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Countdown to $100 oil (34) - Oil major CEO calls for demand reduction

by Jerome a Paris Mon Oct 16th, 2006 at 08:45:47 AM EST

To extend the age of oil, we must save fuel now

By Paolo Scaroni, CEO of ENI

One of the most common explanations advanced in the west for the current squeeze on energy supplies - and for why prices are still so high even after the recent decline - is that China is using up our oil.


It is the west's consumption, along with sustained under-investment in energy infrastructure during the 1990s, that has really pushed prices up.

The paradox is that, while on the one hand we complain about high oil prices, on the other we pursue energy policies that are wholly irrational.

This introduction (from which I just cut out a few statistics about Chinese oil consumption compared to ours) makes several excellent points:

  • it notes the sense of entitlement we feel about access to oil (get the Chinese hands off of "our oil")
  • it is our consumption which is the problem
  • and sadly, public policy makes things worse

These will not come as a surprise to the readers of this series (although the impact of China on demand increase in recent years is a lot bigger than its share of global demand, and is thus probably underestimated in this article), but it is quite something else to see a major player of the industry say these things loudly.

(And just in case you're not familiar with it, ENI is not a small player. With a production of 1.8 mb/d, it is half the size of ExxonMobil or BP and is in the top ten of non-State-owned oil companies worldwide)

With oil four times as expensive as it was in 2001, one might expect consumers to have changed their behaviour accordingly. One might also expect politicians to have intervened to curb demand. But neither of those things has happened.

Again, this is a point I've been making ad nauseam: the recent price increases have barely caused a dent in our patterns of consumption and, apart for populist calls against "gouging" oil companies, little policy has been brought forward.

Look at the US, where oil demand keeps rising. Indeed, one out of every two cars sold there in the past five years was an SUV or a light truck - petrol-guzzling monsters that do only 3km or 4km per litre.

As a result, American cars average only 7km per litre of petrol. In Europe, things look a bit better, with cars averaging about 13km per litre. If it were possible to convince Americans to buy the same cars as Europeans, we could save 4m barrels a day - equivalent to the oil production of Iran, the world's third-largest oil exporter.

Again, this is worth repeating again and again: the MPG of cars currently manufactured is no better than it was 20 years ago, and the average MPG of vehicles sold is actually gettign worse as the share of SUVS (which have a lower MPG than cars) has steadily increased.

4mb/d is 20% of US oil consumption. Just from using EXISTING technology, already on the roads of Europe or Asia.

But why should we settle for cars that cover only 13km with one litre? Nowadays, there are comfortable cars that run for 20km on one litre of petrol.

If all the cars in the US, Canada, Europe, Japan and Australia were this efficient, we could save 10m b/d. That is equal to all of the oil produced by Saudi Arabia, the world's largest oil producer, and is more than the total consumption of China and India together.

That's 12% of world demand. Just by switching our cars to again, existing models with existing technology. Oh sure, these cars are smaller than those most Americans drive, but (i) are huge cars really indispensable to most drivers? and (ii) what prevents car manufacturers from producing large cars with better MPG?

Reality suggests that most drivers care little about MPG and would rather have the large cars they think they need.

And note, as the author rightly points out, this is not just an American issue. Europeans, after a long period of rising prices thanks to steadily rising taxes, are increasingly buying larger cars nowadays as the impact of more expensive gas fades. The experience of Europe is that it is only via perpetually rising prices that people switch to more fuel-efficient cars. People get used to higher gas prices surprisingly quickly.

Inefficient cars are not the west's only folly. Another is excessive temperature control. People like to keep their homes tropical in winter, while restaurants are frozen in summer. The US uses up far more energy on heating and air-conditioning than Europe does.

Just think. If rich countries used readily available, fuel-efficient cars and Americans adopted European standards for heating and air-conditioning, we could save 15m b/d. That is roughly 20 per cent of global consumption.

I'm sure many of you will retort that weather is much less bearable in many parts of the USA than it is in Europe, but the main point stands: how much of that freezing airconditioned air in the summer or that stifling heat in the summer is needed?

And these are just low-hanging fruit in our energy consumption patterns.

