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Gas is suddenly cheap(er), and the reason is bigger than you think

Photo by Wil C. Fry on Flickr.

Gas prices have fallen below $3 per gallon in much of the US, and the explanation isn’t the simple seasonal differences that always make gas cheaper in autumn. The bigger reason: US oil shale deposits are turning the global oil market on its head.

How did cheap gas happen?

In the simplest terms, supply is up and demand is down.

Travel drops between the summer travel season and the holidays, and cooler fall temperatures actually make gas cheaper to produce. That’s why gas prices always fall in autumn.

But that’s not enough to explain this autumn’s decline, since gas hasn’t dropped this low in years. China is also using less gas than expected, but that’s also only part of the explanation.

The bigger explanation seems to be that supply is also up, in a huge way. North American oil shale is hitting the market like never before, and it’s totally unbalancing the global oil market. Oil shale has become so cheap, and North American shale producers are making such a dent in traditional crude, that some prognosticators are proclaiming that “OPEC is over.”

It’s that serious a shift in the market.

Will this last?

Yes and no.

The annual fall price drop will end by Thanksgiving, just like it always does. Next summer, prices will rise just like they always do. Those dynamics haven’t changed at all.

Likewise, gasoline demand in China and the rest of the developing world will certainly continue to grow. Whether it outpaces or under-performs predictions matters less in the long term than the fact that it will keep rising. That hasn’t changed either.

But the supply issue has definitely changed. Oil shale is here to stay, at least for a while. Oil shale production might keep rising or it might stabilize, but either way OPEC crude is no longer the only game in town.

Of course, oil shale herf=”http://www.businessweek.com/articles/2013-10-10/u-dot-s-dot-shale-oil-boom-may-not-last-as-fracking-wells-lack-staying-power”>isn’t limitless. Eventually shale will hit peak production just like crude did. When that happens it will inevitably become more expensive as we use up the easy to refine reserves and have to fall back on more expensive sources. That’s a mathematical certainty. But it’s not going to happen tomorrow. In the meantime, oil shale isn’t very scarce.

So the bottom line is that demand will go back up in a matter of weeks, and the supply will probably stabilize, but at higher levels than before.

What does this mean?

Here’s what it doesn’t mean: There’s never going to be another 1990s bonanza of $1/gallon fill-ups. Gas will be cheaper than it was in 2013, but the 20th Century gravy train of truly cheap oil is over.

Oil shale costs more to extract and refine than crude oil. Prices have to be high simply to make refining oil shale worth the cost, which is why we’ve only recently started refining it at large scales. Shale wouldn’t be profitable if prices dropped to 1990s levels. In that sense, oil shale is sort of like HOT lanes on a congested highway, which only provide benefits if the main road remains congested.

So shale can only take gas prices down to a little below current levels. And eventually increased demand will inevitably overwhelm the new supply. How long that will take is anybody’s guess.

In the ultimate long term, oil shale doesn’t change most of the big questions surrounding sustainable energy. Prices are still going to rise, except for occasional blips. We still need better sustainable alternatives. Fossil fuels are still wreaking environmental catastrophe, and the fracking process that’s necessary to produce oil shale is particularly bad. It would be foolish in the extreme for our civilization to abandon the progress we’ve made on those fronts, and go back to the SUV culture of the 20th Century.

There will probably be lasting effects on OPEC economies. The geopolitical situation could become more interesting.

In the meantime, enjoy the windfall.

 Cross-posted at Greater Greater Washington.

October 28th, 2014 | Permalink
Tags: economy, energy, environment, roads/cars, transportation

Downtown & Georgia Avenue Walmarts open for business

Walmart’s foray into urban format stores officially begins today, with stores on H Street and Georgia Avenue opening for business. The H Street store marks the first time in 18 years DC has had two downtown department stores.

I stopped by the downtown store and snapped a few pictures.

H Street Walmart.

The main entrance leads into a small ground floor lobby. The actual store is one floor up. I was surprised to discover that aside from the lobby, the whole store is a single level.

