The former CEO of Shell turned some heads recently when he predicted that gas would be over $5 a gallon by 2012.
Many analysts have predicted that $4 a gallon is well within reach by this spring.
Although such price levels would certainly negatively impact the U.S. economy, some perspective might help.
I just filled up at my local station here in Cleveland for $3.18 - regular unleaded.
In Ohio, the combined local, state, and federal tax on that gallon is 48 cents - right at the national average.
I also bought a bottle of 20-ounce bottle of water at the quickie mart inside the same station. That cost $1.49 with no tax charged, as it is a grocery item.
So let's do the math to see which is cheaper: the retail price of the gasoline or the bottled water?
First, backing out the taxes, the gallon of gasoline was $2.70.
Next, we need to figure out how much a gallon of the bottle of water would have cost. There are 128 fluid ounces in a gallon. So, it would have taken more than 6 of the 20-ounce bottles to make a gallon. So, the baseline cost of the water would have been around $9.50.
Now I realize this may seem to be comparing apples to oranges- or at least water to oil. Still, there is a key takeaway.
Clear enough is the fundamental reality that the total cost of discovering, accessing, refining, transporting, and distributing oil- along with earning a nice profit for everyone involved- is pretty cheap, even at $4 or $5 a gallon.
The discussions surrounding alternative energies are nice.
But until a global supply chain is constructed that can move another form of energy cheaper, we- like our great-grandparents before us and our great-grandchildren after- will remain full-fledged members of humankind's Oil Age.