[Graeme]

The prognosis for the United States

The oil crisis is upon us. I hope to convince you that sharply curtailing our oil demand is the only and best way for Americans to negotiate the coming decade (2008-2018). To that end, I will construct three scenarios for you to consider in contemplating your future energy consumption.

Scenario 1 — Buy Some Time
Yellow Alert

This scenario assumes a high price elasticity of OECD oil demand. Americans, Europeans, the Japanese, the Koreans and others are highly motivated to cut their demand sharply in the medium-term. The OECD countries achieve a 10% consumption cut over 7 years while keeping the economic performance stable at current GDP levels. The decreased consumption offsets non-OECD demand growth and sluggish oil supply growth, thus buying us some of the time necessary to implement significant structural changes. OECD consumers adapt well to high oil prices, which remain more or less at their current level. After 7 years, American oil demand comes in just below 18 million barrels per day. This is the "best case" scenario.

Scenario 2 — Close But No Cigar
Orange Alert

This scenario assumes a medium-to-low price elasticity of OECD oil demand. The developed economies achieve only a 5% consumption cut after 7 years. Competition for oil (exports) goes up because non-OECD demand growth is not offset, resulting in an ever-rising floor price for crude oil. Americans are slow to make adjustments, or find it too difficult to do in an anemic economy with sharply declining home prices. The real price of oil (in 2008 dollars) rises above $150, a price level which is sustained for years at a time. The housing market never recovers.The economy is slowly strangled by an ever-tightening stagflation noose. The economy is intact, but just barely. School districts, city & county services, businesses, et. al. are hit hard but do not shut down.

Scenario 3 — It's All Over Now, Baby Blue
Red Alert

This scenario assumes a very low price elasticity of OECD oil demand. The OECD nations achieve only a minuscule consumption cut in the next few years. Non-OECD demand growth and inadequate global supply are only slightly offset. Actually, a much larger consumption cut is "achieved" after 2011 because the economy is in a tailspin. Sustained prices of $200/barrel lead to the economic collapse. Demand takes a nosedive as duress causes the loss of many jobs when businesses (or public services) are forced to shut down. Home mortgage defaults are common. Driving becomes a luxury for many. Conditions are akin to the Great Depression for many Americans. Our quality of life deteriorates rapidly. This is the worst case.

energybulletin

[joewp]

I vote for Scenario 3, and actually worse, because there's nothing about a die off in that description.

[pup55]

Just for fun, let's look at an example, for the period between 2005 and 2007.

Germany's crude oil is nearly 100% imported. Since 2005, they have reduced their consumption of crude oil about 9%, from about 2.6 mbpd to roughly 2.4 mbpd. When you take into consideration the exchange rate change during that period, the effective cost of oil for the German economy increased only about 4%. during that time.

During that same period, oil usage in the US stayed relatively flat. The price went from 57 to 72 (average prices for '05 and '07) and no exchange rate adjustment. So, the effective cost for the US economy went up by 24%.

Of course, since 2007, the prices have nearly doubled again, so the calculation is a little behind, but you have to say, the Germans have a big built-in advantage of about a factor of 6 because they have used their brains and conserved on oil.

This of course is aside from the fact that Germany has 1/3 of the population of the US, and uses only about 11% as much oil, still maintaining an excellent standard of living, cheap chocolate, attractive females, and general high quality of life.

So, who is going to win?

Code: Select all

USA     Oil Consumption tbpd
                        price    Cost/Day
            2005   20802     57.9    1,204,436
            2007   20698    72.39    1,498,328

        Cost change, 2005-2007          1.24

        Germany Cons    Price (EuExch Rate  Cost/Day
            2005    2605    47.85       1.21        124,652
            2007    2393    54.02       1.34        129,276

        Cost change, 2005-2007          1.04


[SILENTTODD]

Just for fun, let's look at an example, for the period between 2005 and 2007.

Germany's crude oil is nearly 100% imported. Since 2005, they have reduced their consumption of crude oil about 9%, from about 2.6 mbpd to roughly 2.4 mbpd. When you take into consideration the exchange rate change during that period, the effective cost of oil for the German economy increased only about 4%. during that time.

During that same period, oil usage in the US stayed relatively flat. The price went from 57 to 72 (average prices for '05 and '07) and no exchange rate adjustment. So, the effective cost for the US economy went up by 24%.

Of course, since 2007, the prices have nearly doubled again, so the calculation is a little behind, but you have to say, the Germans have a big built-in advantage of about a factor of 6 because they have used their brains and conserved on oil.

