THE Oil Demand Thread (merged)

[eric_b]

One gets a really special perspective on all this "inelasticity" when you fly over all these suburban hells. When you see a place like Los Angeles, or the greater Atlanta area, you just step back and shake your head. After becoming peak oil aware this has really struck me as a nightmare when I see the sprawl on such huge scales. One of the places which really sticks out is flying up and down the Northeast Corridor. Taking off from Boston headed for Atlanta the sea of suburbia doesn't end until you get south of the Washington DC area and into the eastern foothills of Appalachia. At night it really jumps out at you with what seems to be a continuos carpet of bright light. Those traffic jams in Atlanta are particularly noticeable as ribbons of white and red as you see the stopped streams of thousands of idling, crawling cars, most with single drivers in them

We got a LOT of work to do and little time left to do it.

Thanks for taking the time to post. Appreciate your perspective, literally.

First hand experience.

Just looking at satellite imagery and growth maps it looks bad. So it's
disheartening, though not surprising, for you to confirm how bad these
regions look from the air.

[formandfile]

Atlanta is screwed
LA is screwed
Boston is screwed
Tampa is screwed
Miami is screwed
Phoenix is BIG TIME screwed
Las Vegas is a screwed sewer
Houston is screwed
New Orleans is a FLOOD ZONE
NY is actually not quite as bad, but is still screwed

I was just in the southeast on vacation. How can people LIVE there??!!! The heat/humidity was unbearable.

To be completely and totally honest, free undergraduate college education, assuming you can maintain a measly 3.0 throughout the whole thing. Otherwise i sure wouldnt be in Atlanta right now, family or not. I lived in Boston before and enjoyed the "T" daily, but had to go back to school (because of the IT market glut). My choices were to take out student loans (in addition to what i took out for technical training earlier) or go south and get a free merit based full scholarship. Two years remaining, im taking a gamble but i think it'll pay off. After that, Portland OR here i come.

And yes, Atlanta is totally screwed. Please avoid. If you have to do the south, please see North Carolina.

[Devil]

Experience in Europe, when a country has added a swingeing tax increase on motor fuel, is that the volume consumed drops immediately as drivers realise their purse is being hit hard. Three months later, the volume is back to what it was before. $100/bbl (which is possible this winter if the USA has cold weather) will mean about $4/gallon, as refining costs will not change significantly; it is not pro rata. So, within 3 months, this will be accepted as the norm, as $2++ is today and $3 is still controversial.

IMHO, I don't believe a $100/bbl, or even $200/bbl in 2 years or so, mark will make a blind bit of difference to consumption figures after a coupla months or so, unless you also change the mindset of consumers.

[The_Toecutter]

The sprawl was breath taking, the traffic horrendous and there is no easy fix for the problem. Major changes to our nations transportation system are going to have to start at full pace overnight just to make the problem not suck quite as bad.

Right on the money. We can do that today, but no one's budging. The bureaucrats have shown their incompetence. It's up to the individual to take matters into their own hands and end their oil dependence before attempting such gets too expensive from runaway inflation.

[MD]

Atlanta is screwed
LA is screwed
Boston is screwed
Tampa is screwed
Miami is screwed
Phoenix is BIG TIME screwed
Las Vegas is a screwed sewer
Houston is screwed
New Orleans is a FLOOD ZONE
NY is actually not quite as bad, but is still screwed

Actually, any city of over 150,000 or so is screwed.

The older cities with an intact and functional urban core can come through in better shape, as soon as the strip malls are torn down and retunred to farm land.

[Macsporan]

There are two catagories here:
1. Sheer waste, such as thousands of people going to work in their cars alone and the legendary 3000 mile Caesar Salads. Include also lack of insulation in buildings and people lolling around in their underwear with six foot of snow outside. This all adds to the total energy bill which will become very tight once cheap oil becomes expensive.
2. Luxuries, the most notable one being the US armed forces.
A nation that has a war budget equal to the next 16 nations, 300,000 men in bases overseas, 30,000 nuclear weapons and 9 carrier groups compared to zero of all other nations combined has a lot of fat to trim here. Defence forces use great quantities of oil. America could easily halve its military strength and still be powerful enough to deter or repel any enemy.