> Continue reading

December 4th, 2013 | Permalink
Tags: development, economy

Stadiums aren’t about the money

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This doesn’t make money either.
Photo by \Ryan on flickr.

Why do cities keep building stadiums, despite study after study showing they don’t make money? Simple: They’re cultural amenities that people want, and are willing to pay for.

When Mayor Gray announced the DC United stadium deal last month, he kicked off a public debate about stadium-building. Much of the debate has focused on whether or not the deal will make DC any money.

The fact that stadiums often lose money is largely irrelevant. So do museums, libraries, and opera houses. Stadiums fall into the same category.

Smart communities try to squeeze some economic development out of stadium deals, because they may as well, but that’s always a side benefit. At the end of the day it isn’t the main reason cities build stadiums.

It’s true that the privately-owned sports franchises that use stadiums reap a disproportionate benefit from public financing deals, but that’s also irrelevant to the stadium-building decision. Pro sports franchises are also cultural amenities that lots of people want and will pay for.

This is why decades of policy wonk hand-wringing over the money has rarely convinced anyone to stop building stadiums. That criticism, true as it is, simply does not invalidate the perceived benefit.

 Cross-posted at Greater Greater Washington.

August 6th, 2013 | Permalink
Tags: development, economy, government

Things I’d rather ban than bars

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T-Mobile store. Image from T-Mobile.

Someone has proposed a moratorium on liquor licenses in the U Street area. It seems unlikely to pass, but regardless, here’s a partial list of things I’d rather ban proliferation of in DC:

  1. Bank branches. In the age of ATMs, banks are offices, not retail. They have a deadening effect on sidewalk life and drive up the cost of retail space for everyone else.

  2. Cell phone stores. Proliferation of luxurious cell phone stores is proof that we’re all paying way too much for cell phone service.

  3. Pharmacies. Unlike cell phone stores, it is an important convenience for every neighborhood to have a CVS or Wallgreens. But after the 3rd one opens in your neighborhood, are you really excited about a 4th?

  4. Froyo stores. I like froyo, but it’s obviously a bubble that’s about to burst. No way can so many survive long term.

  5. Empty storefronts. Griping above notwithstanding, we shouldn’t ban anything as long as we have empty storefronts. Even that bank branch is better for sidewalk life than nothing.

February 11th, 2013 | Permalink
Tags: economy, law

US gas is still cheap by international standards

According to an international survey, the price of gasoline in the United States is still lower than in most of the rest of the world’s developed countries. The survey, by Car and Driver magazine, included this handy map showing the average price of 1 gallon of gas in US dollars for most of the world:

January 7th, 2013 | Permalink
Tags: economy, energy, roads/cars, transportation

Full steam ahead for suburban skyscrapers

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Alexandria’s proposed Hoffman Towers. Image by DCS Architects.

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North Bethesda Market II, soon to be the tallest building in the Maryland suburbs. Image from JBG.

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Reston’s next tallest building. Image from RTC Partnership.

Within the confines of the District of Columbia, the question of whether to allow tall buildings is a subject of much debate. But in the burgeoning urban centers of Northern Virginia and suburban Maryland, there is no question: more tall buildings are coming.

For many decades Rosslyn has been home to the tallest skyscrapers in the Washington region. The taller of its Twin Towers is 381 feet tall. But soon that building will rank no better than 3rd tallest in Rosslyn alone, with the 384 foot tall 1812 North Moore and the 387 foot tall Central Place in construction or soon to begin.

Even with those new buildings, Rosslyn could soon lose its crown. Buildings as tall as 396 feet could soon be built around the Eisenhower Metro station in Alexandria. They would eclipse Alexandria’s current tallest building, the 338 foot tall Mark Center Hilton.

Tysons Corner is in on the action too. It’s tallest buildings right now are the 254 foot Ritz Carlton and the 253 foot 1850 Towers Crescent. But at 365 feet, a building in the proposed Scotts Run Station development will soon dominate.

