Ryerson Base (Sounder Bruce)
Ryerson Base (Sounder Bruce)

Usually a booming local economy comes with high fuel prices, as fuel demand rises commensurately with demand for housing and other commodities. But despite a strong local economy, weak global demand and purposeful oversupply from OPEC have given us historically low fuel prices. There are a number of reasons why low fuel prices are a policy and environmental disaster, including exacerbating climate change via induced demand, reducing the competitiveness of renewables, and incentivizing sprawl and new vehicle purchases. Low fuel prices are also not having the full stimulatory effect that we’d expect, with oil-dependent economies in the Midwest and South suffering as they idle their suddenly uncompetitive shale fields.

Screen Shot 2016-02-16 at 9.17.17 AM

But for local transit operations, where diesel is still the workhorse of our transit network, the low fuel prices are an unexpected and welcome windfall. I reached out to Metro to ask about their fuel purchasing practices and budget estimation, and the savings are indeed significant. Unlike airlines, Metro does not hedge their fuel purchases, but purchases fuel on a daily basis under the state fuel contract. Currently, Metro is paying just over $1/gallon for diesel, an unprecedented low. Metro GM Kevin Desmond told the blog that “every $.10 drop saves us $1m per year,” and the 2015 budget assumed $3 per gallon, creating a potential $20m in additional revenue. As fuel prices came in lower than expected, Metro revised its budget estimate downward to $2.25/gallon, so costs are still coming in below budget.

Metro’s Jeff Switzer said that Metro has reinvested some of the savings in 70,000 bus hours (roughly $10m), spread over the September 2015 and March 2016 service changes. On the ground, this has meant boosting E-Line frequency from 12 minutes to 10 minutes, boosting I-90 peak service, and other improvements.

Metro also stresses that any fuel-related windfall is inherently volatile, and that a conservative deployment of unexpected resources is the wisest course. And they’re right of course, as the windfall could evaporate at the whim of OPEC.

41 Replies to “Low Gas Prices a Welcome But Volatile Windfall for Metro”

  1. To me it sounds like windfall savings from low oil prices are idea for capital investments… capital investments are a one-time expense, there are plenty of customer facing improvements that are needed, some investments could reduce operating expenses and when oil prices return the money can be shifted back to pay for gas without “cutting” service.

    1. That could be, but capital investments can’t change as quickly as the oil price changes. An unplanned project would take a year or more to get planned, approved, and started, and it would have to halt in the middle if the price goes up again. So you’d have to do it more in the manner of having shovel-ready projects approved beforehand, and saving up the windfall to pay for the entire project up front, or at least enough to get it to a good stopping point if the winds change.

      1. Perhaps smaller projects might be worth looking into?

        Red paint for bus lanes… TSP… improved bus shelters…

      2. The latter two maybe. Metro has no authority to put red paint on city-, county-, or state-owned streets. I see real-time signs are starting to pop up more, such as the 44 around Roosevelt. That would be a good improvement at all major stops.

      3. They can always just pull in projects – so not creating new projects, but just getting the existing backlog done faster with a bit extra cash on hand?

    2. Good thinking, Mover. How about starting with the largest possible scale of electrification, including wiring every bus route whose ridership at all warrants and putting in as many streetcar (signal pre-empt, reserved lanes and all) lines as we can?

      With major effort to find, and help build, as many wind-farms and solar collectors as our as our system needs. Especially in places like North Dakota, whose working people deserve a good living in a way that won’t destroy both the world, my home, and North Dakota.

      And every time I see some high school girl in “camo” from Joint Base Lewis McChord, I can be thankful for every useless war that’s not going to kill her. Starting with defending the Kingdom of Saudi Arabia, whose alliance has been a stain on our flag since it started.

      To me, best employment picture in the world is the people of that country finally having to find employment, after years of wealth and comfort, under a government that is ISIS with jets- paid for not only with our taxes, but our soldiers’ lives.

      But sweetest thought of all is that we won’t have to waste another minute’s anxiety over the price of oil. Or anyother Public Radio preoccupation whose price should be irrelevant to a good productive life. Starting with a national economy whose sole unit of measure is presently the price of an overpriced house.

      In a cul de sac.

