The Perfect Storm for Decreasing Oil Consumption
A favorite theme of some oil pundits today is that following the low demand of the recession, the United States will suffer through a painful price crunch. Oil companies, they say, will need years to build their production back up, while demand for transportation fuel, the end use for 70 percent of our oil according to theEIA, will recover far more quickly.
The first point is certainly true; oil is not a tap that is turned on and off, and investment in new production has suffered in the recession. But is the conventional wisdom that consumption of gas and diesel fuel will quickly pop back up after the recession true?
Without trying to directly answer that question, I’ve put together a list of factors that may mean oil demand won’t resume as quickly as expected in the United States, post-recession. They fit into two groupings: The first for trends that seem certain, and the second for changes that might happen. The list is long, but that’s the point.
Trends underway (or nearly certain)
- Ongoing lower income levels due to the recession; each 1 percent decline in income translates to 0.5 percent lower gas consumption
- Carbon cap and trade, which will effectively act as a gas tax, lowering demand
- Rising vehicle prices due to adoption of hybrids and tightening efficiency requirements (again, higher prices for anything related to driving means less driving)
- Increased biofuel production (ethanol internally, and biodiesel from overseas)
- Increases in fuel efficiency (likely exceeding the significant gains of past years, especially with hybrids entering the mix)
- Adoption of of plug-in electrics vehicles (which aside from barely sipping gas, are best used for shorter distances)
- Loss of popularity for Hummer (which brand General Motors is considering selling) and other large vehicles
- A new emphasis on bicycling and walking for health and environmental reasons
- Improvement of public transit systems and increased use of same
- Suburban flight and revitalized inner cities
- Localization of production (especially for food)
- More natural gas-fueled transportation in some areas
Changes that may be on the way
- As-yet undetermined taxes aimed at improving road quality, which will have the same demand-destroying effect as gas taxes
- A change from a six- to five-day schedule for the postal service (a major fuel consumer)
- Budget cutbacks within the military (the single biggest consumer)
- Finally, if an oil price spike does occur toward the end of the recession, it will tend to further the 2008 spike’s effect of destroying demand
Many of the above are demographic shifts that assume certain behavior trends will continue. The problem with such shifts is that they’re unmeasurable until they’ve happened, so they don’t necessarily enter into economists’ equations. There’s also a distrust that behavior changes due to temporary pricing events will stick, because they didn’t following the 1970s oil price spike; however, there are plenty of reasons to argue that today is a different climate, and social changes are likely to be more permanent.
Chris Morrison, a reporter on energy, renewables and climate change, is the former lead cleantech writer for VentureBeat. Follow him on Twitter.
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