There’s been evidence, previously reported on LP, that demand for petroleum is dropping substantially in the United States. But, unfortunately, there aren’t any public, timely statistics on Australia’s total fuel usage that I’ve seen yet. But Steven Long at PM has dug up an interesting proxy for it: total petroleum imports, which are sinking like a stone, despite a gradual declining trend in Australia’s domestic petroleum production. From the transcript of the report:
CRAIG JAMES: What we saw in May is that the amount of petroleum that we’ve imported 28 per cent lower than what it was a year ago.
Thais is the biggest fall that we’ve seen in over four years. And it certainly shows that the higher prices are having an impact on people’s behaviours.
STEPHEN LONG: And disabuses people of the notion that basically demand for petrol was non-elastic that people kept on demanding petrol no matter what the price.?
CRAIG JAMES: Well that’s right. It certainly has hit people right squarely between the eyes this time around. Most consumers, motorists would have been used to seeing a $1.40 at the petrol sign boards, but all of a sudden it becomes a $1.50 or $1.55.
While petroleum import figures jump around a lot from month to month (the raw data going back all the way to 1988 is available here), the drop-off over the last few months is striking.
For what it’s worth, the kind of demand destruction we’re seeing in the United States, and seemingly replicated here (and, presumably, around the Western world) is happening fast enough that the supply of oil will start to exceed demand in the short term, and, presumably, bring the price down.
Andrew Leigh’s post about the effects of petrol prices on demand appears to be borne out by this data, imperfect as it is. Petrol isn’t the magic product that people will buy at any price. If you put the price up high enough, for long enough, people will use less of it. This is excellent news for the prospects of emissions trading doing its job.
The remarkable thing is that this is the short term elasticity. Long term it will be much greater as sales of SUVs plummet and sales of hybrids and other fuel efficient cars rise.
It wouldn’t have been surprising if short-term elasticity was small, particularly in the absence of decent public transport in many places.
I’ve always found it pretty baffling that people think fuel demand would be inelastic. There are the necessities, and then there’s all the frivolous drives to the shops, to take kids to and from school who could just as well walk or ride, people like me who occasionally drive to work to get 20 mins more shut-eye when lazy or hungover…
I think the info in that CATO article I linked to in the nuclear thread is relevant too, Robert.
It makes the point that most oil is not used in SUV’s, but transport and logistics delivery trucks, trains, aircraft and ships.
The demand destruction is not in SUV’s and V8 passenger cars, but in consumer goods getting more expensive, inventories have longer days to turnover and so you use less oil in logistics to deliver more goods.
That point seems to have escaped even Craig James (he’s from CommSec, right?) who seems to continue laying it at the feet of people making decisions when filling their tanks.
The need for petrol, for whatever use is here to stay. We have not yet reached the fuel peak yet – this may still be decades away as the US has yet to make a dent in its oil resources.
Maybe we should still be looking at how to limit the exponential effects of tax on fuel, with a solution suggested here
Stephen Lloyd: not true. They’re split around 50-50. I don’t have direct petrol consumption figures, but residential transport greenhouse emissions were roughly 46 million tonnes in 2005. Commercial transport was roughly 39 million tonnes.
Robert – is there any breakdown on whether the reduction in usage is mainly from commercial or residential transport?
No. And, like I said in the original post, it’s only imports, not total usage.
As far as I can find, there isn’t any publicly available, timely, month-by-month petroleum usage data for Australia available. ABARE puts out data annually, the ABS has an annual report as well, but nothing more timely than that.
The long term price of oil will have a greater infationary effect than can be easily calculated. Being from a regional area all our food from the local supermarket travels from where its grown/produced, to Perth markets for sale, then back out over 600Km to the shops.
Farmers pay more for fuel
Truckies pay more for fuel
All of those costs will affect the basic starting price of all goods.
I pay $150 for a weeks shopping that only 3 months ago was $120. Thats not a winge, Im on a good wage, however many others (particularly pensioners/Aboriginal/unemployed) arent.
How long before Telstra have to increase their margins to account for rising costs of their vehicle fleet? (Just to pick a random big company)
A lot of the demand can ease from consumers, but the big mobs will pass on the price rises, the removal of the fuel rebate in the next couple of years might have all sorts of unintended cosequences for the economy. I might even go so far as to say its a bit of a time bomb left by Costello. If Lab cancel the removal they will be flogged for economic vandalism, if they dont, then they will have to wear the blame for some more price hikes at the shops.
