It's like a law of energy that has been embedded in the psyche of every oilman since the Model T made its debut a century ago: Car-crazy Americans will keep driving more every year, and so will use more and more gasoline. Over the decades, this principle has led North American energy companies to pump ever-larger quantities of oil into continental pipelines, with little worry about the habits of the drivers buying the stuff at the other end.
You don't need an MBA to know it's dangerous to think that your customer will never change. Yet the unexpected is happening. North Americans are driving less, not more, which means our society's call on oil is waning. Since peak demand in 2007, consumption of the commodity everyone loves to hate is down 14 per cent or about 3.0 million barrels a day in the United States. So, there is cause for pause for Canada, which is selling 2.5 million barrels a day into this eroding market.
Oil companies trying to understand what's going on may be tempted to hire an economist, in the belief that the economic woes lingering from the global financial crisis are to blame for people driving less. Some of that thinking is valid, but most is misguided, because U.S. oil consumption is now trending below where it was in 2009. Staffing up with some young sociologists may be a better way to go.
A couple of recent academic papers by Michael Sivak and Brandon Schoettle of the University of Michigan Transportation Research Institute shed light on some social megatrends shaping our transportation habits. The authors note that over the past 25 years, "there was a substantial reduction in the percentage of young people who have a driver's licence." Their data show that in 2008, only 31 per cent of 16-year-olds had a driver's licence compared to 46 per cent in 1983.
Any middle-aged parent with teenagers can attest that young people today have less propensity to get behind the wheel of a car than their own generation did – supporting Mr. Sivak and Mr. Schoettle's conclusion that "licensing trends will likely affect the future amount and nature of transportation, transportation mode selection, vehicle purchases, the safety of travel, and the environmental consequences of travel."
In other words, the licensing trends that started 25 years ago are now manifesting themselves into less driving, hence less oil consumption. This trend has accelerated with the rise in oil and gasoline prices over the past decade.
But there is more to this story.
The coming Facebook IPO is, in a sense, a backdrop to what's coming down. Adapting to new ways of communication, young and not-so-young people are detouring off the paved highway and virtually transporting themselves onto the information highway. With social media applications like Facebook, Skype, and Twitter – as well as physically-immobilizing, multiplayer online video games – it's easier to make the connection that Internet use has something to do with the lower propensity of youth to get a drivers' license, the researchers state. Mr. Sivak and Mr. Schoettle conclude that all that virtual contact "reduces the need for actual contact among young people."
A reduction in the need for contact means less need for driving – ergo, less need for oil. Virtual contact through the Internet, whether it's applied in business or pleasure, is a partial substitute for driving and flying. Here's the megatrend: At the margin of consumption, the Internet is virtualizing barrels of oil in the same way that other physical media, such as CDs, DVDs and newspapers, are being displaced by networked bits and bytes.
Canada has been exporting oil to the U.S. for six decades. The implications of these social changes at the other end of the pipe are obviously profound – and doubly profound in the context of growing continental light oil production at the front end of the pipe. With stagnant-to-declining American consumption and rising production, it's no wonder that a North American barrel of premium quality oil is now routinely trading at a $10 to $20 per barrel discount to global markets.
In truth, Canada's oil industry can handily compete for market share on North American turf and will continue to do so. Yet the biggest consequence of all the big changes in play is it will be difficult for Canadian producers to get top dollar until our export capacity to global growth markets – China and other emerging economies – is expanded. Until then, price discounts will persist, to the detriment of all stakeholders and especially to royalty and tax collectors on behalf of the people. And that's a whole other social issue.
Peter Tertzakian is chief energy economist at ARC Financial Corp. in Calgary and the author of two best-selling books, A Thousand Barrels a Second and The End of Energy Obesity. This is his first column for The Globe and Mail.