joule box
By Jeffrey Winters, Supplement Editor
Some
of the biggest headlines from the past three years have involved record
energy prices. First, there was a vertigo-inducing spike in the wellhead
price of natural gas, from a base of about $2 per thousand cubic feet
(Mcf) in the late 1990s to a nauseating $6.82 per Mcf in January 2001
and $6.69 in March 2003. Low storage inventories, high oil prices, and
pipeline restrictions all contributed to the spike.
Next came the spike in gasoline prices, a result of cuts in crude oil
production by the members of the Organization of Petroleum Exporting Countries
as well as by refining bottlenecks here in the United States. As Power
& Energy went to press, the average price per gallon of regular
unleaded was $1.81, and many experts expected the summer driving season
could raise prices even higher. A gallon might cost $3 or more in Southern
California before the summer was over.
Those prices, and the headlines they generate, have real-world effects—from
mothballed gas turbine power plants to curtailed summer travel to political
pressure to do something about it. But it is impossible to make sense
of these prices in isolation.
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Energy analysts are quick to point out that the price per gallon of gasoline,
while at an all-time high in terms of nominal cost, is still far below
the March 1981 peak when adjusted for inflation. (That peak is the equivalent
of $2.99 in 2004 dollars, according to the Energy Information Administration.)
Perhaps a more sophisticated way of looking at these prices is to compare
them across the board to an equivalent unit of energy. For example, a
short ton of coal, a barrel of oil, a gallon of gasoline, one Mcf of natural
gas, and a kilowatt-hour of electricity can all be converted into joules
or British thermal units or some other measure of energy. Granted, not
every joule of energy is created equal—try running your Honda on
a bucket of coal—but comparing them this way causes some significant
patterns to emerge.
Thanks to the Bureau of Labor Statistics, the people who calculate the
Consumer Price Index and other economic statistics, one can chart the
swings in prices, month by month, for the past 30 years.
• The swings in gasoline prices track with the price of crude oil,
but they tend to exaggerate oil spikes. That is, the spread between crude
oil and gasoline is narrower on the dips and broader on the peaks.
• Natural gas cost less per gigajoule in the 1980s and early 1990s
than did crude oil. But the recent run-up in natural gas prices has pushed
gas well above oil—in fact, for a brief moment it was almost as
expensive as gasoline. Without new supplies, chiefly from liquid natural
gas imports, it seems that gas may remain more costly than oil. If so,
that will fundamentally change the economics of gas for electrical power
generation.
• And if you want graphic proof of why electric cars have never caught
on, here it is: A joule of electricity has been nearly twice as costly
as a joule of gasoline for most of the past 20 years. Even so, the price
spike of the early 1980s did send gasoline prices beyond those of electricity,
and should the worst-case scenarios pan out this summer, gasoline will
approach electricity once again. Maybe General Motors will want to reconsider
scrapping the EV-1.