American Automobile Fuel Consumption Debate

High Gasoline Prices and their impact on Fuel Economy

2008-01-17T14:35:00.000-05:00

Two interesting data points:

1. Falling share of V-6 and V-8 engines since 2005

“It’s pretty clear that the V-8 is on its way out of the mainstream,” said Ford’s chairman, William Clay Ford Jr.
General Motors recently canceled a $300 million program to develop a new V-8, citing new fuel-economy standards that require a 40 percent improvement in overall gas mileage by 2020. “That cancellation was a direct result of the 35-mile-per-gallon legislation,” Robert A. Lutz, G.M.’s vice chairman, said Tuesday.
Even the famed Hemi V-8 from Chrysler will be quieted at stoplights when it is paired this year with hybrid technology in some big S.U.V.’s.
.....
Mr. Ford, the 50-year-old great-grandson of the company’s founder, Henry Ford, said the passing of the V-8 era is somewhat bittersweet for baby boomers like him.
“We all grew up when the coolest guy on the block had the most cubic inches under the hood,” he said. “That feeling dies hard.”

2. Driving Behavior and Vehicle Markets (pdf)

The 100 percent increase in real U.S. gasoline prices since 2003, which is larger even than the record increases of the early 1980s, has induced motorists to adjust their driving habits and the types of vehicles they purchase.

* Freeway motorists have adjusted to higher prices by making fewer trips and by driving more slowly.

* After increasing steadily for more than 20 years, the market share of light trucks (including sport–utility vehicles and minivans), relative to all new passenger vehicles, began to decline in 2004.

* Used-vehicle prices have shifted, reflecting changing demand, particularly with respect to fuel economy: The average prices for larger, less-fuel-efficient models have declined over the past five years as average prices for the most-fuel-efficient automobiles have risen.

Shall we say bring on the 100 dollar oil? (May be, May be not?)

How many cars per person?

2007-11-23T15:24:00.000-05:00

ABC News teaches basic facts about number of cars per person around the world.

Getting More Miles per Gallon

2007-05-25T10:37:00.000-04:00

From Market can Fuel Energy Solutions:

The irony is that engine and vehicle technologies have improved steadily in the past 20 years, and vehicles have become more efficient. But without either a push from CAFE standards or a pull from soaring fuel prices, the higher efficiencies are routinely offset by the increasing size, weight, speed, and performance of many vehicles. According to EPA studies, the fuel economy of the new 2007 light-duty vehicle fleet would have been more than 20 percent higher if it had weight and performance characteristics similar to 1987 vehicles. The unsettling result is that in the last 20 years the average fuel consumption in new vehicles has not changed.
Breaking this trend now through stricter CAFE standards will not be free. Tighter standards would require manufacturers to increase spending to reduce vehicle fuel consumption. The question is whether consumers are willing to pay more for that. Even at today's gasoline prices, there is little indication that consumers are demonstrating a sustained preference for fuel economy over vehicle performance.

IMHO, resolving this performance-size-fuel consumption trade-off is the most important element if we are to move forward in any meaningful fashion on reducing automobile fuel use.

Whither CAFE?

2006-12-01T07:51:00.000-05:00

Washington Wire reports:

CAFE CLASH looms among Capitol Hill Democrats.

Senate leaders, including incoming Energy Chairman Bingaman, back an Obama plan forcing government to raise corporate average fuel-economy standards for autos by one mile per gallon each year, unless regulators prove it isn’t feasible. Obama notes the current U.S. car standard of 27.5 miles per gallon has been “frozen” for 20 years, while Japan has gone to 45 mpg.

House Energy Chairman-to-be Dingell of Detroit blasts CAFE as outmoded, and instead backs incentives for flex-fuel cars. Deron Lovaas, a vehicle expert at the Natural Resources Defense Council, says House Democrats, the auto industry and United Auto Workers face rising pressure to “cut some sort of deal” with the Senate.

Perhaps Rep. Dingell will recognize that pressure to increase CAFE is only likely to rise further, and will help to negotiate an arrangement that helps Detroit with it's healthcare costs?

Still Miles to Go for the Plug-In Vehicle

2006-11-19T16:29:00.000-05:00

Matt Wald reports why the Plug-In Hybrid may get here later rather than sooner.

...if the plug-in goes four miles on a kilowatt-hour, and does its first 40 miles on electricity, the incremental cost would be about $20,000, but the saving is only about $15 a year larger than for the Prius-type vehicle.

...Ricardo Bazzarella, president of Hymotion, a Toronto company that sells conversion kits, said that gasoline would probably have to hit around $5 to get a four-year payback. So for the moment, his sales are limited to people who are interested in technology, not money.

...Cars for a plug-in hybrid are a different problem than batteries for cars like a Prius. Engineers evaluate batteries on two main characteristics: how much they will store and how fast they will accept or deliver energy. Prius batteries are more like a shot glass, accepting and delivering a small quantity very quickly.
The battery providing the sole source of power for an electric car is shaped more like a decanter, with a large volume delivered and accepted at slower rates per pound of battery.
But batteries that wore out too quickly — or proved capable of occasional fires, like the ones now being recalled from laptop use — would sour the public on the plug-in concept, experts say. It also has to make economic sense.

So, when will we see a market ready Plug-In hybrid vehicle? 2010? I doubt it. 2012? may be. 2015? likely?

Coal-to-Liquids news from China

2006-08-30T14:41:00.000-04:00

Mish points to a bunch of news articles from China about the rise in Coal-to-liquids (CTL) activity.

Bike, It's good for you and for me!

2006-08-17T17:07:00.000-04:00

Bike MPG = ?

Threadless via Barry R.

"Car-free" homes?

2006-07-24T11:18:00.000-04:00

A BBC News article:

As concerns about the environmental impact of cars continue, a new breed of housing developments are appearing in cities across the UK. Flats and houses are already being built without parking spaces, to deter residents from owning a vehicle. Instead there are pool cars which can be hired out as needed - be it a for weekend away or a trip to the supermarket. But residents are encouraged to use the vehicles only when they really have to.

As Congestion, vehicular noise and pollution and concerns about petroleum increase, we might see a proliferation of such experiements. The efficacy remains to be seen.

Who really killed the electric car?

2006-07-12T13:48:00.000-04:00

I promised to write something more than just a rant about who really killed the electric car. I had not read Mark Rechtin's review in Automotive News before I saw the movie (see readers responce here). I think that Rechtin makes a good point that instead of engaging in conspiracy theories, the filmmakers could have done a much better job of bringing out the complex technical, economic and social aspect of automobile purchase, and use. A similar, but slightly more angrier sounding take comes from MotorAlley.

I agree with Rechtin and Wasserman on many points. The acquittal of batteries in the movie is quite surprising. The batteries used in EV1 were not up for the job a regular that is expected of an internal combustion engine powered car. It is true that battery technology continues to improve, but even the current Ni-MH batteries would not lead to a satisfactory vehicle performance. Could the next generation of Li-Ion batteries do the job? Possible, but not yet certain since there are a number of cost and safety issues involved.

It is not unvcommon to find a small but highly motivated group of individuals who are supporting a cause such as the group portrayed in the movie. It should be noted, however, that a mere expression of interest by 4000 people in the state of California does not mean that there was a real market for EV1. Most Americans demand not only acceleration and fuel economy, but a number of other vehicle attributes such as interior and luggague space, safety, increasingly automatic and electronic features that consume more power, reliability, convenience and yes, least I should forget, low initial cost of purchase. Neither the EV1, nor other EVs in the movie fit that bill well.

The movie was quite critical of Alan Lloyd and California Air resources Board (CARB) in general. In the end, we should all remember that it was CARB which effectively mandated EVs with its Zero Emission Vehicle (ZEV) rule. As the movie notes, CARB got the idea after seeing a GM demonstration vehicle at an auto show. If CARB is to be blamed, then the blame should lie with the original ZEV ruling which was too optimistic in its estimate of development of electric vehicle technology. Even with the compromise with automakers, the ZEV rule has not been a complete failure. It can be very easily argued that the development of hybrid vehicles by Honda and Toyota would not have been as quick had the ZEV rule not been in place. In short, the CARB was at least partly successful in its technology forcing goal.

Of course, I have noted far too often that the hybrid vehicles, even after being on the market for several years, currently account for less than 1.5% of new vehicle sales. Even with the kind of buzz that hybrids have generated, there are several skeptics. Quite simply, they make a strong argument that even at 3 dollar a gallon of gasoline, the hydrid vehicles just barely make economic sense for a consumer with lower than average discount rate. The fact is that mainstream vehicle technology keeps getting better, and it is hard for newer technologies to break in to the market.

All this being said, my gripe with a movie like Who Killed the Electric Car? lies in the fact that they perpetrate the myth that somehow we are going to solve our energy, and specially oil, problems by means of technology alone. If we are to get serious about challenging the ever increasing petroleum consumption and greenhouse gas emissions, not only will we need better technology, but we will need a change in behavior and strong fiscal and regulatory policy measures that will induce the change. Too often our attention is foucsed on having our cake and eating it too. It is time to stop living in the wonderland.

Coal To Liquids article in NYT

2006-07-05T12:11:00.000-04:00

King Coal? Search for New Oil Sources Leads to Processed Coal, says Matt Wald in NYT. Not only in Coal to Liquids (CTL) an expensive way to produce liquid fuels, it is also a very carbon intensive process as illustrated by the accompanying graphic. The Annual Energy Outlook from EIA does not forsee significant contribution from CTL until 2020 in the high oil price scenario.

The real question we should be asking is whether it is possible to avoid going CTL route altogether. The answer obviously has to do with changing out behavior: reducing our use of vehicles, purchasing less fuel consuming vehicles, driving them as few miles as possible, and using less carbon intensive fuels. Sounds easy, right?

No, then we have more dirty sources of oil for you! There is pleanty to be obtained from the tar sands in Canada, the heavy oil in Venezuala, and the master of them all: Shale Oil right here in America!

In short, if you want Energy Security you could get there by two paths. One path is conservation, energy efficiency, and higher fuel prices. The other path is shameless exploitation of dirty sources of nonconventional oil right here in America at relatively modest fuel prices even if that means ruining any chances we may have to save ourselves from disastrous climate change.

Yogi Berra once said, When you come to the fork in the road, take it! We have come to the fork in the road, and we must take it!

Fuel Economy in the News

2006-05-14T14:09:00.000-04:00

Matt Wald reports in the NYT -- Plan to Reshape Mileage Standards Could Buoy Detroit:

The administration wants to keep vehicle size constant but to force automakers to use materials and technologies that will improve fuel economy in whatever size vehicle is offered.
In March, when transportation officials rewrote the truck standard, the new rules demanded only a small increase in overall mileage, although they pushed the minimum required fuel economy for some small sport utility vehicles to above the level now required for cars.
Setting the standard vehicle by vehicle is important because existing car standards make no difference to some manufacturers. For example, for 2005, the most recent year for which statistics are available, Toyota and Honda both averaged 33.1 m.p.g., partly because they sold a lot of small cars, and they had no CAFE concerns.
DaimlerChrysler averaged 26.6, and Ford, 26.9, and unlike Toyota and Honda, both manufacturers had to worry about technology and sales mix. If cars were judged individually, even small cars that performed poorly considering their size would have to be improved. Thus, the burden would fall for the first time on companies that make mostly smaller cars, generally imports.

To be honest, I will take whatever at this point of time to help increase the fuel economy. I do not think personally that size/attribute based standards will create a long term perverse incentive to build bigger vehicles just to avoid stricter CAFE stnadards. Rep. Boehlert (R-NY) is in favor of much stricter fuel economy standards than what is likely to be palatable in Congress, but I guess he will take any increase in fuel economy standards just like me!

Tom Daschle and Vinod Khosla co-wrote an op-ed titled Miles per Cob advocating Carbon Alternative Fuel Equivalent.

The CAFE standard does nothing to encourage that change (...towards renewable fuels). It requires American automakers to build cars and trucks that meet a minimum standard of average mileage traveled per gallon of gasoline. But the current standard for minimum mileage traveled per gallon of gas consumed is both too low and focused on the wrong challenge.
We need to upgrade to a new CAFE: Carbon Alternative Fuel Equivalent. This new CAFE will measure "petroleum mileage" and give automakers incentives and credits for increasing ethanol consumption as a percentage of fuel use of their vehicles, not least by promoting flex-fuel vehicles, which can run on either gasoline or E85 fuel, a blend of 85 percent ethanol and 15 percent gasoline. This approach promises several significant benefits.

I am not sure of Mr. Khosla is aware of the dual fuel credits, but I presume that Mr. Daschle is. Unfortunately, the 1.2 million or so flex fuel vehicle on road are rarely filled up with E85. Not only are most owners of E85 aware that their vehicle can run on E85, in most cases they will be unable to fill up with E85 due to lack of availability of sufficient ethanol fueling stations. Personally, I am not sure that E85 should be pushed on a nation-wide basis. Creating regional clusters -- starting with midwest of course -- may be a more prudent strategy.

The Politics of Oil

2006-04-27T14:26:00.000-04:00

(Cross Posted on Tech Policy)

As I was listening to the politicians and people complaining about the gas prices, I could
barely restrain myself in saying: "Where were these people when gasoline
was 99 cents a gallon in the summer of 2000 1999? So now, Suck it up and pay you fools!"

