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56 comments on Has OECD oil consumption peaked?
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56 comments on Has OECD oil consumption peaked?
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These charts are great! I like your plotting price change with other variables like consumption and supply, then suggesting possible reasons for correlations.
I have one comment about the recent run up in oil prices and the economic downturn. Since the US and most OECD countries have been importing larger amounts of oil and other energy liquids, the run up in prices caused a large transfer of wealth from the oil consumers to the producers. This capital flow is largely one way as the US and many other OECD countries have large trade deficits. So as more capital flowed out (more for the US than others since its dollar declined) the economic growth was slowed and only remained flat from 2005 onward because of the increased debt by individuals, businesses, and governments.
As the oil price grew to unsustainable levels, consumers and companies saw there available cash diminished and debt access cut off. this was partly due to the financial crisus and partly due to the increased expense of energy. Note that many utilities in the US had raised electric rates at two or three times the rate of inflation starting in 2006, further sapping the consumer and business sectors. Food, which is largely dependent on energy for the high rate of production, likewise increased in price far beyond the core inflation rate. All these combined with the financial meltdown and decreased housing values to kill the economy. This is why the downturn will be much worse than in 1981-82 and in 1974-75.
Thank you!
I think your point about wealth transferral has a high relevance. For the US it looks like when the total annual crude oil bill (volume X price) approaches 3,5 – 4,0 % of GDP (Gross Domestic Product) oil increasingly becomes unaffordable for many, who then starts to adjust the way they use oil.
For Germany (which has a higher petroleum tax than the US) it seems like this threshold is at 2,2 – 2,4 % of GDP.
During the first oil price shocks (1973/1974) and (1979/1980) the relative and total debt load for many consumer nations was lower while at the same time the savings rate was higher. This I would presume was an additional built in resilience within the big oil importing and consuming nations.
The higher relative and absolute debt level among consumers and big importing and consuming countries will, I believe, restrict future oil price growth and this time I would expect economies heavily dependent on oil imports to be more vulnerable for price increases.
Oil price growth needs GDP growth alternatively that a higher portion of GDP is allocated to paying for the oil imports and thus other energy consumption as prices for other energy seems to correlate with the oil prices. .
I hadn't really stopped to think about the higher debt level being important. Clearly, a person's (or business's or government's) total spending must cover a number of different things:
-Debt repayment and interest;
-Fuel needs
-Food or raw materials
-Everything else
Clearly, "everything else" gets squeezed by rising fuel prices. It also gets squeezed by debt repayment and interest. If the economy isn't growing, or is actually shrinking, there is a further squeeze, as less and less is available for everything else.
In most developing countries, consuming what little of oil is a matter of life and death -- most of that fuel usage is going into the bare necessity of life. A fisherman neesd gas to run his little boat -- even though he feels a pain, he can recover the cost from his costumers. So what little they get from the oil; it goes around -- it costs the country a bit more to import oil but they'll gain it back when they export commodities & raw materials. I think as long as they run a trade surplus; they'll be fine. There will some exporters hurting bad right now b/c they can't export -- but if 90% of country is still in agriculture mode, it doesn't matter that much. Iran still needs rice, Saudi still needs wheat -- you can always swap for oil.
In the US, however, we have a lot of waste. Our trade deficit is so large b/c we are using more things than we produced. So when the oil price got too high, we have to cut it down and down. When you've been living on debt for a long time, you will have to stop spending if the other guy doesn't give you anymore money. That is what happened. So now instead of China and Middle East giving Americans and US corporations this "spending" money; the US government is doing this job. It's funny but the Ponzi scheme continues -- spread the debt around.
This was my thought looking at the above. Of course a price spike hurts us more: because we use more oil.
Fortunately we waste it on really stupid things. Like SUVs. I wonder what the effects of peak oil in the US would be if we banned commuter automobiles and required everyone to use 150/200 mpg electric or motor assisted bicycles at speeds of 10-15 mph... and only freight could use big rigs could use the interstate until more rail came online. The effects would be HUGE. First, the car companies would fail, and we'd go into Depression. Then we would all rearrange cities. Then things would get better. Likely this will happen anyway, just slowly and painfully if the markets have to do it.
