If Oil Production Declines, Will HSR Opposition Decline With It?

Mar 29th, 2010 | Posted by

Between 2000 and 2008, the price of oil rose by 600%, from about $20 per barrel to nearly $140 per barrel. In 2008 the price increases spiked, but as the chart below indicates, the increase was underway well before the spike occurred:

That increase had a number of important effects. When the price of a gallon of gas broke $3 and stayed there in 2006, it brought an end to the state’s real estate bubble, as buyers were no longer able to afford both the cost of a commute and the cost of their mortgage. When the price of a gallon of gas neared $5 in California in the summer of 2008, it helped shove the state into the worst recession in 60 years.

That 2008 spike had another important effect: it convinced Californians that they needed much more passenger rail service. Voters in Los Angeles County, Santa Clara County, and Sonoma and Marin Counties approved sales tax increases for passenger trains, with over 2/3rds of the voters saying yes. And of course, 2008 was the year that voters approved the $10 billion high speed rail bond, Prop 1A.

Californians didn’t just vote for passenger trains as a result of the rising cost of oil: they have also been using them. Take a look at the Capitol Corridor’s ridership since 1999, which tracks the price of oil very well:

Significantly, the place on this chart that does NOT closely track the price of oil is in FY 08-09. The price of oil crashed temporarily, but since has recovered, trading on Monday March 29 at $82/bbl. What didn’t crash is Capitol Corridor ridership, which is below 07-08 numbers, but is still above 06-07 numbers, a truly remarkable feat considering that 08-09 witnessed the severe recession. In fact, while ridership is down by about another 5% in FY 09-10, over half of that is due to state worker furloughs. Once the economy recovers, many of those workers will return to full-time employment, and more riders will use the trains. And on the other two intercity rail services, the San Joaquins and the Pacific Surfliners, ridership is higher in February 2010 than in February 2009, indicating that public demand for intercity trains remains strong.

Of course, as the economy recovers, the price of oil is almost universally expected to rise along with it. Economic recovery means more demand for oil, which will drive the price higher, particularly as growth fuels major demand expansion in countries like India and China. Imagine every new Tata Nano as another straw into the pool that is the global oil supply.

It’s a pool that is not being replenished. Instead, as the US Department of Energy acknowledges, a decline in production is expected as early as next year:

Page 8 of the presentation document of the round-table, a graph shows that the DoE is expecting a decline of the total of all known sources of liquid fuels supplies after 2011.

The graph labels as “unidentified” the additional supply projects needed to fill in a gap that is expected to grow after 2011 between rising demand and decline of known sources of supply that the DoE supposes will start that year. The declining production foreseen by the DoE concerns the total of existing sources of liquid fuels plus the new production projects that are supposed to come on-stream before 2012.

The DoE predicts that the decline of identified sources of supply will be steady and sharp : – 2 percent a year, from 87 million barrels per day (Mbpd) in 2011 to just 80 Mbpd in 2015. At that time, the world demand for oil and other liquid fuels should have climbed up to 90 Mbpd, according to the presentation document.

While one might argue this will merely fuel more searching for and production of oil, the fact is that the easily found oil has already been pumped. New production consists of more difficult sources, such as the Alberta Tar Sands. The high cost of production requires high oil prices to be profitable.

Rising demand and decreasing supply means only one thing: rising oil prices. Soon enough we’ll see a run at $4 per gallon, and then $5. That could happen in 2010 or 2011, depending on the strength of the economic recovery.

As I’ve mentioned several times before, Deutsche Bank believes this will produce oil prices of $175/bbl by 2017, perhaps sooner. In practice that would put California pump prices at between $5 and $6 per gallon.

If California hasn’t already gotten started on building out an electrified passenger rail system to connect our cities, and provide service within them, we are screwed.

