Car2Gone? How changing driving habits are changing the oil and gas industry

Millennials don’t seem to be interested in buying or owning a car. That could be a big problem for an industry that depends on filling them up

April 07, 2015

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On a Monday morning in November, Jade Jerace joined a group of Edmonton Greenpeace activists on a field trip to Leduc No. 1. While four of them climbed 40 meters to decorate the drilling platform with bilingual banners and a solar panel, Jerace stayed on the ground posing for cameras with her own sign: GO SOLAR. 100% SPILL PROOF.

“I’ll be up there next year, hopefully,” she says.

“You don’t need an MBA to know it’s dangerous to think that your customer will never change. Yet the unexpected is happening.”

– Peter Tertzakian

Jerace joined Greenpeace in February and quickly became acting president of the MacEwan ­University chapter. But there’s something else about the 22-year-old that may be more consequential to the oil industry: Like many people her age, she doesn’t intend on getting a driver’s license. “Driving is absurd,” says Jerace, who only got her learner’s last year for emergency situations. “You save thousands just for the down payment, so there goes your savings, then there are more payments, insurance and gas money, and if you’re not broke already you ding something and then you’re five grand in the hole. That’s my first year of college or a trip out of the country.”

Her attitude towards cars and driving is neither political nor radical. Young North Americans are delaying getting their licenses, driving fewer kilometers and buying fewer cars. Even in prosperous Alberta, the proportion of under-25-year-olds with their licenses has dropped 15 per cent over 20 years, according to the Edmonton Journal. Given that transportation makes up two-thirds of refined petroleum consumption, the trend has some wondering if the biggest threat facing the oil industry is peak car, not peak oil.

For 100 years, the automotive and energy sectors were like two wheels on the same axle, continually spinning forward. As long as North Americans stayed car-crazy, the demand for both would be steady and predictable. “This notionally inviolable principle has led North American upstream companies to pump more and more oil into continental pipelines with little worry about the habits of drivers,” wrote Peter Tertzakian, chief energy economist of energy-focused private equity manager ARC Financial, in a 2012 report. “You don’t need an MBA to know it’s dangerous to think that your customer will never change. Yet the unexpected is happening.” In the U.S., by far the Canadian energy sector’s largest and most important market, car sales among those 18 to 34 has plummeted nearly 30 per cent since 2007.

Instead of finding independence behind the wheel, they’re finding it through social media and travel. They’re investing in costlier educations that delay their ability to purchase cars, and moving to inner city neighborhoods that reduce the need for personal vehicles. “They want to be where the action is,” says Cherise Burda, the Pembina Institute’s transportation-focused Ontario director. Her research suggests that all Canadians would give up a large house in the suburbs for a place that’s closer to transit with a shorter commute, but for millennials this is particularly true. “They don’t want to spend their time in traffic,” she says.

To keep up with these changing attitudes, cities are investing in public transit like never before. In Calgary, where it’s not uncommon for suburban homeowners to pave over their front yards to fit more vehicles, the city has added 22 kilometers of new LRT tracks over the last 10 years, and there’s plenty more to come on that front in the decade ahead.

Propensity to buy a vehicle by age, United States

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Source: General Motors 2013

“That doesn’t mean the car is dead,” Burda says. “It’s just finding different outlets.” Those outlets include technology-based rideshares like Lyft, Uber and Car2Go, the app-enabled car sharing program with a fleet of 550 Smart cars in Calgary, its fastest growing market. “We’re seeing more multimodal transportation – they’re using transit, they’re cycling, they’re walking, they’re using Car2Go.” Factor in the inevitability of self-driving and autonomous cars, and it has some auto experts worried.

Not everyone’s buying the doom and gloom forecasts for car ownership, though. “We’re not buying into that story that they don’t want a car because they want an iPhone instead,” says Lacey Plache, the chief economist for Edmunds.com, a consumer resource for car buyers. “We attribute it to their economic situation and that they face challenges in terms of getting their adult lives started.”

Her research suggests that once you control for age and income, millennials are even more likely to buy a vehicle with luxury features like Bluetooth controls and leather upholstery.

In the meantime, the longer careers and ­lifespans of boomers has helped Canadian and U.S. car sales bounce back to pre-recession levels. Still, even that data comes with its own caveats. According to ­Canada’s Auto Training Centre, there are one-third as many car leases today as there were in 2007. Instead, consumers are turning more to used cars – practical purchases that might suggest that the car isn’t quite the status symbol that it used to be.

“There’s a change in how people view cars,” says Kieran Ryan, a former employee of the Calgary natural gas fuel company Ferus who recently left to co-found an Edmonton car sharing company called Pogo. “Younger people view it as a tool to get around as opposed to something that’s part of your identity. But a car is still very, very convenient. We’re not going to change that. We’re just going to change the way people access them.”

So now, the multimillion-dollar question for those in the business of selling both vehicles and the oil that fuels them: Can the car regain its status in North America? Plache thinks it can, albeit with some key modifications. The status symbol of the next decade might be driving – or being driven by – your own Model D, the (more) affordable electric vehicle that Tesla Motors CEO Elon Musk has been hinting at for months. “And that could drive down the demand for gasoline, but not necessarily cars,” she says. “Those are much bigger factors for the oil industry than millennials.”

As for the rise of car shares, she says it’s more of a threat to the taxi industry than to manufacturing or oil. Many car-share users own vehicles. They just like the convenience of free parking, which has no bearing on the energy sector. “I’m not convinced that it’s going to steal an appreciable amount of new car sales,” she says. “If anything, it gives people a way of pre-shopping.”

But not for Jerace, it seems. Neither an electric car nor a car-share can change her mind. Although she lives in north Edmonton, she would much rather cycle or bus an additional 20 to 40 minutes to school than get behind the wheel. She’s been honked at and sworn at by drivers while cycling. She’s even been nicked by a car once. Still, when it comes to owning a car of her own, she’s resolute. “It’s still not worth it.”

Rising in the East

If there’s a silver lining in all of this for demand-conscious oil producers, it’s that it is, and almost certainly will remain, a western phenomenon. In markets like China, cars are moving off the lots in such volumes that their giant inflatable men’s frenzied flailing arms seem like a reasonable response. As a result, Asia’s “transport energy demand” is expected to grow by 100 times by the end of the next century, according to an Environmental Science & Technology study.

More posts by Omar Mouallem

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