$5 a gallon gas! $9 a gallon water?

Jan. 1, 2011
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 ...

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.

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