As the post says, the only measure to hand is total imports C(ADO), so I think that might answer your question. Unsatisfyingly.
Robert, you’re using petroleum imports as a measure of local fuel consumption?! Are you serious?
If you look at the ABS data there’s a big drop in February as well, and it bounced straight back up again in March.
I think you’re just seeing what you want to see. A more plausible answer is local refiners aren’t buying at these prices and are drawing down inventories, or perhaps local production is up this month (it was up strongly for a period last year).
Sure, part of the reason is probably demand destruction, but you can’t use imports as a measure of local petroleum demand.
Here’s a more accurate measure for the Mar08 quarter from EnergyQuest.
Seems like the growth in diesel has more than offset the drop in petrol consumption.
Imperfect indeed.
I was unaware that emissions trading was going to double the price of petrol. Perhaps you should tell Kev.
Petrol is still magic until proven otherwise.
Matt, that is an absolute fantasy. US oil production has been in decline since around 1970, despite increases in drilling and exploration. And in case you’re referring to the Colorado oil shale, that is not oil, it’s stone. Despite thirty-odd years of research by Shell, they are still not close to finding a practical, let alone economically viable, method of extracting it.
Robert – oops sorry for missing that.
When politicians talk about petrol demand being inelastic I think they’re referring to residential, not business use. About helping or harming “working families”. Given the large (for workers) capital cost of cars it wouldn’t be surprising if they didn’t change their behaviour much over the short term.
I wonder if second hand car prices give any indication as to whether people are finding alternatives to getting to work. There was a report in Canberra today saying that ACT public transport numbers are at a new record (as bad as public transport is in the ACT).
My comment got eaten, perhaps due to a link? Peter Martin’s blog has a chart and a discussion on this.
I don’t think people have argued it is un-elastic, but there would be a key tipping point when it simply because too expensive to use what many people see as a necessity.
The news is encouraging. The market works. Also, it should be a striking piece of information for anyone advocating lowering petrol excise in a time when many are talking about climate change, and nearly everyone knows that oil is a finite resource.
I ask anyone who saw 60 Minutes on Sunday (and admittedly, on this site, that many not be many): do we really want the Riverina turned into a toxic desert in order to fuel our society? Better to conserve, and that may be best done with a bit of tough love from Uncles Kevvie and Wayne.
kymbos: not seeing anything in the spaminator or the mod queue.
Chris: again, no formal used car data for Australia, but in the USA their SUV behemoths have collapsed in value. Prices have gone through the floor, down about 17.5% from a year ago at auction.
I hope this is not off topic. Can anyone explain to me how reducing the excise on fuel would be truly helpful (except to consumers hip pocket)? Wouldn’t it be necessary to recoup lost revunue through other taxes or even result in greater levels of inflation?
Robert – at least the US manufacturers are getting the message and scaling back production of huge cars/trucks.
Debbieanne – I think the talk over the last few years about huge surpluses (and Labor reinforced it again with the budget this year) is behind at least part of the belief that the government can just afford to cut taxes without having to raise taxes in other areas. I think its worth noting that the people who are affected by rising interest rates are not necessarily the same as those hurt by higher petrol prices.
I have it on good (but unreferencable) authority that standard petrol demand is down 6-8% and premium petrol is down more like 15-20% around the country.
Thanks Chris.
Well that’s more inline with the EnergyQuest numbers above: ULP down 4.4%, premium down 7.2%. What does your authority have to say about diesel demand?
28% is just silly.
My authority doesn’t talk about diesel.
So, summarising the EnergyQuest numbers:
ULP down 4.4%
Premium down 7.2%
LPG up 3.8%
Ethanol blends up 176% (from a very small base obviously)
Diesel up 5.4%
That looks like a move away from petrol and towards diesel/LPG/ethanol rather than a reduction in overall consumption. Still a good thing, but I don’t think people are giving up their cars, just changing fuels.
Most places I’ve seen have E10 (ethanol-blended petrol) about 4 cpl cheaper than regular ULP. A 2.5% discount, in other words.
