GAS/DIESEL PRICES --- FINALLY, THE TRUTH

Read it and weep.

This was the scene at a Shell station on May 22, 2008, in Palm Desert, California. Diesel fuel at $5.19, 98 cents more than they are charging for the highest-octane gasoline they offer.

Any American who has ever visited Europe or Asia, especially Japan and Korea, are shocked at the price of  gasoline and diesel. In many European countries, it's over $8 a gallon. Japanese are paying somewhere north of $5.50 per gallon.

SO WHY ARE FUEL PRICES SO LOW IN SOME COUNTRIES, SO HIGH IN OTHERS?

There are some countries where gasoline prices seems ridiculously low. Some of these are nations which  sit on top of oceans of oil, though even that seemingly never-ending supply is dwindling rapidly. The people in many of those oil-rich countries not only pay very low prices at the pump, but they may also receive free health care, free schooling including at the university level, free housing and annual cash payments from their governments. In places such as Saudi Arabia, Dubai and Brunei, oil pays the bills.

Why are pump prices so low in some countries which are not rich in oil? Subsidization. Many of these nations keep prices artificially low by subsidizing the price of fuel, "paying the difference" as it were, between the actual cost of the oil product and what the population can realistically afford to pay.

In some of these countries, especially in South America, the central government knows that keeping the prices of gas and diesel low will keep their constituents happy and create an atmosphere ripe for further foreign investment, growth and industrialization. Venezuela and some other near-totalitarian regimes (Cuba, China, Nigeria, etc) have even nationalized their oil industries, and as the owners, they can dictate pump prices. In those countries, because the oil producers have to deal with just one buyer,  the government  can cut deals with OPEC and other oil suppliers for very favorable prices.

We Americans see low gas prices as a birthright. But why have gasoline prices been so low in the US for ... well, forever? There are many reasons, including these five at the top of the list: Volume, taxes, the value of the dollar, the current world situation and, perhaps most important overall, availability.

We'll try here to explain these "five horsemen of the apocalypse". Keep in mind that we're not historians or experts on the oil industry; I'm just a journalist who's been covering the worldwide auto industry for over 35 years. 

VOLUME

Compared to those in other nations, consumers in the US have always bought so much of those dead dinosaur remains that the oil companies, refiners, shippers, OPEC, the Saudis and their buddies and more have always been thrilled to deal with us. It's just like the old TV commercials which had some store owner or manager saying, "How do we keep our prices so low? VOLUME!".

The sheer huge amount of oil products the US buys far surpasses that of all other nations. In addition, with oil trading and speculating being done in traditionally strong US dollars, the price of oil futures had been fairly stable until the 1970s when the first "fuel crisis" occurred. The world's oil prices were also rocked to some extent earlier, by the late-1950s Suez Canal crisis, but the market got back to "normal" when that emergency was over. The Suez Crisis did result in the creation of the Mini, but that's another fascinating story.

Click below to read and see more about why the price of gasoline, diesel fuel, heating oil, kerosene and other aircraft fuels, and all oil products, has gone up so far and so fast in America.

TAXES
A major reason American pump prices have been relatively low for decades is because the taxes paid at the pump in the US are much, much lower than others. This is also government subsidization; by the government keeping fuel taxes low, Americans pay less for fuel but also receive less in return from whatever taxes they do pay at the pump.

Most countries in Europe (as well as South Korea and Japan) are much more aggressive and progressive in providing basic services for their citizens (or subjects, for those who live under some left-over royalty), though some would call these nations socialist. The taxes on gasoline in some of those countries have not only traditionally underwritten the costs of upkeep and further development of their highways and existing rapid transit systems like rail, but also helps to pay for their population's health insurance and health care, special care for their youngest and oldest citizens, helping pay for their school systems, fire and police protection and many other programs which the people in those countries have approved.

In the US, federal taxes levied on gasoline and diesel pay mainly for one thing: The upkeep, repair and development of the nation's highways. 

VALUE OF THE DOLLAR
This is a critical part of why Americans are now paying so much more so quickly for gas and diesel. The dollar has been taking a severe beating around the world. Because gasoline is such a necessary staple of our society, and the price of a barrel of oil is traded worldwide in dollars, the lower the value of the dollar, the more of them everyone has to spend for almost every product, from food to clothing to airline tickets (and now to check your airline luggage) and to you-name-it.

