ERROR
Main Error Mesage Here
More detailed message would go here to provide context for the user and how to proceed
ERROR
Main Error Mesage Here
More detailed message would go here to provide context for the user and how to proceed
search
Close Nav

The Global Economy’s Fuel Gauge

back to top
eye on the news

The Global Economy’s Fuel Gauge

Oil powers almost all transportation—and Covid-19 will only intensify its dominance. May 21, 2020
Covid-19
Economy, finance, and budgets
Infrastructure and energy

China is about one month ahead of the United States in exiting the Covid-19 shutdown. That country’s rush-hour traffic jams now equal or exceeded pre-lockdown levels, even in Wuhan. This quick reversal happened despite claims that telecommuting would “change everything,” especially old-fashioned commuting and, thus, oil demand.

At a global level, the pandemic didn’t change the fact that oil powers 97 percent of transportation. All commerce requires moving materials, food, finished goods, and people. Thus the oil used by planes, trains, and automobiles serves as the fuel gauge for the economy. The reaction to the coronavirus was, effectively, an x-ray of this reality.

The March lockdowns, which kept so many people and goods from moving anywhere, crushed global oil demand by 30 percent. Shortly thereafter, data showed that global GDP had collapsed by nearly 10 percent. Now that U.S. gasoline demand is starting to rise, many claim we are headed for a long, slow rise back to pre-crisis levels of congestion and oil use. But perhaps not.

Consider the view that communications will now replace commutes—an idea dating to the dawn of the Internet and even to the dawn of telegraphy. But most of what most people do at work requires showing up, not video conferencing. And, by now, many Zoom-weary people have rediscovered that in-person meetings are not only more time-efficient but also reveal important cues that get lost in flat, tiled images. Teleconferencing will surely continue, and grow, but post-Covid, most people will still travel to work. This is because we’ll rediscover that “ideas have sex,” to borrow zoologist Matt Ridley’s expression. Centuries of experience show that innovation, inspiration, and commerce happen with close, regular human interaction.

There is one thing the pandemic will change and that’s the trend to cram employees closer together in open-plan offices, and simultaneously reduce air-exchanges in buildings to make them more energy-efficient. More space between employees and more (clean) air will boost electricity demand in the summer and heat in the winter. Meantime, in the travel sector, reservations for fuel-guzzling recreational vehicles are reporting all-time highs. That mirrors a trend seen after 9/11, when Americans bypassed foreign vacations for domestic ones, traveling to those destinations mainly by cars, which use more energy per passenger mile than aircraft.

Then there are the other energy-related trends that predate the coronavirus crisis but will now likely accelerate. Young professionals, for example, were already moving to the suburbs. Odds are that the urban exodus will only intensify, with many baby boomers joining in. Car commuting and suburbia are essentially synonymous. As for mass transit, in post-recovery China, ridership remains down some 30 to 50 percent. Absent massive subsidies, travel by (crowded) mass transit—at least as we knew it—might be finished.

An agriculture-labor shortage is another pre-Covid trend that figures to continue. Those proposing that unemployed citizens pick crops are, to put it gently, naïve. Urban dwellers abandoned such tasks within days when France tried it earlier this year. Picking crops is a skill. A solution is coming from automated harvesting and robotic fruit-picking technologies that are just now becoming viable—but mechanized labor always uses more energy. And machines that operate all day in the fields will likely burn oil; even Tesla batteries aren’t nearly good enough for widespread use there.

Finally, the virus has exposed geopolitical supply-chain vulnerabilities that will accelerate the reshoring of manufacturing. For energy accountants the implications are obvious; it takes three to four times more energy to produce a dollar of industrial GDP than a dollar of services-related activity. In recent years, much of our national efficiency gains came from off-shoring energy-intensive industries.

In 1776, Adam Smith pointed out in The Wealth of Nations that prosperity is anchored in “the propensity to truck, barter, and exchange one thing for another.” That truth remains unchanged and is also relevant for Silicon Valley. Even digital “exchange” is anchored in energy-using physical machinery. Each person-hour of streaming video uses—in the network, not on the desktop—about as much fuel as taking a four-mile train commute. Tens of millions of students attending school online are guzzling massive amounts of power-plant electrons.

No doubt, we’ll soon get back to pre-Covid debates about how best to fuel cars and power plants. But in an age of cheap oil, will a recession-riddled world show the same tolerance for subsidizing expensive alternatives like wind or solar?

Photo: Pgiam/iStock

Up Next
from the magazine

Silicon vs. Viruses

Thoughts on fighting the next epidemic Mark P. Mills Covid-19, Technology and Innovation, Health Care

Contact

Send a question or comment using the form below. This message may be routed through support staff.

Saved!
Close