388. OIL PRICES DROP, CONSERVATION CONTINUES
[Note from JD: This is a guest post from Ari, a new contributor here at POD.]
One of the big fears of falling gas prices was that people would hop back into their cars and start driving again. It makes sense, one supposes, that as the cost of a good goes down, then people start consuming it more, right?
Well, life isn't that simple.
The one thing that people often ignore is that consumer decision making is not based only on simple "single variable equations." We don't walk into a store, pick up one item, and decide to buy it solely because its price goes up or down in a specific span of time. We comparison shop. Transportation, despite its being a relatively inelastic good, is not immune to this economic behavior.
And lo and behold, people appear to be comparison shopping, even as gas prices fall.
The Road Less Traveled
Like never before, Americans' travel habits have a special place in our national conversation. The combination of gas price fluctuations, economic stress, energy concerns, and public financing woes have transformed transportation issues from inside baseball to front page news and water cooler conversation.
A primary cause for this attention has been the major shifts in travel patterns. Americans have simply been driving less, when considering both historic growth rates and the most recent annualized measures of vehicle miles traveled (VMT).1 At the same time driving has declined, transit use is at its highest level since the 1950s, and Amtrak ridership just set an annual ridership record in 2008.
Not convinced? Here's more anecdotal evidence of this trend:
Cheap Gas Pulls Few off Bus, Metro
Even before it was costing us $75 a week to fill our gas tanks, as it did this spring and summer, we had already started to change our driving habits in ways unexpected years ago," said John B. Townsend II, AAA Mid-Atlantic's Manager of Public and Government Affairs. "Despite the fact that gasoline prices have been in a freefall since mid-July, consumption is still declining. Last week, U.S. gasoline consumption was lower than it was the same week a year ago."
"People who began to take public transit in 2007 with the rise of higher gas prices are sticking with it now that prices have dropped back down to their lowest level since early 2005, Townsend said.
Delawareans Stick with Public Transit
DART bus usage has backed off a bit since gas prices fell to near $1.50 in recent months, but remains strong. DART buses logged 850,260 fares in October, well up from the 746,731 rides during the same month a year earlier. But it's down from a high of 912,789 rides in July, when gas prices were sky-high.
SEPTA train use on the R2 line, which runs through Delaware, increased from 96,671 rides in October 2007 to 110,020 rides this October. Ridership in October was higher than it was during the summer: in July, riders took 105,768 trips on the line.
"What we believe is when people find out it does work for them, they continue to use it," said Darrel Cole, a spokesman for the state Department of Transportation. "There's nothing better than sitting on a bus, sitting on a train, being able to get work done while someone else drives for you."
The nation's public transportation systems saw the largest quarterly ridership increase in 25 years as more Americans shunned their automobiles even as gas prices began to ease, according to industry figures to be released today.
Subways, buses, commuter rail and light-rail systems saw a 6.5 percent jump in ridership from July to September, according to the Washington-based American Public Transportation Association. During the same quarter, Americans drove 4.6 percent less on highways.
The average price for a gallon of gas peaked at more than $4 in mid-July, then began falling.
They may have tried public transportation to get away from high gas prices, but many have since found it works for them," association president William W. Millar said. "I think this year has been a real turning point for the public's attitude toward public transportation."
Riders made 2.85 billion trips on public transportation during the third quarter, up from 2.67 billion trips a year ago. There have been gains in every quarter this year from 2007. Last year's 10.3 billion trips were the most on public transportation in 50 years.
As Gas Prices Fall, Transit Still Popular
Gas prices have plummeted during the past several weeks, but commuters do not appear to be returning to their cars, according to transit officials in the region and elsewhere, who say ridership is still increasing.
Transit officials attributed much of the ridership increase earlier this year to skyrocketing gasoline prices. But despite falling pump prices -- from a national average of $4.11 a gallon in July to $1.82 yesterday -- transit ridership is setting records in some parts of the country, officials said.
For the four months ending in October, Metrorail ridership in the Washington region was up 5 percent over the same period last year, senior planner Jim Hughes said. Preliminary data indicate that November rail ridership is up about 3 percent.
Gas Prices Drop, Bus Ridership Stays Steady (requires log-in)
"Gas prices may have dropped dramatically in the past few weeks, but Windham County residents who discovered the benefits of riding the bus when the cost of gas was high are sticking to their new routines.
Local public transportation like the Brattleboro Beeline and Connecticut River Transit has not seen a decline in ridership.
"We haven't so far, but prices did just drop," said Gary Fox, executive director of Connecticut River Transit.
"If people are going to look at making that kind of switch, maybe it just hasn't happened yet, but I don't think it will," he said.
Fox said there was an increase in people trying public transit when fuel prices were sky-rocketing.
With prices dropping, he thinks it's likely that spike will stop, but not likely that he will lose current riders."