      Mark Dublin

      1. Since Saudi Arabia is pretty much dependent on oil revenue, there isn’t really any other industry that can cover all Saudis, even if they kick out all the guest workers. The end of oil actually might radicalize Saudi Arabia and spread ISIS-like groups around, not reduce them…

      2. Mark, I also love our trolleybus system, and I’m glad Metro has purchased a new fleet of electric coaches — but I have this feeling that the all-electric battery bus is the wave of the future. I think it’s only a matter of time before battery technology powers most of our fleet, excepting only the legacy trolleybus system and maybe some long-haul freeway coaches. In short, let’s not be planning any trolleybus wire extensions until we see how this battery bus thing plays out.

      3. @RDPence Battery production, recycling and disposal all have significant environmental concerns. Is there any reason not to invest in trolley wire?

      4. I don’t know, RD. Great battery technology (the kind that really replaces the internal combustion engine) seems to be a lot like fusion – always ten years away. To be fair, there have been some improvements. But when Boeing hires the best engineers and scientists in the world to deal with their little flair up, and all they can do is essentially say “put a box around it”, that doesn’t give me much confidence.

        I also have no problem with having the great replace the good. There are tons of really good bus lanes that will soon become obsolete (I doubt buses will be headed along I-5 to Mountlake Terrace in a few years) but I think building them was a great idea. Worse case scenario you’ve spent some money on something that worked great for a few years, but you’ve found something even better to replace it.

      5. @RDPence Battery production, recycling and disposal all have significant environmental concerns. Is there any reason not to invest in trolley wire?

        To paraphrase Mr. McGuire: Just one word. Supercapacitor
        Next Stop: Ultracapacitor Buses

        Unlike a conventional trolley bus that has to continually touch an overhead power line, Sinautec’s ultracapacitor buses take big sips of electricity every two or three miles at designated charging stations, which double as bus stops…

        “It’s a brilliant concept,” says ultracapacitor expert Joel Schindall, professor of electrical engineering and computer science at MIT. “It’s not well suited for electric-only cars, but it is practical to stop a bus every few city blocks.”

        But that’s all yesterday’s news. The Next Big Future:
        Nitrogen doped porous carbon make supercapacitors with triple the energy capacity

        A bus could run for 25 kilometers before a 30 second recharge, instead of an 8 kilometers before recharging.

      6. @Bernie Usually ultra means something bigger then super when used as a prefix, so shouldn’t “ultracapacitor buses” be “supercapacitor buses” and “make supercapacitors” be “make ultracapacitors”? I know this is a wording quibble with the articles you posted and is not your fault, but…

        :P ;)

      7. Lots of progress on battery technology, and the wizards of Altoona are working on trying to develop a full scale road haul freight locomotive.

        However, there will always be physics involved. A large capacity battery will always have some weight and space associated with it, which will always cause limitations on a moving vehicle as the vehicle will have to find space for and spend energy moving that weight.

        When your energy source is instead two 15 foot poles of fiberglass, your don’t have those same limits.

  2. “creating a potential $20m in additional revenue”

    To clarify, it’s $20M in savings, not $20 in additional revenue.

  3. Agreed on using the $20m on capital expenditures. I’m so glad metro doesn’t edge their fuel, Cathay Pacific airlines, one of the worlds best airlines out there has their fuel hedged at something like $2.90 a gallon. Cathay was able to buy long term hedges when most carriers couldn’t and other airlines were envious that they were able to buy fuel contracts 5 years out. Now? They’re having to delay route start ups, need to be tightening their belt, etc.

    1. Hedges aren’t always bad because if the price of oil had stayed high they’d be needed. I don’t believe that predicting the economy is reliable. What we can say is that China has had a quite dramatic slide and it would take a long time to turn around and start shooting up again, enough time for us to notice it and adjust our behavior when it happens. But the other thing depressing prices is decisions by Saudi Arabia & Co., and they could change any time. I thought Metro did have several-year fixed prices because it was reported that Metro buys oil on long-term contracts, but I guess the kind of contract it has is not fixed like that.

    2. Hedges let you know, in advance, how much you’ll be spending on fuel. If you are guaranteed $2/gallon for the next 5 years and you know you’ll need 1,000 gallons, you can budget $2000 for that. Otherwise you don’t know if you’ll need $1000 or $5000 for it. The trade-off is that sometimes you pay more with a hedge, but that’s what you pay for having a guaranteed price.

