fuel

What will you do when gas drops below $1.50 a gallon?

Paul Michael — Tue, 11 Nov 2008 18:15:04 +0000

Several months ago, I wrote an article asking what you would do when gas prices skyrocketed. Now, the price of gasoline is in freefall. It’s already dipped below $2/gallon in some parts of my state, and I’ve heard it has already gone as low $1.67 in some parts of the country. The question is, will this change anything for you?

When I arrived in the states, a gallon of gas was just over $1. So, the difference between filling a 12-gallon tank or a 25-gallon tank once a week was clearly no big deal for most people.

Coming from the UK, I was surprised at how many massive vehicles were on the roads here: Hummers; Suburbans; F-150s; Escalades. The list of low MPG tankers with huge fuel tanks staggered me. But hey, in America it’s everyone’s right to drive whatever they want. Hybrid technology was laughed at and electric cars were dinky little toys that could never be taken seriously.

Fast-forward to the middle of 2008 and gasoline jumps over the $4/gallon mark. The 25- gallon tank now costs $100 to fill. Car dealerships can’t sell SUVs and trucks without offering enormous discounts and free gas for a year. Drivers are on waiting lists for Hybrid cars. People are embracing ride-share and public transportation (they’re even starting to walk more and ride bicycles). A new word called “hyper-miling” became all the rage. The signs were all pointing to the end of an era; SUVs and trucks would now only be bought as a necessity, not a fashion statement.

But as you all know, the economy encountered a small hiccup in September. Did I say hiccup? I’m sorry, I meant heart attack. A big one. And as our stocks and 401Ks plummeted, so did the price of gasoline; a very thin silver lining in a big, bad, dark cloud. For the first time in years, gasoline is once again becoming one of the cheapest liquids we can buy . You can see drivers smiling as they fill up the tank. Truck owners no longer have that eye-twitch as they pull into a gas station. But what will this mean long-term?

Will the dip in gas prices affect you? Are you no longer considering a Hybrid vehicle, or are you at least putting off the purchase for a few more years? Are you driving more? Is the morning commute now made in your own car rather than a bus or train?

Personally, I am staying on the same path. That old saying of “once bitten, twice shy” seems quite apt right now. Too many people that I know bought gas-guzzling SUVs and trucks only to see their weekly gas expenses quadruple over the last eight years. And just because we’re experiencing a delightful dip in prices, it doesn’t mean the energy problem has vanished.

Fossil fuels are limited. Oil is becoming more expensive to extract and refine. We need to look to a future that does not need gasoline like a junkie needs his next fix. I will continue to hyper-mile and drive only when I need to. I will never buy a gas-guzzling truck or SUV. And our next family car will almost certainly have Hybrid technology and get great MPG. This is no time to forget the troubles of the last few years. We may have been given a little time to catch our breath, but we cannot afford to be seduced by the lull in gas prices. Sooner or later (and probably sooner) they will rise again. Be prepared.

This article is from Paul Michael of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Rural living in a world with expensive fuel

Philip Brewer — Sun, 01 Jun 2008 10:59:48 +0000

Rising fuel costs are hard on everybody, but one group gets hit especially hard: Rural folks--especially rural folks who work in town. On my previous posts on expensive fuel, commenters have said that, even after doing all the stuff I talked about, they still can't make ends meet. They've got a point.

There are actually two groups who complain that my "expensive fuel" posts don't help. This post isn't for the ones who find the idea of driving less to be inconceivable. This post is for the people who have already eliminated unnecessary trips and combined the rest as best they can, already started running any errands they can on bicycle or by foot, already insulated their house. But when they plug higher fuel costs into their budget, their income just doesn't cover it--because every little errand is a long drive to town, and some of those errands have to be done promptly.

If you live in the country, but you work in town, you're stuck driving the round trip every work day. You can fiddle around the edges--maybe arrange to work 10-hour days and only go in 4 days a week, maybe telecommute one or two days a week, maybe buy a very fuel-efficient car--but the basic calculation doesn't change.

