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More Signs of Demand Destruction

This time, the news comes from the API:

U.S. oil demand drops in first half of 2008

WASHINGTON – U.S. oil demand was significantly down for the first six months of 2008, API said today in its Monthly Statistical Report. While U.S. refiners churned out record and near-record amounts of oil products, imports – especially product imports — fell substantially.

Deliveries of all oil products – a measure of demand – fell 3.0 percent compared with the same first-half-year period in 2007, with gasoline deliveries slipping 1.7 percent. For the preceding three years, oil demand had essentially held steady.

API statistics manager Ron Planting said, “At 20.08 million barrels per day, total demand was the lowest in five years. And the decline in gasoline demand was the first significant one recorded in 17 years. Higher pump prices and a slowing economy were undoubtedly factors.”

Those are significant numbers. This should not be lost on those who think we should tap the SPR to push prices back down.

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July 19, 2008 - Posted by | American Petroleum Institute, api, gasoline demand, oil demand

21 Comments

  1. Robert: If you look back in your archives, you will see that I have been advocating adding at least $2/gal. tax to the price of gasoline in the US for a long time.

    Contrary to all the opponents of such a tax it would have cut consumption a while ago. I would now advocate adding enough tax to gasoline that it would never drop below $4/gal. again, and that the target price be raised periodically to keep the floor price above inflation and to force further declines in consumption.

    Comment by Fat Man | July 19, 2008

  2. A $2/gal tax costs $400 billion per year and provides a meaningless 1-2% drop in consumption. It only costs $80 billion per year to upgrade all 16m cars we buy each year to plug-in hybrids and cut consumption 90%.

    Comment by doggydogworld | July 19, 2008

  3. It’s good to see demand going down, but an important question is whether demand is destroyed or sidetracked. Destroyed demand will go away, but sidetracked demand will spring right back as soon as the prices of crude and petroleum products fall. We need sustained high prices to enforce demand destruction, either through high crude prices, or taxation as suggested by Fat Man.

    Comment by Rice Farmer | July 19, 2008

  4. Speaking of the gas tax…

    “Why the gas tax could go up”
    http://money.cnn.com/2008/07/19/news/economy/gastax.ap/index.htm

    Another illustration of what I call the catch-22 relationship between fuel taxes and road maintenance.

    Comment by Rice Farmer | July 20, 2008

  5. Fat Man: Yes, yes, yes. And take it so $6. Thsi will signal to world oil market we are taking 4-5 mbd of demand down in thext 5-10 years. We transfer money to US Treasury instead of thug states.
    Use revenues to pay down debt.
    Doogydog: Use taxes to force people into high mpg cars. They won’t do it on their own.

    Comment by benny "peak demand" cole | July 20, 2008

  6. Well said guys.

    Comment by Chris | July 20, 2008

  7. It only costs $80 billion per year to upgrade all 16m cars we buy each year to plug-in hybrids and cut consumption 90%.

    dog — be realistic! Don't trivialize what would be the most dramatic shift in energy use in history.

    First, it would take close to 20 years to replace the vehicle parc and realize reduced oil demand. Replacing the parc would cost $Trillions even using your own estimate.

    Second, the switch would more than double US electric demand. That requires a vast increase in nuclear power generation — the only practical large-scale non-fossil power source. More $Trillions.

    Third, it would require a huge new industry to manufacture & recycle batteries, using imported rare metals which are permanent environmental poisons. Yet more $Trillions in direct costs — and who knows what military costs to ensure the required supply of imported metals.

    Your plug-in hybrid dream could easily become a nightmare — especially if it is implemented by the same Congressional Democrats who brought us today's biofuel disaster.

    Having said all that, plug-in hybrids may possibly be the best way forward. But it would be neither simple nor cheap. Pretending that there is an easy way out is not helpful.

    Comment by Kinuachdrach | July 20, 2008

  8. Doggydog: Use taxes to force people into high mpg cars.

    If you want to change carbuying habits tax the cars. Not the fuel.