Of course, that is not a very productive strategy. The editors at the Oil Drum have released a very nice statement titled The Politics of Oil: The Discourse Must Change that should be read by the widest audience possible. Please forward it to your friends, and family, and ask them to do the same. Policy Pete on the other hand is in no mood to use such polite language. I am reproducing his post verbatim:

Every two hours or so a new wave of hypocrisy skims in from the hinterlands, roars over the beltway, and hisses to an end somewhere near Chevy Chase Circle. The Volk are clearly upset. $3 gas has them scared and angry. Their winter heating bills haven't yet been fully paid and now the gougers down at the local pumps want them to kiss away $60 for each fill-up. They're right to be alarmed. They're wrong to be mad - it's a democracy after all and they and the freebooters they elect have been in charge. Everyone could see
it coming for a generation; no one did anything useful. It's their own damn fault. Let them suffer the consequences for being such rash fools.
Except that's not the way democracies work. The denizens of the beltway now have to scurry around and find some lamb worth sacrificing to assuage the anger. This part of the game is well understood: it's called The Chant. The Chant tends to get started over in Virginia, somewhere near Great Falls. What'll work? Let's see: heads must roll? No, not bloody enough. Heads of assistant secretaries on pikes along Pennsylvania Avenue might do, hard to say, but it still may not be enough. Another parade of oil company executives forced to sit quietly and listen to Nancy Pelosi at her illogical best? No, frightening indeed but not theatrical enough. Windfall profit taxes? From Dubya? not in this life. But don't worry. Once The Chant gets going, it gets loud, really loud really quickly, and the crew on Capitol Hill will get it frighteningly well. They'll do something, however temporary and ineffective, but it'll be enough to bring quiet for a while.

And then what? We're left with $75 oil, a planet in trouble, the fourth or fifth failed presidency in a row, leaders who are worthless, and an economy distorted by hideous pretzel-like structural problems while chugging merrily along toward the wall.
Come on, lighten up a bit. There's a whole transition away from fossil fuels to start to puzzle out. If you want to drown your tears in your beer, try ethanol instead. Works better and faster anyway, if you can get some.

In a few weeks time, the gasoline prices are likely to come down from $3 level to somewhere around $ 2.60 - $2.70 range and stay there unless a some storm, geopolitical or weather related, hits us. The TV and papers will soon forget that we still stand on the edge of a crisis, life will go on, until we are really hit hard on our heads. It will be a time when 3 dollar gasoline will start to look like good ol' days!

Interesting Discussion on Econbrowser

2006-01-05T09:12:00.000-05:00

Some worries for 2006 : Actually, skip the post head straight to the comments (Sorry Prof. Hamilton). I don't have time to respond to some of them, but I'll try to do that later as I think this is a worthwhile discussion.

2006 Auto Industry Outlook from WSJ

2005-12-23T16:10:00.000-05:00

Five issues identified in the WSJ 2006 Auto Industry Outlook are:
* Future of GM
* Fuel Economy (and Hybrids)
* Boom in Luxury car segment
* Resurgence (?) of small (compact?) cars, and
* Crossovers are the new SUVs

It is clear that US auto industry is in for some rough weather over the next two or three years. In that time, GM and Ford will continue to downsize and will perhaps emerge as nimbler organizations. GM might be the starve off chapter 11 following the sale of GMAC.

Arrival of Camry hybrid model and several hybrid models as well as smaller more fuel efficient gasoline ICE vehicles will indeed challenge the US consumers to put their money where their mouth is. On the other hand, if we see another year of volatility in oil prices like 2005, these more fuel efficient vehicles may indeed become popular. There is also likely to be a move in both the Congress on passenger car CAFE standards as well as NHTSA on light-truck CAFE standards. I will be watching this more closely than other issues.

I really don't have anything to say about the luxury car sales.

As for the crossovers, the trend has been clear now for the last couple of years. Large SUV sales are in a big decline after having peaked in 2001/2002. Crossovers, which are cars disguised as SUVs, having been growing in popularity already. With high gasoline prices ($ 2.35 a gallon on average for the year?) we may see that trend accelerate.

Ford Report on Business Impact of Climate Change

2005-12-20T11:03:00.000-05:00

(cross posted on TechPolicy)

In response to a shareholder resolution urging the company to outline its strategy to deal with climate change, Ford Motor Company has released a report on Business Impact of Climate Change. Related WSJ article here.
As such you may not find anything new in this report, specially if you were looking for specific targets and so on, but yet it is an interesting piece of document. Firstly, Ford has embraced "Fuel+Vehicle+driver" formula:

Within the road transport sector, we see the opportunities to reduce in-use GHG emissions defined by three inter-related factors:
• The embedded carbon content of the fuel available to consumers.
• The carbon efficiency of vehicles.
• The purchase decisions and driving behavior of customers, including vehicle miles traveled
This “fuel + vehicle + driver” formula underpins our engagement with both fuel companies and consumers in addressing the GHG challenge.

Readers of this blog may find this argument vaguely familiar.

Secondly, Ford has very nicely outlined the constraints faced by the auto companies:

...our business involves a long product lifecycle with greenhouse gas emissions that vary at each stage.
...we face at times conflicting regulatory, market and technological signals. The picture varies by geography, market segment, and demographic profile. (Some times) governments are often tempted locally to encourage specific technology solutions, but there is considerable uncertainty about which technologies, combinations of technologies and technology pathways will prevail and over what time frames, ...some policy makers favor demand-side measures such as fuel taxes and Green Public Procurement policies, while others prefer supply-side controls such as fuel-economy or GHG emissions standards, creating significantly different market dynamics and product strategies from one region to another.
...the GHG footprint of the in-use phase of light duty vehicles must be measured on a well-to-wheels basis, that is, the total emissions from the production of the original source of energy (e.g. crude oil, bio-fuels, etc) into a usable fuel, the amount of energy consumed to produce the vehicle, to the fuel consumed by the vehicle during its in-use lifetime.
...the automotive industry operates on long product development times and major capital investments.

All of these points are well made. The heart of this argument is that there are inherent business risks in trying to respond too enthusiastically with all the market and regulatory uncertainties present.

Third, Ford's take on policy matters is in favor of emissions trading system:

...(emission) reduction programs should be based on upstream, carbon trading systems that establish reasonable, gradually reducing the limits on carbon
introduced into the economy. In addition, they must include a safety valve that is based on economic/energy indicators that would allow for the
release of additional emission allowances at reasonable prices to avoid unintended constraints on economic growth, maintain price stability...

Economists would argue that an upstream carbon trading system would be most efficient. Oil and Gas companies are not always happy with the upstream system though. This brings us to the part of the report dealing with stakeholder issues (taken from Ford's sustainability report):

Many factors influence greenhouse gas emissions from vehicles, and many institutions and individuals influence those factors. (click on picture for a larger image)
... to have meaningful, long-term impacts, global patterns of consumption of fossil fuels must be changed. For the transportation sector, this will require not only improvements in fuel economy, but also changes in fuels, infrastructure, mass transportation and driver behavior, as well as a reduction of the overall number of vehicle miles traveled.

Again, this is an argument that readers of this blog should find familier.

What is to be made out of this report? Frankly, not much, but it is a step in the right direction. The reality is that we are going to have to deal with how to respond to climate change sooner or later. Some tough decisions will have to be made. The sooner we prepare ourselves to make those decisions the better off we will be afterwards.

Impact of AEO estimates of Oil prices on proposed CAFE standards for light-trucks

2005-12-15T09:55:00.000-05:00

Silly of me not to thought about this before, but buried deep inside Tuesday's WSJ was a short piece on how the significantly higher AEO estimates on oil prices could have important consequences on NHTSA's proposed light-truck CAFE standards.

...(EIA estimate) also raised its forecast for gasoline prices, a value that figures into the government's proposed new fuel-economy standards for trucks and SUVs. The toughest of those standards, for model-year 2011 vehicles, is based on gasoline prices of $1.51 to $1.58 a gallon beginning by 2008 from EIA's outlook last year. The outlook released yesterday bumps those prices to a range of $1.99 to $2.20 for the same time period.

Auto makers already were grumbling that proposed fuel-economy standards would be tough to meet. "The current proposals are a challenge," said Chris Preuss, spokesman for General Motors Corp. He declined to comment on the impact of even higher targets.

..."If they're going to be intellectually consistent with the methodology they proposed, they would have to set higher standards," said Eric Haxthausen, an economist with Environmental Defense, an environmental-advocacy group based in New York. His organization has tried to replicate the National Highway Traffic Safety Administration calculations and estimates that the new gas prices alone would bump up the targets by one mile a gallon.

This means that light-truck CAFE standards could be bumped up to around 24 or 24.5 mpg by 2010 (rough estimate for a schedule 22.7 mpg for 2008, 23.5 for 2009). This would further reduce the gap between light-truck CAFE standards and passenger car standards which are currently frozen at 27.5 mpg. Onus has been on the Congress for quite some time now to take up the issue of light-duty vehicle fuel use either though CAFE or other means.

In the mean time, car companies who have been betting on their fortunes on light-trucks (you know who they are) will see their profit margins sqeezed further unless they are able to pass on the costs to the consumers without a drop in sales. Combine this with possibility that we might see gasoline price spikes, like the one after KatRita, due to various reasons and the stage is set for a very turbulent couple of years in terms of auto sales.

$ 55 as the new floor for oil prices?

2005-12-14T15:26:00.000-05:00

This Week in Petroleum sums up three different takes on medium to long term oil prices and concludes that if there are still any illusions about going below $40 a barrel any time soon, we should get over those.

Earlier this week, three different organizations outlined their views of the future in global oil markets. Perhaps most interesting, was that each of the three looked at different future time horizons, resulting in different conclusions.
...as OPEC looks towards the first quarter of 2006, it foresees global oil markets as being well supplied, albeit at much higher prices than seen previously during this time of year.
...the AEO2006 reference case includes much higher world oil prices than were projected in AEO2005. In other words, EIA expects oil markets to remain tight (meaning spare production capacity will continue to remain low, both upstream and downstream) causing oil prices to remain elevated for the foreseeable future.
...(Oil Market Report) OMR highlighted the IEA’s view of oil markets through 2010 and concluded that there is “ … no strong evidence of a significant change in current [oil] market conditions over the next five years.”

The cat is out of the bag, I guess. I hope that spinning will stop now.

Honda's FCX Experiement

2005-11-06T12:06:00.000-05:00

Danny Hakim in the NYT reports on Honda's experiment of leasing a fuel cell vehicle. Honda is also experimenting with natural gas cars, but those vehicles are available for sale. It is also steadily improving it's hybrid technology, and at the same time produces many small and fuel efficient vehicles. (They also make the Ridgeline). A very sensible strategy overall.

Hybrids: Will they or Won't they?

2005-11-04T12:50:00.000-05:00

An interesting piece in the IHT titledAt auto show, all the talk is of fuel:

As one automaker after another made clear at the auto show, which continues through Sunday, Toyota is not setting a universal standard for new technologies. It may be setting the pace, but mostly what it has shown is that high gasoline prices have made buyers more open-minded to alternatives.

"There is not going to be a one-size-fits-all solution," Ford's chief technical officer, Richard Parry-Jones, said when asked if an industry standard would emerge for hybrids. "We are in for a fairly confusing decade."

I would argue that we are in for at least a couple of confusing debates. Emergence of new generation of Hybrids and Diesels by the end of this decade, potential entry in to the market of Plug-in Hybrids around the same time, developments in fuel cell and battery electric vehicles, volatility in petroleum markets, and increasing concerns about climate change: These along with steady improvments in mainstream ICE gasoline vehicles are all going to work together to create (excuse the term) a perfect storm in the auto markets.
GM still has the audacity to claim that they will have a market competitive fuel cell vehicle by 2010, when most others have agreed that it will be hard to do before 2015, but much more likely in 2020.

"We believe we can design and validate a competitive fuel cell propulsion system by 2010," GM's vice president for research and development, Lawrence Burns, said before showing reporters the prototype.

In an interview, he sniped at hybrids, citing their expensive price tag and the limits to their efficiency.

"Hybrids could be another niche, low-volume technology that is nice to have," he said. "But is that going to make an impact if you are not penetrating the 64 million new cars and trucks?"

Even then, the question whether Hybrids will or will not become a mainstream technology, and by mainstream I mean present in at least a third of new vehicles sold, is up for grabs.

Toyota and Honda want to persuade buyers to pay a premium for hybrid technology.

"Toyota is looking to do with hybrids what Volvo did with safety, trying to get people to pay more for hybrids," Christopher Richter, an auto industry research analyst at CLSA Asia Pacific Markets, said after touring the motor show. "It is very similar to the debate a couple years back: whether you want to have air bags or not. American automakers were fighting it tooth and nail. Volvo got people to pay for it."

Some Americans are already paying several thousand dollars more for the cachet of driving a car powered by what is seen as a technology of the future.

*Some* is the key word. As GreenCarCongress reported, Honda may be offering some incentives on its Accord Hybrid. Overall, the picture is really murky at this point in time, with the sales of hybrid vehicles in August and September being really distorted by very high gasoline prices in US. A much clearer picture will start to emerge from Nov-Jan. sales data, but as I said above it's unlikely that the dispute will be solved any time soon.

