Los Angeles Daily News
$3 = breaking point
Will Californians swallow gas prices or drive less?
By Lisa Mascaro
Sunday, March 20, 2005 - As the gallons clicked away on the pump and the bill rose to $60 to fill up her SUV, Lisa Hess of Westlake Village felt the same helplessness that other motorists in Southern California are feeling these days.
"What can you do? Nothing. I drive around town. I have kids. The taxi driver, that's what I am," said the mother of five. "What am I supposed to do, send my kids on the bus to T-ball? To track? It's a shame that we don't have any control over it."
Hess was seeing $2.53 a gallon for regular unleaded and faces the prospect of paying more in the not-too-distant future. Already, a station in Calabasas has posted regular for $2.89 and premium for $2.99.
How much will consumers like her bear before it hurts so much they start driving less?
More than $3 a gallon seems to be the cutoff point for Southern Californians.
That's when many people say they would rethink their solo-driving ways and get into a car pool, reduce their trips, get a new car or a job closer to home.
"It's pretty much reaching that point now," said Avanidhar Subrahmanyam, a professor of finance at The Anderson School at UCLA.
"People are willing to absorb these increases. I believe that another 25- to 50-cent increase, people would cut back on consumption. It exceeds the psychological barrier."
Prices shot up to an average of $2.35 a gallon in the Los Angeles-Long Beach area by the end of last week, 18 cents more than this time last year when gas was already up to an unbelievably high $2-plus a gallon for regular unleaded self-serve, according to the Automobile Club of Southern California.
In fact, prices have remained above $2 for much of the past year.
"I think 3 is going to be the new 2," said Los Angeles County Economic Development Corp.'s chief economist Jack Kyser about local gas prices.
"This is an interesting breaking point for us, to see how the consumer does respond," he said. "I think a lot of people feel there's some sort of grand conspiracy out there. It's just good, old-fashioned supply and demand."
Peak prices for crude oil, which are up about $17 a barrel since January to well over $50 a barrel, have ignited a price hike nationwide, according to the California Energy Commission.
In California, the spike comes as the state is already struggling with demand that outpaces supply.
California's population has shot up 16.4 million people since 1970 -- and 16.2 million automobile registrations -- but no new oil refineries have come online since 1969.
We use more gas than the state produces, making California increasingly dependent on having gas shipped and trucked in, at a higher price.
California's love of gas-guzzling SUVs -- which has shown some signs of waning -- only exacerbates the imbalance making prices high for everyone, according to the California Energy Commission.
"If you're driving a big gas-hog SUV that gets 10 miles to gallon, it costs you more to fill up that vehicle -- but because you're using so much gas you're costing more for everyone in California," said Rob Schlichting, a spokesman for the California Energy Commission. "You're tightening supply.
"Instead of SUVs, if we're all driving hybrids, we'd be awash in gas and prices would be cheaper."
But none of that does much good for Efren Escarcega.
The Reseda resident drives 700 miles a week, crisscrossing Southern California to clean houses in Pasadena, Malibu and Calabasas. His minivan is stocked with supplies.
"I need the car," said Escarcega. "I have all this stuff."
He can't imagine another option -- like carrying his gear on the bus -- and says gas would have to rise above $3 a gallon before he'd have to figure out an alternative plan.
"I pay. The car, the rent, a lot of things. It's very difficult for me."
Many analysts don't believe gas prices will hit the $3 mark because as prices rise that high, demand will taper, halting the increase in its tracks.
"From our perspective, things are really slowing down," said Tom Kloza, chief oil analyst with the Oil Price Information Service, an independent publishing house that tracks the industry. "It looks like we're in a sluggish period right now."
Kloza dismisses stories of soaring demand, saying it just doesn't mesh with research from sellers in the field.
Still, while he believes prices will climb through spring by as much as 15 cents a gallon, he thinks the market will calm down by the second half of the year as demand cools further.
"The threshold of the average person is probably what the academics suggest -- $2.75 to $3.25 -- when the average person says, I'm going to cut back."
But for many people, especially those in lower-income brackets, that threshold has already arrived.
"You start to see some temperance of demand about $2.30 to $2.40," Kloza said.
For Jim DeGrande, the high prices have made him cut back on his family's monthly camping trips because it's just gotten too expensive.
"It's out of control," said the Anaheim resident, pumping gas last week.
"I drive a motor home and an Excursion and I can't get out of here without a $100 bill. I'm not going right now as much as I was because I can't afford it."
In Los Angeles County, where 42 percent of the households earn less than $35,000 a year, the high gas prices take a chunk out of family incomes.
The Metropolitan Transportation Authority reported slight increases in some of its ridership between January and February, including a 10 percent rise on the Metro Red Line subway.
The MTA's also seen a 7 percent bump in calls to its commuter hotline in the past three weeks, and a 33 percent increase in February in visits to its online ride-sharing service over the year.
"Certainly the gas prices have helped," said MTA's ride-share manager David Sutton.
But still people are inclined to pay the high gas prices.
Vacationing from Saratoga, Calif., Robert L. Page and his wife, Donna, made a stop for gas in the San Fernando Valley area. The prices were "atrocious" on the trip, but he said it's not going to stem travel for those who need to be on the road.
"We have things to do," he said. "Those who have an opportunity to travel just do it. Too many of us want to go."