Looking back

The arrangement of living in the country but working in the city has been working great, up to now, only because fuel was cheap, but it's worth observing that this isn't a new problem. It is, rather, a very old problem.

Until the invention of the railroad, rural living meant self-sufficient living--if you couldn't make it yourself, you'd better have brought it with you. Depending on just how rural you were, trips to town might be monthly, or they might be something that you did just one or two times a year.

Even the railroad didn't mean that everyone could pop out to the store anytime they wanted, but it was a big change. It meant that even in a small town, you could (eventually) get pretty much any manufactured item. For rural folks who only went into town monthly or semi-annually, that was good enough. You went to town, you ordered the stuff you needed at the store, and they had it waiting for you on your next visit.

The car, of course, worked an even more drastic change on the landscape. For a brief period--less than 100 years--it's been possible to have the advantages of rural living without giving up the advantages of living in town. Because it's been this way for as long as most people have been alive, it's easy to forget just how different it is from the way people had always lived before.

Looking ahead

Maybe energy prices will stabilize, or even fall from current levels. In fact, markets being what they are, I can virtually guarantee that oil will, at some point, be cheaper than it is right now--maybe a lot cheaper. I think, though, that the long-term trend is up.

If I'm right, anyone who lives out in the country needs to do some serious thinking.

One option is to continue with ordinary efforts at saving fuel. This is a nice incremental strategy that actually scales well. Wise Bread has already had some stories on how to increase the fuel efficiency of your driving--slow down, keep your tires inflated, etc. (See Gas Efficient Driving and Hypermiling, for example.) Beyond that, you can get a very fuel-efficient car, switch to a small motorcycle or a scooter, aggressively combine trips and reduce trips, make some trips by bicycle or on foot, etc.

These are the same ideas I've mentioned before, that simply don't do the trick for some rural folks, especially those who are trying to get by on low incomes.

It's possible to turn the fuel-saving efforts up a notch. In fact, it's something that everyone will be doing pretty soon--as higher and higher prices require it of more and more people. But to people who are used to fuel being cheap, it's going to seem extreme. Here are some examples:

If you work in town, crash on a friend's couch four nights a week. You only have to make one round trip to town.
Carpool even if you don't work together. Drive as far as the last bus stop at the edge of town. From there, you all take buses to get to where you need to go.
Coordinate with your neighbors to make every trip in the most appropriate vehicle: The guy with the hybrid drives when several people need to get to town; the guy with the pickup drives when something needs to get hauled; the guy with the motorcycle drives when someone urgently needs a prescription picked up at the pharmacy.
If you or one of your neighbors has a big enough house, close up one house and have both families live in the other. You can drastically reduce heating and electricity costs.

As you see, a lot of these strategies depend on friends and neighbors helping one another out. That used to be ordinary neighborly behavior, but the past couple of generations, we've been so rich that it wasn't necessary to rely on your neighbors: Ordinary folks could have both a car and a pickup (and could drive the car even for trips that could be handled on a motorcycle, bicycle, or even on foot).

You don't have to do any of those things, if you're rich enough to buy all the fuel you need. But, as fuel gets more expensive, anyone who wants to live in the country will have to adjust. They can continue to live much as they've been living, gradually making more and more drastic efforts to use less fuel. Or they can change their lifestyle completely. Their other choices are:

Become more self-sufficient. If you can produce most of what you need at home, you can reduce the number of trips you make to the city from the current 5 a week, potentially to zero. There's a sliding scale here--even the pioneers weren't totally self-sufficient--but the key step is finding a way to make ends meet without having a job in the city.
Move to the city. That drastically cuts your need for fuel for going to work, running ordinary errands, and so on. It also (depending on what city you pick and exactly where you work and live) puts you within reach of mass transit, makes walking and bicycling more practical, increases your opportunities for car pooling, and so on.

