Saturday, June 28, 2008

How much does that gallon of gas cost?

This has been a long time coming. It's the first in my series of posts on gas prices, hopefully the next post won't be so long coming. Please post any ideas/questions about gas prices and I'll do my best to research and address them and give my opinion.

First, I wanted to ask, what does that gallon of gas really cost? My thought was this, we've had high gas prices before, are they really high now? Well the intelligent answer is "DUH! Have you paid $4 for a gallon?"

I'm not that old, but I remember when I first started driving that gasoline was only about 50cents/gallon. So we've gone up 8x. But inflation is a factor also, and I remember the gas prices of the 1980's. In fact, 1981 was (until recently) the highest ever price of gasoline (when adjusted for inflation) In 2008 dollars, 1981 gas was $3.17/gallon, higher than last year's prices, higher than post-Katrina prices. (See this report for details)

But the truth is, 1981 gasoline was still cheaper than what we have today. I recently paid over $4 in Washington DC. But how much is that gas taking out of the average budget? I asked two young couples how much gas they use. Both couples said they average 80-100 gallons/month. Call it 20-25 gallons per week. If we look at national averages, WikiAnswers says the average person drives about 12,000 miles/year, and the average car gets about 24 mpg. That works out to 12 gallons per week per individual. Looks like our couples are right about average.

So the average person is paying about $48 per week for gas now. A year ago, gas was around $3 per gallon, so that's about $12 more per week, $144 per year. Our average couples are getting hit for $288 more than a year ago. says that the median family income is about $1137/week, so our average couples (assuming they have median income) are paying about 8% of their income for gas, versus about 6% a year ago. This change of 2% doesn't seem like an awful lot.

While 2% may not seem like a lot, the facts are that gas prices in the 1990's were at all time lows. The last five years have seen continous increases and that's what is driving the current discussion over gas prices. When Katrina hit in 2005, gas prices sky rocketed and everyone talked about ways to save gas. Hybrid vehicles fetched a premium and there were waiting lists for the cars. SUV's stopped selling. (See this article from October 2005). There was even a "What Would Jesus Drive" movement in the country.

But just a year after Katrina, sales of SUV's picked back up. This 2006 article ranked overall fuel economy 21 among features customers looked for, two slots BEHIND cup holders. Yep, cup holders were more important than gas mileage.

So, my prediction is that a year from now (after elections and our new president is installed), the subject of gas prices will be quiet again. Cup holders will rise in importance.

This doesn't change the facts, you still need to do everything you can to reduce your gas consumption or you're going to pay more of your budget for gas.

My next post will discuss selling your current car for a newer, more fuel efficient vehicle.


jsknow said...

I think the best thing we can do is get the government off their drug trip and grow a crop that looks like it really works. I'd appreciate hearing what you can tell me about hemp fuel. Industrial hemp is useless as a drug.

There seems to be plenty of farm land. We have over 100 million total farm acres in the USA and only use about half. The half that's not being planted is more than enough to grow ALL our fuel according to articles I've seen, some references are included below.

As I understand things the government is still paying farmers not to plant. Watch the video titled "HEMP FUEL Can Supply All Our Energy Needs" and read the article titled "Marijuana Facts The Government Does Not Want You To Know" on the website referenced at the bottom of this post.

Here's some info I found online:
Hemp requires no pesticides, no herbicides, and only moderate amounts of fertilizer.
Hemp can produce several different kinds of fuel. In the 1800's and 1900's hempseed oil was the primary source of fuel in the United States and was commonly used for lamps and other oil energy needs. The diesel engine was originally designed to run on hemp oil because Rudolf Diesel assumed that it would be the most common fuel. Hemp is also the most efficient plant for the production of methanol. It is estimated that, in one form or another, hemp grown in the United States could provide up to ninety percent of the nation's entire energy needs.
Source: Schaffer Library of Drug Policy
Hemp is 4 times more efficient than corn as biofuel. Hemp pellets can be used to produce clean electricity.
... so powerful it could replace every type of fossil fuel energy product (oil, coal, and natural gas).
... This plant is the earth's number one biomass resource or fastest growing annual plant for agriculture on a worldwide basis, producing up to 14 tons per acre. This is the only biomass source available that is capable of producing all the energy needs of the U.S. and the world...
Hemp will produce cleaner air and reduce greenhouse gases. When biomass fuel burns, it produces CO2 (the major cause of the greenhouse effect), the same as fossil fuel; but during the growth cycle of the plant, photosynthesis removes as much CO2 from the air as burning the biomass adds, so hemp actually cleans the atmosphere. After the first cycle there is no further loading to the atmosphere...
Source: USA Hemp Museum

Watch the fuel videos and read the article "Marijuana Facts The Government Does Not Want You To Know" on this site:
Internet Explorer:
Other Browsers:

Randy said...

JK, thanks for the comments. I have a few posts planned out in detail that I'll post first, but I will look into hemp as an alternative in the near future.

Adam said...

I am by no means trying to take up for the oil companies, but I am getting tired of hearing about the windfall profits of the evil “Big Oil” that needs to be punished if we are not willing to riot against the other liquid fuels we mindlessly consume without as much as a question. I am referring to “Big Coffee” charging you nearly $25/gallon for a cup of house blend coffee and $53/gallon for a Frappuccino. Also, we need to punish “Big Water.” I can drink water out of a water fountain for free, but instead, I paid $8 a gallon for a bottle of Aquafina from a vending machine this morning.

I know that we are talking luxury versus necessity here, but this is an interesting conversation. By the way, is gasoline necessary?

don said...

The only ones who come out smelling like roses are the oil companies that make billions in profits every year no matter what. All thanks to our government who allowed mergers to take place that have effectively done away with any competition.

Randy said...

Don, thanks for joining and welcome to my blog.

I typically won't suggest government intervention in business, so I would be on the opposite side of this discussion. And while XOM's profits are high, splitting that in two really doesn't change the equation. The profits are still within "normal" ranges (I think 6% to 7%) when you look from a business view point. To split that so Exxon had 6% and Mobile 6% would just mean two smaller numbers, the total would be the same.

Besides, XOM is just player

Randy said...

sorry, hit the button too quick.

XOM is just one player in the game. I tend to go to independents anyway. Even XOM has competition.