Plan for expensive fuel

by Philip Brewer on 29 July 2007 14 comments

Gas station sign

Does your budget include a contingency for fuel to get much more expensive? Because it ought to.

I learned about the need for contingencies early. My first attempt at setting up housekeeping took place in 1980-1981, right at the peak of an inflationary spurt that saw the consumer price index grow at 14%. My budget was completely destroyed by prices that went up by more than 1% per month.

So what's your contingency for a spike in fuel prices?

For a few people who live in cities and walk or take mass transit, fuel is a small percentage of the total spending--small enough that a even a big increase in fuel prices won't break the budget. If you're not one of those people, you should either have a plan to take money from somewhere else in the budget, or else you should have a plan to reduce your driving if necessary.

What other line item can you take money from? Discretionary money--entertainment and the like--has usually already been cut to the bone in the initial budget-making process, so there's not much money to take from there. The closest thing most people have in their budget for contingencies is the money that's going into savings--and taking the money from there is a terrible idea.

That leaves reducing driving. Reducing driving in the short term is hard, but there are ways:

  • combining trips--always a good idea anyway
  • carpooling and other forms of ride sharing
  • telecommuting
  • bicycling or walking
  • using mass transit

In the longer term there's the opportunity to take more drastic action, such as moving closer to work or making investments in fuel economy, such as a more efficient car. (A moped, scooter, or motorcycle would be cheaper than any new car and much more fuel-efficient as well.)

Electric meterWhen making your contingency plan, remember that transportation fuel is not the only kind you need to pay for. Heating and electricity rates will go up right along with transportation fuel costs.

This means that another part of your contingency plan should be energy-saving measures you can take at home: better insulation, adjusting the thermostat, etc. Even better, make the changes now and put the savings into a contingency fund.

Also, don't forget that fuel price increases tend to drive price increases in everything else as well, starting with food.

I'm making a big deal out of this because higher fuel prices are in the cards. Fuel prices will go down as well as up, but the long-term trend will be up. According to the US Energy Information Administration, only three out of the top ten oil producing countries showed increases in production in 2006 over 2005. None of them showed significant increases and the two biggest (Saudi Arabia and Russia) both showed clear declines. In fact, total world production of oil has been flat since 2004.Gas meters

Just as important as flat production is increases in consumption, especially in oil-producing countries. In part because of increasing domestic use, only two of the top ten oil exporting countries showed an increase in exports in 2006 over 2005.

We will no doubt continue to increase production of renewable fuels like ethanol and biodiesel, but it's an open question how much of the gap between flat supplies and growing demand can be filled by renewables. Your contingency plan is for the very real possiblity that any gap will push up fuel prices.

As I said, fuel prices will go down as well as up. There's a lot of low-hanging fruit in the US for conserving fuel. When prices get high enough, people will make the necessary changes, and many of those changes (moving closer to work, buying a more fuel-efficient car) will produce long-term reductions in demand--reductions that won't be quickly reversed, even if fuel prices drop. And, sometimes, that reduction in demand will be enough to produce a real drop in prices, but those drops in price won't come when you need them to save your budget. They'll come when you've finally given in and adjusted your fuel use to the new reality.

How will you handle higher fuel prices? You need to have a plan.

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Myscha Theriault's picture

We use several of the strategies you mentioned, as well as purchasing our fuel with a rebate card that gives us a full five percent back on gas purchases. We are able to pay off our balance each month, and this of course is critical to the successful use of rebate cards.

Philip Brewer's picture

When I was out this morning taking the picture for this post, I saw the gas station had a sign offering "up to 15 cents a gallon off." I assume it was a rebate program of some sort. Those things rarely work for me, because I just don't buy enough gasoline. At the moment that's just a personal preference, but I suspect it's going to be where everyone is sooner than most people think.

Guest's picture

You are right about the prospects for higher energy prices.

This winter could be very long and very cold for a lot of folks.

Everyone should be busy squirreling away money, food and making a energy contingency plan.
Home preparations for winter should be underway now while the sun shines.
The price of propane is very high the price of very heating oil is high.
All energy prices are much more likely to go up rather than down.
My wife is making quilts and I am busy helping friends to prepare.

Birney Summers Energy Boomer

Philip Brewer's picture

Of course no one knows the future. But it's a risk that everyone should have a plan for.

Myscha Theriault's picture

We just ordered a quadra fire pellet insert. They were on sale at the local "stove shop" and came with a great offer. . . three free tons of high grade pellets . . . enough to get through the winter without paying anything extra for heat. At least in our cottage, where the amount of square footage is way less than the number of square feet the pellet insert is designed to heat. When you need to buy the pellets on a regular basis, the man said to expect a cost of about a hundred dollars a month for a stove our size, which again, heats our entire cottage quite nicely.

