IEA report suggests lower fuel prices ahead

According to a recent article in the Wall Street Journal, the Paris-based International Energy Agency (IEA) predicts that the United States will overtake Saudi Arabia as the world’s leading producer of oil by 2020. Due in part to the remarkable yields enabled by hydraulic fracturing (fracking) and directional drilling, technology developed since the 1940s, the U.S. surpassed Russia in 2009 to become the world’s largest producer of dry natural gas, as described in this report  from the DOE’s Energy Information Administration. (The increased use of natural gas to generate electricity also weakens arguments in favor of a carbon tax.) As a result of the new gas and oil boom, according to the Wall Street Journal, “Within a decade, the IEA forecasts U.S. oil imports will fall by more than half, to just 4 million barrels a day from 10 million barrels a day currently.”

In 2007, the Pelosi/Reid Congress passed the Energy Independence and Security Act (EISA 2007), and President George W. Bush signed it into law. Among its many aspects, EISA 2007 promoted the use of biofuels to reduce America’s dependence on imported crude oil. The EPA was given the job of crafting the Renewable Fuel Standards (RFS2): “EPA is responsible for developing and implementing regulations to ensure that transportation fuel sold in the United States contains a minimum volume of renewable fuel.”  The consequence for consumers is the widespread presence of ethanol in gasoline today, and the resulting shortage of ethanol-free mogas, the only affordable, FAA-approved alternative to leaded avgas for most pilots.

Only a short half decade ago at the signing of EISA 2007, few could have predicted America’s current position as the world’s leading producer of natural gas, and even fewer could have imagined the U.S. as a net exporter of gasoline.  As with many laws passed by Congress, once implemented they are often found to cause more problems than they solve, or are obsolete.

Given recent trends in natural gas and oil  production, Congress needs to re-examine the need for the RFS2 ethanol mandates, as we are clearly on the road to energy independence thanks to higher fossil fuel yields and the natural tendency of consumers and industry to reduce energy consumption whenever it makes fiscal sense.

How will this affect the price of aviation-specific fuels such as avgas and Jet-A?  Given that oil extracted from the shale fields producing much of the increased supplies is of a lower-grade than Arabian sweet crude, higher octane fuels such as avgas are more difficult to make from it.  Jet-A and gasoline, produced in vast quantities in contrast to avgas, are more likely to be produced from shale oil, which would suggest lower prices at the pump.

Oil and its refined byproducts are part of the global market for energy, so it is too early to know if increased supplies in the U.S. will lower prices we pay, or surplus American fuel will be exported to other countries in need of it, tempering reductions in prices. Nevertheless, these recent reports from the IEA and the DOE give reason for optimism that at least Jet-A and mogas prices will drop in the coming year.

The GAfuels Blog is written by two private pilots concerned about the future availability of fuels for piston-engine aircraft: Dean Billing, Sisters, Ore., a pilot, homebuilder and expert on autogas and ethanol, and Kent Misegades, Cary, N.C., an aerospace engineer, aviation sales rep for U-Fuel, and president of EAA1114.

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