‘Pain at the pump’: University, off campus students cope with elevated gas prices
Maggie Eastland | Friday, April 1, 2022
College students may not fill up their tanks as much as the average adult, but recent gas price spikes have impacted seniors living off campus, University investment portfolios and Notre Dame’s power plant.
“Prior to this semester, my car took maybe $35 to fill up, and I want to say lately it’s been in the mid-40s, so that’s a pretty significant difference,” senior Jackie Fletcher said. “It definitely causes some pain, and it definitely does affect me when I’m driving past a gas station.”
Fletcher lives in Legacy Village, and she typically drives back and forth to campus twice a day. She said she refills her tank every other week, an experience she describes as “pain at the pump.” Due to recent price increases and volatility, Fletcher said she has changed some of her gas purchasing habits.
“Last week, I had half a tank. I didn’t need to stop for gas, but it crossed my mind — if I wait a few more days, it could cost me a few more dollars,” she said.
Across Indiana, gas prices nearly reached an all-time high. Averages fell just short of the $4.25 statewide average set in 2011. Unlike some areas of the country, South Bend drivers can still find stations to fill up their tank for less than $4 per gallon, a steal in current conditions.
As of Thursday, Costco in Granger was selling gas for $3.81 a gallon. A few others were selling for $3.85, including Murphy USA, Meijer and Phillips 66 locations on Portage Avenue. Additional Marathon stations advertised prices just one cent below the $4 mark.
Most of these lower cost stations are further from city limits, and some are even over the Michigan border. Students opt for these pumps when possible, but the extra miles to get there can be a disincentive.
“The issue with Costco is that it’s a far drive from campus,” Fletcher said. “Costco and places like that definitely have lower gas prices, so if I’m there, I’ll always try to stop there to save a few cents per gallon.”
Fletcher added that even a slight price per gallon discount makes a difference in her budget.
“It doesn’t seem like it adds up, but when you look at the total, you really do feel the difference,” she said. “It’s $10, and then $10, and then before you know it, you’re paying a couple hundred bucks just over the semester that you didn’t have to.”
Despite relatively inelastic demand for gasoline, students are changing their habits to offset higher prices. Fletcher said she has been making fewer trips to campus and cutting back on leisure drives given recent gas prices.
Notre Dame economics professor Forrest Spence said that demand for gasoline is “almost certainly inelastic,” especially for those who rely on gasoline for their occupation, like truck and Uber drivers.
Even though gas demand is inelastic, consumers who have more flexibility will change their habits, Spence said.
“There will be some people that do not respond because they can’t, but if you look in the aggregate, there’s at least one person that’s going to put rations on the amount of gas they’re using, whether that’s by carpooling or biking to work or whatever else,” he said.
While higher prices appear negative from consumer perspectives, Spence said there are few winners, such as those who invested in oil before the price increased and environmental advocates who view prices as an incentive to shift toward renewable energy sources.
Through a $1.3 million holding Enterprise Products Partners L.P. (NYSE: EPD), the Applied Investment Management (AIM) portfolio was one of those investment winners.
Junior student analyst Patrick Dolan began covering EPD for the AIM class at the start of this year, and he recently watched the upside he predicted for the company come to fruition.
Since EPD sources the vast majority of revenue from liquid volume, its price is not as impacted by shifts in oil prices as upstream firms and commodity stocks. Even so, the middle stream crude oil pipeline company has seen an 18% upside return since Dolan began his coverage.
Dolan said this was partly due to supply and demand patterns.
“Oil demand fell pretty hard [during COVID-19], so we saw production cuts in the U.S. and in OPEC (Organization of the Petroleum Exporting Countries) as well, and those numbers have not come back to pre-pandemic levels,” he said. “On the supply side, oil production is down. On the demand side, things are opening back up. People are traveling again.”
Another facet of Dolan’s thesis focused on shifts in international oil reliance.
“Even before the invasion, I think a lot of people were realizing that having a lot of your energy needs being fulfilled by volatile countries like Russia or Saudi Arabia or some of the OPEC countries was a big liability,” he said.