    Comment by doggydogworld | July 20, 2008

  9. First, it would take close to 20 years to replace the vehicle parc and realize reduced oil demand.

    The first year you build 16m new PHEVs you cut gasoline consumption by 10 billion gallons. Again in year two, year three, etc. Including cuts in gasoline byproducts that a million bpd. Oil prices would crash in the face of such declines, and our $700b annual oil import bill would be quickly be $300b, then $100b and eventually zero. Cumulative savings over your 20 years is $10+ trillion. Cumulative cost less than $2 trillion.

    Second, the switch would more than double US electric demand.

    You haven’t done the math. Actual increased electricity demand is 17-18% per official studies as well as back-of-envelope:

    3 trillion miles * 250 Wh/mile =
    750 TWh
    750 TWh/4100 TWh US demand = 18%

    Third, it would require a huge new industry to manufacture & recycle batteries, using imported rare metals which are permanent environmental poisons.

    Our own Kinu, weeping for the environment! LOL. Anyway, lithium is pretty benign and easily recycled. The US has ample lithium, it just costs a bit more to mine than South American and Chinese salars. Also, PHEVs don’t depend on lithium in the way today’s cars depend on oil. There are plenty of other potential chemistries such as Firefly’s vastly-cheaper advanced lead-acid.

    Your plug-in hybrid dream could easily become a nightmare …..

    Anything could become a nightmare. Oil is already a nightmare.

    That said, I promote PHEVs on message boards for simplicity but in real life I want a level playing field for all jihad-free vehicles.

    Comment by doggydogworld | July 20, 2008

  10. If you want to change carbuying habits tax the cars. Not the fuel.

    Let’s be specific. A new sedan will use 6000 gallons of gas during its life. A new SUV more like 10,000 gallons. Apply fat man’s $2/gallon tax upfront and you’ll see huge changes in carbuying habits. Jihad-free vehicles (including PHEVs) instantly become profit-centers for automakers.

    If a new car buyer wants to obligate the USA to buy 6-10,000 gallons of imported oil, fine. As long as he pays for it upfront instead of pushing the cost off on the rest of us.

    Comment by doggydogworld | July 20, 2008

  11. doggydogworld wrote:
    You haven’t done the math. Actual increased electricity demand is 17-18% per official studies …

    Remember the Prime Directive, dog — never trust "official studies".

    US electric production in 2006 was about 4,250 TeraWatt-hours — call it 15 ExaJoule (10^18) for the year.

    US use of gasoline & diesel was running (until recently) at over 13 Million Bbl/d. Calorific equivalent about 25 ExaJoule per year.

    If you want to replace 90% of 25 ExaJoule per year, you will need more energy than the calorific equivalent of all the electricity produced in the US.

    The complicating factor, of course, is conversion efficiency — which allows "official studies" to produce numbers which may be arithmetically correct but quite misleading, depending on where they choose to recognize the energy lost in conversion.

    Whichever way we care to cut it, widespread use of plug-in hybrids would represent a huge increase in electrical demand — and in the energy requirement for electric generation.

    Of course, it could be done. But let's not trivialize the magnitude of the challenge.

    Comment by Kinuachdrach | July 21, 2008

  12. ddw: you seem to think that money collected in taxes disappears into a black hole and is never seen again.

    That $400 billion could be spent on either:

    a) cutting or eliminating other forms of tax – probably a net win for the economy, as gas taxes are much cheaper to collect than many other forms.
    b) extra government expenditure. Yes, the government does have a talent for piddling tax dollars away, but even counting inefficiencies the net loss in utility will be a small fraction of the total tax take.
    c) Cutting the enormous budget deficit and reducing interest costs into the future – not something I’d do in the middle of a recession, but I’d sure think about it when the economy’s doing a little better.

    Furthermore, you seem to be assuming that the amount of travel done by a vehicle is essentially fixed. That’s also nonsense.

    Comment by robert merkel | July 21, 2008

  13. Oh, for crying out loud. You don’t convert electricity into heat to power PHEVs.

    Stop playing games. PHEVs get 4 miles/kWh. US VMT is 3 trillion miles. You wouldn’t replace all 3 trillion miles with electricity, but even if you did it’s only 750 TWh. That’s 17-18% of incremental electricity.

