Save and Conserve

Earlier this year, I wrote about how US consumers are responding to high gas prices by moving away from light trucks & SUVs towards smaller cars. The trend continued in April:

Of equal concern to automakers, buyers defected from high-margin trucks and SUVs to cheaper and more fuel-efficient cars more rapidly than expected due to high gasoline prices.

Cars accounted for 53 percent of sales in April with light trucks near 47 percent, a nearly complete reversal of the share of the categories a year earlier, according to Autodata.

The market shift toward cars has favored Japanese automakers with more established small car offerings.

By contrast, the trend has pummeled the truck-heavy lineups of Detroit-based automakers with the average price of regular unleaded gasoline punching above $3.62 per gallon on Thursday, a record high, according to AAA.

The three Detroit-based automakers had just a 48 percent share of the world's largest vehicle market in April, down 5 percentage points from a year earlier.

Let's hear it for the oft-maligned US consumer. Common sense decisions are a possibility in this country, if given the right incentives.

These news reports make it clear to me that the problem in this country is not with the end user. The problem is with the program. Americans would eat alternative energy up if given the (sensible) opportunity. This was covered in detail in the movie Who Killed the Electric Car?, which is a stunning documentary about how environmentally-conscious Californians wanted to buy electric cars, but weren't able to do so because of corporate interests & weak government.

How do we fix or change the program is the question. I'm not really sure how that gets done sans crisis or some major problem or negative event. The corporate interests control the government & they have zero incentive to cede control. Control will have to be taken ... which implies organization & inspiration.

As this political season is showing, the people are nowhere near as empowered as they need to be to make change happen. People just don't care enough to get involved at the level required to make real changes happen.

There's a glimmer of hope out there in some of these news stories ... but the light is very faint. I still hold that it will take pain, crisis, bad shit to get people moving in the right direction.

Posted by tom c. at 4:30 PM | Permalink | Comments (0)

Impressed by record high gasoline prices & a bleak economic picture, US consumers have responded by 1) reducing spending on automobiles & 2) allocating the money to more fuel-efficient models. In other words, the free market is at work. We are finally seeing what it takes to get people to change ... & it takes pain.

The auto makers are now recognizing the "seismic shift in consumer preferences" & unfortunately for them, they are not prepared to respond to updated demand. For the most part (& especially for the US automakers), car makers apparently didn't see this coming. Ford & GM are paying dearly for the lack of foresight ... they just don't have anything to sell the newly conservation-minded customer who is looking for the quick fix weight loss program after years of hogging out at the gas pump.

It's good to know that, although late to the party, the consumers are still - on average - rational thinkers who will change when things get tight. The SUV is now DOA. They were fun while they lasted, but not so fun now in a world of $60 fill-ups. Good riddance ...

Posted by tom c. at 12:22 PM | Permalink | Comments (1)

I caught part of the Democratic debate on cable a couple of nights ago and was pleased to hear the candidates talking about energy. Even in the 2004 election, with the Iraq War in full swing, energy didn't really make it to the national level as a political issue. When you consider that the war is being fought on top of billions of barrels of oil, it's pretty incredible that it didn't become a flashpoint. C'est la vie. It's now on the table and my guess is that energy will become a critical issue in the 2008 election. With oil marching towards $100 per barrel and gas once again approaching $3 per gallon and no sign of an ease in global energy demand or a rise in global energy supply ... people are starting to wake up to reality.

The Consumer Federation of America released a new report and survey results that show Americans are beginning to understand that high energy prices are not temporary. The report found:

• Over the last five years, household energy expenditures (home heating and gasoline) have nearly doubled, and are now 50 percent more than health care expenditures and 23 percent more than spending on food.

• Three key energy provisions bottled up in Washington could save consumers more than $180 billion between now and 2020.

The survey results included the following points:

• Concern over U.S. dependence on oil from the Middle East has grown dramatically and now almost equals concern about prices. Seventy-six percent of those asked express concern over imports (56 percent express great concern).

• An overwhelming majority (84 percent) supports three requirements in Congressional energy legislation: l) higher fuel economy standards for passenger vehicles; 2) the purchase of renewable energy by electric utilities, and 3) expanded production of biofuels.

• An overwhelming majority (75 percent) still supports these proposals after hearing arguments from opponents of the legislation.

• Opposition to these policies is meager (between 13 and 22 percent).

This report/survey shows that the average consumer has already transitioned mentally to a new reality. As has happened many times in the past, the people in the US are way ahead of the representatives on the issue. In a year, the American people aren't going to put up with a candidate who is not saying the right things about energy. It's time for the leadership to wake up and catch up ... ASAP!

Posted by tom c. at 2:06 PM | Permalink | Comments (0)

I've been seeing random news items for the past few months (since gas prices approached and passed the $3/gallon mark) about hypermilers and hypermiling. What is it? It's a host of driving techniques that combine to increase a vehicle's fuel efficiency and reduce gas consumption.