Dolan said he sees even more upside for EPD in the future.
“I still think the stock has a lot of room to go. I don’t think oil stocks are too attractive right now due to companies focusing more on Environmental, Social, and Governance (ESG),” he said. “It’s unfortunate for the environment, but unfortunately, renewables are just pretty far off in the future.”
Dolan added that EPD’s performance highlights the importance of stable oil sources while renewables remain unable to fulfill the world’s energy needs on their own.
“I wish we could just flip a switch and the whole world’s on solar, but that’s just not the case right now,” Dolan said. “Having a reliable supply not subject to the winds of Vladimir Putin or a similar leader is really important for national security and economic stability.”
In the long term, higher oil prices could actually power the transition to renewable energy sources, Spence said.
“Demand is more elastic in the long run, so if prices stay high, more will invest in renewables, consumers will choose alternative modes of transportation,” Spence said.
For people who want to further these environmental goals, “prices are a good way of guiding behavior,” he added.
Gas and Current Events
Right now, environmental upsides come at a cost to consumers, but some states want to change that with stimulus programs and gas tax breaks.
Spence said that stimulus programs like gift cards to car owners are the more environmentally-friendly policy because they help consumers deal with rising costs without directly changing gas prices, meaning people continue to consume less gas and thus decrease carbon emissions.
In South Bend and across the country, a few less-than-pleased gas consumers have taken to placing stickers featuring President Joe Biden pointing to the words “I did that” near gas pumps, and others — including many gas stations themselves — have taken to scratching these stickers off.
Like most price changes, many factors contribute to current gas prices. Pandemic-induced supply and demand shocks compounded by complications following Russia’s invasion of Ukraine top the list.
During the COVID-19 pandemic, demand for gas plummeted, which meant frackers and other oil producers slowed down supply to match patterns of decreased flights, driving, travel and other energy-reliant services, Spence explained.
Since “supply is more inelastic for gas,” oil producers were unable to meet demands as travel and many gas-consuming services rebounded this year, he added. This situation resulted in a mismatch between limited oil supply and high consumer demand that sent prices skyrocketing.
When Russia invaded Ukraine near the end of February, and the U.S. banned oil imports from Russia, prices increased even more. The U.S. formerly sourced about 7% of their oil imports from Russia, but Spence said the conflict’s impact on prices is more fundamental than that.
“Even if we were to get zero oil from Russia, these other countries impact us because the remaining oil is demanded more highly,” he said.
Natural Sources of Energy
Fortunately for the University, strategic oil hedging has prevented the price shocks from impacting campus energy operations, half of which relies on natural gas, senior director of utilities and maintenance Paul Kempf said.
“Natural gas is the main fuel we use in the power plant now that we no longer burn coal,” Kempf said. “About half of our electricity comes from natural gas production.”
The University stopped burning coal in 2018, meaning they have less flexibility in times of rising or volatile gas prices, Kempf noted.
“We used to have the flexibility of having another fuel, and that was coal,” he said. “This is one of the risks we take when we move to fewer fuels.”
Despite the importance of natural gas for University energy, Kempf said current price increases have not significantly impacted the budget thanks to hedging over the past few years.
“Over the past handful of years when prices of gas were down, we actually hedged our natural gas purchases,” Kempf said. “Sixty-five to 75% of what we estimate we use on a monthly basis has already been hedged, so the prices have been locked in. The small percentage of what’s left is our market exposure.”
One hundred percent of the natural gas Notre Dame uses to power campus is sourced domestically, formerly from the Gulf Region and more recently from Pennsylvania, Kempf said.
While higher natural gas prices encourage efficiency and conservation efforts, Kempf said affordable natural gas would also help the University’s goal to achieve carbon neutrality by 2050.
“Higher [natural gas] prices in one sense will push you to do more efficiency and conservation projects,” Kempf said. “But the University is more driven by the carbon approach. It doesn’t hurt to have lower gas prices. We’d actually like lower gas prices.”