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How Gas Prices Work

Arctic National Wildlife Refuge

Out of Gas

If gas prices are influenced by the world supply of oil, what will happen when we run out of oil? The surprising answer is, we probably won't. That doesn't mean that the rampant use of fossil fuels isn't a concern -- they are very harmful to the environment, and dwindling supplies will still cause massive changes in our economy -- but oil will get too expensive to use long before we run out.

The world oil supply acts like an asymptotic value, which is just a mathematical term for a value that gets closer and closer to another value, but never actually gets there. In this case, the "other value" is zero, or no oil left anywhere. Why would we never get there? Oil companies start out with the easiest (and cheapest) oil to find and bring to the surface. Once that runs out, they have to find more oil, which might be harder to harvest. As time goes on and the oil supply dwindles, it will get harder and harder (and more and more expensive) to find what's left. Eventually, it will get so expensive to find and harvest the remaining oil that no one will be able to afford it. The rising costs will force us to develop other energy sources.

In March 2006, the U.S. Senate passed its 2007 Budget Resolution, which included a provision for lease sales of the right to drill for oil in the Arctic National Wildlife Refuge (ANWR) in Alaska. The Congressional Budget Office estimates that income from lease sales could top $4.2 billion in the next five years [source: ANWR].

The Arctic National Wildlife Range was established in 1960 to protect the "unique wildlife, wilderness and recreational values" of the area. In 1980, Congress passed the Alaska Lands Act, which renamed the area and more than doubled its size. Today, the ANWR encompasses nearly 20 million acres, which is about the size of South Carolina. The same act authorized the study of the oil and gas potential of the northern part of the Refuge, called the 1002 Area. This region is still being looked at as a possible oil-development site, but environmental groups say that any oil production would upset the natural ecosystem within the ANWR.

It's still uncertain just how much oil exists under the ground of the ANWR. A 1998 analysis conducted by the United States Geological Survey (USGS) estimates that there are about 7 billion barrels of profitable oil in the 1002 Area alone, but the price of crude-oil determines how profitable that oil is. If the price of crude oil dips below $16, the cost of producing the oil would offset any profit -- prices rose above $130 per barrel in June 2008 [source: EIA].

The issue of gasoline prices is often a volatile one. As long as cars and other vehicles run on gasoline, the price of gas will continue to affect every part of the U.S. economy. While other fuel sources exist, none of them could be quickly integrated into the economy, which leaves Americans dependent upon gasoline for the time being.

This gas dependency makes everyone from the daily commuter to the shipping company executive very aware of price fluctuations. These fluctuations may vary from week to week or month to month, but over time are relatively stable. Still, limited resources, as well as environmental concerns related to oil use and production, encourage scientists to look at new technologies, such as fuel cells, to reduce our dependence on oil and gas.

For more information on gas prices and related topics, check out the links on the next page.

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More Great Links


  • Bush, George H. W. State of the Union Address. 1/23/2007 (4/30/2008)
  • California Environmental Protection Agency. Cleaner-burning Gasoline: An Update. (4/30/2008)
  • Hargreaves, Steve. "U.S. Gas: So Cheap it Hurts." CNN Money. 5/1/2008 (5/1/2008)
  • Forbes. "Oil Soars to Record High Above $135 in New York and London." 5/22/2008.
  • McKay, Peter. "Kernels from AAA Show Ethanol's Costs to Drivers." Wall Street Journal. 4/25/2008 (5/1/2008)
  • OPEC. What Is OPEC? (4/30/2008)
  • Taylor, Jerry. "Bad Policies Fuel Midwest Gas Prices." CATO Institute. 6/21/2000 (5/1/2008)
  • Read, Madlen. "Oil Tops $147 Setting New Record." Associated Press. July 11, 2008. (August 5, 2008)­
  • U.S. Bureau of Labor Statistics. Consumer Price Index (4/30/2008)
  • U.S. Department of Energy. "Expanding the Nation's Strategic Petroleum Reserve. (4/30/2008)
  • U.S. Department of Energy. Energy Information Administration. Annual Energy Outlook 2008. (4/30/2008)
  • U.S. Department of Energy. Energy Information Administration. Annual Energy Outlook 2008 with Projections to 2030 (4/30/2008)
  • U.S. Department of Energy. Energy Information Administration. Petroleum. (4/30/2008)
  • U.S. Department of Energy. Energy Information Administration. Short-term Energy and Summer Fuels Outlook (4/30/2008)
  • U.S. Department of Energy. Energy Information Administration. U.S. Petroleum Supply, Consumption and Inventories. (4/30/2008)
  • U.S. Department of Energy. Energy Information Administration. U.S. Energy Markets Summary (4/30/2008)
  • U.S. Federal Trade Commission. "FTC Issues Report on Midwest Gasoline Price Investigation." 3/30/2001 (5/1/2008)