When a drone strike knocked out a Saudi Aramco oil facility producing 5 percent of the world’s oil supply, the shockwaves were nearly instantaneous. Crude oil prices jumped almost 20 percent Monday and could spike higher, depending on how fearful the markets are that the strike could be replicated this week, this month or this year.
In the overlapping worlds of automobiles and energy conservation, there are questions about whether this will move buyers to smaller cars and/or highly fuel-efficient battery electric vehicles and plug-in hybrids. Transportation uses a quarter of the world’s energy. Here’s our analysis on how we’ll be affected.
What Happens to Big-Car Sales?
Near-term, sales of big vehicles may soften once the news sinks in, which it will the next couple times you refuel you car and you see gasoline that cost about $ 2.50 a gallon (US average of all blends, all regions the week before the strike) climb above $ 3 a gallon: a 20-gallon fill-up becomes $ 60, not $ 50. Look for softer buyer demand for pickup trucks not used in commercial work — you can’t downsize from a Ford F-350 to a Ford Ranger if you’re towing a 15,000-pound backhoe — as well as big SUVs and mainstream-priced performance cars. High-end cars will be affected less (at least if the buyer still has a job and a year-end bonus). That a 2019 Ferrari GTC4Lusso gets 13 mpg (and requires premium gas at that) is immaterial when you paid $ 250,000 and drive it 2,500 miles a year at most.
Sales will come back unless there are ongoing oil price shocks. Americans over time build higher energy and fuel costs into their budgets unless gas hits $ 4 a gallon and that same 20-gallon fill-up reaches $ 80. In the short term, through year’s end at least, this is a great time to buy the full-size SUV or pickup of your dreams while dealer lots are awash in big vehicles and factories may kick in $ 5,000-plus incentives.
The average US gasoline price, according to AAA, was $ 2.564 per gallon (9/16/2018), an average of all regions and all formulations. Costliest-gas states are in the West, plus New York State, with lowest prices in the South and Southeast.
What Happens to Gasoline Prices?
Gasoline prices will rise, quickly. Eventually, they’ll fall back unless there are new price shocks (more oil field attacks, attacks on tankers at sea, attacks on pipelines). President Trump Monday ordered the release of oil from the US’ strategic petroleum reserve to make up for the Saudi shortfall. He also expedited agency approvals for Texas and other oil pipelines now in the permitting process stage. That will be resisted by environmentalists and (mostly) Democrats who see this as an end-run around longstanding procedural safeguards, which in some ways it is.
A cynic and perhaps a realist will note oil prices fall more slowly than they shoot up. You may notice your airport car-rental has a shuttle bus “energy fee” of a dollar or two that was probably tacked on in 2012 when gasoline (the US average price, in current prices) topped $ 4 a gallon, the highest gas price in US history, and it just never went away.
By AAA calculations, the average price of gasoline in the US at the start of the week, a day after the Saudi Aramco attacks, was $ 2.56 per gallon. That’s a meaningless figure to an individual motorist because fuel prices depend on state taxes and in some states (such as California) special formulations to reduce volatility and creation of gasoline vapors. Summer formulations have 1.7 more energy content while winter fuels and cost more.
The average gallon of gasoline, says the Institute for Energy Research, has 52 cents per gallon of federal, state, local and fee taxes, while diesel has an average tax burden of 60 cents a gallon. The national government charges 18.4 cents a gallon for gas, 24.4 cents a gallon for diesel. The average state gasoline tax is 23 cents a gallon. Alaska, Virginia, Missouri, Mississippi, New Mexico, Arizona, Oklahoma, Texas, and Louisiana are all at about 15-20 cents a gallon, while New Jersey, Connecticut, California, Washington (state) and Pennsylvania are at 41-58 cents a gallon.
In the past 30 years, the US has been through the most dramatic gas price shifts since it started tracking gasoline consumption and prices circa 1920. The late 1990s were the cheapest time to buy gas, with the price dropping to $ 1 a gallon in some parts of the US in 1998; that’s equal to $ 1.55 in today’s prices. In the past decade, prices have ranged — expressed in 2017 dollars — from $ 2.20 a gallon to $ 4 a gallon. There were twin historical peaks of $ 4 a gallon in 2012 ($ 3.85 at the time) and $ 3.80 a gallon in 2008 ($ 3.65 at the time). Because of the recent-era swings, from a dollar a gallon to $ 4 a gallon inside 15 years, drivers over age 30 may look back at recent history and conclude that what goes up must come down, and vice versa. Regardless, all of this is cheap compared with what most of the world pays.
