The Future of Fuel Economy | DRAWING THE LINE

Take a short trip back in time with me, all the way to December 1998. What was the price of gas back then? $2.00? $2.50? What’s your guess? At the end of 1998, the nationwide average was 95 cents per gallon.*

Sure seems low, doesn’t it? Three weeks earlier, the price of a barrel of oil was $10.27. Why does this matter? Because the price of gas today (September, 2012) is about $3.85 nationwide, which is just over four times the 1998 price. But the price of oil per barrel today (averaging the WTI and Brent prices) is $104, just over 10 times the per-barrel price from 1998.

A barrel of crude contains 42 gallons, and out of that barrel we can get just under 20 gallons of gasoline, about 10 gallons of distillate fuel oil (diesel, heating oil), and 4 gallons of jet fuel. So how, if crude oil is the resource, can gasoline go up only four times in price while crude has jumped 10 times? Was the 1998 gas price grossly inflated relative to the crude price? It’s a hard question to answer, and if there are people who know the whole story they’re not talking.

When there is a disparity like this, it’s a sign of imbalances in supply, demand, subsidies, speculation, and other market mechanisms including global politics. In 2005, after increasing for decades, the supply of crude oil reached a barrier it hasn’t been able to break through since. Since then, total world production has been fluctuating between 71 and 76 million barrels per day, unable to breach the 80+ MB/D level predicted several years ago. There are understood to be huge reserves of oil, but supply is a function of production volume, not reserve volume. Put another way, it’s the size of the supply “valve” that’s important, not the size of the “tank.”

Demand has been falling significantly in the U.S. and in Europe, but total worldwide use of oil has risen. Analysts call the supply stagnation the “bumpy plateau” because, while it’s not completely flat, it isn’t rising or falling much. Take flat supply and increasing demand, and you should get increasing price—just what we’ve seen.

As always when gas prices are unstable and likely to rise, motorcycles make even more sense, even if the industry is conservative about promoting bikes as efficient transportation. It’s encouraging to see some progress on this front, however.

The new Honda NC700X is an interesting take on combining some scooter features like useful internal storage with true motorcycle dynamics and a practical level of performance and efficiency—50 horsepower and more than 60 mpg, according to Honda. (An NC700 is due to join the Motorcyclist long-term fleet soon, so we’ll know if that estimate is accurate in the real world.) At the recent press introduction, the new Kawasaki Ninja 300 achieved 105 mpg in an economy contest, but it was run slowly and carefully for minimum consumption. Our own editor, riding with exuberance, still managed 50 mpg. The Ninja, built to a low price point, is not light; it’s 380 pounds ready to ride.

My favorite prospect is the chance that we’ll see road bikes coming out of the 250cc Moto3 racing series, increased in displacement and detuned, but still fairly light. Envision these bikes with 40 bhp, 350cc single-cylinder engines weighing close to 300 lbs. Imagine the performance and economy of a bike like that.

Could the next gas crisis finally push the motorcycle industry to do what it’s never done (in the U.S., anyway) and really sell the idea that bikes can be part of a creative solution to a difficult problem? When the 2008 gas crisis hit, it didn’t last long enough for companies to design new models and change marketing directions and strategies. It seems finally that some companies are looking ahead and seeing some of the trends noted here.

Oil may be over-priced, but that’s debatable. What does seem clear, however, is that gasoline is under-priced relative to the resource base. It’s an imbalance that may remain in stasis for a time, but like any unbalanced system, it will probably tip. If it does, it won’t tip towards lower gasoline prices. It looks as though motorcycle companies may be watching, and learning.

*Courtesy of Kurt Cobb, at Resource Insights.