26 October, 2007

Oil Prices and Bikes


It's time to go a bit off topic again. Oil prices topped $92 per barrel yesterday. By Spring we may have $4/gal gas prices, which is still ridiculously low by European standards. I guess more people will be commuting by bike.

What amazes me about this is not the prices, but the press stories. Over and over we are told the this is due only to speculation. But the fact is that it is a function of supply and demand. Here is an excellent post that explains how demand is just now starting to outstrip oil production. Some of the best and easiest to digest information on oil can be found in posts by Jerome Guillet, who writes under the name "Jerome a Paris". Jerome is a Parisian banker who specializes in energy related finance. He posts to Daily Kos and European Tribune. His series about the lead-up to $100/barrel oil is fascinating. Another super site about energy issues is The Oil Drum blog.

Basically, we are about to reach, or have passed, what is called peak oil. This does not mean that we will suddenly run out, but that production capacity, even assuming continued new oil field discoveries, can't be maintained. Unfortunately demand is being not only maintained, but is rising rapidly. That means prices are likely rise much faster in the future.

If this post is not gloomy enough you should read this article about a major new UN report. Actually, please read it anyway.

What does this have to do with bikes? Well it is good news for the commuter and city bike business.

I'll leave you with one last thought:

"Did you know that the bicycle is the most energy efficient transportation mode? It is 3 times more efficient than walking, 5 times more efficient than using the train and 15 to 20 times more efficient than driving a car."

41 comments:

franklyn said...

Chris,

From one of our analyst meetings we had at our company, I heard from one of my colleagues that unfortunately, increase in oil price may not lead directly to reduce use of cars (and thus increase use of bicycle). According to a survey study (which I need to find the citation for), if gas price is increased by $1 (from $3 to $4), most Americans are still not likely to reduce their car uses; instead they are more willing to reduce their other budgets. In fact, most americans are willing to reduce their food budget by 10% before they reduce their car uses if the gas price is increased by $1/gal.

Much to my chagrin,
Franklyn

Chris Kulczycki said...

Franklyn, What you write is true, but post "peak oil" prices may start to rise faster. We may see $5 or $6 gas in a couple of years and $7 or $8 soon after.

Anonymous said...

The rapid growth of the city bike is the best bike development in years, in my opinion. I wonder if bike companies are looking at oil prices, and making some educated guesses--because the truth is, city bikes have never sold well in the US. It's a big risk to introduce them. And yet there are dozens and dozens of new models coming out for 2008, from nearly every company. Maybe they're just being pragmatic?

I like many of these designs, even though for myself I still do most of my commuting on a (Very Nice) converted ti hardtail mtn bike with custom steel fork. Had the SBC Globe City line or the Trek Soho line or the Breezer line been available a few years ago, I would be riding one. --Of course, I'd very much prefer a VO city bike to any of them.

best,
michael white

Eric P. said...

A bigger problem is commuting distance. Folks in general still live too far from their place of business to make bike commuting the main option. Unless folks are willing to move closer to work it's never going to catch on in this country.

franklyn said...

Eric,

On bike to work day earlier this year, one statistic caught my eyes. In the San Francisco Bay Area, more than one million commuters live less than 5 miles from their employment (which is more than 14% of total Bay Area population), which is fairly doable as a bike commute.

It's not just biking, one can combine biking with public transportation. I live 45 miles from my work, and it's been months since I last drove to work. Distance is not the problem, people's habit and perception of distance is the problem

Anonymous said...

Yes good news for cyclists but higher oil prices mean higher food prices also. Compared to 35 years ago, the percent of household income spent on fuel is much lower, so you're right to conclude that much higher prices are needed to reduce demand. Unfortunately federal programs provide tax incentives to grow crops to feed cars. Then there are all the infrastructure/safety/sprawl problems for cyclists that unfortunately remain unaddressed by political-transportation leadership...
Let's hope bicycles will finally get the praise, attention, and consideration they deserve.
Jack

mpetry912 said...

folks, it ain't just "the price of gas" that will be impacted by higher energy prices. Every single item you buy, from a loaf of bread to a piece of plastic crap made in china by conscripts on forced labor, has a latent energy content and will therefore be impacted by the rising cost of oil. It is the fuel that powers the global economy.

