Is Cheap Gas Here to Stay?


Gas Price "Heat" Map From

Gas Price “Heat” Map From

What’s with the cheap gas?  Is it from the mild hurricane season?  A reduction in travel?  Perhaps a conspiracy of some sort?  Weren’t people warning of peak oil?

All across the United States, the cost of a gallon of gasoline continues to approach the $3.00 per gallon mark.  Ironically, this once psychologically high price is now perceived as the threshold for a low price.  Some states are even below this threshold.  As of this writing, reports prices as low as $2.87, with an average price of $3.20.  Some may ask themselves, “Are these prices here to stay?  Are EV’s doomed to failure?”

Diesel Exports 2003-2010. Since then, exports have more than doubled, from 660,000 b/d in 2010 to over 1,400,000 b/d in 2013

Diesel Exports 2003-2010. Since then, exports have more than doubled, from 660,000 b/d in 2010 to over 1,400,000 b/d in 2013

One writer emphatically says “No” to that first question.  In a recent article in the Falls Church News-Press, author Tom Whipple gives some very enlightening perspective on one major contributor to why our current gas prices may be so low: The mix of products from refining oil and an imbalance of demand for those products.  He states:

“The problem was that for every barrel of diesel that we shipped out of the U.S., there were two barrels of gasoline left behind. The export statistics tell the story. In 2007 the U.S. exported 120,000 b/d of gasoline and 260,000 b/d of distillates. By the summer of 2013 gasoline exports had climbed to 380,000 b/d, but distillate exports were up to 1.4 million b/d.”

So, there is the story of our “cheap” gasoline in a nutshell. We are refining some 1.4 million b/d of distillates for export and are ending up with 2.8 million b/d of extra gasoline as a result of which we can only export 380,000. Welcome to lower gasoline prices for as long as this imbalance lasts.

Whether or not this imbalance will persist for the long term, and the effect it will have on EV sales until then, remains to be seen.  In the meantime, those large SUV owners are spending much less on gasoline than they were a year ago.

Source: Falls Church Press

Category: General

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51 responses to "Is Cheap Gas Here to Stay?"
  1. Dr. Kenneth Noisewater says:

    At 4 cents a mile electric, gas would need to come down to about $1.20/gal at 30mpg to compete IMO. I also wonder how much improved MPG has cut demand, which then affects price.

    And table this discussion until the summer blend kicks in :p

    1. ModernMarvelFan says:

      or $2/gallon with 50mpg.

      1. Benjamin says:

        Someone is a prius fan

        1. ModernMarvelFan says:

          Honda Accord Hybrid can do 50MPG also…

    2. pat b says:

      1) Fleet mileage continues sinking

      2) Fleet MPG continues growing.

      3) Millenials drive less then their parents.

      4) EV penetration.

      As each EV hits the street thats one customer lost for 5 years to the gas companies.

      Yes, we only have 100,000 EVs out of a fleet of 100 Million, but gas is priced at the margin. When the Marginal consumer stops paying, the price starts falling again until the next consumer hits it.

  2. philba says:

    Peak oil is something of a red herring here. As fleet efficiency continues to improve, the demand for gas moderates. This places downward pressure on prices. When the imbalance goes the other way (higher prices) there is more pressure for efficiency which then pushes down demand. Producers are pretty good at balancing this as lower prices due to over production are bad for them. I’d expect the price to rise to $3.50 or so in the relatively short term.

    I used to believe we would see gas at $10 a gallon but that’s never going to happen for the above reasons. The price will bounce around due to the vagaries of the market but high prices will always drive higher efficiency and lower demand.

    1. Brian says:

      I agree that supply and demand is in play here. The question is to how elastic the demand for oil really is. 5-10 years ago, many people treated oil as an inelastic commodity in their models – that is, the demand will remain high regardless of the price. Due to efficiency gains, and EVs coming to market, oil has proven to have some elasticity after all. The trouble is that there is a lag between higher prices and the deployment of a more efficient fleet (who really runs out to buy a prius whenever gas prices go up, and back to the SUV when they drop again?). In my opinion, this is a major driver of the price volatility.

