Ordie
03-10-2008, 05:22 AM
Oil demand is drying up - slightly
David R. Baker, Chronicle Staff Writer (dbaker@sfchronicle.com)
Sunday, March 9, 2008
Oil costs more than at any time in history, gasoline prices are shattering records in California again and our president says we're addicted to petroleum.
So are we any closer to kicking the habit?
The answer appears to be yes.
It took soaring prices and the fear of global warming to accomplish, but society may finally have started the long process of weaning itself off of oil. Whether we stay on that path remains to be seen.
California is pushing hard to increase the use of alternative fuels. Within three years, the amount of ethanol blended into the gas Californians buy will rise by 66 percent, and the state is contemplating bigger increases. Last year's federal energy law mandated that production of renewable fuels must jump more than 500 percent by 2022. All three leading presidential candidates, Republican and Democrat, have called for capping the carbon dioxide emissions that come from burning fossil fuels such as oil.
Meanwhile, Silicon Valley entrepreneurs are racing to develop fuels and electric cars that consumers will want to buy, hoping to harness the power of the marketplace to effect change.
And believe it or not, Americans are buying less gasoline.
The drop is small at the national level - just 0.9 percent in the past month - but any decline is considered rare. Although the decrease just started elsewhere in the county, California's gasoline sales have been falling for about two years.
Whether the decline represents the temporary thrift of price-shocked drivers or the start of something larger won't be known for months or years. But taken together, these developments within the government, the business world and the public at large suggest a new determination to cut back on oil, if not replace it altogether.
"I have no question that we can - sustainably, without significant new land use - replace all our petroleum," said Silicon Valley investor Vinod Khosla. He has pumped money into developing cellulosic ethanol, which can be made from crop waste and wood chips rather than corn.
"It will be four years before the world believes we have a solution," he said. "Once the world believes it, then it will scale."
It may take decades
Many people in the energy world don't share his optimism. Some say oil can be replaced, but only after decades of effort. Others insist that alternative fuels will supplement oil but never replace it, at least not in our lifetimes.
"Actually replacing oil? I don't even know if that's even feasible," said Gordon Schremp, fuels specialist for the California Energy Commission.
On the corporate side of the ledger, the oil industry doesn't plan on disappearing.
Several oil companies, such as BP and Chevron, are exploring biofuels. But the industry insists that petroleum will remain vital to the economy for the foreseeable future.
"I think we're on a path to a more diverse fuel future," said Joe Sparano, president of the Western States Petroleum Association, an oil industry trade group. "And I think it's a good thing. And petroleum will for many, many decades be a cornerstone of that future."
America has started down this road before, only to lose interest when oil prices dropped. California, for example, tested the use of methanol as an alternative fuel in the 1980s and 1990s before finally folding the project.
"When we did that, we walked away from the oil-displacement opportunity that (methanol) could provide," said Peter Ward, a California Energy Commission policy adviser who worked on the program. "It was a step back, in that regard."
Make no mistake: The world's demand for oil remains enormous - about 85 million barrels per day. And it's growing, with China, India and the rest of the developing world consuming more each year.
The United States devours more than 20 million barrels per day, with almost half of that made into gasoline. American drivers burn about 141 billion gallons of gas every year. In California, it's close to 16 billion gallons per year.
But starting in March 2006, California gasoline sales began to slip.
The percentages were small - 1.2 percent in March, compared with the same month of 2005, and 1.6 percent in April - but they caught the attention of energy analysts. Gasoline sales usually rise about 2 percent every year, if for no other reason than population growth. Sales sometimes flat-line or dip during recessions, but California's economy in 2006 seemed strong.
Gas prices, however, were soaring. They reached $3.38 for a gallon of regular in mid-May of 2006, a record at the time.
How people cut back
Most people can't stop driving altogether. While the Bay Area has an extensive network of buses, ferries and trains, most Californians can't rely on mass transit. So how were they able to cut back?
Some found ways to combine errands and reduce the number of car trips they took each week. Those who could tried mass transit, with BART ridership growing 5.1 percent in 2006 and 4.8 percent in 2007.
Many people bought gas-sipping cars, including hybrids. Connie Berto and her husband, Frank, bought a Prius three years ago and now see so many near their San Anselmo home that she refers to them as "a pluribus of Pri-i." The Bertos get about 50 to 52 miles per gallon.
"I am an oil brat," she explained. "My father was with Standard Oil, my husband was with Chevron. We are committed to conserving our resources."