Energy Return on Investment (EROI) should be considered in every new construction project we undertake. Here in seattle, we have a major new ballot initiative to fund a mass transit system built 25 years too late, and it will probably be rejected by the voters, despite the promised highway improvements put into the package to render it more acceptable. Yet we have TWO sports arenas built in the last 5 years at a billion or so apiece.

See oilcrisis.com for more info. It ain't a pretty picture.

Mark Petry
35 miles / day
Bainbridge Island, WA

BG said...

Isn't every plastic doo-dad also made from oil/oil by-products? It's not just for internal combustion engines.

Even if we could drive less, could we doo-dad less? China is now the do-dad king, and the number of motor vehicles in China is exploding.

Where I live, we have many, many bicyclists who drive huge pickup trucks and SUV's to transport their $5000 carbon fiber bikes from home to the bike club ride departure point, and then they end their rides stuffing pastry sweets and sugary coffee convections down there throats. Welcome to the new world!

franklyn said...

I say raise the gas price to $10 a gallon and give clean-air rebates to people who don't drive. I agree that everything has a latent energy cost, and rise of oil price will certainly impact that. We folks live in United States are really lucky because compare to most folks in the world daily necessity like food and clothing is cheap compared to our income level. I actually thought about multi-tier gas price system where public institutions and maybe some private enterprises (such as freight companies) can get gas at a much lower price than civilian.

As a society, the US is way too wasteful, maybe by raising the living cost people will be less wasteful and conserve more resources. Voters are less likely to pass the funds for two sports stadium (not necessity) in Seattle in the last 5 years if they have to spend more money on daily necessity and gas (thus less disposable income), and will be a lot more amenable on public transportation systems because the gas price is so high. I am not even opposed to higher taxes if they could go to building better public transportation and combat climate change.

Of course, this assumes that we have a progressive and non-corrupt government that will make good use of the extra income it gets.

C said...

Two things people often leave out in the whole joy of high oil prices thing:
1) It still impacts cyclists. Doesn't matter if you don't drive, you're still going to pay. Pretty much everything you consume is delivered by truck, train and ship. You may smugly think that because you ride a bike you're exempt but rest assured, your $5 soy chai latte WILL go up in price.

2) High gas prices are especially bad for the people who can least afford it. A lot of cyclists say people should just drive less. Well for people who live 20-30 miles from their job that's not really an option. Please don't give me that "just move closer to work" argument. One of the main reasons why people in places like Seattle and San Francisco live 20-30 miles from their workplace is because they can't afford to live near their workplace. Home prices in many cities have gotten out of reach of the middle and lower class. That or you're forced to live in a tiny apartment in a sketchy part of town and put up with crappy schools - not a great option if you have kids.

I'm all for biking instead of driving as much as possible but I'm also lucky enough that I can afford a lifestyle that makes that possible.

What we do need to do is stop developing endless sprawling subdivisions that move people ever further from their jobs and also make cycling and public transit impractical.

franklyn said...

part of the reason that home price has gotten out of control is because the US federal reserve does not consider that when it calculates inflation. Therefore as house prices goes up incessantly, our income level does not go up accordingly. People then resort to make money out of speculation on real estate, which of course drives up value of home prices even higher, a vicious cycle indeed. In fact, compared to other countries, even a highly developed one like Japan, the affluence of people in United States is pretty thin to begin with. Citizens Japan save about 27% of their income, while that number is about 3% for the Unite States. Most of our wealth is paper wealth--in the stock exchange or equity on the property that we will eventually have to pay back--and can come crashing down fairly fast.

I don't think people who cycle are exempt from the overall increase in living expense if the gas price goes up significantly. That's what I expect actually to happen and hope that it actually has an effect. Over-consumerism is the cause of the problem, and if by raising the price of goods over consumption can be curbed then all the better.

Some might argue that consumption create economic growth which is good for everyone, but it really only fattens the top 0.5% of the society and create larger gap of income. I say consume less, and eat and use local products.