Public Transit Use Up Over Last Year
This is an interesting article because it shows how a poor economy can affect transit in ways we don't often hear:
And yes, some (maybe even most) of this has to do with the economy-- that is clear-- but if the Brookings study is any indication, then we may be seeing a shift in transportation habits in the long run. It's hard to say with any certainty (after all, prediction is a thorny business!), but it is interesting that a good with supposedly highly inelastic demand remains significantly down despite a price decrease of nearly 50%. Like most other "models" that the peak oil community has presented us, oil demand models are overly simplistic and do not account for enough variables. In other words, they have low predictive skill.Commuters who jumped onto buses and trains when gas prices soared stayed on board when prices started falling this summer, but transit operators fear the poor economy will erase the gains.Ridership on public transit increased 7% to 2.85 billion rides in July, August and September compared with that quarter last year, a report to be released today by the American Public Transportation Association shows. Gas prices began to fall in July after reaching a high of $4.16 a gallon.
"As gas prices rose, more and more Americans made the choice to ride public transit," says William Millar, the association's president. "Now, even though gas prices are falling, Americans tried public transit and many find it convenient."
More than anything, however, this demonstrates that people are ADAPTIVE. Unlike those silly cartoons on YouTube that show people driving SUVs up and over a cliff to PEAK OIL DOOM, people react to signals and will change behavior fairly quickly. In just a few years, people have started using transit again in numbers that haven't been seen for almost a half-century! Unlike peak oil doomsters, who say that NOTHING WILL STOP DEMAND FROM INEXORABLY RISING, reality demonstrates that people consciously, and rather quickly, change behavior.
Surprise surpise.
posted by JD @ 2:42 AM
41 comments
41 Comments:
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Thank you!
JD
Independent studies conclude that Peak Oil production will occur (or has occurred) between 2005 to 2010 (projected year for peak in parentheses), as follows:
* Association for the Study of Peak Oil (2007)
* Rembrandt Koppelaar, Editor of “Oil Watch Monthly” (2008)
* Tony Eriksen, Oil stock analyst (2008)
* Matthew Simmons, Energy investment banker, (2007)
* T. Boone Pickens, Oil and gas investor (2007)
* U.S. Army Corps of Engineers (2005)
* Kenneth S. Deffeyes, Princeton professor and retired shell Geologist (2005)
* Sam Sam Bakhtiari, Retired Iranian National Oil Company geologist (2005)
* Chris Skrebowski, Editor of “Petroleum Review” (2010)
* Sadad Al Husseini, former head of production and exploration, Saudi Aramco (2008)
* Energy Watch Group in Germany (2006)
Independent studies indicate that global crude oil production will now decline from 74 million barrels per day to 60 million barrels per day by 2015. During the same time, demand will increase. Oil supplies will be even tighter for the U.S. As oil producing nations consume more and more oil domestically they will export less and less. Because demand is high in China, India, the Middle East, and other oil producing nations, once global oil production begins to decline, demand will always be higher than supply. And since the U.S. represents one fourth of global oil demand, whatever oil we conserve will be consumed elsewhere. Thus, conservation in the U.S. will not slow oil depletion rates significantly.
Alternatives will not even begin to fill the gap. And most alternatives yield electric power, but we need liquid fuels for tractors/combines, 18 wheel trucks, trains, ships, and mining equipment. The independent scientists of the Energy Watch Group conclude in a 2007 report titled: “Peak Oil Could Trigger Meltdown of Society:”
"By 2020, and even more by 2030, global oil supply will be dramatically lower. This will create a supply gap which can hardly be closed by growing contributions from other fossil, nuclear or alternative energy sources in this time frame."
http://www.energywatchgroup.org/fileadmin/global/pdf/EWG_Press_Oilreport_22-10-2007.pdf
With increasing costs for gasoline and diesel, along with declining taxes and declining gasoline tax revenues, states and local governments will eventually have to cut staff and curtail highway maintenance. Eventually, gasoline stations will close, and state and local highway workers won’t be able to get to work. We are facing the collapse of the highways that depend on diesel and gasoline powered trucks for bridge maintenance, culvert cleaning to avoid road washouts, snow plowing, and roadbed and surface repair. When the highways fail, so will the power grid, as highways carry the parts, large transformers, steel for pylons, and high tension cables from great distances. With the highways out, there will be no food coming from far away, and without the power grid virtually nothing modern works, including home heating, pumping of gasoline and diesel, airports, communications, and automated building systems.
This is documented in a free 48 page report that can be downloaded, website posted, distributed, and emailed: http://www.peakoilassociates.com/POAnalysis.html
I used to live in NH-USA, but moved to a more sustainable place. Anyone interested in relocating to a nice, pretty, sustainable area with a good climate and good soil? Email: clifford dot wirth at yahoo dot com or give me a phone call which operates here as my old USA-NH number 603-668-4207. http://survivingpeakoil.blogspot.com/
Clifford, you're a fucking troll, eat shit and die.