This of course is aside from the fact that Germany has 1/3 of the population of the US, and uses only about 11% as much oil, still maintaining an excellent standard of living, cheap chocolate, attractive females, and general high quality of life.

So, who is going to win?

Code: Select all

USA     Oil Consumption tbpd
                        price    Cost/Day
            2005   20802     57.9    1,204,436
            2007   20698    72.39    1,498,328

        Cost change, 2005-2007          1.24

        Germany Cons    Price (EuExch Rate  Cost/Day
            2005    2605    47.85       1.21        124,652
            2007    2393    54.02       1.34        129,276

        Cost change, 2005-2007          1.04


I use to want to be Japanese. Now I want to be Deutsche!

[anarky321]

a very flawed argument that does not take into consideration all the other energy that germany consumes, whether they are from natural gas, coal or 'reneweables', and it consumes a gigantic amount of all 3; then you can factor in the amount of fossil fuels that go into all the food and consumer merchandise and intermediate assembly parts that Germany imports and calculate how much oil and other energy resources it took to make all that, THEN you would get something closer to the real picture; but to say that Germany is so efficient because they use less oil than the US per capita and yet maintain a high standard of living is a statement that sounds rather amateur coming from a PO "expert"

Germany is going to get absolutely mauled by PO for many reasons; Gott forbid their NG lifeline from Russia got cut off...

anyways im ranting now but i just wanted to point out the oversimplification of your argument

edit: a note on food, german food prices stayed low for reasons of competition between the country's largest grocer chains (long story) but now are soaring; a year ago germany had the lowest food prices in all europe if i remember correctly, but the situation is changing drastically on that front so you can forget about the cheap chokolate and Bier, moreso as we go forward into the darkness; also germany's standard of living is going to be absolutely destroyed as the demand for its production (cars and other big ticket items) drops off a cliff and people get laid off by the thousands (already happening); their standard of living is going to get violently degraded to the level of Russia (of course Russia's is going up not down) in the not so distant future; you can quote me on that

[cephalotus]

edit: a note on food, german food prices stayed low for reasons of competition between the country's largest grocer chains (long story) but now are soaring; a year ago germany had the lowest food prices in all europe if i remember correctly, but the situation is changing drastically on that front so you can forget about the cheap chokolate and Bier,...

I didn't notice any -dramatic- changes. A price increase on butter of around +50% has been very big news at the beginning of 2008, but the price of butter is down to old levels again.
Maybe the inflation is ~5% on food now (don't quote me on that, just a guess), which is not low, but isn't dramatic either.

...also germany's standard of living is going to be absolutely destroyed as the demand for its production (cars and other big ticket items) drops off a cliff and people get laid off by the thousands (already happening);

already happening?

There is currently a significant lack on qualified personal.

You are right with car manufacturers. The German car industry heavily relays on big "luxury" cars and I also can imagine that this market could decrease in a real peak oil scenario.
At the moment demand is decreasing already in Germany, but export of Mercedes, BMW, Porsche & Co is still growing significantly to China, Russia, Saudi Arabia, etc...
There was a recent article in a newspaper that Germany today is a net profiteer from the high oil price, because there is a huge demand on German product in countries like Saudi Arabia, which are swimming in money.

I also do assume that the demand on big cars will not grow forever, but if (that's a big IF) they can manage to offer competitively priced small fuel efficient cars there should be a huge new market from people that change their old car to a newer more fuel efficient one.

But that's just one part of the story.

The other part is that I believe that there will be a huge global demand on "green technology" in the future. That has also become a very important sector of the German industry and it will probably outgrow the car sector in just a few years.

http://www.bmu.de/files/pdfs/allgemein/ ... as_zsf.pdf

see page 2.

I do believe that very high energy prices ARE a significant threat to our economy and I wouldn't bet against a collapse of the global economy which would hurt us really hard because our economy heavily depends on exports.
BUT I do believe that German (or Japanese) more energy efficient industries (let's say compared to China) have become more competitive in the actual situation of high energy prices than they have been before.

[pup55]

oversimplification of your argument

You are quite correct, obviously. I will have to look into this a little further for some more detail....

The US has also done some substitution. We've almost completely eliminated use of residual fuel oil to fire electrical generation, for example.

[vision-master]

I vote for Scenario 3, and actually worse, because there's nothing about a die off in that description.

Die-off: The World's population diminishes by two thirds.

[Revi]

Okay, let's take off with a few other scenarios.