But we’ve not heard very much about that in 2009. When oil prices retreated from their 2008 peak, many older Californians assumed it was the return of normalcy. Having lived their lives with low oil prices, with the 1970s seemingly acting as an anomaly, they came to expect that low oil prices had returned for good, and that there was no need for what they viewed as the “inconvenience” of building things like fast, electric, grade-separated high speed trains. At the same time, state legislators made a series of crippling cuts to public transit agencies even though they had seen dramatic ridership increases in 2008, which were generally sustained through 2009.

When – and yes, it is a matter of when – oil prices begin to rise again, those who advocated cuts to mass transit service and those who argued high speed rail was unnecessary will be exposed as having been very, very wrong. Public willingness to tolerate their delaying tactics, already small, will evaporate entirely as NIMBYs will be clearly seen as standing in the way of affordable transportation solutions.

We should start viewing HSR opposition as a “bubble” phenomenon. Enabled by a temporary lull in the upward trend of oil prices, it can only be sustained as long as those prices do not rise further. Once that happens, the anti-HSR bubble will burst as rapidly and as completely as the real estate bubble burst starting four years ago.

Just as it would have been foolish to make fundamental economic or infrastructure decisions during the housing bubble, it would be equally foolish to make the same decisions during the anti-HSR bubble. California must plow full speed ahead with the HSR plans as approved by voters in November 2008, otherwise we will have a much more difficult time dealing with higher oil prices than we’re already going to have.

  1. HSRComingSoon
    Mar 29th, 2010 at 22:28
    #1

    The price of oil back at its peak will become the norm within the next few years. Between the decline of known oil producers that export to the U.S. and geopolitics involved with the international competition for oil, expect less international oil to be delivered to the U.S. Further, readily available supplies of crude are becoming harder to access as wells are being drilled deeper and deeper. The only way supplies of crude will rebound are only if Brazil can quickly access its newly found 8 billion barrel deposits along with Iraq and Iran flooding the oil market, which is extremely doubtful.

    On the home front, the supply of refined oil/gas will be most likely be artificially inflated as oil companies move to shut down refineries and consolidate refining operations to increase profits which is already happening, as reported by the LA Times (http://articles.latimes.com/2010/mar/11/business/la-fi-refineries11-2010mar11). For example, if the refinery in Hawaii is closed down, then all of Hawaii’s gas will have to come from West Coast refineries, especially from California. This in turn will drive up prices as supply diminishes.

    What this all means is that viable options to commuting by cars and short-distance plane flights will become all the more important to keeping supplies of gas up and prices low for everyone else. High speed rail and other electrified trains will play an important part in doing just that. Moreover, despite advances in hybrid/electric car technology, this is no panacea. So long as people live farther away from their job, people’s attitudes and behaviors are determined by their alternatives. Without viable options for fast, reliable transportation, commuters will still have to drive and rely on the gas and the price that accompanies it. One must also consider that parking lots are not getting cheaper. Similarly, airlines will not be able to hold off the rise of jet fuel through hedging when those prices rise, which will be transferred to the passenger, especially in short-haul flights.

    High speed rail along with a network or fast, electric or alternatively-powered, reliable transit options will become far more popular when costs of traveling grow higher in relation to viable alternatives, especially when the “last mile dilemma” is taken care of. The more that HSR becomes clearer along with the possibilities to improve mobility as a means to reduce individual costs to driving and flying, the more people will support this project. I doubt a few towns on the peninsula will be able to stop it.

    Tony D. Reply:

    Nice HSRCS!
    You kind of alluded to it in your post, but what will rising fuel prices mean for the airlines? Not only the short-haul/SWA-type flights but the long-haul/intercontinental flights as well? I ask this because 1) HSR would reportedly take away 12% of SJC passengers by 2035 and 2) SJC is not huge when it comes to long-haul/intercontinental flights. Because of rising fuel prices and an expected shift of short-haul passengers to HSR, could the airlines in the future focus on long-haul operations out of major hubs like SFO to the detriment of smaller airports like SJC? I know SJC will be “celebrating” the grand opening of its new Terminal B in June, but because of rising fuel prices and the promise of HSR, it may not look good long-term for the Southwest Airlines-type of airport.