I think there a couple of more aspects to the reduced driving/oil consumption phenomena you describe.
--> Telecommuting is similar to transit, in that people tend to shun it until they are forced to use it by high gas prices. Subsequently, they continue to enjoy it. With telecommuting, there is a strong "you first" phenomena. Younger employees wait until their bosses start doing it before trying it themselves. The concern being it will be bad for their career. Once they see management telecommuting 2 days a week, the ran and file feel comfortable following suit.
--> Tele-presence technology is reducing the need for long range business travel. Similar to mass transit and telecommuting, once people become accustomed to the idea of replacing business trips, they will continue to do so re:less of price.
I have seen both trends develop very strongly in my work environment. In fact, I would say the principle motivation within our group has been the desire to make our business more "green". This is being promoted as part of the companies core values, and is not dependent on the price of oil.
pjc,
Good point, and one that I did not address simply because I was focusing on the use of mass transit.
It will be interesting to see if people who started having four day schedules stuck with them, or if telecommuting starts to stick.
It definitely offers a lot of possibilities for reducing oil use.
That is not hard to figure out. We are still in a world of financial hurt. Groceries and every consumer product is still sky high, the prices have not dropped with the drop in gas prices. My electric co rasied our rates 16% they are slated to come down 4% now that gas is lowe...what happened to the other 12%? We seriously need to get on with the business of becoming energy independent. While we are doing the happy dance around the pumps with the lower prices OPEC is planning yet more production cuts and will not quit until they achieve their desired price per barrel. The record high prices this past year have done serious damage to our economy and society. It would cost the equivalent of 60 cents per gallon to charge and drive an elctric car. If all gasoline cars, trucks, and suv's instead had plug-in electric drivetrains, the amount of electricity needed to replace gasoline is about equal to the estimated wind energy potential of the state of North Dakota.WE must move forward with energy independence. We have the knowledge, we have the technology, what America lacks is a plan. Jeff Wilson has a new book out that is beyond awesome. The Manhattan Project of 2009 Energy Independence NOW. He walks you through every aspect of oil, what it is used for besides gas, our depletion of it. The worlds increased need ie 3rd world countries becoming more modernized and consuming more. He explains EVERY alternative energy source and what role they can play to replace oil. His research is backed up with hard data and even includes a time frame and proposed legislative agendas to wean America off oil. http://www.themanhattanprojectof2009.com
Wilson also has a fascinating article on the Better Place Blog called How Much Electricity Does It Take To Replace Gasoline you can read it @ http://planet.betterplace.com/profiles/blogs/how-much-electricity-does-it
I was thinking, matt simmon's credibility has taken a big hit this year. he thinks oil demand will remain higher than oil production for basically forever. didn't he say natural gas would "cliff" very soon? he also sounded hysterical on Fast Money last July.
Well, here we are nearly into 2009, and what we have is a honking glut of oil. And this glut promises to last for years. I think 2010 used to be the year we would all die from oil shortages.
We have seen the rapid near commercialization of PHEVs and other high mpg cars, and new palm trees that yield many times the oil of older hybrids.
And we have this glut while Venezuela, Mexico, Iran, Iraq, Nigeria and Libya are runs by nuts. There must be 10 mbd sitting on the table in petro-thug land, but we can't develop it.
Great post Ari, and a best new year to all. Rather than oil shortages, I suspect most of us just hope we have businesses or jobs in 2009. I sincerely hope you all do, even the doomers.
Saw a video today where Fatih Birol, the International Energy authority Chief, and he says oil will plateau around 2020 if things stay the way they are. Granted, I don't think they will, because I believe in human innovation. Here's the link.
http://therealnews.com/t/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=2970&updaterx=2008-12-18+13%3A11%3A51
Has anyone else noticed that Kunstler is a Peak Credit doomer now?
Kunstler is a peak-everything doomer. I wonder if he's yet to notice that he's far past peak himself?
When are we going to hit peak peaksters? I can't wait til we are on the downslope of that peak!!!
Seriously though, good article Ari. I am sort of a case study in this. In July of this year, I changed jobs, moved into a bigger house (but it's far more energy efficient than my old house, I now live 2 miles from work when I used to live over 20. I haven't changed cars yet, but I am still looking for a beater 4 cyl (or maybe Prius if I can talk the wife into it) that gets well over 30 mpg to add to my family of cars. My family oil consumption (and overall energy consumption) has plummeted since Summer. No way I'm going to get caught in a situation like I was before where higher fuel and energy costs hurt us financially.
I have a feeling I'm not the only one who has done this same type of thing.
DoctorJJ
I would very much like to use public transport or other alternatives to a car to drive to work, but in Romania this is not a workable solution (at least not for me).
