ONE TOWN SQUARE: at the intersection of peak oil, climate change, and land use

The Federal Highway Administration’s Traffic Volume Trends reports travel on U.S. roads and streets was down 0.9% for November 2011 as compared with November 2010. Cumulative travel for 2011 was down 1.4% from 2010 through November.

In the early ’80s, VMT (moving 12 months total) stayed below the previous peak for 39 months. Currently VMT (moving 12 months total) has been below the previous peak for 48 months – a full 4 years – and the trend shows no sign of reversing any time soon.

Could it be that the all-time peak in vehicle miles traveled (VMT) in the U.S. – August 2007 – is now securely behind us?

In Oregon, vehicle miles traveled (VMT) was down 0.4% in November 2011 compared to November 2010. Cumulative VMT for 2011 is down 2.0% from 2010. VMT in Oregon has been down every month in 2011 compared to 2010.

With VMT down, it’s not surprising that Americans continue to consume less gasoline. Total petroleum deliveries fell 1.1% in November compared with November a year ago, pulled down by a 1.8 percent decline in motor gasoline demand.  It was the lowest level of November consumption for gasoline since 2000.

Total petroleum deliveries fell 1.2% to an average of 18.9 million barrels a day in 2011 compared with 2010. Except for 2008, this was the largest drop in annual domestic deliveries over the past decade.

If petroleum deliveries are any indicator, VMT will prove to continue to drop in December 2011 – and substantially. December 2011 petroleum deliveries were down 5.9% from December 2010, declining to an average of 18.6 million barrels per day, the lowest level in 15 years. The Federal Highway Administration’s report for December can be expected confirm that VMT for 2011 as a whole is down over 2010.

Oil prices in 2011 averaged record highs, despite global economic woes.

Brent crude, the world oil benchmark, averaged $111 per barrel, breaking the previous record of an annual average high of $100, set in 2008. That spike contributed to a huge global recession. West Texas Intermediate (WTI) rose even more, averaging $95/barrel, an increase by 20% over its 2010 average price of $79. WTI traded at a hefty discount to world oil prices throughout the year – as much as $26/ barrel.

Global automotive market intelligence firm Polk forecasts worldwide new vehicle sales in 2012 will rise 6.7% over 2011 volumes to 77.7 million vehicles. Polk expects China to make the largest contribution to global sales growth for new vehicles, with an anticipated 16% increase over 2011.

Polk expects that U.S. light vehicle sales will increase by 7.3% to 13.7 million vehicles. As this chart by Calculated Risk shows, sales are struggling to return to levels reached almost two decades ago, when the U.S. population was ~50 million less than today.

Polk is optimistically forecasting U.S. auto sales to return to “normal” levels of greater than 16 million vehicles per year by 2015 – and for global auto sales to approach 100 million by 2016.

Where is the gasoline to power all these new cars going to come from? Despite record high global oil prices, global oil production is refusing to budge. Members of the Organization of the Petroleum Exporting Countries (OPEC) – which supply ~42% of global production – produced an average of 30.74 million barrels per day in December 2011.  OPEC production has been fluctuating within a ~5% band, as has global production.

Production of crude plus condensate has been basically flat since 2005, with new sources just barely managing to compensate for a 5% decline per year from existing production. Any increase in total liquids over that time has largely come from increases in NGPLs and other liquids.

Total liquids production worldwide increased 0.5% per year from 2005 to 2010 – but that includes low net energy fuels such as biofuels. However, the global supply of net oil exports available to importers other than China and India (what Jeffrey Brown calls Available Net Exports, or ANE) fell at a rate of 2.8% per year from 2005 to 2010. Brown expects oil available for import by most of the world to fall by 5% – 8% each year for the rest of the decade.

In Saudi Arabia (now the world’s second largest oil producer after Russia), production has been declining.  Only a dozen or so of the 54 oil producing nations in the world are still increasing their oil production.

If global economic growth, feeble though it may be, manages to continue in 2012, we can expect even higher oil prices. Even if people are willing and able to pay higher prices, there are limits to global supplies of oil that can be refined into motor fuels. What good will all these new cars be, if there is not enough fuel to power them?

It’s a good bet that rosy forecasts for U.S. and global auto sales will prove to be powered by nothing more than fantasy.

The Federal Highway Administration’s Traffic Volume Trends reports travel on all roads and streets was down 2.3% for October 2011 as compared with October 2010. Cumulative travel for 2011 is down 1.4% from 2010.

In the early ’80s, VMT (rolling 12 months) stayed below the previous peak for 39 months. Currently VMT has been below the previous peak for 47 months – almost 4 years. And the trend in the rolling 12 months VMT is still down.

Could it be that the all-time peak in vehicle miles traveled (VMT) in the U.S. – August 2007 – is now in our rear-view mirror?

In Oregon, vehicle miles traveled (VMT) was down 2.7% in October 2011 compared to October 2010. Cumulative VMT is down 2.1% from 2010. VMT in Oregon has been down every month in 2011 compared to 2010.

