The Impact Of Rising Oil Prices On Sydney Suburbs
Posted by Big Gav on May 12, 2008 - 6:29pm in TOD: Australia/New Zealand
Topic: Economics/Finance
Tags: oil prices [list all tags]
Today's SMH has a prominent article on the impact of rising petrol prices on Sydney suburbs featuring a study by Peter Rickwood of UTS (one of Garry Glazebrook's students (pdf) by the look of it). ASPO Australia's David Bell gets a mention too.
There is a good graphic accompanying the article (Update: 3 images now included) which shows the sensitivity to petrol prices (in terms of proportion of gross income) across the metropolitan area under 2 scenarios - $1.50 a litre petrol and $2.00 a litre petrol. Under the second scenario most of western Sydney will be devoting more than 6% of their income to fuel consumption.
The results look somewhat similar to the charts in the Griffith University report on Oil Vulnerability in Australian Cities from a couple of years ago.
Image 1 - % of household income at $1.50 per litre
A related personal impact story looks at the impact of fuel prices and lack of public transport on one western Sydney family - though their refusal to share vehicles and large petrol guzzling cars do reduce the amount of sympathy generated somewhat...
SOARING fuel prices are carving into the budgets of car-dependent households in western Sydney, exacerbating problems of insufficient public transport options and long distances to workplaces. Families in the west are driving up to 20 times the distance of those in the eastern suburbs, inner west and Lower North Shore, according to research by a PhD student at the University of Technology, Sydney, Peter Rickwood.
With fuel prices at about $1.50 a litre, households in the city's outer western ring - many of which are struggling with mortgage repayments - are sacrificing more than 6 per cent of their gross household income on petrol, Mr Rickwood's research shows. Households in the inner city are using less than 2 per cent of their incomes on fuel. With fuel prices continuing to climb, the dire situation is likely to spread further east.
If it reaches $2 a litre, as some predict could happen within the next two years, households near Parramatta and Bankstown could be using more than 6 per cent of their income on fuel. "This should send very significant alarm bells through government," said the president of the NRMA, Alan Evans. "Because there is no end in sight for seeing a downturn in the price of petrol and therefore the research would show that we have a serious crisis developing for the mortgage-belt families."
His concern was echoed by the president of the Western Sydney Regional Organisation of Councils, Tony Hay. "This is further substantial proof of the inequitable divide which reinforces the tale of two cities. Those of us [who are] car dependent are taking a huge burden for consumption of petroleum and the component of fuel excise," he said.
As rising fuel prices began to put the squeeze on family budgets, everything from doing volunteer work to driving to children's weekend sporting events could be affected, he said. "All the activities that make us a community, not just an economy, have the potential to be severely impacted."
Mr Rickwood's research combines data from the Department of Transport's annual survey of 3000 Sydney residents with demographic information from the census. He said the actual effect of fuel prices on households could be much greater in some cases than the averages shown in his research, especially if cars consumed more than nine litres of petrol per 100 kilometres.
Mr Evans said it was deeply concerning that there was no short-term remedy in sight. "The neglect of public transport over the years is now highlighting the problem. Clearly it shows the failure to build a public transport network is now coming back to bite people." He urged the federal and state governments to expand public transport into the western suburbs and urgently fund research into alternative fuels.
The Sydney co-ordinator of the Australian Association for the Study of Peak Oil and Gas, David Bell, said it was likely fuel would climb to $1.60 a litre in the coming months. "Within two years time I would say we would be getting close to $2 [a litre]. Since we've begun peaking, no one has any current history as to where petrol prices may go in the future."
Image 2 - % of household income at $2.00 per litre
Image 3 - Vehicle kilometres (1000) travelled annually
I think the long commute problem is just one facet of the shrinking affordability window created by FF depletion. The even bigger problem being the need to invest heavily in low carbon energy and infrastructure while there is still some spare cash around.