Hypermilers practice the following tricks of the trade:

• avoid jackrabbit starts
• avoid hitting the brakes
• drive with the windows up
• drive 55-60 mph on the freeway
• avoid traffic congestion
• park as close to the exit as possible at stores
• park at the high point of a parking lot
• shift into neutral on downhills and coast
• keep your tire's pressure up to reduce friction with the road
• reduce the weight of the vehicle by clearing out the trunk/backseat of junk
• use super-thin motor oil in the vehicle
• change the motor oil more often
• replace the vehicle's air filter
• attempt to "time" lights so the vehicle does not come to a complete stop
• keep the car washed to reduce drag
• draft larger vehicles on the highway

I've been hypermiling for at least 2 years. I rarely drive above 60mph on the freeway and I'm very conscious about how much pressure I use on the gas pedal. I've always been the type of person who likes to "time" the lights, and I find myself parking in a central part of a stripmall parking lot and walking to each store (as opposed to driving from one end of the complex to the other). There are tons of little things you can do to get better mileage ... I like to look at hypermiling as a challenge. It's fun to try and squeeze more out of the car and it's fun to save some pennies while doing it.

Posted by tom c. at 12:06 PM | Permalink | Comments (0)

The sub-headline for this WaPo article on the influence of gas prices on driver's behavior is "Confounding the Experts, A Poll Finds Prices Must Go Way Higher to Alter Driving".

Why are the experts surprised that gasoline demand is basically inelastic? I thought they were the so-called experts, yet they seem to miss the fact that American daily life is utterly tied to the automobile. People don't move around on public transportation. They don't walk or cycle. They jump in their car and drive, Mr. Expert!

I doubt that a tipping point exists at $4/gallon either. If gas prices continue to rise, consumers will consume less of other stuff. They won't stop buying gas because that would mean they stop their life.

The media coverage of gas prices is already starting to annoy the hell out of me. Congress wants to blame oil companies. Right wingers want to blame environmentalists for preventing refinery construction. Nobody is talking about the real problems: tight energy supply and US car culture.

Posted by tom c. at 9:54 AM | Permalink | Comments (0)

US gasoline stocks are currently near the bottom of the 5 year average range. Stocks should be rebounding over the next two months before the high-demand summer season. Should be very interesting to see the next point the red line lands at. If the next point is not pointing the line higher, we could be looking at very high gas prices in summer 2007. Just look at the demand so far this year:

Source

Posted by tom c. at 10:10 AM | Permalink | Comments (0)

When OPEC cuts, the EIA listens ...

From the EIA's Short Term Energy Outlook:

Inventories. EIA projects that the OPEC-10 cuts will be sufficient to reduce inventories to normal levels by mid-year 2007. EIA’s consumption and supply projections suggest that in Organization for Economic Cooperation and Development (OECD) countries commercial oil inventories could decline by 0.9 million bbl/d in the first quarter (compared with an average inventory draw over the past 5 years of 0.3 million bbl/d) and not build at all during the second quarter. In contrast, OECD commercial inventories have increased by an average of 0.8 million bbl/d during the second quarter over the past 5 years.

This view should fuel the oil bulls. Methinks we've seen the last of the 50s.

Posted by tom c. at 4:31 PM | Permalink | Comments (0)

In his book "The Coming Economic Collapse", Stephen Leeb, PhD makes the case that America is on the verge of economic meltdown due to an impending, devastating energy crisis. Leeb states early on:

An economic crisis is near at hand in America today, the kind of dramatic, earth-shattering crisis that periodically threatens the very survival of civilization. More specifically, it is an energy crisis brought about by the conflict between rising global demand for energy and our growing inability to increase energy production.

Pretty strong stuff. Seeking to answer the reader's obvious question "How can you expect me to believe that America - the world's undisputed military and economic superpower - is on the verge of societal or economic collapse when things seem to be running normally, just as they have for years?", Leeb devotes the initial chapters of the book to psychology. Leeb introduces the reader to the concept of groupthink - also known as the blind leading the blind. Per wikipedia, groupthink is "a mode of thought whereby individuals intentionally conform to what they perceive to be the consensus of the group."

Leeb's target is Wall Street, and he effectively shows us groupthink in recent action (dot com bubble & crash) as well as debunking the efficacy of the Modern Portfolio Theory (diversify holdings for best results), which is the de facto investment strategy of most money managers. Leeb is clearly a contrarian and he argues that political and business leaders are unable to see the forest through the trees, leading to the herd mentality which promotes the status quo.

Accepting that oil supply will not keep pace with oil demand from rapidly growing "Chindia", Leeb next addresses how he thinks $200/barrel oil will impact the American economy. This is where it gets tricky. Leeb sums it up nicely when he writes,"The problem with rising energy costs is that they are both inflationary and deflationary at the same time, which makes it difficult for the government to choose the right [monetary] strategy."

Inflation from rising cost of oil is a major problem, because "the higher oil prices get, the bigger the increase in the price of fuels." Rising inflation tends to slow down the economy, which is deflationary. A slower economy typically results in higher unemployment, which reinforces the economic slowdown. Leeb believes that stagflation is upon us and here to stay for the next decade at minimum.

