Why Gas Prices Won’t Fall
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With the cost of a gallon of gas nearing (and on Maui, reaching) the $4 mark throughout the state, filling up your car’s tank has become a particularly expensive endeavor. Yet according to Dr. Fereidun Fesharaki, a senior fellow at the East-West Center, there will come a time in the very near future when today’s fuel prices will seem downright cheap. Are you ready to pay $6 a gallon for gasoline?
Energy policy is Fesharaki’s main area of expertise, and he will discuss current developments in the global energy market and how they affect Hawaii during a forum at the East-West Center Art Gallery March 27. In particular, he wants to look at the reasons why oil prices have risen so high.
“Some say speculators push the price up, some blame geopolitics, some believe oil companies and oil exporters manipulate prices,” observes Fesharaki, who argues the prime reason prices are going up is because resources are running out. He acknowledges that geologically, “there is quite a bit” of oil left, and it may be 30, 50 or 100 years before the planet runs dry.
The problem is that the oil is in countries where “the owners are not keen on depleting it,” since it is their main export and source of revenue. To maintain their most valuable commodity, oil-rich nations will probably only increase production to about 95 million barrels a day, a bit more than the current levels of 87 million to 88 million barrels a day. Those extra 7 million or 8 million barrels will not be enough to accommodate growing demands for fuel. Simple economics: When demand grows more than supply, costs go up.
The American driver stands to take the brunt of rising oil prices. According to Fesharaki, the U.S. consumes one out of every four barrels of oil produced worldwide. “The four big Asian economies of China, India, Japan and South Korea combined,” he explains, “use less oil than the U.S.”
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What do we do with all of that oil? Half of it is converted to gasoline to power our cars, trucks and SUVs. In Europe, less than 15 percent of oil is used for gas. As oil becomes more scarce while demand continues to rise, the price at the pump will increase accordingly. Within five years, Fesharaki expects we’ll be paying $6 a gallon for gas. Prices will continue to go up, pushed higher in part because of greater demand in nations with growing numbers of drivers, such as China, India and, ironically, many of the Persian Gulf states.
One way to deal with the coming fuel crunch is to raise federal gas taxes. As much as Americans would hate the idea of higher gas taxes, according to Fesharaki, there are some good reasons to consider this option. For one, “there is no doubt” that higher gas taxes are more effective at reducing consumption and spurring innovation than the federally mandated Corporate Average Fuel Economy (CAFE) standards. Also, if we are going to have to be paying $6 for a gallon of gas within a few years, there is something to be said for getting used to it now.
“Europeans will not be nearly as affected by higher oil prices as Americans, simply because they already pay as much as $9 a gallon, the majority of which is taxes.” Besides, the price at the pump is going to go up, and “we can either raise the price ourselves or wait for the market to do it for us.” At least if we do it ourselves, argues Fesharaki, “the money goes to U.S. tax authorities, either federal and local. Otherwise, we wait for the market and the money goes to the countries that produce the oil.” He figures it makes sense for those dollars to stay in America.
The phrase “stay in America” actually has another meaning to Fesharaki. Nearly 30 years ago he decided something else should stay in the U.S., namely, himself. In the mid-1970s, he was an energy adviser to the prime minster in his native Iran. Around that time he was invited to attend a conference in Hawaii, and made some local contacts. Soon thereafter, Iran found itself in the midst of a violent revolution, and when it was over, the Ayatollah Khomeini was in power and the country was a very different place.
By “the hand of God,” Fesharaki was soon offered a position at the East-West Center. Looking back at that fateful time, he recalls, “The Ayatollah told me if I stayed in Iran, I would go to heaven. If I left, I would go to hell. I told him I had decided to go to heaven now.”
By 1979 he was in heaven, or at least Honolulu.
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