Scenario 4 - Dark Red alert

The government of the US does almost nothing and the price of oil goes up over $200. Most people are confused and don't have any idea of what to do. Almost no houses are selling, except for super energy efficient ones, and they go to the well off who live in small enclaves surrounded by abject poverty.

People out in the country try farming, but with almost nobody who knows how to do it any more they have a steep learning curve.

Car sales are flat. The only cars selling are the small efficient ones, but they are snapped up as fast as they are made. Most people are walking.

I don't want to go any further, but I'm sure some of you can fill in some even darker scenarios.

[vision-master]

Okay, let's take off with a few other scenarios.

Scenario 4 - Dark Red alert

The government of the US does almost nothing and the price of oil goes up over $200. Most people are confused and don't have any idea of what to do. Almost no houses are selling, except for super energy efficient ones, and they go to the well off who live in small enclaves surrounded by abject poverty.

People out in the country try farming, but with almost nobody who knows how to do it any more they have a steep learning curve.

Car sales are flat. The only cars selling are the small efficient ones, but they are snapped up as fast as they are made. Most people are walking.

I don't want to go any further, but I'm sure some of you can fill in some even darker scenarios.

How about major riots in the inter-city. Way worse than Watts.

Shootings at gas stations.

Police running around with AK47's.

[cephalotus]

Just for fun, let's look at an example, for the period between 2005 and 2007.

Germany's crude oil is nearly 100% imported. Since 2005, they have reduced their consumption of crude oil about 9%, from about 2.6 mbpd to roughly 2.4 mbpd...

There are two side effects aside from more efficiency.

Germany has increased VAT from 16% in 2006 to 19% in 2007, so people filled their oil tanks at the end of 2006.

Winter 2006/07 was very mild, so people didn't need as much heating oil.

So in the end -9% is (imho) way to optimistic :-(

We'll have to wait for 2008 numbers.

---

Us scenario:

I assume that oil prices will raise even further...

[roccman]

Scenario 3 is woefully inadequate.

Vision master is right.

No one talks about the real issue...that upwards of 75% of the human population will be dead in under 2 decades...this more than likely means YOU will be dead.

The Road is a good description of what it will be like.

[evilgenius]

I see the die off coming too, if we don't get busy now! If there isn't a high speed rail initiative launched by Feb of next year, at least as a test track from LA to Vegas or the equivalent, you will know that the leaders in the US aren't going to do what needs to be done. Ditto if some kind of tax is not introduced that discourages severely the ownership of older heavier less fuel efficient vehicles. Somebody from the new government is going to have to sit down with Detroit and let them know that the era of selling the candy that people want is over as well. The fleet average is going to have to go up to 35-40 mpg by the end of '09 to even begin to avoid scenario 3.

More importantly, to avoid a die off, as opposed to scenario 3, there is going to have to be a change in the international approach of the US. The US is going to have to walk a fine line. The have got to maintain their presence in many places, while scaling back, and they have got to begin to share power, especially regionally and most especially as it pertains to energy security. If they don't begin to engage the Russians over the future of the Middle East in a way that acknowledges Russian power and proximity I believe they risk the kind of war that not only precipitates a die off, but seals it as well.

The bottom line, I suppose, is that it is time to have courage that the advances that this crushing time will develop are to be believed in for the future, not the old safe way of fossil fuel largess which necessitates squeezing the rest of the world as the oil runs out so that one nation's pre-eminence can be maintained at the expense of the rest of the world. I know it is a tempting scenario for the powers that be to believe that they can squeeze the rest of the world until it all runs dry and then ride rough shod over them while trickling newly developed technology out to a needy world, but the very idea that they can do that without a large scale war disrupting the game and sending the chess pieces flying is ludicrous. War is the wild card that has to be avoided immediately followed closely by disease. We can just about do it, but the daily usage of the US is going to have to be reduced by at least half and soon.

[Kingcoal]

Okay, let's take off with a few other scenarios.

Scenario 4 - Dark Red alert

The government of the US does almost nothing and the price of oil goes up over $200. Most people are confused and don't have any idea of what to do. Almost no houses are selling, except for super energy efficient ones, and they go to the well off who live in small enclaves surrounded by abject poverty.

People out in the country try farming, but with almost nobody who knows how to do it any more they have a steep learning curve.

Car sales are flat. The only cars selling are the small efficient ones, but they are snapped up as fast as they are made. Most people are walking.

I don't want to go any further, but I'm sure some of you can fill in some even darker scenarios.

How about major riots in the inter-city. Way worse than Watts.

Shootings at gas stations.

Police running around with AK47's.

