Filling up the car this weekend, I received a pleasant surprise at the gas pump. Where you live it may be a different story, but where I live and travel, I’ve noticed a significant drop in gasoline prices. And it’s not just the traditional end-of-summer drop. Gas prices are falling faster this year than last.
Taking a look at a chart from GasBuddy.com, last year’s lowest price was about what it is now (roughly $3.18/gallon), but that was in early November as opposed to the middle of October. At this time last year, gasoline was $3.34/gallon; as you can see from the picture, I just filled up for $2.80/gallon! And while there are a lot of macroeconomic reasons for this, one important reason is the increased production of oil here in the U.S.
It may have slipped by you unnoticed, but the U.S. is now the #1 producer of oil in the world. With technological advancements in directional drilling and fracking, we’ve now overtaken both Saudi Arabia and Russia. And it’s affecting prices worldwide. Whether or not the recent drop in oil prices is a long-term trend is still unclear.
There are plenty of positives to take away from this. First, our Pulse data consistently shows that one of our greatest concerns as Americans is our dependence on foreign countries for oil. So some companies and governmental organizations will have an opportunity to leverage their role in making America the energy leader to gain some brand affinity. Secondly, the global market price will become less influenced by the express cartel, OPEC. That means future prices will continue to have a more realistic assessment of supply and demand, as opposed to controlled supply and demand. Third, there are economic benefits to the states that are producing more. While the cost of new extraction technologies is higher, the associated transportation costs will still make U.S. oil less costly, at least at current prices. For the short term, states like North Dakota are seeing economic benefits from the new oil boom.
We all will experience a little reprieve over time at the pumps, as the Energy Information Administration forecasts a slight decline in the average pump price through 2015. This is good for most businesses as well, since transportation costs should drop accordingly.
But what does this mean for the environment? And won’t this hurt the development of technological advancements like electric vehicles?
First, it’s not necessarily bad news for the environment. (Before you roll your eyes, hear me out.) We can’t control how oil or natural gas is extracted from the ground in other areas of the world, but we can here. It’s the perfect opportunity to take a leadership role in responsible extraction. Arguably, we may not be on that path now, but we could make a point to get there. We can adopt the best practices from around the world on the mining of fossil fuels and continue to improve them. If technology can help us reach more oil than we could before, then surely it can lead us to a more responsible solution as well.
And yes, electric vehicle sales will most likely be negatively affected by lower prices at the pump. However, electric vehicles have been struggling for some time, and range anxiety, cost and other challenges are more to blame for their lack of wide adoption.
But the environmental damage done by extracting fossil fuels remains. We can try to limit the impact, but we will never negate it. A responsible and measured approach to the use of fossil fuels, with the ultimate goal of transitioning to generation from renewables, provides the best solution for everyone. Though many oil companies have backed away from renewables, it seems there could be some excellent strategic alliances formed between the oil and renewables industries to create an environmentally responsible, reliable, economically viable energy future for our country. And that’s what Americans are looking for, according to our ongoing polling. They just want those elements in balance. The companies that figure out how to offer that balance will be the winners in the end.