In spite of this, western consumers clearly do not feel that changing their behaviour is a priority. One explanation is that, even at nearly $60 a barrel, oil may not be expensive for the western consumer.

By way of comparison, if for any reason you wanted to buy a barrel of Coca-Cola or lemonade, you would pay more than twice the price of a top-quality barrel of Brent crude from the North Sea.

Yep. always worth mentioning. Oil is still a lot cheaper than bottled drinks.

But even if consumers are not feeling the pain from oil prices, there are still some very good reasons for industrialised countries to implement sensible energy policies and reduce waste.

The first is that, while wealthy SUV drivers may not mind paying a few dollars more on their petrol bill, they are actually keeping prices high for everyone else, too - including for those in poorer countries who rely on petrol for heating, transport and to earn their livelihoods.

The efficient use of oil is also the best way to protect the environment. By using less oil we will also reduce the emission of greenhouse gases into the atmosphere.

It's quite notable to see the CEO of a large company denigrate the product it sells and note the adverse affects og high prices for it...

While there is still plenty of oil underground, oil reserves are not infinite. Even including all the unconventional oil from Canada and Venezuela, reserves are expected to last only 70 years. That means that the children of today's young couples will live in a world without hydrocarbons.

It's quite hard to know exactly what he means by "lasting". Does he count the period of decline in that period? From his last sentence (a world without hydrocarbons), it would appear so, and that would implicitly put peak oil in the near future (no more than 20 years) even if he carefully skirts the issue.

But the point remains: even in the best circumstances (here, full exploitation of the heavy oils of Canada and Venezuela, something unlikely to ever happen considering how polluting and energy-intensive it is), our children will know a world without oil - and many of us will know a world with scarce oil.

Thus public policy has to plan for this. RIGHT NOW.

The great hope is that we will have found alternative energy sources by the time oil runs out. But in the meantime, we should focus on extending the hydrocarbon era for as long as possible, in order to ensure a smooth transition. This is our challenge for the future.

Yes, we have to plan the transition. How much more explicit do the warning signs need to be?

Earlier "Countdown Diaries":
Countdown to $100 oil (33) - stagnant demand in the West. Is it enough?
Countdown to $100 oil (32) - peak oil is, like, so over. Not!
Countdown to $100 oil (31) - $15 oil? The cornucopians are fighting back
Countdown to $100 oil (30) - senior politico fears looming oil wars
Countdown to $100 oil (29) - Alaska joins axis of evil (unreliable oil suppliers)
Countdown to $100 oil (28) - New records suggest more to come
Countdown to $100 oil (27) - 'Mission Accomplished' - High oil prices are here to stay
Countdown to $100 oil (26) - Time to bet again (eurotrib)
Countdown to $100 oil (26) - Time to bet again (dKos)
Countdown to $100 oil (25) - Iran vows that oil prices will not go down
Countdown to $100 oil (24) - What markets are telling us about future energy prices
Countdown to $100 oil (23) - Running out of natural gas in North America
Countdown to 100$ oil (22) - gas shortages in the UK - 240$/boe
Countdown to $100 oil (21A) - The 4 biggest oil fields in the world are in decline
Countdown to 100$ oil (21bis) - long term vs short term worries (dKos)
Countdown to 100$ oil (21) - 8-page extravaganza in the Independent: 'we're doomed'
Countdown to 100$ oil (20) - Meteor Blades is Da Man in 2005
Countdown to 100$ oil (19) - Your bets for 2006 (Eurotrib)
Countdown to 100$ oil (19) - Your bets for 2006 (DailyKos)
Countdown to 100$ oil (18) - OPEC happy with oil above 50$
Countdown to 100$ oil (17) - Does it matter politically? A naked appeal for your support
Countdown to 100$ oil (16) - We'll know on Monday
Countdown to 100$ oil (15) - the impact on your electricity bill
Countdown to 100$ oil (14) - Greenspan acknoweldges peak oil
Countdown to 100$ oil (13) - Katrina strikes / refinery crisis
Countdown to 100$ oil (12) - Al-Qaeda, oil and Asian financial centers
Countdown to 100$ oil (11) - it's Greenspan's fault!
Countdown to 100$ oil (10) - Simmons says 300$ soon - and more
Countdown to 100$ oil (9) - I am taking bets (eurotrib)
Countdown to 100$ oil (9) - I am taking bets (dKos)
Countdown to 100$ oil (8) - just raw data
Countdown to 100$ oil (7) - a smart solution: the bike
Countdown to 100$ oil (6) - and the loser is ... Africa
Countdown to 100$ oil (5) - OPEC inexorably raises floor price
Countdown to 100$ oil (4) - WSJ wingnuts vs China
Countdown to 100$ oil (3) - industry is beginning to suffer
Countdown to 100$ oil (2) - the views of the elites on peak oil
Countdown to 100$ oil (1) (eurotrib)
Countdown to 100$ oil (1) (dKos)


