$5/gallon gasoline isn’t that bad

The economy of the US is recovering. In two years time, GDP will probably be at the level it was before the great recession. This should be good news, except for one thing: before the great recession, oil prices reached $150/barrel, which meant that gasoline was $5/gallon. Things have not improved since the last time, in terms of oil supply; in fact, they have deteriorated, since oil consumption in Asia had been rising even during the time when the US was in recession. Thus, when the US economy will be “back to normal”, total world oil demand will be higher than it was when oil was $150/barrel. Which brings us to the conclusion that oil prices will go to $150/barrel or higher by 2012.
Is this going to be so bad?
Well, yes and no. Yes, in that people’s budgets aren’t yet adjusted to a $5/gallon price. No matter how you look at it, this will be a blow to consumers’ ability to consume other things. However, after the initial shock, we will see that that price rise isn’t so bad after all.
Europe has been living with that price for years, and its people aren’t miserable; and of course, with $150/barrel their oil prices will go even higher. So, it is a price that you can live with. But the thing about higher oil prices is that it shifts economic patterns in a way that may be good for you, in a way.
Let us take a look at some of these:

Higher gasoline prices will mean higher cost of transportation. This will also affect the transport of goods from places like China. All of a sudden, some goods will no longer be cheapest when sourced from China; meaning that it may be cheaper to produce them in the US (or Mexico). If US manufacturers are smart, they will then start producing more in the US, than importing them (of course, the thing is to hit on which products to do this with). And this translates to more manufacturing jobs in the US. This can’t be bad news.
The high cost of gasoline will also affect the way you commute to work. The long commute will be more expensive, meaning that you may be forced to take public transportation (buses or trains) to work, but it also means that it pays to move to smaller, integrated towns, where work and most services are relatively near. Of course, the shift to more integrated towns, instead of the system of sprawling suburbs would not be easy or happen instantly. But it will happen gradually, and you may end up having a nicer quality of life when you don’t need to commute too much.
Food prices will also be affected by higher transport costs. This would also affect the way food is produced. Now, meat is produced by gathering lots of cows etc, and fattening them in feed lots. This system is quite prone to all kinds of diseases, and is rather taxing on the environment. When it becomes too expensive to transport the cows etc to central locations, production will become more decentralized, not only for meat, but for all food. And this means that you will be able to enjoy locally produced food at more reasonable prices.
With a higher price of gasoline, the demand will be for smaller, more fuel-efficient cars. Maybe even electric vehicles. And these would be quieter, give out no smoke (less polluted city centers), and would be cheaper to operate than gasoline cars. Wouldn’t it be nicer to live in a city where most vehicles are electric?
And maybe people would walk more. It is certainly cheaper to walk to school or work, or go there by bicycle, than to go there by car. And if this happens, it would also help reduce obesity, since people would be getting more exercise.
Of course, all these may not happen immediately, or even when $5/gallon comes. But the trends are there, gasoline prices will go up, and the changes I have just enumerated may become more and more the reality.

Electric Cars – coming soon to the Philippines

Electric cars, mostly of the hybrid type (i.e. they have both gasoline and electric engines) is on the verge of entering the mass market. Many car producers have unveiled plans to produce a hybrid electric car by as early as 2010.  Recently, electricity distributors in the Netherlands have set up a project to install 10,000 recharging stations (for electric cars) throughout the country. This trend is driven by the many factors: the drive to lower carbon emissions, high oil prices (or the threat that oil prices will rise again), technological breakthroughs in electric engine and battery design…

This trend will most certainly affect the Philippines too – in as soon as a year or two from now. Perhaps it then not too early to look into how electric cars could impact the country.

Relatively Fast Adoption
People who have cars in the Philippines mainly use them for short distances, usually within the city or metropolitan area. The first wave of hybrid electric cars will have a range of 200 kilometers on a full charge. Already, this would be more than enough for most cars. In addition, the electric car is quite suited to the stop-go traffic in the city, being a lot more economical than oil-based cars.

Already, Filipinos are starting to get used to having electric vehicles. The solar jeepney in Makati and the E3 tricycles in Taguig show that public transportation operators are open to having electric vehicles.

An important factor that would affect the rate of adoption of hybrid electric cars would be its cost.  The cost of the electricity needed to charge the cars would be much less than that of the gasoline or diesel needed by ordinary cars.  But the price of the car itself should not be too high as to negate the advantage of the cheaper fuel. Hopefully, if Chinese companies are able to produce hybrid electric cars that are cheap – or at least not much more expensive than ordinary cars -Philippine auto buyers will buy a lot of them.

Effect on Electricity Supply
The adoption of electric cars, if massive enough, would have an effect on the overall supply of electricity.  There would be a need to rapidly build more capacity in the electric grid, to be able to cope with the increased demand. If the cars are recharged mainly overnight, the effect would be somewhat lesser, since it would not burden the electricity grid during the daytime peak hours. However, if cars are recharged mainly during the day – while being parked near workplaces – then it would really increase the burden on the grid.

The price of electricity will increase in response to the increased demand. This in turn will help to bring alternative sources of energy nearer the break-even point, where it would be competitive with fossil-fuel sources of electricity. And the increased price will also force consumers to conserve electricity.

There is a danger that the rapid adoption of electric cars will result in electricity outages. And that new fossil-fuel electricity generating plants may have to be built to cope with the increased demand. But since electric cars are more efficient than traditional cars, the net effect will be to reduce overall fossil-fuel consumption.

Less Pollution
Electric cars do not pollute during operation. The pollution is made in the electricity generating plant instead. And the pollution will depend on how the electricity is generated – naturally, a fuel-oil  generator will still emit pollution, while wind or hydro generators will not.
But since electric cars operate cleanly, it means that the pollution in the streets and the cities will be less. There would be less fumes from traffic, our clothes will get less dirty, noise levels will be less, etc.  And since the pollution is generated in the electricity generating plants, anti-pollution measures could be more easily put into place.

See also:   Electric Cars