I was in LA last year and a cop pulled up on a very nice Honda Goldwing police bike. It was all decked out and included an M16 in a locking holster. So no, the cops probably won't have AK47s, they like the M16 better.

[Rabbit]

"If there isn't a high speed rail initiative launched by Feb of next year, at least as a test track from LA to Vegas"

That's crazy talk. That's a totally worthless project. People have no business going to, or living in Vegas. The age of moving people across hundreds of miles of desert to gamble their money away is such a waist of resources. Let Vegas wilt and die.

We need to create fresh sustainable communities in places that have good weather and arable land. City and business in the center, food production around the outside. We need community master planning now that is setup around walking and biking.

[evilgenius]

LA to Vegas is only a test application, because of the demand there to convince the naysayers. It is a political offering, really. High speed rail is definitely going to have to connect the big cities as we give up air travel for all but long haul flights. I didn't mean to encourage the current model by suggesting LA to Vegas, rather to change it, sorry.

[pup55]

Code: Select all

               Volume             Costs
               Germany    US      Germany US
Oil Cons BBL          2605   20802
Oil Price $/bbl      54.52   54.52  142025 1134125
Gas Cons BCF           8.3    60.3
Gas price, BCF        5.95    8.75      49     528
Coal Cons MTOE/       82.1   574.2
Coal price/ USD      61.07   70.147520.77160411.58
T/boe                  1.5     1.5
Total                               149595 1195064
Exch Rate                     1.21         1446028

               Germany    US      Germany US
Oil Cons bbl          2393   20698
Oil Price $/bbl      72.39   72.39  173229 1498328
Gas Cons BCF             8    63.2
Gas Price             8.93    6.95      71     439
Coal Cons MTOE          86   573.7
Coal Price USD/       86.6   51.12   11171   43991
T/boe                  1.5     1.5
Total                               184472 1542759
Exch Rate                     1.34         2067297

               German Impact          1.23
               US Impact                      1.43


On further review, here is a detailed analysis of the relative impacts of fuel costs 2005-2007 on Germany and the US.

Note that this included a period in which the natural gas price dropped, and coal price went up, both of which greatly favored the US as far as the calculation goes.

But, the effects of the energy price increases, given the current mix of fossil fuel energy sources were roughly double for the US compared to Germany. Maybe next year, when the effects of the skyrocketing coal and gas prices are figured in, we will re-do the calculation. The German natural gas consumption decreased during this time, but their coal consumption increased. Their coping mechanism, in addition to conversion to some non-fossil fuels, was to use their domestic energy source, coal, to a greater extent.

The US coping mechanism was to basically do nothing and let the market decide.

You are quite right, though, Germany, being the energy intense, energy importing place that it is, will have a hard time, but until things get really bad, they will have a real advantage, compared to the US, at whatever "stage" of transition they adopt. Part of this advantage still goes back to the point that they are still about three times more efficient overall in energy use per population or unit of GDP.

Also, as we have noted repeatedly, the German population on the whole will probably be a lot more cohesive and cooperative than the US population, about 13 states of which would be delighted to pick up their firearms and secede from the rest of the country, finishing the job that temporarily paused in 1865.

[patience]

It might be useful to consider the US as a group of regions, for purposes of looking at the next 5-10 years.

I expect the Northeast to suffer more from high priced heating oil, and oil fired electrical generation. The Midwest will suffer more from high gasoline and diesel prices, due to longer commutes and less public transit. Southern California has its' troubles with real estate and water supplies, not to mention NG fired electric generation. Florida will lose a lot of tourist trade, as vacation travel distances shorten.

Such regional differences will alter the details for a given area, I think. Here in the midwest, we'll see a migration of those 20 miles from a job back to the cities, with lots of unemployment in the smaller towns that depend on a few manufacturing businesses. That will trash the real estate market for housing in the countryside, while I expect farmland to hold its' price for a while, barring some ag related fiasco.

Broadly speaking, the US has some big problems coming, no doubt. I'm trying to figure out what the details could be in various places.

[Plantagenet]

the German population on the whole will probably be a lot more cohesive and cooperative than the US population, about 13 states of which would be delighted to pick up their firearms and secede from the rest of the country, finishing the job that temporarily paused in 1865.

Yup.

Of course its easy to be "cohesive" when you've already lost much of the land area of your country.

A big part of what used to be Germany is now in Poland. Other small parts now belong to France and there's even a bit thats Belgian. A tiny part of what used to be German Prussia is now Russian.

Its true that the remaining bit of Germany is cohesive (except for East Germany....there are still some resentments from the Osties.)