Thoughts on the Current Restructuring of Global Oil Demand 26 comments
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The global financial crisis may be hastening a process that’s been underway the entire decade: the restructuring of global oil demand. Western OECD oil demand has been much slower the past 15 years and its growth rate started to stall out again as early as 2004. The more spectacular leg of the advance in the price of oil was therefore built in large part on non-OECD demand. Of course. While this looks like a tidy and easy-to-read set of circumstances, however, it’s actually a bit more complicated than merely splitting the world in two.
Now, at the risk of wading into an imperfect or confining analogy, I want readers to recall the leapfrog phenomenon that so aptly characterized the first uptake of mobile phones in the developing world. Instead of building out switching stations and miles of telephone poles, companies built towers–and then sold handsets. Users were then able to get a piece of the miracle of telephony, without having to bear so much of the cost for the old installed base of wires and buildings. Today, this structurally different relationship to airtime is now being replicated in the way a new user of oil comes online, in the developing world.
What we see therefore is that the way in which oil is still used in Western OECD nations tends to recapitulate, each day, the entire history of the oil age. In other words, we are burdened in the West by the legacy of Plenty. Whereas the new user of oil in the world is liberated by the more recent age of oil Scarcity. In the West we carry on amidst the old architecture of superhighways, long commutes, and two car families. We are the rotary telephone users in a new age of oil, lugging around heavy black handsets and losing contact when wires are felled during storms. In the developing world, meanwhile, a single gallon of petrol is a life-changer when poured into any high-mileage vehicle. The developing world is marked by enormous populations in densely packed mega cities. Adding just 50 miles a week of motorized commuting to an individual’s or a family’s lifestyle here is nothing less than transformational.
What’s exciting, and what’s also rather daunting, about this transformation is that I don’t think the world en masse really understands this new line of demarcation. Instead, the intellectual West continues to either navel-gaze about its own vulnerability in this new world of oil scarcity -or- it monolithically projects this predicament when trying to understand the developing world. As a result, the West neither sees its deeply embedded leverage to the price of oil, nor the rest of the world’s emerging ability to take just a piece of oil’s concentrated power. A little oil goes a long way.
So what we are faced with here are two very different topographies, of oil demand. In the West the individual remains very exposed, very leveraged to oil in a kind of vertical structure. Changes in the price of oil, especially above 100 dollars a barrel, exert tremendous pressure on his lifestyle. But in the developing world, the topography of oil use is flatter. The new Tata car (TTM), which I only use as a recent example of the kind of organic response Asia has made in motorized transport, will likely get 60 miles to the gallon. Does it really matter if petrol is 4.00 USD or 8.00 USD per gallon, if you have raised your lifestyle enough to commute 4-5 miles a day by car? No, it does not. And therein lies the opportunity for the individual, but a new problem for the world.
The problem is that the developing world is where all the people are. In addition, it’s the topography where all the new oil users are. And in that world, the horse-power and man-power equivalents to a barrel of oil’s 5.8 million BTU are nowhere near to alignment. Here, men are undervalued to the price of oil–in a world where oil remains undervalued. The tipping point has come. What this portion of humanity will prove to the world is that the miracle energy substance known as oil contains so much concentrated power, that they will both be willing and able in the aggregate to take the price of oil to its final destination.
This post is available in .pdf version. Click here: The Restructuring of Global Oil Demand
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Oil is likely to be all over the place this year. High over $70/barrel, low probably under $20, once the equity rally sputters out.
Jasper, the people who are moving up to a Tata are probably much safer than they were on a scooter.
Also, would the safety aspect of the switch to low consumption vehicles factor in lower consumption?
Less weight = less steel = less dependence on oil prices, lower cost of ownership, more discretionary income, more money = longer life.
Poverty is the #1 factor for reduced lifespan.
I'm not so sure that the average Chinese or Indian will want to replace their vanpool commute with driving their own vehicle, however- and just like Americans have adopted wireless technology, it's also possible that Americans may adopt smaller, more efficient, vehicles.
And if something like the MDI aircar takes off here, OPEC may be pining for the days when they could sell oil for $80/barrel.
