Gas price pain: What helps right now?

SANDUSKY High fuel prices seem to be hitting everyone where it hurts most -- in the pocketbook.
Annie Zelm
May 24, 2010



Hoping to alleviate some of the pain at the pump, policy makers are pushing everything from offshore drilling to suing the Organization of the Petroleum Exporting Countries, better known as OPEC.

But a Boston University professor with the Center for Energy and Environmental Studies says such actions aren't likely to help for years to come. He blames the price spike on the oil market's reluctance to make timely investments in alternative fuels and says demand will continue to rise.

Global production is expected to peak in about 2030 before dropping sharply. Production firms profit by investing in alternative energy supplies after the peak period, which means society suffers price spikes in the meantime.

"If the realized peak is earlier than the expected peak, the firm reaps large profits, but society suffers from the lack of alternative supply," Robert Kaufmann said Tuesday during a telephone seminar sponsored by the Foundation for American Communications. "If the realized peak is later than expected, firms suffer large losses, but society is OK."

Kaufmann, an expert on world oil markets, said the United States consumes 20.6 million barrels of oil each day and imports about 60 percent of it from foreign markets.

OPEC is responsible for producing only 43 percent of the oil needed to fuel the worldwide demand of 85.6 million barrels each day.

Kaufmann said the country clearly needs to reduce dependence on imported oil, but doing so is costly.

"The U.S. oil resource base is really depleted, and when you push hard to expand production, you'll use up a lot of labor. Those efforts will backfire and only make things worse," he said. "Yes, we can find smaller, newer fields, but have to run very hard just to stay in place ... and oil production been declining for 35 years, despite increasing technology."

He said opening the Arctic National Wildlife Refuge for drilling is not a practical solution, because even if enough oil existed there to feed demand, that oil wouldn't impact the market for at least five to 10 years.

"If we started producing now, in the best-case scenario we'd produce about 1 million barrels per day over the next decade," he said. "It probably wouldn't lower world prices or imports of oil significantly."

In response to Democrats' proposals to sue OPEC to establish a more competitive market, Kaufmann said a truly competitive market for oil has not existed for nearly a century because oil is found in very few large fields.

Fuel prices are directly related to the price of crude oil, but Kaufmann said the relationship between the two appears to be unbalanced.

When crude oil rises, fuel prices quickly follow -- but when crude falls, the fuel prices respond slowly.

"When crude drops, there is tremendous opportunity for profit, and statistical analysis of the data says that's certainly true in some states (including Ohio, Texas, Pennsylvania and Florida)," he said.

One piece of the puzzle many fail to understand, however, are price increases due to speculation and the fact that refiners slow production rates when crude prices fall. Kaufmann said he believes the speculative component of prices is significant, and there is still some room for prices to come down in the near future.

During the price peaks of the mid-1980s, prices finally collapsed because demand for oil was reduced by using other energy sources, such as coal and electricity. Today, however, he said reducing demand will be far more difficult because large quantities of oil are used for non-energy items like plastics and fertilizer.

But area residents say they're hoping for relief sooner, rather than later.

"I'm just trying to make it now," Sandusky resident Tara Churchwell, 36, said. "I spend about a quarter of my day driving, and I think the best thing we could probably do as a community is to carpool -- we need to find a way to get more busses for the transit system."

Joe Capizzi, 58, of Bellevue, said he believes offshore drilling is key.

"Fifty-five percent of our reserves are offshore," he said. "Where else are you gonna go?"

Chet Wisenbarger, 73, who owns DeMore's Fish Den in Sandusky and Port Clinton, said he's cut his prices almost in half to keep customers coming.

"It's hurt me a lot," he said. "We're not using the wells we have, which leads to higher prices."

Tyler Keegan, 20, said he'd welcome even a temporary price reduction.

"It's outrageous," said Keegan, who spends nearly $100 each time he fills his Ford F-150 pickup truck. "If it's this bad now, what's it gonna be in a year?"