Let's say a city charges a high tax for gasoline in the city limit, and uses the extra revenue to develop public-funded affordable housing and more extensive public transportation to the suburbs. It will not be popular, though. Like I said, I live 45 miles away from work (though not out of necessity because Berkeley is not that much cheaper than say Redwood City, which is 10 miles from work; I live in berkeley because i like it) but I don't ever drive to get to work, so it won't necessarily pose difficulty for people living 20-30 miles out just because the gas prices go up.

Chris Kulczycki said...

A couple of things: So often in these discussions we make the logical error of assuming everyone must commute by bike. That's not realistic even in Amsterdam. Suppose, however, that 25% of city folks did ride bikes; that's half the rate in several northern European cities; and that 35% took public transport. That would make a monumental impact.

As for the cost, it will likely trigger a major recession, but that may not be all bad. Before you write me off as nuts, read this short piece:
http://tinyurl.com/3b8spm

And here is another nutty argument: http://tinyurl.com/2a5ynw

C said...

The one problem with any comparison to how people do things in Europe is that we're not in Europe. The United States is vastly larger than any European country outside of Russia. Our geography is a major issue, especially in the western half of the US where major cities are often hundreds of miles apart.

Also most cities in Europe were for the most part developed decades before the automobile. As a result, they're ideal for cycling and public transit. In the US we had the (mis)fortune of developing much of the western half of our country at a time when gas and land were both cheap and our population was much smaller.

European models are likely not to be the solution for American problems. What is clear is that we need to stop the endless sprawling development seen in places like Phoenix, Las Vegas, San Diego, etc.

Anonymous said...

well, no, most American towns will not turn into quaint European villages with thatched roofs and and tall lasses in dindels. But that's no reason not to examine precendent in confronting similar problems. We will have to deal with alternative fuels, whether we want to or not, and regardless of land usage or history or anything else. If we ever begin to do that in any sort of responsible way, we will have to look at other examples, and those examples are largely in Europe, I would think. Most problems are like that, ya know? They've mastly been faced before. We're really NOT all that terminally unique, let's hope.

best,
mw

Dave Cramer said...

As James Howard Kunstler often mentions, restoring the railroads in the U.S. would be a good start...

Ron said...

In some ways we'll have to curb our American expectations of "a plot of land to call my own" to more realistic levels. That phrase used to mean an acre or two, then 1/2 acre and so on. Now a 1/8 acre lot would be considered a big suburban lot (about 52 x 104 feet). Even monstrously big by the standards of most of the Western World. My take on this is, if you want to live in a city and have all the things you like about city life like your high tech job, culture, restaurants, then you'd better rethink your expectations of how large you want to live. The bottom line is, we're going to have to downsize our supersized American lives. That's OK by me. I think the closer we live to each other, the more we'll get to know each other (within limits, of course).

Ron

Anonymous said...

Thank you Chris, for having the courage to explicitly link the social world with bicycle use.

Your Velo Orange store is a gem. I dont walk into bike shops anymore unless they actually stand for something. Velo Orange is the only one in the (braod) DC-area worth walking in to. (Apologies to College Park Bikes; they come close, but no cigar...) Shirks Bike Shop in Lancaster, Pa., is another worthy shop; so is Via Bicycle in Philadelphia, and Trophy bikes in Philly)

Racers are brain dead (I say that as a Cat 2 for many years, having raced next to Lance Armstrong and his ilk, in the late 80s/early 90s, etc..); and shops that cater to them imagine themselves apolitical ("we just ride bikes, dude...")

Have you seen Ted White's video on Critical Mass? It is excellent!.... Have you read Duaney's Suburban Nation? or The Geography of Nowhere?...

Best regards,
Mike

Anonymous said...

I wish more of the cycling culture would spill over into Idaho. We have big traffic issues here in the southwest corner. City council elections are coming up in two larger areas and the candidates are either clueless about the energy/transportation connection or they just deny there's a reason to look at changing things. Gasoline demand is inelastic because we've simply built everything far apart since WWII ended. We can thank stupid zoning laws for this problem.