  4. Of course, it is also well documented that, all other things equal, lower fuel prices depress transit ridership, and the financial cost of driving instead of taking transit is less. Which means that some of the operational savings from lower diesel prices is offset by lower fare revenues. Fortunately, now matter how low gas prices get, the cost of parking downtown is not going to get any lower, nor will traffic get any lighter, so perhaps the impact of gas prices on ridership (at least for commute trips to downtown) will be less than it would be in many other cities.

    1. Well, we have ridership counts so we can see what it does. But in an environment of rising popuation, more inner-city apartments, new jobs created, increasing choice ridership, and increasing evening/weekend frequency, the impact of cheap gas may be just a slowdown in ridership growth or a leveling off, rather than shrinkage.

      1. Not to mention parking isn’t really getting cheaper and easier to find, nor is freeway and highway congestion getting any better.

        There are plenty of incentives not to drive other than just gas prices.

  5. Do no be fooled. These low gas prices are temporary. The Saudis are really opening there exports into America which is lowering the prices. The reason they are doing this is because they want to destroy domestic oil production. By lowering the prices they are forcing the small companies to go under. Then they will decrease production and the prices will go up again. My main point is the prices will go up a lot soon. Be prepared.

    1. Hey…. HEY…
      Are you trying to dissuade me from purchasing the latest model of my Imperium Condescendor ..? (my current model is almost 2 years old, after all)

      Oh, and as one commentor on that cesspool of online comments, MyNorthwest.com, suggested – “The governor needs to declare a state of emergency and start work immediately.”

      1. Jim, you’ve made my morning on two counts.

        One, somebody please get on social media and announce that the Imperium Condescendor is about to hit the showrooms.

        A trillionth percent of the population ever had a Latin class- the girl across the aisle was really cute, though high school level left out the what the Romans probably called that.

        But even if you just think guys with car-wash brushes on their helmets are, like, really historic, “Imperium” can’t miss.

        But Condescendor is a clincher. Everybody knows it’s one of those giant vultures in South America with a beak like a Transformer that, you know, descends on things and tears them to shreds?

        Because greatest thought of the morning is a dozen of these horrors circling the State Capitol. With strongest emergency message that, from a giant vulture’s point of view, anything on the payroll not moving, like for instance working, will be lunch after they’ve been in the sun for awhile.

        In your local showroom- NOW!

        Mark

      2. I can’t take full credit for that, since I read it in a local editorial years ago. Don’t remember whose, or what news organization, but that stuck with me.

    2. Not fooled at all. The wholesale price of gas bottomed several weeks ago at 90 cents and has been rising ever since, albeit slowly and erratic.
      Bargain basement prices for fossil fuels comes at a time when we are just getting serious about climate change, and now were trying to use it faster than ever before – because it’s cheap.
      Last time I checked, there were no new dinosaurs going into the ground, unless you count some head in the sand conservatives starting a mass extinction of their species.

      1. Thanks for the “Heads Up” on that one, Mic. Terrible danger is that in 300 trillion years, this particular brand of politics will fill tank car trains with oil a lot more dangerous and smelly than the worst out of the Tar Sands.

        Max danger will come when Steven Harper himself emerges as a barrel-full. So we have to figure out a time capsule to warn everybody from the well-head to the BN tracks under whatever Seattle will be in the future.

        Though only thing not in doubt is that housing will be more astronomical and I-5 will be packed into the frighteningly dense than oil-giving pterodactyls. Glad I’m not going to be here.

        My will says I get distilled into armature lube for light rail.

        Mark

      2. Would feel more comfortable about battery-powered buses if I hadn’t taken standing loads on the 3 and the 4 from Third to Harborview. At least on the Counterbalance, there’s probably enough mechanism left we could start counterbalancing things again.

        Probably easiest thing would be to create the QAHS, and counterbalance streetcars on that leg of the route. Maybe we could get historic vehicle funds.

        Would also give low-seniority drivers enough experience of sheer terror that if they didn’t pick that route forever- the way a logger or coal miner views his work- at least he’d never be afraid of any other work in the system.

        Cable cars good for that too, except grip operator has to be fairly heavy. Meaning real danger of “skinny shaming” when somebody’s last run goes viral because the grip needed a harder pull.

