The Challenge High fuel prices last year shocked consumers and businesses. This year, those steeper prices will be the norm, though they shouldn't be as high as they were last fall.
A supply-and-demand imbalance explains why prices probably won't return all the way to the mid-$30 levels seen in 2004. Oil and gas use correlates with GDP growth, meaning India and China are using more and more fuel as their GDP continues to shoot up. In China, demand for oil grew 15.4% in 2004. For 2006, however, the International Energy Agency is estimating more tempered demand, growing by 6.5%. Southeast Asia is also upping its use. The U.S. certainly has supply challenges, too. Hurricanes Katrina and Rita knocked many of the Gulf Coast oil and gas producers offline; about one-third of production was still shut down at the beginning of December. "That's probably a problem for the next six months to a year," says Catherine Elder, who puts together quarterly gas-price forecasts for R.W. Beck, a 64-year-old engineering and research firm based in Sacramento. Hot summer weather also pushed prices up, although a temperate fall eased the pressure.
Remarkably, the hurricanes may have helped fuel prices. Futures markets indicate 2006 oil prices will fall below prehurricane levels. That's because reaction to the storms offset the damage, says Joel Prakken, chairman of the economic forecasting firm Macroeconomic Advisers in St. Louis. The government released oil from its reserves and temporarily relaxed EPA standards on fuels; Asia and Europe sent over oil; and the refineries that weren't hurt by the storm--which would have been switching over to low-production winter levels--continued to produce at high summer levels. "The damage is real," says Prakken, "but the system was able to squeeze out a little extra supply." That said, he points out, "there's a vulnerability that is the lasting legacy of this storm"--meaning a cold winter could cause the stretched system to snap.
What You Can Do Along with budgeting for higher gas and fuel costs, and doing everything from closing drapes to buying energy-efficient equipment, companies are thinking long-term.
Eventually, these small price fluctuations will become irrelevant, as demand from global growth continues to outpace supply.
In anticipation of that, says Paul Thomas, CEO of Green Mountain Energy, a $418 million energy and gas supplier in Austin, "we're seeing great demand for green; I think that's one of the big trends that will develop over the next 10 years." Forward-thinking companies are already moving in that direction;
Stemberg has noticed that several interesting companies seeking Highland Capital money are working on renewable energy.
This movement is taking root globally. Chinese President Hu Jintao recently announced that his nation would double its reliance on renewable energy to 15% of all energy used by 2020. Among American consumers, the plummeting sales of SUVs and the interest in hybrid cars indicate consumption patterns are changing. "There's a tremendous move toward green sustainability," says James Canton, head of the Institute for Global Futures think tank in San Francisco. "There are going to be tremendous new business opportunities."