      Many of the doomsday peak oil models assume that we will consume oil as fast as it is pumped out of the ground, and always demand more. We are already seeing that isn’t quite true. However, the fact remains that oil is a finite resource and eventually will reach its end.

      1. ModernMarvelFan says:

        Not to mention the fact that original gasoline was really a “byproduct”. As long as we use it for other chemical process or diesel fuels, gasoline will be produced as a result…

      2. kdawg says:

        Here’s some chart’s I made regarding car/truck sales & gas prices.
        As gas prices go up, more cars are sold than trucks. When gas prices go down, trucks then become the majority. Also, high gas prices tend to lower all vehicle sales.

        1. Eletruk says:

          I’d be interested to see a graph that shows maybe a couple decades.

      3. Phr3d says:

        I tender that gas prices Are inelastic, the variable, like any commodity, is futures and the investor’s expectation of ‘good’ profits vs. ‘safe’ profits. Safe profits is a constant, good profits is all over the place and too many futures by ‘good’ profit hunters floods the market when demand is not as high.

        One of the items of changing markets I have not seen mentioned is, you guessed it, ethanol. Some midwestern states are now Forcing the issue, and you cannot Not buy ethanol ‘improved’ gasoline and it’s requisite penalties. In those markets, gasoline consumption has necessarily fallen, and by more than is what is usually accounted for.

  3. Aaron says:

    It doesn’t help when Iran and some other countries are decreasing the cost of oil because of increased production of natural gas/oil in the US.

    In short, no, cheap gas is only here until another conflict emerges or we start really running out of oil.

  4. Loboc says:

    I don’t call gas ‘cheap’ unless it gets cheaper than electricity. Not gonna happen anytime soon since cheap NG creates cheap electricity. Did I use the word ‘cheap’ enough in three sentences?

    1. Brian says:

      Per quantum of energy, Gasoline is already cheaper here than electricity. 1 gallon of gasoline ~ 33.7kWh. Electricity costs $0.11/kWh. $0.11/kWh * 33.7kWh/gallon = $3.71/gallon. Gasoline costs $3.25/gallon.

      The reason EVs cost less per mile is due to their incredible efficiencies, of about 100MPGe.

      1. Foo says:

        Both the vehicles that consume gasoline and the overall process by which it is produced (which itself requires about 7 kWh of electricity per gallon of refined gasoline) are terribly, terribly inefficient — when compared to the overall EV equation.

        If we simply *eliminated the process* of producing gasoline, it would free up enough electric capacity to travel the equivalent distance in EVs. The typical EV can travel at least 25 miles on 7 kWh, while the typical ICE vehicle can do about the same on 1 gallon gas (but also requires all the other energy that went into producing that gallon). Yes, the energy used produced the electricity for EVs comes from somewhere, but it already came from somewhere to produce the gasoline — energy we could instead be using directly to power EVs.

        It boggles the mind how idiotic it is (for environmental, political, and moral reasons) to drive around in gasoline-powered vehicles.

        1. ModernMarvelFan says:

          That is somewhat true.

          Oil doesn’t just generate gasoline. It generates plenty of other distillates and chemical products. As long as we need it for other purpose, gasoline will always be produced as a byproduct…..

      2. Chris says:

        You always have to look at the total equation. I understand the gasoline equivalent number you mention above, but because as you mention it’s always a question of efficiency it does not have much bearing in reality.

        Our EVs (we have 2 LEAFs) move us a yearly average of about 65-70 miles per 17kWh charge, which costs us a theoretical $1.70 (we pay 10cents/kwh) per full charge at home. The 17kWh above for you non-LEAF owners is what you use up before the system shows you 0 miles of range, regardless of the fact that the battery capacity is 24kWh.