I know some rural fringe people with not one but two Falcons with factory fitted LPG. Ride sharing, public transport and changing to a compact car is apparently anathema. They say they need rural ambience as a sanity preserver but I suggest 2-3 hours of driving a day kinda undoes all that. In any case they probably can no longer afford to move closer in. I also have a suspicion that when the mineral boom ends people will flood back to the cities, safety in numbers perhaps.
I think for the next few years (the peak oil 'plateau') there will be more early and late buses and trains, a swing to smaller cars and CNG for commercial vehicles. At some point, perhaps when petrol is $3/L and wages are stagnant there will be a crisis. What happens then I can't imagine.
I'm always amazed by people who do a huge commute in search of rural ambience - how do they get to enjoy it when most of their waking hours are spent at work or driving ?
All that time in the car would drive me mental.
The people in the outer suburbs are a harder case - though the family used as an example should simply move house to Minchinbury and walk to work (I'll assume it is habitable and not an industrial wasteland), given that they are all working at the same place. Then they'd have a lot more free time and hardly any fuel bills.
I think we'll see a lot of that as prices rise - people shifting closer to work, service industries moving closer to where people live and public transport being demanded by the masses so they can still get around. The train manufacturers and construction industry will love it.
I have exactly zero sympathy for that family.
Looking at the cars they have, I suspect they're not exactly frugal with their "other expenses." It's probably not Home Brand for them... So... well, stuff 'em.
There are lots of people like that. It's Rudd's "working families" or Howard's "Aussie battlers". And really it's just whingers. Obviously weren't beaten enough as children.
Crikey - you're grumpy today.
But I agree about the whinging...
I am always grumpy about the whinging wealthy. To be greedy is bad enough, to be greedy and whinging about it is even worse.
I think wealthy may be overstating it - just "aspirational" types who think a flashy car is a sign of success.
I wonder if a souped up V8 will become even more of a status symbol as fuel prices move it out of range of the average bogan, or if something else will take its place that the average hoon can afford ?
(Disclaimer: I actually drive a Commodore but it has no spoilers or any other enhancements - and its done less than 60,000 kms in over 6 years, even with a couple of trips to the snow each year and the occasional jaunt up to Byron Bay).
How long will GM manufacture V8's? Indeed, how long will GM manufacture anything? My guess is that if Toyota is smarting that GM's accounts are awash in red ink.
If you can spend $30,000 each on four cars, and drive them every day separately to the same workplace - they all go "in the morning", so their shifts can't be that far apart - and at the same time have a mortgage, then you are by all sane standards "wealthy".
""It was getting very difficult," she said. After covering the mortgage, bills and other expenses, she has $50 for items such as lunches and going out."
sounds like an aussie housing bubbler right there. no doubt the reason they moved there was to build equity because housing only goes up don't ya know?
There are plenty more comments on this one at Paul Krugman's blog :
http://krugman.blogs.nytimes.com/2008/05/13/stranded-in-suburbia/#commen...
I live in one of these Western fringe suburbs, Campbelltown, and I am continually dismayed at the extreme levels of car use. It seems people around here either don't know or don't care about what is happening in the world around them. It's probably not fair of me to bag out my friends and neighbours, but I'm going to do it anyway.
I have lived in the area basically all my life and I love it. My suburb in particular is like a quiet little sanctuary in the middle of an ever expanding city. It is a completely walkable suburb, aside from a few steep hills here and there, with a supermarket 10 mins walk away, two very good schools within minutes, a great local pub just around the corner, fantastic sporting grounds and a semi regular bus service to Campbelltown proper and to the train station. Yet no matter what time of day or night or day of the week you hardly see anybody walking around. There are two mothers who live in my street who drive their big 4WD's every single day down to the school. For me to walk my son it is a 15 min round trip. A mother who lives next door to me, who's child goes to a private school elsewhere actually drives to the bus stop, which is about 2 mins walk away, to pick him up.