        Willing to give this one a chance, Roger, just so the 7 and the 3 stay wired. Just to contrast two different wire conditions. But word to the wise, Roger. I see one bunny on a single battery, and whole order is going back to Bartell’s.

        Deal?

        Mark

    3. Nah, the Saudis are doomed to fail. The US industry is too flexible for that. Yes, these highly leveraged upstream producers are suffering and many will go bankrupt. But private equity will swoop in and acquire the assets at pennies on the dollar, making them competitive at lower market prices.

      Then there’s a huge “fracklog” of wells that have been drilled but not fractured yet. As soon as the prices push $50 a barrel, they’ll be back out pushing new capacity on stream again. And the majors have 3 million barrels a day of new capacity coming to market this year from projects begun in the $80-100 days. Not to mention Iran getting proper access to world markets and increasing production…

  6. This is unacceptable, these funds are supposed to pay for highways but Metro is diverting them to another purpose. The state should impose a surcharge on Metro to make up for low gas prices.

    … says every Olympia legislator

  7. P.S. Oops, my commen doesn’t actually make any sense if the gas tax is a fixed price per gallon. Not that that would stop them.

  8. Instead of using this money, which might evaporate at any moment, to fund capital expenditures, why not place it in reserve? That way when oil prices go back up (and they eventually will), Metro can ride out the storm without substantial budget changes. My only worry would be that the state would then raid that reserve, but Metro could at least win in the PR game.

    1. As I recall, the only thing that saved Metro’s butt in 2008 were the hefty capital and rainy day accounts. These were nearly depleted to avoid service cuts, and have now been steadily growing.
      Anyone know if we’re back to pre-recession levels for the next big hit we all know is coming?
      That seems like a good use of windfalls.

    2. An even better idea would be to further replace diesel buses with battery powered ones. The savings from lower gas prices would drive further savings from the use of battery-electric buses and so on.

  9. Couple of questions, Bob:

    The Beyond-Help-of-Rustoleum Belt of our own Northeastern States probably contains populations adding up to 31 million.

    So. Bernie Sanders goes on national TV and announces that people in (you name the ruins of the city) have no other income but meth-dealing and gang warfare. And the price of meth is tanking.

    So when he becomes President he’ll commit our best-trained police officers from around the country to head East to protect a loyal guest-worker-run meth-works so the “cooks” don’t personally have to bow out in a blazing cloud of mothballs,

    You’ll campaign for him so the beneficiaries don’t get radicalized and join ISIS, right? Relax on that one.

    Soon as our guys land and throw a couple of gang signs, ISIS will wet their pants, hand over truckloads of antiquities and the keys to half the world’s oil, and flee to the UN Human Rights Commission, wailing about History’s most war-crime ever inflicted on innocent sadistic killers.

    But however far in this direction you’re willing to follow Senator Sanders, I really think you’d draw the line on a US President holding hands with a guy wearing a head-dress, a robe, and beard.

    Who hasn’t even been vetted. And is the Prince of the only branch of ISIS with an air force of brand-new US jet fighters. George Herbert Walker….come help your buddy Bernie! His people are turning on him!

    Mark

    1. No, you would build up new industries to help the people of the Northeast transition away from that and send in troops to break the crime lords. Back to the Saudi issue, I’m just pointing out one of the effects of the end of oil, which will come sooner or later. It’s best that we have a plan in place to deal with this, and that needs to involve military backups.

  10. Thanks for your coverage today, and underscoring the volatile nature of fuel costs and savings. I wanted to send some info to help clear up what might be some confusion about the added 70,000 hours and the $10 million figure the story seemed to associate with those adds, and the $20 million in savings that is presumed.
    http://kingcounty.gov/elected/executive/constantine/News/release/2015/May/01-metro-investments.aspx
    This announcement from 2015 helps add some context: 70,000 additional service hours over two service changes, buying new buses and maintenance are among the investments totaling $89 million. The one-time aspect of diesel and other savings in 2014, and projected 2015 through the end of 2017, helped advance some service investments previously planned in future years – seen as a one-time move. Due to the volatile nature of fuel prices, these one-time savings of $21 million were identified over three years (through the end of 2017). Updated assumptions for diesel pricing in 2017-18 and beyond will be part of upcoming budget discussions.

Comments are closed.