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Right now even modest steps taken to use less gasoline and diesel would have a big impact on prices.
With or without formal sanctions, oil buyers are shunning Russian crude, unwilling to buy from Russia even at a considerable discount. Russia is the world’s second biggest oil exporter, so any change in Russian production is a major disruption to the global crude oil market.
As a result, crude oil prices are above $110 per barrel, almost twice as high as one year ago. In the U.S., Canada, and elsewhere, producers are ramping up production, but it could take months for these new investments to come online.
Much has been written about the potential for electric vehicles to decrease global oil consumption. Over a longer time horizon, electric vehicles probably represent the best opportunity for substantial reductions in oil consumption. But in the short run, supply chain shortages and outrageous markups make it difficult to get your hands on a shiny new EV.
What we need right now are more immediate solutions. In today’s blog, I want to talk about some small actions that can be taken right now to decrease consumption of gasoline, diesel, and jet fuel. The global oil market is extremely tight right now, so even modest steps taken to reduce demand would have a big impact on the global supply-demand balance.
How Big is the Shock?
There is no question that Russia plays a major role in global oil markets. Before the crisis, Russia exported 5 million barrels per day. The IEA estimates that as much as 3 million barrels per day could be shut in as sanctions continue to take hold.
This is a large supply shock. According to a recent report from the Dallas Fed, this is “one of the largest supply shortfalls since the 1970s”. The report is pessimistic about the ability and willingness of other oil producers to increase output in the short-run, and points out that the U.S. Strategic Petroleum Reserve and other reserves are insufficient to compensate for a prolonged shortfall.
Essentially, the problem is that there is a short-run supply constraint. Given this lack of flexibility on the supply side, the demand side becomes much more important. Global oil demand is about 100 million barrels per day, so the lost barrels amount to about 3% of the global market. It won’t be easy, but what this means is that even a 1% or 2% decrease in global oil demand could substantially improve the current supply-demand imbalance.
Take driving speed for example. On the freeway, reducing your speed by 5 to 10 miles-per-hour can improve fuel economy by 7%-14%. The IEA calculates that slower driving in high-income countries could save 0.4 million barrels per day. The IEA envisions this happening through lower speed limits but, of course, voluntary restraint could play a big role too.
Even better, how about switching to public transportation, walking and cycling? Yes, I know, the classic joke about public transportation is that everyone is in favor of everyone else taking public transportation. But if there were ever a time to leave the private vehicle at home, it is now. The IEA calculates that short-term substitution toward greener transportation modes in high-income countries could save 0.3 million barrels per day.
While you’re at it, don’t forget about carpooling. The IEA calculates that a 50% increase in average vehicle occupancy across 1-in-10 trips in high-income countries, combined with regular tire pressure monitoring– which can improve fuel economy by up to 3% – could save 0.5 million barrels per day.
This is already 1.2 million barrels per day. And I haven’t said anything about taking *fewer* vehicle trips, or *fewer* flights, or *fewer* Amazon deliveries. If you are a household with multiple vehicles, you can also make sure the person driving more is using the more fuel-efficient vehicle.
The recent IEA report “A 10-Point Plan to Cut Oil Use”, describes ten ideas for immediate actions in advanced economies that, according to their estimates, could reduce global oil demand by 2.7 million barrels per day.
Putin’s war has reminded me how deeply connected we all are. Part of the connection is through energy markets, which affect and are affected by every part of the conflict. From the growing flows of natural gas to Europe, to surging European coal prices, to the global market for uranium, there are so many ways we are connected through energy.
The global oil market is a particularly stark example. Until greater supplies come online, there is basically a fixed amount of oil for the entire planet, so every gallon that we can save is another gallon that can be used to help the people most directly impacted by the conflict in Europe.
We can do this!
Keep up with Energy Institute blogs, research, and events on Twitter @energyathaas.
Suggested citation: Davis, Lucas. “Small Actions Matter for Reducing Oil Consumption” Energy Institute Blog, UC Berkeley, March 28 2022, https://energyathaas.wordpress.com/2022/03/28/small-actions-matter-for-reducing-oil-consumption/
carbon pricing, energy efficiency, featured, gasoline, transportation
Lucas Davis is the Jeffrey A. Jacobs Distinguished Professor in Business and Technology at the Haas School of Business at the University of California, Berkeley. He is a Faculty Affiliate at the Energy Institute at Haas, a coeditor at the American Economic Journal: Economic Policy, and a Research Associate at the National Bureau of Economic Research. He received a BA from Amherst College and a PhD in Economics from the University of Wisconsin. His research focuses on energy and environmental markets, and in particular, on electricity and natural gas regulation, pricing in competitive and non-competitive markets, and the economic and business impacts of environmental policy.