Anonymous said...

I operate a mechanical contracting business and have a fleet of 24 vans, and a few diesel p/u trucks.
My opinion is that we can't run out of oil fast enough. The wars and pollution caused by c this and other carbon based fuels is hardly worth it. Everyone wanted an open and free China with a strong economy. Well, here you go. Everything will become more expensive due to transportation costs. So what? People will still eat, have clothes etc. It will just mean that we will have to redirect family resources away from things like eveybody gabbing on their cell phones all the time, 5 TV's in one house, a vacation home, a fat portfolio ec, and then maybe we can get to a place where human interaction and simpler pleasures become important.
Oh yeah, and we're going to have to come to grips with nukes again. Solar and wind can help, but it's going to be nukes. We'll deal with the waste somehow (blasting it into space?).
I can't wait.

Anonymous said...

I was at the Reading Market (Philly) this morning and there was an empty space. On the For Rent sign, it said "green, eco-friendly business encouraged". That's something.

Charles said...

More proof that the bicycle is the ultimate sustainable transportation solution. As if those of us who already ride our bikes everywhere need to know that. Ride on!

neil "gunner" berg said...

Realistically most of us in Minnesota can only bike about half the year, but it all helps. I did my part by quiting work and becoming, in Chris's words, a lout and a wastrel. My plans are to bike to the donut shop in summer and take delivery in winter.
I would strongly recommend this issues Rolling Stone article, The Prophet of Change, a review of the thoughts of James Lovelock on global warming. It ain't good.

Anonymous said...

A few observations:

1) It's easy for folks on the coast and in big cities like Chicago to say "Heck, go ahead and live 45 miles from your job even if you don't have a car" because you all have that nifty thing called "mass transit". People living in the boonies, or even in some sizable cities, don't have mass transit to speak of, much less the quality transit you all have.

2) We haven't reached "peak oil". We've reached "peak CHEAP oil". Alberta and Venezuela alone have enough ultra-heavy oil (we're talking stuff the consistency of peanut butter) to fuel the world at current rates for nigh on three hundred years; however, extracting and refining the stuff only is profitable if oil prices stay above $50 a barrel; so far, that looks to be a safe bet.

3) Oil doesn't just go into gas tanks. It's used to make plastics, medicines, and nifty things like bicycle tires. We have to find replacements for oil in all of these things.

4) You don't want 300 million people all trying to go 'back to the land' at once. Trust me. The most eco-friendly thing a person can do is live in the city and shop at local markets whenever possible.

Anonymous said...

By the way: As far as savings goes, Americans don't save because they CAN'T save: Real wages peaked in 1974 and have (aside from a few years during Clinton's two terms) been dropping ever since: http://www.workinglife.org/wiki/Wages+and+Benefits:+Real+Wages+(1964-2004)

Meanwhile, the rich have been getting richer, especially in the last few years thanks to Bush's tax cuts, which helped them much more than they did anyone else: http://www.nytimes.com/2007/10/12/business/12tax.html

Anonymous said...

I'll never understand all this fuss about tax cuts for the rich. Redistribution of wealth was tried once. they called it the Soviet Union and it failed miserably. I'm not one of those folks who are really rich, but if a person starts a business what is his incentive to do well if he knows he'll have to turn the fruits of his hard work over to the gov't?
Even if a person has a fat portfolio, that money is what funds research and grants so all of these professors can sit in their offices and muse about what a shame it is that people are poor.
Ever notice how every time there is some piece on NPR etc about a problem, they always send "a group of politicians, educators and writers" to evaluate the problems? these folks are the least qualified to fix anything, much less evaluate anything.
If you want to get ahead and be richer if not rich then just do it. You may have to work 18 hrs a day but nobody said it would be easy. If you choose to concentrate on other things that's OK too, but don't down those who have elected to achieve.
Does anybody know why more wives/mothers have to work these days instead of concentrating on raising decent human beings? It's not the cost of living, it's the cost of taxes. You're working almost 6 moths of the year to support a system which makes sure you're not getting screwed by big corporations, when they are in fact doing the screwing themselves.
As for me, I'm with the guy who quit to hang out, ride and eat donuts.