    HSRComingSoon Reply:

    For airlines affected by high speed rail passenger diversion, there are ways for them to cope with the loss of revenue. First, new planes. Many airlines, especially in the U.S. have old planes. Expect them to buy/lease new planes that are more fuel efficient. Second, airlines will look at reducing the weight of flights, so baggage weight limits will drop. A good example is seen in Qantas reducing it’s economy-class weight restrictions from 32 kg to 23 kg per checked bag on the flights from Sydney to the U.S. I imagine something similar to this will happen on domestic flights or limiting flights to one checked bag person or pay a premium; the current checked bag fees are only the beginning. As for service, look for reduced numbers of aircraft flying at one time so if one plane has a problem, getting a replacement plane might take some time.

    Airports have a few options. For the Bay Area, SJC will have to work to get more medium to long-haul trips based on the type of aircraft used. SJC doesn’t have 747s/A380s so it would be smart to go after markets served by the new 787, 777 and A-330. These could be some trans-pacific, inter-American and select European markets. Don’t forget, many international travelers leave out of SJC, so it can become a destination airport in itself. SFO will ramp up international operations because it can fit the 747s, A-380s and high-capacity planes, which are often flown in the really big money-making routes. Similarly, for both airports look for more direct access to “under-served” airports served by connections as there would more gate space courtesy of fewer Nor Cal-SoCal flights. Lastly, these airports will still have a strong demand for Nor Cal-SoCal flights as the final destination will determine the method of travel choice since for example, going to a place like Redondo Beach or Long Beach from the Bay Area will be far easier by plane than by train.

    Ben Reply:

    Airlines are also adaptable and, although more vulernable to increased fuel prices than other modes, can adopt more efficient technology and operational practices to reduce fuel consumption. As noted above, newer aircraft are much more fuel efficient. The US aircraft fleet is relatively old and there is much gain to be had with replacing older planes with more efficient aircraft. The B787 is expected to be 20 percent more fuel efficient than B767s or A330s ( http://www.seattlepi.com/boeing/787/787primer.asp). Airbus will be producing the A350, which uses similar composite materials. Additionally, Boeing is developing a replacement for the 737 that will also use composite material and advanced wing design to realize much of fuel savings that the B787 offers. On short-haul flights, aircraft such as the Embraer 190 (used by JetBlue) are far more fuel-effient than the DC-9s of a generation ago. Bombardier is making an aircraft that will hold up to 150 passengers and use 15% less fuel than either the A320 or the 737 (http://online.wsj.com/article/SB20001424052748704734304575120821506239764.html).

    NextGen avionics and air traffic control operational changes also hold promise in reducing aviation’s fuel consumption. Continuous descent arrivals/optimized profile descents,
    which are already being used at LA, are reducing the amount of fuel used per flight by up to 25 gallons(http://www.faa.gov/about/office_org/headquarters_offices/aep/research/science_integrated_modeling/media/Environmental%20Benefits%20of%20Continuous%20Descent%20Arrivals.pdf). NextGen will also allow for more direct flights, saving both time and fuel: http://www.faa.gov/about/initiatives/nextgen/media/NGIP_3-2010.pdf. Additionally, when oil was $140 per barrel in 2008, airlines such as Virgin made operational improvements such as taxing out on one engine (http://catsr.ite.gmu.edu/pubs/Kumar_Sherry_Thompson_ICRAT_Env_Final.pdf), further reducing fuel consumption.

    Although I am a bit skeptical at this point, great progress is also being made with biofuels and these have been used on numerous test flights in the US and abroad. The House Science Committee held a very interesting hearing on the subject last year: http://science.house.gov/publications/hearings_markups_details.aspx?NewsID=2392 .

    With higher fuel prices, you’ll see some shift to high speed rail for short-haul flights. If oil really got expensive, you’d probably also see fewer frequencies and carriers using larger aircraft with more passengers per plane.

    elfling Reply:

    The other alternative is broadband and telecommuting, which won’t work for every worker, but it can work for a lot more workers than use it now.