The usual: recommends, comments, questions welcome!

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Mon Oct 16th, 2006 at 08:59:31 AM EST
BTW, Kash from Angry Bear has a new blog and talks about oil prices.
by Laurent GUERBY on Mon Oct 16th, 2006 at 06:49:02 PM EST
[ Parent ]
Europeans, after a long period of rising prices thanks to steadily rising taxes, are increasingly buying larger cars nowadays as the impact of more expensive gas fades.

When I lived in California, it was my impression that many smokers felt shamed into giving up, or at least hiding and denying, their smoking habit.  I remember seeing one woman smoking by a fountain once, and instantly feeling disgusted and offended by her "behavior" (and then being startled by own indignation -- she was the first person I saw smoking outside in many months.)

If the same shameful image could be associated with oversized vehicles that serve no purpose except to be fashionable and flaunt one's wealth, eventually it might become socially and politically acceptable to legislate such cars into highly restricted and controlled usage, the same way legislation is steadily restricting the usage of cigarettes.

Truth unfolds in time through a communal process.

by marco on Mon Oct 16th, 2006 at 09:51:13 AM EST
Would definitely be nice.

The problem (or one problem) is that the perception of what constitutes a large vehicle in the US is... broken. Even when driving a typical American station wagon or sedan, you are apt feel boxed in by the high-riding SUVs. Definitely not for the claustrophobic.

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman

by dvx (dvx.clt št gmail dotcom) on Mon Oct 16th, 2006 at 11:08:43 AM EST
[ Parent ]
It's also complicated by the fact that for some people, a larger sized vehicle is not only appropriate but necessary, for large familes, for work, etc.  Also, some larger-sized vehicles may get significantly better mileage than others.  (After putting a lot of thought into it, my father bought a Volkswagen Vanagon shortly after my brother -- the last of four kids -- was born in the early 80s.  It seems it got fairly good mileage.)  If sheer size is used as a rule of thumb for sizing up the fuel efficiency of vehicles on the road (or conversely, wreckless consumption of their drivers), those distinctions will be overlooked.

Truth unfolds in time through a communal process.
by marco on Mon Oct 16th, 2006 at 07:49:49 PM EST
[ Parent ]
a larger sized vehicle is not only appropriate but necessary, for large familes, for work, etc  

Well, yes, but isn't that why they invented minivans? In most of the US there is no good reason for anyone to own an SUV.  And the off-road capabilities just aren't needed on the freeway, where these monsters spend almost all of their time.  

The Fates are kind.

by Gaianne on Mon Oct 16th, 2006 at 10:39:23 PM EST
[ Parent ]
You mean like this?
WARNING: Shameful pictures and colourful language!
by Digitking on Mon Oct 16th, 2006 at 03:19:49 PM EST
[ Parent ]
Actually, that brings up another possible problem with this approach:  ROAD RAGE.  If you see someone smoking, or if someone's cigarette smoke stinks up your meal in a restaurant, you can make a comment or expression to indicate to the smoker your displeasure and disapproval.  However, rarely will that result in a hostile (much less, violent) confrontation.

If people start taking out their feelings on big-sized gas-guzzlers on the road, I think it would be much more likely to result in much more violent -- and tragic -- confrontations.

