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The Future of Gas

November 29, 2008 by Admin

The recent decrease in gas prices has been a welcomed change to the beleaguered American consumer. After four years of steady increases, the price of a gallon of gas has declined steadily since the financial crisis began abating worldwide demand in September. The national average gas price fell by 15 cents to $1.868 over the Thanksgiving holiday weekend, despite the expected increase in demand as travelers hit the roads to visit family.

On the Tuesday before Thanksgiving, a barrel of gasoline was priced at just $50.77 on the New York Mercantile Exchange -- down more than $90 from its high of $147 per barrel in July.

What is the Cost of Cheap Gasoline?

Such a drastic decrease in price has some analysts worried, as the cost of gasoline affects demand and therefore justifies investment in production infrastructure by energy companies. At $50.77, many new projects are not economically viable and are shelved until the price rebounds. This could upset supply in the future and produce huge price increases and the economy recovers. A low price per barrel also removes alternative energy development from the public consciousness, causing concern among environmentalists about the future of clean energy programs like wind power stations and solar panel research. With the price of gasoline running so low, politicians are not motivated to push clean energy agendas because those issues are not salient with voters. This could also prove problematic when the economy bounces back, as the development of these technologies will have to be started from scratch.

Why Did the Price of Gasoline Fall?

The price of gasoline fell so dramatically because worldwide demand cooled with the onset of the financial crisis. In order to save money, commuters and businesses alike have curbed their energy spending, and developing nations like India and China have scaled back their rapid growth. And while American drivers have been pleasantly surprised by the price at the pump over the past few months, the world's energy producers are now beginning to consider lowering production to artificially inflate prices to a more sustainable level.

OPEC members have publicly stated that they would like to see the price of a barrel of oil sit somewhere near $75, a price that they say facilitates investment in infrastructure while still remaining low enough to be bearable by the average consumer.

Where is the Price of Gas Headed?

The New York Times recently reported that some analysts believe the price of a barrel of oil could fall to between $30 and $40 before it recovers. This is great news for consumers in the short term, but it could have catastrophic effects in the long term. The Wall Street Journal wrote in November that "more than four out of five refinery construction projects face cancellation" because of oil's sharp decline in price; meanwhile, the International Energy Agency believes that a new source of energy equivalent to four Saudi Arabias must be found to meet current demand as well as the surge that can be expected from developing countries once the worldwide economy stabilizes. These forecasts are rather ominous and underscore the importance of the issue. The price of oil reached unprecedented levels in the summer of 2008 that brought America's dependence on fossil fuels to the forefront of public debate. But as the economy has become consumers' main concern, this problem, while remaining urgent, has left the public discourse.

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