Wednesday, April 20, 2016

Out of Reach Without Nuclear and Shale

  • US emissions reduction goals for 2025 could not be achieved without nuclear power and the fracking technology necessary to extract shale gas. 
  • Recent revisions by the EPA in its estimates of methane leaks from natural gas production and use do not negate the benefits of gas in reducing emissions.
In its lead editorial yesterday, the Washington Post took presidential candidate Bernie Sanders to task for his attacks on nuclear power and natural gas. The Post focused its critique on greenhouse gas emissions and the emissions trade-offs involved in substituting one form of energy for another. That speaks directly to one of the main reasons that Mr. Sanders' argument resonates with his supporters, but it ignores an even more basic problem. The energy contribution from shale and nuclear power is so large that if our goal is a reliable, low-emission energy mix that meets the future energy needs of the US economy, we simply cannot get there without them, at least not in any reasonable timeframe.

The pie chart below shows the current sources of US electricity in terms of the energy they generate, rather than their rated capacity. This is an important distinction, because the renewable electricity technologies that have been growing so rapidly--wind and solar--are variable and/or cyclical, generating only a fraction of their rated output over the course of any week, month, or year.

For example, replacing the output of a 2,000 megawatt (MW) nuclear power plant such as the Indian Point facility just north of New York City would require, not 2,000 MW of wind and solar power, but between 7,600 MW and 9,400 MW, based on the applicable capacity factors for such installations. Now scale that up to the whole country. With 99 nuclear reactors in operation, rated at a combined 98,700 MW, it would take at least 375,000 MW of new wind and solar power to displace them. As the Post's editorial points out, money spent replacing already zero-emission energy is money not spent replacing high-emitting sources.

At the rates at which wind and solar capacity were added last year, that build-out would require 24 years. That's in addition to the 36 years it would take to replace the current contribution of coal-fired power generation. It also ignores the fact that intermittent renewables require either expensive energy storage or fast-reacting backup generation to provide 24/7 reliability.

That brings us to natural gas, the main provider of back-up power for renewables, and the "fracking" (hydraulic fracturing) technology that accounts for half of US natural gas production. Fracking has transformed the US energy industry so dramatically that it is very hard to gauge the consequences of a national ban on it, even if such a policy could be enacted. Would natural gas production fall by a third to its level in 2005, when shale gas made up only around 5% of US supply, and would imports of LNG and pipeline gas from Canada ramp back up, correspondingly?

Or would production fall even farther? After all, one of the main factors behind the rapid growth of shale gas in the previous decade is that US conventional gas opportunities in places like the Gulf of Mexico were becoming scarcer and more expensive to develop than shale, which was higher-cost then than today. Either way, the constrained supply of affordable natural gas under a fracking ban would not support generating a third of US electricity from gas, vs. 20% in 2006. So we would either need even more renewables and storage--in addition to those displacing nuclear power--or, as Germany has found in pursuit of its phase-out of nuclear power, a substantial contribution from coal.

One of the primary reasons cited by Mr. Sanders and others for their opposition to shale gas, aside from overstated claims about water impacts, is the risk to the climate from associated methane leaks. Here he would seem to have some support from the US Environmental Protection Agency, which recently raised its estimates of methane leakage from natural gas systems.

Methane is a much more powerful greenhouse gas than carbon dioxide (CO2), so this is a source of serious concern. However, a detailed look at the updated EPA data does not support the contention of shale's critics that natural gas is ultimately as bad or worse for the climate than coal, a notion that has been strongly refuted by other studies.

The oil and gas industry has questioned the basis of the EPA's revisions, but for purposes of discussion let's assume that their new figures are more accurate than last year's EPA estimate, which showed US methane emissions from natural gas systems having fallen by 11% since 2005. On the new basis, the EPA estimates that in 2014 gas-related methane emissions were 20 million CO2-equivalent metric tons higher than their 2013 level on the old basis, for a year-on-year increase of more than 12%. This upward revision is nearly offset by the 15 million ton drop in methane emissions from coal mining since 2009, which was largely attributable to gas displacing coal in power generation.

In any case, the new data shows gas-related emissions essentially unchanged since 2005, despite the 44% increase in US natural gas production over that period. The key comparison is that the EPA's entire, updated estimate of methane emissions from natural gas in 2014, on a CO2-equivalent basis, is just 2.5% of total US greenhouse gas emission that year. In particular, it equates to less than half of the 360 million ton per year reduction in emissions from fossil fuel combustion in electric power generation since 2005--a reduction well over half of which the US Energy Information Administration attributed to the shift from gas to coal.

In other words, from the perspective of the greenhouse gas emissions of the entire US economy, our increased reliance on natural gas for power generation cannot be making matters worse, rather than better. That's a good thing, because as I've shown above, we simply can't install enough renewables, fast enough, to replace coal, nuclear power and shale gas at the same time.

What does all this tell us? Fundamentally, Mr. Sanders and others advocating that the US abandon both nuclear power and shale gas are mistaken or misinformed. We are many years away from being able to rely entirely on renewable energy sources and energy efficiency to run our economy. In the meantime, nuclear and shale are essential for the continuing decarbonization of US electricity, which is the linchpin of the plans behind the administration's pledge at last December's Paris Climate Conference to reduce US greenhouse gas emissions by 26-28% by 2025. That goal would be out of reach without them.

Thursday, April 14, 2016

Lessons from the Coal Bust

Yesterday's Chapter 11 filing by the largest US coal mining company is the latest in a series of coal bankruptcies. While factors such as regulations and poorly timed acquisitions have played a role, this trend reflects the parallel technology revolutions playing out across the energy sector. Here are a few key lessons from the ongoing coal bust:
  • There are many other ways to make electricity, and coal brings nothing unique to the party. In a growing number of markets it is no longer the cheapest form of generation, and it is certainly the one with the most environmental baggage, from source to combustion.
  • Coal-fired power generation is in competition with alternatives that are already producing at scale, like nuclear and natural gas generation, or growing rapidly from a smaller base, like renewables. It may not compete with all of these in every market, but few markets lack at least one of these challengers.
  • The costs of renewables and gas have fallen significantly in recent years, due to major technology gains. Coal has also benefited from some improvements in scale and end-use technology. Today's ultra supercritical coal plants are more efficient than coal plants of a generation ago, but they are more expensive to build, even without carbon capture (CCS). However, wind and solar power continue to grow cheaper and more efficient, while gas has benefited from resource-multiplying production technologies and advanced gas turbines that can exceed 60% efficiency and ramp up and down rapidly to accommodate the swings of intermittent renewables.
  • Despite all of these threats, coal is not on the verge of being forced out of power generation, even in developed countries where all the above factors are at work. Replacing its enormous contribution to primary energy supply and electricity generation will be a very heavy lift, particularly where another major energy source like nuclear power is being phased out. Germany is the prime example of that.
Consider what it would take to replace the remainder of coal in the US power sector. Last year coal generated 33% of US electricity, down from nearly 45% in 2010. Gas picked up 70% of the drop in coal's power output, but that still left coal's contribution at 1,356 Terawatt-hours (TWh) or about 6x the grid contribution of all US wind and solar power last year. (A Terawatt is a billion kilowatts.)

Displacing coal completely from US electricity would require doubling the 2015 output of US gas-fired power generation and a roughly 36% increase in US natural gas production. By comparison, the US nuclear power fleet would have to more than double. If coal were to be replaced entirely by renewables, which in practice probably means gas pushing coal out of baseload power and renewables reducing gas-fired peak generation, the hill looks steep.

Last year the US added 7.3 GW of new solar installations and 8.6 GW of new wind turbines. Assuming they were mostly sited in locations with reasonable solar or wind resources, their combined annual output should be around 35 TWh. At that pace it would take another 36 years to make up what coal now generates. It's true that net annual wind and solar additions continue to grow at double-digit rates, but keeping that up may get harder as the best sites become saturated and earlier wind turbines and PV arrays reach the end of their useful lives in the meantime.

In other words, driving coal from here to zero seems possible but very difficult, even with an all-of-the-above strategy in a market without demand growth. And if electricity demand continues to grow, as it is globally, or resumed growing in the US and other developed countries to enable a big shift to electric vehicles, the prospect of retiring coal entirely recedes into the future.

Monday, March 14, 2016

Energy and the 2016 Presidential Primaries

With another round of important primary elections taking place this week, I am sadly tardy in taking a high-level look at the energy positions of the candidates. The winnowing that has already taken place simplifies the task, even as it raises the stakes: A further contraction of the field after the voting in Florida, Illinois, North Carolina and Ohio could eliminate whole approaches to national energy policy.

The divide on energy between the Republican and Democratic fields also seems wider than in recent years. In 2008, when oil prices were approaching an all-time high, Republicans placed more emphasis on resource access--"drill baby, drill"--but both major party nominees supported cap-and-trade to address climate change. After recent remarks by Secretary Clinton and Senator Sanders, this November's election is shaping up as a binary choice between the continuation of the energy revolution that has saved the US hundreds of billions of dollars, and the elevation of environmental concerns as the main criteria for future energy decisions.

I'll take a closer look at the energy positions of the remaining Democratic candidates in a future post. For now I want to focus on the Republican field, because the first round of winner-take-all primaries looks like a make-or-break moment for the two candidates with the most detailed published positions on energy:
  • Kasich - On his campaign website the Ohio governor argues for increasing US energy supplies from all sources, including efficiency and conservation.  He endorses North American energy independence, but also sees the need for innovation in clean energy technology. He would rein in regulation, including the Clean Power Plan, to "balance environmental stewardship with job creation." And while he has supported the development of Ohio's Utica shale, putting the state in the top rank of natural gas producers for the first time in decades, he has also led an effort to increase state taxes on oil and gas production. The appeal of Governor Kasich's positions to moderates is understandable, although no one would mistake them for a 2016 Democrat's energy platform.
  • Rubio - The Florida senator's energy proposals are even more detailed, with more of a legislative focus than Governor Kasich's. Their tone is simultaneously positive and adversarial: Senator Rubio has an upbeat vision for the role energy can play for the US, and much of it is presented on his website in counterpoint to the actions and priorities of an administration he clearly believes has largely been mistaken on energy. There's a "wonkish" flavor to much of the content, such as his argument for education reform to fill the jobs energy development can help create. Although a reference to support for the Transatlantic Trade & Investment Partnership might be a red flag in a year dominated by populist sentiment, most of the ideas here fall solidly within the mainstream of recent conservative thought on energy.
Each of the other two remaining Republicans represents a more significant departure from their party's recent approach to energy, at least at the presidential level:
  • Cruz - Senator Cruz appears to take a more overtly libertarian stance on energy and what he calls the Great American Energy Renaissance. He wouldn't just lighten federal regulation of energy, as his rivals advocate; he would take on the government's ability to regulate. For example, in addition to opposing the Clean Power Plan, he co-sponsored legislation that would make it much harder for the EPA and administration to use the federal Clean Air Act to devise other ways to regulate greenhouse gas emissions from power plants. Consistent with his plan to abolish the IRS, he would also eliminate the Department of Energy. He supports an all-of-the-above energy strategy, but on a level playing field. Ethanol, for example, after his phase-out of the Renewable Portfolio Standard, would have to find its way into the energy mix without a federal mandate or subsidies.  
  • Trump - From my quick perusal of it, the Trump website lacks the kind of specifics on energy that are found on the other candidates' sites. We are left to piece together Mr. Trump's positions on energy based on his answers to specific questions or issues, elsewhere. You can find a number of quotes from those on Google. If there's a unifying principle to his views on energy, he seems to be as deal-focused as on other topics, and less allergic to using the power of government than his opponents.  For example, he supported the Keystone XL pipeline but apparently thought we could get a better deal from Canada and the project developer. If Dilbert creator Scott Adams is correct in his analysis of Donald Trump as a Master Persuader, the details of his views on any issue like this matter less in an election than how he frames them.  
The energy context of the 2016 election could not be more different than that of four or eight years ago. A global oil glut and natural gas priced low enough to edge out coal for the top spot in US power generation are giving candidates a rare luxury. They can address energy without the pressure of angry consumers demanding immediate answers. However, even if the election will not be decided based on energy, it remains a major pillar of the economy. How candidates view energy can shed important light on the consistency of their other positions. I expect to return to this point in the weeks ahead.

Thursday, February 25, 2016

OPEC's War on US Producers

The comments of Saudi Arabia's oil minister at the annual CERAWeek conference in Houston this week provided some sobering insights into the strategy that the Kingdom, along with other members of OPEC, has been pursuing for the last year and a half. Perhaps the ongoing oil price collapse is not just the result of market forces, but of a conscious decision to attempt to force certain non-OPEC producers out of the market.

Notwithstanding Mr. Al-Naimi's assertion that, "We have not declared war on shale or on production from any given country or company," the actions taken by Saudi Arabia and OPEC in late 2014 and subsequently have had that effect. When he talks about expensive oil, the producers of which must "find a way to lower their costs, borrow cash or liquidate," it's fairly obvious what he is referring to: non-OPEC oil, especially US shale production, as well as conventional production in places like the North Sea, which now faces extinction. If these statements and the actions that go with them had been made in another industry, such as steel, semiconductors or cars, they would likely be labeled as anti-competitive and predatory.

We tend to think of the OPEC cartel as a group of producers that periodically cuts back output to push up the price of oil. As I've explained previously, that reputation was largely established in a few episodes in which OPEC was able to create consensus among its diverse member countries to reduce output quotas and have them adhere to the cuts, more or less.

However, cartels and monopolies have another mode of operation: flooding the market with cheap product to drive out competitors. It may be only coincidental, but shortly after OPEC concluded in November 2014 that it was abandoning its long-established strategy of cutting production to support prices, Saudi Arabia appears to have increased its output by roughly 1 million barrels per day, as shown in a recent chart in the Financial Times. This added to a glut that has rendered a large fraction of non-OPEC oil production uneconomic, as evidenced by the fourth-quarter losses reported by many publicly traded oil companies.

That matters not just to the shareholders--of which I am one--and employees of these companies, but to the global economy and anyone who uses energy, anywhere. OPEC cannot produce more than around 37% of the oil the world uses every day. The proportion that non-OPEC producers can supply will start shrinking within a few years, as natural decline rates take hold and the effects of the $380 billion in cuts to future exploration and production projects that these companies have been forced to make propagate through the system.

Cutting through the jargon, that means that because oil companies can't invest enough today, future oil production will be less than required, and prices cannot be sustained at today's low level indefinitely without a corresponding collapse in demand. Nor could biofuels and electric vehicles, which made up 0.7% of US new-car sales last year, ramp up quickly enough to fill the looming gap.

Consider what's at stake, in terms of the financial, employment and energy security gains the US has made since 2007, when shale energy was just emerging. That year, the US trade deficit in goods and services stood at over $700 billion. Energy accounted for 40% of it (see chart below), the result of relentless growth in US oil imports since the mid-1980s. Rising US petroleum consumption and falling production added to the pressure on oil markets in the early 2000s as China's growth surged. By the time oil prices spiked to nearly $150 per barrel in 2008, oil and imported petroleum products made up almost two-thirds of the US trade deficit.

Today, oil's share of a somewhat smaller trade imbalance is just over 10%. Since 2008 the US bill for net oil imports--after subtracting exports of refined products and, more recently, crude oil--has been cut by $300 billion per year. That measures only the direct displacement of millions of barrels per day of imported oil by US shale, or "tight oil" and the downward pressure on global petroleum prices exerted by that displacement. It misses the trade benefit from improved US competitiveness due to cheaper energy inputs, especially natural gas.

Compared with 2007, higher US natural gas production, a portion of which is linked to oil production, is saving American businesses and consumers around $100 billion per year, despite consumption increasing by about 20%--in the process replacing  more than a fifth of coal-fired power generation and reducing CO2 emissions. $25 billion of those savings come from lower natural gas imports, which were also on an upward trend before shale hit its stride.
The employment impact of the shale revolution has also been significant, particularly in the crucial period following the financial crisis and recession. From 2007 to the end of 2012, US oil and gas employment grew by 162,000 jobs, ignoring the "multiplier effect." The latter impact is evident at the state level, where US states with active shale development appear to have lost fewer jobs and added more than a million new jobs from 2008-14, while "non-shale" states struggled to get back to pre-recession employment. That effect was also visible at the county level in states like Pennsylvania, where counties with drilling gained more jobs than those without, and Ohio, where "shale counties" reduced unemployment at a faster pace than the average for the state, or the US as a whole.
If the shale revolution had never gotten off the ground, US oil production would be almost 5 million barrels per day lower today, and these improvements in our trade deficit and unemployment would not have happened. The price of oil would assuredly not be in the low $30s, but much likelier at $100 or more, extending the situation that prevailed from 2011's "Arab Spring" until late 2014. If OPEC succeeds in bankrupting a large part of the US shale industry, we might not revert to the energy situation of the mid-2000s overnight, but some of the most positive trends of the last few years would turn sharply negative.
Now, in fairness, I'm not suggesting that this situation can be explained as simply as the kind of old-fashioned price war that used to crop up periodically between gas stations on opposite corners of an intersection. The motivations of the key players are too opaque, and cause-and-effect certainly includes geopolitical considerations in the Middle East, along with the ripple effects of the shale technology revolution. It might even be possible, as some suggest, that OPEC has simply lost control of the oil market amidst increased complexity.  
However, to the extent that the "decimation" of the US oil and gas exploration and production sector now underway is the result of a deliberate strategy by OPEC or some of its members, that is not something that the US should treat with indifference.

This is an issue that should be receiving much more attention at the highest levels of government. The reasons it hasn't may include consumers' understandable enjoyment of the lowest gasoline prices in a decade, along with the belief in some quarters that oil is "yesterday's energy." We will eventually learn whether these views were shortsighted or premature.

Friday, February 05, 2016

An Ill-conceived Tax Idea

Yesterday we learned that President Obama's final budget proposal includes a plan to raise money for transportation projects and other uses by imposing a per-barrel tax on US oil companies. Here are a few quick thoughts on this ill-conceived idea:
  • As I understand it, the tax would be imposed on oil companies, exempting only those volumes exported from the US. The US oil industry is currently in its deepest slump since at least the 1980s. Having broken OPEC's control of prices and delivered massive savings to US consumers and businesses, it is now enduring OPEC's response: a global price war that has driven the price of oil below replacement cost levels. This is evidenced by the recent full-year losses posted by the "upstream" oil-production units of even the largest oil companies: ExxonMobil, Chevron, Shell, BP and ConocoPhillips, particularly in their US operations. The President has wanted to tax oil companies since his first day in office, but his timing here would only exacerbate these losses, putting what had been one of the healthiest parts of the US labor market under even more pressure.
  • This tax would also increase OPEC's market leverage, providing a double hit on the cost of fuel for American consumers: We would pay more immediately, when the tax was imposed and companies passed on as much of it as they could, and then even more later when OPEC raised prices as competing US production became uneconomical.
  • Focusing the tax on the raw material, crude oil, rather than on the products that actually go into transportation, as the current gasoline and diesel taxes do, is guaranteed to produce distortions and unintended consequences. For starters, exempting exports--a sop to global competitiveness?--would give producers a perverse incentive to send US oil overseas instead of refining it in the US. It would also shift consumption toward more expensive fuels like corn ethanol, which provides no net emissions benefits but has been shown to affect global food prices.
  • Singling out oil, which is not the highest-emitting fossil fuel and for which we still lack scalable alternatives, will put all parts of the US economy that rely on oil as an input at a competitive disadvantage, globally, and undermine what had become a significant US edge in global markets. Petrochemicals, in particular, would be adversely affected. The President's staff is well aware that the distribution of lifecycle emissions from oil, and the structure of the industry and markets, make policies focused on consumption far more effective than those aimed at production. This is why his administration's first act in implementing the expanded interpretation of the Clean Air Act to greenhouse gases was to tighten vehicle fuel economy standards. Taxing the upstream industry does nothing for global emissions but makes US producers less competitive, ensuring a return to rising oil imports and deteriorating energy security.
As widely reported, the Congress will not enact a budget containing this provision. It is hard to gauge whether this proposal represents a serious attempt to inject new thinking into the debate on funding transportation upgrades, or is simply one last shot across the bow of the administration's least favorite industry before leaving office in 349 days. It's not unusual for the wheels to come off as a presidency winds down, and this particularly flaky and futile idea might just be an indicator of that.

Disclosure: My portfolio includes investments in one or more of the companies mentioned above.

Wednesday, January 27, 2016

2015: A Turning Point for Energy?

  • 2015 was certainly an eventful year in energy, with plummeting oil prices and a widely anticipated global climate conference in December. It's less clear that it was a turning point. 
When I sifted through the major energy developments of 2015, I was surprised by the number of references I found to last year as a turning point, whether for the oil industry, the response to climate change, coal-fired electricity generation, or renewable energy. To this list I am tempted to add the decision to allow unrestricted exports of US crude oil for the first time in 40 years.

Major turning points are best identified with the passage of time. With so many legitimate candidates it might seem a bit deflating to note, as the chart below reflects, that the growth pattern for US energy supplies in 2015 looks a lot like the one for 2014. Despite low prices, oil and gas output posted solid gains, at least through October, while wind and solar power contributed modestly, when compared on an energy-equivalent basis.

There are sound reasons to think that next year's graph may look quite different, starting with oil. The petroleum industry is still in turmoil from its turning point in late 2014, when OPEC declined to cut its output quota to restore the global oil market to balance. In North America and much of the world, drilling and investment in new projects are down sharply, and US oil production is retreating from the 44-year peak it reached in April. The subsequent decline would have been even more pronounced without the contribution of new deepwater platforms  in the Gulf of Mexico that were planned long before oil prices fell.

However, anyone identifying 2015 as the start of a global shift away from oil, rather than another cyclical low point, must contend with some contrary statistics. Global oil demand appears to have increased by around 2%--equivalent to the output of Nigeria--in response to a 70% drop in oil prices. And despite a lot of media attention, electric vehicles--the leading contender to replace the internal-combustion cars that are the main users of refined oil--have yet to catch on with mainstream consumers.

Based on data from, US sales of battery-electric vehicles (EVs) grew slightly faster than the 6% pace of the entire US car market in 2015 but still accounted for less than 0.5% of all new cars. In fact, the combined US market share of hybrids, plug-in hybrids and battery EVs fell by 18%, compared to 2014, to below 3%. This is a respectable start for vehicle electrification, but it's not much different from the beachhead that hybrids alone occupied in 2009.

Although we might look back on this situation in a few years as a turning point, I believe that will depend on the condition of OPEC and the global oil industry, as well as the level of global oil consumption, when supply and demand come back into balance and today's high oil inventories are drawn down.

At the launch of API's latest State of American Energy report earlier this month I had the opportunity to ask Jack Gerard, the President and CEO of API, how he thought the current situation might change the oil and gas industry, and whether it would push it even farther towards shale development, including outside the US. His response focused on ensuring that policies will allow US producers to compete globally and build on the advantages of US resources, capital markets and rule of law to increase their share of the market.

As for US natural gas production, rising per-well productivity and growth in the Utica shale and Permian Basin offset less drilling in general and output declines in the Marcellus shale and elsewhere.  The continued expansion of gas is remarkable, considering that natural gas futures prices (front month) averaged just $ 2.63 per million BTUs for the year and dipped below $2 in December. The LNG exports set to begin this month look very timely.

Renewable energy, mainly in the form of wind and solar power, continues to grow rapidly as its costs decline. US renewables got an unexpected boost in December when the US Congress extended the two main federal tax credits for wind, solar and other technologies, including retroactively reinstating the lapsed wind Production Tax Credit (PTC).  Renewables should also benefit from the implementation of the EPA's Clean Power Plan, and from the effect of the Paris climate agreement on the investment climate for these technologies.

We may not know for years whether the Paris Agreement was truly a turning point for climate change, as many have suggested. Another prescriptive agreement with legally binding targets, along the lines of the Kyoto Protocol, was never in the cards. However, the Paris text is replete with tentative verbs, along the lines of, "requests, invites, recognizes, aims, takes note, encourages, welcomes, etc. "  It remains up to the participating countries whether and how they fulfill their voluntary Intended Nationally Determined Contributions and financial commitments.

The Paris Agreement could turn out to be the necessary framework for firm steps by both developed and developing countries to reduce emissions and adapt to climatic changes that are already "baked in", or it might shortly be overtaken by other events, as previous climate change measures were in the aftermath of the 2008 financial crisis. The current financial problems of the world's largest emitter of greenhouse gases--arguably the most important signatory to the Paris Agreement--are not a positive signal.

With so many uncertainties in play, we should consider all of these potential turning points as signposts of changes that depend on other interconnected factors, if they are to lead to a future that breaks with the status quo. There are enough of them to make for a very interesting 2016, even if this wasn't also a US presidential election year.
A different version of this posting was previously published on the website of Pacific Energy Development Corporation.

Monday, January 11, 2016

Cheapest Gasoline Ever?

Last week the Energy Information Administration  (EIA) reported that the $2.43 per gallon average US retail price for regular gasoline in 2015 was the lowest since 2009. A quick look at the EIA's handy page for comparing nominal and real fuel prices over time shows that last year's average, when adjusted for inflation, was actually the cheapest since 2004. A recent article suggested that current prices are lower than those in the mid-1960s, in the heyday of the American love affair with driving. I've lost the link, but that factoid checks out, too. However, even this understates the bargain currently on offer at the gas pump.

The price of gasoline is still one of the most visible prices in the US, prominently displayed on gas station signage and roadside billboards across the country. However, it only captures one aspect of how much motorists really pay, just as measuring fuel economy in miles per gallon misses the economic impact of driving. A few years ago I ran across a metric that combines these factors into a simple gauge of driving cost: miles per dollar, or mp$.

The chart below incorporates EIA data on inflation-adjusted fuel cost and data from the National Highway Transportation Safety Agency (NHTSA) on actual fleet corporate average fuel economy (CAFE) performance for each model year of passenger cars--not SUVs or light trucks--to display average mp$ for the last four decades.

Taking last week's average price of $2.03 for unleaded regular and using 36.4 mpg for the 2013 model year (the latest on NHTSA's site), today's fuel cost of driving is cheaper than at any time since 1978--and maybe ever. The 18 miles per dollar I calculated just beats the previous peak of mp$ in the late 1990s, when fuel economy was around 28 mpg and gas prices averaged barely over $1, due to the effects of the Asian Economic Crisis. By comparison, the $0.31 per gallon that motorists paid in 1965 was downright expensive, after adjusting for inflation and factoring in the low-to-mid-teens fuel economy of cars of the day.

Miles per dollar is also handy for comparing driving cost on gasoline to the cost of operating vehicles that use other fuels or electricity. When I first looked at miles per dollar in 2008, electric vehicles were significantly cheaper, per mile driven, than cars running on gasoline or diesel, even hybrid cars like the Prius. That gap still exists, but it has narrowed. At an US average residential electricity price of $0.126/kilowatt-hour last year, a Nissan Leaf or Chevrolet Volt would get around 26 mp$. However, in New England and other parts of the country with significantly higher-than-average electricity prices, the miles of driving that an EV can deliver per dollar of energy used could be less than that for gasoline in some locations.

A few caveats are in order. Based on data from the Transportation Research Institute at the University of Michigan, new-car fuel economy has slipped 0.8 mpg since oil prices started falling in the summer of 2014. And in any case, new cars are typically more efficient than the entire US car fleet, which includes older vehicles and substantial numbers of SUVs and light trucks. The Consumer Price Index is also an imperfect tool for comparing prices over long periods of time, because the Bureau of Labor Statistics periodically changes the components of the "basket" of goods and services that go into calculating the CPI.

None of those issues seems big enough to alter the basic conclusion that the gasoline cost of driving is exceptionally, perhaps historically cheap at the moment. If oil prices stay "lower for longer", as some experts expect,  changing the make-up--and thus the emissions--of the US car fleet is likely to be an uphill battle.