5 Outcomes of Rising Gas Prices

Gas prices are up - the average price of a gallon of regular gasoline in the U.S. has reached $3.54 this week, about a 30-cent increase since the beginning of 2012. It’s probably news for you only if you ride a bike or take the bus. The rest of us are already familiar with this painful fact. While the reasons change every time, this trend is nothing new, no matter how surprised we are to find the new prices hanging on a sign at the gas station. This is why it’s actually not difficult to see what’s going to happen next. Here are five outcomes you can expect in the upcoming months.

1. Scary numbers will start appearing in the media

In the eyes of the average American, the day gas will reach $5 a gallon is doomsday, so don’t be surprised to find such forecasts in the media. Historical gas prices show very little likelihood for such an outcome, as well as the forecast of the U.S. Energy Information Administration (EIA), which “expects regular‐grade motor gasoline retail prices to average $3.55 per gallon in 2012 and then average $3.59 per gallon in 2013.” Yet, scary forecasts increase readership and viewership, not dry data, so you can expect more headlines like “$5 Gallons Of Gas? Experts Say It's Coming” and “Fmr. oil exec: $5/gallon gas a 'serious problem.'”

There’s also a good chance you will see the $6 figure appearing more often during summertime, but before you reach for the phone to call your European friends for advice, look for some credible analysis – although they may lack the drama of exciting news reports, they’re probably more attached to reality.

2. Politicians will defend Americans’ right to cheap gas

Remember ‘drill baby, drill’? Well, now it has an updated version coming from Republican presidential nominee Newt Gingrich. The New York Times reported that Gingrich wrote on Twitter last Friday that “gasoline prices are unacceptable. We can do better!” He urged his supporters to sign a petition on his website calling for a return to $2.50-a-gallon gas with the message “Drill here. Drill now. Pay less.” He’s not the only Republican candidate that is jumping on this bandwagon - Rick Santorum, according to the Washington Post, appeared to suggest that President Obama has a plan to keep gasoline prices high in an effort to keep Americans driving less and, as a result, reduce carbon dioxide emissions.

The Obama administration is worried that Republicans will use the high gas price to attack President Obama’s energy policies, so their response is to focus on the administration’s efforts to expand domestic exploration and development of oil and natural gas. Obama will also remind voters about his efforts to raise fuel efficiency standards, but I’m sure he’ll be happy to see the price go down, instead of explaining that more efficient cars equal less spending on gas even when prices go up, which is also true only to a certain degree. He certainly wouldn’t like voters to be reminded that the gas prices almost doubled during his tenure as president.

3. Electric and hybrid cars won’t see a real boost in sales

Although it seems to make sense that higher gas prices can help boost the sales of electric and hybrid cars, there’s a little chance this rise will make a difference. This is a still niche market with about 2 percent market share in the U.S., attracting mainly environmentally conscious consumers. “Most of the people buying those right now do it because they want to be green,” Mike Penner, general manager of Imperial Ford, Chevy, Chrysler-Dodge-Ram-Jeep told the Milford Daily News, adding that other consumers look for savings opportunities elsewhere, particularly in moderately priced, high EPA-rated models.

According to industry analysts, the biggest reason people aren't buying hybrid and electric cars is cost. It means these cars are more attractive now, but at the same time you have fuel efficient cars with very good mileage and no price premium that look more attractive.  Most likely, fuel efficient gasoline cars are the ones that will see boost in sales. Hybrid and electric cars will have to wait for cheaper models or further rebates.

4. Oil companies will become worried about drivers

Or so they will say. In any event, you can definitely expect the voice of oil companies to be heard, taking advantage of the increasing prices to make the case for opening more land and offshore areas for exploration and development. You can already hear it from John Hofmeister, former CEO of Shell Oil’s U.S. operations and founder of Citizens for Affordable Energy, who told Fox News that oil production today is only 7 million barrels per day when it used to be 10 million per day.  "We know where the oil is but the government has to allow the companies to get the oil," he said, charging the Obama administration with being "anti-drilling.”

Interestingly, only two days earlier, Shell Oil cleared one of the last remaining hurdles to Arctic offshore drilling, as the federal government said it has approved the company's spill response plan for the Chukchi Sea. I’m sure Hofmeister would see it as a win-win strategy, although I’m not sure it will either change his opinion about the Obama administration, or help to decrease the gas prices. I’m quite sure, though, it will be beneficial for Shell.

5. Gas prices will eventually go down.

They always do.

[Image credit: Well Oiled Machines, Flickr Creative Commons]

Raz Godelnik is the co-founder of Eco-Libris, a green company working to green up the book industry in the digital age. He is an adjunct faculty at the University of Delaware’s Department of Business Administration, CUNY and the New School, teaching courses in green business and new product development.