In Maryland, North Bethesda Market I topped out last year at 289 feet tall, beating out Gaithersburg’s 275 foot tall Washingtonian Tower and thus becoming Montgomery County’s new tallest skyscraper. Its reign will be short-lived, as a new 300 foot tall ziggurat has already been proposed nearby.

And this week, big news is coming to Reston and Crystal City.

Yesterday Fairfax County approved a 330 foot building in Reston that will become the tallest building in the Reston Town Center cluster.

Meanwhile, the Arlington County Board is scheduled to vote this coming weekend to either approve or deny a 297 foot building in Crystal City that would tower well above all its neighbors. Tall buildings have long been constrained there by restrictions due to Reagan National Airport, but those rules recently changed, so taller buildings are now allowed.

By the standards of large central cities these aren’t particularly tall buildings. Baltimore and Virginia Beach both have buildings over 500 feet tall, and the world’s current record holder is a whopping 2,717 feet. But still, the trend in the DC area is unmistakable; buildings are getting taller, and will most likely continue to do so.

Cross-posted at Greater Greater Washington.

September 13th, 2012 | Permalink
Tags: architecture, development, economy, urbandesign

The reason enclosed malls are falling out of favor, via flowchart

Question: Why are enclosed malls dying?

Answer: Because big boxes are more convenient for one-stop shopping, while town-centers are more interesting places to hang out. Malls are losing on both fronts.

Thus Columbia Heights, combining the two.

September 4th, 2012 | Permalink
Tags: economy, land use, urbandesign

Soon to be vacant Mobil headquarters should be redeveloped

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Mobil’s huge property, marked in red. Click to enlarge.

In 1987 the Mobil gasoline corporation moved its corporate headquarters from New York to Merrifield, Virginia. It was a major coup for the DC region, and a big early step in the growth of Fairfax County as a major corporate base. In the style of the times and befitting a major corporation, they built and occupied a massive campus-style building, set back literally acres from any of the surrounding highways. The site is pictured at right.

12 years later, in 1999, Mobil merged with Exxon to form what is today the 3rd largest corporation in the world. ExxonMobil’s headquarters set up in Irving, TX, in suburban Dallas. The Merrifield office became the Downstream headquarters, directing refining, manufacturing and marketing.

And now they are vacating their 1.2 million square foot behemoth office building and consolidating their offices in Houston – the oil capital of America.

Apparently they are shopping the building to other prospective office tenants. Fairfax County says they don’t expect it to be vacant for long.

But should this building still be used? It’s a private fortress set in a huge forest, amidst an otherwise urbanizing area. It’s a dinosaur of 20th Century planning. Inefficient use of land, laid out to require everyone to drive, and surrounded by “open space” that’s impractical for anyone to use as an actual park. Bad bad bad.

On the other hand, it’s a huge piece of land at an absolutely great location. It would make a fantastic town center development. The land is too far from Dunn Loring Metro to be walkable, so it wouldn’t be a TOD, but it could easily accommodate a Reston Town Center or Shirlington-like development, which if not perfect would still be a big improvement over sprawl. And who knows, regional transportation planners are starting to discuss the possibility of light rail on Gallows Road (pdf, see page 2, item #8), so maybe in a few decades that transit connection will be there after all.

It’s unfortunate that the region will lose all the jobs associated with Mobil, but it would be even more unfortunate if this opportunity to redevelop one of the prime pieces of real estate in Fairfax County were missed.

June 8th, 2012 | Permalink
Tags: economy, energy, lightrail, master planning, proposal, transportation

The Temporium: An experiment in urbanism

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DC rowhouse print for sale at the Temporium.

Have you ever looked at a storefront that’s been empty a long time and wondered why it couldn’t be filled, at least temporarily, by a small local business?

After all, nobody benefits when a storefront sits empty too long. The property owner isn’t making any money, potential businesspeople aren’t operating their business, and neighborhood residents have fewer shopping options and have to travel farther for them.

