Peak Oil News: Gas to hit $6 by 2010, panel warns

Saturday, September 10, 2005

Gas to hit $6 by 2010, panel warns

Argus Leader - News

By Peter Harriman

Gasoline prices dipped modestly this week, but energy analysts warned that growing world demand for a finite supply of petroleum means motorists could be paying nearly $6 a gallon by the end of the decade.

A faculty and graduate student panel told an audience of about 100 at a University of South Dakota forum that rising gas prices are the face of the future.

The sobering news comes as South Dakotans are learning to cope with prices hovering near $3 a gallon. Unleaded gasoline surged past that mark at most stations Sept. 1 before prices dropped more than 20 cents this week.

So far, "The gas prices haven't changed the way you drive your car, but they've changed the way you think about driving your car," said Gary Harr, president of the Home Builders Association of Sioux Falls.

That could be a prelude to notable change in a major sector of the regional economy, he said.

People "will commute until they can't afford the gas," Harr said, but when that point is reached, it could significantly affect the area's booming real estate market.

Gene Hansen, owner of a Winner sporting goods store, said motorists aren't the only ones feeling pinched by sharply higher fuel costs.

"It isn't just people traveling. It's raising the cost of merchandise and raising the cost of freight to get merchandise here," Hansen said. "Before, we had free shipping. Now, about everybody's put in a fuel surcharge."

Hansen has absorbed the additional shipping charges for his store but said he will have to pass along increased merchandise costs to customers.

As in much of South Dakota, getting to Winner or anywhere from it requires considerable driving. Hansen already is mindful that he and his fishing buddies made fewer trips to Lake Thompson this summer because of gas prices.

Now, he wonders whether the pheasant hunters who turbocharge Winner's economy in the autumn will be coming to South Dakota in their usual numbers this year.

"We may not have the business come in that we normally get," he said.

Short-term decline
Panelists at Wednesday's USD School of Business international forum suggested that any decline in gas prices would be short-lived as the petroleum market adjusts to an exploding world demand.

There are about 61 billion barrels of known oil reserves, about one-quarter of it in Saudi Arabia and the Middle East, said Tim Heaton, an earth science physicist.

About half of it can be extracted at profitable levels. Increased oil prices or improved extraction technology make it profitable to go after more of that oil, Heaton said, and the recent appearance of countries such as China and India as oil importers will drive oil prices steadily upward.

In 2000, China had 20 million automobiles, said Clark Yingkai Cui, a USD business student and a graduate of a Chinese petroleum institute. This year, he said, the number of autos in China climbed to 32 million. By 2010, there will be 55 million cars in China, and by 2020, 100 million.

"The opportunity for us to enjoy much lower oil prices will be infrequent in the future," he said.

Dwight Vick, a USD political scientist, said consumers will try to offset higher fuel prices with renewed conservation. He added that as gasoline approaches $6 a gallon, it will spur new technology for alternative fuels.

"If this helps us conserve, maintain our reserves and develop alternative energy, this may not be a bad thing," Vick said of rising prices. "We will feel the pain, but it was something that had to happen in the nation and the world."

Price gouging?
Sen. Tim Johnson and Rep. Stephanie Herseth this week suggested that Congress might want to pressure giant oil companies to lower prices. And South Dakota Attorney General Larry Long is participating in a multistate inquiry into possible price gouging by oil companies in the wake of Hurricane Katrina.

But Dennis Johnson, a USD economist, warned against government interference, saying the petroleum market determines the true value of oil.

"You must let the price system work," he said. "You may think you are doing good (by forcing gas price reductions), but you are fouling things up."

Prices kept artificially low will result in the rapid depletion of available oil supplies, he said, because there will be no incentive to tap the reserves that are more expensive to extract.

"Price ought to always reflect scarcity," he said. "Let the price system work. This is our solution. If you don't do that, what you end up with is no availability at all."

It was not a suggestion Herseth wants to hear.

In a news conference this week, she talked about spending most of the congressional August recess driving across South Dakota.

"I shook my head in disgust every time I filled up," she said.

"We can't allow multinational oil companies boasting of record profits to gouge consumers," Herseth said. "We must do what we can to fix this problem."

Herseth said Congress should scrutinize whether oil companies are taking advantage of widespread concerns about oil supplies following Hurricane Katrina to unfairly raise prices.

'A high priority'
Long said Friday that a multistate task force of attorneys general is determining what information it wants from petroleum producers, fuel wholesalers and retailers to try to discover whether any portion of increased fuel prices represents price gouging.

"This is a high priority, and it's moving quickly," he said.

He acknowledged the difficulty similar investigations encountered in the past as they delved into the mysteries of petroleum pricing, but he said that as gas prices in South Dakota continue to hover around $3 a gallon, "the one thing we can't do is nothing."

At the USD forum, Vick and Dennis Johnson said that as gas prices rise, consumers have no choice but to reduce spending elsewhere.

One place where that could be felt most profoundly is in real estate, said Harr of the Home Builders Association, as home buyers opt for smaller houses closer to jobs and schools.

"Are houses going to get smaller? Probably, in my mind, yeah," he said.

Because of the lead time required in building new homes, builders and developers are hit hard by sudden, dramatic fuel price increases, he said.

"You can't change your inventory out there in the field overnight," Harr said.


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At 9:23 PM, September 10, 2005, Blogger dinopello said...

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