So yeah, we waste A LOT by being inefficient... not on a thermodynamics level, but on a stupidly designed society that thinks to transport a single person to work, it must be done with 2 tons of dead weight across a 40 mile commute at insane and deadly speeds.
It is often said on TOD that oil consumption has followed economic growth prefectly. But correlation does not equal causation, and yesterday is no proof of what tomorrow will bring. I think that negawatts are underestimated. I would guess that we spend at least 90% (based on commuter waste and oversuse of A/Cs, etc) of our available BTUs on things that don't increase GDP efficiently.
This has only been possible b/c of cheap oil. When it is gone we will have to adjust our use of it, so we will. And then we will escape the "oil price trap"... which is not a real limit on EROEI of extraction, but a limit based on (I think) negative EROEI when you consider the inefficient end use.
Rune,
I really like the idea of showing oil income/expendetures as a function of GDP for each nation. That plot might have serious explanatory power.
And thanks in general for all of your charting work. I love seeing the new ideas you present in plots. It's inspiring for my own efforts.
-- Jon
Jon,
Thanks for your comments. It is much appreciated.
I planned this post as a series where at the end I would show how much the total oil bill (as a percentage of GDP) was for some countries for the years 1980 - 2007.
If you then add in the costs from use of other energy sources, costs of food, looks on interest on debts and debtpayments etc. it hopefully could help further explain why there will be limits to how much oil prices can go up and down.
It doesn't become "unaffordable". It becomes "less attractive". As in "I'd like to go to the grocery store, but that can wait until I go to the hardware store too" or "I'll pick up a whole week's worth of groceries, so I don't have to make two trips this week." Or more pointedly - "I can afford this $20,000 sports car, but I can also afford this $35,000 hybrid which gets better gas mileage. With the price of gas, I guess I'll go with the hybrid".
They _can_ buy more oil, but they _choose_ not to. It is always about tradeoffs. The fact that we choose not to pay more is a sign of strength, not a sign of weakness.
This is interesting.
Would you care to elaborate a little more about this?
The theory appears to be that people in the OECD burn a lot more oil for luxury and discretionary uses (large cars, pleasure trips, long commutes, convenient vs. efficient shopping trips, etc.) than do people in developing countries, and that luxury/discretionary spending is more sensitive to price than business/necessity-related spending. Based on that, we should not be surprised to see higher price elasticity in the OECD than in developing countries.
Essentially, "rich vs. poor" is being outweighed by "luxury vs. necessity". It's apparently been more worth paying a higher oil price for a Chinese factory to move its products to market than for a Jersey soccer mom to leave the engine running for AC while she waits for her kids.
"They _can_ buy more oil, but they _choose_ not to. It is always about tradeoffs. The fact that we choose not to pay more is a sign of strength, not a sign of weakness."
I don't know about that. I think the graph of debt levels of the whole US says that we really don't have that flexibility.
You have two guys : one makes $100K with $300K debt, the other guy makes $5K but he has $10K in cash. Now, who has more flexibility when the amount of jobs (which relates to energy) goes down -- who will in the end has more flexibility. Hard to say, but if both guys lose their jobs tomorrow; that guy with $100K job will be begging the guy with $5K job for food.
Until there is some sort of job security (which translates to economic growth which goes against population and energy) and that debt level is paid off -- that guy with $300K debt really doesn't have that much flexibility he thinks. Sure, he can charge $5K on his credit card to go to Florida or not but that doesn't really mean he's in control of his finance.
Yeah, and if the 5K guy loses his job, he will be in more trouble. the 100K probably has assests he can sell/keep if he files bankrupt, will probably get a severance pay equal to much more than the 5Ker's annueal income, and as we have seen, often that 300K debt might never get repayed.
This comparison seems pointless.
I think it would be more accurate to say that spending on fuel as a percentage of disposable/discretionary income is a better way of understanding the issue than as a percentage of GDP, at least for gasoline. Thus, even in 2007, conservation was still being practiced, despite continued GDP growth.
There's also definitely a psychological level to gasoline consumption. You see big falloffs in demand when gas prices reach a benchmark, say $4. You also saw massive falloffs in sales of large vehicles in the US just as the price of a fillup reached $100. The psychological impact of a $100 fillup completely outweighed the "macho" feeling of owning a tank-like vehicle.