    Comment by doggydogworld | July 21, 2008

  14. Like your blog

    like your blog! Live in rural setting in Texas. Drive alot of miles every day. Don't have any desire to go back to horse & buggy days plus wood for electricty. Green? New fad words for 21st century.

    Comment by gonesouth150 | July 21, 2008

  15. Oh, for crying out loud. You don’t convert electricity into heat to power PHEVs.

    No, doggie, you do not.

    But most electric power today does come from the conversion of heat into mechanical motion and hence into electrical power — with associated conversion losses. It is not helpful simply to ignore the facts.

    We also have to recognize the “capitalized” energy investments required to build a vast new energy supply infrastructure. Non-trivial.

    The world needs vast additional sources of power — to replace finite fossil fuels and to raise the living standards of most of our fellow human beings. It is not helpful for enthusiasts to pretend that there are easy solutions — not in a world in which biofuels lead to starvation, wind factories depend on political subsidies, solar is effective only for high-value niche uses, an effective means of large-scale energy storage is not even on the horizon, and Neo-Stalinist greenies oppose nuclear power.

    The human race will survive. But no thanks to those who trivialize the challenge which lies in front of us.

    Comment by Kinuachdrach | July 21, 2008

  16. DOE has studies out, and even if total US car fleet converts to batteries, we don’t need that much more capacity. Happily, the cars would charge up at night, when demand is lower.
    Doggydog has posted some interesting numbers on the vast savings accumulating from importing less oil.
    It seems obvious that much more efficient cars should be a matter of national policy.
    I still say I want gasoline at $6 a gallon, and let consumers choose what sort of car they want. They are “paying the freight” every time they fill up.
    I also want to shift tax burden to consumption, and away from productive activities (i.e., I believe in lower income and corporate taxes, and higher consumption taxes, especially on gasoline and luxury goods).
    Still, Doggydog’s points are irrefutable: The country could boom if we shift to low mpg cars.

    Comment by benny "peak demand" cole | July 21, 2008

  17. I agree with doggydogworld…….

    If you want to change car buying habits tax the cars. Not the fuel.

    Comment by OilMan | July 21, 2008

  18. Gasoline tax at $10 a gallon! That way we can finally pay slavery reparations to all descendants of slaves and all distant relatives of slaves everywhere in the world.

    We need more entitlement spending, more welfare spending, and more reparations. I’m thinking up a new reparation every day.

    Seriously, politicians will not pay down the debt no matter how much tax receipts they can play with. They just spend more.

    Comment by Anonymous | July 22, 2008

  19. If you non believers would listen, please listen.

    I am in the evil oil & gas business!

    I am a accountant/landman/ex-farmer/problem solver/investor in anything that makes money! Legally!
    no drug runner and/or illegal immigrants hauling business. Lots of money to be made in both. Problem – GO TO JAIL IF CAUGHT!

    Ask Rice farmer @ price of red disesel at today prices! $4.00/gallon + or -. Average 200 HP tractor burns 80 – 100 gallons per day. Do the math! Cost new 200hp tractor RED Or GREEN – $150,000 – $200,000. Have 500 acres to rent to someone to get started in the FARMING BUSINESS. Money needed to get started with new necessary equipment or credit through production – Guess! $500,000 + or minus. Any takers.

    I do not think so.

    Have a nice day.

    Hope it rains alittle from new Dolly storm.

    Comment by gonesouth150 | July 22, 2008

  20. As I’ve observed before, demand destruction has its down side, too. And I’ve also pointed out that you can have your alternative-fuel vehicles, but unless they can fly over potholes and rivers, there is no future in “personal mobility.” That’s because there won’t be enough money to maintain roads and bridges.

    http://www.latimes.com/news/nationworld/nation/la-na-highway21-2008jul21,0,512955.story?track=rss

    I’ve said it before, and I’ll say it again: you can’t just talk about the fuel to power vehicles without also securing the energy to manufacture vehicles and maintain traffic infrastructure.

    Comment by Rice Farmer | July 23, 2008

  21. you can’t just talk about the fuel to power vehicles without also securing the energy to manufacture vehicles and maintain traffic infrastructure.

    The US has ample energy. Only oil is in short supply.

    Comment by doggydogworld | July 23, 2008


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