It's possible that we'll be saved from this fate by either cheaper fuel or vastly more efficient cars, but I don't think so. I do expect that we'll see lots of fuel--it'll just be expensive. We'll also see much more efficient cars--they just won't be efficient enough (or cheap enough) to pick up the slack.

Aggressive fuel efficiency will do the trick for a while. Eventually, though, even a maximum amount of scrimping, saving, and sharing will fall short. When that happens, people will be left with the same two options that people have had since the first city was built: Be self-sufficient in the country, or move to town.

This article is from Philip Brewer of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

What if energy costs keep rising?

Philip Brewer — Fri, 09 May 2008 13:15:06 +0000

I don't know if energy costs will keep rising. Nobody does. Even with recent growth in China, India, and elsewhere, the US still consumes 25% of the oil produced world-wide, so a severe recession in the US could easily cut total demand enough to bring the price down. Recession or not, I think the medium-term trend in energy costs is up. Just in case I'm right, you ought to have plan for that.

I've written before about planning for expensive fuel. I emphasized that you should have a contingency plan either to take money from other budget categories to pay for expensive fuel, or else to reduce your fuel use significantly. That was short-term planning, though. This time I want to talk about longer-term planning.

Some people still think that the recent surge in oil prices is a temporary aberration, and that oil prices will return to "normal" (whatever that is). Plenty of people think that recent prices reflect genuine underlying trends--supply restrictions from many sources together with persistently rising demand from all over the world--but that prices will reach a new equilibrium and stabilize. Some people, though, think that those underlying trends are likely to keep pushing prices up

What's your plan, if that third view is correct?

It's hard to plan in a vacuum, so let's put down some numbers. The average price of gasoline (unleaded regular) was $2.59 in 2006. The price yesterday at my local gas station was $3.799. If prices continue to rise at that rate, we'll see $10 gasoline within 5 years.

I'm not saying that's the most likely scenario--everybody knows the dangers of assuming that recent trends will continue in a straight line--but it seems to me like a perfectly possible scenario.

Most reporting on possible price trends in gasoline has recently accepted the notion that $4 gasoline is a foregone conclusion and is starting to talk about $5 gasoline as a scary boogyman. I'm urging you to look ahead a bit further. Gasoline at $5 a gallon is not the scariest boogyman out there.

And remember, if gasoline prices keep going up, other energy costs will be moving up as well. Diesel, propane, and other fuels that come from crude oil (like heating oil, kerosine and jet fuel), face very similar production constraints and very similar demand situations, so they'll probably move up just about like gasoline. Electricity and natural gas are different, but high prices for oil will encourage anyone who can to switch to alternatives, so there'll be upward pressure on all all energy costs. Wind, solar, and biofuels will increase as a fraction of the mix, but I don't expect them to amount to enough to hold down prices.

It's not as hard to adapt to high energy prices as you might think. Look at western Europe: Due to high taxes, they've had gasoline prices of $8 to $10 a gallon for some time now. The result hasn't been as drastic as you might expect. People still have cars, they're just smaller and more fuel-efficient. People still drive to work, although few people drive as far as a lot of Americans do and a lot more use mass transit in some form or another. People walk more and bicycle more, and because more people get about that way, the infrastructure tends to support it better.

That's the outline of a plan for you: Switch to a more energy-efficient car. Move closer to work (or find a job closer to home). If you move, move to a smaller house. If you don't move, improve your insulation. Walk more; bicycle more; organize a car pool; figure out how the bus system works in your town.