Truth unfolds in time through a communal process.

by marco on Mon Oct 16th, 2006 at 07:53:15 PM EST
[ Parent ]
   The end might be noble, but I think this is the worst way to reach it. I agree that there is a place for decency in the society, but making laws based on what a majority deems "shameless" is a characteristic of the past centuries which I am glad we have somewhat get rid of. So I think that trying to make "politically acceptable" a ban via the use of morality is alike opening Pandora's Box.
   Secondly, flaunting one's wealth is a quite innate and resistant human characteristic and all the smptuary laws   and all the monuments of literature written against it have succeeded little.
by Deni on Mon Oct 16th, 2006 at 07:14:09 PM EST
[ Parent ]
I wonder if fur sales have dropped significantly since since animal rights groups have started campaigns to ruin fur's image.  I agree it is going too far to single out and blackmark people who wear it.  But perhaps it is a slippery slope that would lead to a greater evil than the one it is trying to curtail.

Nevertheless, it still just blows my mind when I see teenagers and people in their twenties driving massive Porsche and BMW SUVs -- with no one else in the car!  I guess I need to remind myself these are an extreme minority, and maybe cultivating mass shame against SUV-drivers might be overkill to deal with these outliers.

Truth unfolds in time through a communal process.

by marco on Mon Oct 16th, 2006 at 08:10:02 PM EST
[ Parent ]
EIA updates US 2005 petroleum demand - from decline to gain.

Demand destruction, schmeland destruction.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Mon Oct 16th, 2006 at 12:22:54 PM EST
in republican speak, a decrease in demand growth is a decrease in demand.

$2.50 gas is still cheap no matter who is whining.

by HiD on Tue Oct 17th, 2006 at 01:50:53 AM EST
[ Parent ]
However, the flaw in the argument is the demand for a public policy to manage demand. That might seem rational in europe, but sadly in the Anglo-Saxon Imperium Govt has abdicated all responsibility for such managment. Such appetites are considered to be as controllable as the tide; we can forecast it but you don't get in its way.

In the UK Blair considers the idea of air fuel tax to reduce demand for air travel be a ludicrous socialist madness, a vote-losing tax on working class holidays.

Other ideas such as changing building regulations to make them energy efficient wither on the vine of untouchable concepts.

Ridiculous. But this is the country that concentrates the creation of employment and housing in the only part of the country with no rainfall. So the drinking water is running out and the fields are all being built on.

So preparing for the end of cheap energy is never gonna happen.

keep to the Fen Causeway

by Helen (lareinagal at yahoo dot co dot uk) on Mon Oct 16th, 2006 at 04:21:32 PM EST

A lot of the problem is that it takes years for demand destruction to happen.  A car has an engineering lifetime of about 15 years or so - even if all new cars got substantially higher fuel economy, the effects in terms of the amount consumed wouldn't appear to change much.

Even longer term would be the question of family size.  You hear people who have those big SUVs whine about how they need the thing to haul around their large families.  One might argue that having a large family is perhaps a problem in itself, but once you have the kids there isn't really any going back.  It won't be until the kids grow up and move out of the house that the parents would finally be in a position to do this.

by ericy on Mon Oct 16th, 2006 at 08:06:45 PM EST
Carpooling with a 20 MPG car turns it into a 40 MPG car. Jack the price of gas up to $10 per gallon and there will be lots of carpooling...
by asdf on Mon Oct 16th, 2006 at 09:05:40 PM EST
[ Parent ]
absolutely. Just allowing telecommuting a day or two a week would result in far less use of gas. America's extreme energy waste means there is a lot of "low hanging fruit" solutions that will slow the pain on the way down the oil production curve.

you are the media you consume.

by MillMan (millguy at gmail) on Tue Oct 17th, 2006 at 12:07:09 AM EST
[ Parent ]
people had big families long before there were personal buses available to ferry them around.  this is just another rationalization for using a Winnebago as a personal vehicle.  

Not to mention there's no reason you have to get 12 MPG with the monster car.  A friend has a Mercedes 8 passenger bus for his biz.  Gets 22-23 MPG.  (Diesel)

by HiD on Tue Oct 17th, 2006 at 01:59:46 AM EST
[ Parent ]

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