E10 increases fuel consumption about 3%.
There’s a sucker born every minute…
I read somewhere on the internet recently that the price-elasticity of supply of oil is now much lower than it used to be. Unfortunately I cannot remember where I read it…
Not to mention that the energy return from ethanol is a lot lower than for conventional crude, which is why peak oilers get cranky when ethanol (and other biofuels, tar sands, CTL etc) get counted in the “crude oil” production numbers. Why count something that cost almost as much energy to produce as would be returned by burning it?
BTW, is there any definitive data on whether its worth your while to run your car on premium ULP? There’s clearly a big move away from the premium blends, but given the reduced fuel economy, are people actually saving money?
Just as a small anecdote which probably signifies bugger all. My old man runs a car yard catering to the low cost end of town. Last month and the first couple of this one are the quietest hes ever had.
As I said maybe signifying bugger all, or maybe a shift where the lower income may become much less mobile than they could a year or 2 ago.
Interesting to see Heinberg on the 7:30 report tonight described as a “Global Oil Expert”. Two years ago he was talking to half-a-dozen people at events organised by Sydney Peak Oil and would more likely have been described as a “Peak Oil Crackpot”.
At least Heinberg didn’t talk about his nutty depletion protocol thingie.
BTW, has anyone noticed Red Kezza seems to have gone all peak oil lately? He gave Rudd a hammering on oil the other night. I reckon Tony Jones (who has also interviewed Heinberg), Alan Kohler and Robert Gottliebsen are closet peak oilers as well.
I think the figures provided by carbonsink are probably the most realistic.
As a low income earner, I have been forced to cut my fuel consumption and drive less but there is a limit as to how far this can occur without major changes being necessary. A 30% reduction in oil imports certainly does not equate to a 30% reduction in fuel consumption, for if this had occurred it would be impossible for us to not notice big changes. Last I looked, we produced around two-thirds of our own oil and imported the other third. So the reduction in consumption is not by a third but by a third of a third or a little over 10% and even this may not be accurate as domestic production increased significantly in 2007 (though they are probably squeezing their rocks as hard as they possibly can).
Should prices continue to escalate over the next few years, I doubt it would be as simple as moving large numbers of people to public transport – I doubt the system (which does not exist outside the larger centres!) has the capacity to quickly accept a large influx in passenger numbers.
Demand for petroleum may not be completely inflexible but I think it still fairly so and petroleum usage for commercial transport is scarcely flexible at all – these businesses cannot drive less just because fuel keeps getting more expensive. Their only other option to to go broke.
Certainly there wil be the appearence of elasticity in fuel demand. But what I would expect will prove to be the case is that fuel demand is stepped rather than bending. People will indeed cut back on optional travel when there is a sudden increase in fuel prices. There is, however, an underlying travelling need which cannot be altered in the short term. The transition period will display an elastic appearence but soon a new demand curve at the same gradient as the original will appear at a lower volume level. The medium term fall guy will be realestate prices. As people apply for mortgages the shift in family budgets will allow for lower mortgage ratios than we have been experiencing over the last decade and a half. I do not see too much changing in the general travelling behaviour. Electric vehicles are unlikely even in the medium term with governments such as NSW state government asking people to cut back on their electricity consumption to cover up their incompetence in energy management. The main change will be for the young who along with living at home longer may need to share vehicles in future as vehicles that can be afforded from a fuel perspective will cost much more.
Maybe the VW combi will have a resurgence, drive to work and stay for a few days. Returning to base for showers and new clothes twice a week. I think that the biofuel skeptics will start to evaporate as petrol passes the $4 per litre mark.
The one thing that this sudden surge in prices highlights is the unpreparedness of the Rudd government. Fully expecting to have a soft term of comfy traditional Labour policy implementation, the Rugg has been pulled sharply by world market instability. And clearly rattled by the shock, they don’t have a prepared script to cover this swiftly moving backdrop. Personaly, I am disappointed and disturbed by events in NSW state government, and the total disappearence of the Rudd government environment fervour.
BilB, are you working in the biofuel industry? Corn prices have gone through the roof, people are rioting the streets over food prices, the UN has declared biofuels a “crime against humanity”, and you still think biofuels are a goer?