Will the US Encourage the Sale of Efficient Cars?
Expect demands for more efficient cars from some political quarters. The reality: There will be demands but probably little action. The opposite may happen: President Trump wants to undo, by executive action, the longstanding agreement that California can set its own, tougher, emissions standards. Lower emissions generally mean less fuel consumption and vice versa. Carbon dioxide emissions are directly related to how much fuel a car burns, and CO2 is a cause of greenhouse gases that the overwhelming majority of scientists say is causing global warming, which they also say is real.
Trump’s plans to unilaterally undo the California exemption may or may not pass court scrutiny. Legislation that would increase (not relax) fuel economy standards might pass the house (controlled by Democrats), but it wouldn’t pass the Senate (controlled by Republicans), and if it did, it might well be vetoed by the President. It will become an election issue, probably framed as protecting the environmental future for our children versus keeping America safe, strong, and energy-independent.
Representatives from automaker states such as Michigan and the New South (Tennessee, South Carolina, Alabama, Georgia, Mississippi) would like to see tax credits for EVs extended from 200,000 cars per automaker to 600,000. Tesla and GM already hit the cap; Nissan will get there in a couple of years, then Ford. That, too, faces uncertain prospects. The majority of EVs and PHEVs getting tax credits are sold in the dozen states are Democratic-leaning; only Pennsylvania among those states voted for Trump in 2016.
Last week’s Frankfurt Motor Show had lots of electric-vehicle announcements, but the private talk among automakers was a concern that European market car-buyers are not fully on-board with the idea that EVs are their near-term future. Europe is better suited to EVs than the US because its population, larger than that of the US, is more evenly distributed geographically. So there’d be fewer public charging stations necessary for long-distance travel, but seldom used. Europe is also more on edge about the Saudi oil field attack because they are more dependent on outside oil that comes from less-stable countries. Europe is also more dependent on other countries, including Russia, for natural gas.
Freefly Systems’ Alta 8 drone: 20-pound lifting capacity for $ 18,000.
The US Benefits in Some Ways
Much of America’s most recent success finding new energy sources within its borders involves fracking — or hydraulic fracturing, as Big Oil calls it, as most people have mixed emotions about fracking. Pumping chemicals — or liquids, or water solutions, as the oil industry prefers — into rock formations until they give up their oil and natural gas is higher cost than pumping oil out of underground reservoirs in West Texas or the now-burning sands of Saudi Arabia. That puts more (mostly) Americans to work in the energy business, as well as in Canada’s oil territories. Mostly because of shale oil production/fracking, the US this year produces more oil than anyone else at 18 percent of global oil production, with Saudi Arabia at 12 percent and Russia at 11 percent.
The coming price shock will encourage some Americans toward smaller and more efficient vehicles. Energy consumption, pollution, and climate change may be more of an issue in the 2020 election and is likely to show up as a significant division between Republicans and Democrats. It will probably benefit Democrats more.
More Rules for Drone Users
“Black Sunday” (1977): Bomb-laden blimp attacks the Super Bowl.
It was not initially clear what was the delivery mechanism that landed 10-17 separate strikes at the at Saudi Aramco oil plant in Abqaiq, Saudi Arabia, and two at the nearby Khurais oil field on Saturday. Government and intelligence sources initially said it was drones launched but without specificity, whether it was a long-range military drone or a shorter-range civilian/commercial drone; some sources said cruise missiles.
Large civilian/commercial drones with battery-powered electric motors carry 10-20 kg, or 22 to 44 pounds, which can be a lot of explosive and concussive force. By Tuesday, reports indicated the weapons-platforms were military-style drones (and a cruise missile can be called a variant of a drone). But the scary prospect remains of weaponized drones disrupting a sporting event, outdoor concert, parade, or state fair. In the 1977 movie Black Sunday (made the year Tom Brady was born), a blimp loaded with explosives attacks the Super Bowl. (This is fiction, not a documentary.) A drone could re-create the terror of Black Sunday for $ 25,000 or less.
The upshot is governments around the world may think about how freely drones should roam. They may restrict flight in more areas, or require more licensing, especially of drones able to lift more than 5-10 pounds. This is at the same time drones are doing more useful things, such as search and rescue, geological mapping, and replacing helicopters for newsgathering (for the price of a couple of hours of helicopter time, you can own a drone that shoots 8K video). In other words, government’s desire to clamp down on things it worries might be dangerous bumps up against individuals’ and businesses’ interest in using drones to make products and services more useful and more affordable. Not to mention those hypothetical Amazon deliveries.
Top image credit: Getty Images
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