Hybrid car sales grew an average of 89 percent per year from 2001 through 2006, the last year for which the energy commission has complete data. But for all their popularity, hybrids still represented 0.6 percent of all the vehicles registered in California in 2006 - nowhere near enough to dent gasoline use.
A more likely explanation for the drop in gas sales may be that, rather than buying a new car, many Californians simply used the most efficient cars they already had. Most families own more than one vehicle, and when the price of gas rises, many leave the Yukon at home and drive the Civic.
Chris Murphy used to take his Land Rover to work at his warehousing and logistics business in Modesto. But as pump prices climbed, he shifted to driving his wife's Volkswagen Beetle. "When I picked up my clients, they'd say, 'Ooh, cool Beetle,' " Murphy said. "It never turned out to be a business problem."
Murphy has no intention of driving the SUV again for his commute or for errands around town, and it's easy to see why. The Land Rover costs $75 to fill up, the Beetle $42.
"I wouldn't go back," he said. "I'm not put out at all. The worst thing that could happen is for the fuel price to go down and everyone would want their GTO again."
Telecommuting helps
In addition, many Californians are working from home at least part of the time. This trend has been developing for years and can't explain a sudden drop in gasoline sales, but it may be reducing demand in the long term.
Lisa Fulker works from her Palo Alto home three or four days a week as a senior brand programs manager for Sun Microsystems. She first tried it in 1998, when she had two small children to care for, and says working from home saves her time that would have been spent getting dressed and commuting. Sun encourages telecommuting, with 55 percent of its 35,000 employees working outside the office on a regular basis.
"I pretty much don't go into the office unless I have a meeting where I want to be face-to-face with people," Fulker said. "It just doesn't make sense for me to drive 10 minutes to sit in an office by myself."
As unusual as the drop in California's gasoline sales may be, the overall amounts remain small.
According to the California Board of Equalization, the amount of gas sold in the state fell by 112.5 million gallons from 2005 to 2006. That sounds like a lot, but it's a decrease of just 0.7 percent. The board does not have complete data for 2007, but in the year's first 11 months, sales dropped 1.2 percent.
The sheer size of the gasoline market drives skepticism that oil can quickly be replaced, or even be replaced at all.
Ethanol and biodiesel are the only nonpetroleum fuels made in quantity in the United States. And while production of each has swelled in recent years, both remain tiny compared with America's demand for fuel. Biorefineries last year churned out 6.5 billion gallons of ethanol and 450 million gallons of biodiesel, according to the federal government. Lump those two together and they're still just 5 percent as large as America's annual gasoline consumption.
Biofuel advocates, however, aren't scared by the numbers. Instead, they see America's thirst for fuel as an immense business opportunity that will make some people very rich.
Khosla's finance company, Khosla Ventures, estimates that America could produce 5 billion gallons of cellulosic ethanol per year by 2015, 30 billion gallons by 2020 and 150 billion gallons by 2030. It could be done using forest waste and winter cover crops on active farmland, as well as rotating energy-producing crops with those used for food.
Ethanol quandary
Most ethanol in the Unites States comes from corn, and critics fear that increasing production will push food prices higher.
If Khosla is right, however, that stark choice between growing crops for food or fuel can be avoided. A cellulosic ethanol plant funded by his firm is under construction in Georgia and should begin production in 2009, making ethanol from wood scraps. "My bet is in the four- or five-year timeframe, you'll hear experts say oil would have to drop to $50 a barrel to compete with these nonfood crops," Khosla said.
Other entrepreneurs are designing a new generation of electric cars, or perfecting plug-in hybrids that run mostly on electricity. Although it takes years for a new type of engine to come into widespread use - witness the Prius - these people foresee a future in which American drivers rely mostly on the electric grid, not the gas or ethanol pump.
At the same time, they hope to increase the use of renewable sources of electricity, such as wind farms and large-scale solar plants, so the grid isn't powered entirely by natural gas or coal.
Whether any of these grand ideas pans out remains a huge question. Even if one or more succeeds, America will still be using oil for years to come, to make gasoline as well as countless industrial chemicals. But it is possible that the transition away from oil has begun.
"Short term, we're stuck with it because it's incredibly convenient and we've built a whole economic system to take advantage of that," said Daniel Kammen, a professor in the Energy and Resources Group at UC Berkeley. "I'm short-term pessimistic and long-term optimistic."
http://imgs.sfgate.com/c/pictures/2008/03/09/bu_oil_graphic.jpg
Source: http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2008/03/09/BU6QVEVD3.DTL&type=printable
David R. Baker, Chronicle Staff Writer (dbaker@sfchronicle.com)
Sunday, March 9, 2008
Oil costs more than at any time in history, gasoline prices are shattering records in California again and our president says we're addicted to petroleum.