As you say,
"The developing world is marked by enormous populations in densely packed mega cities. Adding just 50 miles a week of motorized commuting to an individual’s or a family’s lifestyle here is nothing less than transformational."
My experience if the developing world has been that the average vehicle speed in many cities is a few miles per hour most of the time, so the biggest change will be they will spend a lot of time sitting in their vehicles sweating, or wasting fuel on the aircon if they are lucky, so the 60mpg is a hypothetical not the reality. Owning a car is an aspirational thing - sure a Nano is great and a step up from a scooter, but if they can, they will want something bigger and faster to show their status.
The big issue with these countries is building the infrastructure - new roads, power lines, power stations to support the expected development.
The other point I was always told was that rising oil prices had a greater impact on developing economies as the wages were lower and fuel costs were a higher proportion of total costs.
BUT the author seemed to be comparing 'life with tiny car' vs. 'life with No personal transport'.
The notion that poverty = greatest threat to life may not apply when compared to those whose prosperity comes at the cost of suddenly being at risk on a poorly designed road, around lots of other inexperienced drivers. Ever been to Italy? Brazil? Bolivia? If I remember correctly, car accidents are still the largest cause of accidental death here in the US.
Not that I have a problem with poor folks getting a car. Just don't think the Tata is the ultimate font of all goodness.
One thing the author doesn't talk about is the value of the dollar. The crisis has strengthened the dollar but when growth begins again, the dollar will start falling again. Oil is priced in US dollars so when the US dollar weakens, oil prices go up and Americans lose purchasing power..
I think oil below $35 is out of the question. The costs to get oil out of the ground have increased too much.
And to nobby - you are 100% correct about public transportation. Sadly, it is an uphill battle. In the past, there were too many corporate interests aligned against efficient public transportation. Hopefully the weakening influence of automakers will remove one hurdle. Public support seems to be growing as well.
So you may be right that one sizable (but far less than a majority) fraction of oil consumption - that concerned with individual drivers and non-commercial vehicles - could probably be somewhat smaller in the developing nations, that seems likely to have a less-than-dramatic impact on the overall oil consumption picture once you factor in all of the other fractions.
I second nobby73's counter arguments. At first read the author's conclusions looked compelling but then many of his assumptions turn out faulty on a thoughtful reality check.
I have first hand experience in using Oil in both worlds. When I drove a scooter I used to fill up just enough to get by to college and be back without having to hand tow the scooter to a petrol pump (Gas station). In the US I don't recall filling less than a tankful regardless of the price swaying between $1 and $4+. Not that I don't feel the pain at $4, but at both prices it feels nothing compared to the way it used to hurt on the other side of the ocean!
To top that the added congestion the Tata car will bring without matching infrastructure will effectively make Nano transformational only in symbolic terms. Further, unlike the West, the global price changes in Oil are often absorbed by the government on both sides of price changes so the effect is more on Forex reserves than stimulus to public oil use.
But if we take out the Tata car from the equation, and recognize that the bulk of developing world commutes by public transport and then reconsider the author's point around leverage it does hold some strength.
On Apr 25 07:08 PM nobby73 wrote:
> It's a very interesting article, thanks. I would posit that the
> transformational leap would be not for everyone to own a car, but
> to develop a first rate public transport system which would make
> sense in densely packed urban areas.
>
> As you say,
>
> "The developing world is marked by enormous populations in densely
> packed mega cities. Adding just 50 miles a week of motorized commuting
> to an individual’s or a family’s lifestyle here is nothing less than
> transformational."
>
> My experience if the developing world has been that the average vehicle
> speed in many cities is a few miles per hour most of the time, so
> the biggest change will be they will spend a lot of time sitting
> in their vehicles sweating, or wasting fuel on the aircon if they
> are lucky, so the 60mpg is a hypothetical not the reality. Owning
> a car is an aspirational thing - sure a Nano is great and a step
> up from a scooter, but if they can, they will want something bigger
> and faster to show their status.
>
> The big issue with these countries is building the infrastructure
> - new roads, power lines, power stations to support the expected
> development.
>
> The other point I was always told was that rising oil prices had
> a greater impact on developing economies as the wages were lower
> and fuel costs were a higher proportion of total costs.
On Apr 25 04:24 PM huskerbob wrote:
> Wonderful article!