    Good infrastructure choices can do a lot to reduce our dependence on oil.

  2. synonymouse
    Mar 29th, 2010 at 23:20
    #2

    Easy answer – hell no.

    The “natural” solution to these problems is population reduction.

    HSRComingSoon Reply:

    Good luck telling that to India, China and rest of the developing world, let alone the U.S.

    BruceMcF Reply:

    You are arguing that China should move from a One Child policy to a No Child policy … or that the US should adopt a One Child policy?

    It is, of course, absurd for someone in the US to say that the “natural” solution to these problems is population reduction … one American has a bigger ecological footprint than ten Indians. The “natural” solution for the United States in particular is cutting our impact per person. If we only cut back our footprint to European levels, it be equivalent to eliminating over half of the population of India.

    HSRComingSoon Reply:

    I am basically saying that the U.S. has no place in trying to dictate population reduction strategies. If people are really concerned about population growth then the smart thing to do would be to encourage education and family planning on a massive international scale. As for population reduction, Japan is a great example. Their population is projected to shrink due to decreased birth rates, high living expenses, limited immigration and a large, aging population. On the contrary, despite the aging Baby Boom generation, the U.S. will continue to grow because of sustained birth rates, affordable living expenses that facilitates family expansion and immigration. The best way to cut down on population growth is to make having kids either (a) extremely expensive, (b) illegal, like having more than one child in China, or (c) not allowing immigration.

    Dan S. Reply:

    The most direct predictor of falling birth rates is rising income levels. If poverty levels decrease world-wide, population growth will level out.

    In the US, while immigration does bring in additional poor people, they become immediately removed from their previous (poorer) environs and while their birth rates tend to be higher than the US average, they will be lower here than they would be if they stayed in their home countries. Net decrease in world-wide poverty and net decrease in world-wide birth rate.

    Peter Reply:

    Feeding the troll again, are we?

    Bobierto Reply:

    I wonder what it’s like to be so lonely and alienated that “blog provocateur” is your claim to fame.

    Peter Reply:

    If he had any real skills he’d hack the blog. Like the griefers in video games.

    synonymouse Reply:

    Economic downturns, full-blown depressions in particular, quickly induce a drop in the birthrate. This is a recurring phenomenon and a quite rational reaction to tough times.

    An exception to this would be a militaristic society preparing for war, such as Germany between the wars.

    China and India have traditionally been caste agrarian societies, characterized by huge rural peasantries enmired in grinding poverty, subject to decimation by periodical droughts and famines. Rule by a tiny elite of mandarins eventually engendered cultural stultification, which allowed these weakened countries to be invaded over and over again by barbarians.

    In order to modernize China had to no choice but to control population growth.

    BruceMcF Reply:

    If you live in China or India, why spend so much time on a CA-HSR blog? If you live in the US, why not focus on the main problem in the US, which is the massive ecological footprint of each resident?

    lyqwyd Reply:

    you do know that population reduction, if managed purely by birth quotas, would take generations to have any downward trend on population numbers, right? whereas the price shocks that we will experience due to peak oil will be here in a decade or less (probably much less).

    perhaps you have another strategy for population reduction…

    Travis D Reply:

    Technically “birth quotas” would be “population management” whereas he said he favored “population reduction.”

    “Population reduction” implies creating lists of undesirables then carting them off to camps where they are mysteriously never heard from again. In other words: genocide.

    wu ming Reply:

    your knowledge of chinese and history is as painfully deficient as your grasp of high speed rail.

    Robert Cruickshank Reply:

    Now, now, let’s not go giving him any ideas…

    Peter Reply:

    Sorry.

    AndyDuncan Reply:

    “The “natural” solution to these problems is population reduction.”

    Change starts at home.