So are we any closer to kicking the habit?
The answer appears to be yes.
It took soaring prices and the fear of global warming to accomplish, but society may finally have started the long process of weaning itself off of oil. Whether we stay on that path remains to be seen.
California is pushing hard to increase the use of alternative fuels. Within three years, the amount of ethanol blended into the gas Californians buy will rise by 66 percent, and the state is contemplating bigger increases. Last year's federal energy law mandated that production of renewable fuels must jump more than 500 percent by 2022. All three leading presidential candidates, Republican and Democrat, have called for capping the carbon dioxide emissions that come from burning fossil fuels such as oil.
Meanwhile, Silicon Valley entrepreneurs are racing to develop fuels and electric cars that consumers will want to buy, hoping to harness the power of the marketplace to effect change.
And believe it or not, Americans are buying less gasoline.
The drop is small at the national level - just 0.9 percent in the past month - but any decline is considered rare. Although the decrease just started elsewhere in the county, California's gasoline sales have been falling for about two years.
Whether the decline represents the temporary thrift of price-shocked drivers or the start of something larger won't be known for months or years. But taken together, these developments within the government, the business world and the public at large suggest a new determination to cut back on oil, if not replace it altogether.
"I have no question that we can - sustainably, without significant new land use - replace all our petroleum," said Silicon Valley investor Vinod Khosla. He has pumped money into developing cellulosic ethanol, which can be made from crop waste and wood chips rather than corn.
"It will be four years before the world believes we have a solution," he said. "Once the world believes it, then it will scale."
It may take decades
Many people in the energy world don't share his optimism. Some say oil can be replaced, but only after decades of effort. Others insist that alternative fuels will supplement oil but never replace it, at least not in our lifetimes.
"Actually replacing oil? I don't even know if that's even feasible," said Gordon Schremp, fuels specialist for the California Energy Commission.
On the corporate side of the ledger, the oil industry doesn't plan on disappearing.
Several oil companies, such as BP and Chevron, are exploring biofuels. But the industry insists that petroleum will remain vital to the economy for the foreseeable future.
"I think we're on a path to a more diverse fuel future," said Joe Sparano, president of the Western States Petroleum Association, an oil industry trade group. "And I think it's a good thing. And petroleum will for many, many decades be a cornerstone of that future."
America has started down this road before, only to lose interest when oil prices dropped. California, for example, tested the use of methanol as an alternative fuel in the 1980s and 1990s before finally folding the project.
"When we did that, we walked away from the oil-displacement opportunity that (methanol) could provide," said Peter Ward, a California Energy Commission policy adviser who worked on the program. "It was a step back, in that regard."
Make no mistake: The world's demand for oil remains enormous - about 85 million barrels per day. And it's growing, with China, India and the rest of the developing world consuming more each year.
The United States devours more than 20 million barrels per day, with almost half of that made into gasoline. American drivers burn about 141 billion gallons of gas every year. In California, it's close to 16 billion gallons per year.
But starting in March 2006, California gasoline sales began to slip.
The percentages were small - 1.2 percent in March, compared with the same month of 2005, and 1.6 percent in April - but they caught the attention of energy analysts. Gasoline sales usually rise about 2 percent every year, if for no other reason than population growth. Sales sometimes flat-line or dip during recessions, but California's economy in 2006 seemed strong.
Gas prices, however, were soaring. They reached $3.38 for a gallon of regular in mid-May of 2006, a record at the time.
How people cut back
Most people can't stop driving altogether. While the Bay Area has an extensive network of buses, ferries and trains, most Californians can't rely on mass transit. So how were they able to cut back?
Some found ways to combine errands and reduce the number of car trips they took each week. Those who could tried mass transit, with BART ridership growing 5.1 percent in 2006 and 4.8 percent in 2007.
Many people bought gas-sipping cars, including hybrids. Connie Berto and her husband, Frank, bought a Prius three years ago and now see so many near their San Anselmo home that she refers to them as "a pluribus of Pri-i." The Bertos get about 50 to 52 miles per gallon.
"I am an oil brat," she explained. "My father was with Standard Oil, my husband was with Chevron. We are committed to conserving our resources."