A very close friend of mine who lives elsewhere in Campbelltown has been listening to me rave on about Peak Oil and other related issues for the last couple of years now and is probably the most aware person I know, other than me of course. Having this knowledge still didn't deter him from buying an older type V8 Commodore which gets about 2km/L. This from a guy who works a casual job, has two kids and a wife to feed and is constantly worried about his finances. This is repeated time and time again all over the area. I just scratch my head in wonderment.
The trouble I see is that the working classes still have absolutely no clue about anything of a worldly nature. They only see Channel Seven's Sunrise, the Daily Telegraph and Foxtel as their points of reference. What chance does Average Joe have when he has absolutely no clue about anything of importance.
The local media are actually counter productive a lot of the time as well. The Macarthur Chronicle had a few stories about petrol pricing last week complaining about individual service stations and the editorial was longing for the days when the garage attendants came and washed your windscreen and filled your tank. All the criticism was directed at oil companies and their profiteering, not once even mentioning that there could be something else afoot.
I wrote an email to the editor about Peak Oil the day the paper was released and within an hour or so got a phone call back from them acknowledging the letter. The man said that it made them look at things a little differently. My letter will be published this week and I'm sure there will be a reaction from somebody in the community, positive or negative, and I plan to react to the reaction. Hopefully this will be the start of something positive for Campbelltown.
Good luck, mate. Sounds like you're pushing poo uphill, though...
Paragraphs please.
Thanks for the story - let us know how it goes with your local paper.
If they want to do a story on PO I'm sure some of the ASPO guys would be happy to talk to them...
Sure Big Gav I'll get back to you. The paper is released today, can't wait for next weeks reaction.
I went through a stage of writing to the papers. The Sydney Morning Herald has never published one of my letters. The Financial Review printed a letter I wrote in response to BP's statistical review in 2006. Interestingly the paper published an article the next day that didn't actually refer to my letter, but expressed gratitude that "cooler heads" (such as at BP) actually run the global oil industry (wrong on all counts!).
As was noted here a few weeks ago my submission to the 2020 BS session was accepted. Yet the subject didn't rate a mention. Now I am not sure what the 2020 was all about, if anything. Certainly without detailed consideration of PO it is meaningless. I think the Australian Labour Party learnt well at the knee of its UK older brother. Blair mastered spin and worked out that to be very successful politically all you have to do is know how to fool most of the people most of the time. KR is showing all the signs that he has had a coffee or two with Tony Baloney (Blair).
It all boils down to deliberate suppression of the story I think. I am 100% sure that Tintin (KR), Wayne and the gang know what is going on but do not want it to spoil the party.
I'm not 100% sure these blokes know what is going on. They're are all pretty pretty smart but they're used thinking in terms of Eco 101 as are the Canberra Bureaucrats. I remember well a submission by Dr. Fisher of ABARE to the liquid fuel investigation last year who predicted Oil would be $40 barrel in the future because that is "how much is costs to make Oil via CTL."
These people are used to thinking in the margin not the 50% change of technology needed to deal with Peak Oil or Global Warming.
I'm pretty sure Martin Ferguson understands the issues. He is not particularly interested in Global Warming probably because he sees dealing with Peak Oil as the first energy priority.
Still at least they're pushing local car manufacturers to invest in hybrid models and if they deliver their $1 billion energy program we can start to make progress.
At least we have lots of money right now. Hopefully the investment will flow where it is needed.
That would be the same Brian Fisher that stated with a deadpan face that "if the price of eggs gets high enough, even the rooster will start laying"!
The very same. Despite the phrase "resource economics" in their title I do not think they would recognize resource economics if it slapped them in the face. It is all Eco 101 with them.
Yes, you call this "cock to liquids" (CTL). The oil price is now at 3.1 Fisher a barrel.
Over here, in the UK, I seem to have had a lot more luck with getting my letters published than you. I find that if I try to be humorous (very difficult with this subject matter), the letter is more likely to get published. Lately, they seem to have stopped publishing my letters as the joke does not work so well when oil is at U$120.