Two pieces for Automotive News

2005-10-18T11:36:00.000-04:00

May require subscription:

* Industry opposes possible gas-guzzler fee in Canada

exceprts:

The government is considering a "feebate" program, under which it would add a fee to the price of vehicles with poorer mileage and give money to consumers who buy gasoline sippers.
...

Feebates "don't work," Huw Williams, chief lobbyist for the Canadian Automobile Dealers Association told Automotive News. Incentives to scrap the 2 million pre-1987 vehicles still on the road would be much more effective in cutting emissions, he says.

What Canada is thinking about is a feebate program. I think that it will be a great idea if Canada can make it work.

* Lighter vehicles are not unsafe

"In the last 40 years," Hall said, "auto racing speeds have increased, yet deaths have decreased significantly while the weights of the vehicles have gone down progressively. Why? Crushable fronts that absorb impact, 'tubs' that shelter drivers after the entire car has disintegrated, a relocation of the front axle and, yes, crash bags. In this case, lighter is markedly safer."
...If the automakers could be forced to create unsafe light vehicles, would they be stupid enough to do it? Would their defense in a class-action suit be that "CAFE made me do it"?

There has been a recurring contention that heavier vehicles are safer. But even the experts disagree on that point. The more important question is whether lighter-weight vehicles can be made to be as safe as heavier ones. The evidence suggests they can be.

Amen.

Summarizing the Oil debate

2005-10-10T12:43:00.000-04:00

Robert Feldman of Morgan Stanley GEF takes a shot at explaining that the oil debate may be converging towards the following:

Develop fossil fuels, research alternative energies, push conservation.

I think that this is a good summary. If I were to prioritize, I would place conservation on the top of my list, followed by developing liquid fuels (not necessarily just fossile, could be biomass), and yes not ignore the long term and invest in technology development for the future.

Fuel Economy Articles Galore

2005-09-29T11:23:00.000-04:00

Post KatRita, with gasoline prices flirting with Three dollars a gallon, there is an increased attention to the fuel consumption of cars and trucks driven around. Even President Bush has urged American citizens to curtail non-essential driving. NYT published a tongue in cheek article just before President's comments. In general, newspapers seem to be abuzz with articles discussing failure of Congress to raise fuel economy standards, even as some more trial balloons got floated. There is ever more attention to the hybrids and the early adoptors of hybrids/EVs.

The article that I was most interested in appeared in the WSJ. (How U.S. Shifted Gears to Find Small Cars Can Be Safe, Too:
Studies Discover Size, Quality Are as Important as Weight; Drafting Rules for SUVs; Honda Sticks Up for Little Guy).

For years, the accepted wisdom in the car industry held that, all things being equal, heavier vehicles are always safer when two vehicles crash. New studies highlight how other factors -- including a car's size, body design and advanced technology -- can do much to counteract the weight issue.

The newer studies also have homed in on the downside of weight: While a heavy vehicle protects its occupants in an accident, it inflicts more damage to those it hits. That means reducing the weight of the biggest vehicles could yield dividends in both fuel consumption and safety.

In spite of the title of the article or new studies, particularly the one commisioned by Honda and carried out by DRI, I do not think that the perception about vehicle weight and safety has changed a lot. Many people that I personally know have been stunned to know the answer to the question: Are SUVs are really safer than cars?

There needs to be a lot more awareness among everybody that reduced vehicles weight does not mean reduced safety.

Sustainable Mobility newsletter

2005-09-16T13:34:00.000-04:00

I have a link for WBCSD Sustainable Mobility News on the right, but I just thought that I should specifically mention that they also deliver a Sustainable Mobility newsletter every month or so, and it is worth subscribing to. They carry intersting news items that you may or may not see around, for example check out Diesel beats Hybrid, and India's biofuel plans hit roadblock.

Update on Gasoline Prices

2005-09-14T15:50:00.000-04:00

This Week In Petroleum states:

...the U.S. gasoline supply situation remains far from normal, and prices generally remain above pre-Hurricane Katrina levels. With as much as 5 percent of refinery capacity expected to remain shut down for months, it will take time for the gasoline supply system to return to normal, implying that prices could remain elevated (the U.S. average retail price was $2.61 per gallon on August 29) for some time to come. With significant volumes of refinery capacity expected to remain out for an extended period, consumers should not expect prices to decline quickly, since the disruption to supply is still occurring.

This is in agreement with my rough assessment of $2.60 a gallon price for gasoline in the coming six to nine months at least.

The New Prize?

2005-09-12T14:57:00.000-04:00

Over the weekend, the NYT published a bunch of articles about increasing gasoline prices under a title Beyond Gasoline. I want to talk about just one titled The New Prize: Alternative Fuels written by Danny Hakim. The "old" Prize being reference to oil as made famous by Daniel Yergin's book. In particular, I want to focus on the chart that was pulished along with the article: Using Less Gas, or None at All. As I looked at the graphic, which I think is presents a balanced picture, I wondered why they chose to ignore both diesels and conventional hybrids in the graphic. Now, Diesel is a little more expensive than gasoline in the US, and hybrids still use a lot of gasoline. Yet, both of these technologies have a significant potential to improve upon mainstream ICE gasoline vehicles. These improvements are on the order of 25-30%, and these vehicles are available today.

I also wondered perhaps failure to mention hybrid in this chart means that hybrids are already a "mainstream" technology in some sense? Afterall, hybrid sales have shown a robust growth in the past year, even though the numbers are still small in absolute sense. Prius is already selling at 100,000 a year mark, a production level for which many of the new models are designed for. Still, hybrids are just 1% of new vehicle sales in the US market.

Then, as one thinks about the examples used in the article one starts to get a sense of what all of this is about. It is about an old American dream that is America can be Energy Independent, and Americans can keep driving their large, heavy and powerful vehicles around at the same time!

"One of the customers drove about 30 miles to the station; she said: 'I'm putting my dad's corn in the car. I'd rather do that than pay OPEC,' " Mr. Cobb said.
... In Madison, Wis., Rebecca Bell and her husband, Kevin, started using E85 in the last couple of weeks to fuel their Ford Explorer and their Chevy minivan. They have also started carpooling with neighbors.

Yes, as the article and In the Tank Report note, there has indeed been a modest shift from SUVs to CrossOver Utilities, BUT pickup and large van sales have been largely unchanged. The trend towards CUVs, I could argue, had started a couple of years ago (Ford think so too, see slide 11), and has perhaps little to do with the recent increase in gasoline prices.

The point I want to drive home is the following: Think about it in very simple terms. How about we make 90% of our vehicles 20% more efficient, as opposed to 10% of the vehicles 50% more efficient? By doing the first, we will get roughly (far from exact) 18% gain where as doing the second gets us 5% improvement. How about we start thinking about driving slightly smaller, lighter and less powerful GASOLINE (conventional or hybrid) or DIESEL powered vehicles which at the same or lower cost deliver 20% more fuel economy? We may be able to derive fuel saving benefits sooner than tinkering with plug-in hybrids or waiting for Fuel Cell Vehicles. The technology is with us in a very real sense as opposed to say fuel cell vehicles or even plug-in hybrids. May be the real prize is still the "old" prize. Perhaps, we just have not understood the value of the prize. YET.

Using Taxes to Keep Gasoline Prices High Makes Sense to Some

2005-09-12T10:23:00.000-04:00

Bab Davis in WSJ:

Walter McManus, a University of Michigan automotive economist, estimates that if prices jumped to $2.86 a gallon and stayed at that level, sport-utility vehicle sales would fall 18% in five years. If gasoline rose to $3.37 a gallon, SUV sales would fall 28%. Sales of pickups and vans would plunge.
...Congressional Budget Office Director Douglas Holtz-Eakin calculates that a $1 increase in gasoline taxes would cut consumption 20% within 14 years.
...(Economy.com economist Mark) Zandi urges a flexible tax, aimed at keeping gasoline prices at roughly $3 a gallon; the tax would fluctuate with gasoline prices. A simpler way is to increase gasoline taxes by $1 a gallon. The idea is the same: make gasoline prices high and predictable.

More power to them.

John Dowd gets it!

2005-09-08T19:30:00.000-04:00

Thanks to GreenCarCongress for pointing out the Senate hearing on global oil demand and gasoline prices, and highlighting the testimony of John Dowd. I would encourage everybody to read John's testimony, but here are some excerpts and comments.:

...it’s important to recognize that U.S. consumers and policymakers have far more control over long-term demand than they do over long-term supply. The demand side of the equation is where we have the most leverage and where we must focus our effort and resources.

We all know that oil production is US has been declining since 1970s and will continue to decline further. US may or may not be able to influence what goes on in Russia, Venezuala and other oil producing countries, but it can influence its own consumption habits.

...Meanwhile, a lively debate about whether we are, in fact, beginning to “run out” of oil has recently been picked up even by the mainstream press. My first response to that debate is to say that no one really knows. My second response is to say that I’m not sure it really matters. The question is not whether global oil production has begun to reach a peak. The question is whether the growth rate of supply can continue to keep pace with the growth rate of demand.

This quote very nicely puts in to perspective the debate about peak oil. It is not whether the world as we know it will end, but whether there will be increasing amount of volatility and supply shocks that may await us if we fail to moderate our consumption.

...I would recommend a stronger call for conservation. If, as a country, we were to obey speed limits for the next two months, we would probably conserve more fuel than will be lost by the refinery outages. Reducing speeds from 70 mph to 60 mph, for example, improves fuel efficiency by 15 percent. If Americans want to know what they can do to limit gasoline price inflation, the answer is simple: slow down. I don’t think this is generally known, or believed, by the U.S. public, and it should be. That may be all we can do in the weeks and months ahead.

This is a very poignant paragraph. Several months ago, I noted IEA report titled saving oil in a hurry. What Americans can do immediately to live with Three dollar gasoline is precisely what that report advocated. Most of us are not going to like it, but we can either do it or shut up.

...Our current predicament, simply put, is rooted in the near-total dependence of our transportation sector on petroleum fuels. Our nation possesses only 3 percent of the world’s estimated oil reserves but accounts for as much as 25 percent of global oil demand, the great bulk of it for use in our cars and trucks. When you look at these numbers it’s obvious that controlling our destiny in terms of oil security comes down to controlling the relentlessly growing demand of our transportation sector for gasoline and diesel fuel. Fortunately, the potential for efficiency improvements in this sector is also substantial if the political obstacles can be overcome. The National Commission on Energy Policy found, for example, that a concerted effort to increase fuel economy standards, and promoting hybrid and advanced diesel vehicles, could substantially reduce future petroleum consumption by the U.S. transportation sector. We estimate that improving the average fuel efficiency of the entire U.S. vehicle fleet by 2 miles per gallon—an objective that can be readily achieved using already available, conventional vehicle technologies—would reduce total U.S. gasoline demand by roughly 1 million barrels per day. This amount is equivalent to all of the growth in U.S. gasoline consumption over the past eight years.

This is an aside, but it seems like the National Commission on Energy Policy (NCEP) is slowly, but steadily drumming the beat for increasing CAFE standards. John Dowd works for Sanford Bernstein, which was responsible for playing out the Oil Shockwave Simulation on behalf of the NCEP and Securing America's Future Energy (SAFE).

... Gradually improving vehicle fuel economy through a combination of higher standards, manufacturer and consumer incentives, and other initiatives would essentially “buy us time” to develop the more advanced vehicle technologies and alternative fuels that will someday allow for a more decisive shift away from our current petroleum dependence. Even in the short run, moreover, the benefits of any efficiency improvements introduced in the U.S. vehicle market would likely be amplified as a result of their diffusion to markets in other countries, most of which have as keen an interest as we do in slowing demand growth and blunting their exposure to future oil shocks.

This is a two paths forward strategy advocated by many including this blog. Doing whatever we can to reduce the fuel use NOW is as important, if not more, as working on advanced technology vehicles such as fuel cell vehicles or battery electric vehicles running on hydrogen or electricty generated from renewable sources.

...What we can do is limit our future dependence on oil and our exposure to these risks through thoughtful, long-term policies aimed at promoting a greater supply and diversity of fuel options while at the same time significantly improving the efficiency of our nation’s vehicle fleet. Something good will have come of the current crisis if it impels us to take the long view. We should try to control what we can control. And we should start doing that now.

The key thought here is that the time for action is NOW. I think that John has hit on most of the important points, and I must applaud John Dowd's testimony. If we can make all our congressmen/women to read and understand this testimony, I (somewhat naively) believe that we would be able to move forward.

Chart of the Month: August 2005

2005-09-06T16:21:00.000-04:00

I got the following question from one of the readers (paraphrased):

Our current mileage reimbursement rate is .$405 per mile. We want it to reflect the current gasoline prices. What would be an equitable rate to request and expect while prices are currently $3.19 per gallon for regular gasoline in our area?

I am not inclined to answer this question directly. I will, however, post a chart showing the costs involved in driving an automobile. The numbers are based on AAA's Your Driving Costs.
(click on chart for a larger image).
The numbers in the chart are not exact, specially because the 1990-2000 data has been adjusted at 1999 $ levels, where as 2005 numbers are in current dollars. The main point of the chart, however, is to show that gas and oil costs are a relatively small cost of overall driving costs. This may help explain, in part, why consumers will choose to buy a big vehicle with a big discount even when gas prices are quite high (think July 2005 auto sales).

