Why Gas in the U.S. Is So Cheap

by Steve Hargreaves
Friday, May 2, 2008 provided by

Relatively low taxes have kept pump prices far below most other developed nations, which some say is precisely why the current runup is so painful.

Despite daily headlines bemoaning record gas prices, the U.S. is actually one of the cheaper places to fill up in the world.

Out of 155 countries surveyed, U.S. gas prices were the 45th cheapest, according to a recent study from AIRINC, a research firm that tracks cost of living data.

The difference is staggering. As of late March, U.S. gas prices averaged $3.45 a gallon. That compares to over $8 a gallon across much of Europe.

The U.S. has always fought to keep gas prices low, and the current debate among presidential candidates on how to keep them that way has been fierce.

But those cheap gas prices - which Americans have gotten used to - mean they feel price spikes like the ones we’re experiencing now more acutely than citizens from other nations which have had historically more expensive fuel.

Cheap gas prices have also lulled Americans into a cycle of buying bigger cars and bigger houses further away from their work - leaving them more exposed to rising prices, some experts say.

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Revenues from Europe’s high gas taxes are used to fund a variety of things. One thing they have built is better public transportation, said Peter Tertzakian, chief energy economist at ARC Financial, a Calgary-based private equity firm.

They gave people an alternative to driving, something we don’t have in North America,” said Tertzakian.

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Americans have taken advantage of cheap gas prices to do other things - like buy bigger cars and bigger houses further away from city centers, said Schipper.

On a per capita basis, Americans use three times more oil than Europeans, he said. That means Americans are more exposed to rising gas prices than their counterparts across the Atlantic.

“Five-thousand square feet in the suburbs, that’s much rarer in Europe,” said Schipper, referring to big homes. “We dug our hole.”

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and that hole’s only going to get deeper….from the Oil Drum, a prediction of $1000 a barrel oil by 2020  (let’s see, that translates out to $30/gallon for gasoline, doesn’t it?  and everything else that’s oil dependent will jump in price by more or less a factor of ten, too….)

This is a guest post by Phoenix, an engineer working in the energy sector, and a friend of mine for well over 3 decades.

In January 2006 Phoenix emailed me a spreadsheet that predicted an oil price of $100/barrel by 2008, followed by an ongoing geometric rise in oil prices. I remember immediately phoning him to point out that the scenario was impossible because it is unsustainable - $100/barrel would cause economic havoc comparable to the oil shock of the 1970s and if a geometric price progression followed, then no economic recovery would be possible and… well, I recall using the phrase “rioting in the streets inside of 18 months”.

As we know, oil hit $100 in January 2008 and kept climbing, surpassing even Phoenix’s predictions. So when Phoenix offered to explain the model that generated those numbers, I leapt at the opportunity. Here is the story of how Phoenix became Peak Oil aware and generated his Price Calculator.

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