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This article is from the In-Depth Report The Future of Trains
See Inside October 2008

Why the Oil Crisis Will Persist [Extended Version]

With global demand for cars accelerating, the best approach is to redesign cars and transport systems



Matt Collins

According to recent statistics, U.S. motorists have responded to record-high prices at the pump by driving less. Any hope that this cutback will significantly restrain global oil prices is misplaced, however: fundamental factors of supply and demand in the world economy will keep oil costly for years to come. The hope that a cutback in driving by U.S. motorists will significantly restrain global oil prices is misplaced. Although U.S. drivers are a major force in the world oil market—they account for around 14 million barrels per day (mbd) out of 85 mbd of worldwide demand—the growth in driving in China, India and other developing countries will easily outstrip any cutback in U.S. demand. Drilling in protected areas would provide little relief, and at horrendous environmental risks. Only a concerted move to new transport and energy technologies will relieve the pressures. 

The greatest irony about the Bush Administration is that it correctly focused on energy needs at the start of its first term, but then got everything wrong in the strategy. Viewing the world through the eyes of Texas oilmen, it focused on gaining concessions to Iraqi oil fields and opening U.S. protected areas to drilling, while scorning fuel economy standards, renewable energy sources, and climate change mitigation. But the simple arithmetic of oil and carbon was always against the strategy.

World demand for conventional oil is outstripping world supply. Crude oil production in the Persian Gulf has been nearly flat at just over 20 mbd since the early 1970s. The growth in world supply since that time has come from oil fields outside of the Middle East, but many of them have reached their production limits and important ones are in decline. There are few prospects for mega-discoveries that could keep up with fast-growing world demand. 

The 15 billion barrels or so that is supposedly economically accessible in protected U.S. offshore sites would slake around 6 months of global demand (32 billion barrels per year, equal to 82 mbd times 365 days per year) in 2008, and of course a much smaller share by the time they reached the market in 10 to 15 years. And these small gains would come at enormous environmental risks, which helps to explain why California Governor Arnold Schwarzenegger gave a thumbs down to the proposal for offshore California oil. 

The boom in global driving is likely to be relentless. Today, China has around 50 million cars, trucks and buses (roughly 40 per 1,000 people), compared with around 240 million in the U.S (roughly 800 per 1,000 people). If China attains just half of the U.S. per capita ownership of passenger vehicles, it would have some 500 million of them, roughly twice as many as the U.S. And that prospect is not a silly scenario. Vehicle production in China has already tripled, from fewer than three million vehicles in 2000 to around nine million vehicles in 2007, which already makes China the world’s second largest market for vehicle sales, just behind the U.S. It is likely to overtake the U.S. market in a few years. Not only does China have a booming economy, putting hundreds of millions of households within the financial reach of a car, but it also has an insatiable demand for cars reminiscent of the U.S. With around 100 cities of a million people or more (compared to around 40 in the U.S.), and massive house building on the spreading periphery of city centers, China seems intent on reproducing America’s metropolitan sprawl and commuter-based society. A similar, though still less dramatic trend, is getting underway in India. 

Engineering advances in automobile production will dramatically accelerate the trend. Low-cost cars such as the Tata Nano, India’s newly unveiled $2,500 compact sedan, will bring auto ownership within reach of hundreds of millions of newly middle-class households worldwide in the coming decades. There are currently around 650 million cars, trucks and buses worldwide. China and India alone could add another 25 million vehicles per year in a decade; they could easily add another 500 million within 30 years. Conventional oil has little prospect of keeping up with this soaring demand. 

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