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Page added on May 30, 2017

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Millennial Behavior Is About To Make Fools Of Peak Energy Demand Theorists

Consumption

There are a lot of policymakers and pundits hanging plans on the idea that the nation is facing a ‘new normal’ rooted in ostensibly unprecedented behaviors exhibited by Millennials. Since that generation is now and will be for decades the largest share of the population, how they behave impacts everything going forward, especially for energy forecasters.

Nearly one-half of America’s total energy consumption is associated with just two things: homes and cars. We’re told that Millennials would rather bike and rideshare than own a car, and that they rather AirBnB or share a tiny urban apartment than buy a suburban house. If true, it’s a big deal not just for energy markets but also retailers and manufacturers; a permanent behavioral shift like that would give credence to the new trope of “peak demand.”

Start with the peak-driving proposition that’s been so eagerly advanced over the past half-dozen years. Here, wishful thinking aside, recent trends are unequivocal. America’s affection for cars is far from over.

Over the past couple of years, the data show travel on America’s roads has been growing at a record pace. By year-end 2016 road travel had hit an all-time high, north of 3.2 trillion vehicle-miles. Gasoline demand has followed apace, also hitting new highs. So much for peak driving.

It’s true that because of the Great Recession driving in the U.S. declined by some by 50 billion vehicle-miles in 2009, and stayed flat for half-dozen years. It was the biggest drop and longest stagnation in road travel in automobile history. But the peak theorists confused the effects of economic deprivation with structural changes in behavior.  It turns out that Millennial behavior during the recession—living in the basement rather than driving to work, and biking and sharing rides elsewhere—did not reflect a preferred lifestyle so much as an accommodation to the longest recession and slowest recovery in modern U.S. history.

And Millennials aren’t just driving more now, they’ve started buying cars too. Sales data and surveys show that Millennials exhibit more of a preference for new versus used cars compared to the gen Xers that immediately preceded them, and prefer SUVs and luxury cars rather than econo-boxes and electric vehicles. So much for peak oil demand.

U.S. Annual Vehicle-Miles Driven: “Peak Demand” Refuted

 

Data from: St. Louis Federal Reserve

What about the housing market? This sector lags automotive by a couple of years. Houses cost more and take longer to build than cars, but Millennials are starting to buy, rather than continue to share or couch-surf. They already make up over 40% of home buyers. This shouldn’t be surprising. As LendingTree CEO Doug Lebda has noted about Millennials: “I mean, you can’t obviously buy a house without a good job.” And the data show that “starter” homes for Millennials are nearly as big as the average sized home already owned by boomers. What does this imply about average home size as, in due course, Millennials move up market? Do we need to note that bigger homes consume more energy?

Here’s a prediction, given that homes are responsible for nearly 40% of the nation’s electricity consumption: As Millennials have kids and buy houses, the past eight years of flat electric demand will soon follow the same upward curve seen in road-miles. And imagine what happens to household electric meters if automakers finally make affordable and useful electric cars. But without regard to Tesla and its wannabes, peak electric demand is very unlikely.

Finally, one cannot ignore the ‘hidden’ energy consumed in building homes, a factor not included in the above accounting. Fuel is used by both heavy construction equipment and in the production of materials, such as lumber, concrete, wire and glass. Measured in SUV terms—the fuel used annually by one SUV—building the average house uses at least 10 SUVs of fuel, and a ‘McMansion’ more than double that. Those vehicle-miles-equivalents of energy really add up now that construction starts, which bottomed below 0.5 million in 2009, are now past a million homes annually. Just consider the energy math when Millennials drive housing starts to the old peak of nearly two million a year.

Efficiency mavens will say that technology will moderate all that. But here too history is instructive. In the two decades prior to the Great Recession, efficiency gains caused residential energy use per square foot to decrease by one-third. Still, the overall residential energy sector energy demand rose nearly 30% over that period.

The trends suggest that we will soon see recession-dominated stagnant demand for residential electricity use tick up, possibly dramatically. Combine this with rising vehicle-miles and the peak energy demand theory will suffer the same fate as the heretofore popular and discredited peak oil theory.

