Yesterday we got our feet wet in the world oil market. Today, it’s time to dive in – full force — and discover just how the global oil game is panning out for America.
That said, let’s start off with a simple question…
How much oil does it take to be part of the modern world?
Today, per capita oil use in the U.S. is about 22 barrels per year and 24 barrels in Canada. That’s how we get our so-called “non-negotiable standard of living.”
In Europe, with its famously high fuel taxes, cold apartments in winter and wonderful passenger rail system, per capita oil use is about 10 barrels per year. I suppose that in Europe, their standard of living is slightly more negotiable than ours. Wimps, right?
By comparison, in still-developing China, per capita oil use is about 2.5 barrels per year. In even less-developed India, per capita oil use is just over one barrel per year. This doesn’t even hint at the mountainous disparity in energy access between the (few) wealthy people and (multitudes of) poor people.
Think this through. If you’re a North American, using 22-24 barrels of oil per year, will you scale back and use less if the price goes up? Will you negotiate your non-negotiable standard of living? Probably yes, because, after all, you’ve got a lot of room on the downside of your demand. (Look at how those poor Europeans schlep by on 10 barrels per year.)
The bottom line is that the average North American can surrender a barrel or two of oil use. The numbers show we already have! In some respects, we barely miss it.
But if you’re Indian or Chinese and using under three barrels of oil per year per capita, what will it take for you to cut back on use? The answer is that you won’t cut back, and you certainly won’t give up your barrels just because of higher oil prices.
Indeed, if (actually, when) the price of oil rises, the better-off Chinese and Indians are likely to suck it up and pay what it takes to lay hands on that extra marginal barrel. After all, they want to be modern.
In other words, as the forces of economics unfold, it’s far more likely that average U.S.-Canadian and European oil use will decline than will Chinese or Indian oil use. Indeed, it stands to reason that the “average” Chinese or Indian will pay much more to get one of those annual barrels away from a Westerner. That’s exactly what the numbers show!
Along these lines, the changing demand scenario — wealth and demand shifting from West to East — appears to be playing out. That is, in the established “Western” world, oil consumption in Europe and North America has declined in recent years.
For example, and for a variety of reasons, Europeans and North Americans are driving fewer miles and flying fewer airline flights.
Let’s look at our own data, here in North America. According to the U.S. Department of Transportation, Americans drive fewer miles today than six years ago. Adjusted for population, U.S. drivers are racking up about one-sixth fewer miles since 2006. There are fewer registered vehicles, as well. Here’s the long-term chart for miles driven.
The mileage numbers clearly indicate a structural shift in the U.S. economy. Contrary to one pervasive political myth, Americans don’t just drive more cars with better mileage. They’re driving fewer absolute miles, and in the process burning less fuel. That is, U.S. drivers have changed behavior due to high fuel prices.
What’s happening? We’re competing for the “same” underlying oil barrels — in a world of flat output — against people from developing nations in the Middle East, Asia, etc.
Culturally, we in the U.S. like to think that ours is a “rich” country. Yet in the oil pits of the planet, we’re actually getting outbid by developing nations for the world’s marginal barrels of oil.
While I’m on the subject, I should note that other forms of technology account for some of the driving mileage decline, as well. For example, according to the Bureau of Labor Statistics, over 5 million U.S. workers now “telecommute” between a home office or remote site and their “official” place of work. This saves fuel, although it adds a new psychological and social twist to working. In other words, modern workers had better enjoy being around their home and family.
It’s also accurate to say that the recent decline in miles driven reflects the lingering economic recession in the U.S. economy. Many people aren’t driving much anymore because they have nowhere they really need to go, and not a lot of money to pay for gas. It’s what happens when a “rich” nation gets poor.
More and More Americans Grounded
The decline in fuel use isn’t just confined to cars and trucks. Aviation industry data reflect a major contraction in available flights and overall airline fuel usage.
According to the Federal Aviation Administration (FAA), total airline departures fell over 13% in the U.S. between 2007 and 2011. That is, in 2007, the FAA logged over 10.5 million scheduled airline departures. By 2011, the number had declined to about 9.1 million departures, due to airlines cutting back on routes and trimming their schedules.
It’s interesting that the decline in airline departures didn’t hit too heavily at major hubs, like New York, Chicago, Atlanta, Dallas, Los Angeles, etc. Major hub departures fell from just over 6.2 million in 2007 to 5.9 million in 2011. That’s a pullback of under 5%.
But for medium and small cities with airports? Their departure numbers crashed, so to speak. In 2007, medium and small hubs had well over 3.3 million departures. By 2011, that number was down to 2.5 million, a decline of over 24% — which continued all through 2012, although statistics aren’t out yet.
Indeed, across the U.S., many small towns lost almost all — if not all — scheduled airline service. They’re now virtually cut off from regular commercial air access.