Of course, at Three dollars a gallon, gas and oil costs are no longer less than 15% of the overall driving costs. Even at three dollars a gallon, cost per mile of a 25 miles per gallon vehicle is 12 cents, up from 8 cents per mile at 2 dollar a gallon gasoline. Yet, it constitutes no more than 20% of the overall driving costs. As I noted earlier, I expect the prices to be around 3 dollars for a few weeks before settling down to $2.60 a gallon.

Does this provide a large incentive for American consumers to change vehicle purchasing behavior? On a rational basis, I would say NO. Consumer choices are, however, driven by factors beyond economic considerations. Emotional appeal of a high fuel economy vehicle may be high right now, and I am all for people buying more fuel efficient vehicle.

Why Big Oil is not be blamed for everything...

2005-09-06T11:03:00.000-04:00

The Oil Drum investigates a connection between high gas prices, price gouging, and record oil company profits.

Hybdris Updates from GCC

2005-09-06T10:06:00.000-04:00

I hope you are keeping an eye on the periodic hybrid updates coming from Green Car Congress.

Getting used to $2.60 at the pump

2005-09-01T17:28:00.000-04:00

While there are reports that gasoline prices have spiked above $3 a gallon in various parts of the country, in a few weeks those prices should start to come down towards $2.60 and stay there if the indicators at the New York Harbor Unleaded Gasoline futures are to be believed. In all likelihood, the prices will stay at or above this level for next several months. Better get used to paying $2.60 at the pump for a forseeable future!

In the Tank

2005-09-01T15:44:00.000-04:00

Somehow, I missed this NRDC report titled In the Tank: How Oil Prices Threaten Automakers' Profits and Jobs. Add this report to the list of posts I plan to make over the weekend.

Chart of the month coming up

2005-08-31T23:13:00.000-04:00

I am late again on chart of the month, but it should be coming up later this week. So far, I have promised to do the following:
* post a review of Matt Simmons' book The Twilight in the Desert
* post my comments on the "reformed" light truck CAFE standards, and
* post the August chart of the month.

For analysis of situation developing as a result of hurricane Katrina, please see The Oil Drum and Econbrowser.

On Point on Fuel Economy

2005-08-29T17:50:00.000-04:00

This last Thursday, NPR's OnPoint had a show titled Economics of Fuel Economy. If you listen to the show, it might help explain why I get sometimes get frustrated with environmental advocates. David Friedman on the show tries to propagate a myth that American can have their cake and eat it too (drive bigger, faster vehicles which are also more fuel efficient). When confronted that higher fuel taxes may be a smart way to encourage people to purchase more fuel efficient vehicles, Friedman notes that it is a more painful approach than increasing CAFE standards. By regulating fuel economy, entire burden of saving gas is placed on the shoulder of the vehicle manufacturers. I am all for increasing CAFE standards, but it will make much more sense to raise gasoline tax along with increases in CAFE standards. The fact of the matter is that American consumers are not yet willing to accept this reality, and I am sorry to say that well-intentioned environmental advocates such as Friedman are not helping by arguing for a very stringent increase in CAFE without providing a stick for the consumers.

While I was away

2005-08-29T12:41:00.000-04:00

While I was away this past week, NHTSA publically proposed the much awaited changes to the light-truck CAFE standards. See GreenCarCongress for a first look. My expectation that the standards will crawl up to 23.4 mpg by 2010 seems to be quite correct (23.5 is the actual proposal). There are more interesting bits in the rulemaking (Hint: See page 150 and think California). I will make a detailed post about the proposed changes later this week. For a couple of different interesting (but not new) takes on the proposal, see here and here.
Meanwhile, Oil markets continue to be volatile and October crude futures are expected to flirt with $70 mark in the early part of the week.

Oil at a Breaking Point ?

2005-08-21T10:43:00.000-04:00

(cross-posted on Tech Policy)

Peter Maass has an article titled The Breaking Point in today's NYT magazine. The article provides a very good roundup of the prevalent views on peak oil, although Maass personally appears a bit pessimistic. It is almost never easy to decipher whether a concern sounded by such an article comes from a profund understanding of the underlying issues or some preconceived notions about the oil problem.

The article quotes Saudi Aramco's Ali-al-Naimi, Matt Simmons, and CERA's Dan Yergin among others, but the interesting piece of the story is in the later half when Maass talked to an Aramco spokesman Ibrahim al-Muhanna and later with retired Aramco executive Sadad al-Husseini:

''They will not tell you,'' he said. ''Nobody will. And that is not
going to change.'' Referring to the fact that Saudi Arabia is often
called the central bank of oil, he added: ''If an outsider goes to the
Fed and asks, 'How much money do you have?' they will tell you. If you
say, 'Can I come and count it?' they will not let you. This applies to
oil companies and oil countries.''
...''There is no reason for any country or company to lie,'' Muhanna
replied. ''There is a lot of oil around.'' I didn't need to ask about
Simmons and his peak-oil theory; when I met Muhanna at the conference
in Washington, he nearly broke off our conversation at the mention of
Simmons's name. ''He does not know anything,'' Muhanna said. ''The only
thing he has is a big mouth. We should not pay attention to him. Either
you believe us or you don't.''

To me, the metaphor of using the fed doesn't wash well. A lot of uncertainty in the oil markets could be reduced, if Saudi Aramco as well as all major oil producers made a concerted effort to have more transparency in the data. Simmons' claim that Saudi production may be peaking in the next could of years may well turn out to be incorrect, but his push for data transparency is what should get more attention.

''You look at the globe and ask, 'Where are the big increments?' and
there's hardly anything but Saudi Arabia,'' he (al-Husseini) said. ''The kingdom and
Ghawar field are not the problem. That misses the whole point. The
problem is that you go from 79 million barrels a day in 2002 to 82.5 in
2003 to 84.5 in 2004. You're leaping by two million to three million a
year, and if you have to cover declines, that's another four to five
million.'' In other words, if demand and depletion patterns continue,
every year the world will need to open enough fields or wells to pump
an additional six to eight million barrels a day -- at least two
million new barrels a day to meet the rising demand and at least four
million to compensate for the declining production of existing fields.
''That's like a whole new Saudi Arabia every couple of years,''
Husseini said. ''It can't be done indefinitely. It's not sustainable.''
...''It's becoming unrealistic,'' he said. ''The expectations are beyond
what is achievable. This is a global problem . . . that is not going to
be solved by tinkering with the Saudi industry.''
...Husseini, for one, doesn't buy that approach (to pressure OPEC to increase supply). ''Everybody is looking at
the producers to pull the chestnuts out of the fire, as if it's our job
to fix everybody's problems,'' he told me. ''It's not our problem to
tell a democratically elected government that you have to do something
about your runaway consumers. If your government can't do the job, you
can't expect other governments to do it for them.''

Al-Husseini's explanation is that steadily increasing demand is the major reason behind the current unrest in the oil markets. Unfortunately, this is the aspect that is most often overlooked when dealing with the issue. Moderating demand for oil now, so that we can keep using oil for longer periods until clear alternative emerge may be the best option ahead. This job has to be done at home. Don't blame the Saudis for the high prices now or in the future. Simple laws of economics tell us that if demand keeps increasing at current rates, the oil markets will continue to be tight even with additional capacity, and prices will increase steadily. The time for action is now, unless you don't mind paying for that high priced oil.

Update on CAFE changes

2005-08-17T11:38:00.000-04:00

Danny Hakim provides an update on coming changes in CAFE standards for light-trucks. Here are the interesting tidbits:

The Bush administration is expected to abandon a proposal to extend fuel economy regulations to include Hummer H2's and other huge sport utility vehicles, auto industry and other officials say.

Current CAFE stnadards are applicable to light-duty vehicles with gross vehicle weight of 8500 pounds and lower. One of the proposals under consideration was to raise this limit to 10,000 lbs. This is not an insignificant part of vehicle population as noted by NHTSA:

A study prepared for the Department of Energy, in February 2002, by the Oak Ridge National Laboratory found that 521,000 trucks with GVWR from 8,500 to 10,000 lbs were sold in calendar year 1999. The vast majority (82%) of these trucks are pickups and a significant number (24%) were diesel. At the end of 1999, there were 5.8 million of these trucks on the road accounting for 8% of the annual miles driven by light trucks, and 9% of light truck fuel use.

So strike one against the upcoming changes. March on:

Its broad plan to overhaul the light-truck mileage rules would change the regulatory system from one using averaged mileage for an automaker's entire annual light-truck output to one that sets up five or six classes, determined by a vehicle's size.
...Under the Bush administration plan, about half a dozen size classes will be determined by the vehicle's length and width. Instead of an overall mileage requirement for the total fleet of light trucks a manufacturer sells in a model year, makers will have to meet some kind of target or average within each size class.
...Under the administration's plan, for 2008 to 2010 models automakers will have a choice of complying with the new size-based system or the current system, though a further increase beyond 22.2 miles a gallon is expected in the current system. After 2010, the current system will be eliminated.

This is consistent with the previous reports on CAFE changes. One of the obvious criticisms of the size class based approach is that OEMs will increase the size of the vehicles to escape meeting higher CAFE standards in small size classes. It is not that simple unless everybody decides to do that. Also, it is not always possible to increase vehicle length and width without affecting aesthetics and cost of making the vehicle, although you may argue that with light-trucks this is less of an issue. So the next obvious question is how big the difference is between adjoining size classes. Recollect that both Japan and China have adopted vehicle weight class based fuel consumption standards.
Even more important question is how big of an increase above 22.2 mpg can NHTSA argue for while also trying to preserve the choices between vehicle sizes. I would argue that this is going to be much harder, and I would expect 0.3 to 0.5 mpg improvement in overall light-truck CAFE standards. This would imply that light-truck CAFE standards for 2008 would be around 22.5 mpg, for 2009 around 22.9 and for 2010 around 23.4 mpg. This is just an intelligent guesswork on my part. We will see what NHTSA has in store next month when the ANPRM comes out.

Econbrowser discussion on Hirsch report

2005-08-10T15:16:00.000-04:00

Following a few posts about peak oil on his weblog, and a chat on econblog, Prof. Hamilton has opened another scintillating discussion on limitations of the Hirsch report on peak oil. I agree with many of the comments that follow the post, and I will try to collect the nuggets that I feel are in line with my poistion even as this discussion continues:

Heading out: World oil demand grew last year much more rapidly than anticipated, despite an increase in price at the end of the year. It appears that it is likely to do so again this year, even as prices continue to rise.

Joseph Somsel: The PURPOSE of the report was not to forecast future demand at some price point but to explore the technological options for convential oil substitution and their physical delivery timing.

Heading out: I think that what it (Hirsh report) was saying in part is that we have a huge inertia against change in the size and needs for fuel of our current transportation fleet, and that this cannot be turned around in less than about 20 years without significant impact, and that 20 years requires that R&D funds be invested now to find a new answer. Short of having that 20-years, we are in trouble.

Odograph: Do economists have any tricks to tell us if $60/barrel oil is signal or noise? Trend or volatility?

RoyYoung: Nymex WTI contract for 2011 is over $58/bbl! There has been a fundamental shift in the futures market in the last 6 months that is different from the (now outdated) heavy backwardation shape some people are referring to.
....I think the bottom line is that marginal cost to increase world oil production capacity is much higher than in years past (infinity if we have truly reach peak oil), so it will be difficult if not impossible to maintain reasonable rate of economic growth while maintaining current rate of energy consumption (Energy Consumed/GDP). So the choice is either lower future econ growth rate, or lower rate of energy consumption per unit of output.

T.R. Elliot: I'm not a peak oil fanatic. Nor anti-economics. But I do think we need a REALITY BASED community focusing attention on this issue.

I must thank JDH for provoking such a good discussion on a very important topic, even though, IMHO, at times JDH himself tries to dismiss concerns of the peak oil community by trying to stereotype their position. I would rather that he try to explain why the difference between futures prices of next month, and next year has all but disappeared, and the futures for 2010 are still selling at $59 a barrel. Historically, the market has always been in backwardation, but as noted by RoyYoung, this has disappeared in the past year. I doubt that JDH is doubting that prices of oil can be expected to increase steadily in the future. The critical issue is whether the adjustment towards increasing oil prices will come through determined efforts to adapt or through an abrupt realization that there really aren't that many promising alternatives to oil in the transportation sector. In spite of a 50% increase in gasoline prices in the last two years, vehicle purchasers and drivers have shown very little signs of budging from the twenty year old trend of buying bigger, heavier, faster and more powerful vehicles, and then driving those vehicles further than ever before. This market is far from being in any sort of an equillibrium, and I am not willing to trust any of the vehicle price or travel elasticity numbers any more.
I don't think that I have the right handle on this issue, but I don't think that anybody has a good understanding of this complex topic. This is precisely why dialogues like this are welcome.

Why I support Cleaner Cars

2005-08-10T13:04:00.000-04:00

The images accompany this NYT article.

LA in 1953 as opposed to LA today.

Efforts continue to tackle the criteria air pollutants (carbon monoxide, lead, nitrogen dioxide, ozone, particulate matter, and sulfur dioxide). It is high time that similar crusade is mounted against the rising greenhouse gas emissions from motor vehicles. California has started to chart it's own course on greenhouse gas emissions from motor vehicles. Most of the players in the industry realize that this is where the challenges are in the next thirty years or so. Unfortunately, the federal government in the US has not yet come to terms with this reality. The sooner the American public and the federal government start to take action about greenhouse gas emissions from motor vehicles, the better.

