Talking Energy With Walter Zimmermann
Why today's high gas prices may be better than the alternative.
Economist Walter Zimmermannsays today’s high gasoline pricesmay actually be better than thealternative. In an exclusive Q&A withCSP, he explains why.
CSP: National gasoline prices hit arecord high in 2012. While a lot of theoriesare out there, what’s your take on thereal cause and solution?
Zimmermann: It’s what I call the“financialization” of energy prices. Forthe past few years, energy prices havebeen increasingly dictated by two things:trends in the stock market and trends inthe U.S. dollar. You have a situation whereeverybody wants a higher stock marketbut also wants lower gas prices.
The reality is you can’t get both. The reality is it’s the Fed’s attempt to weaken the dollar to keep the economy alive that has really been one of the dominant forces in driving gasoline prices higher, because [Fed chairman Ben Bernanke]is trying to reinflate the economy. So you have a situation where in general you want higher stock-market prices, and in general you want a weaker dollar, but the reality is both of those things mean higher gasoline prices.
CSP: So speculators have had no role in the price run-up?
Zimmermann: There are speculators in the stock market. They do buy because they think it’s going up, and it does raise prices of stocks for investors who probably otherwise would be able to buy at lower prices and get better value for their money. I wouldn’t say speculators are heroes or anything like that. But either you believe in free markets or you don’t. And if you believe in free markets, then that means you believe in the market’s ability to go out and perceive whether there’s a risk or reward. Are prices likely to go higher or lower? The other factor is whenever the subject of Iran’s nuclear program comes up, they say they will close the Straits of Hormuz, and we say there are no military options off of the table. That’s 20% of the world’s crude-oil supply at risk. The government can’t pound the war drums trying to intimidate Iran with bombing campaigns and expect gas prices to go down.
CSP: With these macro forces at work, what can this country do to affect its energy future?
Zimmermann: Given where natural gas is priced now, if you could go into a service station and fill up your car with natural gas instead of gasoline, you’d be paying the equivalent of 40 cents per gallon. We have the immediate ability to be almost energy-independent because of the huge volume of natural gas being discovered every day, and that has absolutely collapsed the price of natural gas. But why is no one talking about putting in an infrastructure of natural gas, even for fl eets? The irony of Republican attacks on Obama—that we need to drill more—is that we have drilled so much already that it’s collapsed the price of natural gas. The Republicans would be better advised to come out with a program to put in a natural-gas infrastructure. But of course, that would mean probably that the government would have to spend money because the natural-gas companies themselves have almost been bankrupted by the collapse of natural-gas prices.
CSP: And doesn’t that also require the government to prop up yet another alternative fuel?
Zimmermann: Natural gas is not like solar and wind—it doesn’t need life support from federal programs. It doesn’t depend on sunny or windy days. It is there. This country has the capability to be almost energy-sufficient with the wells that have already been drilled. But that doesn’t sell really well if you’re trying to unseat an incumbent. If you say we’re already energy-independent, that doesn’t spur you to vote for the challenger. It depoliticizes the whole issue.
CSP: So what can help lower gasoline prices now?
Zimmermann: What we have to be rooting for to get lower gasoline prices is first, of course, that the pragmatists triumph in Iran over the ideologues and they’re able to work something out. Setting that aside, what do you have to root for? The stock market collapsing and for Europe to split and descend into chaos. That would drive the U.S. dollar way high. That would collapse the U.S. stock market, and we’d suddenly have much cheaper gasoline. At that point, you have to think maybe the cure is worse than the disease. If elevated gas prices are the price for a higher stock market and for Europe not disintegrating, well, then maybe we just get used to it.