Are Rising Fuel Prices Bad For Prince George?

Monday, October 17, 2005 03:30 AM

For a number of weeks now, we have been hearing comments regarding the negative impact of high fuel prices on the Prince George economy. But are these higher fuel prices all bad? While the obvious answer for anyone who has filled up their vehicle with fuel lately is “yes,” there are some benefits and positive impacts accruing to Prince George with the increase in fuel prices.

Studies have shown that in the short run, people tend to reduce their traveling or take shorter trips when fuel costs rise. This is true for travel undertaken for both business and pleasure. For businesses which cut back on their traveling budget, those funds will usually be channeled into other areas such as marketing, advertising or alternate methods of reaching customers, such as web casts. People who curtail their personal traveling tend to stay close to home and thus spend their vacation funds in the Prince George area. This means that whether we are talking about business or pleasure travel, Prince George businesses benefit from the extra funds which are now available to spend in other areas of the business.

Another impact of higher fuel prices involves the cars and trucks we drive. Quick and significant increases in fuel prices influence some people to purchase vehicles which are more economical to drive. Other people spend money to repair their current vehicles to ensure maximum mileage. Both of these options result in more business for either our local car dealers or repair shops. Also, due to our location in the region, Prince George will see increased sales from consumers who live outside our city.

Prince George will also benefit from the decrease in driving which occurs when fuel prices rise. While Prince George does not see as large a percentage decrease in vehicle use which a large metropolitan city does, we will have drivers who adjust their routes and driving habits to reduce their fuel consumption. This is akin to the adage of “driving smarter not farther.” Ultimately, these higher fuel prices will force businesses to pay attention to these costs and make the necessary adjustments to the expense side of their income statement.

Due to the decrease in driving there exists a hidden benefit to higher fuel costs, which is the reduction of pollutants in the Prince George air shed. While we all benefit from the ability to breathe a little easier, businesses also see a benefit from a reduction in employee sickness and absenteeism; both of which add significant costs to the bottom line of any business.

Oil and Gas exploration and development also become more profitable as fuel prices increase and this is certainly good news for Prince George. Any additional exploration and development which is specifically undertaken in the Prince George region or Northern BC in general, has a significant positive impact on our economic well being.

Finally, higher fuel prices encourage the development and use of alternate fuels and energy. Energy sources such as bio-energy, wind power, solar power, run of the river and geothermal are all legitimate sources of energy for Prince George. All of these alternate sources of energy are considered to be Kyoto friendly and eligible for Kyoto credits. Perhaps one day soon Prince George will be the Canadian Capital for purchasing and trading Kyoto credits.

While the short term impact of higher fuel prices is at best neutral for Prince George businesses, in the long term we will likely be enjoying the benefits as the value of our natural resources increases.

-Myron Gordon owns TMSG Management Services Group, which provides management and financial services to growing businesses.
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Posted on Monday, October 17, 2005 03:30 AM in Money by

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Comments

Posted by: Chadermando on October 17 2005 11:17 AM

From my perspective high fuel prices are bad because I have less money to spend in Prince George as my driving is fixed in the distance I have to drive. The road doesn't get any shorter for me.

I think the local trucking industry would also argue higher fuel prices don't help the economy, when their costs just went up 25%.

Any small gain is more than made up for with a big fat loss on this front.

Posted by: brackencole on October 17 2005 3:22 PM

I agree with Myron. Another point that is to be made is that higher gas prices may be an incentive to redevelop the downtown. As driving gets more expensive, it makes more sense to locate services, residences, jobs and schools in close proximity. Sprawling development on our highways leading out of town- such as the Walmart- make less sense in an era of rising energy prices. So, with transportation costs higher, downtown land that is central to a lot of activities will increase in value, leading to a greater incentive to further development, which may have positive impacts on the downtown.

Posted by: Canar on October 17 2005 4:42 PM

Increased trucking costs result in increased logging costs and decreased market availability due to the increase in cost to ship logs to other locations. Prince George is incredibly forestry-oriented, and as such, depends on low fuel prices to allow for logs to be shipped cost-effectively.

Increased fuel prices, decreased lumber prices, mountain pine beetle, unchanging stumpage fees, unfair timber prices from big mills... No doubt about it, logging's in rough shape these days.

Posted by: ScotCochrane on October 17 2005 7:11 PM

Well then, if it's such a good thing, lets double the price!

What an absurd argument.

Posted by: Chester on October 18 2005 12:03 AM

Myron, what an amazing justification for higher fuel costs. This must have been a university project to provide both sides of an issue to measure the response.

Higher fuel prices just mean that government has put their hands deeper into my pockets. I resent that. Why don't they just reduce the amount of tax they charge? I sure don't see that money being poured back into out local road budget. Do you?

It means that the cost of shipping every bit of produce all the way up to PG also has to be increased. Net benefit to the consumer is that the last person in the line has to pay for it. That's not good. Is it?

Air fares will increase, so when I have to leave the city for business, my costs have also increased. I have no choice than to pass the added costs of operating my business on to the consumer.

So, in the end, I have lost the control over yet more of my cashflow to either a corporation or government coffers. Fortunately,if I buy shares in the corporation, I can receive some of the profits back in the form of dividends. But, I need to have surplus money to take advantage of this perk.

Higher fuel prices are not something I feel like celebrating because someone somewhere is benefiting. And, it's not me. Chester

Posted by: Marty on October 18 2005 5:58 AM

So Myron,

when you sobered up and read the Fairy tale you wrote......did it still sound as good with the hangover happening?

Posted by: Palopu on October 19 2005 6:10 PM

Fuel is now sold on the Global Market, and therefore will in most cases be sold in areas where Oil Companies will get the best return. If you buy a smaller car and reduce the amount of fuel you burn by driving less etc, you will save some money, however in the end this fuel that you saved will be sold in the USA, China, Russia, India, Japan, etc and will be consumed. In the end the fuel will run out, it will run out faster as third world countries become richer and begin to drive more. Any gas you save in North America will be sold somewhere else. The oil companies are not going to hold it in storage for you. Its the same concept as BC Hydro asking you to conserve power(why) so they can sell it to the Americans at a higher price. I suggest you burn your fuel now and start looking for an alternate because, cutting back now will not give you gas later.