With VMT down, it’s not surprising that Americans continue to consume less gasoline. Total petroleum deliveries (a measure of demand) fell 1.1% in November compared with November a year ago, pulled down by a 1.8 percent decline in motor gasoline demand.  It was the lowest level of November consumption for gasoline since 2000.

The hyping of “Black Friday” retail sales cannot dispel the reality that the U.S. economy remains becalmed in the doldrums. Despite record corporate profits, jobs and personal incomes are refusing to bounce back. Calculated Risk posts the charts.

It’s going to get worse. The U.S. economy is destined for another recession in 2012. The American dream has turned into a nightmare – and we can’t wake up.

The Eurozone has already fallen back into recession. Which is bad news for anyone hoping for a tidy resolution of the sovereign debt crisis. The arithmetic doesn’t work without strong and sustained economic growth.  The European project looks set to implode.

The world’s leaders are adrift, with neither direction nor oars.

At least since the end of World War II, the western world has come to embrace growth as the primary objective of public policy. Growth is not only good, it’s the natural order of things: a world without growth is literally unthinkable. What has gone wrong? Why have the winds of growth faltered?

Think oil. The Oil Price Information Service says Americans are on track to spend $488 billion on gasoline this year, up $40 billion from the record high of 2008. Recall what followed the oil price spike in 2008: the worst economic crisis since the Depression. Money spent on oil is less money spent on everything else.

Given the lethargy in the world’s economic powerhouses, how is it that oil prices at the New York exchange have once again breached the $100/barrel mark? How is it that Brent prices are climbing towards $110/barrel and are expected to hit $115 by the end of the year?

The answer is found in charts posted by Jeffrey Brown at The Energy Bulletin. In the post, Brown indicts Daniel Yergin for his consistently rosy forecasts of global oil production. For our purposes, what is most revealing is the underlying global all liquids production . . .

. . . global crude and condensate production . . .

and, most importantly, global net exports.

Since 2005, global all liquids and crude production has been essentially flat while net exports have been falling. Meanwhile, oil consumption by developing countries including China and India have been soaring. Consequently, western economies are being increasingly squeezed.

Around the globe, nations are being squeezed as the energy supplies that lubricate the wheels of the economy are becoming increasingly scarce. Within the U.S., not only is the economy being squeezed; people are being squeezed as a corrupt political and economic system enable the rich and powerful to seize an ever-increasing share of the national wealth.

One thing is for certain: this isn’t going to end well. Let go of any expectation of a return to a world of economic growth as we have come to know it.

The Federal Highway Administration reports travel on all roads and streets was down 1.5% for September 2011 as compared with September 2010. Cumulative travel for 2011 is down 1.3% from 2010.

Bill McBride at Calculated Risk has this chart showing VMT back to 1971.

McBride observes the current downward trend in VMT is unprecedented:

In the early ’80s, miles driven (rolling 12 months) stayed below the previous peak for 39 months.

Currently miles driven has been below the previous peak for 46 months – so this is a new record for longest period below the previous peak – and still counting!

September VMT was below last year’s numbers for the seventh straight month.

In Oregon, vehicle miles traveled (VMT) was down 0.7% in September 2011 compared to September 2010. Cumulative VMT is now down 2.0% from 2010. VMT in Oregon has been down every month in 2011 compared to 2010.

Indications are VMT in the U.S. continued to fall in October and November. Platts reports U.S. retail gasoline demand fell 4.5% year-on-year for the week ending November 18; the four-week rolling average was down 3.8% from the same period last year. The average retail price of a gallon of regular gasoline was 18.1% higher than last year.

Falling VMT in the U.S. should not be a surprise. Driving is dependent upon the availability liquid fuels. Jean Laherrère reports global all liquids production has been on a bumpy plateau since 2005 around 87 Mb/d, with a variation of 2 Mb/d (which is equal to the accuracy of the data, about the difference between EIA, IEA or OPEC values). He has posted an updated graph of historic and projected production at The Oil Drum.

Laherrère expects this plateau to continue for a few years before a significant decline takes place. But recall, peak oil is not synchronous: the peak in oil consumption arrives earlier in some countries than in others. In the U.S., the peak oil consumption is clearly in our rear view mirror. That peak oil is manifested in declining VMT should be expected.

The last post commented on the stark climate warnings contained in the International Energy Agency’s World Energy Outlook 2011:  if we fail to implement new policies by 2017, we are on a dangerous track for a temperature increase of 6°C (11°F) or more.  The IEA’s energy supply and demand assumptions are also worth a look.

