Tom Whipple - High Fuel Prices Not Enough For Americans - Action Will Only Come After Outages

[hatrack]

Fuel prices alone are unlikely to bring America to its senses. It clearly will take outright shortages with lines at the pumps, curtailed deliveries and many other misfortunes before serious measures to deal with declining oil supplies –- speed limits, rationing, mandatory car pools, improved mass transit -- are taken. Thus the question becomes: how soon?

Gasoline and diesel are two different animals in America. Most gasoline is used for personal travel and much of that for convenience and, as we shall find out shortly, is not essential to the economy. Diesel in America is, for the most part, an essential fuel in that it is used to perform money-making work or, in its heating oil form, keep us from freezing. If diesel becomes too expensive, and those expenses cannot be passed on, then the consumption of diesel will be cut back. This in fact is already happening -- the government is reporting that distillate consumption of diesel and heating oil currently is down by 3.1 percent as compared to the same four week period last year. This is undoubtedly due to the price of diesel and heating oil which is now around $4 a gallon, an increase of $1.17 a gallon since last year.

The word “distillates” encompasses both diesel and heating oil which are about the same thing; except that the clean air rules in the U.S. require most of the sulfur be removed before burning it in a motor. Currently there is a world-wide shortage of distillates which is most severe in China where long lines of trucks waiting for fuel are appearing across the country.

EDIT

U.S. imports of diesel appear to be dropping. For most of 2006 we were importing about 350,000 barrels a day. In the first quarter of 2007, we imported an average of 360,000 barrels a day but by last fall this had dropped to 260,000 barrels and was the same for the first quarter of 2008. This could of course turn around, but given growing demand and lack of an increased supply worldwide, it is likely that it will become harder and much more expensive to find diesel and heating oil to import.

EDIT

http://www.energybulletin.net/42610.html

[Saturday]

1. You know what's good about high energy prices?

It makes us look for alternative fuels. When prices are low we guzzle up oil but when prices rise we look for other fuel. And that's a good thing IMO.

[Cresent City Kid]

2. We ain't seen nuthin' yet

In the traditional notion of supply and demand, short supply leads to high prices, which in turn reduces demand, which increases supply, then prices fall and the cycle continues. In our consumption driven economy, shortages of energy sources don't decrease demand regardless of price. The cycle will be totally broken when there is a shortage of supply so great that there's not enough for everyone, or when prices get so high that a large part of the population can't get food or heat.

For a long time we have been insulated from life threatening economic catastophes. We don't take to the streets over high prices, we just complain and endure. The oil crisis will probably get bad enough to break the bubble of complacency.

If we had started the development of alternative energy 30 years ago when it became apparent we had a problem, we may have averted the social breakdown that I think we're headed for. We've been living on borrowed time, but now the bill is in the mail.

Solutions for these kind of problems always seem to come late. Warnings of future problems are ignored because they can be denied until they come to pass. I don't know how soon serious changes will be made, but tangible, undeniable disaster will come first.

[kristopher]

3. You should follow your first paragraph to its conclusion

How does the increased demand from the China, India, Vietnam, etc etc affect the trend lines?

How does the imminent imposition of policies to capture carbon costs in the US and a near term imposition of worldwide policies to capture carbon costs affect the trend lines.

What are the alternatives to the various fossil fuels and at what point do they become the economically driven choice?

You are right about what happened 30+ years ago but your way off target using that as a model for the present circumstances; the two cases are apples and oranges.

[Cresent City Kid]

5. good point

This is a complicated issue that I don't claim to fully understand. It seems that Asian demand is speeding up the process of draining the supply, and unleashing environmental havoc. Generally speaking, we have two major reasons to replace oil as an energy source, but our market driven policy will let things continue until it costs less to change course, consequences notwithstanding. I think we will get past oil, but I don't think it will be a smooth transition.

[kristopher]

6. We're getting there.

"...our market driven policy will let things continue until it costs less to change course..."

No matter who wins (D or R) I believe we're there on oil with the new administration; the carbon tax isn't going to be needed to move up to battery electric. IMO just the increased demand will drive the price up plenty for that purpose. And once the transition has momentum, lowering the price of gasoline will not matter very much.


"...I think we will get past oil, but I don't think it will be a smooth transition..."

I do; but I don't believe oil is the obstacle. I think coal is the real powerhouse in the way of transition. The costs to shift to battery electric as a replacement for gasoline isn't going to be that high because there is little sunk costs being written off as a lot of the capital costs will be born by the consumer just buying a new car. That will work as a back up to renewables and significantly lower the costs of grid operation at the same time. Most of the transmission/distribution system is already in place, needing a major upgrade, true, but none the less, most of the skeleton and sinew are in place. Great time for someone to position themselves as an electrician.

Oil is an argument related to war and foreign policy, coal is a domestic resource that has the potential to provide the electricity to the grid to effect that transition. Particulate pollution and mercury are manageable (if undesirable) costs. The effective argument against coal is climate change, and I think that is a policy debate that is about to end.

If you've been paying attention you'll note that coal power is having more trouble getting financing than ever before. The reason for that, as I'm sure you know, is uncertainty over carbon costs. Then you have the extremely volatile nature of natural gas pricing acting as another driver propelling investment in the stable cost structure of wind (guaranteed prices for 20 years) and, to a lesser cost effective degree, solar - both of which are trending down if you equalize for inflating commodity prices.

So anyway, the real hurdle that a transition to renewables must overcome is the existing coal generation infrastructure. Renewables can get a big slice of the growth but I believe the corporate system can bankrupt, discount and recycle the existing coal infrastructure at a lower level of capitalization, and we need to guard against that as climate change policy is crafted. That is where we will see a big difference between D & R, in my opinion. I'd love to see Gore get his hands on this problem...

[kristopher]

4. It is a well known fact that the transportation fuel's demand curve

It is a well known fact that the transportation fuel's demand curve is extremely inelastic over the short term.

The answer to the question "How soon?" is about 3 years. There is a significant capital investment required for individuals to be able to lower consumption. The premise that the personal transportation sector has a lot of excess travel in it that can be eliminated is overstating the case badly. There is some room, but the structure of our society is built around the road. Over the next 30 years that will change, but in the meantime reducing consumption is really of matter of switching to higher mileage vehicles. The good news is that the entire personal trans fleet pretty much rotates every ten years.