Political unrest in the Middle East continues to dominate world energy markets and many analysts are predicting $4 per gallon gasoline by this summer.
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Higher energy prices are on everyone’s mind and we are all hoping for a return to the good old days. Unfortunately, the good old days of cheap energy in the U.S. are over! Look forward to continued higher energy prices from now into the foreseeable future.
Why high and why now?
There are several forces that are working in concert to raise the price of energy. Political unrest in oil producing areas such as the Middle East, Africa and South America is not a new problem, but the perceived instability undermines the confidence in future energy supplies. The thirst for energy in developing economies such as India and China has placed added pressure on the global energy supply and demand equation. The weaker U.S. dollar raises the price of all imported commodities, including oil. Finally, environmental constraints on energy exploration, refining, emissions and nuclear power add further costs to the energy supply chain.
What’s your energy expense?
First, let’s get beyond the current media hype and look at some facts regarding your situation. Dig out your receipts for bills for 2010. How much did on spend on home heating, electricity and gasoline for the year? If you don’t have the actual receipts, you can contact your home heating and electricity suppliers to determine the amounts. You may have to estimate your gasoline usage for the year. What percentage is energy of your total family take-home pay—5 percent, 10 percent, or more? What percentage do you estimate that your energy costs will increase in 2011? How can you lessen the impact of rising energy costs on your family’s budget?
What can you do?
Short term—Over the next 1-2 years, your family’s best opportunity is to operate as energy efficiently as possible, given the constraints of your current automobile(s) and home configuration. For transportation, this would include keeping tires properly inflated, clean air filters, consolidating trips, car pooling and public transportation. For the home, consider lowering the thermostat in the winter, minimizing the use of air conditioning in the summer, regularly changing air filters, caulking and weather stripping windows, consolidating clothes washing and turning off lights. Visit www.centerpointenergy.com for more information.
Medium term—Over the next 2-5 years, you may have the opportunity to change automobile(s) and improve the energy efficiency of your home. For transportation, big SUV’s are out, while fuel efficient hybrids, smaller cars and even electric vehicles are in. Be careful and don’t let rebates and hot deals on inefficient automobiles saddle you with a gas guzzler. For the home, consider energy efficient appliances and lighting replacements, increased insulation and possibly a more efficient furnace.
Longer term—5 years plus, may present significant opportunities to make changes in your family’s use of energy and energy efficiency. The longer time frame opens up opportunities to reduce commuting distances, moving closer to public transportation routes, moving to a more energy efficient home and possibly installing solar panels or a geothermal heating and cooling system. There is an interesting website at www.sustainlane.com that studied the 50 largest cities in the U.S. to see which are most prepared and most vulnerable to sustained high gasoline prices.
Don’t fall asleep
There is a pattern in this country to be lulled back to sleep after a crisis has passed. Think about it, the first energy crisis took place in 1974 and although there have been some improvements in energy efficiency; the U.S. is still extremely vulnerable to energy market gyrations. Although it would be extremely difficult to insulate your family from the market fluctuations you can lessen the impact by taking some responsible actions over the next few years.
(Michael G. Shinn, CFP, registered representative and advisory associate of and securities offered through Financial Network Investment Corp., member SIPC. Visit www.shinnfinancial.com for more information or to send your comments or questions to shinnm@financialnetwork.com.)
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