Here are a couple of samples that did get published in the Financial Times
Dec 06, 2006 What use will China be making of its intellectual capital?
Dec 19, 2005 By 2025, aircraft will be flying on empty
I have also had a private correspondence with Martin Wolf their chief economist and below is an extract of an article he wrote in today's FT. Our discussion was the usual one between an engineer and an economist - he thinks that oil is substitutable. I think he is gradually coming around to understanding that this is a different type of economics
May 13 2008 The market sets high oil prices to tell us what to do
I am hoping that you are exaggerating with the 2km/L comment. Even the worst SUVs here in the States aren't quite that bad. The worst offenders we have here are in the 4km/L.
The old Holden 'Red' ICE isn't quite that bad. It's not even that much worse than a current Commodore (nearly 30 years on). The older card are helped out by a comparitive lack of weight.
Unfortunately, they're rarely maintained well. The car in question is probably a complete rustbucket, and blasting unburnt fuel as the driver roars away from the lights in an attempt to get to a rev range where the motor actually produces power.
It's probably also spray-painted 'baby-poo brown'. :)
I live off to the left of the red zone on the map, a 100km commute to work.
I can afford to have my spouse at home with our young children and still pay our mortgage, we live 6mins walk from the local train station (add a minute to the pub/supermarket/take away/chemist/bank/primary school).
My petrol bill is pretty reasonable, we average under 10,000km per annum as I always take the train to work. I work from home a few days a week, so the long commute is not every day, and I do enjoy living in a smaller, less suburban place.
The community around here is even pretty PO aware, with regular letters in the local papers questioning investment in roads and parking.
I guess the point I am making is that people make their choices and have to live with them. There is affordable housing in Sydney with great public transport (Mt Druitt, St Mary's and Penrith are all cheap suburbs with high frequency heavy rail).
But people want to live in places that require lots of oil, and are unwilling to pay the taxes to get public transport. Its no news to readers of this site that this is short sighted.
My own guess is that oil will ramp a bit more, then back track $20-$40 a barrel as commodity investors swing short.
There will be some sighs of relief in the media and a little jeering at peak oil aware people, but not too much as oil will still be over $80 a barrel. Then prices will continue slowly upward.
In a couple of years, fuel over $3.50 a liter will be hurting lots of people on that map, inflation will be high, stopping the reserve banks from cutting interest rates, and there will be a housing price crash (moreso than now) in these outlying areas with no car alternatives.
A house in Dural that sells for a $1million now will cost $400k while that McMansion at Cecil Hills costing $450k now will be pretty much unsellable.
I expect there will be a mass nationalisation of bus services, or at least a big expansion as the government tries to keep the outer suburbs ticking. At least traffic will be better.
The huge losses on property in these areas will hurt the wider economy, with fewer people to buy the widescreen TVs and employ the child carers, tattoo artists, landscapers and taxi drivers. Throw in declining sales of all Australian made cars and a declining sharemarket causing pain even for the richer Eastern suburbs set and things start to look grim.
Will we have riots/should I be hoarding ammunition? I wouldn't think so, but budgets are going to be tight for a while yet.
If you can work from home a few days a week and catch the train the rest of the time then fine - its a great lifestyle - so you've done well.
But I think most people who move beyond the urban fringes aren't near a train line and are completely car dependent - unfortunately for them...
"unfortunately for them..."
there is always car pooling or taking the bus if things get tough.
No - these are people basically out in the bush - there is no one to car pool with, nor is there likely to be a bus service that you could use for commuting to work.
They might be able to save fuel by driving to the nearest train station - but that still might be a 30 minute drive.
then they don't live in an actual suburb. do they pass anyone by during their commute? if so they are potential car poolers or people who they can catch a bus with. they could drive half way and then take the bus or car pool with someone.