  3. Brandon from San Diego
    Mar 30th, 2010 at 06:51
    #3

    Anticipated ‘fuel shortage’ and/or ‘cost spikes’ concerns has largely caused me to postpone purchasing a new car… since middle 2008. It’s added quite the dilemma. I am now sitting on the fence as I consider two options… something with higher profile, greater sense of safety, but worse fuel economy, versus, a lower-profile sweet-ass sedan with 50% better fuel economy.

    On top of the decision, I am now driving fewer than 400 miles a month while I take the train instead…. so why bother at all.

    BruceMcF Reply:

    If you are driving fewer than 400 miles a month, get the best fuel efficiency you can, since its the only thing that will hold resale value in five to ten years time. And the higher profile, greater sense of safety is largely an illusion … from model to model, the lower risk of someone else killing you off in a car crash is offset by the greater risk of you killing yourself in a car crash.

    Adirondacker12800 Reply:

    If he’s only driving 400 miles a month car sharing would probably be cheaper and then he doesn’t have to get insurance, repairs, parking…

    Bobierto Reply:

    Nissan Leaf and Chevy Volt both come out in the next year and both will be priced at around $25,000 after federal electric vehicle tax credit of $7,500. If you are only driving 400 miles/month, you could buy one of these and never pay for gas again.

    I have the opposite problem – my partner commutes from downtown San Diego to Camp Pendleton. He used to take the Coaster and leave a station car at Oceanside, but that added at least 30 minutes each way to his commute, and didn’t leave him the flexibility to work the long days he often is called up on to do, so now he drives 50 miles each way, daily (he works well into the interior of the base). Translation – he’s putting about 2000 miles/month on our Prius. We’ll probably wait a year to let the manufacturers work the kinks out of these models and then buy one. Which one will depend on recharging options on the base.

    Peter Reply:

    Why is the Volt eligible for the tax credit? Once the gas engine kicks in, energy efficiency drops DRAMATICALLY.

    BruceMcF Reply:

    50mpg is not so bad. And the “once the gas engine kicks in” is a more than just a minor qualifier on a vehicle that can go up to 40 miles on a charge … for the commutes that many people have, that is days between times that the gas engine kicks in.

    AndyDuncan Reply:

    I get the feeling from the reviews we’ve seen so far, and just based on the general idea of a generator+electric motor being your powertrain, that driving the volt more than 40 miles is going to be a rather unpleasant experience. Electric cars with relatively short ranges and relatively long recharge times will be popular enough that a lot of people will buy them, and those people will need an alternate mode of transport for long trips. Plus, imagine how bad traffic is going to be once the incremental cost per mile goes down to just a few cents worth of electrons.

    Ben Reply:

    The NYT has an excellent review and video of the Mini electric vehicle in today’s paper (http://www.nytimes.com/2010/03/28/automobiles/28ELECTRIC.html?ref=global-home). This car can go up to 100 miles per charge. I think the video said that electricity for the car costs 1/3 to 1/2 the price of gas. Great progress could be made reducing emissions if the owners of these vehicles got the power from solar panels on the roofs of their homes, further bringing down the costs for them.

    Clearly the solution is either high speed rail and local transit or electric vehicles. If we want to reduce emissions and reduce our consumption of foreign oil, we need both transportation options. Unfortunately, there will still be many places in CA not connected to convenient transit and many people who choose not to ride transit. Their vehicles should be as sustainable as possible.

    Victor Reply:

    Yes, Many places don’t have real transit, I live in one of them, Cause of My income I can’t even finance a used car(I own a 1999 Ford Escort zx2 Hot Coupe and It’s paid for already), So replacing a battery would be out of My reach(like in the Prius, the Volt or the Leaf, etc), My income? It’s SSI/SSP(Supplemental Security Income/State Supplemental Payment) as I’m a disabled person and right now It’s $845 a month, Later in June It may be reduced to Its final amount of $830 though by the Calif Legislature as the Governor wants to reduce the SSP down to the minimum allowed by Federal Law and previous Court cases.

