What You Should Do to Cut Your Energy Bill

By: Sean_Brodrick

A Modern American uses about as much energy as a blue whale. That’s not an easy feat, considering that blue whales outweigh us — even us supersized Americans — 2,285 to 1. But this has consequences for the whole world because the whole world wants to live like big, fat Americans, and the world can’t support 7 billion blue whales.

To bridge the gap between “Homo Americanus” and blue whales, we need to translate energy into its simplest form — watts. A human being at rest runs on around 90 watts of power. Crank up the voltage a bit — to about 250 watts — and that’s how much a primitive hunter-gatherer uses, padding through the jungle.

Now let’s add more baggage of civilization — hair dryers, electric shavers, computers, air conditioners, cell phones and cars. Eventually, the average lifestyle in United States consumes 11,000 watts. Going back to nature, what kind of animal needs 11,000 watts to live? A blue whale.

This comparison was made by theoretical physicist Geoffrey West in a recent article in The New York Times. West pointed out that big animals like blue whales and elephants can live within nature because they move around slowly. But humans break the natural order because we move around fast and use so much energy.

Shifting Into Overdrive

Dr. West makes a great point, but I think he’ll have to update his numbers down the road. Why? Because the amount of energy we use as a species is shifting into overdrive.

The U.S. Energy Information Administration (EIA) has raised its forecast for global oil consumption — AGAIN — this time to 88.023 million barrels a day from 87.65 million barrels a day. Where is the EIA expecting growth? In the emerging markets of China, India and so on.

China’s oil demand growth is astounding. China’s overseas purchases of crude oil for 2010 rose 18% from a year earlier to a record 239.3 million tons, according to Beijing’s General Administrator of Customs data.

The Chinese are already trying to soft-pedal this number. The Research Unit of China National Petroleum just forecast that China’s imports of gasoline, diesel, kerosene and naphtha could drop 23% this year due to government efforts to cool the economy.

That sounds like a pipe dream to me. I think it’s more likely that since China is furiously adding new refining capacity, its imports of refined products may flatten out or go down.

But remember, China’s gross domestic product is expected to grow 9.2% this year, compared with 10% in 2010. That’s hardly the environment for a drop in oil usage.

Throw the Models Out the Window

So, the U.S. Energy Department and just about everyone else was already counting on demand growth in emerging markets, but the 18% growth in China’s overseas purchases of oil last year was way more than anyone is expecting. Throw all those old models out the window.

And one other thing that the Energy Information Administration, International Energy Agency and others are counting on is no growth in energy demand in the United States this year. You know what? I think they’re wrong on that, too.

I am bullish on the U.S. economy. In December, we saw decent consumer spending fueled by the recent increase in the real personal savings rate. Looking ahead, it looks like we’ll see stronger than normal economic growth in the first quarter of 2011.

Why? Well, the Leading Economic Indicators turned positive in the second half of 2010. December’s LEI is very likely to be positive, given an increase in real money supply, a drop in initial jobless claims, a rise in stock prices, a strongly positive yield curve, and manufacturing hours that at least stayed flat and didn’t go down.

Unless there are terrible numbers in housing, factory orders and durable goods, December will be positive and that should carry on into the first quarter. This should be very bullish for oil prices.

The second and third quarters are harder to read, but I would not be surprised to see the second quarter also show good economic growth.

More Comparisons

On a per-capita basis in 2009, India consumed 0.985 barrels per person — less than HALF the oil China consumed per capita (2.35 barrels per person). Meanwhile, China consumed a bit more than ONE-TENTH the oil the U.S. does per capita (22.22 barrels per person). The odds of these two developing nations increasing their oil use at a phenomenal rate are VERY HIGH.

Now, here’s another comparison to keep in mind:

• The United States has 765 cars per 1,000 people — the most in the world.
• China has 17 cars per 1,000 people.
• India has just 12 cars per 1,000 people.

The people in those countries all want to drive like Americans. Car sales in China — now the world’s #1 new car market — and India are growing at a furious pace. And nearly all those cars will run on petroleum products.

Bottom line: I think we could see spikes in both crude oil and gasoline in the first half of 2011. To be sure, an oil price spike could drag on the economy or even send it skidding into recession again. There are a lot of variables in the mix. It can be a very scary time, but it can also be a profitable time … even for whale-sized profits.

What You Should Do

You can invest in select stocks and funds to make the most of a potential surge in oil prices. But you also might want to think about how you will adjust your lifestyle when gasoline goes to $4 a gallon … $4.50 a gallon … and higher.

Here are three things to do:

1. Shop around for the lowest gas prices. You can find the lowest prices in your neighborhood and all around the U.S. and Canada at http://gasbuddy.com/.
2. If you’re driving a gas guzzler, consider investing in a new car — before the price of gas-miserly cars goes through the roof. And consider buying a used car to save even more money. For example, here’s a list of the top penny-pinching cars for 2009: http://bit.ly/eYfUKp. Some of them are already hitting the used-car lots.
3. Start adjusting your lifestyle now. Start riding a bicycle when you can — I have mine fitted out with some great LL Bean panniers (removable baskets — you can find them at http://bit.ly/e9UI6o) for quick trip to the grocery store. Talk to your boss about telecommuting a couple days a week. See what other steps you can take to protect yourself now from a potential oil price spike.

I think oil prices are going to surge. You can either be swamped by that surge, or ride it for all it’s worth.

All the best,

Sean

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