> Jasper, the people who are moving up to a Tata are probably much
> safer than they were on a scooter.
> Also, would the safety aspect of the switch to low consumption vehicles
> factor in lower consumption?
> Less weight = less steel = less dependence on oil prices, lower cost
> of ownership, more discretionary income, more money = longer life.
>
> Poverty is the #1 factor for reduced lifespan.
You're quite correct, imo, about transportation being a relatively small part of the puzzle, but on the other hand, its easier to add a solar panel array/wind turbine on a factory rooftop than to do the same with a car. I wouldn't be surprised to see the amount of oil used for transport to rise somewhat, over time, as a percentage of use. I admit I might be wrong, depending on advances in technology.
On Apr 25 10:57 PM ozzy43 wrote:
> The problem I see with the article is it restricts itself to addressing
> cars and commuting. That's only a small slice of the oil pie. Industries
> in the developing world will be using as much oil as those same industrial
> systems do in the developed world. If you're manufacturing semiconductors
> or plastics in China or Schaumberg, your fossil fuel usage will not
> differ materially.
>
> So you may be right that one sizable (but far less than a majority)
> fraction of oil consumption - that concerned with individual drivers
> and non-commercial vehicles - could probably be somewhat smaller
> in the developing nations, that seems likely to have a less-than-dramatic
> impact on the overall oil consumption picture once you factor in
> all of the other fractions.
We're suspicious, from reading some Internet posts, that solar and wind don't have enough BTUs IN to make much of a practical difference.
Important post may be
"fast neutron
Santa Fe, NM
January 12, 2009
From actual experience, wind farms produce 1.2 watts per square meter. Solar Thermal and Photovoltaic methods capture 5 to 6 watts per square meter. There is no economy of size in either technology. Dividing the watts you need by those values gives the land area in square meters needed to produce the juice. The numbers are astronomical "
www.topix.net/forum/so...
Another is
"Chairman, President and CEO Questar Corporation Keith O. Rattie said on April 2, 2009
Why did my generation fail to develop wind and solar? Because our energy choices are ruthlessly ruled, not by political judgments, but by the immutable laws of thermodynamics. In engineer-speak, turning diffused sources of energy such as photons in sunlight or the kinetic energy in wind requires massive investment to concentrate that energy into a form that's usable on any meaningful scale. "
So we are pursuing study, on Internet, of BTUs IN for comparison to claims of electric energy OUT [1 kWh = 3412.14163 BTU] for various technologies.
Reasons include:
"Solar Array is the fourth solar manufacturing venture planned, under construction or operating in New Mexico, joining Schott Solar, Advent Solar and Signet Solar."
"TEMPE, Ariz., Mar 24, 2009 (BUSINESS WIRE)
The agreement, which represents the largest PV contract by an electric cooperative in the U.S., calls for First Solar to engineer, procure and construct (EPC: undefined, undefined, undefined%) a 30 megawatt AC (MW: 14.92, -0.7, -4.48%) ground-mounted PV power plant in northeastern New Mexico. "
We are also looking at BTUs OUT for fusion energy.
"A megaton of TNT or megatonne of TNT is a unit of energy equal to 10^15 calories, also known (infrequently) as a petacalorie, equal to about 4.184 petajoules."
Fired Los Alamos physicist Dr Pedro Leonardo Mascheroni gave me a lecture some years ago at the University of New Mexico library on his ideas for sucessful fusion electric energy. In his words, a stronger match is required to ignite fusion.
Fusion works
www.prosefights.org/nm...
in some applications.
We certainly won't change out every gas car for air cars over the next 10 or 20 years- just as there are still propeller airplanes, console televisions, and phonographs, there will still be lots of gas cars. And the technology may not pan out.
But are you honestly telling me you (and everyone you know) wouldn't consider buying the vehicle currently advertised at zeropollutionmotors.us... if it comes to fruition for under $20K as projected? 6 passengers, 800 mile range, on an 8 gallon tank of gas?
It didn't take too long for billions of people to adopt cell phones, so change isn't the issue. And if you consider how many houses were built the last 10 years, do you think capacity is?
Trust me- there will be lots of oil left to rot in the ground.