The Executive Summary presents the following demand and supply projection for 2035:

Oil demand (excluding biofuels) rises from 87 million barrels per day (mb/d) in 2010 to 99 mb/d in 2035. * * *

The cost of bringing oil to market rises as oil companies are forced to turn to more difficult and costly sources to replace lost capacity and meet rising demand. Production of conventional crude oil – the largest single component of oil supply – remains at current levels before declining slightly to around 68 mb/d by 2035. To compensate for declining crude oil production at existing fields, 47 mb/d of gross capacity additions are required, twice the current total oil production of all OPEC countries in the Middle East. A growing share of output comes from natural gas liquids (over 18 mb/d in 2035) and unconventional sources (10 mb/d). The largest increase in oil production comes from Iraq, followed by Saudi Arabia, Brazil, Kazakhstan and Canada. Biofuels supply triples to the equivalent of more than 4 mb/d, bolstered by $1.4 trillion in subsidies over the projection period.

The “supply” numbers total 100 mbd rather than 99 mbd – let’s presume the 1 mbd discrepancy is due to rounding errors. The IEA projects oil demand will hit 99 mbd in 2035, but the world will be producing only 68 mbd of conventional oil . . . leaving a 31 mbd gap to be filled. NGLs and unconventional oil are projected to cover 28 mbd of that, leaving 3 mbd to be covered by – biofuels? Didn’t the 99 mbd figure for demand exclude biofuels?

That aside, the IEA thinks that the next 24 years will see 31 mbd of “oil” from:

• Natural gas liquids – 18 mbd
• Unconventional sources – 10 mbd
• Biofuels – 4 mbd

This implies three things:

1. That natural gas liquid production will more than double by 2035, from about 8 mbd today.
2. That unconventional oil production doubles by 2035, from about 5 mbd today.
3. That biofuel production will triple by 2035.

Nick Hodge observes the big problem with this is that it’s never been done:

It took us 40 years to add 31 million barrels per day of conventional oil production — the easy stuff.

The IEA is saying we can add the same capacity in half the time using much harder-to-get resources.

Out of the 68 mbd of conventional oil that the IEA projects to be available, 47 mbd – twice the current production of OPEC countries in the Middle East – are from sources yet to be developed, just to offset depletion from existing sources. Really? The world is going to discover and/or develop two more Middle Easts worth of conventional oil, in just 24 years? Where, exactly?

Stuart Staniford at Early Warning suggests that the source of new supply is not likely to be Saudi Arabia. He points out that Saudi production has been fluctuating between 8 mbd and 9.5 mbd since 2003. In response to the interruption in Libyan production early this year, Saudi briefly boosted output to a peak of around 9.7 mbd or 9.8 mbd – not quite achieving a promised 10 mbd – but have since eased back to about 9.5 mbd.

Bottom line: is Saudi Arabia going to save the global economy’s bacon? Here’s Staniford’s assessment:

So are we any the wiser as to the great question of whether Saudi Arabia has significant spare capacity and could increase production to 12mbd or more if only they chose?  Only slightly I fear.  I interpret the fact that the Saudis couldn’t quite meet the 10 mbd promise and almost immediately backed off that, despite amply high prices, as consistent with the story that the recent Saudi production expansions have only gone to offset declines elsewhere (perhaps especially in north Ghawar).  The increasing rig count also suggests a lack of comfort with the amount of spare capacity presently available.

However, I can see that someone who thought the Saudis were able to produce more but are profit maximizers who intend to keep prices as high as possible consistent with not actually throwing the world economy into recession might also be able to tell a story about how the Saudis did the bare minimum to moderate prices after it became clear that the Libya price spike was causing global economic harm but then began gradually lowering production as prices slowly began to fall following the price spike, keeping the world in a state of slow growth, but some growth, while maximizing the Saudi take for its oil.  The one weak point in this story is that it offers no explanation for the rising rig count.

Of course – at this point maybe the difference between the two views doesn’t actually matter that much – either the Saudis can’t produce more or they won’t, but either way the effect is to keep oil prices high enough to be a significant constraint on a world economy that is already struggling.

Continued economic growth is dependent on continued expansion of energy supplies.

The EIA is schizophrenic in thinking there’s a way to square the circle. There’s only one way to head off catastrophic climate change: shrink the economy, by a lot, and quickly. Gail Tverberg at Our Finite World explores the implications:

If GDP growth and energy use are closely tied, it will be even more difficult to meet CO2 emission goals than most have expected. Without huge efficiency savings, a reduction in emissions (say, 80% by 2050) is likely to require a similar percentage reduction in world GDP. Because of the huge disparity in real GDP between the developed nations and the developing nations, the majority of this GDP reduction would likely need to come from developed nations. It is difficult to see this happening without economic collapse.

The reality is, we don’t have a choice. Other limits to growth aside, the energy resources necessary to keep the globe on the economic growth path simply aren’t there; growth will come to an end whether we like it or not. The choice we do have is whether to destroy Earth as a host for human life first.

Dr. Mamdouh Salameh’s address the 17th Annual Energy Conference of the Emirates Center for Strategic Studies and Research warned of a coming severe oil crunch, probably by 2015 or thereabouts, with oil prices projected to exceed the level reached in July 2008:

[A] projected price ranging from $150 – $170 per barrel by 2015 may not be out of place. When the oil price hit $147 per barrel in July 2008, it precipitated the biggest economic crisis the world has ever witnessed since the 1930s. One can only imagine what damage to the global economy a price level of $150-$170 per barrel could cause.

