The Gathering Storm?

Philip K. Verleger is an energy consultant. I found an abstract of his paper on the Institute for International Economics web site. His argument is that there are six major driving factors behind the current instability in the oil markets and could drive the price of oil steadily upwards unless action is taken to address these structural factors. The six factor identified by Dr. Verleger are:

• Demand for oil driven up by increased consumption in China and India.
• Failure of OPEC and other players in the oil business to anticipate the increases in demand and adequately invest in increasing capacity.
• Political instability in several oil producing nations.
• Lack of investment in downstream business operations, specially in the refineries.
• Stricter fuel regulations in Europe and US limiting the production of different outputs of the crude oil.
• Lack of adequate efforts on energy conservation since some how there is a notion that the prices will come down sooner rather than later (or never).

These six factors pretty much cover the entire territory on high oil prices, although I keep hearing that the continuosly increasing US trade deficits which are resulting in a weaker dollar is also one of the causes. I do not have enough knowledge of macro economics to argue in favor or against this one.

Dr. Verleger thinks that these factors have led us to a point where we may be facing a crisis on a global scale in terms of energy prices. His suggestions for avoiding a price shock are:

• In the short run, the major oil producing and consuming nations should come together to agree on a stable price zone for oil. This is easier said than done.
• In the long term, however, there is no alternative to reducing the rate of growth of demand for oil. Interestingly enough Dr. Verleger refers to Amory Lovin's Winning the Oil End Game strategy as well as Thomas Friedman's Patriot Tax.

Overall, there are enough arguments that support my hypotheis that the oil prices will remain in $40-45 range for the next few months. So forget about the dream of buying gas for your 2005 memorial day drive at $1.60 a gallon.

Reforming the Automobile Fuel Economy Standards Program

Isn't it time for NHTSA to come back to us with what is going on with their efforts to reform the Fuel Economy Standards Program? It has been a year since the ANPRM came out.

Is the Future Hybrid?

Technology Quarterly of the Economist carried an article this month titled why the future is hybrid. In spite of the optimistic sounding title, the article, citing an ABI research report, notes that there is a risk that the hybrids may become just a niche market. A not so long ago published report from DOE was more positive on the future of hybrids, estimating that the hybrids may capture 10-15% of the US market by 2012. Both, the Economist and a U.S. News and Reports article are pointing out that California's Greenhouse Gas legislation may give a further boost to the Hybrids in the U.S. One may ask a question as to who is going to be a leader in this multi-million vehicle market in 2012? Another U.S. New and Report article had the following quote:

"Toyota got ahead of the domestics," acknowledges Larry Burns, GM's vice president of research and development and planning. "That's obvious."

I have no dounts about Detroit's technical ability to overcome technological challenges, but I doubt that they are going to able to catch up with Toyota or Honda in the case of hybrids.

There is one more thing in the Economist article and it relates to the Plug-in hybrids. The plug-ins have two disadvantages. One, they require a bigger and more expensive battery and two, they require to be plugged-in which is an additional task for the vehicle owner after coming home. Even then, if petroleum reduction were the sole objective then the plug-in hybrids may look attractive. The catch there is that the electricity that will charge the battery at night will most likely come from a coal fired power plant. Even then, the proponents of a plug-in hybrids have a point. IF, in the future, we were to go towards an electricity based transportation system instead of petroleum or hydrogen based system, i.e. use electric vehicles instead of fuell cell of ICE vehicle, then plug-in hybrids is the logical progression of the current hybrids in meeting that goal.

The future of transport sector is unlikely to be all electricity or all hydrogen, but one thing is clear that the hybrids have an important role to play in the next couple of decades.

Sunlight to Fuel Hydrogen Future

Research on photochemical cells is gaining more publicity as the PV and electrolysis combination for producing hydrogen is going to remain an expensive option.

More Fuel Efficient Tires Could Save Consumers Gasoline

Now talking about tire pressure is much less cool than talking about the two mode full hybrid system. The fact of the matter is that such uncool measures can save significant amount of fuel. A few months ago, I observed that California's Flex-Your-Power at the Pump campaign was a very good idea. I wonder if they do a follow up on these campaigns to see if their message reached the general public. Drive Lite ^TM is the key!

Immediate Update: It seems like GreenCarCongress hits on almost the same topics that I do. Scroll down to this post from yesterday for a link to a GREAT guide on Low Rolling Resistance Tires.

DaimlerChrysler and GM to team up on hybrid vehicles

GM and DCX have decided to do some joint work on developing hybrid vehicles.

GM and DaimlerChrysler will work on what they call 'two-mode full hybrid' technology. "'Together we will jointly develop what is essentially an electrically variable transmission with two hybrid drive modes," said Tom Stephens, group vice president of GM Powertrain.

'This system will reduce fuel consumption at highway speeds much more effectively than available single mode systems and achieve at least a 25 percent improvement in composite fuel economy in full-size truck applications.'

The new system aims to improve performance and fuel economy at highway speeds and better trailer towing ability. The system's electric motors are designed to fit within the approximate space of a conventional automatic transmission.

I am not really sure what they mean by two modes. I presume that its means having two separate control structures for city and highway driving mode, since having a hybrid does not help very much when travelling on highway.

UPDATE: Green Car Congress has more on the "Two Mode Full Hybrid" system. I personally think that such confusing terminology should be avoided. No mild or full, no single or two mode systems. Just call them all as hybrids, and let the performance of each system speak for itself.

Fuel Cells in the Deep Freeze

A reporter drives a Honda Fuel Cell vehicle, and finds the experience alright, if not exhilarating.

