A Crude Awakening: The Oil Crash

[Sam_Stone]

If you don’t think changing gas prices can have a real effect on the types of cars people buy, consider this:

I searched for the ten most popular vehicles in the U.S. in 2002, before gas prices took off. Then I plugged them into a spreadsheet using their average fuel economy times the number of units sold to come up with an average fuel economy for all vehicles sold in that year. Then I did the same thing for the data from 2006, when gas prices were high. Here are the results:

Best selling vehicles in 2002 (gas averaged about $1.30/gal)

1. Ford F-Series - 813,701
2. Chevrolet Silverado — 652,646
3. Toyota Camry and Camry Solara — 434,145
4. Ford Explorer, Explorer Sport and Explorer Sport Trac — 433,847
5. Honda Accord — 398,980
6. Dodge Ram (includes 1500, 2500 and 3500) — 396,934
7. Ford Taurus — 332,690
8. Honda Civic — 313,159
9. Chevrolet TrailBlazer — 249,568
10. Dodge Caravan and Grand Caravan — 244,911

That’s 3 pickup trucks, one minivan, two SUVs, one large sedan, two mid-sized sedans, and one compact car.

Now, here are the top-10 cars in the U.S. in 2006 (gas averaging about $3.20/gal)

1. Ford F-Series (796,039)
2. Chevrolet Silverado (636,069)
3. Toyota Camry (448,445)
4. Dodge Ram (364,177)
5. Honda Accord (354,441)
6. Honda Civic (316,638)
7. Chevrolet Impala (289,868)
8. Toyota Corolla (272,327)
9. Nissan Altima (232,457)
10. Chevrolet Cobalt (211,449)

No SUVs, three pickup trucks, four mid-sized sedans, and three small cars. Quite a change in the mix, huh? Now, I imagine the demand for pickup trucks is a little less price sensitive to gas prices, because they are typically work vehicles. So if you take the three pickups out of the mix from each list, you get a better reflection of how gas prices changed demand.

For fuel economy data, I used the charts for 2006 and 2002 at FuelEconomy.gov. Because I don’t have data showing which optional engines people bought, I chose the most economical to give a consistent measure across all vehicles. This probably causes the difference to be under-stated, since if there is pressure on people to move to smaller vehicles, there’s probably also pressure to choose more economical drivetrain options. But let’s assume that pattern didn’t change. I also averaged city/highway numbers.

The results:

In 2002, the top 10 cars averaged 22.3 mpg.
In 2006, the top 10 cars averaged 26.8 mpg.

The weighted average, factoring in units sold of each type, is 21.6 and 24.9 respectively.

In 20K miles of driving, the 2002 top 10 would burn on average 3.94 billion gallons of gas.
In 20K miles of driving, the 2006 top 10 would burn on average 3.15 billion gallons of gas.

But it gets even more interesting if you take the pickup trucks out. Leaving the remaining 7, you get these numbers:

2002 CAFE: 24 mpg
2006 CAFE: 30.3 mpg

Gals burned/20K in 2002: 2 billion
Gals burned/20K in 2006: 1.4 billion

That’s a massive reduction in gas burned per mile for last years’s cars compared to just four years earlier.

Obviously, these are rough estimates. We don’t know the composition of the rest of the sales fleet, nor which engine options people chose.

And if the top 10 cars had their fuel economy jump from an average of 24 to 30, while the CAFE regulations stayed the same, tell me again why we need CAFE standards to force people to change?

[BrainGlutton]

@RickJay

A statement is either true, or it is false, or if it makes more than one point can be a combination of the two. A argument is either sound or it is not. A smart person is carefully skeptical of ALL claims and arguments, not just the ones that espouse views different from their own.

True, but some things are red flags and alarm bells for extra-skeptical scrutiny. Huber’s Manhattan Institute has a definite ideological political agenda.

[XT]

Well then, you should be equally understanding BG about why most of the sources you use for these OP’s are greeted with automatic skepticism, ehe?

-XT

[Sam_Stone]

Surely you don’t question the impartiality and credentials of “Earth Saver Scott”, do you?

[BrainGlutton]

@Sam Stone

Surely you don’t question the impartiality and credentials of “Earth Saver Scott”, do you?