Peak Oil in News!

2005-08-09T12:25:00.000-04:00

WSJ's econblog features Drilling for Broke?.
See also Will oil markets loosen or tighten in the next five years? (via The Big Picture)
Financial Sense online interviews Matt Simmons about his new book Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy. I am reading the book currently and will post a review by the end of next week.

Toyota's Hybrid Strategy

2005-08-05T15:45:00.000-04:00

NYT reviews The Hybrid Emperor's New Clothes. See also Toyota Develops Hybrids With an Eye on the Future.

The company expects that a quarter of its sales in the United States will use the technology by then as it tries to sell one million hybrid vehicles a year worldwide. That would put it far ahead of projections for hybrid sales across the industry.

"At our current rate of sales, that's about 600,000 hybrids in the U.S.," said Jim Press, president and chief operating officer of Toyota Motor Sales USA, in comments at a conference in northern Michigan. "To achieve that goal, we will have to look at offering hybrid power systems in virtually all of our vehicles, including trucks."

Mr. Press dismissed concerns by some consumers and reviewers that Toyota and Honda were using the technology to increase horsepower in newer hybrid models, eroding fuel economy benefits. And he said that the proliferation of technology in modern cars had led to what he called an epidemic of recalls.

Check out the discussion on Toyota Hybrid Math at the GreenCarCongress.

Chart of the Month: July 2005

2005-08-02T15:20:00.000-04:00

In this months chart, I was going to post about the driving costs, and how gasoline and oil costs constitute only a small fraction of overall driving expenses. I realized that the Chart of the Week guys have already addressed that earlier this year. So, I have decided to take it a step further. In the previous charts, we have seen that the fuel economy of vehicles has either increased significantly as compared to late 70's. This has made driving cheaper than it already was. economists call this the rebound effect. The following chart shows that the cost of driving per mile for passenger cars has steadily decreased from 1980 to 2000, and as a result average vehicle miles traveled have increased from about 9,700 miles per year in 1980 to about 12,200 miles per year in 2000. This has been one of the main reasons for increased overall driving as seen from April's chart of the month.

(click on the chart for a larger image).

Economists argue that the rebound effect is of the order of 20%, that is a ten percent improvement in fuel economy increases vehicle travel by about 2%. So, next time when we argue that higher fuel economy standards are a good thing, we should keep in mind that some of the gains from higher fuel economy will be squandered away by increased driving. It may also indicate why CAFE standards should not be the only policy option on the table if we are serious about reducing our usage of petroleum.

P.S. The chart of the month archoive is available on your right.
P.P.S. It is so much easier to add pictures to blogger now. Bye bye Hello!

Not running out of oil. YET.

2005-08-02T13:16:00.000-04:00

With oil hovering around 61 dollars a barrel, a friend pointed out to an op-ed piece by Daniel Yergin in the WaPo titledIt's Not the End Of the Oil Age. (See a copy on CERA's webpage). What Yergin is saying in this op-ed is not new. We have heard this again and again from him. Yergin uses carefully measured words:

...Between 2004 and 2010, capacity to produce oil (not actual production) could grow by 16 million barrels a day -- from 85 million barrels per day to 101 million barrels a day -- a 20 percent increase. Such growth over the next few years would relieve the current pressure on supply and demand.

(emphasis added.) If EIA's International Energy Outlook is to be believed, demand for oil is projected to increase to 95 million barrels a day by 2010. Even if all of the capacity additions materialize, there is no going to be a glut of supply as some would want us to believe. Demand growth has surprised us before.

The share of "unconventional oil" -- Canadian oil sands, ultra-deep-water developments, "natural gas liquids" -- will rise from 10 percent of total capacity in 1990 to 30 percent by 2010. The "unconventional" will cease being frontier and will instead become "conventional." Over the next few years, new facilities will be transforming what are inaccessible natural gas reserves in different parts of the world into a quality, diesel-like fuel.

Yergin points out that all of the capacity addition is not going to be in conventional oil. Of this list, Gas-to-Liquids (GTL which is a diesel like fuel), as well as natural gas liquids (NGLs) appear promising. My understanding is that the current GTL projects in Qatar are meant to supply fuel to parts of Asia, and not Europe or US markets.

The growing supply of energy should not lead us to underestimate the longer-term challenge of providing energy for a growing world economy. At this point, even with greater efficiency, it looks as though the world could be using 50 percent more oil 25 years from now. That is a very big challenge. But at least for the next several years, the growing production capacity will take the air out of the fear of imminent shortage. And that in turn will provide us the breathing space to address the investment needs and the full panoply of technologies and approaches -- from development to conservation -- that will be required to fuel a growing world economy, ensure energy security and meet the needs of what is becoming the global middle class.

This last paragraph is the most important (emphasis mine). I may be willing to concede CERA's projections until 2010, but I am not so sure that we have the capability to produce much more than 110-115 million barrels per day any time in to the future. If someone can show me real numbers where 115 million barrels are going to come from, I would be very happy. The fact is that we are banking on huge investments and improvements in "unconventional" (read tar sands and heavy oil) oil technology. We are also not paying attention to the most important measure highlighted by Yergin, that is conservation. This battle will not be won by supply alone, and the sooner we realize this the better.

Investing in the Clean Car Revolution

2005-08-01T12:46:00.000-04:00

Earlier in June, Merrill Lynch and WRI put together a short report titled Energy Security and Climate Change: Investing in the Clean Car Revolution. The bottom line of the report is that global market and regulatory environment will increasingly drive competition in the global automotive industry. This is the same conclusion as the changing drivers report from WRI/SAM. What this report does is to speculate that diesels and hybrids, along with lighter materials will have an increasing role to play due to concerns about fuel use and climate change. As a result, Merrill Lynch identifies seven companies which might be a good buy. These seven are:
* BorgWarner Automotive (U.S.) : BWA is player in technologies that improve fuel economy, and reduce emissions.
* Denway Motors (China): Denway has about 50% stake in Honda operations in China.
* Faurecia (France): Faurecia is a European leader in Diesel Particulate Filter business (>60% market share).
* Hyundai Motor Company (Korea): Hyundai is rated neutral because it has the potential to improve its export performance, but may need significant investment in cleaner technology.
* Keihin (Japan): Keihin is a key player when it comes to switching dirty two-stroke engines with cleaner four-stroke engines in two and three wheeler vehicles in developing countries.
* Magna International (Canada): The report identifies Magna's expertise in hydroforming among other opportunities for vehicle lightweighting.
* Toyota Motor Corporation (Japan): Toyota is not only the financially most stable OEM, but is a dominant player in the hybrid vehicle market which is just beginning to grow.

You might ask why the report does not identify Garret (Honeywell) for its turbo chargers, or many other such examples, but I do not have time to go in to that.

Bigger, Faster and Less Economical?

2005-07-28T13:06:00.000-04:00

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

2005-07-27T15:18:00.000-04:00

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?

2005-07-21T11:35:00.000-04:00

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

2005-07-17T10:26:00.000-04:00

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

2005-07-15T14:10:00.000-04:00

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

2005-07-13T16:34:00.000-04:00

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

2005-07-12T18:27:00.000-04:00

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

2005-07-12T12:19:00.000-04:00

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

2005-07-04T12:00:00.000-04:00

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.

Chart of the Month: June 2005

2005-06-30T15:26:00.000-04:00

While posting last month's chart, I noted that

... much of the technology improvements in the past 25 years have been used up in improving vehicle performance rather than fuel economy.

The chart(s) for this month indicate where the improvment in efficiency has gone if it has not improved the fuel economy. You will often hear me say that Americans have been driving bigger, heavier and faster vehicles. So the charts that follow show how each one of these has increased over the last 25 years.
This first chart below shows normalized values of passenger car fuel economy and performance. The performance is measured as a multiplication of vehicle interior volume in cubic feet, inertia weight in tons and miles per gallon. The figure shows that while performance as measured here has increased by ~34%, the fuel economy has increased by only 14%.

Click on the chart for a larger image.

The second figure (courtsey of EPA) shows light-duty vehicle weight and accelartion between 1976 and 2004. Click on the chart for a larger image.
As you can see from the figure, vehicle accelation held steady and vehicle weight dropped during 1976-1985 period when CAFE standards went in to effect. After 1985, however, vehicle weight has increased steadily, and accelaration performance has improved as shown in reduction in 0-60 accelartion time.

How much exactly have the improvements in performance hurt the fuel economy? According to EPA estimates,

...had the new 2003 light vehicle fleet had the same average performance and same distribution of weight as in 1981, it could have achieved about 33 percent higher fuel economy.

Thus, it is important to remember that fuel economy of today's vehicles is low at least in part because consumers (you and me) have demanded bigger, heavier, and faster vehicles. If we want to see better fuel economy, we may have to give up any further increase in performance, or even thinking about downsizing and/or downweighting our vehicles.

P.S.: Chart of the Month Archive is available on the right hand column.

I come back from my trip to this?

2005-06-27T17:14:00.000-04:00

This is from last week's Automotive News

Ford Motor expected industrywide SUV sales to slide. But the depth of this year's decline is jarring. Ford Motor executives blame gasoline prices that soared to $2.30 a gallon this spring.

'With gas at $1.80 per gallon, like it was a little over a year ago, we'd have a very different picture here at Ford,' says Steve Lyons, Ford Motor group vice president of marketing, sales and service. 'Our share would be up, and we'd have quite a different financial picture as well.'

The plunge in SUV sales is one of several head winds blowing the comeback off course. CEO Bill Ford calls it a 'perfect storm of external factors.' With sinking retail share, spiking commodity costs and ever-fiercer price competition...

"Perfect storm of EXTERNAL FACTORS"! Does that mean that considerations for an increase in steel prices, stronger competition, or increasing gasoline prices are not an endogeneous part of Ford's decision making process? I thought that managers learned something called as scenario analysis from experience of Shell during the oil embargo more than thirty years ago, and planned accordingly. Should I be outraged, or should I laugh at my naiveness?

On Travel

2005-06-07T15:58:00.000-04:00

Initial reports of summer travel season indicate that Americans have been unfazed by high gasoline prices. This should confirm that gas prices remain a small component of overall travel budget, and that even at $2.20 a gallon, there is unlikely to be a significant change in driving habits.

On another note, I will be travelling until the 24th of June. So, unless something comes up, I am unlikely to make any posts here until then.

"Fool Efficiency"

2005-06-03T17:53:00.000-04:00

All of a sudden, there seem to be quite a lot of articles about how Hybrid cars are not getting the miles per gallon they promised, and how EPA's test cycles can be gamed. This is not really a news to anybody who is seriously looking at the issue. The main points here are:
* EPA's test cycle does not mimic the on-road conditions all that well. As a result the actual fuel economy values for standards ICE gasoline vehicles are about 15% lower than EPA test values.
* The difference may be more for some hybrid vehicles. This is further compunded by the fact that many hybrid owners may be realizing that the benefits of a hybrid powertrain are much lower in highway driving mode than in city mode.
* Finally, even with gas prices at $2.20 a gallon, the price premium for hybrid vehicles today will not justify purchase of a hybrid vehicle on as a rational choice. Many who are buying hybrids today, I feel, are buying because they are the so called early adoptors who want to do their share in reducing fuel consumption.
Having said that, I remain bullish on hybrid vehicles. More on that later.

While I was Away...

2005-06-01T17:23:00.000-04:00

...not much has changed! This sometime leads me to think about futility of maintaining a blog about this topic, because change seems so slow and hard. For example, take this discussion about fuel economy standards and vehicle safety. Same point repeated over and over for past many years.

Over these past few weeks, crude oil dipped below $50 a barrel for a few days before making a new run in the last few days. There have been some calls which claim that the next upward target will breach the $60 a barrel mark, but it won't be easy. Meanwhile, proceedings of a UK conference on peak oil from April were released. There were a few interesting presentations. Check them out.

GM continue to think that the way to get out their current soft patch is to offer more streamlined incentives.

As hybrid sales are zooming there have also been some complaints about Prius stalling on highways. Check GCC for more. Honda continues to demonstrate its FCX in different conditions, which I think is a very good startegy.

Finally, there was a piece in the Wall Street Journal a couple of weeks ago talking about the proposed changes in the CAFE standards. We can expect NHTSA to come out with an ANPRM on proposed revisions to the light-truck CAFE rules any time this summer. With gasoline prices projected to stay around $2.20 a gallon for next several months, there will definitely be some attention paid to these revisions. Although, as I said above, we can expect little or no action amidst all the noise.

Chart of the Month: May 2005

2005-05-31T17:10:00.000-04:00

In the previous two editions of Chart of the Month, I posted charts showing the overall fuel usage of the Light-duty vehicles, and one of the reasons contributing to the increasing fuel usage, namely rising vehicle travel. I also noted that this increase in fuel usage has come about inspite of an increase in individual vehicle fuel economy being 50% more than what it was in late 1970s. This month's chart shows thirty years of Corporate Average Fuel Economy (CAFE) standards, and the corresponding new vehicle fuel economy levels.

(click on the image for a larger picture)

As I have noted repeatedly here, debate over CAFE standards is one of the most heated debates in the energy policy domain. I will leave the technical details about CAFE out of this post, but it should be noted that CAFE standards pose a real constraint to the automobile manufactures. It is anybody's guess if fuel economy of new light-duty vehicle would have decreased if CAFE standards were withdrawn after 1985. In short, CAFE standards create a floor for fuel economy of new light-duty vehicles. This is important because much of the technology improvements in the past 25 years have been used up in improving vehicle performance rather than fuel economy. I would post a chart about this next month.