Salameh is Consultant on Oil and Energy Affairs for the World Bank. He said OPEC will soon reach a crossroads: it must ramp up supplies very significantly to stem the projected steep rise in the oil price or risk becoming irrelevant. But OPEC’s last experience with soaring prices in 2008 doesn’t bode well. OPEC members couldn’t increase production in 2008 because it had hardly any spare production capacity. Salameh said the supply situation hasn’t improved:

Today, OPEC still has little spare capacity and therefore can no longer influence the global oil market and the oil price.

OPEC works more effectively when oil price are falling because it is within OPEC members’ power to cut production to shore up prices. But when oil prices are rising, OPEC can’t reign in price increases because its ability to increase production is constrained. Since oil prices are projected to remain high well into the future, OPEC could become irrelevant.

Auto sales came in at an annual rate of 13.26 million in October – slightly below forecasts of 3.4 million. Calculated Risk posts this chart.

Automakers are now on pace to sell about 12.8 million vehicles for in 2011, up from 11.6 million last year.

Light vehicle sales are still poking along at levels typical of three, four, even five decades ago, and last seen two decades ago, as apparent in this chart, again from Calculated Risk.

In 1991, the population of the U.S. was 50+ million less than it is today – and there were 35 million fewer licensed drivers, as seen by comparing statistics here and here.

Auto sales have been on a downward trend for a decade now. Oil consumption in the U.S. has been on a downward trend since 2005.

The above graph, posted by Stuart Staniford at Early Warning, shows the EIA’s data since 2000 – both the weekly and the monthly series.  According to Staniford, the monthly series is believed to be more accurate, but the weekly series is more up to date. The weekly data is certainly noisier.

The downward trend in auto sales and oil consumption is consistent with the continuing downward trend in vehicle miles traveled (VMT). VMT in the U.S. reached a peak in January 2008 and has been trending downward now for almost four years.

The Federal Highway Administration reports travel on U.S. roads and streets was down 1.7% for August 2011 as compared with August 2010. Cumulative travel for 2011 was down 1.3% from 2010.

Bill McBride at Calculated Risk posts this chart.

McBride observes the downward trend in VMT is unprecedented:

In the early ’80s, miles driven (rolling 12 months) stayed below the previous peak for 39 months.

Currently miles driven has been below the previous peak for 45 months – so this is a new record for longest period below the previous peak – and still counting!

In Oregon, vehicle miles traveled (VMT) was down 1.0% in August from August 2010. Cumulative VMT is now down 2.2% from 2010.

There are some indications that travel may have picked up a bit in September. After falling a revised 0.5% in August 2011, the American Trucking Associations’ advance seasonally adjusted (SA) For-Hire Truck Tonnage Index increased 1.6% in September.

However, the long-term trend in truck tonnage remains down from peak 2005 levels.

Also, the American Petroleum Institute reports total petroleum deliveries (a measure of demand) totaled 19.9 million bpd, an increase of 2.5% in September over September 2010.  While motor gasoline demand was up only slightly by 0.3%, distillate demand reached a record for the month.  On a year-to-date basis, gasoline demand was down 1.3% from 2010.

A study by Lieutenant Colonel Christopher Fleming at the U.S. Army War College concludes the volatility we’ve seen in oil prices and the lack of increased production as a response to high prices is evidence that we’re hitting geological limits to global oil production.

The excerpt below is from the abstract of the study “Considering oil production variance as an indicator of peak production“:

The primary finding was unprecedented statistical variance in oil production rates as well as in oil prices beginning approximately 2005 to 2010. In the case of oil production rates, variance is at historically low levels. In the case of oil prices, variance is at historically high levels. The data indicate a new higher order of inelasticity between oil price and oil production.

These findings support peak oil forecasts in the range of 2005 to 2010 and together provide strong evidence that geological factors could presently be limiting world oil production.

The inelasticity between oil price and oil production Fleming talks about is evidenced by the wild swings in oil prices over the last six years, as seen in this graph posted by Stuart Staniford at Early Warning . . .

. . . while the lack of response from oil producers can be seen in this graph posted by Gail Tverberg at Our Finite World showing production from the Middle East and North Africa (MENA) since 1965.

MENA Monthly crude oil production, based on EIA data.

MENA’s oil consumption is rising, so even if MENA’s oil production could rise, that does not mean that oil exports would rise. For example, Saudi Aramco projects Saudi Arabia’s domestic consumption will reach an equivalent of 8.3 million barrels by 2028, more than double the 3.4 million barrels equivalent in 2009 – leaving precious little for export.

Ecological economist David Stern recently published a paper on the essential role of energy in economic growth, aptly titled ‘The Role of Energy in Economic Growth“. Stern observes that mainstream economic theory pays no attention to the role of energy; however, physics shows that energy is necessary for economic production and, therefore, economic growth. The “synthesis” model proposed by Stern explains the industrial revolution as a releasing of the constraints on economic growth due to the development of methods of using coal and the discovery of new fossil fuel resources.