His comments on the book, so far as they have any value, stand on their own; credentials are irrelevant.

[BrainGlutton]

@xtisme

Well then, you should be equally understanding BG about why most of the sources you use for these OP’s are greeted with automatic skepticism, ehe?

-XT

And I expect that. Skepticism, however, is one thing; dismissal is quite another. (See, e.g., posts #44 and 49-51 in this thread.)

[ralph124c]

OK-you are oil minister of SA-and a member of the ruling House of Saud. Knowing that the oil is running out, do you:

1. run the pumps flat out-and pump as much oil as possible? This would fatten your bank account in Switzerland (where you hope to retire someday), but will depress prices.
2. cut production? (announce to world that Ghawar oilfield is losing pressure)-this will bump up prices, but reduce revenue (bad for swiss bank account)
3. explore alRub alKhali Desert for oil? (may extend reserves)?
4. clam up-announce to world: “We can easily double production, we can meet anticipated demand, not to worry!” (Check bank balance in Swiss bank, check airline reservarions (SwissAir Riyadh-Zurich-don’t forget tickets for extra wives)
5. say NOTHING 9but sheck swissair just to be sure)?
   Does the saudi Regime give any clues? I’m told that ARAMCO (national oil co.) releases very little info on petroleum reserves. :eek:

[Spoke]

It seems to me that the most likely reason for the Saudis to maintain secrecy about reserves would be if the oil were playing out.

The Saudis carry a lot of polical clout in the world, which is based entirely upon their geological good fortune. If it became known that their production had peaked and was on the decline, the Saudis would become much less important to the Americans, and the House of Saud would find itself in a much more precarious position domestically.

Their secrecy about reserves is what makes me suspicious.

[RTFirefly]

@Sam Stone

And if the top 10 cars had their fuel economy jump from an average of 24 to 30, while the CAFE regulations stayed the same, tell me again why we need CAFE standards to force people to change?

So, what happened to the fuel economy of (a) all cars sold in 2006, compared to 2002, and more important, (b) all cars on the road in 2006 v. 2002?

Because that one little factoid may or may not be representative of the overall change in fuel economy during that time period.

[BrainGlutton]

@spoke-

The Saudis carry a lot of polical clout in the world, which is based entirely upon their geological good fortune. If it became known that their production had peaked and was on the decline, the Saudis would become much less important to the Americans, and the House of Saud would find itself in a much more precarious position domestically.

They would also be in danger of losing their position as the dominant member of OPEC. Iran or Venezuela might succeed to that role. Or even (if it ever stabilizes) Iraq – which probably, now, has more oil than SA (most of its known oilfields never having been exploited at all – for an explanation why see the OP in this thread).

[JohnT]

@spoke-

It seems to me that the most likely reason for the Saudis to maintain secrecy about reserves would be if the oil were playing out.

The Saudis carry a lot of polical clout in the world, which is based entirely upon their geological good fortune. If it became known that their production had peaked and was on the decline, the Saudis would become much less important to the Americans, and the House of Saud would find itself in a much more precarious position domestically.

Their secrecy about reserves is what makes me suspicious.

Seems to me the most likely reason for the Saudis to maintain secrecy about reserves is to promote the idea that oil is running out, regardless of the truth, therefore maintaining a rationale for higher-than-necessary prices.

[Spoke]

@JohnT

Seems to me the most likely reason for the Saudis to maintain secrecy about reserves is to promote the idea that oil is running out, regardless of the truth, therefore maintaining a rationale for higher-than-necessary prices.

Yeah, except the Saudis are not promoting that idea. Just the opposite:

Saudi Arabia has plenty of oil — more than the world is likely to need — along with an increasing ability to refine crude oil into gasoline and other products before selling it overseas, a top Saudi official says.

“The world is more likely to run out of uses for oil than Saudi Arabia is going to run out of oil,” Adel al-Jubeir, top foreign policy adviser for Saudi Arabia’s de facto ruler Crown Prince Abdullah, said Wednesday.

[BrainGlutton]

@spoke-

Yeah, except the Saudis are not promoting that idea. Just the opposite:

Believing the opposite of whatever the Saudis say on this point is probably a wiser rule than the reverse. (Not that those are necessarily our only two options – but when it comes to the level of remaining Saudi oil reserves, what else do we have to go on?)