Well driving a car to a nearby train station is doable for many in the suburbs however the problem at least in the US is few office buildings outside of the major downtown areas are located near rail stations. So the bigger problem is on the other end of the commute.
In general however hopefully this posts shows that for many people they would have to make some fairly big changes in the way the live and even where they work to significantly cut fuel costs. So in my opinion we would have to see fuel closer to 4$ a liter in Australia before you see people get serious. That would be when it hits 12% of income for many.
Good map but I think that the numbers are low. Most people have room to cut other expenses such as eating out a lot before they would have to cut back on gasoline purchases.
So the right question is what is the price point at which people really cut back on eating out and shopping trips to afford gas. At this point the restaurants close and the store manager that refused to change his lifestyle and kept driving is out of a job and can't afford gasoline period.
So in my opinion demand destruction is not from people modifying their lifestyles to reduce oil consumption but from modifying their lifestyles to cut all other expenses leading to other people or themselves loosing their jobs as the economy contracts then they finally reduce fuel usage. Hopefully they find another work and a stable lifestyle afterwards that does not require using a lot of gasoline.
So I think a bigger issue is what industries are most likely to be affected by higher fuel costs ?
1.) Suburban Expansion and the housing industry related to it.
2.) Hospitality industry
3.) Restaurants
4.) Shopping malls of various sorts
5.) Coffee shops other specialty shops.
6.) Electronic entertainment
7.) Sporting events and organizations various after school activities ( soccer mom stuff )
What probably won't change much is driving to work paying rent/mortgage and buying food.
Good map just wanted to put my two cents in on what it might really mean.
I think thats right memmel. You have to look at how dependent you job is on oil/energy and how it would be affected by any oil induced economic cutbacks by your customers. The people in the article may work at a car components factory for all we know so moving closer to the plant may not be a real smart move.
I also think we give too much credence to the size of cars that we drive rather than the amount of kilometres driven. These people could all have a big car in the garage if they only used it for road trips, but otherwise lived and worked locally. My next (and last) car will actually be a big 4WD which I will only use for road trips. I'm hoping to pick up a very nice cheap one once petrol hits $2/l :). It's all about the strategy.
Yeah I like the car components example. The problem for most people is the majority are in non-discretionary industries.
I just watched a show on the US railroads and today they employee 177,000 people and had 2 million back in 1965. Even if we bring rail back in a massive way modern computer controlled trains simply don't need that many people. And to be honest watching the show it seemed like they did not even absolutely need half the people they had. We could probably run our train with no one on board but a remote camera for emergency situations. Farming is even worse only 2% of the population is involved in farming. Assuming we keep a industrial society diesel biofuels and even electric tractors make a lot of sense so I don't see farm population rising dramatically certainly go organic but I just don't see the need for labor.
You can do this analysis through most industries and generally they are heavily automated or shipped offshore. I've been to the chinese factories and they could easily automate them a lot more if wages increase. It was marginal when I was there five ears ago using people vs automation.
The net result is paying high wages for more than a handful of people in most critical industries does not make a lot of sense these days.
So as gasoline cost eat into people discretionary spending budget I just don't see that a modern economy needs that many on the required side. And they are not needed to make lattes and polish nailed and write insurance policies or run cash registers for people with no money for anything but housing gas and food. Obviously on the Chinese side of the trade we probably will see them do what they can to lower prices this will mean slashing wages in china but also paradoxically the plants with money probably will automate a bit more since it may actually be cheaper.
So not only are you competing with China/India for a falling wage and automation but a lot of the stupid junk goods will be effectively worthless since no one has money to buy them. I mean are you going to buy plastic forks or wash your metal ones if your low on cash ?
Other stuff like pots and pans and dishes etc can readily be kept for a long time. And of course every household that loses its wage earners and goes into foreclosure dumps more used household goods on the market. I remember during the dot.com bust you had to pay to get office furniture hauled off.
Even with all this as people take lower paying jobs etc I still don't see gasoline usage dropping all that much for a while. You probably will default on your debts go bankrupt etc and still drive your car to any job you can find.