Is this really true? “Over a longer time horizon, electric vehicles probably represent the best opportunity for substantial reductions in oil consumption.”
“ask oil companies about how they would deal with a demand slate stripped of it gasoline fraction, given that that is about the only fraction being targeted by electrification. Chevron’s answer was fairly simple: “It’s our profit center so we’d probably close the refinery” (thus no oil products).”
“Asphalt is one thing, but imagine a billion EVs on the road without high-performance lubricants (or any of the millions of pieces of machinery in the world that have moving parts). There’s simply no substitute as yet for high-performance petroleum-based lubricants that can deal withstand high temperatures and heat without degrading or decomposing. The plant-based stuff that you can use on bicycles won’t cut it.”
There is an increasing demand for energy. Its ok for oil companies to stop production where its not needed. Price will determine if a refinery stays open or not. Hopefully the oil companies will start making CO2 free energy.
Biden solution- back to sweaters and 55mph days (permanently?).
Roof racks were responsible for about 0.8‰ of light duty vehicle fuel consumption in 2015, corresponding to 100 million gallons of gasoline per year. Most of the fuel consumption is caused by >empty< racks. Let's make driving around with empty bike and ski racks unpatriotic. At the same time, let's redesign the racks so that they are easier to mount and remove.
(Source: Chen, Yuche, and Alan Meier. “Fuel Consumption Impacts of Auto Roof Racks.” Energy Policy 92 (May 2016): 325–33. https://doi.org/10.1016/j.enpol.2016.02.031.)
Whenever there is talk of EVs my elitism sensors are activated. I wonder how many would have got teslas without the tax credit.
The TRUE early adopters are the Prius and LEAF drivers. I have an aftermarket gadget in my older car: it shows that on relatively flat parts of 101 I get 25 at 70mph and ~32 mpg at 65 mph. My other newer car larger engine heavier vehicle does 33mpg at 70mph and 38 at 65mph.
There are still a lot of ICE improvements that can be made to go to 45/50 mpg.
Comparing ONLY the fuel/ energy efficiency is narrow; we should be showing FULL life cycle impact. Battery materials extraction and EiL disposal are no small matter.
And finally a political comment: is this any more Putin’s war than the Iraq/ Afghanistan invasions were Bush’s wars?
I don’t recall any Tesla batteries being replaced in the various tesla groups I have been in for a few years. Their mileage drops some but then they plateau. My 330 miles has dropped to 280 and is steady at that level. There has been a tesla that has over 500 k miles on it. I have an old battery out of a Volt I use with my solar inverter. As long at these batteries have some use they will be recycled in the used battery market. It might be a big problem in the future but at this point its not a problem. If you look at the life cycle cost of ICE cars and EVs the two aren’t that much different in life cost. I’ve never had maintenance cost since Ive never had maintenance on my tesla which is now 3.5 years old with 21k miles on it. I asked tesla when do I need to bring it in and they said when something breaks. I did have a service call when the 12 volt battery went out but tesla showed up at my door with a new battery and put it in under warranty at no cost.
You’re right on “FULL life cycle” in that we must also consider the deleterious affects like air pollution and the health problems it causes. Oh and there’s that pesky existential threat, what was that called again? “Diaper Change?
And a political rebuttal, I have to agree with you again. Yup Putin started Ukraine and Bush unnecessarily invaded Iraq.
“Over a longer time horizon, electric vehicles probably represent the best opportunity for substantial reductions in oil consumption. But in the short run, supply chain shortages and outrageous markups make it difficult to get your hands on a shiny new EV.”
Your statement highlights inherent contractions that are difficult to resolve. Over the long run, intermittent resources like solar and wind are not feasible and cannot provide the energy necessary to support massive deployments of EV’s. In fact, in the long run massive deployment of solar and wind will require more fossil fuel use for mining and manufacturing than any short run conservation efforts may produce. If the long run objective is to reduce fossil fuel use while also providing a reliable source of energy efforts should focus on expediting the use of the most environmental and safe nuclear and hydro resources. Finally, energy policy must also consider world wide strategic factors like those now evidenced in Europe. Ignore the strategic factors and carbon reduction, solar, wind, and Ev’s become meaningless.
Lucas – In view of the profound sea change in global security, emphasized most emphatically by President Biden in his Warsaw address last week, I’d like to suggest an adjustment at EnergyHaas. From Canada’s perspective, our government would like to see Continental Energy Security receive some attention. Perhaps this is something you and I could address together. Let me know if you are interested.
