pickens Plan

The Pickens Plan is a grass roots movement started by T. Boone Pickens to promote wind power to try and reduce oil imports.

The idea is to support and promote wind power to produce electricity, freeing up natural gas currently used by power plants so the gas could be used for cars. Vehicles using natural gas would not require petroleum, which is all imported.

Any one may join the Pickens Plan by signing up at PickensPlan.com.

Final thoughts

Gas Coupon[9]

The author was overseas during the 1973 oil embargo, in Italy. During the 1973 embargo Italy banned driving on Saturday and Sunday, unless you happened to be a bus. The roads were emptied of cars. Five years later back in the states and it's 1978, the new oil crisis, long gas lines and many closed gas stations. Save your money and stop driving so much, buy the same products but do it in one trip, some one is there to take your 'driving' place. The US produces 2,186,440 sixteen year old males each year [CIA fact book], and another 2,079,688 females each year.

One comment I heard the other day was that we could boycott a particular gas company and that would force the price of oil down. Unfortunately that would only serve to put a few gas stations out of business. The oil companies could just sell their oil on the open market and run more imported oil through their refinery, so in the end the you boycott oil from Ecuador with out really knowing it.

Really want cheaper gas prices at the pump, stop driving and reduce consumption, consolidate your trips. Purchase the same amount of consumer goods, but do it in one elongated trip as apposed to a dozen separate driving trips.