Another saving could be diet.
The US is infamous for its rampant obesity. Putting the population on the UN recommended daily diet would do wonders for heath and morale. It would also reduce energy costs as food production could decline. This would be particularly so if people ate less meat. Regardless of ethical considerations most experts agree that too much meat is bad for human health. The US could have, or even quarter meat consumption with no ill effects whatever. As meat production is a ludicrously expensive and energy-inefficient process this would lower the oil bill enormously.
No doubt there are many other savings that could be considered.

[Macsporan]

Could one of you numerate persons perhaps calculate the oil that could be saved by the two suggested trimmings?

Military halved, meat consumption down 75%

I would be curious to know.

[ChumpusRex]

Could one of you numerate persons perhaps calculate the oil that could be saved by the two suggested trimmings?

Military halved, meat consumption down 75%

I'll have a go at the meat one - lots of assumptions, probably not particularly good. In particular no distinction between energy intensity of farming different crops.

Agricultural oil consumption: 250k bbl / day

[1] - figures from http://www.eia.doe.gov/oiaf/aeo/supplem ... tab_32.pdf . Distillate and motor gasoline counted as crude oil usage.
LPG/natural gas, biomass, coal, electricity were not counted.

Arable production:
Gross annual production: 750 million tonnes
Animal feed production: 227 million tonnes

[2] North americal complex animal feed study - http://www.unitedsoybean.org/studies_pd ... 040501.pdf

Animal feed used for meat: 66%

[3] http://www.londonswineconference.ca/pro ... _MGill.pdf

Arable production used for domestic meat production: 20%


Approx energy cost of meat production: 50,000 barrels/d

Saving if meat consumption reduced by 75% - 37,000 barrels/d

[MD]

A couple months ago I posted the US could reduce 1/3 without interrupting critical services. My only basis for that comment was in looking at per capita energy consumption world wide. If Japan and Europe can manage with their consumption levels, why can't we?

Granted it would be difficult, and deeply recessionary, but we could keep producing food and shelter along with other critical services. There are tremendous risks with that scenario in revolt from our population, but if that can be avoided I think we could do rather well.

I have posted before, and still have the opinion that when the world fully recognizes depletion as an ongoing and inevitable process, the United States will be forced to reduce consumption via new cartels and embargoes. More likely though, the global economy will go into recession first which will supress demand and therefore mask depletion behind more pressing issues.

[Caoimhan]

Speaking of aircraft carriers... they have some of the most powerful water desalinization plants in the world onboard. We had one off the coast of Thailand or Indonesia after the Tsunami pumping out potable water for the survivors (because the tsunami fouled the drinking water for many coastal communities).

With water such a big issue in Southern California, when these things are at their home ports in Cali, why not use their power to desalinate water?

[MD]

speaking of aircraft carriers? I think you missed your thread.

[Caoimhan]

Sorry... I didn't mean to take the thread in a different direction. Someone mentioned the U.S.'s vast military with "9 carrier groups". I was just using musing on that.

In a sensible world, we'd see nuclear powered merchant transports. I'm really beginning to dig a nuclear/battery powered world. We could do it.

[lorenzo]

I'm not an economist but it seems that, historically speaking, the elasticity of oil demand is getting ever greater, ever faster. After several oil shocks, a trend has begun to appear, namely that after a few years after such a shock, demand becomes considerably more elastic.

In general, the price elasticity of oil demand is still seriously low and steady because it's a very basic product. But the the time it takes for elasticity to rise after an oil shock, apparently becomes ever shorter.

:: After the first oil shock in 1973, it took about 5 years before a first considerable hike in elasticity occured.
:: Then, after the second oil crisis in 1979 the period after which the second serious increase in elasticity occured was even shorter, some 3 years.
:: After the third oil shock, of 1990, it took only one year to see the upward trend.