Hybrid car sales grew an average of 89 percent per year from 2001 through 2006, the last year for which the energy commission has complete data. But for all their popularity, hybrids still represented 0.6 percent of all the vehicles registered in California in 2006 - nowhere near enough to dent gasoline use.
A more likely explanation for the drop in gas sales may be that, rather than buying a new car, many Californians simply used the most efficient cars they already had. Most families own more than one vehicle, and when the price of gas rises, many leave the Yukon at home and drive the Civic.
Chris Murphy used to take his Land Rover to work at his warehousing and logistics business in Modesto. But as pump prices climbed, he shifted to driving his wife's Volkswagen Beetle. "When I picked up my clients, they'd say, 'Ooh, cool Beetle,' " Murphy said. "It never turned out to be a business problem."
Murphy has no intention of driving the SUV again for his commute or for errands around town, and it's easy to see why. The Land Rover costs $75 to fill up, the Beetle $42.
"I wouldn't go back," he said. "I'm not put out at all. The worst thing that could happen is for the fuel price to go down and everyone would want their GTO again."
Telecommuting helps
In addition, many Californians are working from home at least part of the time. This trend has been developing for years and can't explain a sudden drop in gasoline sales, but it may be reducing demand in the long term.
Lisa Fulker works from her Palo Alto home three or four days a week as a senior brand programs manager for Sun Microsystems. She first tried it in 1998, when she had two small children to care for, and says working from home saves her time that would have been spent getting dressed and commuting. Sun encourages telecommuting, with 55 percent of its 35,000 employees working outside the office on a regular basis.
"I pretty much don't go into the office unless I have a meeting where I want to be face-to-face with people," Fulker said. "It just doesn't make sense for me to drive 10 minutes to sit in an office by myself."
As unusual as the drop in California's gasoline sales may be, the overall amounts remain small.
According to the California Board of Equalization, the amount of gas sold in the state fell by 112.5 million gallons from 2005 to 2006. That sounds like a lot, but it's a decrease of just 0.7 percent. The board does not have complete data for 2007, but in the year's first 11 months, sales dropped 1.2 percent.
The sheer size of the gasoline market drives skepticism that oil can quickly be replaced, or even be replaced at all.
Ethanol and biodiesel are the only nonpetroleum fuels made in quantity in the United States. And while production of each has swelled in recent years, both remain tiny compared with America's demand for fuel. Biorefineries last year churned out 6.5 billion gallons of ethanol and 450 million gallons of biodiesel, according to the federal government. Lump those two together and they're still just 5 percent as large as America's annual gasoline consumption.
Biofuel advocates, however, aren't scared by the numbers. Instead, they see America's thirst for fuel as an immense business opportunity that will make some people very rich.
Khosla's finance company, Khosla Ventures, estimates that America could produce 5 billion gallons of cellulosic ethanol per year by 2015, 30 billion gallons by 2020 and 150 billion gallons by 2030. It could be done using forest waste and winter cover crops on active farmland, as well as rotating energy-producing crops with those used for food.
Ethanol quandary
Most ethanol in the Unites States comes from corn, and critics fear that increasing production will push food prices higher.
If Khosla is right, however, that stark choice between growing crops for food or fuel can be avoided. A cellulosic ethanol plant funded by his firm is under construction in Georgia and should begin production in 2009, making ethanol from wood scraps. "My bet is in the four- or five-year timeframe, you'll hear experts say oil would have to drop to $50 a barrel to compete with these nonfood crops," Khosla said.
Other entrepreneurs are designing a new generation of electric cars, or perfecting plug-in hybrids that run mostly on electricity. Although it takes years for a new type of engine to come into widespread use - witness the Prius - these people foresee a future in which American drivers rely mostly on the electric grid, not the gas or ethanol pump.
At the same time, they hope to increase the use of renewable sources of electricity, such as wind farms and large-scale solar plants, so the grid isn't powered entirely by natural gas or coal.
Whether any of these grand ideas pans out remains a huge question. Even if one or more succeeds, America will still be using oil for years to come, to make gasoline as well as countless industrial chemicals. But it is possible that the transition away from oil has begun.
"Short term, we're stuck with it because it's incredibly convenient and we've built a whole economic system to take advantage of that," said Daniel Kammen, a professor in the Energy and Resources Group at UC Berkeley. "I'm short-term pessimistic and long-term optimistic."
http://imgs.sfgate.com/c/pictures/2008/03/09/bu_oil_graphic.jpg
Source: http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2008/03/09/BU6QVEVD3.DTL&type=printable