The Oil Drum: Australia/New Zealand

63 comments on Tapis Breaks US$115

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karlof1 on April 9, 2008 - 1:52am

Whatever demand gets destroyed in the US, China and India will suck up, thus keeping price rising. China announced yesterday they expected to increase oil use 63% by 2020. They also expect vehicle sales to exceed 10 Million next year. Then there's unprecedented increases in domestic use by Persian Gulf exporters, causing them to export less. And on top of that, it's becoming clearer that Russia's exports are decreasing due to declines in production and increased domestic consumption. These three items were all in yesterday's Peak Oil Daily published by ASPO-USA.

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Kiashu on April 9, 2008 - 3:51am

I was reading today about coal, a bloke at Newcastle was saying that since they had 30 or so ships waiting to pick up coal, if they could increase output by 30% (from their a bit under 100Mt annual), it'd get immediately snapped up.

If there's that much excess demand in coal, I don't see why oil and gas would be different.

Realistically, assuming a recession in the US, how much is US consumption going to drop? A million barrels a day? Ten million?

Consider:

Here we see that the oil shock of the 1970s took only about 1Mbbl/day consumption off the US, efficiency and a recession around 1981 knocked 2.5-3Mbbl off, but at the rate of only 1Mbbl a year; and another recession around 1991 knocked 1Mbbl consumption off.

So we can as a rough guide expect that each year of recession will take 1Mbbl/day consumption from the US.

If it's another Depression, it's difficult to say what effect it'd have on oil demand - private car use and freight trucks weren't anywhere near as widespread in 1930. But a recession - that's around 1Mbbl/day demand lost over a year.

Set against world production of 85Mbbl or so, 1Mbbl is bugger all. They'll snap it up.

10Mbbl mightn't all get taken up by other customers, but 1 or 2Mbbl certainly would.

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Termoil on April 9, 2008 - 4:26am

Thanks Kiashu - interesting. A lot of previously oil burning industrial applications would have changed over to gas since the 80's soI wouldexpect a lot less elastcity in oil consumption this time around. Transportation may now represent a much larger proportion of oil consumption so recession induced demand destruction may not be all that much.

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Kiashu on April 9, 2008 - 6:57am

A google image search for "US oil consumption by sector" brings up,

So it seems that you're right, that industry and electricity generation use of oil has dropped, and transport use risen.

How elastic that transport use is, would be hard to say. Of course "transport" is not just Ma and Pa Kettle in their jalopy, it's freight. In a general slowdown or decline of the economy, we'd expect freight to drop quite a bit. But how much of transport oil use is freight?

I assume that "shipping" is domestic only, and that "light duty vehicles" is basically all private vehicles. Rail makes up only 2%, and freight trucks 16%. Air is 9.8% and shipping 3%. Of course not all rail etc is freight, but we can set it as a maximum: 30.8% of oil consumed is for freight, 61% for private transport, and the remaining 8.2% for other stuff.

It's hard to say off-hand which would have the most response to price rises. Logically you'd expect people to cut down on discretionary fuel use - ie, no more driving 500 yards to the shops for a bottle of milk, less weekends away, etc. But in a slowing or declining economy, people generally buy less stuff, so that freight should decline, too. Of course, if oil becomes expensive enough, that means some freight might move from trucking to the more efficient rail - but are the USA's railways up to it, or have they been neglected like Australia's? I wouldn't know.

All this - which areas of the economy, which kinds of consumption and such - get affected first and in what ways, that seems like a subject for a TOD article. It's a bit over my head. I'm up there with the big global picture, and with the gritty details down on the ground, but that middle level is a bit out for me.

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Termoil on April 9, 2008 - 7:56am

It looks like indusrial and electricity generation took the big hit in the 70's, but they had viable alternatives to go to. Transport didn't really contribute much to any lowering of demand. Suburban patterns have changed a great deal too so that more people are driving further distances to commute to jobs, which is not exactly discretionary. I also think it is hard to judge what will happen with freight. Short term you just load the truck with 30 tonnes rather 40 but the truck still does the same trip. Mid term, freight gets consolidated onto fewer trucks as the demand for goods moderates. Long term we will haveto see a complet restructure ofteh logistics industry.

If you take Woolworths as an example, they currently only load the trucks half full from the giant distribution centres as it is more efficient to deliver the goods straight to the supermarket floor, that way, rather than unpack pallets by an army of night fillers. It is hard to imagine that sort of just in time freight network being turned around quickly just becasue the oil price goes up astronomically. It will definitely be felt at the checkout counter no doubt.

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noutram on April 9, 2008 - 8:32am

One idea that IMO makes a great deal of sense is home delivery of Internet shopping.

One (possibly electric or hybrid) truck can replace dozens of trips.

If we had a carbon trading scheme it might be possible for end consumers to earn a small amount of 'carbon credits' by this method thus incentizising it. Alternatively if fuel costs go through the roof the price signal may be incentive enough.

Regards, Nick.

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