Climate considerations aside, for business as usual – the continuation of economic growth – it’s bad enough that the world is bumping up against limits to oil production volume; however, the energy returned on energy investmen (EROI) is dropping, too – it’s costing more and more energy to produce the same amount of oil. A new study titled “A New Long Term Assessment of Energy Return on Investment (EROI) for U.S. Oil and Gas Discovery and Production” finds:

EROI for finding oil and gas decreased exponentially from 1200:1 in 1919 to 5:1 in 2007. The EROI for production of the oil and gas industry was about 20:1 from 1919 to 1972, declined to about 8:1 in 1982 when peak drilling occurred, recovered to about 17:1 from 1986–2002 and declined sharply to about 11:1 in the mid to late 2000s. The slowly declining secular trend has been partly masked by changing effort: the lower the intensity of drilling, the higher the EROI compared to the secular trend. Fuel consumption within the oil and gas industry grew continuously from 1919 through the early 1980s, declined in the mid-1990s, and has increased recently, not surprisingly linked to the increased cost of finding and extracting oil.

A new paper by economist James Hamilton titled Oil Prices, Exhaustible Resources, and Economic Growth documents that a key feature of the historical growth in production has been exploitation of new geographic areas rather than application of better technology to existing sources, and suggests that the end of that era is nigh. Hamilton shows that economic dislocations have historically followed temporary oil supply disruptions.  He concludes:

If the peaking of global production results in further big increases in the price of oil . . . the economic consequences of reduced energy use would have to be significant.

* * *

If the future decades look like the last 5 years, we are in for a rough time.

Most economists view the economic growth of the last century and a half as being fueled by ongoing technological progress. Without question, that progress has been most impressive. But there may also have been an important component of luck in terms of finding and exploiting a resource that was extremely valuable and useful but ultimately finite and exhaustible. It is not clear how easy it will be to adapt to the end of that era of good fortune.

Tom Murphy writes that we now find ourselves in an energy trap.

In brief, the idea is that once we enter a decline phase in fossil fuel availability—first in petroleum—our growth-based economic system will struggle to cope with a contraction of its very lifeblood. Fuel prices will skyrocket, some individuals and exporting nations will react by hoarding, and energy scarcity will quickly become the new norm. The invisible hand of the market will slap us silly demanding a new energy infrastructure based on non-fossil solutions. But here’s the rub. The construction of that shiny new infrastructure requires not just money, but . . . energy. And that’s the very commodity in short supply. Will we really be willing to sacrifice additional energy in the short term—effectively steepening the decline—for a long-term energy plan? It’s a trap!

A rough time, indeed. Effectively coming to grips with this new reality won’t be from the top down; it’s futile to look for or expect political solutions. Rather, doing so will require the kind of “magic” that begins with the individual, and works outward from there. It’s not the solution that matters, but the journey. We are all capable of taking that first step.

IEAs chief economist Fatih Birol, speaking at a conference in London, said that the oil import bill in Europe, the U.S. and Japan is close to the level hit in 2008, when high prices were a contributing factor in the severe recession. Birol noted that when expenditures on oil rise to around 5% of gross domestic product, it has historically caused economic problems. He then warned:

Today with a more than $100 oil price, we are close to that 5% hurdle.

Birol said that of all the economies in the Organization of Economic Cooperation and Development, the U.S. is most vulnerable to high oil prices.

Although oil prices have not yet approached the $147/barrel mark hit briefly in 2008, the total OECD oil import bill for 2011 is close to that of 2008. Brent crude is up again, hitting $113/barrel earlier this week, an increase of nearly $14 a barrel over last week’s lows. WTI prices have recently been hovering around $86 a barrel. The spread between Brent and WTI this week widened again to $25.79 a barrel, only a dollar below the record high of $26.87 set on September 26th.

One sign that global oil production has hit a plateau is that crude oil production is no longer responsive to price signals, as seen in this chart posted by Gail Tverberg at Our Finite World.

Robert Hirsch (of Hirsch Report fame) observes that global oil production has been on a plateau for the last seven years, fluctuating within a 6% range. He expects production to continue to fluctuate within a narrow range for another 1-4 years, and then to transition into decline.

Tom Whipple at the Falls Church News-Press writes that the ongoing and intractable European debt crisis is a symptom of the depletion of cheap oil. The European economies – and economies of the rest of the OECD, and especially the U.S. – are, for the foreseeable future, likely to contract under the weight of expensive energy. Bailouts and recapitalizations will prove futile, serving only to transfer more wealth from taxpayers to the rich and powerful, especially the banksters.

While global economies might take a hit from high oil prices, that won’t do much to postpone the inevitable decline in global oil production. Hirsch calculates that even a decline of a few million barrels per day in world oil consumption would result in a relatively small delay in the onset of world oil production decline.

