Saturday, November 22, 2008

Fun with VMT and Gasoline!

When I did my fieldwork in the islands of Chuuk Lagoon in the late 1990's, one of the big concerns had to do with kids sniffing gasoline to get high. It was a serious problem for boys in the early teens. When I traveled there again in summer 2008, gasoline had hit $6.50 a gallon (US) and was creating a different sort of crisis altogether.

These islands were communities, after all, that had been 'developed' by the United States in an era of relative cheap petroleum. With American assistance, they had been able to abandon most non-gasoline powered transportation that they had once been famous for in favor of fiberglass skiffs with a 30 or 50 HP outboard motor. By the summer of 2008, the cost of gasoline consumption for daily business was really hurting these islander families. After all, the minimum wage was about $1 an hour, so much of one's daily earnings could have been easily eaten by the cost of traveling from one's home island to town (about a 20 min. to 1.5 hour trip depending on where you lived in the lagoon). People in the islands felt these costs acutely, and were keep to think of ways to offset their extraordinary fuel costs. Most often, people simply traveled less or traveled with more people in the boat to offset the per person fuel charge.

So, back here at home, we had high summer gasoline costs of our own. Like the people of Chuuk, we have long adopted a rather inefficient means of transportation, building one of the largest networks of roadways for transportation in the world. American cities are sprawlapaloozas: vast oceans of low density housing that emanate forth in all directions from multipolar urban centers. These centers have largely been abandoned, or were built to never be properly peopled, except by business use during bankers' hours. Most people live far from their places of work and must do a certain amount of commuting each day just to earn enough to pay the mortgage or rent in their standard issue American Dream House. This meant that households had to spend more and more on fuel costs just to make their living from week to week and had less and less for things like restaurants, shopping malls, and, of course, the mortgage payment for their overvalued standard issue American Dream House. This summer past seemed to represent some sort of tipping point, after not really changing their behavior much, Americans started trading big for small (cars that is -- not houses!) and began to drive less. The were eating out less, they were falling into foreclosure more. -- Though, to be fair this latter bit had more to do with stupid lending practices during the rush to buy overprices houses, than fuel costs per se.

Of course, that was last summer ... more then three months -- and one market crash ago....

Ah, what a difference a couple of months make! From their summer highs, gasoline prices have collapsed. My wife just paid $2.04 today, down from a summer high of about $4.50 a gallon in our neighborhood. Now, surely, the collapse in fuel costs is a welcome sign. But, for me it has raised an interesting question. Is this a reflection of falling demand in the face of over capacity in gasoline production? Shutter the thought, as such a situation would signal the sort of economic downturn the United States had not seen since 1980, the last time Americans consumed so much less in their pursuit of their sprawlapalooza dreams.

I wondered about this because it is possible that this price collapse represents some sort of perverse unwinding of bad bets in the commodities markets (though I profess true ignorance in these matters of commodity investors -- there are much better blogs for these sorts of more informed speculative tomfoolery). It certainly is possible that so many people had bet long on the price of petroleum that they now were racing to cover these bad bets, selling contracts to anyone who would buy them, driving the price of oil ever south, and the costs of refining the product southward along with them. The savings then being passed on to a welcoming consuming public. -- Though, again, I suspect that it doesn't really work this way ...

Well, all this sort of wunderin' got me to thinking about VMT (Vehicle Miles Traveled). This is a little statistic the federal government collects to see how much Americans are lovin' their massive highways and byways system. I got wind of it in a series of posts on The Oil Drum by Stuart Staniford by in 2006, who at the time, was working on VMT as a measure of economic productivity. Seems reasonable, I suppose to, wonder if economic activity is reflected in the Vehicle Miles Traveled from month to month, or year to year in the ol' U.S of A.

I wondered further, were there more recent reports of VMT from the USG than those from 2006? Did they tell us anything about how much folks are driving as it might relate to economic downturns and all that?

Well, turn out there is! Sort of. I pulled out this image from a report for the White House earlier this year:

This graph shows the VMT for each month from Jan. 1992 to Jan 2008. It tends to be jagged 'cause people don't like to drive in the winter when it is cold and snowy, but love to drive in the summer when it is warm and people are frolicking half-naked on beaches throughout the country. I added the polynomial regression line (with R-quared) to get a sense of average changes over time. The resulting line show slowing in 2006 with a pronounced leveling off through 2007 after continuous linear growth for the period staring in 1992. Also, of note is that the maximum VMT has been flat since summer of 2005, more or less, after growing substantially each year since this series began in 1992.

Conclusion: VMT not growing! Sprawlapalooza on hiatus.

Now, that Jan. 2008 date had me bothered this morning as well. I searched, but couldn't find more contemporary data available online. But, I have been tracking another measure in the Energy Information Agency's weekly petroleum report. It had been showing declining gasoline consumption for all of 2008 when compared to 2007.

The most recent "Short Term Energy Outlook" by the EIA (Nov. 12, 2008) reports the following for US consumption of petroleum products.
Consumption of all petroleum products is projected to decline substantially in 2008, driven down by the increase in prices and by a weakening economy during the second half of the year. Total domestic petroleum consumption is projected to average 19.6 million bbl/d in 2008, down 1.1 million bbl/d, or 5.4 percent, from the 2007 average (U.S. Petroleum Products Consumption Growth). This marks the first time since 1980 that annual total petroleum consumption is expected to decline by more than 1 million bbl/d. In 2008, motor gasoline consumption is projected to decline by 280,000 bbl/d, or 3 percent, and distillate fuel consumption is projected to decline by 250,000 bbl/d, or 6 percent. In 2009, total petroleum product consumption is projected to sink by a further 250,000 bbl/d, or 1.3 percent. This decline is more than twice that projected in the previous Outlook.
Ouch! Petroleum consumption down 1.1 million barrels per day, the first decline of such magnitude since 1980! Gasoline demand down 280,000 barrels per day. I know Toyota has sold a lot of their Prius line, but this cannot be a function of the increased efficiency of the gasoline powered US transportation fleet. VMT is surely down significantly for the year of 2008, any associated economic activity along with it.

All this is a sort of confirmation that this era of economic growth just past is now in recession. I for one welcome the savings in my household budget. But, it also reflects real economic contraction that has accelerated since the start of 2008, judging from the rise in unemployment rates. The associated unemployment and lowered household earnings almost certainly makes the news of declining gasoline prices bitter sweet.

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