Bigger, Faster and Less Economical?

In the last month's chart, I noted the propensity of the American consumers to drive bigger, heavier, faster and more powerful vehicles. The charts there were derived from informations published by EPA. The same charts find their way in to today's New York Times, as Danny Hakim reports that this years publication of the fuel economy trends reports have been held back so that an energy bill that does nothing to reduce light-duty vehicle fuel use can be passed in the congress.

The E.P.A. report illustrates what has happened as the industry has poured resources into S.U.V.'s, minivans and family-oriented pickup trucks, vehicle types with less stringent fuel economy requirements than cars. The average new vehicle weight has risen to about 4,000 pounds today, from about 3,200 in the early 1980's. At the same time, the horsepower of an average engine has roughly doubled over two decades, trimming four seconds from the time it takes for the average vehicle to accelerate from zero to 60.

If you read the article, you will see environmental advocates crying out against the administration and auto companies, but not saying anything about the consumers who make a choice to buy less fuel economical vehicles day in and day out so that they can speed from one traffic light to the next one in less than seven seconds.

It's disturbing that despite high gas prices, an oil war and growing concern about global warming pollution, most automakers are failing to improve fuel economy.

I don't mean to be disparaging, but I am tired of arguments which ask only the auto companies to shoulder the responsibility alone. Isn't oil consumption and greenhouse gas emissions everybody's problem? Shouldn't American people be required to act along with Auto and oil companies as well? As I have noted several times before here, the obsession with the CAFE standards is not the smartest way to move forward; but we want our living rooms on wheels, who cares about oil?

Growth in U. S. Petroleum Product Demand in 2005

This Week In Petroleum reports:

gasoline demand growth in the first half of 2005 will likely exceed the 0.7 percent rate recorded by published data so far, the second half of the year appears likely to grow at an even stronger rate. Thus, when all is said and done, growth in U. S. gasoline demand in 2005 seems more likely to average at or above trend growth (of about 1.5 percent) than below it. A table comparing the demand data in both the PSM and PSA for the major products in each month in 2004, is shown at the bottom of this section.

In summary, the upward revision in 2004 data will not necessarily pull down 2005 demand growth significantly. While high oil prices have certainly tempered demand, compared with the even higher levels that would otherwise have occurred, it is too early to conclude that demand growth will fall significantly, if at all, below normal rates.

Size based CAFE standards for light-trucks?

The last time we heard anything on the NHTSA's overhaul of light-truck CAFE standards was in February. Automotive News now reports that NHTSA has decided to go with size based class system

Federal regulators soon will propose a fuel economy rule that divides light trucks into five classes by size rather than weight, industry sources say. Smaller trucks would have tougher fuel economy standards than larger ones, the sources say.
... Toyota officials were told the CAFE proposal will classify trucks according to a calculation that involves wheelbase and track width to determine the area bounded by a vehicle’s four wheels.

Remember that these changes will affect only the light-trucks (pickups, SUVs and minivans), and not cars. It will be some time late next month or early september when NHTSA will go public with the revisions. So, stay tuned.

Hybrid Cars Burning Gas in the Drive for Power

I noted previously that Honda Accord Hybrid will be a real test case for how hybrids might do over the next few years. The reason: Accord Hybrid is what Union of Concerned Scientists might call a muscle hybrid.
Today's NYT has a nice piece by Matthew Wald which is drawing attention to the performance hungry US customers.

The 2005 Honda Accord hybrid gets about the same miles per gallon as the basic four-cylinder model, according to a review by Consumer Reports, a car-buyer's guide, and it saves only about two miles a gallon compared with the V-6 model on which it is based. Thanks to the hybrid technology, though, it accelerates better.

Hybrid technology, it seems, is being used in much the same way as earlier under-the-hood innovations that increased gasoline efficiency: to satisfy the American appetite for acceleration and bulk.

You might remember the previous chart of the month, which showed that gains in efficiency improvements are being spent on improved performance as opposed to increased fuel economy.

Mr. Boyd said the Accord split the benefit between fuel economy and performance. He did not describe its selling point as the ability to save gas, but "the appeal of a hybrid."

"The closer you get to the mainstream buyer, fuel economy is still part of the equation, but a smaller part," he said. "In the Accord, people will pay all kinds of money for more performance. We can deliver that performance, but in addition, with better fuel economy."

So, in short people are buying powerful hybrid vehicles because (a) They are COOL! and (b) It gives them a warm glow of trying to save fuel and help the environment.
Not that I have any problem with it for now, but WHAT IF this trend continues?

Long Term Energy Perspective from Morgan Stanley

Robert Feldman of Morgan Stanley Global Economic Forum has painted a scenario for energy future. Excerpts:

...(In spite of improved energy efficiency, and currently low real price of oil) there are good reasons to think that the energy problem is real. Typical demand projections show total oil demand rising by about 2% per year through 2030, with little sensitivity to either GDP growth or oil prices. The absolute level of oil use rises from 82.4 mbpd in 2004 to 92.0 mbpd in 2010 and 138.5 mbpd in 2030.

