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Markus' Travel and International Living Blog

Markus is an enthusiastic traveler, who lives in Houston, TX (USA) most of the time, but also spends some time in Saalfelden, near Salzburg (Austria). He is fascinated by travel and also by his experiences gathered by living in two different countries and continents.

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Wednesday, October 19, 2005
Gas Prices: An International Comparison

I am sure you noticed it too: gas prices are sky-high!

Gas prices have been going up for a while, and to be honest, I didn't pay all that much attention to it. After all, being from Europe, I am used to significantly higher gas prices (or so I thought). Recently however, I have started to think about this a bit more.

When I first came to the US, gas prices were extremely low. I remember filling up somewhere in North Carolina, thinking "this is cool... the gallon indicator spins faster than the $ indicator...". In other words: A gallon was less than a buck at that gas station. In the relatively recent past, gas prices seemed pretty reasonable to me, especially since I live in Texas.

Just the other day, someone said "gee... gas prices are really bad here now... I can't imagine what it must have been like for you in Europe where you had to pay even more...". That got me thinking. Did I actually pay more there? I decided to do a little comparison.

Unfortunately, it isn't all that easy to compare gas price and gas value between the US and Europe (or Austria in this particular case). We are dealing with U$ to Euro conversion. We are dealing with gallon to liter conversion. Furthermore, we also deal with miles to kilometer conversion, and it gets even tricker when you compare actual consumption. But here is what I found:

Simple Price Comparison

  • Gas price in the US today: $2.725 a gallon (according to EIA)
  • Gas price in Austria today: Euro 1.079 per liter (according to ARBOE)

A gallon is 3.79 liters (close enough for our needs anyway). So that makes for Euro 4.089 per gallon.

Today, 1 Euro = 1.2 U$. Therefore, 1 gallon in Austria today is $ 4.907.

So if we do a simple price comparison, gas is about 80% more expensive in Europe (Austria) than it is in the US.

Usage Based Comparison

But this isn't really the whole story. People always look at the price of gas, but do they really care? I don't think so! What people really care about is how much it costs them to get from point A to point B. Or, they care about how much the commute to work costs them each month. In other words: How much does it cost to buy the amount of gas I actually need?

To answer that question, we have to compare how much it costs to go a mile (or 100 miles). For that, we need to know a bit more about the cars people drive in each country. I do not have any good data for averages, so I am just going to use my cars as an example:

  • In the US, we have a Ford Explorer. It has a big engine and big interior. It handles badly and does not go very fast. But it is big. We get 16 miles to the gallon.
  • In Europe, we have a Mercedes. It has a smaller engine, although the horsepower output is comparable. It goes probably twice as fast, and handles great. It is a smaller car. In 100km, it consumes about 7 liters of fuel.

Comparing these two cars gives you a bit of an idea of why it is difficult to compare fuel consumption. In the US, we measure how many miles we can go per gallon of gas. In Europe, we measure how many liters of fuel it takes to go 100 kilometers. Nothing matches!

So let's solve this puzzle: 7 liters for 100 km means that it takes 11 liters to go 100 miles, or to make the transition complete, it takes 2.9 gallons to go 100 miles. Or, if we want to look at it from another angle, we can drive close to 35 miles per gallon. (The European car is more than twice as efficient). Therefore, we now know how much it costs to go 100 miles in each place respectively:

  • US: $17.031 per 100 miles
  • Austria: $7.903 per 100 miles

Now, all of a sudden, things do not look so rosy anymore! It turns out that I spend roughly 115% more on fuel in the US than I do in Europe! More than twice as much!

Of course, Ford Explorers are probably not the most representative example (but then again, in Texas, they might be). You can easily redo the comparison if your gas mileage is in the 20's. Also, the Mercedes is not exactly considered fuel efficient, especially since it isn't a new car. Plus, had I gotten the same model with a diesel engine (relatively common in Europe), I would have enjoyed better mileage and lower per-liter price.

Exchange Rate Adjustment

At this point, we have already figured out Europeans now spend less on gas than Americans (an unbelievable development if you look at how the comparison worked out historically). What is interesting is that current exchange rates actually skew things against the Euro. Had we done the same comparison a few years ago, one could have bought Euro 1.1 for a dollar. Today, a dollar only buys you 83 Euro cents.

So obviously, things have gotten more expensive in Europe, right? Well, no, not so fast! If you are about to go on a vacation in Europe, then that calculation is correct. You will have to spend a significantly higher dollar amount to buy the same value compared to a few years ago. This is because the dollar's drop has been extreme.

However, if you live in Europe and all your income is in Euros, then not much has changed. You are not making more or less just because the bottom has fallen out of the US dollar. In other words: If you made Euro 1,000 several years ago, then you are still making Euro 1,000 today (ignoring inflation and raises here), and the amount you invest (in cash or in time it took you to earn that cash) to buy something worth Euro 1000 is still Euro 1000. So if you spend 50 bucks on gas a month, then that 50 bucks is the same percentage of your income today as it was several years ago. If you use dollars on the other hand, you are now spending U$ 1.200 to buy 1000 Euros worth of stuff, while a few years ago, you could have bought the same stuff for 900 bucks. A 33% increase in price.

So what I am getting at here is that when Europeans buy gas, they really spend more like $4.089 per gallon, and not the $4.907 we calculated (parity between U$ and Euro is what a lot of people consider a "normal" and "healthy" exchange rate). Just based on math, this seems wrong, but in terms of how it feels to people, it is more representative, because people also technically now make 25%-33% more there than they mathematically did several years ago (from a US point of view).

So taking this in consideration as well, our calculation now works out more like this:

  • US: $17.031 per 100 miles
  • Austria: $6.592 per 100 miles

So looking at it this way, Americans spend over 2 1/2 times (258%) the amount on gas compared to their European counterparts. Ouch!

Increase Comparison

It is also interesting to compare the increase in gas price over the last few years, let's say from 2000 to today.

 

2000

 

 2005

  Increase %
United States

$1.250 per gallon

$ 2.725 per gallon

118%

Europe

Euro 1.020 per liter

Euro 1.079 per liter

5%

This isn't good. There is no way to sugar coat this. For everyone in the US except the oil industry, these numbers are bad. And even for oil guys, this is not good news forever, because eventually the economy will suffer too much from this, which will ultimately hurt them as well.

I am surprised people aren't up in arms about this a lot more than they are. A 118% increase in 5 years! Just to put it in perspective: If we were to keep going like this, a gallon of fuel would be $5.94 in 2010, $12.95 in 2015, $28.23 in 2020, and $61.54 in 2025! 20 years is not that far off! Can you imagine paying over 60 bucks for a gallon of fuel? Me neither. But neither could I have imagined in 2000 that prices would raise as much as they have...

I am not sure why the price of gas and oil is so high right now, to be honest. There is a surplus of crude oil according to OPEC, so how can a barrel of oil be as expensive as it is right now and thus cause gas prices to go sky high?. How can something we have in abundance go up in price? I understand that we will have a problem with oil in the future once we start running out, but right now?!? I guess it is just all based on perception and how we perceive the current "global" situation (I am putting it in quotes, because the "global" situation is seen drastically different in different places).

Personally, I am very seriously thinking about buying an electric car...



Posted @ 9:46 PM by Egger, Markus (markus@code-magazine.com) -
Comments (12)




Comments:

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