Actually, in the last two years I had my driver’s license suspended two times for one month, so I was able to taste the joys of public transport, and I don't want to repeat the experience any time soon.
It takes around 20 minutes to get to work using my car (5 miles trip), with peaks at 50 minutes about once a month, and exceptions of 15 minutes about once a week.
And then there's the public transport: first, there is a two minute walk to the bus station. Then you have to wait 10-15 minutes for the bus to come. Then there are 10-15 minutes of bus riding (about 1 mile), because the bus gets stuck in traffic. Then it's a 5 minute walk to the subway station.
I found that most of the time it's easier to just skip the bus part, and walk the 1.5 miles to the subway station in about 25 minutes. As an added bonus, you get some physical exercise. But you really wouldn't want to do this in winter, or in the middle or the summer. Or in heavy rain/wind. But half the year, walking would be doable.
Then at the subway station a 5-10 minute wait for the train to come. Then a 15 minutes ride to work, as fortunately the train station is right in front of the office.
Summarizing, on average by car it takes 20 minutes, by bus+subway it takes about 55 minutes, and by walk+subway about 47 minutes. It would take about 1.5 hours just by walking.
But the fact that the trip takes at least twice as much time is not the only problem. The subway trains are incredibly overcrowded. I hate riding an overcrowded train, so on one occasion, after refusing to climb into 4 successive trains because they were too full, I gave up, exited the station, and called a taxi.
On two occasions during one month, I was not able to get off the train because it was too full. I managed to get off two stations later. You can see some pictures of the overcrowded public transport here:
http://www.swampblog.info/aglomeratie-la-metrou/ (The blog entry title "Overcrowding at the subway")
http://www.libertatea.ro/stire/se-calca-in-picioare-in-statia-tramvaiului-41-191913.html (The news title reads "Stampeding in the tram station")
http://www.evz.ro/articole/detalii-articol/463592/Metroul-iad-de-aglomeratie-/ (The news title reads “The overcrowding hell at the subway”)
But more distressing is that it gets worse every year, as the city population is increasing, and the public transport capacity remains the same (it almost invites the die-off arguments). Soon, the subway will be just as crowded as this Japan train:
http://www.youtube.com/watch?v=mKOEQVgONh0
(I know JD lives in Japan and praises their public transport system, but either this is an exception, or the area he is living in is an exception :).
What? The advantages of public transport? You can work while commuting? :)) You are lucky if you can grab a bar to hold on because of the overcrowding, let alone a sit (not that you need one since you can't fall down with so many people around you :). And Wi-Fi, in your dreams.
Why is that? Because the prices for tickets are subsidized (i.e. the public transport companies are forced to keep prices low, about 0.5 $ / trip, not even counting any discounts for subscriptions). This way the demand for public transport is huge (for poor people, the price advantage overcomes all the disadvantages and inconveniences listed above). But this way, no money is left to invest in expanding the system, and just keeping it running is a huge problem.
Other solutions? I could ride a bike. But there are problems here too. The city just recently added some bike lanes on the sidewalks, but they would only cover 10-15% of my trip. Other than that, I would have to either use sidewalks, and risk running over pedestrians, or I could use the car lanes, and risk being run over by cars. The same would apply for mopeds. Right now they have the highest rate of accidents and injuries. And with a bike, I will have to change my clothes each time I reach work, because the clothes will be all wet because of the effort.
What else. Moving closer to work? The square meter prices in the area around my office are huge, up to 2-3 times the price of a square meter in the suburbs. The difference is between 400,000 USD near the office, and 200,000 USD in the suburbs for a 3 room apartment (124 square meters / 1333 square foot). And 200,000 USD can buy you a lot of gas. At the current price of 1 USD / liter (about 4 USD / gallon) you can buy 200,000 liters with that (50,000 gallons). And that’s not even counting the interest if you buy the apartment with a mortgage. That can easily be 2 times the price of the apartment. So actually, by moving to the suburbs with a mortgage loan, I saved the money equivalent of 150,000 gallons (600,000 liters) of gas. My tank is 45 liters (11 gallons), and allows me to drive about 300 km in congestion conditions (about 17 mpg). So with the money saved by moving to suburbs, I can fill 13,333 gas tanks, and ride 4,000,000 km in the city (that's 2.5 million miles). Even if my distance to work will be doubled to 10 miles, for a 20 miles round trip to work and if my wife needs a similar amount of driving to work, that would mean 40 miles daily. Meaning the fuel saved would allow us to drive to work 62500 working days. Meaning 271 years of work.
So moving to the suburbs is actually cost effective.
What else, sleeping at the office? Maybe. But there are no sleeping facilities, and I don't think the boss would like me to bring a bed there. Were not even allowed to bring food and drinks (except water) to the office.
And the boss thinks that face to face meetings are crucial, so telecommuting is also out of the question, although I would like this solution.