Make a plan. You don't have to act on it--even if prices keep rising, they probably won't rise in a straight line like that. But even a sketch of a plan gives you an outline for some serious thinking:

At what fuel price would you switch to driving a smaller, more fuel efficient car? How much would that car cost? What would your old car be worth if you tried to sell it then? On both the buying and selling side, be sure to take into account the price pressures of lots of other people doing the same thing. (I just saw a story that the resale value of SUVs has already collapsed.) Whatever your plan is, you should have enough cash on hand to put it into effect.
How would you heat your home if fuel prices doubled or tripled? Selling it and moving to a smaller house isn't the sort of thing you can just do--you need enough lead time to identify a new house and to sell your old one (or rent it out). And, again, you need to have enough cash on hand to put the plan into effect. If moving isn't the plan, what else would you do? Turn down the thermostat? Close off rooms? Estimate how much fuel you could save and make some notes--that'll be useful information later.
If you wanted to use mass transit, do you know how? Do you know where the bus stop is? Is it possible to get to the office or to shopping from where you live? What bus would you take? Would you have to change buses? (Ditto for subways, trollies, light rail, or whatever you've got.)
Is telecommuting an option for you? Even if your boss would object, if your job could be done remotely, you ought to include it as a possibility in your plan--bosses who don't like the idea of remote employees might well come around if their only other options are paying big raises or having employees quit because they can't afford to drive to work. Start figuring out what hardware and software you'd need to telecommute. Learn how to use it.
Is your job at risk? Or, if you own a business, are its profits at risk? Rising energy costs would hit everyone across the economy, but some industries (trucking, airlines, aluminum) will be hit much harder than others. Take a look at your own situation and adjust your plan accordingly.

One more thing to allow for in your plan: Shortages. When constituents are faced with high prices, politicians try to "do something." Most of the things that governments tend to do in those situations (price controls, rationing, laws against hoarding) tend to produce shortages. The market system is pretty well established in the US, so I expect we'll see high prices rather than long-term or widespread shortages, but your plan ought to allow for the possibility of hearing "No gas today" from time to time.

People are very attached to their big cars and big houses; they're not going to give them up--and I'm not asking them to. What I'm suggesting is that people think seriously about how they'd adapt to higher energy costs and be prepared with a plan, just in case higher energy costs are what we get. The last time I wrote here about the possibility that fuel prices might get really high, more than one commenter seemed to think I was talking about a real disaster scenario--going so far as to say, "If things get that bad, a lot of people are going to die!" I'd like to gently suggest that the adaptations to $10 gasoline are perfectly possible and almost universally non-fatal. Having a plan will help.

This article is from Philip Brewer of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

What will you do when gas hits $4 per gallon?

Paul Michael — Mon, 07 Apr 2008 02:53:12 +0000

The image you're looking at is a classic VW ad from 1979, a response to the gas crisis at that time. I just filled up my tank, and 16 gallons of Plus Unleaded cost me over $52 here in Colorado. If you're in California, you're paying more. Use diesel? I already feel for you. So the big question is, what are you going to do when regular gas hits $4/gallon this summer?

It's not a case of if, but when. Oil refineries aren't going to appear out of nowhere, they take time to build. And as the summer months are just around the corner, so is the peak driving season. That's the time when the gas prices hit the roof, and talk of that $4/gallon price tag is already floating around the news desks and chat rooms of America.

Some people say we have it lucky; like my dad, who lives in the UK and pays around double that. But here's the big difference - in the UK and Europe, there are many more transportation options and cars are built to run more efficiently. When I lived in the UK I never drove a car. I actually got my license when I moved to America, because I soon discovered just how poor public transportation was. In Britain I could rely on regular underground trains, very regular buses and British Rail for longer journey. But that's not a great option here in the US. We simply cannoy give up our cars and expect the same quality of life. These days, suburbs are built a long way from the nearest grocery store. It may be walking distance, but who really wants to walk 45mins to the store, and back again with bags of heavy shopping?

I laugh when I hear people say "there's no way I'm paying $4/gallon" or "the American public just won't stand for it!" What else are they (you, us) going to do? Seriously? Gasoline should be treated like electricty, water and natural gas. It's a necessity of modern life. But, it's not. Gas companies can continue to charge whatever they want, and we will continue to pay it and make reductions elsewhere. We'll buy more store brands, eat out less, buy more fuel-efficient cars or, occasionally, walk somewhere or take a bus. But the daily commute will still be there, as will the weekly shop, and cars run on gas. If the price goes to $6/gallon, nothing will change. We'll still pay it because we have no viable alternative.

