Wednesday, Jan. 26, 2011
PRICE AT THE PUMP TOO HIGH? BLAME SUPPLY AND DEMAND, SAYS K-STATE EXPERT
MANHATTAN -- Expect gas prices to continue rising in 2011, according to a Kansas State University expert in energy economics.
Lance Bachmeier, associate professor of economics, predicts the price of gas will average between $3 to $3.50 per gallon this year. This will occur because of increased oil demand from the world's expanding economy.
"The U.S. Department of Energy and others are telling a similar story," he said.
When the public accepts that gas prices won’t return to previous levels, a major shift in gasoline usage should occur, Bachmeier said.
"In the 1970s, when we experienced the first large, persistent changes in the price of oil, firms moved away from using oil in production," he said. "I expect a similar move away from gasoline on the part of consumers."
The government could play a role in lowering gas prices by forcing oil companies to produce more or by reducing oil reserves as a short-term solution. Bachmeier believes many would not be receptive to the government dictating oil prices. However, he suggests a case could be made for the government funding research into alternative energy sources.
"Sometimes companies are afraid to take on the risks associated with bringing new technology to market," he said. "The government could offer incentives for companies to do so."
As for the idea that oil companies are manipulating the price of gasoline, Bachmeier is not a believer.
"It's unfortunately a matter of supply and demand," he said. "I hear lots of complaining about high gas prices, but I mostly hear that from people who drive a lot. None of them are getting rid of their cars and buying bicycles."
Why Americans are not changing their consumption habits shows an enduring characteristic of their economic behavior.
"A higher price for gas means you have to cut back somewhere else," he said. "We don't like to cut our consumption."