Without oil, none of our major industries would exist. The fast-rising price of diesel, especially, which is used by the big rig trucks which bring every imaginable product to our cities, could have a devastating effect on our economy without some controls being put in place.

Using trains to move freight might be a bit cheaper than using diesel-burning trucks, but even the most efficient and modern diesel/electric locomotives use enormous amounts of oil. Some, especially the railroads themselves, are calling for the increased use of the nation's rail system to take freight out of trucks and off the highways. The reality, though, is that the rail system's infrastructure in the US could not support the increased use of freight trains.

WORLD EVENTS
When people call oil "black gold," they are not far from the truth. Just as the prices of precious metals such as gold, silver, platinum and also precious gems go up when the world is in major turmoil, so does the price of a barrel of oil. With an American-led war in the center of the world's major oil producing area bringing the most tension since the Iran/Iraq war (the US supported Iraq and Saddam Hussein), the Soviet invasion of Afghanistan (the US supported the Taliban) and the various conflicts which Israel has been involved with over the past 60 years (which has involved the US every time), the possibility of crude oil supplies suddenly drying up with little or no warning is very real. (Photo --- Honda's hydrogen-powered fuel cell sedan FCX Clarity which the company says will be tested in the 'real world' starting later this year and the test fleet will eventually be 200 vehicles large; it's powered by electricity and the only emissions are water and water vapor).

AVAILABILITY
Until the 1960s, there really wasn't much competition for America's constant (and ever-growing) demand for oil. But as that need began to grow in Europe and Asia, especially in the 1960s, with the industrial re-building of Germany, Japan and South Korea, the competition for existing and future oil supplies quickly grew. This meant higher prices and the need for far-reaching plans to keep America flush with crude.

There are many who believe that the competition for oil between the US and Japan was behind the starts of both World War's One and Two. Japan's invasions of countries which they thought could guarantee them supplies of oil into the future turned their need for this one commodity into a near- apocalypse (Japan has virtually no oil of their own). America's naval blockade of Japan and the vicious fighting to take back land which the Japanese were claiming for their own have led many to believe that oil was one of the main reasons, if not the single main reason, behind the last century's two wars in the Pacific.

There's a new threat in the Pacific, of course, and it's named China. If Japan was willing, twice in the 20th century, to rely on massive unilateral violence in order to gain access to long-term supplies of oil, to what lengths will China go in order to do the same?

All of this drives the price of oil up and virtually guarantees one thing for certain: Gas and diesel prices in the US will probably never again fall below $4 a gallon.

There is no end to the price rise in sight, and little real reason for optimism. Americans simply will have to  get used to paying as much for gasoline, diesel fuel, heating oil and all the other products made with oil, as the rest of the world. Those in the US still pay less for their oil, but many of the countries with high fuel taxes offer all their people many tangible benefits from paying those taxes, from health care to modern, cheap rapid transit systems and even support and care for the elderly, as we've already detailed.

Which brings up an interesting question: As the price of gas and diesel approach the traditionally high prices charged consumers in other parts of the world, would Americans be in favor of adding another few cents of taxes to oil products to, for example, underwrite a national health care system, develop high-speed rail nationally, help pay for existing rail and other kinds of local rapid transit systems or some of the other tangibles? (Photo --- GM's hydrogen-powered fuel cell EV, Equinox; GM will begin testing the vehicle with about 60 selected American families and individuals beginning soon).

If Americans are already paying $4 a gallon at the pump, would they pay be willing to pay $7 and in return get the kinds of societal benefits which other nation's enjoy because of the fuel taxes paid by their people?

When I first got my driver's license, in Santa Ana, California, in 1970, I can remember "gas wars" between local gas station with gasoline around 20 cents a gallon. Yes, you read right. For those of you not familiar with the term "gas war": Gas was so abundant and cheap that individual gas stations would try to "beat" the price of the station across the street. And the 1963 VW we drove at the time made great use of whatever gas we could afford to put into it.

