Costs Of Oil: Will Alternative Fuels Take A Hit?

Feb 19, 2015

What I assumed to be an pretty straightforward question—how does A affect B, how does the cost of one thing affect the allure of another— turned out to not have a straightforward answer in terms of the price of oil and the alternative fuel market. 

 

In search of answers, I spoke with energy market analysts, trade association representatives, lobbyists, people within government organizations and basically anyone else paid to know about oil prices and their effect on alternative fuel. 

What I heard is that it is just too soon, or there isn’t sufficient data to know if alternative fuel is going to take hit from the low prices at the pump.

Credit energy.utah.gov

And then I asked the right question. Why do people buy the cars they buy?

According to Matt Godlewski, president of Natural Gas Vehicles for America, lower oil prices  haven’t changed the way people shop for cars so far. He said this is partly because people don’t seem to factor in the cost of fuel when they make their purchase.

“Consumers buy vehicles for a lot of reasons, and I think you’ve got many who are just interested from an environmental side alone just trying to do their part,” Godlewski said.

Nicholas Chase, industry economist at the U.S. Energy Information Administration, agreed with Godlewski. 

“Fuel economics payback is not the only calculation going on in peoples’ minds with these; they might care a lot about the environment or reducing petroleum consumption. Low gas prices for four or five months isn't going to knock them off that value system,” Chase said.

People buy these vehicles because they want to be a part of the what they see as the solution to environmental problems. It’s about ideology, not economics.

Deputy Director for the Governors Office of Energy Development, Jeffery Barrett said this is true for Utah consumers as well. 

“In Utah, the alternative transportation discussion is not a cost discussion, it’s an air quality discussion,” Barrett said. “Public transit might be about congestion in Boston or Los Angeles, but public transit isn't about congestion here, it’s about air quality.” 

While it should be noted that the payback timeline of an alternative fuel vehicle begins to stretch as oil prices drop, people who purchase electric, compressed natural gas or biodiesel vehicles will continue do so for reasons other than relative cost to conventional gasoline vehicles.

Looking toward the future one thing is still clear, oil prices are volatile, boom and bust is the nature of the industry, and consumers know that the price to fill their tank won’t always be as low is it is currently.