Kurt Cobb observes it’s hard to imagine a future that is different from the recent past – for most people, perhaps an insuperable task. Even as conditions worsen, people will expect that if governments would just take the right steps, the world will return to the path of exponential economic growth. For a while longer, politicians – Democrat and Republican alike – will get elected promising to do just that. But wish though we might, those dreams are over. Little by little, we’ll have to begin to let go of the dreams we’ve grown up with, and to begin dreaming something altogether new.

IEAs chief economist Fatih Birol, speaking at a conference in London, said that the oil import bill in Europe, the U.S. and Japan is close to the level hit in 2008, when high prices were a contributing factor in the severe recession. Birol noted that when expenditures on oil rise to around 5% of gross domestic product, it has historically caused economic problems. He then warned:

Today with a more than $100 oil price, we are close to that 5% hurdle.

Birol said that of all the economies in the Organization of Economic Cooperation and Development, the U.S. is most vulnerable to high oil prices.

Although oil prices have not yet approached the $147/barrel mark hit briefly in 2008, the total OECD oil import bill for 2011 is close to that of 2008. Brent crude is up again, hitting $113/barrel earlier this week, an increase of nearly $14 a barrel over last week’s lows. WTI prices have recently been hovering around $86 a barrel. The spread between Brent and WTI this week widened again to $25.79 a barrel, only a dollar below the record high of $26.87 set on September 26th.

One sign that global oil production has hit a plateau is that crude oil production is no longer responsive to price signals, as seen in this chart posted by Gail Tverberg at Our Finite World.

Robert Hirsch (of Hirsch Report fame) observes that global oil production has been on a plateau for the last seven years, fluctuating within a 6% range. He expects production to continue to fluctuate within a narrow range for another 1-4 years, and then to transition into decline.

Tom Whipple at the Falls Church News-Press writes that the ongoing and intractable European debt crisis is a symptom of the depletion of cheap oil. The European economies – and economies of the rest of the OECD, and especially the U.S. – are, for the foreseeable future, likely to contract under the weight of expensive energy. Bailouts and recapitalizations will prove futile, serving only to transfer more wealth from taxpayers to the rich and powerful, especially the banksters.

While global economies might take a hit from high oil prices, that won’t do much to postpone the inevitable decline in global oil production. Hirsch calculates that even a decline of a few million barrels per day in world oil consumption would result in a relatively small delay in the onset of world oil production decline.

Kurt Cobb observes it’s hard to imagine a future that is different from the recent past – for most people, perhaps an insuperable task. Even as conditions worsen, people will expect that if governments would just take the right steps, the world will return to the path of exponential economic growth. For a while longer, politicians – Democrat and Republican alike – will get elected promising to do just that. But wish though we might, those dreams are over. Little by little, we’ll have to begin to let go of the dreams we’ve grown up with, and to begin dreaming something altogether new.

Shell CEO Peter Voser is warning that over time oil supply and demand fundamentals are going to tighten significantly:

Oil output from fields in production declines by 5 per cent a year as reserves are depleted, so the world needed to add the equivalent of four Saudi Arabias or 10 North Seas over the next 10 years just to keep supply level, even before much of an increase in demand.

So how have we been doing at discovering new reserves? Not nearly good enough.

All the easy stuff has been found. We basically stopped finding conventional super-giant high production rate oil fields forty years ago.

Despite the best technology and soaring prices, each year the amount of new oil reserves discovered is a fraction of that found in the 1960s. Oil production flattened in 2004. In 2010 consumption exceeded production by over 5m barrels per day for the first year ever.

In the charts above, a large part of the difference between consumption and production is accounted for by such things as biofuels, oil made from coal and other non-conventional sources, which are not included in the production figures. The rest of the difference is from the running down of world oil stocks.

The questions now facing us are how long can global oil production be held on its plateau, and how fast will the subsequent decline be?

The stall in global oil production in the face of strong demand from less developed countries is having a profound consequence: while the Chindia  (China & India) region, and many other developing countries, have been able to increase their net oil imports, most developed oil importing countries, such as the U.S., are being forced, via price rationing, to take a declining share of a falling volume of Global Net Exports.

In the U.S., oil consumption has fallen by 10% since peaking in 2005. Less oil consumption translates into fewer car sales . . .

. . . and less driving.

Vehicle miles traveled (VMT) in the U.S. plateaued in 2005 and have been trending down ever since.

Oregon is no exception to the national trend. Vehicle registrations in Oregon peaked in 2007 . . .

. . .  and were down to 3.23 million in 2010.

Gasoline consumption in Oregon and Washington has been on a plateau since 1999.

Sightline reports VMT in Oregon and Washington have been on a gently declining plateau since 2002.

The trend should now be clear, in Oregon as well as the nation as a whole. The times of ever-growing traffic on our roads are over for good. Instead, our future holds declining fuel consumption, declining number of cars and trucks, and declining vehicle miles traveled.

It’s time to start planning for that, rather than for continued growth.

