Royal Dutch Shell plc (ADR) (RDS.A), BP plc (ADR) (BP): We’re Closer to $5 Gas Than You Think

Let’s take, for example, natural gas vehicles. Clean Energy Fuels Corp (NASDAQ:CLNE), the nation’s largest fueling station network, has about 360 stations. The problem, though, is that just isn’t enough to make it convenient enough for every day drivers to make the switch. According to the Petroleum Marketers Association of America, the point at which natural gas vehicles can be adopted on a large scale is about 53,000 fueling stations, so we are about 2.2% to the point where you or I could seriously consider a natural gas vehicle without the inconvenience of driving around for half the day to find a fueling station.

The same could be said for electric vehicles as well. I cannot deny that electric vehicle sales are growing fast, but they still have a long way to go before electrics start taking a serious chunk out of other vehicle sales. Year to date, Tesla Motors Inc (NASDAQ:TSLA) has sold about 7,506 Model S vehicles. When you stack that up against cars in its class (Mercedes S-Class, Audi A8, BMW 7 series), it outperformed each of them. In the grand scheme, though, all electric vehicle sales represent less than 1% of the more than 6 million vehicles sold in the U.S. so far this year. It would take a monumental effort from automakers to convert or expand their manufacturing processes to accommodate a big bump in electric vehicle sales.

Pundits always get in trouble by saying something will never happen, but technology always improves. If anything I am very optimistic about the long-term prospects of alternative fuel transportation. Based on where we are today, though, it will still be quite some time before we can say “no thanks” to high gas prices.

Supply can turn at at the drop of a hat, and it’s not a good thing
The U.S. boom in oil production has made us pretty bold in our proclamations about the global energy market, and to a certain degree this boom will profoundly affect oil supplies around the world and will take away some of OPECs influence on oil prices. The key word in that previous sentence, though, is “some”.  OPEC representatives have gone on record lately to say that they intend to maintain a 30 million barrel per day production level in order to keep prices at current levels. For quite a while longer, we will have to live with the fact that OPEC will still be taking the big piece of chicken at the dinner table.

As much as we would like to see other nations develop the drilling technology that has flourished in the U.S., it’s estimated that hydraulic fracturing and horizontal drilling may not be in widespread use outside the U.S. for another 10-15 years. This means that several other large oil markets, such as Europe and China, will be at the mercy of OPEC’s pricing, and will pay a hefty premium because of it.

That’s OK, we can produce our own oil so we don’t need to worry about prices overseas, right? Not really. As much as we would like to think that U.S. oil companies are going to shield us from expensive prices overseas, it is more likely that they are salivating at the idea of selling to those markets. In the previous quarter, the trio of large independent refiners with a presence in the Gulf of Mexico – Valero Energy Corporation (NYSE:VLO), Phillips 66 (NYSE:PSX), and Marathon Petroleum Corp (NYSE:MPC) – combined to export 785,000 barrels of gasoline and diesel per day to markets in Europe and South America. Each of these companies’ execs stated in their recent conference calls that they are doing this because the prices there are much more attractive, and each one has plans to expand export capacity to take advantage of these high prices. As long as someone is paying a higher price for gas overseas, we will likely be stuck with high prices as well.

What a Fool believes
As much as I would like to believe that gas prices have hit the ceiling, there is too much going on in the global markets to think that we will never get there. In the long term, alternative fuels will start taking bigger bites out of gas vehicles and the U.S. will be able to supply itself with more oil, but for the time being we will still be affected by the whims of the global oil market. This means that $5 gas is well within the realm of possibility.

The article We’re Closer to $5 Gas Than You Think originally appeared on

Fool contributor Tyler Crowe has no position in any stocks mentioned. You can follow him at under the handle TMFDirtyBird, on Google +, or on Twitter, @TylerCroweFool. The Motley Fool recommends Clean Energy Fuels and Tesla Motors. The Motley Fool owns shares of Tesla Motors.

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