Other than that, I would consider an electric car. But the only electric car I really like is the Tesla Roadster, and that's way too expensive. The hybrids are not bringing any cost savings, so I don't care for them. I really don't understand why the electric cars are so ugly. But that may change soon. Anyway, my car is nearing its end of life of 7 years in 2010, and by then there may be an attractive alternative.
Oh, I forgot, car pooling, or van pooling. That just takes from you the freedom to leave /come to work whenever you want (or the boss/work volume asks). So that’s not a solution if you need a flexible schedule. I tried it 6 years ago and it doesn't work for me. In fact, the flexible work schedule caused me to buy a car 5 years ago. This year, as a benefit, I received a company car, but I only use it to go to work.
For me, driving to work is not frivolous usage, from my point of view, it's a necessity. Of course, if the congestion gets so worse that walking to work becomes faster than driving the car, or if the public transport significantly improves, I will reconsider this position.
As for frivolous usages, each weekend I drive 300 to 600 miles to the mountains or to the sea side and back. I find there's nothing more relaxing after a week's work than driving the car for hours on mostly empty roads, admiring the scenery, and just being one with the car. But when the going got tough, and I had to save money to make the down payment on the house, I took a one year pause from those trips. It was depressing, but survivable.
As for the IEA plans to save oil in a hurry, I could see the logic of their plans, except this: "Ban on motor sports events". That's just unacceptable.
Other than that, I found this blog 3 days ago, and I found it so informative and entertaining that by today I just finished reading all the posts, including the final post, this one. I just can’t understand how JD found the energy to write the first 300 posts in so little time.
Anyway, this is one of the best debunking sites I found, and even if JD’s opinions not always match mine (for example “the cars are an evil addiction”, or “the suburbs should be deserted”; after all, maybe JD is right and I’m looking for any excuse not to give up my car “addiction”).
I only wish the “money as debt” conspiracy sites had a similar counterpart.
Vlad and everyone else,
Thank you for the compliment. I remember reading some doomer saying how right after oil prices went down everyone would just go back into hyperconsumption mode, but that never made sense to me.
As for the rest of the conspiracies on the Internet, I simply don't have enough time for them. Nor the inclination, to be honest. It's simply not worth it to be tied up with nutters all the time, worrying about this or that ending the world.
Living life is just so much better.
Ari, Do you ever ride the bus? I have been riding it since last summer. It was standing room only then. That is no longer the case empty seats are always available now. Also last summer I was able to drive from LA to San Bernardino in under an hour because of light traffic. The trip is now back to taking at least 90 minutes because of increased traffic on the freeways.
Plus Dec will be the first month where SUV's/trucks will outsell cars since Feb.
I would posit that the millions of people who have lost their jobs are what is keeping demand down. (just like every decent PO primer said it would.
I believe you guys on this blog put way to much onus on timeline predictions. The PO primers are all hitting their marks. Because some commenter on a blog makes foolish predictions does not change this fact. Wild price fluctuations and speculation are a part of every well written PO primer.
To the guy who posted about Kunstlers claim we are in peak credit. Do you read the papers? Have you tried to get a loan? Have you read any of the stories about how the bailout is fueling the T-bill bubble that is currently inflating. It seems the bankers are buying forigners bad US investments as long the recipients use the funds to buy T-bills.
What will happen when all the bad investments are purchased or the USA can no longer keep buying?
I have not posted here in awhile because my posts have been deleted. I guess JD is only interested in comments from stupid people who disagree with him. Weak
Ari, Do you ever ride the bus? I have been riding it since last summer. It was standing room only then. That is no longer the case empty seats are always available now. Also last summer I was able to drive from LA to San Bernardino in under an hour because of light traffic. The trip is now back to taking at least 90 minutes because of increased traffic on the freeways.
Every day. I also ride the train every day. Like I've said, I live just outside of NYC. But so what? You apparently didn't bother reading any of the links, because you want to base your argument on nothing more than personal experience. At least I admitted some of my sources were anecdotal (though they at least have some trend-based evidence.)
Plus Dec will be the first month where SUV's/trucks will outsell cars since Feb.
Source.
I would posit that the millions of people who have lost their jobs are what is keeping demand down. (just like every decent PO primer said it would.
Oh dear. Except that... YOU'RE WRONG!
"Driving, as measured by national VMT, began to plateau as far back as 2004 and dropped
in 2007 for the first time since 1980. Per capita driving followed a similar pattern, with
flat-lining growth after 2000 and falling rates since 2005. These recent declines in driving
predated the steady hikes in gas prices during 2007 and 2008."
I believe you guys on this blog put way to much onus on timeline predictions. The PO primers are all hitting their marks. Because some commenter on a blog makes foolish predictions does not change this fact. Wild price fluctuations and speculation are a part of every well written PO primer.
Hitting their marks? Example?