May Madness® is over!

2005-05-29T10:36:00.000-04:00

I officially declare that this edition of May Madness® is over. Regular programming is scheduled to begin soon, along with a chart of the month.

GM! GM!!

2005-05-09T17:20:00.000-04:00

I love the comments on GM FastLane Blog.

May Madness® is back!

2005-05-03T22:27:00.000-04:00

May Madness® is here. So, I will go silent for a few days, unless something really exciting comes up, and I can not keep shut. The current version of May Madness® is projected to last until May 27th.

The Ugly Road Ahead

2005-05-03T22:21:00.000-04:00

Business week has performed a biopsy on GM. I think that between this article and Knowledge@Wharton piece, much of the relevant ground has been covered as far as GM is concerned. I don't have much time to talk about the BW article, but it is highly recommended.

Daniel Yergin comes clean on Oil Prices

2005-05-01T00:14:00.000-04:00

Here is an interview with Daniel Yergin, which originally appeared in the TIME magazine. Excerpts:

Q: Will oil prices remain this high?

A: We've entered a new era of oil prices. It sneaked up on people, but now it's all too evident. There is a new floor under the price of oil of around $40 a barrel. I'm struck that the oil market today is tighter than it was on the eve of the 1973 crisis. And with markets this tight, you'll see a lot more volatility, and you could see prices spike up as high as $65 to $80. How high they go depends on geopolitics and market psychology.

Q: To what extent is the U.S. economy at risk from higher oil prices?

A: Right now there's this accommodationist view of high oil prices. People are looking at global and U.S. growth and saying, 'Well, these high prices are having less impact than might have been anticipated.' And it's true that oil does not have as much leverage on our economy as it did in the '70s. We use half as much oil per unit of GDP as we did then. But when you have sustained prices of more than $50 a barrel, the economic impact will be larger than people have anticipated.

Considering that CERA is generally on the conservative side when making predictions about price for oil, Yergin's statement that 40 dollar a barrel is a floor should be, IMHO, underlined.

Chart of the Month: April

2005-04-30T19:09:00.000-04:00

Last month, I promised to post at least one interesting chart every month. April has slipped by quickly! Here is a chart showing Vehicle Kilometers Traveled (VKT) by US Cars, Vans, SUVs, and pickups from 1970 to 2002 in billion kilometers per year. (1 kilometer ~ 0.62 miles)

Click on chart for a larger view.
Notice that the light-truck travel has increased very rapidly. This will help explain, in part, why light-truck fuel consumption has grown so rapidly in the past thirty years. Also notice how shocks due to wars and embargos tend to moderate growth in vehicle travel. I do not have the data from 2003/2004, but in '03/'04 we are likely to see a less sharp decline in VKT because continued strong sales of the light-trucks.
So, at least one of the reasons for growth in light-duty vehicle fuel consumption is that vehicle travel is increasing. This, in spite, of todays vehicles getting 50% more in terms of fuel economy than their counterparts thirty years ago. Next time, I will post this improvment in individual vehicle fuel economy, but todays chart should make one thing clear. If we are to slow down the growth in fuel consumption, we may have to moderate the growth in vehicle travel as well.

P.S. The fact of the week has a complimentary chart up for the coming week: How the Price of Gasoline Relates to Vehicle Miles Traveled?

The $6.66-a-Gallon Solution

2005-04-30T18:47:00.000-04:00

The gasoline taxes are very high in Norway, and the gas costs $6.66-a-Gallon, but this is the part that I found most funny.

...a right-wing party in Parliament, the Progress Party, once again called for a cut in gasoline taxes, which account for about 67 percent of the price.

But 'those critics are but voices in the wilderness,' said Torgald Sorli, a radio announcer with the Norwegian Broadcasting Corporation who often discusses transportation issues. 'We Norwegians are resigned to expensive gasoline. There is no political will to change the system.

Admittedly, the gasoline costs too much in Norway, and too little in the US. Yet, Norway has exactly the same problem as the US. There is no political will to change the system.

Oil in Troubled Waters

2005-04-29T10:39:00.000-04:00

Oil is on the cover of the Economist this week. See Oil in troubled waters, and Axis of Oil.

This Week In Petroleum comments on the "Dependency" factor

2005-04-28T10:41:00.000-04:00

Very nice commentary from This Week In Petroleum.

Of course, many might argue over whether this dependence on oil imports is good or bad. But given current market conditions, petroleum product prices would be even higher, at least in the short-term, if we imported less, as it would reduce the amount of oil and petroleum products that would be available, thus making each barrel or gallon even more costly than it currently is. Not only are imports needed to meet current demand, but imports can also help build inventories, as we saw happen last week. While crude imports were the third highest weekly average ever, crude oil inputs into U.S. refineries actually declined slightly. As a result, much of the increase in crude oil imports found its way into inventories, which built by 5.5 million barrels during the week ending April 22. Nevertheless, with refinery inputs expected to increase significantly over the summer as refiners try to produce as much gasoline as possible (while still needing imports to meet demand), crude oil inventories will likely be drawn down. So, for the time being, increases in oil imports help keep prices from being even higher – even if it flies in the face of the American sense of “rugged individualism.”

Interdependence is not an easy concept to explain. This quote explains at least one piece of it very elegently.

Petroleum Day at The Big Picture

2005-04-28T08:31:00.000-04:00

The Big Picture celebrated a Petroleum Day yesterday with some useful resources.

The Oil Drum

2005-04-27T11:39:00.000-04:00

I have been very reluctant to talk at all, if ever, about Peak Oil. Anybody who is serious about oil knows that conventional oil production will peak soon. Soon depending upon definition, because while the most pessimistic estimates suggest that peak oil is here NOW, the most optimistic estimates suggest that the peak is probably thirty years away. Most reasonable estimates, in my opinion, indicate that sometime during 2015-2020 period, we will reach a plato in terms of out production at around 95-105 million barrels per day of oil, before some decline in production could be expected. Remember that the current production levels are at around 83 +/- 2 million barrels a day.
The Oil Drum has started to blog about the peak oil issue in a much more serious way.
Unlike some, I do not believe that peak oil is going to be the end of the world as we know it, but it is a fact that we cannot ignore either. Business planning for the long term must realise that. Where will the rest of our "oil" supplies come from? Tar sands in Alberta? Heavy oil in Venezuela? Oil shale in the US? At what cost hurdle does it make sense for producers to ramp up the investment in unconventional oil? Will they do so in time? What will be the effect of carbon pricing on this? Will options that did not seem very attractive until recently, will suddenly start to appear as decent long term bets? What is the time scale in which we can turn over the stock of the existing transportation energy supplies? These are not trivial questions; they do not have easy, simple answers, but I believe that they deserve our attention. Of course, I believe that the best course of action is to start paying attention towards reducing the rate of growth of our demand, but that will not solve the problem and we will have to supply side options as well.

Transparency Issues with ACEA Agreement?

2005-04-22T22:58:00.000-04:00

So while voluntary agreements to reduce CO2 emissions from motor vehicles may be a good thing, how does one make sure that the actions taken by the OEMs are sound? WRI asks this question in their recent report titled Transparency Issues with ACEA Agreement: Are investors driving blindly?. You might remember the WRI-SAM report called Changing Drivers, which at least I take seriously in spite of simplistic nature of that report.

Should We Recall the U.S. Auto Industry?

2005-04-21T08:57:00.000-04:00

Knowledge@Wharton has an excellent article titled: Car Trouble: Should We Recall the U.S. Auto Industry?. I do not agree entirely with all the opinions in the article, but by and large this seems like a very good assessment of the state of Detroit today. Excerpts:

MacDuffie notes that Ford and GM each pursue a "near-term, profit-boosting strategy" that relies heavily on "hit cars" instead of a more fundamental, longer-term approach in which they work to have every part of the company function strongly. Detroit has been riding the minivan, sport-utility and pick-up truck crazes for so long that it has become overly dependent on these product lines for profitability and pays insufficient attention to other issues.

"Now there is all this talk in Detroit about the 'year of the car' [in an attempt to produce a sales revival]," according to MacDuffie, co-director of the International Motor Vehicle Program (IMVP), which is based at the Massachusetts Institute of Technology and has a network of researchers at universities worldwide. "Well, if you have spent the better part of a decade neglecting your car line in favor of your truck line, you are not going to bring out cars that compete well with the Toyota Camry, the Honda Accord and the Volkswagen Passat. Cars are the most complicated part of the marketplace and it's hard to just step back in."

I often say that Detroit has thrown in the towel when it comes to the Car market. The Big 3 are destined to loose further in that market segment, and there seems to be little they can do about it now.

Most car companies continue to hold the view that having factories running at 100% capacity is the most efficient way to produce vehicles because it allows the manufacturer to minimize the cost to produce each unit. Indeed, overcapacity has long been cited as a problem for automakers worldwide: According to The Economist magazine, factories are capable of producing 80 million cars and light trucks a year but actually churn out only 60 million. But, in the view of Pil and Holweg, the problem with this volume mentality is that it is not enough to generate sustainable competitive advantage. Each year far too many vehicles are left unsold. To clear out inventory, manufacturers are then compelled to offer millions of dollars in incentives in the hope that customers like the price enough to settle for a car that was not their first choice.

There is a term to describe this type of behavior: Reinforcing loop. You do not get out of this cycle by pushing hard on running at full capacity. Some day Detroit will learn this, may be when it is too late.

(J. D. Dave) Power says global competition is so fierce that Detroit may have to become accustomed to being a smaller player. "There is a structural situation that is going to make it very difficult for GM and Ford to keep from losing market share, and they have to be looking at trimming down their operations. They have got excess capacity and excess overhead, and some of it they can't get rid of overnight, like the pension liability and the health care costs. Those decisions were made 10, 20 years ago. Perhaps there's more opportunity for them overseas than their home market."

GM believes that their salvation lies in the Chinese market, but it is not clear that it will have the strength to be competitive there also. Excess capacity, mounting healthcare costs, and neglect of the car market. You can't get rid of them overnight, but remember that these did not become the critical problems overnight as well.

EIA remain bullish on Oil

2005-04-20T17:01:00.000-04:00

Excerpt from This Week In Petroleum:

Until demand growth slows dramatically or supply capacity grows significantly more than seen in recent years, it is unlikely that WTI will fall substantially below $50 per barrel for any significant period of time. While at least one prominent oil market analyst does expect a surge in non-OPEC production later this year, EIA does not share that view. While high oil prices should eventually lead to lower demand and more supply capacity, EIA does not envision this occurring in the immediate future. Thus, while some oil market analysts are calling for a sharp drop in oil and gasoline prices this summer, EIA is not expecting WTI to fall below $50 per barrel or the U.S. average retail price of regular gasoline to drop below $2 per gallon for a sustained period anytime soon.

I am yet to see a good argument as to why I should not believe this.

Will the Real Hybrid Please Drive Up?

2005-04-20T10:23:00.000-04:00

I have noted previously that even though not all hybrids all created equal, they can be marketed as if they were all the same. Union of concerned Scientists have now launched a website called the Hybrid Center to compare different types of hybrid vehicles. They have also launched a blog called Hybrid Blog.
On the Hybrid Center site, one of UCS' concern seems that the hybrids offered by GM on their light-trucks are not real hybrids. This figure shows the different types hybrids according to UCS classification. A DOE report on potential of hybrids and diesels in the US used the following ay to classify the hybrids (pdf file):

1. Stop/Start (S/S): This hybrid system includes only the ability to shut off the engine when it would otherwise idle and to restart it instantly on demand. This provides no torque boost to aid acceleration, but offers a fuel economy advantage of 7.5% over the EPA test cycle.
2. Integrated Starter Alternator with Damping (ISAD): This hybrid system will operate at 42 volts and will allow some power to be contributed by the electric drive system in addition to the stop/start capability. An increase in torque of 10% and 12.5% higher fuel economy are expected.
3. Integrated Motor Assist (IMA): This 114 volt hybrid system is expected to be produced only by Honda through 2012. In comparison to the ISAD design it has a larger electric motor and greater battery power and energy storage and allows more electricity to be used for motive power. The system is expected to provide 15% higher torque and 20% greater fuel economy on average.
4. Full Hybrid (FH): These 300+ volt systems permit limited all-electric drive in addition to supplementing the power of the internal combustion engine. For cars, full hybrid systems should offer 20% more torque and 40% more miles per gallon; for light trucks increases of 15% in torque and 35% in fuel economy are expected.

How important is this distinction? UCS will tell you that it is very important. Honda would tell you not to confuse cutomers with four different types of hybrids and call all hybrids as hybrids. Unfortunately, UCS web site does not allow you to compare GMs hybrid pickups along with Ford Escape Hybrid SUV. I would have really appreciated if UCS would have done so, but doing so in their mind would have adulterated their web site.

Will the Oil Market Continue to Be Tight?

2005-04-13T11:21:00.000-04:00

Take a look at the IMF World Economic Outlook (WEO), and the chapter on oil. Overview here.

How long will speculation last?