Other Nations Buy the Oil
The bottom line for the U.S. is that the country’s daily oil demand has declined between 2007 and now from about 21 million barrels per day to about 18 million barrels per day. Any number of politicians brag about how the U.S. economy is “conserving energy” and becoming “more efficient.”
Actually, it’s equally arguable that the numbers reflect a nation in long-term economic decline.
There’s another angle to this, as well. While U.S. fuel usage has declined for cars, trucks and airliners, over the past five years, lower U.S. demand has not translated into lower global prices for oil. Why not? Doesn’t the U.S. set the world price for oil? Well, no, not anymore. It gets back to that oil production plateau that I discussed, yesterday.
For every barrel of oil that the U.S. isn’t using, other nations are buying it and burning it in their cars, trucks and airplanes. Outside the U.S., global demand for oil is strong, and even rising. The developing world leads the charge.
Six Yankee Stadiums
Looking ahead, is there enough oil to go around? That question gets us back to the crude oil story. How much is 84 million barrels of oil, the amount that the world uses up every day?
Did you ever visit the old Yankee Stadium in New York? Here’s an aerial shot of the place from the 1920s, on a day when a full house was rooting for the home team. Yankee Stadium was pretty big, right?
Now imagine Yankee Stadium filled to the brim with crude oil, instead of baseball fans. In fact, imagine six Yankee Stadiums filled to the brim with crude oil.
That is, if you filled six Yankee Stadiums with crude oil, you’d have about 84 million barrels, which is about the amount of oil that the world uses up every day in recent years.
When you add it all up, at the end of every day, the world has about 84 million barrels to go around — six Yankee Stadiums. Then, all this oil moves by tanker, pipeline and truck to refineries, to be turned into product that keeps the engines turning.
When the clock strikes midnight — at least, in a figurative sense — the world has to do it all over again the next day. It’s all day, every day, and quite an industrial process.
The World’s Daily Oil Supply
Could it all just stop one day? Could the world’s oil supply and refining system just shut down and everything seize up like an overheated engine? No, it won’t work that way.
But you should anticipate that world oil production will have a hard time increasing upward from the current 84 million barrel daily plateau, due to all manner of technical and capital cost issues — EROI foremost among them.
More worrisome, it’s quite possible that overall, daily world oil output could decrease from 84 million barrels, even with an all-out fracking push in the U.S. Uh-oh.
Looking ahead, it’s pretty much written that oil exports to everywhere will decline from suppliers in the Middle East. Middle East demand is growing much faster than new supply additions. (Iraq might offer a bright spot, but that place has its own issues, as I’m sure you know.)
Here we are getting back to that Peak Oil argument. We’re dealing with an idea — and at root, it’s a mathematical tool — to demonstrate that mankind has found and exploited the largest conventional oil fields, with the “easiest” oil already drilled up. (Of course, it’s never truly been “easy” to find and recover oil!)
Looking ahead, the world oil industry is all but destined to find smaller, more isolated fields in more remote locales. All while demand is rising.
Getting back to that Peak Oil idea, one reader emailed, “I don’t so much discount Peak Oil as it’s just depressing when you talk about it.”
Really? Don’t be depressed. There are a lot of hydrocarbon molecules out there. And here’s the good news: the whole thing is investable.
That’s all for now. Thanks for reading.
Byron W. King
Original article posted on Daily Resource Hunter
Byron King is the editor of Outstanding Investments, Byron King's Military-Tech Alert, and Real Wealth Trader. He is a Harvard-trained geologist who has traveled to every U.S. state and territory and six of the seven continents. He has conducted site visits to mineral deposits in 26 countries and deep-water oil fields in five oceans. This provides him with a unique perspective on the myriad of investment opportunities in energy and mineral exploration. He has been interviewed by dozens of major print and broadcast media outlets including The Financial Times, The Guardian, The Washington Post, MSN Money, MarketWatch, Fox Business News, and PBS Newshour.
Pingback: Love Letters For Him()
Dr. Marc Faber discusses the Chinese stock market, as well as the contagion risk posed by the Greek debt crisis and the prospects for a resolution...
Puru Saxena explores Greece’s referendum, which will determine whether or not the nation accepts its creditors’ austerity measures...
Jim Rickards sat down one-on-one with Ben Bernanke on May 27th. Read on to listen in on their conversation and learn why “the international monetary system is not coherent”...
Charles Hugh Smith reports on why papering over the structural imbalances in the Eurozone with bailouts or bail-ins will not resolve the fundamental asymmetries in trade...
Chuck Butler discusses the stimulus in China and what he sees are the differences, plus details as Greece arrives in Brussels with their latest proposal for an agreement. All that and more in today's Daily Pfennig...
With the oil sector cruising in low gear since last year’s price collapse, should you be investing in oil companies? Yes, according to our friends at Sprott, Henry and Rick — especially if you look at mid-stream companies, which move oil from point A to point B. Since oil moves no matter the price, they make money no matter the price!