The net result of course is that gas companies can make more money by selling less product! Genius, really. Airlines are also feeling the pinch (two have gone under in the last week) and the ones that remain will pass on the price of fuel to you, the happy customer.

Maybe someone will invent an electric car. Oh hang on, they did. It was called the EV1 and it worked. Actually, it worked too well. The prospect of a car that ran entirely on electricty and required little-to-no maintenance was too much for the oil companies to bear. GM scrapped them all for "some reason." I think we all know why. If you haven't seen it yet, watch "Who Killed The Electric Car?" for more information.

Trailer - Who Killed The Electric Car?

Maybe some bright spark will invent a car that runs on water. Oh, well, that one's already in the works. If you didn't already know, Ohio inventor John Kanzius has invented a machine that can "burn" salt-water. The result is an engine that runs on the most abundant resource on the planet. See the video below .

Now, when large oil and gas companies learn about this invention, I can see one of two things happening. One, they will embrace the technology with open arms and help John develop a salt-water engine. Ha, sorry, my little joke. Or two, they'll buy up the patent and let the idea rot for about 50 years, then introduce some lame salt-water/gasoline hybrid. That's basically what they did to the electric car, which is why hybrid cars are now becoming all the rage...and these beauties still rely on all that lovely oil.

So other than growing wings or inventing a Star Trekkian molecular transportation beam, I would like to know, genuinely, what you plan to do when gas does hit that magic $4/gallon. Me, I'm going to do what almost everyone else in the country will do. Pay it, whine and moan, talk about it at work for about 2 hours a day with co-workers, and eat out less.

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This article is from Paul Michael of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

As the Wood Burns: The Top 3 BioMass Heating Sources Revealed

Linsey Knerl — Sun, 16 Dec 2007 00:18:16 +0000

CNN predicted a 22% increase in the cost of heating oil this year. Boston was named by Forbes.com as this year’s “Most Expensive Place to Heat a Home.” Everywhere you look, there’s just more bad news on how expensive it will be to heat your home, and frustrated homeowners are turning to alternative heating fuels to help ease the burden of their heating bills. As we look to reduce our independence on fossil fuels and save money at the same time, biomass fuel is appearing more commonly in commercial markets everywhere. Here are the top three uses, and how they have worked for our family:

Wood – We switched over to all-wood heat this year. Nothing compares to the dry, hot heat that wood produces! Using the same metal wood stove that my dad built when I was just a tot, we have been cutting lumber from our grove and filling the fires every 4-5 hours for optimal warmth. The only cost to us is the gas for our chainsaw and the electricity to run a furnace fan throughout our old farm house. Updates have been made to the chimney lining to ensure safety, but otherwise it has been a very low-cost heating solution! (For directions on how to make your own wood-burning stove for under $35, read this article from Mother Earth News, circa 1978.)

Wood Pellets – These tiny pellets are made from leftover wood residue and saw dust from manufacturing sites. They burn hotter and cleaner than traditional wood logs, due to their compressed size. They can be burned in a traditional wood stove, fireplace, or a specially-made pellet stove. We burned wood pellets for the previous three years in our pellet/corn stove, and had great results. They can be purchased from a local fireplace supply or farm and feed store in bulk for lower prices than if purchased one bag at a time. (For updates on the availability of wood pellets nationally, check here.)

Corn – This was a great heating alternative in year’s past, due to the location of where we lived and the fact that our family farms. This year, however, the price of corn has risen considerably, making it a poor choice for saving money. Assuming that the price of corn may drop again in the future, a corn stove still may be a good way to heat a home. Corn heat compares well with other fuels; One Bushel of corn has as many BTU's as 5 therms of natural gas, 5 gallons of LP, 3.2 gallons of fuel oil, or 131 kilowatt hours of electricity. Many corn stoves also burn wood pellets, so they can be used with the cheapest fuel for the year. For the best information on burning corn, see I Burn Corn’s website. (Note: We use a stove very similar to this American Harvest model, which burns soybeans, cherry and olive pits, processed silage, and biomass fuel grains.)