Hi Lucas, I’ve been thinking along the same lines. Here is my draft Op Ed. I have a spread-sheet of data to support the numbers if you are interested:
An Energy Victory Garden
The coverage of President Biden’s recent trip to Europe misses a key opportunity for the US to support resistance to Russian war on Ukraine. An effective and strategic response is important American due to our horror at human suffering caused by the invasion, combined with concern over dramatic increases in world-market-linked prices for oil and natural gas (“gas”). The price rise is especially hard on low-income people, and hurts jobs in business and industry. Plans to halt Russian oil imports leaves a 3-7% gap in US oil supply, driving prices higher. When the price of oil stays above $114/barrel, the US goes into or approaches recession. It’s above that now and could go higher.
The crisis won’t be over soon and could escalate. Combat stalemate on the ground may prompt Putin to attack US and NATO military equipment and humanitarian supply-lines. We are one stray artillery shell away from a nuclear plant meltdown that spreads radiation across Europe. These events, and rising deaths of women and children in Ukraine, may drive European countries to intervene militarily. This will get worse before it gets better.
So, what can Americans do now? Americans can help by using less oil and gas, freeing-up more to export to Europe. This will reduce our own vulnerability to high fossil fuel prices and moderate inflation. Using less is far more practical than proposals to expand US gas export and production capacity. That simply takes too long and would be a ticking-time-bomb for investors who will face stranded assets well before the 30-year infrastructure debt is paid off. We can increase LNG exports without new infrastructure by tapping American good will and the many ways to cut domestic gas demand.
This would complement similar efforts in the EU. On March 14th the International Energy Agency said fossil fuel demand cuts are a key strategy to respond to the Russian invasion. For example, turning down the thermostat for building heat in Europe by 1 degree centigrade would reduce gas demand by 10 billion cubic meters/year (BCF). (7% of Russian gas imports). The EU plans to use this as one of several strategies to cut year-end EU Russian gas imports by 2/3rds. But they need help with the rest.
A 10% reduction in gas and electricity use in US residential and commercial buildings will save enough gas to displace 24% of the gas Russia annually supplies to Europe (about 24.3 BCF). Similarly, lower transportation fuel use would reduce or eliminate price effects of blocking Russian oil imports to the US.
Can this be done? Think of this as a modern day “victory garden,” as used by Americans “on the home front” during WWII to support efforts to resist Nazi aggression in Europe. A 10% cut in home and business energy use will create no hardship and will reduce electricity, gas and vehicle fuel bills.
Can a conservation-derived gas surplus be delivered to the EU? Yes. EU has unused LNG import capacity and there is spare tanker capacity. The US dramatically increased LNG exports to EU in the past few months. Tapping the conservation impulse at home and work can make sure that continues.
Does this mean every household and business has to cut electricity and gas demand by 10%? No. Low-income households, and pandemic-stressed businesses have already reduced usage. But if others cut their gas/oil use we can reduce average demand 10%. Many businesses are poised to invest in wind, solar, battery and heat-pump technologies to reduce demand for gas in power generation and buildings.
Why should we help Europeans? Gas export revenues feed Putin’s war machine and the human suffering that follows. This crisis will repeat until Putin runs out of oil and gas revenues to finance aggression.
So, if you have the urge to poke a finger in Putin’s eye, and the hole in your wallet:
• Turn down the thermostat on gas-fired furnaces and gas or electric water heaters;
• Drive less, walk more, use mass transit;
• Conserve water to indirectly reduce electricity and gas demand;
• Raise the thermostat on air conditioning and shift its use off peak;
• Buy electric cars/trucks, solar/battery systems and heat-pumps for homes and businesses;
• Support policies to reduce methane leaks from oil/gas wells and pipelines; and,
• Support tax credits for wind/solar investment and other federal investments in clean energy.
Remember, the Russian people did not cause this crisis. Many Russian soldiers were hoodwinked or forced to invade Ukraine. We must come out of this with less hate and less dependence on fossil fuel.
Goldman School of Public Policy
University of California, Berkeley
Lecturer & Environmental Center Director
2607 Hearst Avenue
Berkeley, CA 94720
I agree. I charge my Tesla Model 3 off solar power so no energy is coming from either gasoline or the grid. The max power of these panels is L1 charging from the 1.8 kW solar. see https://egpreston.com/solarpanels.jpg This is a great way to get off fossil fuels and away from the gas price spikes. Folks its time everyone stops driving ICE cars if they can afford it and if you can find a way to charge off your own solar panels then three cheers for your efforts.
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