Light vehicle sales were at a 12.12 million SAAR in August, up 5.3% from August 2010 and down <1% from the July 2011 sales rate of 12.2 million.

The above chart, posted by Bill McBride at Calculated Risk, shows car sales poking along at levels typical of three, four, even five decades ago, and last seen two decades ago. In 1991, the population of the U.S. was 50+ million less than it is today – and there were 35 million fewer licensed drivers, as seen by comparing statistics here and here.

Globally, 35 million new vehicles were registered last year. So even with the collapse in U.S. auto sales, the U.S. still accounts for over a third of the global market. And with 240,000,000 light vehicles on the road, the U.S. maintains almost one-quarter of the global light vehicle fleet. Tom Whipple at the Falls Church News-Press points out that in the U.S there is now a motor vehicle for every 1.3 people and at least one for every licensed driver. But in an era of little or no economic growth, limited employment opportunities and rising energy costs, it is highly unlikely that there will be anything approaching 240 million registered vehicles in the U.S. 25 years from now.

Last month, Wards Auto published a story pointing out that the world’s motor vehicle count for the first time exceeded one billion – which explains why global oil prices remain extraordinarily high even while economies continue to struggle. Brent crude is trading at almost $116/barrel ($115.80 as of 9/7/2011), and is trading at a near record premium of $25.70 to WTI crude at ~$90/barrel ($90.10 as of 9/7/2011).

Last November the German Bundeswehr published an extraordinary study of the implications of peak oil. An English version of that study – titled Peak Oil: security policy implications of scarce resources – has now been made available, and is posted at Energy Bulletin. The peak oil study is Sub-study I of a two-part study entitled “Armed Forces, Capabilities and Technologies in the 21st Century – Environmental Dimensions of Security”, undertaken by the Bundeswehr Future Analysis Branch addressing the subject of finite resources and their potential security policy implications. The second part of the study will deal with climate change and demography.

The Study begins by accepting the reality that peak oil is upon us . . .

The term “peak oil” stands for the maximum rate of oil production and refers to the point in time at which the rate of a single oil field, of an oil-producing region, or globally reaches its absolute peak. * * * From peak oil, however, this level will irreversibly decline in the long term. Generally speaking, oil will therefore continue to be available and recoverable beyond the 30-year timeframe chosen in this study, albeit in quantities that are possibly too small to fully satisfy global demands and at considerably higher prices.

. . . without quibbling about the exact point in time at which the peak occurs:

The precise global peak oil date is controversial and can only be determined with certainty in retrospect.

The study states the reality that every nation in the world has a vital interest in securing energy supplies. While the world’s leaders may not be talking about peak oil to their publics, that doesn’t mean ruling elites are not fretting and plotting behind the scenes.

It can therefore be stated that against the backdrop of the ever-decreasing availability of fossil fuels, the challenge of ensuring long-term energy supply is reflected in national strategies worldwide, leaving no doubt as to the vital importance attached to this issue. In this context, the fact that energy supply aspects occupy an increasingly important place in the national security strategy documents of various countries is an indication of the increasing securitisation of this area * * * is likely to have consequences on the nature of future energy relations.

It’s impossibly to foresee what the impacts of declining oil supplies will have on our lives. What’s certain is that oil-importing countries will, with increasing desperation, be scrambling to secure their share of ever-diminishing supplies:

Ultimately, it is hardly possible to calculate from today’s perspective how suppliers and consumers will respond to global peak oil. Against this backdrop, the continuous assessment of diversification opportunities seems equally necessary and difficult, particularly with regard to the ousting or competition effects with other oil-importing countries that such efforts would bring about in the face of declining production rates.

If peak oil unfolds in a “moderate” form, global business could proceed more or less as usual, only with producer countries gaining power and influence at the expense of importer countries. There would simply be a re-balancing of the global balance of power. But there’s a darker possibility, where the world devolves into political and economic chaos:

[A]peak oil scenario in which a so-called “tipping point” is exceeded where linear developments become chaotic and finally result in a worst-case scenario in terms of security policy. For example, if the global economy shrinks for an indeterminate period of time, a chain reaction that might destabilise the global economic system is imaginable. Depending on point in time and the level of dependence of the affected society, such a peak-oil-induced, economic tipping point might have such severe systemic implications that only a few general statements as to economic, political, and social developments beyond the tipping point can be made. This will clearly change the analytical framework for all other security policy conclusions. Because of the widely unexplored “tipping point” phenomenon, it is impossible to conduct a comprehensive analysis of possible effects of such a trigger element. Rather, this study is designed to raise awareness of a possible nonlinear economic development due to peak oil and of the related risk of a severe system crisis.

Over time, obtaining oil will become more of a political rather than an economic endeavor, as governments seek to gain or retain control over a scarce and diminishing resource.

