By Mark Bennett
The Tribune-Star
TERRE HAUTE
May 14, 2008 10:57 pm
—
Two years ago, Mississippi oil man Mike Blackwell returned to his hometown of Terre Haute and gave a lecture titled “$2-Plus-a-Gallon Gasoline: What’s Next?”
Blackwell humbly denied having any crystal-ball powers. After all, with countless forces — from politics to weather — affecting oil costs, predicting gasoline prices is like trying to predict when someone will die.
Nonetheless, Blackwell tapped his 35 years of experience and relayed prognostications he’d read or heard inside industry circles. On Feb. 24, 2006, Blackwell told the audience at Indiana State University, his alma mater, some speculators figured crude oil would soon hit $120 a barrel.
Last week, a bit later than Blackwell’s oil business source suggested, that happened.
Now that gasoline is nearly $4 per gallon, it seemed appropriate to revisit the subject with Blackwell and ask, “What’s next?”
“I have no earthly idea,” he said by telephone from Jackson, Miss., where Blackwell and his business partners run MOCO — the Mississippi Oil Co.
“I don’t see [the price of gasoline] going down precipitously,” he added. “If it falls below $3 [a gallon], I’ll be surprised.”
He’s seen trade projections of crude oil topping out at between $175 and $200 a barrel. Indeed, Goldman Sachs called for prices rising to the $150 to $200 range within two years. “That’s basically, $4- to $5-a-gallon gasoline,” Blackwell said.
“Until we understand oil is not plentiful, we’re going to see gas lines again,” he added. “This is going to get worse before it gets better.”
It’s a supply-and-demand thing, complicated by vastly different and adversarial governments, nature and technology. In a nutshell, though, global consumption of oil and gas is outpacing the industry’s ability to produce it. And the United States drives that dynamic more than any other nation. We’ve complained about prices, but kept buying more for our gas-hungry vehicles. Every time prices spike, we call for greater commitment toward home-grown, alternative energy sources, but the fervor fades the moment prices fall.
Apparently, the only force capable of curbing that thirst is a painfully high price.
A few years ago, the symbolic threshold necessary to change our habits seemed to be $2, and then $3. But that wasn’t enough.
Four-dollars-a-gallon may be the magic number, though.
According to a Reuters report, the nation’s retail gas consumption is down 1 percent so far this year, and April sales fell 0.4 percent at U.S. fuel stations. The U.S. Energy Information Administration projected the country’s gas usage will shrink during the summer months, Reuters reported. That hasn’t happened in 17 years.
I thought it would take $5-a-gallon gas to choke us, “but now $4-a-gallon gas is choking us,” Blackwell said. “And it’s going to continue until we learn to control our consumption.”
Signs of change are emerging. Economists have noted anecdotal hints, such as a rise in bicycle sales and repairs, and increased mass transit use in major cities, said Kevin Christ, associate professor of economics at Rose-Hulman Institute of Technology. Closer to home, Christ himself had a passer-by stop at his home and offer to buy Christ’s 1994 Toyota pickup truck.
“His full-size pickup gets only 8 miles per gallon,” Christ said.
In Mississippi, “The trucks and the SUVs are beginning to sit on the [car dealership] lots here,” Blackwell said, “and their trade-in values are down. I’ve heard that from two neighbors.”
As prices climb, Americans’ cutback on gas has its limits, Christ explained. Prices are 25 percent higher than a year ago, yet the volume of gasoline pumped in the United States last week fell only 7 percent compared to 2007, according to Reuters.
Still, such a reduction as the peak driving season nears is rare. Thus, the $4-a-gallon plateau could force Congress and the White House to speed up development of alternative fuels, beyond levels in President Bush’s 2007 energy plan for ethanol, biodiesel, hybrids, wind and solar.
“I think we’re getting into that range where some of these alternative fuels become economically viable in relation to oil,” Christ said.
Such prospects, coupled with nuclear power and nationwide conservation, could offer the turning point in the predicament, said Blackwell, who also favors expanded exploration and drilling in the United States.
“If we can start conserving a little better and take some of the pressure off demand” that would help, Blackwell said. “We’re 5 percent of the world’s population and we consume 25 percent of the oil.”
Lawmakers face some tough choices. On Tuesday, the U.S. Senate rejected a Republican plan to allow oil development in the Arctic National Wildlife Refuge in Alaska and offshore areas in the Gulf Coast. Opponents pointed out that U.S. lands contain just 3 percent of the global oil supply, but the nation consumes 26 percent of it, according to The Associated Press. “We can’t drill our way to lower prices,” Sen. Dick Durbin, an Illinois Democrat, told The AP.
So, the kind of vehicles we manufacture and drive, the types of fuels we choose, and the amount we consume must change.
Blackwell sees the situation from three decades of experience. He graduated from Honey Creek High School in 1967, ISU in 1971 and Texas A&M’s geophysics master’s program in 1973. He spent nine years working for the Hunt family’s oil businesses in Dallas, and participated in the discovery of $200 million worth of drilling projects from Canada to New Zealand. In 1982, he and some partners formed MOCO, which operates more than 100 natural gas and oil wells around the Gulf Coast.
The current crude oil price atmosphere is a profitable one for MOCO. “We’re making a lot of money,” he said.
But that wasn’t always the case. There were lean years when the company borrowed money to pay salaries, Blackwell said, adding, “We’ve been preparing for this day since 1984.”
Supply and demand set the price, he emphasized. “The price is going up until that demand eases off a bit,” Blackwell said.
For now, it’s almost $4 a gallon. Americans, Congress and the next president will have to decide what’s next.
Mark Bennett can be reached at mark.bennett@tribstar.com or (812) 231-4377.
Copyright © 1999-2008 cnhi, inc.
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Tribune-Star columnist Mark Bennett