I was going to post this under deals and coupons, but when I checked the Quadra Fire web site, I didn't see anything on the offer. However, when I Googled "quadra fire free three tons of pellets offer", I found a place or two where they were offering the same thing, one of them at an Ace hardware in Maryland. While it may not be a nationwide thing, there are clearly multiple places offering the deal. It would be worth checking out for the readers, I think. Also, I think pellets will be less expensive next year, even though we'll have to pay for them. If people can afford to dish out for the stoves, I think they'll see a fairly quick return on their investment.

Thought I'd put it out there, since it fits in with your post.

Philip Brewer's picture

Thanks for the tip. All kinds of renewable energy sources are going to be important as oil-based ones become more expensive.

Guest's picture
Guest

Fossil fuels are becoming more and more expensive and the use of alternatives, like wood products, are again becoming attractive. In the 70's, in the Pacific NW, there was a huge surge of wood heating. The result was bad air throughout the cold season. Wood stove technology improved, but the added cost killed the whole idea for all but the most committed folks.

Burning almost anything will emit carbon into the air. While you might find some economic advantages with fossil fuel alternatives, you may be adding to the world's global warming problem.

An excellent way to cut heating costs AND emit less pollution is conservation and insulation.

Insulate your home as much as possible. This will keep it warmer in the winter and cooler in the summer. Unlike fuel, insulation does not get used up. The investment in doing it right will yield rewards forever. If you cannot insulate everything, at least insulate the attic and any crawl space to the max. These surfaces have more exposure to extreme temperatures than all the outside walls in many homes, and are the easiest and cheapest to insulate. Seal window and door drafts. Surprisingly, uninsulated, but undrafty windows
are not as bad as the storm window salesmen would like you to think.

Insulate yourself, too. In the winter you can wear comfy and warm layers indoors. Rugged outdoor wear is good for the outdoors, but not so nice inside. Invest in good quality, long lived, and very comfortable indoor warm wear and you can feel great in what was once thought to be a too chilly house.

When you are snuggly in your warm caps, socks, sweaters, and fleece pants, turn down the house thermostat. Increment it down one degree a week, or more, and soon you will find you can do quite nicely at 65 degrees, or even lower! The cost savings in heating fuel is amazing and will pay for all your new warm clothing in one season.

Warm small areas that need it with the smallest possible heat source. Put a small electric heater in the bathroom and an electric blanket on your bed to pre-warm it on cold nights. A quality comforter will then keep your bed toasty all night long with light weight with or without the electric blanket powered on.

Sooner or later we will all be doing just fine with much less than we ever thought possible. Saving money by saving fuel costs is good for your pocketbook, but even more important, it is good for the world we live in and share with future generations.

Philip Brewer's picture

Capturing some of today's cheap energy (in the form of insulation, better seals around windows, a quilt, etc.) for long-term energy savings in the future is probably going to pay off better over time than stocks or bonds.

Myscha Theriault's picture

I'm in complete agreement with the insulation comment. One of the reasons we are taking our time finding the right contractor and designer for the new place is so that when it goes up, we will know we've taken care to pay attention to any and all details that will make a difference, including streamlining alternative energy sources into the main system. We also want a large, possible two story section of the house that serves as a breezeway, sun room and indoor garden for the whole year. We want it to be elegant as well, and that's a design challenge. Also grey water integration, etc. Controlling our fuel costs goes a long way towards allowing us to afford things we would otherwise not be able to.

Great topic, Philip, and very timely!

Guest's picture
Guest

a 250cc or smaller engine motorcycle or scooter will save plenty of gas. those loud giant 1500cc harleys do not. these big engines turn 50% or more rpm to generate the same horsepower as my 1500cc toyota echo. also these motorcycles are not as aerodynamic as a car. my echo gets better mpg than these 750cc and larger motorcycles. hybrids get yet even higher mpg than do these motorcycles. there is also transporting large items and wood for example for the wood stoves. there is the bad weather in many parts of the country. theres the cold, rain, snow and hail. car pooling in a motorcycle? what about when the roads have even more pot holes because of peak oil? a dirt bike may be practical as well as a mountain bicycle or an suv or van with big tires used for carpooling.

Philip Brewer's picture

Good point on the big sportbikes not being as fuel efficient as an efficient car. And, of course, a vehicle needs to be appropriate to its task.

I suspect in the future we'll see more sharing of vehicles--the guy with the most efficient car doing most of the carpool driving, the guy with the pickup truck transporting firewood for all his neighbors, the guy with the 250cc motorcycle running out to the pharmacy to pick up a prescription so a less-efficent car can stay parked.

That sort of thing used to be just ordinary neighborly behavior. It's just been in the last fifty or sixty years that we got so rich that everyone could fend for himself.

Guest's picture
jdobbs

I bought Oil stocks and that is my hedge against the rise in fuel costs. So far it has provided nice returns over the last 5 years.

Guest's picture

As I read this today, you were dead on. Americans must educate themselves on saving energy or they will be giving it to the fuel companies as we have steadily seen.