    Bobierto Reply:

    You’re absolutely right. My company recently moved from downtown to UTC so instead of walking 3 miles/day I am driving 30 miles/day. The Volt could get me through my commute and a few errands besides and never burn gas. I like the idea of having the backup – plus the Volt charges on a standard plug (god only knows how long that would take) while the Leaf needs a special charger that costs a couple thousand bucks (before additional tax credit).

    My god, am I really contemplating buying a Chevy? O Brave New World.

    Victor Reply:

    Actually I like the Nissan Leaf, It’s too bad that It does not come with a charger, the tax credits don’t do squat for Me, But I do like the batteries range, As It’s better than 40, GM did much better with their last battery equipped car, The Volt seems inferior to Me, But thats GM stupidity for Ya, The charge which is supposed to last 100 miles between charges is something I like, But then I don’t drive much. It’s just too bad that I’m stuck where I’m at. Maybe If I were to win the lottery, Otherwise no.

    Peter Reply:

    I was enthusiastic about the Aptera 2e, but I’ve now come to the conclusion that it will never be produced in sufficient numbers to bring the price to a level affordable by the masses. They delayed too long to manufacture it, and now the established manufacturers are bringing out electric cars that are more appealing to the mainstream. I think the window for the Aptera is closing rapidly. Opportunity … MISSED!

    Alon Levy Reply:

    50 mpg on a test track, maybe, but not in real-life urban conditions. MPG ratings are routinely inflated. The Insight was rated at more than 60; it averaged 45 in practice.

  4. Reality Check
    Mar 30th, 2010 at 13:39
    #4

    Podcast of today’s KPBS (San Diego SU) radio show

    How Long Will It Take For California To Have A High-Speed Rail?

    Guests

    Jeffrey M. Barker, deputy executive director for Communications, Policy and Public Outreach California High-Speed Rail Authority

    Pat Merrill, assistant vice president Amtrak Policy & Development West

    Yonah Freemark is a journalist who covers urbanism, with a focus on transportation. He has been published in “Dissent” and “Planning” magazines, and now writes frequently for “Next American City,” “The Infrastructurist,” and The Transport Politic.

    Bobierto Reply:

    Thanks for posting that, I’ll have to listen tonight. The animation posted on that link raises a question – I drive that stretch of freeway daily (Mission Bay). That corridor is where they plan to put the SD trolley extension – the “Mid-Coast Corridor”. So if HSR goes there too, how in the world will they fit 6 sets of tracks where currently there are only 2? The freeway already has no median so there’s nothing to borrow there, and to the east of the RR ROW is heavily-used Morena Blvd. I’m beginning to think following I-15 all the way to Qualcomm Stadium and then cutting west along I-8 is the only solution.

    For that matter, the ROW south of I-8 already has four sets of tracks (2 RR, 2 light rail), and particularly when it gets south of Laurel Street I don’t see how you could fit two more in. Sounds like a recipe for a terminus at the new airport terminal on Pacific Highway. I don’t have strong opinions on either of these questions but I would be interested to hear what others think about the I-5 route all the way to Santa Fe Depot – how much destruction would be necessary?

    Nathanael Reply:

    There’s undoubtedly going to be an elevated line (stacked tracks) along part of the route, most likely the downtown segment.

    There already is elevated in the San Diego Trolley system.

  5. Gianny
    Mar 30th, 2010 at 17:21
    #5

    Has anyone read LATIMES story on Villaraigosa possible getting funds for Metro?

    http://www.latimes.com/news/nationworld/nation/la-na-transit29-2010mar29,0,1351138.story

    It also shows the way some politicians think about California getting money for anything.

    Spokker Reply:

    If I understand the plan correctly, the money would have to be paid back with future Measure R sales tax revenue.

    Robert Cruickshank Reply:

    That’s exactly right. Measure R repays a federal loan to pay to build by 2020 everything envisioned in 2040.

    If only there were political leadership like that for high speed rail.

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