What Can We Do to Lower Oil Consumption?

Like most Americans I’m concerned about high fuel prices. I’m also worried about America’s energy dependence on Middle Eastern regimes and nutcases like Hugo Chavez in Venezuela. I’m a big Excel geek too. Of all the software tools that I’ve used for fun and my job, I like Excel the best. So it should come as no surprise that I’ve turned to it to help make sense of the oil crunch.

In the short term, what can we do to lower oil consumption? In this spreadsheet (it has a simple macro but I made it) I lay out our current consumption along with three scenarios that examines the impact driving more fuel efficient cars and driving less have on gasoline and oil supplies. To do this I rely upon the following:

Here’s what I know:
• The number of gallons of gasoline refined from a barrel of crude in the USA.
• The current gallons of gasoline used per day in the USA.
The average MPG for all US cars and light trucks.
• The US population.
Number of new cars sold in the USA in 2007.
• Number of cars & light trucks registered in the US in 2006
Number of licensed drivers
Age structure of the American fleet (2001 estimate)

These variables allow me to calculate the following:
• The number of barrels of crude consumed in the USA per day for gasoline.
• The number of miles driven per day per licensed driver.

What I don’t know:
•2008 fleet mpg (assumed to be 17.1 mpg)
•Future consumption
•Future demand growth
•Future production

Because I don’t know the future, I am limiting the scope to the current time (for the less driving scenario) and the next two years (allowing me to use the age structure of the US car and light truck fleet.)

Assumptions
• No diesel or heavy truck statistics. The focus is only on gasoline usage.
• Flat world wide production (short term).
• Flat worldwide demand (short term).
• No disruption of oil supplies.
• No change in age structure of American fleet since 2001.
• Fleet MPG adjusted to EPA’s 2008 method (decreases historical values by 17.4%)
• I’ve used the harmonic mean to calculate the fleet average. This is the same function used by the EPA.

These are all big assumptions, but I need to make them to grasp our situation. At the very least I would expect to get a decent approximation of the actual numbers – say a variance of +/-25% for any given statistic.

So what do we learn by playing with the numbers?

It should come as no surprise that driving less has the greatest impact on consumption since no gasoline is expended. The problem is that people are already driving an efficient routes from point A-B because longer routes take more time, and people have been trying to save time since cars became a necessity. Perhaps I should add this as an assumption, but I don’t see people taking roundabout ways while running errands or commutting. But there must be at least a few percentage points in inefficiency or “slack” built into our daily driving. This assumption is based on the belief that everyone is not a delivery or taxi driver who knows the most efficient routes from point A-B.

If we cut 5% from the per capita mileage, we cut our gasoline usage by 5%. However things don’t move 5% closer. So how can we save that 5%? Based on what we know we find the average daily driving for licensed drivers is 32.9 miles. 5% of that is 1.6 miles/day or roughly 12 miles/week.

Is this realistic? 1.6 miles a day is roughly 30 minutes of walking or 10 minutes of biking. Add in mass transit and more efficient trip planning and I would estimate that it is realistic with the following caveats.

First it’s easy to imagine everyone walking or riding bicycles during nice weather, but imagine riding a bike in the rain. If we stay at home on a rainy Tuesday we can’t drive more on a sunny Wednesday to make up for the lost time without conserving Tuesday’s 5% on top of Wednesday’s.  Second we could capture some wasted mileage through better routing and trip planning mentioned above. Third, 41.5 million Americans have gym memberships. Assuming that most of those are licensed drivers, there is at least a percentage point or two of slack that could be gained by substituting walking or bicycling for treadmills and stair machines. Finally health care professionals recommend the benefits of walking or bicycling in the community, but do their communities support increased pedestrian activity? In my neighborhood there aren’t sidewalks along the major streets, forcing people to walk on the shoulder of roads where traffic zips by at 50 MPH, and many streetlights lack crosswalks. And I live in the heart of suburbia. Infrastructure changes would therefore be required.

The fastest way to cut that 5% would be for companies to allow those who can to do so to telecommute one day a week. While the majority of the workforce would not be able to do this, telecommuting would allow some to save 20% of their commute. As firms are recognizing that it can earn them some “green” credentials, it may become more common; however only a minority of the workforce works at a job where this is physically feasible let alone tolerated.

So what does that 5% in savings get us? We drop from 388.6 million gallons of gasoline per day to 369.7 million. That’s a savings of about 900,000 barrels of crude used domestically, or 1.1% of the world total. Given the fluctuation of supply and demand globally, a percent drop in demand would have little impact on prices.