Chris Kulczycki said...

Annon, Alberta's heavy oil can only be extracted by destroying Alberta's groundwater and generally shredding the environment. The process of heating the water to "melt" the tar out of the sands will add tremendous amounts of CO2 to the atmosphere. It's probably the same with Venezuela's.

Otherwise you make some great points.

Other Annon, Your comment on redistribution of wealth reflects a lack of understanding of what those who champion this idea intend. The model is much more that of Sweden or Denmark than the Soviet union.

The sort of libertarian attitude you espouse is unsustainable. It does, in fact, lead to a system where there is a super rich elite and a peasant class. It results in a system like that in Chile under Pinochet. Great wealth is created for the elite, and great suffering for the rest. In fact Chile was "the experiment" for the "Chicago economic school" theories that so influenced neo-consevative ideology and have proven a disaster for so many.

franklyn said...

Chris,

you took the words right out of my mouth. The "planned economy" under the Soviet communist regime is very different from the innovative welfare states such as Sweden, Denmark and Norway. Even in a place like Taiwan, the gap between the rich and the poor (something like 6x) than in the US. The real wage has fallen, and a big reason is because the feds don't include rise in real estate value in the calculation of inflation.

It could have been worst, of course, if the US currency were not the reserve currency of the world. The ruthless way the feds have been increasing the money supply in the last 10 years to bail out the stock market, stimulate economy and spending, underwrite the mortgage-supported equity wealth was only being supported because US currency is what other government's central bank holds as reserve, and they can't allow the currency to drop too much even as the US continue to create money supply. There is a recent trend that the Euro is being looked at as a possible reserve, if the US loses that last footfold, then a tanking of the whole economy is not out of the question.

The mass transit in the Bay Area is not all that hot. The trains are comparatively sparsely scheduled and getting bikes onto the transit is a headache. I have been "bumped" by caltrain conductors a few times because the bike racks are full. I was really impressed with London's transit system, though i can't really give up the Bay area's nice weather and of course, nice riding.

By definition, the rural areas are rural because they are sparsely populated, and the things with largest ecological footprints are probably farm equipments and food processing facilities rather than individual cars. For example, Mendocino county here is N. cal has a population of less than 100,000 people living on less than 4000 square mile of land. A city like San Francisco has three quarter million people in an area of 49 square miles. Obviously there is less public transit option in the rural areas, but the effect of a small population is also much smaller

BG said...

off-topic but worth a look see:

ebay # 270178013618

BG said...

..and the seller's other bikes on eBay are just as wonderful!

ebay # 270178013618

*see seller's other items

Anonymous said...

I don't think we're at peak yet. Close, but not yet. Let's wait 6 months for tanker inventory data to check against demand and SPR numbers.

Another great energy resource is Robert Rapier's R Squared blog: http://i-r-squared.blogspot.com/. He's a proponent of 'Peak Lite.'

I'm not quite sure what to make of the numbers crude is pushing these days. It seems like both major speculation and supply/demand problems are driving up prices. It's good only if it results in lasting change (ie infrastructure reinvestment, research for alternatives, etc.) A huge selloff in late winter (should we build strong inventories) would have disastrous effects. The volatility has already resulted in demand destruction for places like Africa and the poorer parts of Asia. Meanwhile, the tiger economies keep it moving as their demand keeps growing, albeit more slowly.

As for cities in the US vs Europe, there might come a time when we'll have to start redesigning how we live here. It's already occuring. With the recent housing crisis, there are still lots of urban condos on the market, and maybe the price will come down to a point where I can afford one. Combine that with local bike shops, urban agriculture and the like, and you're setting yourself up for a bit of a quasi-sustainable model city.

Anonymous said...

I'm the libertarian anon poster above. I love this kind of discussion. I am a big disciple of Ayn Rand and for that matter Dutch Reagan. All I can say about gov't control of things like health care etc, is, if you think they are expensive now, just wait until they are free.
Bob Z

Anonymous said...

Libertarian dogma=more fundamentalist fantasy. Gets tiresome in a hurry.

Anonymous said...

Just ask anybody who has served in the miltary. free social services ain't what they're cracked up to be.
Just look at Canada. Waiting 6 weeks for an MRI? Please.
Again, I hope we run out of oil real fast. Stuff will be more expensive but you won't have a car payment/upkeep/insurance etc. We'll do just fine.

Bob

Ron said...

Bob (last poster), I just can't let your comment about medicine in Canada pass without a comment. I grew up in Canada. Let me tell you (and anyone else who might be listening) that their system is about 30x better than this one here (and costs much less). Someone might wait a reasonable amount of time for a non-critical MRI or for any other non-emergent treatment or testing. People with real emergencies and needs are treated and treated well. My mother (in Canada) needed knee replacement surgery. She waited 5 weeks. How long do you think she'd wait for the same procedure here?... wait for it... about 5 weeks.

Preventative care in Canada is far better. There are not millions of uninsured Canadians. There are NO uninsured Canadians!

Don't even begin to compare the two systems until you know the facts. I am a physician. Our system is great for people with money and for those who are lucky enough not to become catastrophically ill. Even with medical "insurance" here, you will go bankrupt if you or a loved one gets very ill.

Anonymous said...

Ron
With no disrespect to Canada or Canadians, nor to your profession, here is my experience.
I purchased a software program from a company in Toronto and was services by a company from Halifax. the woman that owned the company was a runner. She had a knee problem that required an MRI. She got on a waiting list for the test. in the meantime, they used the insurance from their US office in Boston, got the MRI, had a minor surgery and was back running lightly in 4 weeks, and competitively in 7 weeks. She also stated that her daughter who was an employee was expecting a child and was due 12 months paid leave under the law. She loved her daughter, obviously but was unsure how the company was going to absorb a $75K hit to cover her salary and benefits.
There is a reason they started a Boston branch and were willing to break even. Access to US healthcare system.
If things are so good in these other places, why is everyone trying tyo come here?

Chris Kulczycki said...

I'm not quite sure how we got from oil to health care, but let's look at a few facts.

First off the use of anecdotes is not a very scientific method. "I know someone who waited 5 weeks for an MRI so socialized medicine sucks." is like saying "I know someone who broke a Shimano dérailleur so Shimano sucks."

If you look at the broad numbers, such as infant mortality, we get a very different picture. There are 22 countries that have lower rates than the US; every one of them has socialized medicine.

In life expectancy the USA is number 38 in the world, almost very country above us has socialized medicine.

Hundreds of thousands of Americans go to Europe, Asia,and south Africa for major medical treatment because, even with insurance, they can't afford it at home.

As for opinions and anecdotes, I have seen health care in Europe and the US. My observation is that in Europe it is faster, friendlier, just as professional, and far less expensive. I'd much rather be sick in France.

The health care industry and conservative think tanks feed the US media many stories comparing a few aspects of the US system to that in the UK or Canada. But the UK has one of the more troubled European health care systems, though it's still excellent. Canada also has had some minor problems, though overall its fantastic. Why don't they compare our system with Switzerland's or Sweden's, or Norway's instead? I think you know why they don't.

Anonymous said...

Now, back to bicycles...

Antonius

Anonymous said...

Check out the creative application of a Filson small field bag as front bag posted on Cyclofiend Current Classics #399:

http://www.cyclofiend.com/cc/2007/cc399-briansullivan1007.html

Ron said...

I saw that photo last week. The Filson bag looks like a good fit on that bike. Still, that Velo Orange handlebar bag has me very interested.

BG said...

I'm sorry to pile on with the off-topic foray into medical care on a blog forum about bicycles, but I must add that I read a book last year, written for the layperson, just about this very subject. The title of the book is, "What Your Doctor Won't (Or Can't) Tell You" by Evan S. Levine, M.D. Hope it opens a few eyes, and/or reiterates what many of us suspect about U.S. health care.

Anonymous said...

They are right let's get back to bikes. I'll keep my libertarian views to myself. This is what makes this country so great.