[JohnT]

From the NYT, quoting Sadad al-Husseini, a retired executive from Aramco:

So whom to believe? Before leaving New York for Saudi Arabia, I was advised by several oil experts to try to interview Sadad al-Husseini, who retired last year after serving as Aramco’s top executive for exploration and production. I faxed him in Dhahran and received a surprisingly quick reply; he agreed to meet me. A week later, after I arrived in Riyadh, Husseini e-mailed me, asking when I would come to Dhahran; in a follow-up phone call, he offered to pick me up at the airport. He was, it seemed, eager to talk.

It can be argued that in a nation devoted to oil, Husseini knows more about it than anyone else. Born in Syria, Husseini was raised in Saudi Arabia, where his father was a government official whose family took on Saudi citizenship. Husseini earned a Ph.D. in geological sciences from Brown University in 1973 and went to work in Aramco’s exploration department, eventually rising to the highest position. Until his retirement last year – said to have been caused by a top-level dispute, the nature of which is the source of many rumors – Husseini was a member of the company’s board and its management committee. He is one of the most respected and accomplished oilmen in the world.

After meeting me at the cavernous airport that serves Dhahran, he drove me in his luxury sedan to the villa that houses his private office. As we entered, he pointed to an armoire that displayed a dozen or so vials of black liquid. ‘‘These are samples from oil fields I discovered,’’ he explained. Upstairs, there were even more vials, and he would have possessed more than that except, as he said, laughing, ‘‘I didn’t start collecting early enough.’’

We spoke for several hours. The message he delivered was clear: the world is heading for an oil shortage. His warning is quite different from the calming speeches that Naimi and other Saudis, along with senior American officials, deliver on an almost daily basis. Husseini explained that the need to produce more oil is coming from two directions. Most obviously, demand is rising; in recent years, global demand has increased by two million barrels a day. (Current daily consumption, remember, is about 84 million barrels a day.) Less obviously, oil producers deplete their reserves every time they pump out a barrel of oil. This means that merely to maintain their reserve base, they have to replace the oil they extract from declining fields. It’s the geological equivalent of running to stay in place. Husseini acknowledged that new fields are coming online, like offshore West Africa and the Caspian basin, but he said that their output isn’t big enough to offset this growing need.

‘‘You look at the globe and ask, ‘Where are the big increments?’ and there’s hardly anything but Saudi Arabia,’’ he said. ‘‘The kingdom and Ghawar field are not the problem. That misses the whole point. The problem is that you go from 79 million barrels a day in 2002 to 82.5 in 2003 to 84.5 in 2004. You’re leaping by two million to three million a year, and if you have to cover declines, that’s another four to five million.’’ In other words, if demand and depletion patterns continue, every year the world will need to open enough fields or wells to pump an additional six to eight million barrels a day – at least two million new barrels a day to meet the rising demand and at least four million to compensate for the declining production of existing fields. ‘‘That’s like a whole new Saudi Arabia every couple of years,’’ Husseini said. ‘‘It can’t be done indefinitely. It’s not sustainable.’’

Husseini speaks patiently, like a teacher who hopes someone is listening. He is in the enviable position of knowing what he talks about while having the freedom to speak openly about it. He did not disclose precise information about Saudi reserves or production – which remain the equivalent of state secrets – but he felt free to speak in generalities that were forthright, even when they conflicted with the reassuring statements of current Aramco officials. When I asked why he was willing to be so frank, he said it was because he sees a shortage ahead and wants to do what he can to avert it. I assumed that he would not be particularly distressed if his rivals in the Saudi oil establishment were embarrassed by his frankness.

Although Matthew Simmons says it is unlikely that the Saudis will be able to produce 12.5 million barrels a day or sustain output at that level for a significant period of time, Husseini says the target is realistic; he says that Simmons is wrong to state that Saudi Arabia has reached its peak. But 12.5 million is just an interim marker, as far as consuming nations are concerned, on the way to 15 million barrels a day and beyond – and that is the point at which Husseini says problems will arise.

So, technically, you’re correct - “peak oil” might not be the official position of the Saudi government… but they’re allowing their employees to sell the story.