So based on our numbers so far, a 5% cut in gasoline consumption would have little affect on world crude oil prices. Could we do better with a cut of 10%? Of course, but lopping off 3.2 miles a day means that we would have to make up for that with an hour of walking or 20 minutes of biking. 7 days a week, 365 days a year. We’d be a much fitter nation as a result, but I just don’t think there is enough impetus for Americans to cut back that much. Perhaps it will be there if and when gasoline hits $6/gallon, but at this time I just don’t think it is realistic.

What about driving more fuel efficient cars? Since we know the age profile of vehicles on the road today we can estimate the impact of purchasing more fuel efficient cars over the next two years. Because vehicles 2 years old or less constitute less than 14% of all cars on the road, it takes time for their fuel efficiency to have much impact on overall gasoline usage. If all vehicles sold over the next two years (30.4 million) averaged 25 mpg, we would use 6% less gasoline in the USA but lower the worldwide demand for crude oil by 1.4%.

Is that 25 mpg average realistic? Unfortunately no. According to FuelEconomy.gov only 21 cars meet or exceed the combined 25 mpg – a small fraction of the hundreds of models sold. The selection of models is limited as well: small cars, family sedans, hatchbacks and station wagons. No pickup trucks or SUV’s, and while some may not need one of those particular models, others do. In addition without delving into production numbers for these vehicles it is doubtful that 15.7 million of them could be supplied. For example as of November 2007 Toyota had sold just over 500,000 of its hybrid Prius in the United States, with predicted sales of 200,000 in 2008.

Given these constraints perhaps a 20 mpg threshhold is more realistic. Unfortunately savings in 2 years would be 2% of US gasoline consumption, which in turn would lower worldwide crude demand by half a percent. There doesn’t seem to be much bang for the buck there.

Does this mean that buying more fuel efficient cars is futile? Of course not. If anything the incremental gains in fuel efficiency of vehicles are longer lasting than any changes in our behavior. If the price of gasoline falls – which it will inevitably do – it will be easier for people to hop into their cars and drive than to walk, bicycle or combine trips. The gains in fuel efficiency for the entire fleet are as hard to erase as they are to accumulate, so there is no reason not to buy the most fuel efficient vehicle you can.

Changing the fleet is where the big gains are found. If we start over the next two years to sell cars averaging 20 mpg, followed in 2012 by cars averaging 22 mpg, in 2016 25 mpg, and in 2018 selling cars with an average of 30 mpg, by 2020 we will have a fleet average of 23 mpg. That fleet would consume 26% less gasoline, lowering global crude demand by 6.1%. Add in a healthy 5% less driving, and the result is cutting gasoline demand in the USA by a third.

Those are significant savings to the pocketbook as well as to our national defense, and if you think that 2020 is distant just remember that it’s as far away as 1996. Unfortunately if we are to switch to the long term benefits we also must revisit our assumptions. Demand for oil will continue growing in Asia for the forseeable future; demand will also grow along with the population in the US.

Will supply grow to meet that demand? The answer depends on whether you believe in peak oil or not, and that question, discussed here, is beyond the scope of this article which focuses on the short (2 year) term. Demand could be affected by plug-in hybrids and electrics like the Chevy Volt and others. While electric cars would constitute an insignificant portion of the fleet during the early part of the next decade, they would reduce demand in our equations by decreasing our pool of licensed drivers. Oil supply could be boosted by political decisions allowing drilling in sites previously ruled off-limits.

What’s the answer? In the short term it is to drive less, walk or bicycle if possible, plan your errands and when it comes time to buy a new car, purchase the most fuel efficient one in its class. Most likely gasoline at $4 gallon is already forcing you to do much of that already. But it took time to get us into this mess and it will take time to get us out of it. What is needed most on our part is determination to help ourselves and the guts to pressure our leaders in goverment.

What they must do is get out of the oil business by stopping oil and gas subsidies on one hand, and opening up drilling in previously untouched areas on the other. But I am not stupid or anti-environment. The government must monitor these efforts closely to make sure that the best safety and environmental standards are applied at each well head, and on each pipeline.

Would setting CAFÉ targets help? I believe that CAFÉ targets work best when gasoline is cheap; when it’s expensive there isn’t a need for them. SUVs and light trucks are languishing on new car lots. Dealers are practically having to give them away, while they can’t keep high MPG cars like the Prius and Honda Civic on their lots. Given that the price of gasoline will eventually fall, it would make sense that the government set the targets now at a time when the car industry has no problem meeting them in anticipation of the time when gas falls. While I’m no fan of excessive government regulation of the market, what CAFÉ targets do is smooth out demand between times when efficient vehicles are in demand with the times they aren’t.

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