That's your problem, Shiner: you never offer examples for your claims. Which marks have been hit, exactly?
To the guy who posted about Kunstlers claim we are in peak credit. Do you read the papers? Have you tried to get a loan? Have you read any of the stories about how the bailout is fueling the T-bill bubble that is currently inflating. It seems the bankers are buying forigners bad US investments as long the recipients use the funds to buy T-bills.
I probably read more papers than you do, and definitely have a better grasp of basic financial economics than you do.
1. Define "bankers."
2. We are by no means at "peak credit." Kunstler doesn't even understand credit markets.
3. Yes, I did get a loan recently. Good rate, too. :-)
What will happen when all the bad investments are purchased or the USA can no longer keep buying?
Probably what happened in Japan. Nothing, really.
I have not posted here in awhile because my posts have been deleted. I guess JD is only interested in comments from stupid people who disagree with him. Weak
Or maybe because you make grandiose claims that you never back up with hard facts and figures? Maybe because you spend more time trolling and engaging in fallacious reasoning than actually saying anything of substance?
Just a thought.
TheAntiDoomer says:
Who let Clifford J. Wirthless in here?
The PO primers are all hitting their marks.
Hahahahahaha.
To the guy who posted about Kunstlers claim we are in peak credit. Do you read the papers? Have you tried to get a loan?
Give me sources. I want sources that state that people with good credit ratings are having problems getting loans. Or you can just go on believing Kunstler (a liberal arts major!) for complex financial theorizing.
jd, you are a complete idiot!
Anon,
You'll notice that this post wasn't written by JD, but by me. I will, however, give you the benefit of the doubt and ask: why am I "a complete idiot?"
Feel free to take your time and formulate a good answer.
Japan oil consumption in November off 17 percent y-o-y. They are going down to levels not seen since the 1960s.
I would like to moralize about one thing: The TOD has taken to censoring comments. This is a decrease in their credibility (if they have any left). Plus, TOD regulars bash anyone with a different point of view. It leads to group think.
I hope this forum stays above that. If someone has a different point of view, fine.
Of course, abusive multiple postings can be eliminated. But, I want to hear sensible viewpoints from all directions, and censorship does not yield that.
I hope bashing is kept to a minimum as well.
Benny, as I recall the moderators over at the Oil Drum have always been a little, shall we say, overzealous. Personally, I'm not sure there's a particularly sinister motive to it, but I do find it annoying.
As I've said in the past, I like a lot of what the contributors to TOD have to say. But reading the comments is typically aggravating. Commenting on today's DrumBeat, someone questioned the Export Land Model with what appeared to me to be legitimate questions regarding a model built on multiple layers of unproven assumptions. The end result was a back-and-forth engagement where the two sides of the debate were essentially not speaking the same language as each other.
It is, to an extent, a form of group-think. Too many folks there simply cannot comprehend, or refuse to see, conclusions that differ from their preconceived notions. The possibility of TEOTWAWKI becomes the inevitability of TEOTWAWKI, and any talk of other potential outcomes is a prima facie troll.
For this reason, I try to avoid the comments at TOD, and look to other sources for intelligent debate on the subject. POD here has its own prejudices, but JD and company have always been very good at acknowledging and minimizing them. Robert Rapier has managed (against all odds) to keep his blog above the fray, and is usually an excellent source of insight.
On the other hand, I sort of understand the doomer inclination of TOD. It's difficult to talk about something like peak oil without falling into a worst-case-scenario mindset at one time or another, as I and countless others have shared in the past. TOD's high profile attracts people who never climbed out of that state of mind, and they subsequently reinforce that relentlessly negative atmosphere.
Personally though, I find Ari's attitude more productive and far less stress-inducing. Focusing solely on worst-case scenarios and assuming that just because something bad can happen means that something bad will happen is the easy way out. I know I'm rambling now, but congrats on becoming a contributor, Ari. It's well overdue.
Oh, and about Wirth: his conclusions aside, every post he makes seems to be a bald-faced attempt to promote his "move to a sustainable place" program. I can live with the fact that he has a point of view that differs from my own, but it seems to me like his contributions are treading dangerously close to comment spam.
Sean D.
I am not sure about sinister motives at TOD either, but on the other hand, who pays for that site?
If you were an oil exporting nation, or had big trading positions, would you not try to manipulate both the exchanges (NYMEX) and public opinion?
Indeed, would it not be your fiduciary and patriotic duty to manipulate trading exchanges and public opinion, if you were an oil exporter?
That being said, I agree with much else you state. Except I went through my doomer stage in the early 1980s, during the first oil crisis. I waited for doom...and waited...and waited...and waited.
I try to warn TOD'ers, "You also will have a long wait."
Sheesh, this glut could last for years.
Not to smirk or anything but I'm on record on TOD two years ago as saying that taking the bus ALONE would mitigate peak oil for a significant period.
