GN Commentary: January 14, 2009 - Cheap Gasoline—Is It Worth It?

Maybe it's time for all of us to look beyond the price of a gallon of gas, and to see what the future really holds. 

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Video Transcript

The price of gasoline is down again! So now's the time to start driving more, and to stop worrying, right? If we're thinking that way, maybe we need to think again.

The feeling of relief is great! Take a look at these numbers: on January 13, 2009, the average price of a gallon of unleaded gas in the United States stood at two dollars and one cent. That's about $1.30 less than this time last year, and $2.62 below the record high of $4.63 set on June 19, 2008.

And the drop in the price of a barrel of oil is even more striking. In early January 2009 it's fluctuated around $40 a barrel, down from a high of close to $140 a barrel in July of 2008.

But is this really good news? Some forecasts suggest that the world will be thirsty for a lot more oil over the long term. For  example,  the International Energy Agency's latest long-term energy outlook sees oil demand rising by 25% , to 106 million barrels a day, by the year 2030,  and talks of "a real risk that underinvestment will cause an oil-supply crunch in that timeframe."

That's a lot of extra oil we'll be needing, and it could easily drive the price back up again.

In the meantime, a lower price may choke off exploration and exploitation of oil reserves we know are there. For example, Alberta, Canada is estimated to have reserves of some 174 billion barrels in the form of oil shale, a number second only to Saudi Arabia's reserves. But they need a stable price to make it worth it to extract the oil, a costly and demanding process. What will happen if this—and other—huge potential reserves are never tapped, and in a few years we discover we need them after all?

Add to that the uncertainty and instability of many areas of the world which have both old and new oil fields—the Middle East, Russia and Nigeria, for example. Who knows what might happen in those parts of the world in the coming years? How reliable is the flow of this life-blood of the world economy in the long term?

It's all very hard to predict, isn't it? One thing we do know is that we live in uncertain times. Times of instability lie ahead, and some of that instability may be provoked by competition for oil and other scarce commodities.

Maybe it's time for you to learn more about the trends that may well affect your world in the coming years? Maybe it's time for all of us to look beyond the price of a gallon of gas, and to see what the future really holds. 

For GN Magazine, I'm Ralph Levy.