As technology advances, other forms of biomass fuels will become readily available in the U.S. market. Garbage, animal waste, grasses and leaves may all someday be available in an easy-to-burn form for all kinds of residential heating systems. Accepting biomass into our daily lives may take a little more work and preparation, but the rewards are great -- both in savings and freedom!

(Note: For a comparison of the cost of biomass fuels with other traditional fuels, see this chart.)

This article is from Linsey Knerl of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Why is bread so expensive?

Philip Brewer — Wed, 07 Nov 2007 20:40:41 +0000

Having given us some good tips on dealing with the rising cost of bread, Myscha asked me to provide a bit of analysis on why bread has become so expensive. Oddly, the reasons behind the rise in the price of bread are almost the opposite of the reasons behind the rise in the price of nonfat dry milk that we talked about a couple of days ago.

The spike in the price of nonfat dry milk is due mainly to it being a globalized commodity. A falling dollar, combined with production shortfalls anywhere in the world, cause nonfat dry milk to flow out of the US to meet rising world-wide demand, resulting in rising prices in the US.

The price of bread, on the other hand, has risen in large measure because it's market is not a global one. The reasons for that are:

It's not durable--even if you could keep the loaves from being crushed, it goes stale too quickly.
It's not compact--a container full of bread isn't worth enough to make it profitable to ship. It certainly isn't worth enough to pay for the sort of fast shipping that would get it to market while it was still fresh.
It's not uniform--ask someone what bread is and you'll get a different answer from someone in the United States than you would in France, and a very different answer from someone in India. Even within the US there are regional differences. Nonfat dry milk, on the other hand, is the same everywhere.

The result of that is that there hasn't been much in the way of cheap imports to hold down the price of bread.

To that is added a general increase in the price of the inputs to bread, especially the price of wheat, but more fundamentally, the price of energy.

An increase in the price of oil makes everything cost more. Everything takes energy to make, and everything takes energy to ship to your local store. Beyond that, there are second-order effects--the strong price of ethanol made corn so profitable that huge amounts of land that might have grown other crops have been used for corn. The result has been a reduction in acres planted in wheat (and many other crops--barley, sorghum, soybeans, etc.), leading to higher wheat prices.

After briefly spiking very high in 2006 (and still being at levels that were high historically when 2007 planting decisions were being made), the price of ethanol has moderated just a bit, and that has led corn prices to back off just a bit. They're still high enough, though (and oil prices are most definitely still high enough), that we're likely to see the same forces stay in place next year, keeping wheat prices--and bread prices--high.

As for what to do about it, I refer you back to Myscha's article.

This article is from Philip Brewer of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Fix energy in tangible form

Philip Brewer — Tue, 21 Aug 2007 00:25:23 +0000

As I've mentioned before, I think that energy is going to be more expensive in the future. I wrote one article about tactics for dealing with the issue--making sure that your budget had contingencies for a spike in fuel prices. This article is about longer-term strategic moves to deal with future high energy prices.

They key problem with energy is that it's really hard to store. The Bank of Gasoline notwithstanding, it's tough to buy energy now and use it later. Most energy storage techniques lose a large fraction of the energy; others are expensive and dangerous.

The only really efficient way to store energy is to go ahead and use it to create something of lasting value. So my key suggestion is to store some of the current cheap energy in the form of things you need.

Invest in Embodied Energy

Things that produces energy

If you've got the money and a location that will support it, the pinnacle of this strategy would be to acquire things that actually produce energy: windmills, solar power systems, and so on.

Using locally-generated energy means that you don't have to buy energy from the utility. A decision on installing local power generation is often evaluated on a pay-back basis--how long will it take before the cost of the avoided purchases adds up to the cost of the system. Economies of scale make utility-generated power quite cheap compared to locally-generated power, so these payback calculations tend to steer people away from local power generation (except where you're off-the-grid and the cost of hooking up to the utility would be prohibitive). If my analysis is correct, though, and energy is going to get much more expensive in the future, a lot of these investments will be profitable sooner than a simple-minded calculation would suggest.