Sweet.
DB,
Good to hear you were saying this a while back-- I'm glad to know! I didn't really mean to address the idea that buses would stop any sort of peak, but really just that transit is subject to more pressures than price of gasoline alone.
If the Brookings study is any indication, then we may be seeing something more than people simply seeking to save money on gas bills. It's hard to say though, with so few years studied.
This may be off topic, but I gotta ask: why exactly did gas prices go down? I could understand a 5-10% decrease, but 50% seems too much. The only way I can make sense of it is if there was a sharp decrease in demand, but I doubt we are driving 50% less, so that decrease must come from somewhere else, but where?
Sam.
Markets are much more complex that simple "supply and demand" at the consumer level.
One reason for the decrease in prices of oil is that the people who own a lot of oil futures investments also have these toxic investments that have been gumming up the works in the economy. There has been a "flight to cash", therefore investors are selling off oil futures at a huge loss just because they need the cash more than they need the investment. This has caused massive price deflation in oil.
It's happening in other sectors also (similar to falling home prices), this is what some people belive may trigger a full-on "deflationary depression".
Phil,
Exactly. Pricing models are notoriously complex and difficult to parse. I think if any of us could properly model the price of oil, we could (would?) be making a good amount of money.
Though I disagree with some of his bearishness at times, Hamilton at Econbrowser demonstrates quantitatively why some of these things are, shall we say, sticky?
From a classical statistical perspective, you deal with a lot of problems in the kinds of models that tease out prices: covariation, stochasticity, unobservable heterogeneity, endogeneity, and a bunch of other terms that have little meaning outside of an econ geekfest. Suffice it to say, most (all?) of the models to predict oil prices have thus far been pretty poor from a skill perspective. Everyone from Simmons to CERA (depending on if you're a Cassandra or a Pollyanna) seems unable to really pin down price.
That's why I don't really pay much heed to price predictions. They have yet to demonstrate statistical skill.
Ari, not to take anything away from a really well thought-out post, but why is any of this a revelation? I remember getting into an increasingly bitter dialogue with Peak Oilers 2-3 years ago on account of the response in vehicle miles travelled per annum to the famous oil shocks of 3 decades ago. In short, it was a classical linear system response to an impulsive input: dramatic decline, followed by a long, gradual recovery.
Again, I'm not knocking you, Ari (or JD). Its just incredibly frustrating how even the most obvious points, backed up by precedence and incontrovertible data, need to be rehashed, seemingly ad nauseam. Its why I've moved on from the Peak Oil sphere, and why I marvel at JD's patience. Keep up the good work, guys!
Ari, not to take anything away from a really well thought-out post, but why is any of this a revelation? I remember getting into an increasingly bitter dialogue with Peak Oilers 2-3 years ago on account of the response in vehicle miles travelled per annum to the famous oil shocks of 3 decades ago. In short, it was a classical linear system response to an impulsive input: dramatic decline, followed by a long, gradual recovery.
Again, I'm not knocking you, Ari (or JD). Its just incredibly frustrating how even the most obvious points, backed up by precedence and incontrovertible data, need to be rehashed, seemingly ad nauseam. Its why I've moved on from the Peak Oil sphere, and why I marvel at JD's patience. Keep up the good work, guys!
"Everyone from Simmons to CERA (depending on if you're a Cassandra or a Pollyanna) seems unable to really pin down price."
I remember Lynch being lynched on PO.com for improperly pricing in the commodities boom, despite the inconvenient fact that he continued to nail the supply forecast. That decoupling in the reliability of a supply forecast with the reliability of a price forecast pretty much proved to me that the run-up was speculation-driven as far back as 2 years ago. Hell, it should have satisfied anyone with a brain stem. Alas, the doomer creed entails ignorance of any inconvenient facts.
dc,
The Brookings study is interesting because VMT plateaued long before the rapid run-up of oil prices. It suggests that perhaps there's something more than simple price elasticity at work at deciding people's driving habits. Perhaps some are simply fed up with driving as a sole means of transportation?
Other than that, you're right: it's not really anything unique per se. We've seen this before. What may be interesting, however, is seeing how people react this time in terms of VMT. Also, what effects will things like hybrids have on future consumption? Transit is, I'd argue, starting to come more into the picture in many US metropolitan areas, so this may play out slightly differently from the 1970s crash. Hard to say though!
[i]I remember Lynch being lynched on PO.com for improperly pricing in the commodities boom, despite the inconvenient fact that he continued to nail the supply forecast. That decoupling in the reliability of a supply forecast with the reliability of a price forecast pretty much proved to me that the run-up was speculation-driven as far back as 2 years ago. Hell, it should have satisfied anyone with a brain stem. Alas, the doomer creed entails ignorance of any inconvenient facts.[/i]
It's funny that you say that-- I've had the same thought about Lynch's deft eye when it comes to supply. I think I mentioned it on this site before, as well. But yeah, you're definitely right about the biases affected the, uhh, "lunatic fringe."