Instead you go from a house in the suburbia to apt or rented home bankrupt but still driving with only the unemployed and
a few workers moving to public transport. If the economy slows down too fast and oil prices drop then since it was oil prices that where the root of the problem usage goes right back up. I've been reading about the Great Depression and gasoline was 25 cents a gallon or about 2 dollars or more adjusted for inflation.
http://www1.eere.energy.gov/vehiclesandfuels/facts/2005/fcvt_fotw364.htm...
We don't see any changes outside the trend all the way through the depression. Certainly gasoline was a expensive during the depression. People desperate for work actually traveled quite a bit in cars if they could afford it.
Like I said above, I'm planning on my next car purchase to actually be a big one that I actually don't paln to drive that much. But perhaps I should reconsider and go for the Winnebago instead :) At least I'll be able to live close to work, wherever that may be! Don't know how the wife will like the idea but kids are pretty adaptable.
Actually buying a used SUV for the occasional trip and a 250 cc motorcycle for commuting is a pretty good move.
A bigger bike if you have to drive on highways.
I have a 1999 honda minivan which does not get good gas mileage I'll keep until after the peak oil thing blows over.
So I figure till 2012-1015. If I have to commute I'll do the same and buy a motorcycle.
If it still makes sense to own a car in 2015 then I'll by a electric mini-van. Right now I fill up every 2-3 months on average since I work at home and walk a lot so it does not make sense to buy anything.
Given the cost of a decent bike small bike less than 5k and the gas mileage you get your pretty much set.
You can get a used honda rebel 250 cc for around 1,200 USD I think they get like 90 mpg.
I would say it depends on the tax situation. For example, in the UK the road tax, an annual payment that just gives you permission to take your car on public roads, will be based on CO2 emissions. Currently there are 7 bands and the rates vary from zero for cars emitting less than 100g/km to GBP 400 for cars over 225g/km. From next year there will be 13 bands and the top rate goes to GBP 440.
I was going to keep my old gas guzzler since I drive very few miles but am now thinking about a new electric car. The TH!NK City looks good but the price is very high at around GBP14,000 for the car plus around GBP140 per month lease for a ‘mobility pack’ that includes the costs of a replacement battery if needed. Maybe I can get Tata to convert the Nano:-)
There are lies, damned lies and then there are statistics. I looked at this graph long and hard before I realized it ended in 2004. The current price in the same dollars would be around $6? i.e. something like double the highest level on this chart. I would say the trend is well and truly bust!
The graph is cool since it shows since about 1975 or so or when we went off the gold standard the US has been spinning down the fiat currency inflation well. The problem is is your a oil importer you have to have a significant export economy instead
its obvious looking at this graph that we used to be able to devalue the dollar agianst oil and get away with it.
The petrodollar was and amazing achievement in ripping off the whole world. Think about if your a Roman Emperor and where able to debase your currency leading only to local price inflation around Rome but the provinces willingly sent loads of grain no matter what the gold content of the coins and willingly paid for goods from Rome at the face value of the currency.
You would be a real god in the eyes of most Romans except of course for the local middle class that was put on a treadmill.
My only guess is that the cold war played a large role in everyone ignoring the situation. Also the re-expansion of the world economies after WWII played a large role in everyone willing to take the dollar at face value since they needed it to support their own fiat currency games. But these our only guesses I'm still not clear how we managed to pull this off.
Theoretically once we turned into a oil importer we should have become like Japan with a strong export economy and expensive imports and the world should have had a very balanced trade arrangement with most of the goods produced using imported oil competing in the free market. If the market was not sufficient then oil imports should have dropped following goods export economies. Japan pretty much followed this except for its willingness to take dollars for exports. So overall I simply don't understand why basically the entire world decided to play this game knowing eventually it would end badly.
"unfortunately for them"
It's not misfortune, it's their choices.