The study warns that in the short term, the global economy would respond proportionally to the decline in oil supply. The consequences laid out in the study read like today’s headlines. Increasing oil prices would reduce consumption and economic output, leading to recessions. The increase in transportation costs would cause the prices of all traded goods to rise, lowering trade volumes. For the unfortunate, this means losing income; for the even less fortunate, starvation. National budgets would be under extreme pressure, as revenues plummet as a result of recession and taxes are slashed in an attempt to restart the growth machine.

The study then gets downright apocalyptic: in the medium term, the global economic system and all market-oriented economies would collapse.

What does all of this mean for Germany and German foreign policy? After the global conflagration that was World War II, the rest of the world should be very interested in German thinking.

The study urges Germany to accelerate the transition to unspecified “renewable energies and raw materials” – without inquiry into whether such energies or raw materials actually exist or could serve to supplant oil and the other building blocks of industrial civilization. In the interim, Germany should continue to rely on its traditional energy mainstays: Britain,  Norway – and, above all, Russia:

[T]he relationship with Russia is above all essential for Germany’s oil and gas supply alignment. Furthermore, it must be determined to what extent energy partnerships can be established and supply relationships can be developed and consolidated with countries of the Caspian region, the Middle East and Northern Africa.

Germany should seek to diversify its sources of energy, with particular attention to the “strategic ellipse” which contains the bulk of the globe’s remaining energy resources.

The map – which shows up early in the study, as shown by its label “Figure 1? – ominously recalls the theaters of the Second World War, where German strategy was to seize control of the oil fields of the Caucasus and the Middle East. Germans are still sensitive to their peculiar moral dilemma:

In light of global peak oil and efforts to establish strong, reliable relationships with oil-producing countries, value-based concepts of foreign, security and development policy may increasingly become subject to pressure to conform to more pragmatic rival models, like those already pursued by China and India.

A security policy more strongly focused on (economic) self-interest would be subject to special restrictions in Germany and, as evidenced by the discussions surrounding Bundeswehr operations abroad and Horst Köhler’s resignation as Germany’s Federal President, to extensive debate in politics and society. Especially in the Middle East and North Africa, Germany struggles to define its interests, which involve an element of power politics that has strong negative connotations in Germany and is irreconcilable with recent German history. Particularly in these regions, which are most important for future global energy security, Germany is thus mindful to emphasis ethical values as an important motivation.

As push comes to shove, it is realistic to expect that Germany will not reassert its national interest, even if that might be within a greater European context? And the struggle between ethical values and self-interest is not uniquely German. As peak oil begins to bite hard, that same struggle will be played out everywhere, in every nation, even within nations, around the globe.

The Federal Highway Administration reports travel on all roads and streets was down 1.4% for June 2011 as compared with June 2010. Cumulative Travel for 2011 was down 1.1%.

Bill McBride at Calculated Risk observes the dip in U.S. vehicle miles traveled (VMT) is unprecedented:

In the early ’80s, miles driven (rolling 12 months) stayed below the previous peak for 39 months. Currently miles driven has been below the previous peak for 43 months – so this is a new record for longest period below the previous peak – and still counting!

VMT in Oregon was off 1.4% from June 2010, and is now off 2.3% for the year. The drop in driving is continuing into August: the New York Times reports the four-week moving average in gasoline consumption is down 3.8 percent from last year.

While light vehicle sales in the U.S. almost surely have seen their peak, and VMT may have seen its peak, that’s not true for the globe as a whole. The auto trade journal Ward’s reports the number of cars and trucks on roads around the world has for the first time exceeded one billion, as global registrations jumped from 980 million units in 2009 to 1.015 billion in 2010. Registrations in China exploded in 2010 by 27.5% to more than 78 million vehicles. China now has the world’s second-largest vehicle population (after the U.S., with 239.8 million units), pushing it ahead of Japan, with 73.9 million units, for the first time. India’s vehicle population underwent the second-largest growth rate, up 8.9% to 20.8 million units. Brazil experienced the second largest volume increase after China, with 2.5 million additional vehicle registrations in 2010.

While the market in the world’s developed countries is pretty saturated, that’s not true in the world as a whole. In the U.S., the vehicle-to-person ratio was 1:1.3 among a population of almost 310 million. Italy was second with 1:1.45. France, Japan, and the U.K. followed, all of which fell in the 1:1.7 range. In China, the ratio was 1:17.2 among the country’s more than 1.3 billion people. India, the world’s second most-populous nation with 1.17 billion people, saw a ratio of 1:56.3.

With growing demand from non-OECD countries, it should not be surprising that global oil prices remain stubbornly high. As Stuart Staniford has pointed out at Early Warning, peak oil is not synchronous: the peak in oil consumption arrives earlier in some countries than in others. In the U.S., the peak oil consumption is clearly in our rear view mirror.

In many non-OECD countries, oil consumption is still growing, while global crude production has peaked and all-liquids production is struggling. The consequence: falling demand in OECD countries no longer suffices to bring global oil prices down to a point where economic activity can return to normal. Rather, the reality of multiple, endemic economic crises erupting and festering around the globe has become the new norm.