Wednesday, May 23, 2007

A Gas Price Paradox

Gas prices are pretty darn high right now, even though the price of crude oil is lower than it was this time last year. Industry analysts suggest that the reasons for the high prices are high ethanol prices and low refining capacity.

Ethanol should get cheaper with time, but remember that corn farmers are now in the energy business.

Interestingly, the rush to produce alternative fuels may keep gas prices high by discouraging companies from investing in new refinery capacity. Refinieries are huge industrial operations that cost lots and take years to pay off. If we are so insistent on getting beyond gas, why would an oil company want to build a refinery?

It all comes down to a simple question that is hard to answer: are we going to get beyond gas or are we going to stick with it? Increasingly, the tough talk about ending the addiction to oil is going to mean oil costs more. If we keep talking, we are going to have to work and hope for a viable alternative.

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