Unfortunately, it’s common practice for property owners to charge such high rents that it can take a long time to find a tenant. Months, even years sometimes. This is especially true for new buildings, and for buildings developed by large-scale corporations (which can eat the losses from an empty lease if they need to).

Amidst all those empty storefronts, however, are hundreds of small local businesses that would love to occupy a retail space, but can’t afford the asking prices for a lease in a good location.

Why not let small businesses use some of these spaces on a short-term basis at reduced rent, while deals with longer-term, higher-paying tenants are being sought and worked out?

Actually, there’s no real reason why not. That’s exactly the premise behind the Mount Pleasant Temporium, a pop-up retail store selling goods from 30-some local businesses that don’t have stores of their own.

The Temporium is a project by the DC Temporary Urbanism Initiative, which seeks to promote economic development, incubate local businesses, and activate underused commercial properties. It’s an absolutely fabulous idea that benefits just about everyone, and should be emulated across the city.

The Temporium is at 3068 Mt. Pleasant Street and is open 2-7pm M-F and 11-5 weekends, until March 13.

March 4th, 2011 | Permalink
Tags: development, economy, events, government

Why the federal gas tax isn’t covering our needs

A few short decades ago the United States built the Interstate Highway System, one of the greatest public works of all time. It’s a good thing we built it when we did, because we couldn’t afford it today. We can’t afford to build much new transportation infrastructure at all these days, whether road or transit.

Why? It’s not as if we’re a less wealthy nation now. On the contrary, we’re wealthier. The problem is that the gas tax, the primary source of revenue for federal transportation capital investment, has been shrinking every year.

The gas tax isn’t indexed to inflation. It was 18.4 cents per gallon years ago when gasoline was less than a dollar per gallon overall, and it remains 18.4 cents per gallon today. Since revenue generated from the gas tax stays the same while the rest of the economy grows, that means the gas tax revenue doesn’t have the buying power that it used to.

In fact, when you take inflation into account American drivers are only paying half as much in federal gas taxes as they were in 1975.

That’s a double whammy, because not only do we have half the budget we used to, but instead of spending it all on new infrastructure we have to split it on maintenance for all the new roads we’ve built during that time. So we have less money, and most of what we do have is already spoken for. The leftovers available for new construction are a pittance, relatively speaking.

And that’s under the best case scenario from a revenue-generating standpoint.

What happens if Americans drive less, as we’ve been doing since 2008? Then the revenue starts dropping in real terms, not just inflationary terms. Triple whammy. VDOT’s budget in fiscal year 2008 was $4,797,323,761. For fiscal year 2011 it is $3,736,056,514. That’s almost a quarter decrease in real terms.

No wonder we can’t build the sort of things we used to be able to build. No wonder our infrastructure is crumbling. No wonder China is blowing us away.

The good news is that bipartisan support is building for a hike in the federal gas tax. The president’s bipartisan debt reduction commission recommended raising the gas tax by 1 cent per month for 25 months, until it is 43.4 cents per gallon (more than twice its current rate), and then indexing it to inflation after that.

If legislators have the courage to enact such a change they would be doing the country a dramatically important public service.

Of course, that would only be the first step of what would have to be at least a three-step process to really fix our nation’s infrastructure for the long term. The second step would be to spend that new cash on multi-modal infrastructure projects that reduce our need to drive long distances for daily needs. Investing in better rail, transit and non-motorized infrastructure would make our country less congested, less polluted, and less reliant on foreign oil.

The third step would be to abandon the gas tax and adopt a new revenue system, since gas tax revenue will become less reliable as multi-modal transport options become more available. With gasoline likely to become more sparse in the future anyway, that’s a problem we are likely to face sooner or later regardless of steps one and two.

While it’s true that increasing the gas tax may be a band aid (or a first step) rather than a permanent revenue solution on its own, it is also true that it’s desperately needed band aid. We simply can’t keep up with the infrastructure demands of our economy with such inadequate funding.

Cross-posted at Greater Greater Washington.

November 15th, 2010 | Permalink
Tags: economy, government, transportation



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