At lot has happened since then, and today, with the price of oil rising faster and higher than the world has ever seen, Americans feel as if they have their backs against the wall, and they're right. There's a government in DC dominated by oil company executives from the top down. The current White House residents claim to be leading the nation by operating on an energy plan which was developed in secret in Dick Cheney's office with the oil world's top executives in attendance. Wish we could tell you more about the US' so-called energy plan and the people who developed it, but Cheney says, "Nyah, nyah, I'm not telling". And of course Bush wouldn't understand it, anyway. (Photo --- GM artwork detailing Equinox components; be sure to click to see the photo in a larger size).

But there are some rays of hope: As you've read and seen on this website, GM worked the past several  years with BMW and Daimler to build a new automatic transmission, combined with on-board batteries and sophisticated electronics and engine management; a similar GM system has been used for years on transit busses, but their goal was to make it small enough to fit into a passenger vehicle. The system, called Dual-Mode Hybrid, can now be fit onto full-sized SUVs and trucks and the companies claim the system can as much as double highway mileage. The next goal is to fit the system into smaller cars and crossovers.

GM's Volt, a plug-in battery-powered EV with an on-board gasoline "generator" which can achieve 640 miles on 12 gallons of gas will be available, the company says, starting in 2010 by their Chevrolet division. GM has also been developing their own hydrogen-powered fuel cell EV now called Equinox (it's name has changed a few times over the past few years, including Hy-Wire and AUTOnomy). The company says more than 60 of them will be on-the-road, leased to select families and individuals in the US beginning later this year.

Ford and Chrysler can tout the few gas/electric hybrids they sell, but both of those companies are spending so much money just to stay in business that they don't have the engineering resources to devote to making high-mileage cars and trucks (and just what sense does a Dodge or Jeep "Hemi Hybrid" make?). (Photo --- Toyota's Prius set the entry-fee for this all-new class of cars very high).

The Detroit Three have been making "flex fuel" vehicles for many years, but the fuel for these vehicles, compressed natural gas, is not widely available. A main reason the car companies have been making these cars and trucks is to lower (on paper) their Corporate Average Fuel Economy (CAFE) numbers and also receive certain credits from the US government for doing so.

The US government and the Detroit Three have also been touting E85 ethanol, but that dream is going up in smoke as the realization hit that producing ethanol from food crops is much more expensive than finding, drilling for and refining oil. Not only that, producing and using E85 will contribute to driving up the price of food worldwide, and there already are food riots happening in many parts of the world. "Cellulosic ethanol," made from non-food product, looks like it might be a better bet for the future. (Photo --- Chevrolet's all-new 2008 Malibu is available as a gasoline/electric hybrid).

Many of you are familiar with the efforts made by foreign auto-makers, especially Toyota, to produce high- mileage, low-emissions cars and trucks (Toyota is no saint, though; they also have one of the worst records for fuel mileage when their big cars and trucks are factored into their total CAFE numbers). As you've also read on this website, Honda plans to have four all-new gas/electric hybrid cars for the US market within the next 5 years, and their FCX Clarity hydrogen-powered fuel cell sedan goes into real-world testing later this year and will be leased to some 200 Americans in the coming year or two. (Photo --- Chevrolet's 2008 Tahoe SUV was named "Green Car of the Year" by an industry magazine for its all-new "Dual Mode Hybrid" transmission/battery/engine management system).

One major change on the horizon, at least for American drivers, is that diesel-powered cars and trucks are going to be again widely available in the US beginning this summer, for the first time in a decade or more. Volkswagen will probably be the first company to offer vehicles with a new diesel technology VW calls TDI and Mercedes-Benz dubs Bluetec. They are same technologies, developed by several car companies together, but they are called by various names for marketing purposes.

As far as we know, none of the Detroit Three have scheduled any of their vehicles for this technology.

Oh, and enjoy the holiday ... The last one for several years, perhaps forever, with under-$5 a gallon gas and diesel.

Click here for a USA TODAY piece which details how the price of gas at the pump is determined.

Comments

[Geovanni Donnetello]

Thank You for a healthy dose of insight and reality- I was enthralled by your website for HOURS!

[How To Run Your Car On Water]

I would be interested to know what you thought about the whole running your car on water and gas deal? I am about to convert my 04 maxima to a water and gas mix. If it goes well, I should be only filling up once a month. Who knows, I guess I'll see how it goes ;)