Seriously mate, when are you going to stop flogging this dead horse?
Is it currently possible to make biofuels from plants other than food sources? Or is this not a viable solution either?
Debbieanne: yes it is, but the technology is far less mature.
Furthermore, there are limits to the amount of non-food plants that can be converted to biofuel. There’s not that much surplus biomass out there that we can just turn into fuel without the biosphere starting to complain…
Boy from Flynn: but businesses can get a lot more efficient in their fuel use as well. To take a simple example, there are more than a few tradies who drive around in V8 Falcadore utes.
Yes, Red Kerry is going all Peak Oil. Must be costing a bit to fill up the Jag
It’s not just a matter of diverting food crops to make fuel. The land used to grow palm groves for palm oil would be used to grow food, thats the main problem. In many third world countries they are uprooting food crops to plant palm groves.
CS,
You clearly only hear what you want to hear, and you’re happy. Good luck to you.
Debbieanne,
It most definitely is. Biofuels can be made from most plant matter. And very importantly biofuels can be made by anybody, anywhere where there is sufficient source material. If you have a lot of grass clippings year round then there are very affordable systems to convert that into ethanol. The thing to keep in mind, though, is that Solar Thermal Power systems harvest more energy per hectare than can be achieved from most plant based energy harvesting systems. But the advantage of bio fuels obviously is that they suit our current vehicle fleet. Future vehicle fleets will be able to use electricity more flexibly, if our governments make it possible for CSP, along with the other alternative energy systems, to be installed.
Contrary to what some commentators are suggesting, biofuels are not creating the food shortages. It is increased food importing by China and India, made possible by these country’s new industrial wealth, that is driving the price of food up. And note that it is the price of the food that is creating the problem not principly the availability of it. The head of CNN (presumeably a well informed person) highlighted this very point some weeks ago. Local (third world) communities who use a portion of their productive land for local fuel production are far better off than communities who do not, and this can only become more true as world energy prices escalate.
On that last point, the term “deglobalisation” is increasingly appearing in open comment. Fuel and food competition may well become the force to break apart the “free market” philosophy.
BilB, when carbonsink quotes UN rapporteurs I don’t think you can accuse him of ‘hearing what he wants to hear’.
You seem to be suggesting that the food crisis is simply a demand thing. Yes, demand is increasing but somehow, you seem to be envisaging an endless supply of arable land to plant the food that isn’t being grown where the palm oil and fuel-bound corn is growing. That’s just not the way it is any more.
And then there’s the issue of where the food is produced. There are hundreds of millions of people who get their food from their own plot or one in the same village or they starve. This is your ‘deglobalised world’ (actually not-yet-globalised is probably more accurate). They don’t have the luxury of sorting out their energy security if they can’t feed themselves.
And if oil does make it to $4, why do you imagine that wheat, rice and maize won’t be following a similar trajectory?
Of course, biofuels are not the sole cause of the food crisis but when you put our ‘underlying travelling need’ up against the developing world’s ‘underlying eating need’ biofuels really are an indefensible use of arable land.
aussieoskar,
I would be willing to bet that if you extracted the amount of land currently being used for biofuel production globally, it would be a negligible percentage of the available arable land. On the UN rapporteur I read the guys statement and it read to me as being highly politically charged to the point of being misleading, in my opinion. Listening to John Michelthwaite just now he, if I heard correctly, put the food shortage issue on the step of Asian demand, correlating the CNN guy’s opinion. But he went on to say that the problem was also to do with not eneough globalisation. He had no answer to the food poverty issue though.
My comment to globalisation is to the village level of food and fuel management. In Kenya there was a programme to help land owners (typically 400 square meters of land for a family) to be self sufficient even with that small parcel. I believe that as oil prices blast past the affordability of third world rural communities local fuel production for local use will be essential, following the Kenyan model but for whole communities. I think that globalisation is not sustainable if the entire worlds population attempts to participate equally. Moving forward into global warming and peak oil local economies will be more dominant. Think about the implications of Mahamad Yunis’s social banking expansion plan and how that fits together with a world bank driven globalisation drive.
Good point on the marginal lands communities. Ethiopia comes to mind. People at this level are not trying to run motor vehicles. They might be trying to run pumps for irrigation though. And in that scenario biofuels are exactly what they will be using.
