We've seen a lot of talk about rising oil prices around recently. Too much takes the slant of this article from ThinkProgress: Oil Prices Are Rising Despite Lowest Demand Since 1997, which argues, wrongly:
But it isn’t increasing demand for oil that is driving the recent price increase. In fact, demand is the lowest it’s been since April, 1997 ....
They don't tell the reader it's US demand they mean.
Here's the problem with all this talk: Global demand, not US demand, is what drives price. And, contrary to the headline, global demand is rising, as it must in a world with growing population and populous countries that are developing motorized transport. What's particularly disturbing about the article cited above is that it is on the progressive site ThinkProgress. You can also find similar talk here on Daily Kos. This alarms me - it's one thing for the mainstream media to blow smoke, but it does us on the left no good to fool ourselves.
This diary is an effort to address some of these misconceptions. It includes several plots I made of oil production and consumption, based on data available to the public (mostly from BP and a little from IEA).
Let's start by looking at what's really happening with demand. The plot here shows Oil (and related) consumption 2000-2011 (data from BP and IEA). World consumption took a dip with the 2008-09 recession but immediately renewed it's upward march, continuing pressure to move prices upward. A different story held in the US, where consumption maxed out mid-decade, fell with the recession, and never came back. (Most other OECD countries are similar.) Our country has been using about eight percent less oil in recent years than in the mid-2000s. Part of this is increased efficiency, but much reflects a less active economy. Unemployed people don't drive to work, for example. Conversely, to the extent that the economy is recovering, there will be pressure for US consumption to rise in 2012.
But there's a big problem with that - the oil to support increased US consumption is being used by other countries.
Where is the oil to fuel a re-invigorated US economy to come from? To understand the difficulty we need to grasp that global production has limits, as is shown here (data from BP).
Above is world production of oil and related fuels since 1965. It's a plot with a story to tell. See how the world rapidly increased oil production in the years through 1973 - such that each year production was 3.3 million barrels/day higher. ("Gasoline was 30 cents a gallon, not so long ago," sang the Mundanes.) Then followed ten years of net falling production, 1973-83. This was the time of oil shocks, lines, stagflation, and repeated recession, of Jimmy Carter's sweater speech. No more 30-cent gasoline. ... The bad times closed in 1983 ("morning in America", heh) in the form of gradually increasing output at a rate of about 1.1 million barrels/day every year. No more stagflation. This period lasted from 1983 all the way to 2005.
And from 2005 on, there has been no significant increase. Production has remained from 81.5 - 82.1 million barrels a day since then. It appears that global production has closed in on a peak, or in the words of DOE staffer Lauren Mayne, an "undulating plateau." While pinpointing the absolute peak is difficult, and possibility of future increase exists, We can confidently say that the previous pattern of significant annual growth stopped over the six years 2005-2010.
This is not surprising. It is difficult to continually produce more liquid fuels. Old fields have to be squeezed harder and then replaced. New sources, not as easy as the old ones, have to be tapped. The oil industry certainly acts as if we've come to the end of the road on easy oil. If not, it would not be doing so much in tar sands, shale, and deep water. And we wouldn't be setting aside so much farmland to produce ethanol.
[Attentive readers will note that consumption (up top) doesn't flatten out like production does 2005-2010. It turns out BP counts biofuels in consumption but not production. For more, see the note at the bottom.]
What hurts the US is that global peak or near-peak oil means LESS oil for us, even though our population is growing, and, all other things being equal, we could use more of it. Thing is, other countries in the world are consuming more - a lot more. A couple of dynamics are in play: First, large countries such as China and India are moving to a "western," high-energy economy. Think of all those bicyclists in Beijing in the pictures from the 1970s. Well, now a lot them are buying cars, making Chinese highways look like LA on steroids.
Beijing is the world's most congested city, as anyone living or traveling there is bound to attest, and the whopping 4.7 million cars on the city's roads generate famously high levels of traffic and air pollution.
Although traffic is not solely responsible for the thick haze that hangs over the city, with 2,000 new cars hitting the road each day and 60-mile long traffic jams that last for weeks, the situation simply cannot go on.
