Gas prices are below $2 per gallon in much of the country, and according to the U.S. Energy Information Administration, the average consumer could save more than $550 on gasoline alone next year. For most of America, low gas prices are a reprieve and like a mini-raise as we start 2015.

But not everyone loves the decline in gasoline prices. In 2014, hedge funds bet billions on oil & gas stocks, and the drop in energy has left them with losses measured in the billions. Here are a few of the bets that went wrong by some of the biggest names in finance.

John Paulson and Carl Icahn didn't see this crash coming
Hedge fund manager John Paulson rose to fame by correctly predicting the housing crash in 2007, making billions for himself and investors in the process. But he certainly didn't see falling oil prices coming.

You can see below that he was very bullish on energy at the end of the third quarter, reporting positions in Whiting Petroleum (NYSE:WLL), Cobalt International Energy (NYSE:CIE), and Oasis Petroleum (NYSE:OAS), which would have cost him nearly $1 billion had he held onto them until Thursday's close. We won't know for a few weeks what positions were held at the end of the fourth quarter, and hedge fund returns are closely guarded, but reports put Paulson's Advantage Plus Fund losses at 35% last year, and much of that is tied to energy.  

Paulson & Co 

Shares as of Sept. 30, 2014

Potential Losses

Whiting Petroleum (WLL)

9,345,336

$472.8 million

Cobalt International Energy (CIE)

41,854,600

$238.6 million

Oasis Petroleum (OAS)

9,889,200

$284.7 million

Total

 

$996.1 million

Source: SEC filings.

Paulson's real losses could be even larger than what I've shown above because Paulson also reported a 26 million share position in Kodiak Oil & Gas, which was acquired by Whiting Petroleum in a stock deal that would have added 4.6 million shares to his Whiting stake.

Paulson wasn't alone betting the wrong way on energy. Carl Icahn has been heavily invested in energy and, through positions in CVR Energy (NYSE:CVI), Chesapeake Energy (NYSE:CHK), Transocean (NYSE:RIG), and Talisman Energy (UNKNOWN:TLM.DL), could have lost $1.56 billion in the last three and a half months alone.

Carl Icahn 

Shares as of Sept. 30, 2014

Potential Losses

CVR Energy (CVI)

71,198,718

$803.8 million

Chesapeake Energy (CHK)

66,450,000

$309.7 million

Transocean (RIG)

21,477,900

$360.0 million

Talisman Energy (TLM)

76,060,078

$86.7 million

Total

 

$1,560 million

Source: SEC filings.

We don't yet know what trades either manager made during the fourth quarter, but it's safe to say that both John Paulson and Carl Icahn lost a lot of money in energy stocks, and they're not alone. Citadel Advisors, Discovery Capital Management, and David Tepper's Appaloosa Management had hundreds of millions of dollars invested in energy stocks at the end of Q3.

Private equity is reeling, too
The collapse in energy wasn't predicted by private equity firms, either, who buy out entire companies and hope to sell them for a big profit when they're sold again or taken public. Bloomberg reported on December 21 that buyout firms had lost $11.7 billion just on 27 publicly traded energy stocks since June. Between that report and today, WTI and Brent crude oil prices are down 17% and 20%, respectively, so losses have probably grown.

The drop in oil prices could make it nearly impossible for private equity firms to finance energy buyouts in the near future as well. That's the downside of the buyout business: Money is easy to come by when prices are high, but when valuations are low, no one wants to finance an acquisition.

Betting on a recovery now is risky
As energy prices, tumble a number of hedge funds are starting to get bullish on energy. Citadel was adding energy stocks in the third quarter, and if they saw deals then, they should see great values now. T. Boone Pickens has also made bullish comments on energy prices. But no one really knows when oil prices or energy stocks will recover. If they did, some of the brightest minds in the hedge fund world wouldn't be dealing with billions of dollars in losses.

Next time you fill up your gas tank for less than $2 per gallon, take some time to think about the billionaires who are reeling because of cheap gasoline. You may save $550 on gasoline this year, but they'll be taking billions in losses as a result of those savings. How will they ever survive?

Travis Hoium has no position in any stocks mentioned. The Motley Fool owns shares of Transocean. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.