2005-04-07T10:40:00.000-04:00

Andy Xie of Morgan Stanley has a warning:

Chinese demand cannot serve as an excuse anymore. China’s crude imports in Jan–Feb 2005 declined by 12.8% from the same period last year (see Oil vs. Coal, January 17, 2005). China’s oil demand in the past two years has been exaggerated by the shortage of its electricity production capacity. As the problem is being corrected through aggressive investment, China’s oil demand is softening also. However, it is virtually impossible to explain this story to an oil trader. The demand story for oil traders is that 1.3 billion Chinese are buying cars. The irony is that China’s car sales are declining.

Financial speculation is the key driver of oil prices, in my view. Oil demand or supply is inelastic in the short term. Extra demand from financial speculators can push up prices significantly. There has been an uptrend in oil prices during the current growth cycle, as in any growth cycle. The low interest rate so late in the cycle is causing the speculation in oil and exaggerating the upward price momentum. I suspect that financial speculation has added around US$15 per barrel to crude prices.

I am not sure what to make of this.

Greenspan on Energy

2005-04-06T09:15:00.000-04:00

Chairman of the Fed Alan Greenspan gave an important speech yesterday from the point of view of energy.

Altering the magnitude and manner of U.S. energy consumption will significantly affect the path of the U.S. economy over the long term. For years, long-term prospects for oil and gas prices appeared benign. When choosing capital projects, businesses in the past could mostly look through short-run fluctuations in oil and natural gas prices to moderate prices over the longer haul. The recent shift in expectations, however, has been substantial enough and persistent enough to bias business-investment decisions in favor of energy-cost reduction.

Of critical importance will be the extent to which the more than 200 million light vehicles on U.S. highways, which consume 11 percent of total world oil production, become more fuel efficient as vehicle buyers choose the lower fuel costs of lighter or hybrid vehicles.

Is this the endorsement by the chairman of the fact that we must *do something* to stimulate demand for less fuel consuming vehicles. I am not sure that Greenspan likes the CAFE standards, but this might mean that he would be in favor of some incentives for building more fuel efficient vehicles.

Conversion of the vast Athabasca oil sands reserves in Alberta to productive capacity has been slow. But at current market prices they have become competitive. Moreover, new technologies are facilitating U.S. production of so-called unconventional gas reserves, such as tight sands gas, shale gas, and coalbed methane. Production from unconventional sources has more than doubled since 1990 and currently accounts for roughly one-third of U.S. dry gas production. According to projections from the Energy Information Administration, the majority of the growth in the domestic supply of natural gas over the next twenty years will come from unconventional sources. In many respects, the unconventional is increasingly becoming the conventional.

DOE is definitely worried about the future of oil supplies. That more and more of unconventional or other sources of supply would have to come live sometime in the next twenty-five years seems like a foregone conclusion. Of course, there could be aggresive demand management efforts before we get there, but we will probably still need them.

Clearly, limited substitution possibilities across fuels have resulted in persistent cost differentials, but those very differentials inspire the technologies that, over time, reduce such limitations. A clear example is gas-to-liquids (GTL) technology, which converts natural gas to high-quality naphtha and to diesel fuel. Given the large-scale production facilities that are currently being contemplated (and some that have already begun construction), GTL is poised to become an increasingly important component of the world's energy supply. Current projections of production however remain modest. GTL promises to add a good measure of flexibility in the way natural gas resources are utilized. In addition, given the concerns over the long-term adequacy of liquid production capacity from conventional oil reserves, GTL may provide an attractive, competitively priced, option for making use of stranded gas, which, for lack of access to transportation infrastructure, cannot be brought to market.

GTLs are much more like diesel than gasoline, so we may have to gear up ourselves for driving diesels. Diesels anyone?

Will try to make some sense out of this later.

Voluntary Agreement in Canada on CO2 emissions: What are the Implications for US?

2005-04-05T19:59:00.000-04:00

As I have noted previously, Canada has been working with the auto companies to set greenhouse gas emission reduction targets. Today Green Car Congress reported that the agreement has now been made public.

This agreement calls on the automobile industry to cut GHG emissions from light-duty vehicles (cars, minivans, sport utility vehicles and pickup trucks) so that by 2010, annual emissions reductions will reach 5.3 Mt.
The 5.3-Mt target is measured from a "reference case" that projects business-as-usual vehicle emissions in 2010 and that has been agreed upon by industry and government. To assess progress toward meeting the 5.3-Mt target, a joint industry-government monitoring committee will be established. Annual reports from the committee will be available to the public.

The MOU states that "The Reference Case greenhouse gas emissions for the light duty vehicle sector in 2010 are 90.51 Mt of CO2e" as stated in Canada's Emission Outlook (Annex C Page 26). Greenhouse gas emissions from light-duty vehicles are already about 95 Mt due to the growth in the light-duty truck segment. So, the actual baseline number in 2010 is going to be much larger. So, I am not sure how this is going to be worked out. It can be safely assumed that the language in these MOUs is formulated rather loosely so that actual committee working on this may decide the actual details and the best possible ways for the Auto companies to reach their goal.
Let us put the 5.3 Megaton in perspective. The vehicle sales in Canada are about 1.5 million vehicles per year. I am assuming that they are driven much like the American light-duty vehicles (~11000 miles per year or 17600 km per year). If the average fuel economy of the current vehicles is about 25 miles per gallon (~ 220 grams of CO2 per km), then the emissions from new vehicle sales in one year are about (1.5 million * 17600 * 220) grams or 5.8 trillion grams or 5.8 Megatons of CO2. Think of 5 such years between 2005 and 2010, so the total additional emissions will be of the order of 5.8*5 = 29 Megatons. A 5.3 Megaton reduction means roughly a 20% reduction in greenhouse gas emissions or roughly 25% increase in fuel economy. (Note these are rough estimates, but they should be in the ballpark).
This, I think that this deal is a big thing. This agreement has other implications:
One, it shows that *some* agreement can be reached over reducing CO2 emissions from light-duty vehicles. ACEA in Europe started this trend (caution:pdf file). Now, the US needs to decide what it is going to do.
Two, my guess is that the Auto industry would rather not deal separately with California's AB 1493, US Northeast, Canadian MOU and the US CAFE standards. This means that there is now a significant chance of different parties coming together to talk about this issue seriously. This is a significant opportunity, and it will be a shame to squander it.
There is a lot to discuss here, but more thoughts later.

Hybrids to Plug-Ins: Not as good as it might sound?

2005-04-02T22:37:00.000-05:00

We have heard about this before here and here. Yesterday's Times also has an article about converting hybrids to plug-ins.

But the idea of making hybrid cars that have the option of being plugged in is supported by a diverse group of interests, from neoconservatives who support greater fuel efficiency to utilities salivating at the chance to supplant oil with electricity. If you were able to plug a hybrid in overnight, you could potentially use a lot less gas by cruising for long stretches on battery power only. But unlike purely electric cars, which take hours to charge and need frequent recharging, you would not have to plug in if you did not want to.
..."If you're thinking about this as an environmental issue first and foremost, you're missing the point," Mr. Gaffney said. Curbing dependence on foreign oil, he added, "is a national security emergency."

This quote sums up what may be a problem with plug-ins, but by all means not the only one. Plug-in may seem attractive from the point of view of reducing oil use from transportation sector, but it will increase the electricity usage which in the US (and the world) is predominantly coal based. Prof. Andy Frank of UC Davis is a big supporter of plug-ins and he claims that on a well-to-wheels basis, plug-ins will be responsbile for less CO2 emissions per mile travelled. I am not sure that this claim holds up in all possible mix of electricity in the US grid. In addition, if plug-ins were to become significant in number (lets say 10% or more), then the effect on grid management would be very different, and in some if not all cases, plug-ins may be responsible for the tail of the demand curve causing a price spike in the electricity spot markets. Thus for plug-ins to make a meaningful contribution, we first must have a cleaner and more efficiently functioning power sector than what we have today.
Some of the other commonly cited problems with the plug-ins are the same as that of other electric vehicles, i.e. weight of the batteries and the range they can offer on all electric mode. Never the less, I am sure that there will always be enthusiastic people who will keep the Plug-in path towards electric vehicle alive, and that I do not consider a bad choice at all.

Hydrogen or electricity?

2005-04-02T17:37:00.000-05:00

How many problems can you spot with the article edition:
Hydrogen or electricity? A nuclear fork in the road by David B. Barber.

Saving Oil in a Hurry

2005-04-01T09:09:00.000-05:00

While oil hovers around 55 dollars a barrel, IEA is asking countries to prepare a crash oil saving plan, which may be needed in case of supply disruptions.

Oil importing countries should implement emergency oil saving policies if supplies fall by as little as 1m-2m barrels a day, the International Energy Agency will warn next month.

The figure is much lower than the official trigger of 7 per cent of global oil supply equivalent to 6m b/d agreed in the treaty that founded the energy watchdog for industrialised countries after the oil crisis of the 1970s. A fall in supply of just 1m-2m b/d would be equivalent to the disruptions during the 2003 Iraq war or the 2002 oil industry strike in Venezuela.

Meanwhile, yesterday Goldman Sachs created waves by openly admitting that there is a small chance that Oil prices could shoot up to 100 dollars a barrel.

It suggested that only a sharp, sustained increase in energy prices would meaningfully reduce energy consumption and therefore create the spare capacity needed to bring prices lower again.

How will we reduce energy consumption in the face of a "super-spike"? IEA's Saving Oil in a Hurry report has some comments:

The basic approach has been to evaluate the impact of a variety of measures, if applied individually during a crisis, given the necessary emergency planning and preparation before a crisis occurs. In most cases the measures have the effect of reducing light-duty vehicle travel, either by reducing demand or encouraging shifting to public transit or other modes. We have evaluated the following general approaches:
• Increases in public transit usage
• Increases in carpooling
• Telecommuting and working at home
• Changes in work schedules
• Driving bans and restrictions
• Speed limit reductions
• Information on tyre pressure effects
Our main conclusion finds that those policies that are more restrictive tend to be most effective in gaining larger reductions in fuel consumption. In particular, driving restrictions give the largest estimated reductions in fuel consumption. Restrictive policies such as this can be relatively difficult to implement and thus may come at higher political costs. Policies that rely on altruistic behaviour and provide information to consumers can give good reductions in fuel consumption. However, many of these policies are potentially very cost-effective, as the investment needed to implement them is low.

Still think that taking baby steps NOW towards reducing our fuel consumption is a bad idea?

UPDATE (04/03): See The stupid phase of Oil and the Super-Spike report. Personally, I think that the chances of oil shooting as high as $100 a barrel are very small, but as Barry notes, it is the reaction of the markets to the news that is interesting. Last summer, I talked about psychological barrier with 2 dollars a gallon gasoline being broken. By now, most people have gotten used to paying more than $ 1.80 per gallon. This years barrier would be $2.50 a gallon, which we might hit somewhere around Memorial day if the current trend in the oil markets persists.

California's Hydrogen Highway Blueprint

2005-03-30T12:54:00.000-05:00

CalEPA published Hydrogen Highway blueprint yesterday. The plan calls for about 10 million dollars of investment each year for the next five years (Phase 1), with about equal investment assumed on the industry side.

Posted by Hello
While Phase 1 is supposed to be completed by 2010, time lines for phase 2 and 3 have not yet been identified. Even then, I would call this plan quite ambitious.

Automakers vs. big oil over diesel rules

2005-03-30T12:35:00.000-05:00

From the Automotive News:

Automakers fear that petroleum companies and refiners aim to delay or relax the rules. The key provision, effective in September 2006, requires that 80 percent of highway diesel fuel contain no more than 15 parts per million of sulfur. The limit now is 500 parts per million.

Ultralow-sulfur fuel is essential for expanded use of modern, cleaner-running and more fuel-efficient diesel engines in cars and light trucks, a major goal of automakers over the next few years.

Ultra Low-Sulfur Diesel (ULSD) is critical if Diesels are to arrive in the US, but it is also somewhat costlier.

Busy Day at the Green Car Congress

2005-03-29T19:23:00.000-05:00

Green Car Congress is a web log maintained by Mike Millikin and has regular updates in vehicle and fuel technologies that are worth paying attention to. I have been reading this web site for a few months, and I would highly recommend it.

Today, for example, Mike has posted about two interesting pieces of information:

1. Ballard has put out a technology road map relating to the performance of its PEM fuel cells

2. A battery company called Valance is showing a plug-in hybrid concept car based on the Prius next week.

Enjoy,and think about what this means in terms of reducing the rate of growth of petroleum consumption in the next ten to twenty years.

A Strategy to push hybrids

2005-03-28T10:08:00.000-05:00

From the WSJ

Gas-electric vehicle technology leader Toyota is using the New York Show to make its most explicit statement yet about how it plans to market hybrid-propulsion systems. At the Lexus stand, Toyota is showing off not only the long-awaited RX400h gas-electric hybrid SUV, but also a gas-electric version of its recently launched GS sedan. Both of these vehicles use hybrid propulsion to achieve V-8 performance with V-6 or better fuel economy. Toyota's bet is that luxury customers, who keep buying more and more horsepower despite higher fuel prices, will be drawn to hybrid technology for guilt-free performance. In the Toyota brand, Toyota will push fuel economy.

Rivals are watching. At Ford, Mark Fields, executive vice president in charge of the auto maker's luxury brands, calls the Volvo brand a logical place for Ford to expand its own gas-electric hybrid offerings. 'We're working on a plan to see if we can get that done,' he says.

