According to the Energy Information Administration, the average U.S. retail gasoline price was $4.064 last week. This is especially painful as gasoline prices have almost doubled since January 2007:
Chart from the EIA:
Despite the recent price hike, gasoline prices in the U.S. are much lower than in most European countries where drivers in some cities have to pay three times more. For example in Germany, one liter of gasoline costs on average €1.48. This would be $8.80 per gallon. In the Netherlands, one liter of gasoline is as expensive as €1.69. That’d be about $10.06 per gallon. These enormous differences in prices are generated primarily by government policies. In Europe, gasoline is taxed heavily. In Germany, taxes make up more than 60% of the retail price of gasoline. These taxes are used in part to support public transport, finance health care and education, but unfortunately, many countries just use the money to lower the governments’ budget deficits. Nevertheless, Europeans are more used to high gasoline prices and therefore, smaller cars with a good fuel-economy are more familiar to Europe’s roads than gas-guzzling SUVs. Besides, public transportation is better developed than in the U.S., especially in rural areas. In central Europe, most places can easily be reached by trains, even small backwater towns have an acceptable connection. Another advantage is that alternatives to gasoline-driven cars are more attractive with sky-high gasoline prices. And even if the price of gasoline has risen everywhere, Americans are more exposed to price spikes while Europeans are used to traditionally expensive gasoline and therefore the increase was rather moderate. Therefore, the impact on the economy is less harmful in Europe, because Europeans drive shorter distances, use public transportation more frequently and consume overall less energy on average.
The low price of gasoline in the U.S. has encouraged the urban sprawl and the purchase of inefficient big cars. Next to the pain of the recent price increase, the dependence on oil imports turns out to be a major threat to national security. Of course, Europe is as dependent on energy imports as the U.S, however, Europe could limit its per capita oil consumption while the United States’ per capita consumption has risen steadily. The needed turnaround is now even harder. Americans use three time more oil than Europeans which is a major hindrance for economic growth and security today. However, there’s a huge potential to reduce the energy consumption in the U.S. by putting more focus on efficiency. This could be done without cutting back perceivably on one’s living standard.
The oil industry insider and investor T. Boone Pickens shared his view with CNN’s Wolf Blitzer and advises America to get away from foreign oil. He said: “We can solve this problem with our own resources.” He tried to convince the Senate of the necessity to get independent of foreign oil imports. In his opinion, investments in domestic renewable energies, especially wind power, in combination with natural gas as a transportation fuel is the solution. Wind turbines in the “wind corridor” stretching from the Canadian border to Texas should provide 20% of the country’s power. He also backs nuclear power and offshore drilling in the U.S. (Pickens interviewed by Wolf Blitzer: http://edition.cnn.com/2008/POLITICS/07/22/pickens.profile/index.html#cnnSTCVideo)
While Europe’s gasoline prices are at the top, there are numerous countries that subsidize gasoline and stimulate demand. This pushes up worldwide oil prices further. Especially oil exporting countries such as Venezuela, Iran and Saudi Arabia keep gasoline retail prices at the bottom. Motorists in Venezuela just have to pay $0.12 per gallon. Thus, it is not surprising that the Hummer brand is fairly popular there. These countries spend a part of their income from crude oil exports to make driving an inexpensive pleasure. It is estimated that Venezuela has to spend more than $11 billion annually to make gasoline cheap.
But there are even oil importing countries that subsidize fuel to ensure that it’s affordable for their people. Most countries in South-east Asia such as India, Thailand, Indonesia and Malaysia as well as China and Vietnam spend billions annually to stabilize the cost of fuel in their countries. Nonetheless, even the Chinese government which controls the world’s largest monetary reserves had to increase the retail price of gasoline several times this year. Although governments know that price hikes don’t go down well with the people, the oil price spike prompted all those governments in Asia to risk civil unrest by passing on the higher import prices. According to the New York Times, gasoline costs $3.83 a gallon in China. Consequently, the state-run oil companies in India and China generate multi-billion dollar losses annually. The only way out of this difficult situation is to limit the soaring oil consumption in these countries in the short-term and to reduce it in the medium-term. As there’s no way to deny people access to mobility, cars that don’t consume gasoline are the solution. Therefore, I expect both, China and India, to embrace electric cars and to kill two birds with one stone. Electric cars could help to reduce the out-of-hand air pollution as well as the consumption of scarce and expensive oil. Moreover, the technology is fully developed and except for the batteries relatively cheap. The price of batteries will come down, however, with the start of mass production and technological advance. (China, India and other countries subsidizing gasoline to keep domestic prices down are forced to embrace electric cars)
Of course, electric cars are not only perfect for emerging nations but also for industrialized countries like the U.S. and Europe. The U.S. could turn to a society that uses little to no fossil fuels in the long-term. In the medium-term, America could become self-sufficient in oil by shifting away from gasoline-driven cars to electric cars, cars using natural gas, etc… The domestic oil supplies would be enough to supply the industries that rely on oil and can’t shift to alternatives such as the aviation industry and the chemical industry.
Some interesting charts of world oil consumption can be viewed in Google Earth:
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