Santa Claus is driving to town. Gas is cheap

Thanks, Santa. Naughty or nice, everyone seems to be going to get cheaper fuels this Christmas and in the New Year, not only those who get their petroleum products from the North Pole refinery.

Yes, Virginia, there is a North Pole refinery, in North Pole, Alaska, and it is run by Petro Star, a subsidiary of Arctic Slope Regional Corp. That refinery, a 17,000 barrel-a-day facility, produces kerosene, diesel, and jet fuels for civilian and military customers operating in the harsh environment of Alaska’s North Slope.

For those of us who live and work in the Lower 48 (where fuel prices have fewer costs built into them than they do on the rugged North Slope) gasoline prices may get to $1 in early 2009. So says Gulf Oil CEO Joe Petrowski. Speaking before a South Shore Chamber of Commerce breakfast in New England in early December, the Gulf Oil executive did not guarantee the low price, he merely conjured up the possibility, given the slump in world oil demand and the volatility of the oil futures market.

However, the return of cheap oil, while it will bring some needed relief to motorists confronting potentially the worst economic slump since the Great Depression, is not all good news. Cheap oil, especially if gasoline prices stay cheap for several months, might have consumers and automakers thinking that SUVs and other gas guzzlers might still be economically viable in the long term. They are not. In addition, cheap oil hurts the future of oil companies themselves. The reduced revenue for oil companies suppresses investment by these firms in both conventional oil and gas exploration and production, which in turn reduces future supplies. It also takes away capital and incentives for Big Oil and other oil firms to develop energy alternatives, such as wind and solar.

Even T. Boone Pickens has thrown in the towel (at least for a while) on his own financial commitment to the massive wind energy and natural gas project known as the Pickens Plan. The economics just don’t add up now that oil and gas are so cheap.

In the long term, American dependency on expensive oil and gas supplies secured from foreign countries in politically unstable areas with a history of antagonism to the US is the dark cloud that threatens to dominate America’s energy future, especially when the world economy rights itself and oil demand spikes upward again.

But in the short term, Happy New Year, car drivers. Even recessions have a silver lining.