Speaking of supply and demand, here are some scary stats: Oil demand down in Japan by 17 percent y-o-y, down in S. Korea by 12 percent, y-o-y (and they just instituted stiffer vehicle mpg requirements), and down in China by 3.7 percent (WSJ).
And this recession is young yet.
After the last price spike (1979-80)demand fell by 11 percent, annual peak to trough. This time could be worse.
What will the world do with an extra 8 mbd on global oil markets, piling up everyday?
Look for $10 oil in 2009-2010. It will be cheaper to give it away than to store it.
(Moreover, Sasol has announced it plans to build coal-to-liquids plants with 1.1 mbd of capacity in Indonesia. Sheesh, if they can pull that off, how long until China builds a bunch more?)
This glut may last for a long, long, long time.
Benny,
I don't see oil going down much lower than the ~$30 range simply because of the extraction costs, and I see OPEC cutting more capacity in the next year or so.
However, what I think is funny about that is that we'll then see the POers going, "SEE?! WE TOLD YOU OPEC LACKS SPARE CAPACITY! PEAK OIL IS UPON US! REPENT!"
Ari-
The marginal cost of production is well below $30, and under $10 in the Mideast.
Besides that, when there is no place to store oil, and you can't sell it, and you are paying money to store it, the price starts to go to zero. It will be cheaper to give it away than to store it. Funny how the Saudi Arabians are so casual about their stolen tanker. No storage costs? Cheaper to let the pirates keep it. Funny, unless you are a crew member on the stolen tanker, and you now realize how little your life means to anyone in Saudi Arabia.
I don't say $10 is sustainable. I just say we will get there, as we did in 1998, following a much smaller Far East recession.
We hit mid-$30s already. Seasonal demand weakens in the spring.
It's bad manners to link to a 5 MB pdf without identifying it as such. I refer of course to your lead link from the Brookings Institute, which was written before the October Traffic Volume Trends was issued. VMT for that month sharply increased from 232.1 to 249.7 billion miles, markedly more than comparable increases in '06/'07. This when with crude at $90/bbl and gasoline at $3.54/gallon at the start of the month, too. Low fuel prices and the recession will duke it out to win over drivers. Personal transportation wins hands down for convenience, having none of MT's shortcomings with availability of destination and timing, which are critical for parents/job hunters. If fuel prices maintain their current lows I don't see a secular trend forming here.
Yeah, Dude, but the point is, people very rapidly make adaptations as needed (which dispels the bulk of the extreme doomer talk).
The Dude: VMT for that month sharply increased from 232.1 to 249.7 billion miles, markedly more than comparable increases in '06/'07
From your own reference:
2005-09: 240 billion
2005-10: 250
2006-09: 242
2006-10: 256
2007-09: 243
2007-10: 257
and now:
2008-09: 233
2008-10: 250
Looks to me there is always a Sep->Oct jump in the signal. And of course, the data for 2008 October is still 3.5% down from a year earlier.
But hey, don't let me be a dump on your Party of Fear!
Oh! There is a convenient graph too:
http://www.fhwa.dot.gov/ohim/tvtw/08octtvt/figure2.cfm
Doesn't look like the yellow line will hit the purple or blue, in either rural or urban this year.
If fuel prices maintain their current lows I don't see a secular trend forming here.
After $4/gal gasoline,
In a volatile market, it is prudent to plan for the worst case:
the sensible "job hunters" will be looking for work near where they live, not 100 miles away.
Your basic free market at work. This is the whole meaning of the word "economy".
The Dude,
I didn't actually realize that putting a PDF link was considered "rude" in any circles. I realize not everyone has 20 mbps internet like I do (I'm awesome, I know), but it was not meant to slight anyone by any means. I'll remember that in the future, though, for you dial up/DSL luddites out there.
Kidding.
As for the Sep --> Oct jump, mdf makes an interesting case for a more trend-based argument-- that is, that the jump occurs regularly and is not necessarily due to price reductions. Now, that is not to say that there isn't a price-related signal in the seasonal noise, but I'm not inclined to disapprove of the Brookings findings simply because of one month's demand shift.
I'm also in mdf's camp as far as job hunting goes. I only look for jobs that are in places I can take transit to easily, or get dropped off by my fiancee, who is a medical student at a nearby medical campus. I will NOT take a job that requires driving.
Case in point:
Me.
I just bought a steeply discounted used SUV because gas prices have dropped.
Can you conclude that I am an anti-doomer who doesn't believe in peak oil?
Nope. I figured that even if gas goes back up to $4 a gallon I still have plenty left over from the brutal discount I extracted from the seller.
In addition I take the bus to work and only use the SUV at weekends.
Seems Jevon is wrong, doesn't it.
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