Ending the Energy Stalemate

I was eagerly awaiting the release of the final report of the National Commission on Energy Policy (NCEP). (Press Coverage). I am somewhat disappointed because my first impression of the report is that its recommendations have been watered down so that a consensus could be achieved on the commission. Of course, the Commission, which was co-chaired by savvy Harvard professor John Holdren attempts to preempt this type of criticism by saying:

Taken together, the Commission’s recommendations aim to achieve a gradual but nevertheless decisive shift in the nation’s energy policy. Their near-term impacts, by design, will be modest, and some will undoubtedly find them grossly inadequate to the challenges at hand. Others will criticize the same recommendations for going too far, precisely because they initiate a process of long-term change with consequences that no one can fully predict. These refrains are familiar. They characterize the stalemate in views that has too long resulted either in outright gridlock or in a piecemeal, special interest-driven approach to energy policy. These outcomes are no longer acceptable. It is time for the stalemate to end.

In the case of automobiles, one specific recommendation of the commission is to provide manufacturers incentives (a gentler word for subsidy) to convert plants to produce more fuel efficient vehicles such as Hybrids or advanced diesels. This is a suggestion that came out of Energy Future Coalition.

The commission's view on the fuel economy standards is as follows:

The Commission believes that three factors are largely responsible for the current CAFE stalemate: (1) uncertainty over the future costs of fuel-saving technologies; (2) fear that more stringent standards will lead to smaller, lighter vehicles and increased traffic fatalities; and (3) concerns that higher fuel-economy standards will put the U.S. auto industry and auto workers at a competitive disadvantage.

I should note that for the costs of various technologies projected ready for deployment in the next decade are increasingly well understood although some differences remain until these technologies are put in to production.

NCEP argues that CAFE standards should be raised, but it has no specific recommendations. It also says that trading of permits between different categories of vehicles as well as between different manufacturers should be permitted. It is well understood that under the current market conditions a trading scheme would result in a modest but positive cash flow from domestic to foreign manufacturers.

I will not go into details of other sections of the commission's proposals. It should suffice to say that they have covered all the bases. Advocating the emission trading of CO2 is a noteworthy recommendation. NCEP's focus on renewable technologies is not as strong as I would have imagined.

The commission says that various subsidies proposed by it could be covered by sale of Carbon Dioxide emissions permits. The 36 billion dollar investment, however, is needed in the next ten year period, and the projected revenue will only be generated in the decade after that.

The commission says that it will spend the coming year advocating its position at various forums. Some of these suggestions will no doubt make in to the next round of debate over the energy bill. What is needed in the policy debate, however, is a comprehensive approach such as that of NCEP. At a time when U.S. badly needs a sensible energy policy, this report is no doubt a welcome step.

Opec ministers agree to cut oil over-production

Opec ministers agree to cut oil over-production

The agreement signals that Opec is prepared to defend oil prices at over $40 a barrel and that it will seek to cut output further early next year if prices fell again.

The move to keep oil prices above $40 a barrel will not be welcomed by consuming nations as the relatively high oil price has been blamed for a slowdown in economic growth.

It should be noted that there is not going to be a real cut in terms the ceiling set by OPEC. OPEC had stepped up production in order to cool the market a little, but in doing so many members led by Saudi Arabia were exceeding their quotas. The new agreement is saying that all the members will start producing at the OPEC agreed upon ceiling.

Saudi Arabia goes against oil cartel on production cuts

While most members of OPEC want to avoid any crash in oil prices and want to reduce OPEC's output in order to assure that, Saudi Arabia has taken a different line.

Opec ministers from Iran, Venezuela, Qatar, Libya and United Arab Emirates have all said in the past week that they want to focus on paring down excess supply above Opec's official ceiling at the meeting. The 10 Opec members with quotas produced about 28m barrels a day last month, about 1m b/d above the self-imposed limit.

Recent price falls have renewed the prospect of a possible cut of Opec quota limits. Most of the burden of any Opec output cut would fall on Saudi Arabia as it has been producing about 9.5m b/d since August, 890,000 b/d above its quota limit.

It may really come down to how hard the winter is going to be. If the demand for heating oil shoots up, then the prices may well stay in the $42-45 per barrel range all through the winter. On the other hand, however, if the winter is relatively mild we may see the oil prices easing in to high thirties.

Alliance of Automobile Manufacturers sues California Air Resources Board

What else are trade associations are meant for? The Alliance of Automobile Manufacturers has sued CARB over the AB 1493 legislation. This was expected ever since the rule was adopted by CARB in September. The legal reason most likely given in the suit will be preemption of federal authority by CARB in regulating CO2 emissions from motor vehicles, which is a de facto fuel economy ruling. (Not quite, but close enough). CARB is no freshman to this game. They have been planning their response for about two years, and now it is time to go to the mattresses.

Hybrids vs. Hydrogen: Which Future Is Brighter?

I believe that such a question and any debate framed in this manner is meaningless. We should not be asking whether to go for Hybrids or Hydrogen based vehicles. In the near term, it should be IC Engine Hybrid Vehicles, but we should keep our long term focus on Hydrogen Fuell Cell Vehicles, keeping in mind that new innovations in battery technology may bring back the electric vehicles firmly in to the picture.

Nov 04 US Hybrid Sales

Listen to this bit from the Green Car Congress

Robert Bienenfeld, Senior Manager of Automobile Product Planning for American Honda, noted that Honda has found over the years that sales of its hybrids closely tracks to the stimulus of increased gas prices. Price up, sales up. Price down, sales down. In other words, in the aggregate, the hybrid sales still reflect a short-term reactive response on the part of consumers, rather than a longer-term, more measured change in buying criteria.

Clearly, there is some irrational behavior on the part of consumers going on here, but hey, who said that the car buyers are rational individuals!