Things that let you use less energy

Even if you can't afford to generate your own power, anyone can invest in things that let you use less energy: a sweater, weatherstripping for your windows, extra insulation in your attic, a house that's closer to work, a bicycle, a more efficient car, furnace, air conditioner, or lightbulb. Anything that lets you live your life well with less energy falls into this category.

Things that embody energy

Take advantage of current cheap energy prices to invest in any long-lasting item that you're going to need. Most things--both items from the list above and ordinary stuff like dishes, tools, garden implements, toys and so on--are as cheap as they have ever been. And as the energy it takes to make them gets more expensive, they will get more expensive.

Think ahead. Figure out what you're going to need long-term. When you budget for acquiring things in this category, give a preference to the items that embody the most energy, because those are the things that are going to get more expensive faster.

That analysis is actually a huge topic of its own. It's hard to calculate the life-cycle energy requirements for an object, because there is not only the energy involved in making the object--aluminum and glass, for example, embody more energy than iron--but there is also the energy involved in the infrastructure. The energy embodied in the the silicon of a computer chip is dwarfed by the energy it takes to build and maintain the refineries needed for the raw materials, the wafer fab that made it, and the schools and universities that trained the people who build and run them. But a seat-of-the-pants sort of analysis will generally be good enough to let you put items like this into roughly the right order.

Anything that takes a lot of energy to make will be more expensive going forward. If you need one, work it into your budget to buy it soon, while it's still cheap.

Caution on Investing in Energy Companies

I put investing in companies that produce energy in another category altogether.

A lot of people have made a lot of money in the past few years by investing in companies that either produce energy (such as the major oil companies) or else use energy more efficiently than their competitors (such as railroads). I think a lot more money will be made in companies like these over the next few years as well, but a lot of money will also be lost. Making money in big companies depends on a lot of other things going right. The overall economy needs to hum along reasonably well, or else these companies will tank along with the stock market in general. The government needs to refrain from tagging these companies with price controls, excess profits taxes, and other profit-sapping measures.

Unless you have good reason to be confident in your forecasts of economic conditions and government actions, I'd limit your investments in these areas.

I'd suggest the same general policy for investments in things like energy futures. I don't doubt that a lot of money will be made in energy futures over the next few years, but here too, a lot of money will also be lost. Prices never move in one direction forever, and a fairly small zig or zag can easily wipe out many years of profits in a matter of days, and you can't count on the government or the markets to play by the rules when conditions get disordered.

Conclusion

I think the safe and easy win here is in just buying the stuff you're going to need anyway, giving a priority to the things that produce energy, save energy, or take a lot of energy to make. If you buy stuff you need, you can hardly lose. And if you prioritize things as I suggest, you'll come out well ahead.

This article is from Philip Brewer of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Rolling Stone article on ethanol

Philip Brewer — Fri, 03 Aug 2007 02:03:07 +0000

In my recent post Plan for expensive fuel, I mentioned sustainable fuels in a somewhat dismissive fashion. I'll have more to say about that eventually, but in the meantime, I wanted to link to Rolling Stone magazine's excellent article on the limitations of ethanol as a replacement for fossile fuels:

The great danger of confronting peak oil and global warming isn't that we will sit on our collective asses and do nothing while civilization collapses, but that we will plunge after "solutions" that will make our problems even worse. Like believing we can replace gasoline with ethanol, the much-hyped biofuel that we make from corn.

Ethanol Scam: Ethanol Hurts the Environment And Is One of America's Biggest Political Boondoggles

This article is from Philip Brewer of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Plan for expensive fuel

Philip Brewer — Sun, 29 Jul 2007 20:34:27 +0000

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.)

When 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.

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.

This article is from Philip Brewer of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: