More than two-thirds of us have made no change to our gasoline consumption in recent months.
Average Alberta pump prices have steadily climbed from less than 60 cents/litre in December to almost 90 cents (last week), but a recent Business Edge survey of 318 readers (about 300 Albertans) indicates 81 per cent of respondents have cut consumption by 10 per cent or less.
This lack of price-sensitive behaviour – gleaned from the survey I conducted last week – holds a key to alleviating the painful-looking prices appearing on our gasoline bills.
Any economist or half-brained businessperson knows to sell products for more money if the price hike won’t affect sales. So, why should gasoline refineries and retailers be different?
But that obvious reality doesn’t stop people from approaching the topic of gas pricing from the most bizarre of angles.
The past few weeks have seen numerous e-mail campaigns and calls on radio talk shows for drivers to boycott this or that gas station. One that I received says, “. . .we CAN have an impact on gas prices if we all act together to force a price war.” The chain letter went on to advocate a six-month boycott of the two largest Canadian gas retailers.
While gasoline pricing is a viciously complex beast to tackle – with refinery capacity, environmental regulations and world demand for energy all playing a part – the lack of staying power for any boycott is unavoidable.
Companies such as GasBuddy Organization Inc., which has set up websites continent-wide (EdmontonGasPrices.com and CalgaryGasPrices.com) to monitor where drivers can find the best-priced gas stations, are, ironically, helping to ensure that a “six-month” boycott would last about six minutes.
Nowadays, as soon as one station beats another by two cents per litre, word spreads fast. That’s at least partly why commitment to a boycott would fade as fast as Milli Vanilli.
Once consumers realize throngs are violating the boycott to grab the gas from the lowest-priced station(s) – a process that takes about five minutes – the prices would spring back to normal. In total, I give any boycott-induced price reduction about 11 minutes. Since most of us feel the same way, boycotts rarely get off the ground.
But it was the boycott chain letter that got me thinking, and prompted the informal survey I sent to 500 of our Business Edge readers (via e-mail), asking one question: “How much (in percentage terms) have you cut the usage of your vehicle in light of the current price of gasoline?” Of the 318 responses I received, 220 said they had made no adjustments. Many said such things as: “I have much bigger things to worry about than the price of gas.” But even those who had managed to cut gas usage hadn’t cut much (36 of 93 cut 10 per cent or less; only six people said they had cut their usage by more than 50 per cent).
The average cut in usage was under seven per cent. Comments from respondents, however, suggest that the largest users, such as those with fleets and large industrial vehicles, have found it most difficult to make adjustments.
An overarching theme, even among people unable to reduce, was that if prices stay this high, the next vehicle purchase would likely be a smaller car or hybrid. Much of the consumption reduction came via use of the smaller family car, where there was an option.
Surely, this is the kind of trend that scares people in the business. The gasoline companies know that long-term adjustments will greatly affect demand, and hence the price. They remember that gas usage fell dramatically during the oil shocks of the 1970s.
The owner of an average gas- powered car spends roughly $1,000 per year on fuel. With prices up by nearly 30 per cent in the past few weeks, that implies an added cost of $300 or more for the rest of us this year, assuming consumption stays flat and prices remain at least that high. If that extra fee doesn’t continue to have an incremental effect on consumption, I’d be surprised.
The problem with getting there, however, revolves around the necessary change in lifestyle and infrastructure it entails. New trucks, adjusted suburbs and hybrid technology do not happen quickly, but have profound effect.
Prime Minister Paul Martin was talking last week about the importance of this issue. But if he’s considering capping prices, we will head back to the gas-station lineup days we saw in the 1970s.
If politicians want to do something, they might start by making it easier to build refineries.
But year after year, the regulations only get harsher, and the not-in-my-backyard syndrome grows. Issuing permits for refineries is political suicide right now.
Last week, I believed ExxonMobil chief executive Lee Raymond when he defended his company against accusations he was gouging consumers while earning astonishing profits. ExxonMobil and its peers deserve every cent.
If anyone out there thinks it’s so profitable refining oil, I invite them and 100,000 of their closest friends to pony up the cash to build their own plant. If the survey told me anything, cutting gas usage is hard to do, but it’s coming.
(Ian van de Burgt can be reached at ian@businessedge.ca)