And of course with the industrial growth in these countries means a lot of shipping with diesel fuels. Second, many major oil producing countries are now keeping a greater portion for themselves. This phenomenon has been described with a theory called the
export land model:
As world oil exports approach (or pass) a global peak, the price of exported oil increases and further stimulates domestic economic growth and oil consumption in Export-Land [oil-exporting] countries, creating a positive feedback process between declining exports and higher prices. Eventually, however, the level of export decline outpaces the increasing oil price, slowing domestic growth. In some cases, an Export Land eventually becomes a net importer. ... In fact, many oil exporting countries subsidize domestic consumption below price levels defined by the world market.
This is actually happening in countries like Venezuela and Saudi Arabia, where consumption has risen dramatically in recent decades as political leaders have allocated more of their resources to improve quality of life for residents.
The resulting effect of these twin phenomena - increased use by developing and oil-producing nations - is less oil available for the rest of the world, in particular OECD countries. The effect of this tightening on the US is shown in the two plots below, which compare our consumption to the combined use of Brazil, Venezuela, China, India, and the "total Middle East," the designation in BP's data set that includes Saudi Arabia, Iraq, Iran, and the other oil producers in the Gulf (called here "BVtMECI"). These countries include the major rapidly developing and export-land countries - there are others increasing consumption, however. The first plot is absolute and the second as a percent of the worldwide consumption (data from BP).
The red line goes up, up, up.
The transformation in who uses the world's oil use has been remarkable. In 1965 the US used 6 times as much as all the BVtMECI countries. Even in 2000 we used more. But as of 2010 we used 20 percent less as our consumption dropped while the other countries' soared.
One thing that really jumps out is the contrasting effects of the recent price spikes/recession. In the US our consumption fell eight percent 2005-2010, from both unemployment and price-driven efficiencies. In the BVtMECI countries, on the other hand, there was no slowdown at all. Growth kept on the same ever-increasing path over the last decade despite price quadrupling. The take-home here is these countries will increase their use in times of high prices but we won't. As a result, they've wound up with a larger share of global oil. Of course, per capita US use remains much higher, which is probably the reason why this is happening.
A related point is that in times of short supply price increases need to be high enough to knock down US and other OECD use, since the other countries appear impervious to price change. The developed world blinks first, in other words. This dynamic helps to account for the larger and larger swings we've seen in recent years.
The US is getting "squeezed" by flat production combined with growth in other parts of the world. As time goes on, we get less. The same goes for other OECD countries. What does that mean? One way to look at it to consider the oil-provided work that we've lost as a result. It's been calculated that one barrel of oil is the equivalent of several years human labor. It's not a perfect analogy, but, following that logic, the loss of one barrel of oil is like losing several servants, all working for about $100 a year. They used to work for $20 a year.
The following plot (the last one, I promise) shows what we've lost in the US as annual barrels of oil per capita:
US oil use per capita was rising very slowly 1983-2004. Since then, we've fallen 12 percent, from 25.8 to 22.7 barrels of oil per year. We're still much higher than the world average, a little over 4, of course. And the US has a lot of room to increase efficiency. But if this continues, which seems likely, it will drag the US standard of living down.
I'd like to close by considering the political difficulty posed by peak oil (or "undulating plateau oil" if you will). No president or elected official, even a well-meaning one, is going to want to say to Americans, "You're going to paying higher prices for less oil and there is nothing I can do about it." So straight talk is hard to come by. And, as usual, we are not really planning or preparing for a less oil-intensive future.
But there is a bright spot. Peak oil presents another powerful argument for revising our energy habits. If Americans can come to understand that the days of cheap oil are over, perhaps our country can finally find the will move away from the fossil fuel death trip. This can only happen if we are clear about what's happening.
Note on sources: The data for the plots here comes mostly from the "BP Statistical Review of World Energy, 2011," a gigantic excel file BP makes available here. It provides detailed breakdowns of use and production by country and region. I don't know of another public source with such detail - maybe there is one.
Footnotes for BP's production data:
1. "Includes crude oil, shale oil, oil sands and NGLs (the liquid content of natural gas where this is recovered separately)"
2. "Excludes liquid fuels from other sources such as biomass and coal derivatives."
Footnotes for BP's consumption data:
1. "Inland demand plus international aviation and marine bunkers and refinery fuel and loss. Consumption of fuel ethanol and biodiesel is also included."
2. "Differences between these world consumption figures and world production statistics are accounted for by stock changes, consumption of non-petroleum additives and substitute fuels, and unavoidable disparities in the definition, measurement or conversion of oil supply and demand data."
I also relied on IEA's 2/10/12 "Oil Market Report," available here, for recent data in the top plot. IEA goes to 2011.