Apparently the return to lower elasticity levels is far more gradual and takes more time than the the upward "jumps" (seems logical to me, since - to give one example - once a mass of home owners have decided to switch to natural gas instead of heating oil to heat their houses, after such a crisis, one crucial element in the baskets of factors that make up the price inelasticity of oil demand has already been eliminated; of course, new ones may arrive, such as new petro-intensive industries or new and fast developing countries coming online). So I'm wondering how the situation is progressing now. Does anyone have any good numbers on this? And do you think this is a real trend, or is the correlation just a coincidence?

If there is indeed such a trend, then we should be seeing the first signs of a jump in elasticity right about now (because serious increases in oil price started about a year ago). And if elasticity is ever increasing, then what does this mean for Peak Oil?

[aahala]

I don't know if its a trend or not, and I couldn't explain it if it were true.

I don't see what you have seen. What is it that lead you to believe the
elasticity of demand had gone up after those three events?

[jaws]

Oil isn't immediately substitutable because it is a core input for infrastructure. To reduce our oil consumption we have to replace our infrastructure, and that tends to be a long-term enterprise. This is why doomers complain that we're doomed because everything runs on oil. Everything runs on oil right now because this has been so far the best input.

When a change in the price of oil takes place, the infrastructure building decisions change. It becomes more economic to build infrastructure adapted to electricity, or infrastructure that becomes less energy-intensive overall. People are looking to buy a car for the next five years, they decide to get a Mini instead of a SUV. They buy a house, they look for a smaller home instead of a faraway McMansion. This affects demand for final goods. Suburban homebuilders find themselves unable to make profits and must adapt. GM and Ford declare bankruptcy. Etc.

Infrastructure is perpetually being replaced by better infrastructure. As the process takes place, dependence on oil falls, therefore demand for oil falls as well.

The important thing is that oil demand is only inelastic within a short timeframe. Over the long-run it becomes more elastic. That's true for any point in time. If the oil supply were to suddenly fall by half, the price would still shoot up catastrophically. But if the oil supply we to fall by half over 20 years, we would see much more elasticity.

[MrBill]

Core demand for oil may be relatively inelastic in the short-term, but we have seen swings of 2-3% over the course of one month recently. That is significant as in the supply & demand which has been balanced, 2.5% of 85 mbps is around 2 mbpd. That translates into a large swing in prices based on trader's perception. Of course, that +/- 2 mbps extra supply can also disappear rather quickly if you have a natural disaster or terrorist attack that affects supply.

Most of our economy runs on just in time delivery. Reducing the supply chain to lower the cost of stocking inventory and in paying interest on unsold inventory. Higher oil prices do reduce demand as companies, UPS for example, examine their supply chains and try to make fewer, larger trips, instead of many, smaller trips. Things like free delivery also either get cancelled or a delivery surcharge is added which tends to reduce demand.

Driving for leisure also tends to be reduced when prices get psychologically higher. As many Americans have several vehicles, they may also chose to drive the one that gets better mileage. Teenagers may not be able to afford to go cruising on a Saturday night and may instead either stay home or go to a club. Substitution to a less energy intensive form of entertainment. This is all at the margins and does not affect core demand.

However, demand destruction also takes place at the secondary and tertiary levels. On one level what goods & services we forgo in order to keep driving, for example, movies, restaurants, non-essential shopping, etc. This reduced demand in the overall economy due to the choice to continue to drive versus consume. Then on the tertiary level as consumers buy less, less is made to replace inventory which was not sold. This reduces consumption of energy in manufacturing. Taken farther and you may have a recession as consumers save and do not spend. This reduces demand further.

So it is not true that oil is inelastic. Core demand is quite inelastic, but may vary by 2-3% in the short run. In the medium term lifestyle changes do have an affect of demand for energy. In the long run, as Jaws mentioned, the physical plant and energy saving assets replace less fuel efficient alternatives. Certainly Europeans have learnt to live with energy prices which are 2X higher than in America, so demand is not totally elastic, but they have made lifestyle trade-offs which are less energy intensive.