        On average with both our previous ICE cars (we used to drive a Kia Minivan and Toyota Camry until a year ago) we paid close to 3 gallons worth of gas for the same distance, so between $9 and $11 depending on the current pump cost. We have driven our LEAFs a combined 23000 miles a year, that makes for a good savings that helps offset the Lease cost for having gotten these two nice new cars…they are actually a lot of fun to drive.

  5. Anderlan says:

    The mere threat of an expanding EV market I think reduces speculative run up. Technology is winning this battle. But it will not win the war.

    Some people mistakenly say the answer to renewable energy and efficiency (EVs) gaining ground is for it to become cheaper than fossil fuels, via technology. The problem is, we don’t want them just to gain ground. We have 5x more fossil fuel discovered than we can survive burning as a civilization. All nations agreed with that idea. We just haven’t agreed on how to keep it from being burned. From the perspective of a sane human being and a scientist, technological improvement isn’t enough.

    Technology isn’t alone enough because the cost of the easiest fossil fuel extraction as the overall market for it is contracting due to expanding renewables (etc) will become *ludicrously* low. Then its market share will rebound, while renewables shrink, and a new market equilibrium will be found. This see-sawing will be wasteful as it involves huge society-wide economies of scale and plant being alternatively built out and disused. And unless this new market equilibrium has fossils at 5% or less of their current energy market share, and unless it happens relatively quickly, we have all failed extraordinarily.

    Technological and market advancement is exactly half the equation. It is not morally right that fossil pollution is free, and our law should be made right in order to reflect that. Our law is broken. The market works within the confines of the law, and directly forces reckless behavior while the law is wrong. The other half of the equation is a law against pollution.

    (And given that imperative, the best way to implement it is to simply collect a pollution fee, and distribute it back equally to every individual as a stewardship profit. If you’ve got questions about that, I’ve got answers. When it’s explained, it looks obvious.)

    1. Francis L says:

      “It is not morally right that fossil pollution is free”

      I can’t agree more! And that why a lot of countries around the world are starting to put green tax on gas. To me, paying to repair the domagge we cause by consuming petrol is only normal.

      If we stop looking only at ourself, we clearly see that there is a lot of benefits to high gas price.

    2. Ocean Railroader says:

      There is something that I did notice in that in 2007 and gas was able to break $4.30 Tesla didn’t exist along with a lot of other plug in cars and hybrids. Such as at that time you had to buy gas or else and even during this time we talked a lot about oil doomsday ideas panning out. While in 2010 though 2013 all these plug in hybrids and electric cars start coming out and people slowly buy them. While at the same time gas prices stopped going up by leaps and bonds and even dropped to the $3.00 to $2.70 range and have gone up and down but not very wildly like they did in 2007.

      Another very odd thing I also noticed was that around 2004 after the last of the EV1’s and the other EVs apart of the California zero emission program got cut up and scrapped gas prices went up fairly aggressively or at least would go up but not go below a new price level.

      As for now I think as long as there is the threat of Ev’s and plug in hybrids we should at least not see $5.00 a gallon gas unless peak oil happens over a series of several months with major middle eastern fields going dry or getting cut off from the global oil system. As of now in terms of Doomsday prepping as soon as a EV gets to with in my price range or breaks 150 mile range I will go out and buy one. Granted I wish they had some of them at the prices they are offering now during 2007 in that we would have bought one had they been at the dealerships at the time.

  6. Bloggin says:

    It seems oil companies for years ripped off the public with high fuel prices, but when it reached over$5 per gallon and more consumers moved to hybrids which cut their oil consumption in half, then plug-in hybrids that cut oil consumption in half again, then full EVs that dropped oil consumption to zero. So now the oil companies realize those consumers are not coming back, and trying to slow the mass exit from oil by consumers with lower pricing.

    But the cat is out of the bag now. Most who are looking for a new car state it must have a battery or a plug if they can afford it. And as more compact and subcompact cars offer hybrid or plug-in, more consumers will choose those over traditional ICE also.