Your last point though does not recognise that an internationally tradeable fuel is more marketable than food. Every argument on free trade that I have heard right up to now has blasted home the idea that third world countries need to access to Europe’s food demand. Presumeably this means that they have surplus food product to trade. Suddenly there is an agricultural product that can be freely traded at world market prices and for some reason this is immediately bad. Coming back to the UN guy, he does not add up. This whole issue smacks of political opportunism. John Michelthwaite (“Economist”) made the point that globalistion is the force that undermines those who seek to take control of resources for personal gain. He is perfectly correct that this is the real threat to the poor and starving of the world, look no further than Mugabe and Zimbabwe to see how this works. But globalisation is not the only way to solve that problem.
Robert Merkel,
I am talking about commercial transport. How can they reduce their consumption quickly and stay in business?
Tradies are big money earners these days, the cost of fuel is probably less of a worry for many of them. This resource town is chock full of tradies and I don’t know a single one that roars around in a V8 ute.
Boy Flyn,
It depends upon which end of commerce you are talking about. Heavy haulage does not have a lot of room to move. They can use D10, they can add fairings, they can optimise loads, they can use biodiesel when available, they can back load unback-loaded trucks to save trips.
Courier class commerce can fit valve lifter kits (same principle as the car ad with all of the drums), they can go gas, it is technically possible to have up to 4 vans directly linked but controlled from the front vehicle saving fuel and driver time. But the interesting one is something that I heard just this morning. Apparently at the recent biofuels conference in Brizzy (I think) the Brazillian contingent mentioned that they have been using E85 for years. This drew the question of where do they get their E85 compatible engines? From Australia, General Motors Holden have been producing E85 compliant engines for export to Brazil for some years. So what else can you do? Get your next van fitted with an Australian GM E85 motor. The higher the petrol price climbs the greater the advantage, as ethanol should not increase above a certain value and will be carbon tax exempt.
Maybe you saw this paper in Energy Economics – behind a paywall for non-uni users.
The important bit from the paper
An update on US VMT over at GCC…
US Vehicle Miles Traveled Dropped 1.8% in April
Tony Abbott was justifying Nelson’s 5 cent discount by saying “fuel prices are inelastic”. Kevin Rudd and George Bush are both saying “we need to fix the supply problem”.
Back to kindergarten for them all.
The world is running out of oil. So it is getting more expensive. Increasing supply will only expedite this process.
Petrol will be $2 per litre by the end of this year, and probably $3 per litre by the end of 2009.
We need alternative sustainable transport modes and fuel, not the bs that Rudd and Nelson are giving us.
Use of motor cars is elastic. Look at everyone jumping on the trains and riding their bikes.
On the topic of biofuels microalgae look very promising. They can be grown using seawater in otherwise unarable land (think the Great Australian Bight) and are far more efficient at turning sunlight into oil than other oil crops. Although as Robert says the technology is unproven at this point, it is one biofuel that is promising without having detrimental effects on food production.
Regarding second-generation biofuel, which uses cellulosic feedstock (basically any bit of plant) rather than sugars, I ahve it on pretty good authority that this is very clsoe to commercialisation. Able to be produced in Victoria for $50 a barrel, in about 5 years. Needs a couple of million tons of biomass, but can provide most of Victoria’s diesel needs quite affordably. Given that we process several million tonnes of woodchips each year, if that was diverted to biodiesel then feedstock is not a problem.
Anyway, we can live in hope.
I think the ongoing destruction of our native forests – and the 1000 tonnes of C02 emissions per hectare that results – for woodchips (80% are chipped) – is sheer lunacy. Treating them as a biomass resource is just another extension of this lunacy.
Good biomass is genuine waste such as straw and other crop residue. But I am aware you on are ön the other side” on this issue Wilful.
Do also support Martin Fergusonś ideaa of burning forest woodchips for electricity too?
