For the past few years, skyrocketing oil prices have had Americans on a gasoline diet. We’re walking more, using public transportation, opting for weekend “stay-cations,” even trading in our gas-guzzlers for hybrids. Ten years ago, the consensus was that oil demand would go up as supply went down, and prices would follow. But as it turns out, the opposite was true. So, what happened? That was the first question host Greg Dalton put to his guests at a recent Climate One forum.
The last five years have seen a significant – and unprecedented -- shift in American’s driving habits, says Bill Reilly, a former head of the EPA. “We leveled off in terms of vehicle miles traveled,” he says, “Now, there are more of us, there are more cars that are being sold and manufactured every day, but at the same time we're driving less.”
One reason? Both millennials and retiring baby boomers are moving towards urban centers, choosing ride-sharing, public transportation and bicycles over long commutes from the suburbs. “That has profound consequences, I think, for the future,” continues Reilly. “I think we're going to see a continuing reduction in demand.”
At the same time, the global balance between oil producers and oil consumers is changing, says Jason Bordoff, director of Columbia University’s Center on Global Energy Policy. “So the places we thought of as the producers of oil, the Middle East, Venezuela, these are rapidly growing demand centers,” he says. Meanwhile, major consuming countries, such as the U.S. and Canada have become major suppliers. “US oil production is up four million barrels a day since 2008, I think... imports have gone from 60% to 20% of our consumption.”
And Reilly points out that China and other countries also have their own untapped supplies of shale gas. “I think they will find ways to develop it,” he predicts. “And once that happens, it's very possible that we could see a cascade of new supply at the same time as we see the decline in demand. And we will then I think see the oil price follow the gas price, the natural gas price in the United States, which is trending down."
So despite its inherent volatility, Bordoff doesn’t see oil returning to $100 a barrel anytime soon. “We'll probably be on this range of $60 to $80 for several years,” he told the audience. “But it's easy to see it dipping further before it comes back up. So could it go down to $30 or $40 before it comes back? I think that's definitely possible.”
Good news for consumers, not so good for Big Oil – and its investors. What do falling oil prices mean to Wall Street? Kate Gordon keeps a close eye on the fossil fuels market as senior policy advisor to The Risky Business Project. “The one thing that is predictable in oil markets is that they're volatile, and we will see unpredictability going forward,” she warns. And the way to ride this boom-bust wave is by continuing to reduce consumption.
“The key to me for policy makers and consumers is keeping our eyes on policies that do reduce that vulnerability to volatility,” Gordon advises. For example, “pushing electric vehicles, trying to move the vehicle fleet more into electricity side, which has become far more renewable.”
As Willie Nelson sang, “I just can’t wait to get on the road again,” and most Americans are ready to do just that. But environmentalists fear that lower prices at the pump could spell trouble for the climate. Could cheaper gas mean an end to carbon consciousness? Will we see the return of the Hummer this summer?
“Carmakers respond to consumer demand,” says Bordoff. “So if consumers decide that cheaper gasoline is here to stay…they'll respond to that.
“From an oil demand and emission standpoint, lower prices are not a good thing,” he adds. “You're going to drive a little bit more, maybe make a different choice about what kind of car you would buy.
“That's why I think policy is so important. And I think what prevents us from returning to the Hummer is the fact that we have aggressive fuel economy standards…policy is going to be the key driver.”