Sometimes, a blog about Electric Vehicles has to discuss a bigger issue of why. Many will say for the environment; others have, like me, said national security. But very few think it's about cost. The are so many misconceptions about electric vehicles it feels like I could spend a lifetime refuting all of the false ones and clarifying all of the misrepresentations. But facts speak louder than words — at least to some — so instead of just arguing that the cost of gasoline is going way up in the not so distant future, I'd like to just show you.
A larger version of this chart can be found here.
This rather complicated chart shows the average price of gasoline in the United States since 20 August 1990 up until the time of this post with a series of linear regressions to show which way the price of gasoline was trending for various periods during the last 20 years. Those periods are marked by 4 significant dates:
- 22 February 1999, during the United States' longest period of economic expansion, with an all-time low of 949⁄10¢ per gallon
- 17 December 2001, where, after 9/11 and the invasion of Afghanistan, prices dipped to 1.101⁄10 per gallon
- 7 July 2008, on the anniversary of the London Underground bombings and after years of war, when it reached its current all-time high of 4.165⁄10 per gallon; this, of course, is the period to which I refer in the heading of my blog
- 29 December 2008, when, after a major increase of production by Saudi Arabia to combat the rising cost of petroleum, the price again fell to 1.670⁄10 per gallon
And since December, 2008 the cost of gasoline has been increasing ever steadily, with no sign of further correction in sight.
The historical price of gasoline is seen in the Blue curve, labeled Best Average. This curve tracks the Weekly U.S. All Grades All Formulations Retail Gasoline Prices (Dollars per Gallon), where available, from the U.S. Energy Administration web site, a sub-branch of the U.S. Department of Energy. The data used can be retrieved on the Retail Gasoline Historical Prices web site, in the United States spreadsheet. Where the All Formulations value is not available, as in the years prior to 1993, the Weekly U.S. Regular Conventional Retail Gasoline Prices (Dollars per Gallon) is used.
If we are to analyze things for inflation, however, it's worth noting that for the past 20 or so years, inflation in the United States has been extraordinarily low. Typically, assuming 2% per year for inflation would be an over-estimate, especially in recent years when it's remained closer to 1%. But if we compute the rise in cost due to an annual inflation rate of 2% since 1990, now 20 years later, this represents only about a 49% since then. This means, since we paid $1.19 per gallon on average back then, we'd be paying 1.768⁄10 per gallon now, not $3.57 on average! The inflation-adjusted price of gasoline, in today's dollars, assuming 2% inflation annually, is the line shown in Red. None of the other lines adjust for inflation; inflation forms part of the line's overall slope.
The Orange line is a linear regression over the entire data set. Although this may seem very accurate, it doesn't fit the actual data very well, with the stable prices of the 1990s and the typically increasing prices of the first decade of 2000. The Green line reflects this: it's fitted to the average cost of fuel from the start until the first minimum in 1999, making it a project of what prices might have been had prices not shifted. However, it wasn't until the minimum in 2001 that a shift in price really began to take shape; the Maroon reflects this more stable region from 1990 until the post 9/11 low.
On the other side of the 1999 minimum, we have the 2008 maximum, a period of rapidly increasing gasoline prices after a second dip in 2001; this data is shown in Purple. Contrast that with the line in Azure, which calculates the trend from the first data in 1990 to the 2008 high. Finally, in Navy is the best-fitting of these three lines projecting prices after 7 July 2008 since it begins with the 2001 minimum, where the increases in price were more clearly increasing.
The Pink line project the price of gasoline based upon the period from the first, 1999, low until the current set if data; it shows where prices will go if the current trends continue. However, given the spike in 2008, it is also useful to look at how the price of gasoline changed after the price sunk back down to its most recent low in December, 2008. The Lime Green line reflects the trend from this minimum until today's current gasoline rates.
It's interesting to note that if the price of gasoline had continued to maintain its 1990s stability, the cost of it by 2025 might still be as low as $1.32±0.27 - $2.15±0.27 and it's possible very few people would be talking about electric cars even then. Even more interesting is how when you examine the line for the entire average over the 20 year period, and compare that to the average for all data up to the 2008 high, they barely diverge, indicating that the current upward trend is very likely a reflection of the 2008 drop being outside the norm; for both scenarios, they would project gasoline prices to an increase to $4.28±0.39 - $4.37±0.33 by 2025, which is barely over the 2008 maximum.
Given the findings of those 4 projections, it's possible that the current cost of fuel may just be making its way to a new sweet spot after correcting for deflated prices in the 1990, but there are good reasons to believe this isn't the case. Actually, 2 very good reasons: China and India, not to mention Brazil and Indonesia. These 4 highly-populous developing nations maintain rapidly-growing economies fueling the demand for petroleum for both industry and from burgeoning automotive ownership. Though these developing nations may again see harder times in the future, it's clear that their current growth is causing the price of petroleum to increase more rapidly that even Saudi Arabia can control.
As with the results of analyzing the 20 year trend versus the trend until the 2008 high being close, so too are the trends if we take them from the 1999 low until today or the 1999 low until the 2008 high. There is, however, about a dollar difference between the low and high by 2025, with the trend if taken until now coming to $5.69±0.76 and the trend until 2008 to $6.88±0.84. The most fascinating about the calculation from 1999 until 2008 is that it projects nearly the exact same price for gasoline seen today: $3.56 (today) versus $3.64±0.79 (projected). This is further evidence that the 2008 low was an aberration.
Finally, we come to the two most aggressive trend line. These lines factor out the 2008 minimum, the first only taking data from the 2001 low to the 2008 high and the second from the 2008 low until today, both rapidly increasing price intervals. The data up until now has repeatedly shown that the 2008 minimum is more likely an exception rather than a rule by which we can predict future gasoline prices. Therefore, it's instructive to examine the data without that minimum to get the best estimate of where prices are really going.
On the chart, we can, in fact, see that the 2001 - 2008 and the 2008 - 2011 trends actually converge sometime in early 2017, all be it with the largest margin of error of all the calculations. They both indicate we could be paying around $6.34±1.11 - $6.38±4.14 per gasoline by mid year 2017, which is about what we projected for 2025 if we do count the 2008 minimum. This means, if the drop truly isn't part of the normal trend, we could be seeing $6 per gallon gasoline 8 years early!
But what's really frightening is what you find when you project these rates out to 2025. If we had kept with the old trend, ending in 2008, of rapidly increasing prices since 2001, by 2025, we could be paying $9.03±1.16 per gallon of gasoline. And if the current trend, since the 2008 glitch, continues?
And now you see why we need an Affordable Electric Car NOW!
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