    This is a very good thing, and the greedy oil companies should be thanked for their efforts to get vehicle electrification moving quickly in the US.

    1. ModernMarvelFan says:

      I agree with you. I think they finally realized that once people go plugin, they won’t turn back…. So, it will be generation of buyers that they lost. So, they have to drop the price to slow down the migration to plugins…

      Even cars like the Volt, Energi and i3 with REx are putting a huge dent in gasoline consumption.

  7. CSS says:

    Just imagine the cost of one gallon of gasoline if our military (at a US taxpayer cost of over $.5T/year) did not protect our “interests” overseas. Nobody would be using the word “cheap” anymore.

    1. Jaymac says:

      Truth is that fossil fuel is costing you north of US$10.00 a gallon right now. The average consumer is blissfully unaware ( or militantly ignorant ).

    2. Independent Observer says:

      That will never change. The military industrial complex to “too big to fail” under any political party. Can’t shut down bases as it affects local economies in both Rep/Dem districts. Can’t stop weapons programs as it employess many unionized workers being paid good money. Many white collar engineers and the financial “industry” rely on the defense industry.

  8. Assaf says:

    I see the stability and even gradual decline of gas prices over the past few years, as another testimony to the strength of the current EV market roll-out.

    5 years ago people didn’t think EVs could compete and expand market share at this kind of gas prices. The entire “EVs are coming” wave of prognostications in 2007-2008, was based on the expectations that gas prices will shoot through the roof.

    As to how low they can go: we have to remember that those “unconventional” (read: insane) new sources e.g., the tar sands, are simply not profitable at <$80-100/barrel. If prices seem like they're headed that way with no rebound, the world will stop buying tar sands petroleum, and prices will stop falling.

    In short: the rise of EVs coupled with relatively-depressed oil prices, might be precisely the double whammy that stops many crazy oil extraction schemes in their tracks.

  9. The map above is a very narrow view on gas prices & factor effecting prices. Fossil fuel is a global market with global influences being much bigger drivers to supply and demand than those within a country.

    In last couple years production has been way up in US, so much so US has just become a net exporter vs. a net importer. Looking beyond US boarders, you still see high gas prices (Europe s up over past year) and strong demand from many regions (China having replaced US as the largest consumer).

    Looking at EV sales, many months with largest sales have occurred this year racking up consistent 8-10,000 volumes. Many manufactures are having difficulties keeping up with demand on production for their EV models (Chevy Spark, Fiat 500e, Honda Fit, Nissan Leaf, Tesla S). It’s interesting that EV sales continue to grow at great year over year percentages as gas prices drop.

    Could higher EV sales be helping bring on the cheaper gas prices, with EVs being here to stay?

    1. Koz says:

      Net exporter of refined petroleum products. Still a HUGE net importer of oil. Big difference.

  10. vdiv says:

    Remember when Gingrich was running in the Republican primaries for President over a year ago and was promising gas at $2.50/gal. when gas was at $4/gal. and everyone mocked him?

    1. Spec9 says:

      He deserved to be mocked.

      1. R.S.S. says:

        So true, what a clueless bigot.

  11. Spec9 says:

    Here to stay? No. It could plateau for a while. Especially if we strike a deal with Iran.

    But eventually, the ever-upward march will resume.

  12. Independent Observer says:

    If you want to get down to brass tacks, the amount you spend on gas today can be actually less than in 1969 (The good old days).

    In Wisconsin, the price in 1969 was $0.29/gal. Using the Bureau of Labor calculator, that is $1.85 in todays money. The average mpg for a midsiize car was ~13 mpg. So if you drove 12,000 mile/year you used 923 gallons of gas or spent ~$1,700 per year on gas.

    My Toyoto Camry (non hybrid) gets about 29 mpg. If I drive 12,000 miles/year I will use 414 gallons of gas. I am paying $3.15 now, but lets use $3.50/gal average. ~$1,450 per year on gas.

