Supply and demand

September 26, 2017 by Denis Pombriant

What happens when the supply of any product continues to dwindle is predictable? First prices rise because of simple supply and demand economics. If demand is not that elastic as is the case for energy, consumers will have to find ways to pay the price. Even when supplies dwindle and costs rise, people still need to get to work and conduct their transportation-centric lives. They still need to heat their homes in winter and they need electricity year-round. So almost regardless of cost, demand for energy will remain high.

Substitution comes next. When a commodity becomes expensive markets seek alternatives or substitutes. For instance, if steak becomes expensive, people might buy chicken as a lower cost substitute. Eating chicken instead of steak is relatively simple. People can use the same utensils to cook it, they digest either one easily enough, and the supply at a supermarket is usually adequate for either product.

Substituting energy is in some ways like that but in other ways it is not. Our electric appliances don’t know or care how electricity is generated but our cars, trucks and especially aircraft do. We can build electric vehicles but we can’t easily convert fuel burning vehicles to electricity so there’s a costly barrier to conversion. When electricity becomes abundant and cheap enough we can expect to find more people purchasing electric vehicles but for a long time we can also expect that there will be a mix of cars and trucks on the road.

The situation is a bit different for air travel. Electric powered drones are coming to market to deliver packages and some people have already flown electric aircraft for short distances. But so far there isn’t a substitute for fossil fuel driven jet travel across an ocean or a continent and there might not be. Even if we could imagine electric aircraft with large batteries, as long as those aircraft rely on propellers they won’t be a match for a jet. Two things flow from this observation.

First, if we want to preserve our ability to fly fast and cheap, we should begin preserving our fuel so other forms of transport that can more easily swap to electricity should do so.

Second, other forms of travel like high-speed rail, can take up some of the slack but it will require a reordering of our society to get the full benefits.

Jet airliners routinely fly above 30,000 feet at speeds around 500 mph making a coast-to-coast flight about 6 hours long. In contrast, high-speed rail is defined as a train capable of traveling on special track at minimum speeds of 124 mph and maximum speeds of 155 mph. That’s a far cry from jet travel and it turns a 6 hour trip into a day-long affair.

If jet fuel gets expensive, as it will if petroleum supplies are threatened, high speed rail will look increasingly appealing but with a caveat. At some point market forces might influence building up the middle of the country so that centers of excellence in manufacturing, banking, entertainment, culture, technology and more, are located equidistant from the population centers of the coasts. Of course, this is a long-term situation and alternative technologies such as the Internet, virtual reality, and others not invented yet, may have a dampening effect on travel demand. But high-speed rail will be a useful substitute if society needs to further ration jet fuel for transoceanic travel.

Transportation should be the lowest priority for the remaining fossil fuels, especially petroleum. Rather than burning it in cars, we should conserve for air travel and for raw material needs of the synthetic materials industries such as rubber and plastics. Such a drastic reduction in the use of fossil fuels will do a lot to reduce pollution. At the same time, electric transportation modes can be put into service so that the impact on consumers is minimal. But the changeover will take time during which pollution continues to accumulate and fossil fuel supplies dwindle.


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