Incidentally, this destructive native forest logging is also depleting water supplies from cathcments aroossVictoria, including Melbourneś catchments and the Murray Darling system. Time to stop I think, with rainfall now down by 75%.
what destruction are you referring to peterc? If you want to look at poor environmental practices and biodiversity impacts, I’m sorry, but Victoria’s forests are not the place to go looking for them. As you would know. And Melbourne’s water catchmnts are threatened by a prolonged dry period and the potential for catastrophic fire. The minuscule harvesting that takes place still allows the forest there to INCREASE in flows in normal weather periods. The forest is in recovery from the 1939 fires and still growing. Forestry keeps the skills up and the roads open, without forest contractors these catchments would be far more likely to burn. Your ‘figure’ for emissions is a complete crock, timber is carbon positive, as all accounting authorities recognise, not even accounting for the offset steel and concrete.
But let’s not go there eh? We’re both quite sure of the veracity of our arguments, and aren’t going to convince the other. I gave up on you in a previous thread.
I’m pretty neutral about woodchips as fuel. It doesn’t seem like a forward enough step, seems like hybrid cars, we should move towards next generation technology rather than stopgaps like that. But yeah, it is a renewable fuel that can be taken from plantations and forests with minimal impact, so in some situations of course it’s going to be appropriate. Sure beats gas. Of course, sawmills have been using it for years.
Hit is bit of raw nerve did I Wilful? Let’s go there.
The destruction I am referring to is the ongoing clearfelling for woodchips of Victoria’s remaining high conservation native forests and water catchments, including Melbourne’s.
This practice has severe environmental and biodiversity impacts, as anyone that vists a logged area can see, and no amount of weasel words can hide.
Melbourne’s water catchments are being logged despite scientific evidence that this reduces the quality and quantity of water from us to drink and use. This also increases the fire risk in the catchments by removing mature moist forests.
The logging is far from minuscule – most of the Thomson catchment has now been decimated.
My figure for emissions comes from this published scientific research:
A study by Dean, C., Roxburgh, S., Mackey, B. G., (2003) shows that natural forests still retain large amounts of carbon when compared with managed commercial forests or converted to plantations. [link]
The problem is that the Brumby government is under the thrall of the CFMEU (factional numbers) and big business such as Papelynx, so they are prepared to trash our catchments and reduce our water supplies, ignoring the best interests of the people of Melbourne who they are supposed to represent.
No Peterc, I wont go there, because you proved immune to facts last time around. There are five errors in your above post. As I was the only one providing facts last time, I wont bother with you this time. You’ll note I gave up on you last time well before you did on me. Persistence doesn’t infer correctness.
Oh I will bite on Mackey et al.. It’s garbage in, garbage out with that study I’m afraid. If you want to make a whole lot of unreasonable assumptions, you can get the results you need. But even then, ONLY if you refuse to count the stored carbon in the removed timber. Within the narrow, fanciful world they constructed, it was good science. In the real world of forests, it was worse than useless, it was highly misleading.
It’s a pity you and others like you hold the erroneous views you do, it really is. I am entirely with you ideologically, I think the world is in a terrible shape and far more care needs to be taken with the environment. It’s just that when it comes to some specific issues, if you had your way some terrible perverse outcomes would be generated, including substantially increased emissions, loss of rainforest and other biodiversity, the elimination of virtually the only sustainable building material and starvation. But you think you’ve got the moral high ground, so that’s OK.
So the scientists are wrong are they Wilful? You don’t provide any evidence for your opinion – which I think is misinformed. I am still waiting for you to provide any facts supporting your assertions and falsehoods.
You hit the nail right on the head here. But the terrible perverse outcome that is occuring right now is destruction of native forest, cool termperate rainforest and water catchments, their biodiversity, and their carbon stores, for 85% woodchips and 2% furniture grade timber (Vicforests figures), against the wishes of 80% of the Australian public.
Existing plantations can provide 100% of the sustainable building material provided, mostly they do already. Not much hardwood in houses these days – probably only battens for tiles, the rest is now all pine.
And how are we going to starve by protecting our forests? We don’t eat forests.
It is past time for this lunacy to end, and for politicians like Rudd and Garrett stop pretending that giving money to Indonesia and PNG to protect their forests (which is not necessarily a bad thing) does not absolve their guilt in allowing exactly the same decimation of forests to proceed in NSW, Victoria (1m tonees of woodchips per year) and Tasmania (4m tonnes of woodchips per year).
A referendum on the issue would settle matters. But we really don’t get to vote on anything that matters do we?
*yawn* wrong again. ‘night.