    The oil companies would have had less issues if they flattened out the price swings. Maybe raised the price of gas based on a 10 year rolling average. That way there would be some years they make a lot of money, and some years lose. But overall they would do fine. Consumers would have been used to small yearly increases. Just like a gallon of milk or pound of meat.

    1. Bill Howland says:

      Yeah, even with the worthless dollar, there appear to be some games being played. Gasoline is, by your calculations, about double the price it should be. Fortunately for those of us on this blog, we don’t use much of it any longer. I’m trying to think what electricity around here was back in 1969, but then again, that’s a separate issue in NY State since just as California has ruined their electric business, Govenor Mario Cuomo REALLY ruined it for upstate NY. NYC was always a mess but now the whole state is one.

      Brian I think you’re paying 12 cents / kwh in
      Syracuse. Its 11 3/4 here in Buffalo last month.

  13. Open-Mind says:

    Cheap gas?

    Six years ago, these same gas prices were considered destructively high. Those on the left were screaming about big-oil profiteering and making accusations about Bush conspiracies. “People are suffering!”, etc. Now it’s all fine?

    I find these double standards annoying. IMO, gas was expensive then, and it’s expensive now.

    One of the best (yet never communicated) things about EV adoption is that oil will finally have to compete with electricity as a transportation fuel. If anything is bringing down the price of gas, it’s electric fuel that if five times cheaper.

    1. Eric Cote says:

      It’s definitely interesting that what was once considered a psychological breaking point for driving people to more efficient vehicles ($3/gallon) is now considered a low price. Sometimes, it’s all about perception.

      1. vdiv says:

        It is not necessarily the price, it is the trajectory and the rate of change. Also there is an argument to be made about “the new normal”. That includes a substantially increased domestic production.

      2. Mark H says:

        Joining late. Nice mind teaser Mr. Cote! Enjoying everyone’s input. I especially like Brian’s comments that gas is getting cheaper and EV sales are going up. I really believe that sales would be even higher if gas prices remained high. What I would give to see 20 years down the road on this one.

    2. ModernMarvelFan says:

      Electric fuel is NOT 5x cheaper. In fact, it is same or MORE EXPENSIVE on per KWh basis.

      A gallon of gasoline is about 33.7KWh. @ $0.12/KWh, that is $4.04/gallon. Top marginal rate for peak charging can be as high as $0.33/KWh, that is $11/gallon in energy equivalent. Gasoline doesn’t cost more at retail level if you buy more. So, it is actually cheaper. The problem is ICE. Electric motor is easily 3x to 4x more efficient. That is where the gain is.

      Also, if electricity goes up too much, you can always install solar to offset it. But you can’t do that with gasoline unless you go alternative…

      1. Open-Mind says:

        Your point would be relevant if we were discussing space-heaters, but we are in fact discussing cars. So I thought it obvious that my fuel price comparison was in the context of C O S T P E R M I L E.

        1. ModernMarvelFan says:

          Average electricity rate in CA is very expensive as well on per mile basis.

          On the top of the marginal rate, it is nearly $0.33/KWh.

          That is over $0.11/mile. Where a Prius/Accord Hybrid getting 50mpg @ $3.50/gallon is ONLY $0.07/miles.

          The electricity rate would be cheaper if you have solar in CA. The discounted E-9A is NO longer available in PGE service zone.

    3. Bill Howland says:

      Agreed gasoline is about double what it should be, but as far as inflation goes just wait: The $US is worth about 80% of what it was a few years ago, but you a’int seen nothing yet compared to what it will be doing soon. The FED is counterfeiting $ at a Trillion a year rate.

  14. Anthony says:

    Oil prices wont go down below the cost of production – if it costs $60-80 to produce a barrel of oil from oil sands, fracking, etc. then it wont go below that amount. If it does, they’ll just scale back operations and produce less oil, which will cause oil prices to go up, etc.

    I really don’t see the national average going down below 2.75/gal just because of the costs involved. I’d actually like that, because then the state and federal governments would have a chance (at those prices) to increase gas taxes slightly so that they can afford to pay for our roads and highways! Taxing gasoline isn’t a good way to pay for roads in the future because of increased MPG and electric cars.