U.S. Annual Electricity Consumption: Poised to Follow Road Behavior?

Energy Information Administration

Mark P. Mills is a Manhattan Institute senior fellow.

realclearenergy



11 Comments on "Millennial Behavior Is About To Make Fools Of Peak Energy Demand Theorists"

  1. CAM on Tue, 30th May 2017 3:56 pm 

    I’m guessing that there will be both peak energy demand, ( I mean really, there will be a year in which demand for energy peaks, probably based on affordability) and peak oil as well (after all, it is not a renewable energy source in any time frame that is meaningful to our species).

  2. Apneaman on Tue, 30th May 2017 4:12 pm 

    Edmunds data tells the story: Since 2002, the average car loan term has slowly crept past five years, and is now inching past six-and-a-half years. In 2014, 62 percent of the auto loans were for terms over 60 months. And nearly 20 percent of the loans were for 73- to 84-month terms.Mar 6, 2015

    https://www.edmunds.com/car-loan/how-long-should-my-car-loan-be.html

  3. Apneaman on Tue, 30th May 2017 4:18 pm 


    ‘Deep Subprime’ Auto Loans Are Surging
    by Matt Scully
    March 28, 2017, 10:50 AM PDT March 28, 2017, 1:19 PM PDT

    Risky issuers lead auto-debt securitization: Morgan Stanley

    Delinquencies in deep-subprime deals have jumped since 2012

    https://www.bloomberg.com/news/articles/2017-03-28/-deep-subprime-becomes-norm-in-car-loan-market-analysts-say

    The other day I saw an ad in a newspaper flyer for a truck and the offer was $15,000 cash back. Oh no we’re not desperate at all. Fucking joke.

    Next year they’re coming out with reverse mortgages on your unborn child’s future house.

  4. Apneaman on Tue, 30th May 2017 4:28 pm 

    Everyone’s favorite Italian professor has a different take.

    Why the American Way Of Life Is Negotiable: the Coming Transport Revolution.

    “So, the explosive development of private motorization happened because it could happen.

    But, in recent times, the trend is reversing. The number of cars per person and per household is going down. These data by Sivak (2015) seem to be the most recent ones available

    And it is not just the number of cars that’s going down, also the number of miles driven per person or per car is falling. The trend is the same in many Western countries: we went through some kind of “peak car”.

    So, what’s going on? One factor is that cars are becoming more expensive”

    http://cassandralegacy.blogspot.ca/2017/05/why-american-way-of-life-is-negotiable.html

  5. _______________________________ on Tue, 30th May 2017 6:18 pm 

    Peak debt will trigger peak everything

  6. JuanP on Tue, 30th May 2017 8:09 pm 

    Anyone who believes that oil and energy consumption won’t peak is living in Lalaland. The waste produced by using energy, including oil, is frying the biosphere. Positive feedbacks have kicked in and Global Warming is going exponential. Build a lifeboat, this ship is sinking.

  7. ALCIADA-MOLE on Tue, 30th May 2017 8:34 pm 

    too busy to go nowhere

  8. joe on Wed, 31st May 2017 12:09 am 

    With the world still in the emergency life support (stimulus package) ward since 2008, I think that economic wizards and voodoo witch doctors need to shut their mouths and actually think before they puke words onto the net. When the money drip feed is cut and the FED raises rates (if they do) then millenials won’t have a pot to pissed in again and next time they will get really mad cause it will be the second time sombody robbed their future. Time will tell…

  9. Anonymouse on Wed, 31st May 2017 2:08 am 

    The only fool I see here, is the one that wrote this farticle.

  10. Cloggie on Wed, 31st May 2017 5:55 am 

    The author falsely is using the number of car miles as a measure of fuel consumption. Cars have become more fuel efficient these days.

  11. Anonymouse on Wed, 31st May 2017 12:14 pm 

    I stand corrected, make that *two* fools. Thanks clog-fraud.

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