What if gas cost $10 a gallon?

After the hurt, some benefits

There'd be other ramifications, too. The federal government's deficit would balloon as it paid for energy incentives and social welfare. We could even see civil unrest as the poor scrambled to survive.

Suburbanites would crowd into urban town houses to avoid costly commutes, and working from home would become common. Eventually, public transportation might even improve.

Some of these things, such as small cars and excellent public transportation, are already entrenched in Europe and Japan. Gas prices there are the equivalent of $8 to $10 a gallon, largely because of high taxes. They live with it. We could, too.

In the longer term, we might even be better off.

As the economy adjusted to functioning with new energy sources and more-efficient energy use, jobs in engineering, science, alternative energy and conservation would boom.

• Video: $200 oil, $5 gas coming soon?

Matthew Simmons, the founder of investment bank Simmons & Company International in Houston, says he thinks a good slice of the hundreds of billions of dollars that would flow to oil-producing nations would filter back to the U.S. He believes the oil industry infrastructure is aging and America would be called on to help.

"We'd have a more engineer, blue-collar, scientific world, versus the Starbucks, high-tech business that we've been in," he says. Not to mention that America's Achilles' heel -- its dependency on foreign oil for 60% of its needs -- would finally have a remedy. A painful one, but effective.

Will gas cost $10 a gallon anytime soon?

It's unlikely, though short-term expectations of $4 or even $5 gas this year are increasingly common.

But most oil specialists believe that in the near term, $10 gas couldn't happen -- or that if oil hit $350 a barrel through some Middle East disaster, it would be short-lived. They say demand would fall sharply, bringing oil prices back down. Adam Sieminski, the chief energy economist with Deutsche Bank in Washington, D.C., puts the probability at less than 3%.

Richard Heinberg, a senior fellow at the nonprofit Post Carbon Institute in Sebastopol, Calif., disagrees. He believes it could happen within five years (of course, $10 likely would be worth less then).

More than half of the world's oil producers, including the U.S., Britain, Mexico, Venezuela and Russia, are seeing production decline, Heinberg says. Meanwhile, demand is growing at 1.5% to 2% a year. Heinberg says the OPEC countries need their reserves to meet booming demand at home and that at some point, oil will become scarce.

The result: Prices will shoot up.

Published May 16, 2008

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