The Energy Crisis: 2004


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Skyrocketing Gas Prices

I'm writing this in July 2004. As I write this, gasoline prices are skyrocketing. The graph below shows the average price of a gallon of gas in the United States from 1976 to 2004.

Figure 1: U.S. Retail Gasoline Prices

Many people who worry about overpopulation point to this as a clear sign that our natural resources are being exhausted. The price of oil is inevitably rising as the world's supply of oil is being used up.

For example, the Culture Change web site has an article entitled "The Fall of Petroleum Civilization". Among the factors that they list as contributing to the rise in oil prices are a number of short-term influences, like the disruption in supplies from Iraq caused by the war, but also such systemic factors as, "the major oil companies that are covertly covering the difficulties in discovering sufficient new resources to cover the decline in existing fields", "interpreting the hype about how advances in technology are enabling oil to be extracted from deep water, oil sands and other difficult sources as spelling out that most of the easy oil has been used", and perhaps most fundamentally, "recognition of the geophysical fact that the supply of oil is limited and that about half of it has been used up in a very short period of time and the rate of usage is increasing at a tremendous cost in resource usage -- this cannot continue".

Fluctuating Gas Prices

But let's look at this a different way. In that same 29-year period, the general inflation rate has resulted in a 2004 dollar being worth only about 30% of what a 1976 dollar was worth. So let's draw a new graph, with the price for each year adjusted to constant 2004 dollars.

Figure 2: U.S. Retail Gasoline Prices, Nominal and Constant

The lower line is the price in dollars at the time the gas was purchased. The upper line is the price adjusted for inflation. As, for example, prices in 1976 in general were about 30% of prices in 2004, we divide the nominal 1976 price of 61 cents per gallon by 30% to get a price in constant 2004 dollars of $2.03.

This graph presents quite a different picture. Prices plummetted during the 1980's and remained at this lower level throughout the 1990's. Now we're seeing some upward adjustment. The optimistic prediction would be that this is simply the normal up-and-down that energy prices have shown for decades, and they'll probably go back down in the next year or so. A reasonable pessimist might fear that prices are headed back up to where they were in the 80's. Still, oil prices today are relatively low by historical standards. Maybe this is just a blip and they'll stay low, or maybe they're headed back toward historical norms. But in either case, this is not an "energy crisis"; this is not an omen of some great disaster. It's just a slight adjustment back to normal.

Oh, an interesting side note. The America Petroleum Institute collects statistics that allow us to break out various components of the price of a gallon of gas. Comparing prices today with 1981, when they were at a peak:

So if you're worrying about rising oil prices, there is one simple cause: Taxes. Sales and excise taxes today make up 21% of the price of a gallon of gas. (This does not include income taxes.) Whatever your opinion of the value of what the government does with this money, clearly this has nothing to do with overpopulation or exhausting our natural resources.

Indeed, there's a certain humor to this. Anti-populationists routinely call for increases in gas taxes to discourage consumption. Then when these increases are enacted, they point to the higher prices as proof that we are running out of oil.


Notes

Numbers in the graphs for all years prior to 2004 are the average for the entire year. The number for 2004 is for the month of April, the most recent data available at the time I wrote this article. I begin the graph with 1976 because that's whan the government began collecting statistics on unleaded gas: starting sooner would have had us comparing leaded to unleaded, which just complicates things, and besides, I had to start somewhere.


Sources

Statistics on gasoline prices are from the U.S. Department of Energy, Energy Information Administration, eia.doe.gov.

Statistics on inflation rates (the Consumer Price Index) are from the U.S. Department of Labor, Bureau of Labor Statistics. /www.bls.gov/cpi/home.htm.

The statistics referred to as coming from the America Petroleum Institute are from their "May 17 Pump Price Update" for May, 2004, at api-ec.api.org/filelibrary/ACF140.pdf.


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Posted 6 July 2004.

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