Driving down the New Jersey Turnpike last Sunday, I encountered an unmistakable sign that gasoline problems are close. Every service plaza we passed from New York to Delaware had 100 or more cars waiting in line for gas. Now these lines might have been a simple case of economic theory in action. For some unfathomable reason, the New Jersey Turnpike plazas were selling gasoline for 25 to 30 cents per gallon cheaper than surrounding states. As this comes out to something like $6 per tank full, it is possible that there was no real shortage and a lot of motorists decided that a 100-car line was worth the savings.

The sight of gas lines, which I have not personally encountered for over 25 years, capped a volatile month in which the price of gasoline increased by 50 cents per gallon and shortages related to the MTBE to ethanol conversion developed up and down the US east coast and in scattered other cities required by the EPA to sell cleaner burning gasoline.

Let’s try to sort out some of the forces at work and look at implications for the rest of the year. The root cause of the price increases/shortages is, of course, that the world is either at, or approaching, peak oil. The definite answer, however, to the “at” or “approaching” question lies several years away when we can look back at the numbers and say authoritatively “world oil production has peaked.” For now, all we can do is watch the evidence accumulate that peak oil either has arrived or is still on the way.

Currently, the most interesting evidence is the lack of significant growth in world oil production for the past year as first reported and then re-reported, after due consideration, by the International Energy Agency and US Government’s Energy Information Administration. These monthly reports coupled with a world-wide depletion rate, probably somewhere between 5 and 8 percent a year, means the world oil industry must come up with between 4.2 and 6.7 million barrels a day of new production each year just to stay at the current level of 84.5 million barrels a day.

As yet there are no reports the recent price increases are significantly reducing demand. Although the press is filled with anecdotal stories of people curtailing automobile travel, official reporting by the US Department of Energy says US consumption of petroleum products during the last month is running 1.3 percent ahead of last year. Chinese imports during the last quarter are reported to be 25 percent higher than last year and world economic growth is still slated to be above 4 percent this year.

There is also a worldwide shortage of drilling rigs and technical expertise to produce oil from untapped geologic formations, which now are typically under thousands of feet of water. There also seems to be an increasing reluctance by governments of oil-rich countries and their national oil companies to form revenue sharing partnerships with the major international oil companies that have the equipment, capital, and expertise to develop the difficult geologic formations. This go-it-alone attitude is bound to slow the development of new fields.

It is too early to decide whether the peaking of world oil is a major or minor factor in our current price run-up, but keep the possibility in mind. Sooner or later the peaking of world oil production will be the predominate factor in your escalating gas bills.

Currently many parts of the United States are experiencing gasoline shortages due to problems in converting from the smog reducing additive MTBE to ethanol which performs a similar function. This conversion is causing the oil industry numerous headaches, for the ethanol must be added to the gasoline locally rather than at the refinery. There are also issues of whether there is a large enough supply of ethanol available. In addition to causing shortages, this conversion program is widely believed to be a factor contributing to the recent price run-up, as the ethanol is more expensive than the chemicals it is replacing.

On Tuesday President Bush, obviously feeling political heat from the gas price issue, announced a number of steps to at least give the appearance of doing something to reduce gas prices. First he made the obligatory announcement that the government would root out and punish price gougers and suggested that perhaps the oil companies were making too much money. He then announced that the oil companies that had borrowed crude oil from the Strategic Petroleum Reserve would not have to replace it until fall.

For the last four months, refiners have been replacing the borrowed crude at the rate of about 58,000 barrels a day. Considering that the US consumption is more than 20 million barrels a day, it is doubtful that letting refiners hang on to an additional 0.3 percent of daily volume will have a measurable impact.

To deal with the ethanol conversion issue, the President directed the EPA to grant any waivers states request to avoid having to make the conversion immediately. This move is unlikely to have much impact either as the oil industry is already committed to making the conversion so that in most cases, stopping a process already underway will just add to the costs and confusion.

Now we come to the worrisome development for American consumers. In the eight weeks ending April 21, US gasoline inventories dropped by 24.9 million barrels. Gasoline inventories are now 5.5 million barrels below the normal range for this time of the year. These stocks normally grow by 3 million barrels during April in preparation for the summer heavy driving season. Moreover, total US imports of crude and products have also been dropping in the last few weeks.

Now there may be a totally benign technical explanation for the drop— residual effects from the hurricanes, unusually prolonged refinery maintenance, the conversion to ethanol situation, tanker availability. The situation may soon correct itself and the summer driving season may be completely normal except for higher prices. Given the extremely tight worldwide supply and demand situation however, some are beginning to talk about the possibility of major gasoline shortages and much higher prices before the year is out.

The scenario for this unhappy occurrence is simple. Either the world supply/demand situation is so tight that US importers are unable to purchase all the gasoline required to fulfill US needs, or exporters, in anticipation of much higher prices, are holding some of their exportable oil off the market. There are other possibilities such as insufficient sweet crude, particularly from Nigeria , which yields so much gasoline when it is refined.

So far, no industry or government spokesman has emerged with an explanation of just what might be going on with respect to US oil and gasoline imports. This leaves outside observers free to think the worst.

The only thing for certain is that unless US gasoline imports pick up shortly or US refineries start producing a lot more refined products, we are going to see higher gas prices this summer. Oh— and by the way, the surface temperature in the Gulf of Mexico is already higher than it was in April last year.