Urban man cuts fuel intake, but will this lifestyle last, IEA asks

Yahoo News 10 Sep 08;

Businesses, lifestyles and urban behaviour in advanced countries led by the United States are adapting to high energy prices, the IEA said on Wednesday, but wondered if this energy dieting will last.

For example, "the shift from gas-guzzling SUVs (sports utility vehicles) to smaller, more efficient vehicles is becoming a stampede."

In the language of economists, the big question is whether the huge and rapid rise in prices in the last two years is causing a temporary "suppression" of demand or lasting "destruction" of some consumption.

However, "a more pertinent question is arguably whether the ongoing structural shift towards greater energy efficiency will be more pronounced than in the past," the International Energy Agency says, using behaviour in the United States as a leading indicator.

"The available evidence so far, albeit it admittedly anecdotal, suggests that US consumers are both expecting the oil price to stay high and the economy to remain subdued."

The ratio of sales of SUV-type vehicles in the US to total vehicles sales was now less than half for the first time since the early 2000s.

This was likely to have "significant consequences" for the overall efficiency of the 250 million vehicles in the United States, beyond the effect of tougher fuel-efficiency standards.

At current sales of 13 million new vehicles per year, replacement of the entire fleet would take nearly 20 years but "the potential effect could be dramatic," the IEA calculates.

The result could be "a thirty-percent efficiency improvement" to levels seen in Europe and Japan, and "a fall of some 3.0 million barrels per day in US gasoline (petrol) demand which currently accounts for close to 45 percent of total domestic oil demand."

The IEA insisted: "This figure may seem far-fetched, but the current trend may well be seen in retrospective as the inflexion point, the peak, of US gasoline demand."

US motorists were cutting back on their driving, and travellers were flying less, turning to other means of transportation such as trains, buses, motorbikes and even cruise ships.

The head of the oil industry and markets division at the IEA, David Fyfe, told AFP: "We haven't made root and branch changes to our 2009 (demand) forecasts because some of this evidence is anecdotal.

"But there's a growing body of evidence that high prices in conjunction with weakening economic conditions, are having an impact on people's lifestyles which could last."

The report says that data so far shows that "the oil price rise, combined with the economic downturn, has been devastating for the beleaguered US consumers", since retail fuel prices had "almost tripled in less than two years."

It is not evident that "old habits will return" when the economy recovers and if the recent price fall continues because "behavioural changes could by then be well entrenched" and experience as well as theory showed that people responded more to price rises than to price falls.

And "the suburban sprawl may be gradually losing its appeal," the IEA suggests.

House prices appeared to be falling slightly more in suburbs, away from the centres of economic activity, and in even more distant "exurbs".

This could suggest that "more Americans are considering living closer to their place of work... another structural trend that would eventually entail less driving."

And there is "increasing evidence that businesses, ranging from manufacturing to airlines, are fundamentally changing the way they operate, since many business practices were designed for an era of cheap energy."

The IEA concludes: "This trend could also signal a momentous structural change in the making."