Ready to Pay $4 a Gallon for Gas?

Summer officially arrives this week with the passing of the summer solstice, and as sure as the day is long (actually the longest of the year), gas prices will rise.

Regular gasoline prices are expected to average $3.05 per gallon this summer, a 21-cent-per gallon increase over last summer's average price, according to the latest federal estimates. While prices peaked in May at an average $3.15 a gallon, and have backed off a bit since then, they are expected to average $3.11 in the month of August.

So the squeeze is on consumers and small businesses alike. But depending on how things go, it's conceivable that prices could rise even higher; would you believe as high as $4.70 a gallon?

That shocking prediction comes from two private, nonprofit groups: Securing America's Future Energy (SAFE) and the National Commission on Energy Policy. These groups are made up of leading energy experts, and their estimate is based on a mere 4 percent reduction in global daily oil supplies. How likely is that to happen? No one can say for sure, but it's certainly conceivable.

As much as we'd like to believe that big oil companies are engaging in a massive conspiracy, the process of getting oil out of the ground and into our tanks as gasoline is a little more complicated than a bad-guy theory. It involves output and throughput; offline and online refinery capacity; the whims of a foreign oil cartel; inventories and draw downs; ships at sea; a crazed presidenté in Venezuela; political and social strife in the Nigerian Delta, and of course, Arab terrorists.

Add to these factors the vagaries of the weather, geopolitical uncertainty, and the odd refinery fire or breakdown, and yes, it's quite conceivable that $3.15 a gallon could easily look like the good old days. The situation is scary enough to give the willies to someone like Frederick W. Smith.

Smith, chairman, president and chief executive of FedEx, the global delivery company, is far from a raving socialist. But at a recent congressional hearing he acknowledged that market forces alone will not solve our oil problems. Instead, he called on the government "to spur and, in some cases, require private sector" efforts to reduce the nation's energy dependence.

"This is not a decision I came to easily. As an entrepreneur myself, I am not one to encourage regulation where other effective solutions are available," he said in a prepared statement. "But ... government intervention is not merely desirable, it is essential."

Smith also serves on the Energy Security Leadership Council (ESLC), a nonpartisan group affiliated with SAFE that is looking for ways to reduce oil dependence. The group is calling for higher vehicle fuel economy standards for all cars and trucks, increased domestic oil production, more production of renewable fuels, and better international efforts to secure the global oil supply.

While FedEx is a large, global company, Smith understands the plight of small businesses. They not only make up the bulk of his customers, but FedEx began as a small business in 1971 on the eve of the nation's first major oil crisis. If oil prices were to soar, he knows his customers would feel the squeeze.

Energy was the biggest cost for 10 percent of the small firms surveyed recently by the National Federation of Independent Business. Another 25 percent said it's one of their top three business expenses, most of which was attributed to the cost of operating company cars and trucks.

Salvatore Lupoli, who operates Sal's Pizza, a 30-store chain in Massachusetts, told congressional lawmakers his fuel bill had risen by 50 percent in the past year. He says he has no affordable alternatives to the 30 vans and five company cars he uses in his business to scout sales and make deliveries to his stores, grocery outlets, and schools.

But the problem for small businesses extends beyond that. Because small businesses tend to pay lower wages, employees often end up staying home because they can't afford gasoline to drive to work, Lupoli says.

And higher gas prices are also affecting sales. Nearly half the consumers responding to a national survey by the National Retail Federation said high gasoline prices would curtail their shopping over the Fourth of July weekend.

With gas prices averaging $3 or so per gallon, you might think the government and consumers would get serious about steps to curb consumption. But adjusted for inflation that's about 56 cents a gallon in 1970s prices. Following the Mideast Oil Crisis in 1973, gasoline averaged about 57 cents a gallon.

So while $3 a gallon is higher than we're used to paying, it's just about in line with previous prices that sparked national conservation efforts. But $4 or more a gallon would definitely hurt. My question is why wait for that inevitable price rise to take action?