  15. ModernMarvelFan says:

    One thing about electricity is that buying a plugin car is almost forcing you to go solar. Without it, and combined with a high residential usage, your marginal rate can be as high as $0.33/KWh if there is NO TOU for EV charging. That would be about $0.10/mile. Gasoline @ $3.60/gallon and 40mpg is cheaper at $0.09/mile…

    This is exactly what oil company is doing to “slow down” the Electric migration.

    1. JIm says:

      For those that think an EV will force people to buy solar I think they are missing the bigger picture. If you are paying over 20 cent a kilowatt hour then it’s your loss even without an EV. Where I live I only pay 11 cents a kilowatt hour yet I will pay off my solar in 8 to 10 years (I don’t believe the foretasted 6-8 year mark from the vender). So even without an EV I am coming out ahead. Now that I have my Tesla I will be coming out WAY ahead.
      Of coarse you want to do the math and figure out if solar is right for you in your area based on your utility cost/local incentives/federal rebates.

      In the long run I don’t think we the people will ever come out ahead. Every time I make my house more efficient I get about a year of savings, then the utility company raises their prices to get their huge profits back in line to where they were before people made their homes efficient. For example. Now that I have solar and I paid the almost $300 for the bidirectional meter. Now my utility company is trying to get the regulators to allow them to bill me $80 a month just to have the meter (basically a service fee). They already convinced the regulators a few years ago that they should not have to purchase my excess power at all. The utility company gets that for free.They can’t bill me for the power I use from them as long as my net is always more but they never have to pay me if I have a net excess at the end of the year/month/whenever.

      SO gas prices are not real relevant. Gas production is a byproduct of oil processing to make other products. Technically electricity should always be cheaper because as carbon fuel prices come down so should electricity prices…..since electricity is currently made and can be made from those fuels more efficiently than an ICE can burn it for propulsion (why hybrids increase mpg in the first place)…. but electricity prices never come down because they have the market cornered much like oil companies do. When gas prices get cheaper than your electric utility, purchase a gas or CNG generator to charger your EV… it should be cheaper.

  16. MrEnergyCzar says:

    The cure for low gas prices is low gas prices…


  17. Benjamin says:

    Gas has already gone up 12 cents in Kansas City

  18. Mark S says:

    I would like to think that EV’s are one of the reasons for the temporary drop in gas prices, and maybe so, but come January lots of people are gonna need some extra cash for Obama Care. Hmmmmmmm…..

  19. MLucas says:

    I didn’t buy an EV to save on gas, although its a bonus. I bought an EV to stop giving my money to oil companies and car dealerships. The new oil coming out of the ground in Texas, North Dakota and Alberta comes at a high cost to our environment. The chemicals used in sourcing this proto-oil are very toxic and could very easilly contaminate the water table in many of these areas. An additional risk is that these chemicals quickly evaporate into the environment leaving behind the thick morass of bitumin which is very difficult, if not impossible to clean up. Look up Mayflower, Arkansas and Lac Megantic, Quebec to see the effect that this new oil has on communities in our own regions. I feel this lower price is because oil companies are getting scared that EVs will actually catch on and they think consumers are only going to compare fuel costs not the full wells to wheels environmental impact. Here’s a story from NPR about how oil companies are petitioning congress to lower the ethanol mandate so they can sell more gas.

    In essence, we are winning by driving less, taking more public transportation and buy more EVs!

  20. Jim McL says:

    Lots of interesting comments, but everyone seems to have missed the point. The author gives a good reason why the regulatory environment in the US discourages diesel automobiles. If I recall, diesel cars are not allowed at all in Brazil.

  21. Eletruk says:

    People still act like fossil fuels are unlimited. They are not. We already have extracted all the easy to get to supply, and everything from now on is more difficult and expensive to retrieve. It’s not a question of will the price go up, but rather when will it go up?