Frederica Freyberg:

But first, we zero in on one area of the economy that is having a direct impact on your wallet, the price of gasoline. According to AAA, this is what you can expect to pay for gas if you are traveling in the Midwest this weekend. The average price in Wisconsin is $2.83. Minnesota has the cheapest gas at $2.70 while Michigan has the highest at $2.93. One year ago the national average was $3.27. Who wins and who loses when the price of oil drops so dramatically as we’ve seen during the past few months? This week Richard Shaten, a University of Wisconsin expert on the economic and environmental impact of energy joins us. Thanks very much for doing so.

Richard Shaten:

My pleasure.

Frederica Freyberg:

Low prices at the pump are certainly welcome. What is responsible for the dropping prices of gasoline?

Richard Shaten:

You know, I think it’s important to make a distinction between a really short term temporary change, a medium term change over one, three, five years and the long-term outlook for gasoline prices. In the long run, the world is using up its stores of fossil fuels, and oil is the one that’s going the fastest. At the same time, economic growth, industrialization around the world is putting pressure on demand. Look, if we had this conversation 10 years ago, we would be all excited that over the Thanksgiving season gasoline dropped from, you know, $1.89 down to $1.59. And now it’s 60% higher than that. And when we have this conversation 10 years from now we’ll be talking about prices in the $4.50 to $5.50 range. So I consider what’s going on now to be kind of a short to medium range depression in prices. The explanation for that? There is a little bit of a global turndown in economic activity. Also, there are some renewable fuels like ethanol which have come down in cost and are taking the place of some of the gasoline. Drivers have, because of sustained higher gasoline prices, switched over to vehicles that get better gas mileage. The bottom line is that even though the population of the United States has been increasing by 1% per year, our total fuel demand has actually gone down. Now, at the same time our production of oil, particularly in the Dakotas has gone up, partly because of technological advances and hydraulic fracking, and partly– partly because higher prices stimulate more investment in oil recovery.

Frederica Freyberg:

Let me ask you about this if it’s regarded as kind of a short term blip downward for the prices at the pump. Does that translate into a short-term blip upward in the economy and jobs in Wisconsin for example?

Richard Shaten:

Well, how about if we look at this way, most people have a budget that they have to live within and if every time you go to the gas station, let’s say it’s once a week, you are spending $50, and then for a period of six months it’s only $40. Well, I mean, that’s like $200 extra dollars in your pocket that most people are likely to spend on something else. And so what doesn’t get spent on fuel, which basically leaves the Wisconsin economy, we don’t produce any of it here, would end up staying in the Wisconsin economy, and we get a little bit of a shot.

Frederica Freyberg:

That’s good. Now, if the supply is abundant though and the prices are therefore downward a little bit, I understand that OPEC is meeting in the next couple of days, and what if they decide to kind of tinker with this market and the prices go back up? Does Wisconsin suffer because of the Bakken oil fields then also kind of reduce their supply, and then our frac sanding industry gets affected that way?

Richard Shaten:

Look, I would say that the impact on our frac sanding industry is minimal. The oil production in North Dakota has increased over the last five to ten years because of the decrease in the cost of a tertiary recovery method, this hydraulic fracking in oil fields. When it becomes less costly to produce the stuff, there is more profit in it, and so investors pump their money into it and we bring the oil out. When prices temporarily go down, the oil that was costing $70, $80, $90 a barrel to bring out of the ground is no longer cost effective to bring out of the ground, and so they actually rev down production. Which would be a temporary reduction in the demand for, let’s say, the sand we mine in quarries in Wisconsin, but I don’t think that it’s a fundamental change in the relationship between mining of sand and shipping it to North Dakota. In the end, whatever oil is there is going to be produced as oil prices rebound to $100, $110 a barrel.

Frederica Freyberg:

Let me ask you this in the less than a minute left in the propane supplies. Last year, obviously, we had a great big problem with that. What do you know about it going into this winter season?

Richard Shaten:

Well, look, if you depend on propane there are some things that you can do to buffer the price volatility. You can sign a long-term contract. And there is a lot of people that have done that and actually will lose money on it because the forecasts are that the propane fees will be almost half of what they were at the peak of the heating season last year. Of course, people didn’t know that after they responded to such a price spike. And that really affected people’s pocket books.

Frederica Freyberg:

It might cost them more to have that contract, but they’ll have it.

Richard Shaten:

But at least they’re locked in, and they're locked in with a guarantee of delivery.

Frederica Freyberg:

That's right. Richard Shaten, thanks very much.

Richard Shaten:

Okay, thank you.