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Saturday, May 10, 2008

Relax, fuel is cheap

Photo of my cat Cloud, for no particular reason (public domain)
As a proud Cornucopian I'm tired of baseless claims of neo-Malthusian peakniks that cheap oil is over and it's time to eat dirt and die.

If you think I'm exaggerating, and haven't been on the Internet for the last five years or so here's a typical example of a Peaknik Doomsdayer:

Peak Oil. It's bigger than terrorism, global warming or genocide. It's the end of your way of life. [...] Which means if you don't live by your farm, no food for you. There won't be much food anyway. [...] 4 billion people will not survive. [...] So what can you do to prevent peak oil? Nothing. Seriously, nothing.

Fortunately these claims don't withstand scrutiny. Fuel is much more affordable than anytime in the history except for 1990s where it was not only very affordable but insanely cheap.

I hereby present my Fuel Affordability Index, which compares fuel affordability to standard of 100.0 in 1975. Fuel affordability calculates how many miles you can go on average salary. To calculate it you multiply new car fuel efficiency in mpg, gdp per capita and divide by crude oil prices. We can dispute stuff like gdp per capita vs median household income, crude oil prices vs retail gas prices, new car vs average car fuel efficiency and so on but they don't fundamentally affect conclusions so I just took whatever was easiest to find. Data is for USA, mostly because I couldn't find historical fuel efficiencies for any other country. I guess the conclusion would be even stronger for EU as European cars are more energy efficient and strong euro makes crude oil cheaper than in US.

YearFuel AffordabilityGDP per capitaFuel efficiencyCrude oil prices
1975100$19,96213.5$47.63
1976113$20,82614.9$48.36
1977119$21,57015.6$49.88
1978140$22,53116.9$48.17
197997$22,98717.2$71.96
198084$22,66620.0$95.50
1981105$23,01121.4$82.70
1982126$22,35022.2$69.33
1983147$23,14822.1$61.34
1984168$24,59822.4$58.14
1985196$25,38623.0$52.56
1986394$26,02823.7$27.66
1987342$26,66823.8$32.81
1988443$27,51924.1$26.45
1989381$28,22623.7$31.05
1990315$28,43523.3$37.17
1991372$28,01123.4$31.15
1992405$28,55923.1$28.81
1993493$28,94323.5$24.36
1994552$29,74423.3$22.19
1995540$30,13123.4$23.09
1996465$30,88623.3$27.38
1997541$31,89123.4$24.40
1998885$32,83723.4$15.35
1999662$33,90823.0$20.83
2000421$34,77022.9$33.39
2001517$34,70123.0$27.29
2002536$34,93123.1$26.61
2003460$35,47923.2$31.62
2004356$36,43323.1$41.84
2005287$37,20623.5$53.77
2006257$37,92823.3$60.73
2007244$38,34023.4$64.92


Notes: Crude oil prices adjusted to 2007 dollars. GDP per capita in 2000 dollars. Different basis doesn't affect the results as only ratio is taken. Fuel efficiency is combined urban+highway, for all cars except trucks (so if I understand it correctly without SUVs too).

As you can see fuel is much more affordable than in 1970s or early 1980s. So as the civilization in 1970s very much existed, it will continue at current fuel prices, or even at prices significantly higher than current. One thing I expect to start happening about now is further increase in average car fuel economy - as soon as fuel became cheap in mid 1980s cars stopped improving, but hybrids are much better than 23.4 - the popular Toyota Prius has combined mpg of 46 - almost double the current average.

Even if people keep buying the same cars and the economy stays stagnant fuel would have to become 2.44 times as expensive in order to bring fuel affordability back to 1970s level (which if you're old enough to remember, weren't end of civilization). If people start buying hybrids (and they will) and economy grows at 3% a year (and it will) for the next 10 years, even $420 barrel won't reduce fuel affordability to below-1970s level.

Relax, fuel is cheap.