By David M. Greenwald
Executive Editor
Yesterday I was filling up in Davis and came across a sticker placed next to the total cost of gas – the image of President Biden with a caption saying, “I did this.” The reality is the rise in gas prices were largely outside of the President’s control though some have criticized the President for being slow to tap into strategic reserves.
While gas prices have come down quite a bit from their peak a few months ago, it might be equally true to say, “We did this.”
The 40-year failure to address climate change is absolutely on each and every one of us, especially those of us who continue to drive their vehicles as though it were 1972.
In a piece in Politico this week, there is a warning, that expensive gas prices are “here to stay.”
Or, as they put it, future presidents should take heed: “It’s likely to happen to you, too.”
In short, “The United States’ capacity for refining oil into gasoline is declining, a trend that appears irreversible — for reasons that include climate change. But the nation’s appetite for fuel is holding firm, no matter all the predictions of a future filled with electric cars.”
As I said—we did this.
“We are going to be operating a shrunken, old and in-need-of-repair refining system a lot harder,” said Bob McNally, head of 
consulting firm Rapidan Energy and former senior director for international energy on the National Security Council in the George W. Bush administration. “Future presidents and administrations are going to be absolutely bedeviled by high gasoline prices.”
This is good political capital for Republicans who have blamed President Biden for these increases in gas prices.
Politico warns that “instead of being a modern outlier, the high prices may signal a new norm that future residents of the White House of either party will have to face down.”
Despite the spike in prices, “A much-forecasted drop in demand for oil-derived transportation fuels has yet to arrive, even as the capacity for the United States to produce such fuel is falling away.”
Gas prices peaked at around $5 per gallon nationwide earlier this year, and were approaching $7 in some places. They have fallen to $4.35 as of Monday, though “prices at the pump have fallen more slowly than the cost of oil.”
Analysts however warn that the price dip could be temporary, if Russian oil shipments decline or refineries get hammered by the upcoming hurricane season.
Some believe that this is solvable. Politico reports, “Some analysts have argued that fuel efficiency and the increasing number of electric vehicles on the roads of Europe and the United States will lower gasoline demand at a faster pace than the drop in refining capacity.”
They add, “Both the International Energy Agency and the U.S. Energy Information Administration have forecast a steep drop in fossil fuel demand in the United States and other developed countries, predictions that are persuading investors and even some refinery executives to put their money into renewable energy.”
“This is a problem that technology is solving,” said David Goldwyn, president of energy consulting firm Goldwyn Global Strategies and a former State Department special envoy for international energy affairs in the Obama administration as reported by Politico.
He added, “You have an internal combustion engine phase-out in Europe. You have the U.S. reaching the tipping point on electric vehicles. I think it will either fall on the refiners or government to build some [fuel] reserves for resilience purposes, but long term, no one is going to build a new refinery.”
That seems overly optimistic to me.
We have not taken climate change nearly seriously enough. While some political leaders and some industry leaders see the need to shift away from gasoline, whether that happens is more up in the air.
Politico cites Andy Lipow, head of consulting firm Lipow Oil Associates. He believes, “The combined pressures of climate change, government policies focused on curbing emissions and forecasts for a shift to electric vehicles mean less incentive to keep the plants running.
“Our refining industry is getting older. It’s going on Medicare,” Lipow said. “You’re seeing demand going down in the U.S. … You need so much money, it’s easier to pull the plug. You shut down.”
This has been a shock to the system. It was not long ago that the oil industry was pouring billions into refineries. “But now the drop in refining capacity has happened so rapidly that further shutdowns — temporary or otherwise — could cause prices to spike considerably as U.S. drivers have to compete with foreign markets for fuel.”
“You add up a strong likelihood of a weather event taking off refineries on the Gulf Coast, or an earthquake in California — we’ll be at $7 bucks a gallon pretty quick,” Brown said in an interview with Politico.
The real question is at what point the US will start to realistically shift off fossil fuel. That day is probably finally coming, but probably not before a few more gas price shocks.
Economists have long pointed out that releases from the Strategic Reserve are largely symbolic and have no real effect on gas prices because the amount available is so small compared to world demand. There is no isolated “US market” as much as some want to wish for oil energy independence. The Strategic Reserve holds about 700 million barrels, while daily world demand is about 100 million barrels, so there’s about one week’s supply in total.
The first burst in fuel economy was created by the oil embargoes starting in 1973 and not through regulation. A paper by Chris Knittel (formerly at UCD, now at MIT) found that the CAFE standards didn’t drive fuel economy until prices collapsed in 1984. We probably need the same push to EVs.
The big problem with EVs is most people don’t want to have to plug in their cars and most don’t want to have to recharge after a certain length of time. That’s really what has prevented the market from taking off more.