The supply side suggests difficulty in meeting such levels of demand for an extended period: Currently, there are about 1.2 trl bbl of proven reserves. With 2%/yr demand growth, cumulated oil use will exhaust the reserves by about 2034. Thus, even with rapid improvements in efficiency, oil is becoming a scarce resource. On alternative energy sources, the good news is that there is a lot of energy out there. The bad news is that it will be hard to get. For example, coal reserves are the equivalent of about 3.3 trl bbl of oil. However, coal combustion releases significant amounts of pollution, both greenhouse gases and radioactive materials.

I will have to check on the radioactive materials part.

The history of scientific research on energy and on conservation has shown CRIC cycles, the cycle of Crisis, Response, Improvement, and Complacency that characterizes the interaction of policy and the economy. Moreover, oil prices are not quite high enough to create a true crisis, so the world stands on the borderline of complacency and crisis.

This is very true. In the NYT article I referred to the other day, James Schlesinger is quoted as:

We have only two modes - complacency and panic.

The fact that we are on the nrink of yet another crisis can not be denied, except this time rising demand may just be as responsible as the stanganent supply for the crisis to precipitate.

Japanese companies worked continuously through the last 15 years to develop hybrid autos, regardless of oil price fluctuations. There are many other infant technologies that Japanese firms are currently developing. Examples include high-efficiency motors (using neodymium magnets), diesel particulate filters (DPFs), advanced solar cells, fuel cells, direct reduced iron, and integrated coal gasification combined cycle (IGCC) plants.

There is no dispute that Japan has indeed taken a lead in developing solar power, IGCC, and hybrid vehicles. Japanese companies probably are trailing the European companies regarding diesel technology, and it is unclear whether the Japanese companies have any advantage over American companies in fuel cell development.

Where are the investment opportunities?...Direct Ventures in Energy. The first direct opportunity is the exploration for new energy resources, in particular for natural gas. The second area is resource development, i.e. the investment in infrastructure for extraction and delivery of energy. The third area is R&D, especially the D. The major advances in IT technology make energy savings in standard appliances more feasible.

Derivative Opportunities could be just as interesting. For example, as transportation costs rise, cities will naturally concentrate, in order to minimize transportation. Since information can often be a substitute for transportation, both hardware and software industries stand to gain from the response to higher energy prices. In addition, there is likely to be yet another round of replacement of machinery, since reduced operating costs are a clear advantage.

Lots to think about!

NYT DriveTimes Newsletter

If I have not recommended it previously, NYT DriveTimes Newsletter is a very good means of getting good information delivered to you periodically. Check out the oil uproar that isn't among other goodies in the Drive Times newsletter.

How to talk to an economist about peak oil

I am making a note of this excellent discussion titled How to talk to an economist about peak oil at EconBrowser. I think that I have a few things to say here, but no time to spend on it now. I will come back to it tomorrow or the day after.

Short Term Energy Outlook is still bullish on oil

The latest edition of Short Term Energy Outlook from EIA suggests that we may have to get used to 60 dollars a barrel price for crude, and $2.30 a gallon for gasoline. Excerpts:

...Monthly average WTI prices are projected to remain above $55 per barrel for the rest of 2005 and 2006. ...Crude oil prices are expected to remain high enough to keep quarterly average gasoline prices above $2.20 per gallon through 2006.
... First, worldwide petroleum demand growth is projected to remain robust during 2005 and 2006, although not as strong as in 2004. Second, production growth in countries outside of the Organization of Petroleum Exporting Countries (OPEC) is not expected to accommodate incremental worldwide demand growth. Another factor that could influence the U.S. oil market over the next few months is the severity and location of hurricanes.
...High levels of production from OPEC members contributed to inventory builds in the OECD countries in the first half of this year, with these stocks moving towards the upper end of the 5-year historical range. However, OECD stocks have not grown in terms of days supply (the number of days that inventories would satisfy demand) because demand has grown rapidly as well.

On the hurricane front, GreenCarCongress points out the damage done to BP/Exxon Thunder Horse project due to Hurricane Dennis. The Thunder horse project, which was supposed to start production at the end of this year, will have an ultimate capacity of 250,000 barrels of oil per day.

Oil - Demand Growth Conundrum

Mike Watkins at TrendVue has a thoughtful piece called Oil - Demand Growth Conundrum. I highly recommend reading the entire piece. It is quite surprising to me that even as we are approaching what one might call risky times, where one major supply disruption would send the global economy in to a tailspin, and we do not have large scale coordinated efforts to deal with it. We may indeed be forced to save oil in a hurry. The trends from this 4th of July weekend indicate that traffic volume will be at its highest point ever for a three-day weekend. Fasten your seat belts and enjoy the ride!

P.S. See A More Expensive Vacation Trip on why the higher gasoline prices are not deterring Americans from slowing down the holiday travel.