Beasts of burden aren't free

By: EDMOND JACOBY - Staff Writer | Saturday, January 1, 2005 6:13 PM PST ∞

If there is one topic to which only superlatives apply, it is the past year's average gasoline price. The average retail price of regular unleaded gasoline in 2004 was a whopping $2.13 per gallon.

On the first day of the year, it was half a buck lower than that, but it shot up precipitously, passing the $2 mark in mid-February. It hasn't been that cheap since.

"I feel like 2004 was when the sins of our forefathers visited us and decided to stay," said Michael Shames, executive director of San Diego's Utility Consumers' Action Network, a consumer group that conducts the weekly price survey for the North County Times.

"What I think we've been seeing is that we've allowed sufficient consolidation in the gasoline market that it can be easily manipulated," Shames said.

"There are few, if any, observers that I talk to any more who harbor the view that there is any hope we could return to a day when gasoline can be bought in the $1.20 to $1.50 range," he said.

There are those who believe that Shames is right, and it's lucky that he is.

Severin Borenstein, for example, thinks that the more people have to pay for gas, the more they are likely to think about driving in a different way.

"Fuel costs are a small part of what we pay to drive," said Borenstein, who is director of the UC Energy Institute at UC Berkeley. "Time is the great cost."

But the cost people see is what they pay at the pump every time they fill up, and Borenstein thinks higher prices for fuel make people think about all the costs of operating a car.

"But for that to move people to a decision, for it to make them change the way they live, the price probably will have to go up over $3," he said.

And that, he and Shames agree, may be exactly where prices are headed in 2005.

"We're setting ourselves up for exactly the same pattern that we saw last year," said Bob van der Valk, a gasoline industry consultant and commentator.

This is the end of the line, I think, for price decreases," he said. "Mobil, Arco and Valero all are out buying gasoline on the spot market, and the market is reacting."

In 2004, the average price rose from $1.63 New Year's Day to $2.43 on Oct. 18. The last time it was below $2 was Feb. 16. If last year's January-February price surge is repeated this year, the price could rise 60 cents in just eight weeks.

Van der Valk hedges his projection, though, suggesting that if prices rise too high, the result will be to attract imports. The increase in available supply, he said, would stabilize prices or push them down.

But Borenstein doesn't see it that way.

California has gone from being a net exporter of oil to a net importer, so the market price already gets set by the imports, he said.

"It's a homogeneous product, it's all the same, so everybody pays the same price, regardless of where it comes from. The fact that you can produce it more cheaply from local sources becomes irrelevant," he said.

"It won't surprise me to see shocks, like a refinery outage, pushing gas to the $2.50 to $3 range," he said.

Shames, too, doubts that imports are likely to reduce California gasoline prices.

"Importers already are having difficulty getting their product off-loaded," he said. "The ports in Los Angeles and Long Beach have been backed up with tankers the last few months; there simply is not sufficient shipping infrastructure," he said.

Charles Langley, a consumer advocate at UCAN, said he thinks the pump price at the beginning of January will be the lowest price for all of 2005.

"It will be a painful ride from there on out," he said.

"My mood is pretty pessimistic," Shames said. "I'm glad I finally got my Prius."

Contact staff writer Edmond Jacoby at (760) 739-6675 or ejacoby@nctimes.com.

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