Almost two years ago I wrote about the potential effect on telecommuting of reduced oil prices. The point was that cheap oil might spur more private auto use for commuting, thereby reducing demand for telecommuting — a new telecommuting oil crisis. Let’s see how things have turned out so far.
Over the past few months the global energy situation has made some significant shifts. One of the potentially most far reaching of these is the drop in oil prices. Last Thursday, after Opec decided to continue pumping its oil at the same rate as it had been doing, oil prices hit a four-year low of just over $71 per barrel. The reason is that the availability of oil exceeds the demand for it; Economics 101. America’s greatly increased oil production, largely from shale, is clearly distorting the market by adding to that surplus availability. Our previous forecasts of hitting the absolute peak of oil production have to be modified.
For some stakeholders in energy this situation is an oil bonanza; for others it is an oil crisis. For commuters worldwide the lower price at the gas pump is a gift, an incentive to buy a new gas guzzler rather than a hybrid or an electric car, to increase the rate of global warming. For those of us trying to persuade people to telecommute this situation feels like a new oil crisis. High oil prices supposedly help encourage individuals to telecommute. Will low oil prices act to discourage telecommuting? Here is some history.
A few years ago I posted some comments on the global oil situation. The gist of the comments was: We are at or past the peak of global oil production; therefore we need to reduce our need for oil somehow. Otherwise the market will reduce demand for us by pricing oil out of reach of many/most of us. That was in the mid-2000s. There’s a similar set of comments I made in the mid-1990s.
Now there’s a new review of the situation titled: Oil’s tipping point has passed. Authors James Murray and David King, in the 26 January 2012 edition of Nature [481, 433–435], maintain that: “the economic pain of a flattening supply [of oil] will trump the environment as a reason to curb the use of fossil fuels”. Their argument goes along the line of the Hubbert peak oil theory that the major oil companies have been trying to downplay for the past several years. Continue reading Reviewing the situation . . . for oil
Years ago I usually commented, in response to questions on the future of telework, something like this:
Think of telework and telecommuting as the tide rolling in rather than a sudden tsunami. Telework will gradually increase in acceptance and variety as the enabling technology improves and as our business norms progress past those of the nineteenth century.
That’s pretty much how it was from the 1970s through to the early-2000s, punctuated by occasional natural disasters that acted to ratchet up the acceptance rate while the aftereffects lasted. But since then matters have picked up a tad.
One of the persistent holdouts against telework were Japanese firms. Japanese business culture demanded that all managerial and professional employees and support staff collocate daily in company facilities. There were also social pressures enforcing the leave home and work elsewhere model. Often, when telework was allowed it was for the salarymen on “vacation”. That is, the salarymen would take their families to a resort where there were office facilities so that they could keep working while the other family members took advantage of the resort facilities.
The major earthquake and tsunami of 11 March 2011 changed all that. Continue reading The Infotsunami
Aside from the finger pointing by the various parties involved in the Deepwater Horizon disaster at the Macondo oil well, as discussed in the previous blog, another theme has grown in importance over the past few weeks. In addition to “Who’s to blame?” we now have “Who’s really in charge?”
Brittania roils the waves
BP, often called recently by its former name British Petroleum, says it’s responsible but so, too, are a few other firms who might share the blame. Those firms might also share the costs of the cleanup (assuming that the continuing oil flow is ever stopped) unless BP is proved in court (some time in the next two or three decades) to be negligent. BP has ponied up at least $20 billion to be held in escrow as a start for repairing the damages caused by the spill. Meanwhile the damages mount and the compensation for them seems, to the victims at least, to be trickling in at best.
The latest events in the Gulf of Mexico have given a new dimension to the energy dilemma. With anywhere from 5,000 to 80,000 gallons of crude (depending on the expert you believe) spewing into the Gulf every day. BP (the well owner) is mad at Transocean (the owner of the exploded oil rig), Cameron (the company that built the failed blowout preventer) and Halliburton (the people who were supposed to have sealed the well). Fishermen, environmentalists, everybody (except attorneys) is mad at BP, et al. The public’s heat has now added the federal government to the list of “how could you let this happen” culprits.
Well, don’t say we didn’t warn you.
For years it has been clear that, as the easy sources of oil are depleted, riskier and more expensive methods of mining more reclusive oil fields have been necessary. That means, for example, going offshore instead of drilling on dry land. The crucial difference between dry land and offshore drilling is that oil spills are much more easily contained and stopped in the dry land version than they are out to sea. If the spill occurs at the underwater wellhead, then its seriousness depends on how far underwater the leak is. When the leak is in relatively shallow water, as it was in the Santa Barbara oil spills in the late 1960s, the process of stopping the leak and cleaning up is far simpler than when the leak is a mile below the surface of the water.
And guess what? A substantial portion of the Earth’s yet-to-be drilled oil reserves is in even deeper water than the BP well. So if you liked the current Gulf leaks you’ll love the ones yet to come. This is not a comforting thought for many people who are, finally, beginning to rethink our need for oil.
Because the real, fundamental culprit in this fiasco is . . . US!
In case you were heaving a large sigh of relief over the recent drop in fuel prices, my advice is: don’t count on it. There are clear reductions in the price at the pump, no question about it. There are three main reasons for this. First, the economy world-wide is slumping drastically. If you’re worried about your future income streamâ€”like what happens if you lose your jobâ€”then you are likely to cut down on frivolities such as unnecessary car trips. Many people have adopted this attitude. The result? Aggregate demand for fuel drops.
Second, you may also still be reacting to the recent spike in fuel prices (surpassing $4.00 per gallon here) and have reduced car use; have traded your gas guzzler in for something more fuel thrifty like a Prius (in our neighborhood Prii almost outnumber whatever is second in popularity); have finally talked your boss into letting you telecommute at least a few days per week; or all of the above. The result? Aggregate demand for fuel drops even more.
Third, according to the November 28th Financial Times, in an article titled “Dark art of assessing oil production cuts“, the major oil producers may be cheating on their decision to reduce production iin order to keep fuel prices high. Part of the problem is that apparently nobody knows exactly how much oil the various members of OPEC are producing but the general suspicion is that its more than they are admitting to. The result? The supply of oil is not decreasing very much.
So aggregate demand for oil is diminishing but the supply of oil isn’t, at least not enough to support those high prices. OPEC’s (and the US auto industry’s) hopes are that you will once again be gulled into shedding your hybrid in favor of an Urban Assault Vehicle. Are you ready for that? Here’s why you shouldn’t be.
The clamor for SOMEBODY to do something about rising gas prices continues, particularly the election-season pressure from various lobbyists to persuade Congress and whomever is elected President to open up offshore drilling for oil. In my previous blog I commented on the likelihood of such a move to have any short term effect whatsoever. Now it’s time to consider the broader issue: is this move really necessary or desirable at all?
First a short review of history. The United States owes part of its economic success to the fact that abundant supplies of petroleum were discovered and exploited here. Petroleum trumped whale oil and became the fundamental source of energy for the transportation industry. That, in turn, was a major component of the rise in America’s fortunes. But production of oil in the US peaked in the early 1970s; new discoveries have not exceeded production since then. The US oil glass is more than half empty and the level of its contents is dropping. Consequently, we are now importing more oil than we produce domestically. In June 2008 two-thirds of our oil was imported, according to the Energy Information Administration. The United States, with 5% of the world’s population, consumes 25% of its energy.
So now the popular plan is to expand our offshore drilling so that we can use up our native supplies faster, right? The latest idea is to use up all our oil resources as fast as we can so that we can be thrall to the likes of Russia, Venezuela, Nigeria and the various middle-eastern powers as soon as possible? Just because we don’t want to pay $4+ per gallon of gas? Do you get the feeling that something is not right here? We are the world’s prodigals* and we want to keep it that way? Worse: the rest of the world wants to be just like us?
Two interesting articles have come to my attention, both pointing to the growing importance of telecommuting. The first, on-line from National Public Radio, analyzes the locational distribution of homes suffering from the sub-prime housing crisis. Titled: Home Prices Drop Most in Areas with Long Commute, the article notes that much of the drop in real estate prices comes from those who face large bills for fuel. Specifically:
Economists say home prices are nowhere near hitting bottom. But even in regions that have taken a beating, some neighborhoods remain practically unscathed. And a pattern is emerging as to which neighborhoods those are.
The ones with short commutes are faring better than places with long drives into the city. Some analysts see a pause in what has long been inexorable â€” urban sprawl.
The second article, also on-line but a blog from Tech Republic, discusses the four main trends observed at Interop (a large high tech trade show) by Executive Editor Jason Hiner. Trend 3 of the 4 is Supporting a decentralized workforce. Here’s a key quote:
At Interop, one vendor told me that 70% of all employees now work outside of the corporate headquarters. Another vendor told me that number is actually up to 80%. One representative of a very large IT company said that it recently moved into a new headquarters and that the employee-to-workstation ratio is now 4-to-1 (up from 1.5-to-1). Thatâ€™s because they now have a lot more mobile employees and they actively encourage employees to work from home during times they donâ€™t need to come into the office.
Admittedly, the attendees at Interop come from the infotech-intensive part of the economy but it is clear that the growth of acceptance of telecommuting continues. What can we infer from these two articles?
Yesterday the price of oil exceeded $113 per barrel. Today the Financial Times included an article to the effect that Russia had reached its peak in output last year and would likely not exceed that production level in the foreseeable future. Another production peak heard from. According to the article, Leonid Fedun, of Lukoil, estimated that a trillion dollars would be needed in new exploration and development investments to sustain last year’s level of production for the next 20 years. I suspect Mr. Fedun is an optimist.
Is this another symptom of the decline in global oil production or is it just an anomaly of the Russian situation? Continue reading Another shoe drops