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Forget the world ending, $5 gas could be the real plague of 2012 according to oil big shot

January 30, 2012

houston.culturemap.com

For more than two years, former Shell Oil president John Hofmeister has predicted $5-a-gallon gasoline prices by the end of 2012. And as the date that the Mayans coincidentally also think the world will end approaches, Hofmeister is sticking to that.

With 2011 national averages topping $3.50, gas prices have reached record-breaking levels. But, $5 a gallon would still represent an awfully steep climb for 2012.

“Right now, the basic supply and demand balance is at a serious point of escalation,” the straight-talking Hofmeister told CultureMap in a phone interview.

American gas prices are still rising, even in the midst of a sluggish economy.

Fuel prices were once easy to trend, rising with a good United States economy and dropping with a bad one. But in last decade, the conventional wisdom seems somewhat out of step.

American gas prices are still rising, even in the midst of a sluggish economy.

For Hofmeister — who founded the nonprofit Citizens for Affordable Energy to help forge clean, feasible, nonpartisan solutions to growing energy concerns — these inconsistencies simply point to a increasing worldwide need for oil.

“It’s not just U.S. demand, it’s the global market that affects prices,” he said. “Asian demand is growing faster than the rest of the world, particularly in China, Russia and India.”

He made his case for the $5 prediction in three eye-opening points, falling very much in line the current stance of the US Energy Security Council, of which Hofmeister is a member.

  1. Global demand high: So high, in fact, that it will require 10 million new barrels a day by the middle of the decade.
  2. Domestic production low: Gulf of Mexico drilling moratorium diminished closer (and, thus, cheaper) oil options.
  3. Geopolitics tense: Unrest in major producers in the Middle East as well as in Nigeria and Russia leads to unpredictability . . . meaning higher prices.

Short of an economic downturn, Hofmeister said, these factor are destined to raise oil costs in the coming year. His long-term solution?

“More domestic alternative fuels,” Hofmeister said.

“We have three options for the future right now — adapt the internal combustible engine for different fuel types, replace our current fleet of cars with electric vehicles, and commit to public transportation.”

Though not ruling out electric cars and public transit, Hofmeister feels that time and money pose serious constraints to those options on both a practical and legislative level. Fully replacing gasoline-powered cars with electric vehicles would take decades, while truly effective public transportation measures would cost in the billions and trillions.

Staying with the combustible engine is to Hofmeister, the fastest, cheapest and most logical option. At present, cars moving down assembly lines could be adapted for as little as $150 to use alcohol-based fuels, he argues.

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