$1 a Gallon Gas? Sure, but There Are Consequences

Let's turn back the clock, when $1 a gallon gas was routine across the U.S. and the Beatles and the Monkees were on the radio. . (Photo: Russ Bowling/flickr)

Gas prices are continuing to plunge, and you can buy a gallon of fuel for $1.39 at a Sam’s Club in Lafayette, Indiana. What’s next, $1 a gallon?

It’s possible. The fundamentals that have set oil prices plunging are still in place. There’s an overabundance of supply chasing weak demand. Even if there were strong demand, we’d still have a lot of black gold. So let’s get used to this and figure out how ongoing cheap gas will affect us.

Rail traffic declines.
Rail traffic is down after years of gains. (Photo: Jeffrey Beall/flickr)

Will we travel more? You betcha. Since hitting a peak around 2004, vehicle miles traveled, or VMT, in the U.S. has been declining. Look at the chart below.

But with cheap gas, a funny thing happened — VMT started to climb again. Figures released in November show it moving upward for 19 straight months. That roughly coincides with declining fuel prices. In September, Americans traveled 259.9 billion miles. Even tiny percentage increases in VMT mean a lot more cars on the road, which means more air pollution.

vehicle miles traveled
Note the peak around 2004-2005. The chart shows the beginnings of an upturn in VMT that has continued for 19 straight months. (Photo: Department of Transportation)

Will electric vehicle (EV) sales suffer? Again, affirmative. We’re on track for about 110,000 battery electric and plug-in hybrid sales in 2015. If projections work out, it’s a minor decline from 2014. But EV sales should be soaring, as more models are available to the public. Nonetheless some EVs seem to be surviving the cheap gas headwinds. The Tesla Model S had a good month in November, with 3,200 sales contrasting to 1,900 the month before. (Don’t read anything into the five Tesla Model Xs moved in the month; the car is just gearing up for production.) Another good seller was the Chevy Volt, recently revamped, which sold 1,980 in November.

Will public transit use plunge? So far the effect has been minor, but it's there. Transit has been on a roll lately, but the American Public Transportation Association (APTA) reports that the 5.3 billion trips Americans took in the first half of 2015 represented a 0.9 percent decrease over the same period last year (down 50 million trips). With gas down 29 percent in that six-month period,

traffic congestion rises
Traffic congestion in Seattle. When vehicle miles traveled rises, so does gridlock. (Photo: Oran Viriyinc/flickr)

APTA President and CEO Michael Melaniphy noted, “With a significant drop in gas prices, some people may have returned to driving, but still, most people continued their trips on public transportation. Considering the cost of owning and maintaining a car, public transit still offers a great way to save money.” Hmmm, that sounds kind of defensive.

Will builders and contractors get a boost, because people are willing to commute longer distances? There might be something there. Housing starts plunged to a real low in 2010, but they’ve been on a steady upward trajectory since then. And if it’s the economy you’re worried about, factory construction is booming, particularly new chemical plants (some of which use petroleum as both a fuel and a raw material).

Carpooling? There’s no data on a hit to carpooling, but evidence supports the reverse case. A recent report shows that every time fuel prices climb 10 percent, there are 10 more cars in Los Angeles’ high-occupancy vehicle (HOV) lanes. “On highways with no HOV option, a 10 percent increase in fuel price is associated with 27 fewer cars per hour,” it said.

Telecommuting? Again, the reverse case is strong. Stories throughout the 2000s pointed out that expensive gas was spurring interest in working upstairs in a bathrobe. My guess is that once people make the spare room their office, they’re staying put — not heading back to the salt mines just because gas prices fall. But the clamor to make telecommuting an option is undoubtedly muted.

I couldn't imagine a more appropriate video than the one below. Remember this: The thing about gas prices is that they fluctuate — up and down. So people who take advantage of cheap gas to buy huge SUVs find themselves, umm, screwed, when those prices soar again. But we never learn: