Thursday, May 22, 2008

Declining Oil Supplies and HSR

NOTE: We've moved! Visit us at the California High Speed Rail Blog.

This is something of an addendum to yesterday's Ridership post, where I argued that fuel costs would be rising for some time to come, ensuring that HSR will have a high ridership, more than likely enough to "cover its costs" and generate a profit as is the case with the globe's other HSR lines. The International Energy Agency has revised its estimates of long-term oil supply dramatically downward:

For several years, the IEA has predicted that supplies of crude and other liquid fuels will arc gently upward to keep pace with rising demand, topping 116 million barrels a day by 2030, up from around 87 million barrels a day currently. Now, the agency is worried that aging oil fields and diminished investment mean that companies could struggle to surpass 100 million barrels a day over the next two decades.

The decision to rigorously survey supply -- instead of just demand, as in the past -- reflects an increasing fear within the agency and elsewhere that oil-producing regions aren't on track to meet future needs....

...But the IEA's pessimism over future supplies has been building for some time. Last summer, the agency warned that OPEC's spare capacity could shrink "to minimal levels by 2012." In November, it said its analysis of projects known to be in the works suggested that the world could face a shortfall by 2015 of as much as 12.5 million barrels a day, unless there was a sharp drop in expected demand.

Peak oil doesn't mean supplies will vanish overnight. But it does explain why oil is now above $135/bbl and rising fast. It explains that we have two futures - a future where we either reduce demand by providing alternatives like high speed rail, or where we don't build high speed rail and demand is reduced anyway as folks cannot afford the pay the sky-high fuel costs. Diesel is now over $5 here in Monterey - is $8 unleaded so far off?

It also is causing immediate crisis for the airlines. While the public freaks out about American Airlines' $15 checked bag fee, Merrill Lynch has more fundamental concerns:

"Frankly, we do not believe that the US airline industry can withstand $100+/barrel oil prices (see chart: NYMEX sweet crude oil) without major structural change," analysts at Merrill Lynch Airline Research said.

"Fuel is the highest single expense for Delta and Northwest, significantly eroding the financial benefits of restructuring and placing the airlines' new-found strength and stability at long-term risk," Delta Airlines said in a press release on the announcement of its intended merger with Northwest Airlines.

If oil supplies cannot increase to meet the demand, the price of fuel will rise and demand will have to come down. HSR deniers want to avoid this discussion like the plague, because it shows that if California is to remain competitive in the 21st century, it has no choice but to build high speed rail.


Rafael said...

@ Robert Cruickshank -

denier -> opponent

HSR isn't a scientific insight. It's a political choice.

And yes, the opponents do need to articulate how they think California's economy is supposed to cope with the expected population growth with the price of gasoline, diesel and kerosene all at historic highs with no relief in sight.

High speed trains are electric vehicles. You can run them on sunshine if you want or need to. Isn't that better than running cars on moonshine?

Anonymous said...

The premise that that we soon are running out of oil is an argument that has been around for over 50 years; it keeps re-appearing and is then again proven wrong and disappears until it re-appears again when concerns arise, such as in a situation like rising gas prices right now.

Historically, the oil industry has done just enough exploration to always have a 40 year supply of proven reserves available. That certainly is the situation today and will be the situation many years into the future.

Reading this blog only confirms my view that this proposed HSR project is nothing more than a politically generated plot to enrich developers and businesses in the Central valley.

I wonder if Mr.Cruickshank would be spending his time and effort if the Altamont pass route had been chosen, thus eliminating a station in Gilroy, to which he has access.

In fact, I wonder why there is even going to be a station in Gilroy; a population of only 50,000 hardly justifies the delay en route. Its not a very long drive to San Jose from Gilroy.

Rafael said...

@ anon @ 7:58am -

the world isn't running out of oil, it's beginning to run out of cheap oil - especially light sweet crude.

Much of what's left is heavy and sour and, controlled either by state-owned corporations or in very remote locations. Crude oil production capacity will continue to grow for a while yet, but it will barely keep pace with demand growth. Political supply risks and high prices are already fostering the gradual transition to synthetic Fischer-Tropsch liquids, which are even more expensive.

Also, in the past we haven't had the economies China and India growing like gangbusters. Each is home to a population as large as the entire "developed" world put together - and all aspire to a Western lifestyle. The impact of these rapidly emerging economies is already evident in e.g. wholesale food and diesel prices.

California needs public transport systems such as HSR primarily to ensure it can keep its population mobile at reasonable cost to both the state and private citizens. This is vital to keeping the state economically competitive in the emerging multi-polar world.

Your claim that the HSR project exists only to increase real estate values in the Central Valley basically just proves you haven't thought through what the state would have to do if HSR is not built.

Btw, Robert Cruickshank has stated many times on this blog that he considers getting the system built at at all to be far more important than the route chosen to exit the Bay Area. In concur, the primary objective here is a fast link between SF and LA. IMHO, your ad hominem attack is completely baseless.

Robert Cruickshank said...

I dunno, rafael, after reading anonymous' post I think "denier" is exactly the term that should be used for these people.

Those who oppose the HSR project do so because they deny the basic realities that make the project necessary. They deny that we have an oil supply problem. They deny that we have a global warming problem. They deny that we have a fuel price problem. They deny that we have an airline viability problem. They also deny that the HSR ridership projections are valid and they deny that HSR is cheaper than the alternatives, including the "no-build" alternative.

They deny that all of those things combined will lead to a very severe economic problem - that they may have in fact already done so.

They do this so they can continue the 20th century in their minds, even as we find we cannot continue it in practice. They aren't willing to admit that the 20th century and its assumptions and values are over and past, so they want everyone else to go along in their delusion.

There may well be a case against HSR - that maybe this isn't the right project, that it's got flawed routing or design, that some other aspect is problematic. I happen to believe this IS a good project, in whole and in its details, but I would love a discussion about the plan's specific merits.

That's not what we ever get from HSR opponents. Instead they deny the fundamental realities because they know once we accept them as real and true, it's game over, HSR will be built and the only remaining debate is how that will happen.

So yeah, they're HSR deniers.

Robert Cruickshank said...

And yes, rafael is right, I don't particularly care whether Altamont or Pacheco is used. It's not about my personal preferences, it's about the state's needs. If the 100,000 people of the Monterey Peninsula have to go to San José and not Gilroy for a station so that the 7 million residents of the Bay Area and 15 million residents of SoCal have high speed rail, that's fine with me.

Anonymous said...


I'll accept your not taking sides on the Altamont or Pacheco route.

But I'll certainly not accept that such an issue can just be brushed aside. It goes to the heart of the issue of why this project is being pressed forward at this time when there are so many other, more important and pressing needs out there.

San Jose made it quite clear they were going to withdraw support from the project if Altamont was the chosen route. That's what this project is all about. This project is not going to solve existing problems and we sure should be getting major issues that currently exist in our urban areas addressed, rather than focusing on and funding a project which will do little to solve these very pressing needs.

I could certainly support a HSR or other, maybe not so high speed, but efficient rail transit system which would relieve congestion in either the Bay Area or LA. Such a project would make more economic sense since the needs clearly exist and there would be major relief on the freeways.

Today in the WSJ is an article about the Feds transportation committee approving a $14.4 billion measure over five years for rail. You read the details and you find that $1.8 billion will be available for HSR. That’s for the whole country, mind you, and over five years. This project demands $10 billion in Federal support which just doesn’t exist. Yet AB-3034 as presently, and I gather now finally fully written, does not demand the Federal funds. The CHSRA can go on its merry way and spend $1 billion on studies (what agency doesn’t love to spend money on studies) without outside funding from either the Feds or private partnerships.

Robert Cruickshank said...

anon, have you looked at the HSR route lately? It would connect SF to San José, providing massive new rail capacity on the overburdened 101 corridor. AB 3034 would also direct millions to the ACE corridor, which will also provide significant assistance to Bay Area commuters, as will the Capitol Corridor's share of the $950 million in the HSR bond.

As to LA, HSR will have an even bigger effect on relieving congestion - connecting the Antelope Valley to LA, Riverside to LA, Orange County to LA.

When folks say that HSR won't help alleviate congestion in the Bay Area and SoCal I have to seriously wonder if they really understand the system that is being proposed.

As to the federal bill, that is a standalone bill that does not represent the sum total that Congress is willing to spend on HSR. In April I wrote that Congress is discussing dropping $60 billion on HSR in the 2009 transportation bill, and if Obama wins the White House it is likely that this will materialize.

There have been repeated assurances from Congress that they will help fund HSR in California - but that we must take the first step.

Tony D. said...

Great article in todays SJ Mercury News Business section (an AP story by David Koenig) titled "How long before air travelers have had enough? Airlines can't keep up with fuel costs." In summary, the article discusses rising fuel prices, higher airfares, fewer routes, revenue drops, consolidations, possible bankruptcy's (US Airways and United?), and air travel possibly becoming the relm of business and the affluent only. Obviously, none of the problems of the airlines will be solved by this November. Talk about the "stars aligning" for possible passage of the HSR bond! What do opponents think of all the problems in the airline industry, and can they view HSR as an excellent alternative here in our state?

Anonymous said...


Obviously you don't understand the congestion problems in the Bay area. Sure 101 has problems, but compared to the east side of the Bay traffic flows much better along 101.

CalTrain has a bullet train which is certainly not at capacity and is operational and provides today good rail service between San Jose and SF.

I always like people talking about congress going to do this or that. What congress has done thus far is pass a house transportation committee bill that will allocate over 5 years $1.8 billion towards higher speed passenger rail.

A single congress person can get up and say we want $60 billion for HSR. Is that what you’re banking on to fund this project? Lots of luck.

Same goes for private investment. Sure you can gather together 60 "so called" investors at a meeting and say they are really interested in this project. I say where is the money, not where is the talk.

Rafael said...

@ anon at 3:01pm -

Caltrain doesn't operate a bullet train. It operates express trains that it calls "baby bullets" but they are still limited to a top speed of 79mph. True bullet trains run at speeds in excess of 300kph (186mph).

HSR will provide full grade separation and electrification along the Caltrain and Metrolink corridors, greatly enhancing commuter rail service in addition to providing fast intercity trains. In the East Bay, San Francisco and down to SFO, BART already features full grade separation and electrification.

An extension south to San Jose was approved by voters but costs have skyrocketed beyond all reason. We'll see if it ever gets built, I suspect that light rail and rapid bus services could deliver 80% of the ridership at 20% of the cost.

The balance could then be used for improved commuter rail connections with the Central Valley. One approach would rely on variable gauge bogies and other technologies to integrate BART's proprietary broad gauge network with new and upgraded standard gauge tracks at its periphery.

CHSRA is advocating an "HSR/commuter rail overlay", which is really just the original Altamont Pass HSR alignment without a new Dumbarton Bridge. Both bypass the existing freight line. However, the overlay calls for very expensive tunnel and viaduct structures, whereas running tracks along I-580 and integrating with BART tracks would not.

Robert Cruickshank said...

tony, that's an excellent article, and hopefully it will help show Californians that we are insane to continue relying on a deeply troubled air travel industry to get around our state. HSR will help replace the need for most intrastate flights and help the airlines reallocate resources to long-haul flights that trains aren't yet able to handle in large numbers.