[lorenzo]

Thx Aahala and Jaws, and especially Mr Bill for the good examples of substitution and changing behavior.

I was wondering whether core demand wasn't changing very quickly as well. E.g. decisions are being made on replacing oil-fired power plants by more coal and even marginally, renewables. I understand that, e.g., when consumers massively decide to switch from heating oil to natural gas (heating is a core demand for oil, isn't it?), the problem of the inelasticity of "energy" demand in general isn't really affected, but the specific inelasticity of oil changes in such a case. This was the case in Europe, right after the 1991 oil price hikes.
The push towards more fuel efficient vehicles is another mid-term form of substitution as well - especially strong in Europe (less so in the US), which appears to have a more elastic demand. Gas-vehicles, and a push towards biofuels touches the core of oil demand.

(Does anyone have any good numbers on elasticity of demand in different countries over time?)

Finally, I was thinking more about the issue of "collective psychology" amongst consumers; people finally begin to learn from experience that over the long term oil has a volatile price. Maybe it's farfetched to give this as an example, but my sister just bought a new car, and the entire family, from my grandma to my dad all told her to radically choose for a super-fuel efficient one; we even had some kind of a family reunion about it where recent memories of retail price hikes were evoked!

So I think that given our collective experience with high oil prices over long periods of time, our collective memory may become a more serious factor in the drive towards substitution and the "mental" support of consumers for alternatives. Of course, that's just one factor, because as you've said, oil is definitely strongly linked to infrastructures, and these are far harder to substitute.

[untothislast]

One of the great things about these forums, is that if you approach other people's submissions with an open mind, you can learn a lot.

The one thing which troubles me, is that we're applying our main focus to the energy capacity derived from oil, when it's also important to consider that most of our material goods rely on derivatives - such as plastics.

I can well imagine a world learning to cope with less energy - or indeed developing new or alternative means of producing it - but unless we're considering going back to manufacturing everything out of wood and stone, what do we do when scarcity renders the price of our material goods prohibitive?

[donshan]

The important thing is that oil demand is only inelastic within a short timeframe. Over the long-run it becomes more elastic. That's true for any point in time. If the oil supply were to suddenly fall by half, the price would still shoot up catastrophically. But if the oil supply we to fall by half over 20 years, we would see much more elasticity.

Only if you use price to control consumption. During World War II the supply of gasoline available to the Civilian economy probably dropped by more than half. The price did not rise, because laws were passed to ration fuel to essential needs, and the price was fixed. This controlled economy not only worked, it soared to production levels that won World War II.

Applying that idea to coming fuel shortages, it "is possible" for example to give diesel trucks hauling food to the city priority on diesel fuel at acceptable prices to control food costs, while trucks hauling the non-essentials pay market prices.

We do this today, by subsidizing home mortgage interest which helps one sector.

I predict if times get tough the WWII model will return. If it becomes a choice of food availability vs. more McMansions I think the choice will be obvious and we will subsidize essentials. Just like high taxes on liquor and tobacco, higher taxes on wasteful energy products can force reduced demand for oil very quickly, and a fixed gas ration will drop the sales of Hummers immediately.

[MrBill]

One of the great things about these forums, is that if you approach other people's submissions with an open mind, you can learn a lot.

The one thing which troubles me, is that we're applying our main focus to the energy capacity derived from oil, when it's also important to consider that most of our material goods rely on derivatives - such as plastics.

I can well imagine a world learning to cope with less energy - or indeed developing new or alternative means of producing it - but unless we're considering going back to manufacturing everything out of wood and stone, what do we do when scarcity renders the price of our material goods prohibitive?

I am not a chemist. Introductory Organic Chemistry was the hardest two years of my life! However, I believe there are many organic feedstocks for plastics that are non-petroleum based such as carbon (C), hydrogen (H), nitrogen (N), chlorine (Cl) and sulfur (S). Of course, they may yield less than petroleum, so there is still an incentive to preserve oil for manufacturing instead of burning it. Think of all those old growth oak trees which would have made better furniture than firewood?

How Plastics Are Made