So how, in Leeb's opinion, will the government choose to deal with stagflation? It can either raise interest rates to slow inflation, or accept a very high inflation rate. Leeb feels that the government will be unable to raise rates, because doing so could collapse home prices. American consumers have leveraged their homes to the hilt. Destroying the value of homes would be catastrophic to the consumer. Leeb states his position about future policy:

Unable to fight inflation without risking an economic meltdown, policymakers will put all their efforts into keeping the economy growing, so that wages rise faster than interest rates and debt does not overwhelm the average citizen.

Believing that the meta-trend for the next decade is higher inflation, Leeb then transitions into how to play rising inflation in the stock market. His recommendations are solid, if not ground breaking. If Leeb is correct that the Fed will be forced to accept hyperinflation, his picks and recommendations could turn out to be wise investment vehicles. I, for one, found his argument compelling and thought provoking.

"The Coming Economic Collapse", which accepts the theory of peak oil, should be considered required reading for those looking to map out investment strategy in the coming decade.

Posted by tom c. at 10:32 AM | Permalink | Comments (2)

it's always good to step back and remind yourself that gas prices only seem to be high, mainly because the price of gas has been so low for so long (approximately 20 years now). when i first started driving in 1990, i could get a gallon of unleaded for about a dollar! filling up my mom's honda civic would only cost around 10 bucks back then. that was my introduction to gas prices.

that is just ridiculously cheap. consider there are 16 cups in a gallon. back in 1990, a cup of unleaded gas cost about 6 cents. today, with gas prices at my local stations around $3.09 on average, a cup of gas still only costs about 19 cents. what does a medium cup of coffee run? at least $1.25 ...

it's good to get this kind of perspective on gas prices and on energy prices as a whole. i think it's the reason we have not yet to see any real demand destruction in america. the stuff is still remarkably cheap ... even though it seems remarkably expensive.

somewhere deep in the recesses of our collective subconscious we know this is still a bargain. so we keep buying and we're not ready to adjust lifestyle. gas prices will need to go much higher before the stuff becomes a net loss to your wallet.

Posted by tom c. at 11:14 AM | Permalink | Comments (1)

just sat through an interesting meet the press focused on rising gas prices and government energy policy. sam bodman defended the administration's every move even though major holes were poked by dick durbin and jim cramer. cramer especially hurt bodman on the subject of ethanol, wondering why the administration did not anticipate the bottlenecks that have appeared in the supply chain due to the new rules eliminating MBTE fuel additive. cramer feels that fifty cents of the price of a gallon is due to mismanaged policy implementation.

might be true and if it is, would anyone be surprised that the current administration has handled it ineptly? of course not. but their incompetence is not the real culprit behind more expensive gas prices.

daniel yergin was also on the panel and kept reminding everyone that this issue is not as simple as: "are the oil companies colluding to drive profits?" in fact, the price of oil (and therefore, of gas) is set on a global market by traders. so speculation might be part of the equation, but i doubt collusion is a major part of the problem. the biggest explanation for the rising price of gas would be the supply situation, which appears to be constrained and incapable of growing to meet a rising global demand.

that is the underlying reality of the world we live in. it's fascinating to watch a panel of smart people dance around that point and avoid talking about the best ways to take some of the pressure off of the supply side: conserving. not one of these panelists talked about driving less, moving closer to work or dropping the highway speed limits. amazing, really. instead of talking about simple obvious ways we can use less of the stuff, these smart people want to discuss collusion and mismanaged policies.

things are pretty messed up and, if this episode of meet the press is any indication, things are only going to get worse before they get better. interesting times ... yes. dystopia? probably.

Posted by tom c. at 11:41 AM | Permalink

Energy prices have been heading up fast for a good solid two years ... and now the cost of gas is heading up on a daily basis.

The markets are sending us a signal - a major warning shot across our collective bow. Global demand for a variety of fuel sources (primarily oil and natural gas) is running wild and capacity to meet that demand is stretching very thin. Throw in the weather related issues (like massive Cat5 hurricanes) and chess matches between nations sitting on top of fuel and nations far away from fuel ... and you have got a witch's brew of swirling problems.

Conservation is an easy way for you - the buyer at the end of an incredibly long and complex supply chain - to mitigate rising energy prices.

Actually, if peak oil is for real, conservation might be the only effective way to deal with rising costs of energy. Scary thought? I believe not... if you begin to think about the problem with an open mind and a dose of creativity, I think you'll see it can liberate you to some extent.

There are so many simple ways to start reducing your energy use. Really, Americans waste so much fuel. Our per capita use of gas is pretty outrageous.

If you live in a town, start walking more. A half mile walk to the store to pick up a gallon of milk is not a hassle! It's fun and it gets you outside for half an hour. How about driving slower? That's the biggest no-brainer around. You can easily get more for your gas money - cut 5 to 10 mph off your average speed.

Don't be afraid of the rising costs of energy, be flexible. The world is entering a new time, when cheap abundant fuel is ancient history. Your attitude and approach is key. Start thinking about reducing your energy footprint and stop pining for the good ole days ... cause they ain't coming back!

Posted by tom c. at 5:05 PM | Permalink