Meanwhile, Volvo will promote its 315-horsepower XC90 V-8 model with ads showing Richard Branson blasting off into space.

Toyota has recently announced three or four new hybrid cars and SUVs, and all of them if I remember correctly were in the upper end of the market, which kind of makes sense given the logic talked about here.

UPDATE: Toyota aims to sell 62,000 hybrid SUVs in 2005 (worldwide).

Chart of the Month

2005-03-27T21:48:00.000-05:00

I have been thinking about doing a feature like chart of the month for some time. DOE's office of transportation technologies (now subsumed in the FreedomCar and vehicle technologies program) has a wonderful feature called fact of the week. Never the less, I think that I may be able to post here some of the charts related to the fuel consumption of US light-duty vehicles. For example one of the readers asked:

Do you have any data on how much of US oil consumption is for automobiles, perhaps broken down by type (cars, trucks, SUVs) etc.?

Answer: U.S. Light-Duty vehicles (which include cars and light trucks) consumed about 550 billion liters of gasoline in year 2004 (1 Gallon ~ 3.78 liters). Of this about 250 billion liters was consumed by the cars and wagons, whereas the SUVs, pickups and vans together consumed about 300 billion liters of gasoline.

Posted by Hello Click on image for a larger picture

As you can see from the picture, fuel use of passenger cars is currently at the same level as in 1970, but the light truck fuel consumption has increased from about 40 billion liters in 1970 to 300 billion liters in 2004. Some other fun numbers you may want to remember from this chart:
Fuel consumption reached about 400 billion liters in 1993.
Between 1978 to 1992, the overall fuel consumption was more or less constant at about 390 billion liters. You can, however, see the rise of the minivans and SUVs in this period that has resulted in the much higher level of fuel consumption we see today.

P.S. posting pictures with the help of Hello is painful.

Virtually Emission Free?

2005-03-25T10:55:00.000-05:00

I think that this controversy is going to be counterproductive for everybody. Union of Concerned Scientists has come out strongly, (and I do not blame them) against what they call deceptive advertising by the Auto Alliance.

Firstly, There is no doubt that the cars and trucks on the road today are a lot cleaner than they were thirty years ago. The emissions of criteria pollutants, specially NOx and Non-methane Organic gases (NMOG), have actually been reduced by about 99% since 1970 due to stringent air pollution regulations formulated by EPA and CARB. While the automakers are to be commended upon the job they have done really done, one must remember that this would not have happened without those regulations, so a lot of credit is due to the Clean Air Act. Also, we have actually not been monitoring emissions on road, and quite frankly are not sure that all the new vehicles, when they get on the road, are meeting the pollution standards.

Secondly, as the UCS correctly points out, if emission free is what the auto alliance implies, they most certainly do not take in to account the greenhouse gas emissions. The ad does not explicitely say that, so the UCS claim is somewhat justified. This would be important if Auto Alliance were not fighting the California law on controlling greenhouse gas emissions from motor vehicles in the courts. Moreover, pretty much the same auto makers have agreed in Canada to reduce greenhouse gas emissions from motor vehicles. As I noted previously, Auto Alliance needs to get its act together and speak consistently.

One final thought on why I think this controversy is counterproductive. Sonner or later, greenhouse gas emissions regulations will come in to effect in the US. The auto industry needs to get smart and rather than fighting this effort tooth and nail needs to figure out how they could get the best deal out of this. Controversies like this do not help different parties to come together on a broader agenda items of much larger importance. UCS or other advocacy groups should also bear this fact in mind. As far as reducing the greenhouse gas emissions are concerned, any action today will be important, so they must try to work with the Auto industry to reach a sensible middle ground. The problems that the US auto companies are facing today are real, and trying to corner the industry is not going to be a very productive strategy.

Busy, busy, busy!

2005-03-17T20:30:00.000-05:00

I don't have time to make any posts for at least a few more days, even though there are all kinds of things going on in the energy sector right now. If you are looking for information related to oil, check the Financial Times Commodities section. If you are not satisfied, see Platts Oil section or if you are crazy about the price of oil to the minute, check the NYMEX oil data link on the right.
I try not to post developments in vehicles technologies since I discovered the Green Car Congress blog.
I should be back by Wednesday of the next week (23rd) at the earliest, unless something really exciting takes place between now and then. Don't think oil is going to break the 60 dollar mark between now and then, but given the volatility in the markets, one can not be sure of that. I should leave it to that.

How Long Can G.M. Tread Water?

2005-03-14T15:04:00.000-05:00

Asks Danny Hakim in the NYT. Very recently at a small event, GM North America President Gary Cowger was asked about the threat to GM from Toyota. He admitted that Toyota is gaining on GM worldwide with very good products. He pointed out that Chevrolet and Cadillac are doing very good business, and he hopes that picture at Pontiac will change after sales for G6 pick up and the Solstice is launched. He also admitted that the product line at Saturn needs a radical change, and there are still many problems with Buick. Overall, all is not well as it should be.

P.S. Check out also GM FastLane Blog.

Demand for Hybrid Vehicles

2005-03-10T17:40:00.000-05:00

There is a strong debate going on over what could be a realistic expectation of hybrid vehicle sales in the next few years.
Here is an optimistic projections:

"Demand for fuel-saving hybrids could grow to as much as 10 percent of total U.S. new vehicle sales by 2010", Jim Press, Toyota's U.S. managing director, said last month.

We have seen similar optimistic projections earlier. A more pessimistic projection from J.D. Power was about 3% market share by 2010. The JD Power report talked about the hybrids "reaching a plateau" at about 3%, which I find quite difficult to accept as opposed to hybrids just hitting 3% sales in 2010 with a potential to grow in the future.

Another Honda FCX review

2005-03-10T17:22:00.000-05:00

Honda seems to be doing a good job of putting its FCX on the road. This review from Mark Pheelan of the Detroit Free Press is qyuite good, and so was an earlier review. GM has promised to get the Sequel on the road later this year.

Some tips to save on cost of filling up

2005-03-10T17:12:00.000-05:00

This counts as Drive Lite!

Short Term Energy Outlook and more...

2005-03-08T22:58:00.000-05:00

EIA released its monthly update of Short Term Energy Outlook:

The projected average West Texas Intermediate (WTI) crude oil price for the first quarter of 2005 has been revised upward to about $48.70 per barrel, approximately $13 per barrel higher than in the first quarter of 2004 and $2 per barrel above the first quarter 2005 projection in the previous Outlook. EIA projects that WTI prices are likely to remain near the high-to-mid-$40’s (or higher) per barrel range throughout 2005-2006. It is emphasized that oil prices are likely to be sensitive to any incremental supply tightness that appears during periods of peak demand worldwide. Imbalances (real or perceived) in light product markets could cause light crude oil prices (such as WTI) to increase to well above $50 per barrel, as has recently occurred.
...Pump prices for regular gasoline are expected to average about $2.10 per gallon during the 2005 driving season (April through September), up 20 cents from the same period in 2004. Sustained domestic growth in gasoline demand, both seasonal and year-over-year, is expected to increase average monthly prices to about $2.15 per gallon by spring.

Honestly, I would not read much in to this report. Just keep in mind that the much of the increase in crude prices we are seeing now, and will probably see at least until the 16th of March, will show up in the higher gasoline prices with a slight lag. In spite of the fact that the inventories of gasoline in the US are at a robust level, expect a lot of hue and cry about using the Strategic Petroleum Reserve (SPR) and the perrenial favourite CAFE standards!
I hope that the administration will play cool to the demands about using SPR just like it did so last year. The battle over CAFE is going to heat up, or at least I expect so. Remember that the congress must act if the fuel economy standards for passenger cars are to be raised. They may want to wait for NHTSA to plough through the 66,000 comments on the light-truck standards. NHTSA should release its ANPRM in December 2005 for rulemaking on light trucks standards in April 2006. Overall, it is unlikely that any credible action will be taken in 2005 to raise the CAFE standards.
So, it will be interesting to see if consumers start to show some interest in fuel economy for a change. Some of the trends to watch for among others:
* Sales of hybrid vehicles, particularly hybrid Accord, Lexus RX400h, and the Mercury Mariner hybrid if it is released.
* Sales of crossover vehicles as opposed to the SUVs
* % increase in road travel around Memorial day
Overall, it is going to be an uneasy year on the fuel consumption aspect. Every year of delay in taking some action on trying to reduce the rate of growth of demand will come back to haunt us if things go awry. We are already in an unenviable position in terms of worldwide, and specially US automobile fuel consumption, and have time and again found this to be the stickiest of the issue in the energy domain.

Price Trend for Crude Oil from January 2003

2005-03-07T18:40:00.000-05:00

Kind of fun to look at!

(click on chart for a larger version)
Posted by Hello

P.S. I do not like the way hello and blogger bot work. Hello would not accept a gif file, and I must convert it to a jpeg before uploading it.

China and the Price of Gas

2005-03-07T14:18:00.000-05:00

Calculated Risk comments on China and the Price of Gas in simple words.

Putting the Hydrogen Horse Before the Political Cart

2005-03-07T14:08:00.000-05:00

An interesting article by Rex Ewing:

The current best guess for how we might logically proceed toward a hydrogen economy involves using coal and natural gas -- in clean processes that sequester carbon -- as short term hydrogen sources, while developing and implementing a renewable solar, wind and biomass infrastructure over the long haul. On the plus side, all the technologies needed to make this happen already exist, at least on a small scale. The overwhelming problem we face is in producing -- and paying for -- the sheer volume of fuel humanity consumes.

This is where politics slithers into the picture and people start getting hot under the collar. Don't get me wrong; I have no problem with political wrangling. For better or worse, it's part of the process. I'm only suggesting that political opinions will serve a greater purpose when they're buttressed by cold, hard facts.

...The point is, there is no one right way to wean ourselves from the beastly carbon cow and make the conversion to clean hydrogen fuels. The process will inevitably lead down a number of paths and will require the combined efforts of a multitude of rational, intelligent researchers, engineers, administrators and, yes, even politicians. Politicians who are obliged to listen to us, whether or not we know what we're talking about.

Very well said.

Taking Down the 'No Foreign Cars' Signs in Michigan

2005-03-04T08:54:00.000-05:00

Danny Hakim has an excellent article in yesterday's Times about how Michigan Gov. Granholm is bending over backwards to invite a Toyota Technical Center. Michigan has been sufferring from job losses in past few years. As the article mentions, Ontario has taken over Michigan in terms of auto assembly Never the less, the Big Three have continued to loose their market share to Toyota and others.
What is really interesting in this is story is a chart which shows that Japanese car makers now employ more than 56,000 people in the US. In fact, calling Toyota, Honda or Nissan as Japanese car makers is going to be difficult. This plays out in the congress, where the Big Three, IMHO, will no longer be able to claim that they need to be protected from foreign manufacturers because of job reasons.
I am sure that the Big three, specially GM and Ford, realise that their strong hold in the light-trucks market is getting loose. As the capacity in that sector grows, the margins are going to shrink and that spells doom for GM and Ford given their healthcare costs. This is not something to dismiss easily. It is high time to shake up the operations, stop the bleeding in the form of incentives and get creative.

Oil, Oil !!!

2005-03-03T18:53:00.000-05:00

One thing can be said about the Oil market trading in the first three days of March. It isnot a pretty picture. It seems to me that there is a lot of speculation going on in the market. This will only create pressure on OPEC to reconsider its decision to not hike production at their March 16 meeting. Remember that they are currently producing way over their agreed limits. One thing is clear, however, that the inventories of crude here in the US are in fairly good shape. OPEC would want the market to cool off a bit, but not crash.
Many things to talk about, but no time right now: China, Exchange rates, and what all of this means for automobile fuel consumption in the U.S.

Dollar, Euros and Oil

2005-02-23T12:00:00.000-05:00

Here is an interesting exchange at Brad Setser's blog

Q: What is the connection between materials prices and relative dollar value? Can we make any sensible connection in the case of oil?
A: OPEC, they certainly have a fair amount of market power, and one theory for the current market price of oil is that they really have a "30 euro a barrel" target ... i.e. the oil sheiks want to keep the price of their summer vacations in Europe constant, in terms of oil. That argument probably has an element of truth in it, though a bit of cold weather and evidence the global demand remains robust also seem to explain the recent run up.

If this 30 Euros a barrel theory is to be believed, and if we take in to account that dollar is most likely to continue its downward slide given the state of the trade deficits, then we might conclude that oil prices will indeed remain at 45-50 dollars per barrel for at least one more year. Very interesting. Stay tuned.

P.S. (02/24): From the FT:

Crude oil futures rose to a four-month high on Thursday after Saudi oil minister Ali Naimi said prices could stay between $40 and $50 a barrel for the rest of the year.
Mr Naimi told CNBC television: “Where the price is today, between $40 and $50, will probably be with us for 2005.” The comments by the Organisation of the Petroleum Exporting Countries’ lead producer will fuel fears that the tight supply-demand picture and high prices are here to stay.

Traders and analysts are divided over the likely length of the current rally, with some predicting it as a short-term symptom of the cold snap and others warning that the supply-demand outlook is fundamentally tight.

This may be an admission that OPEC has now agreed to stop worrying unless oil prices either drop below 40 dollars a barrel or rise too much above 50 dollars a barrel. It may, however, also be an admission that the supply is really in a very tight position, and continued strong demand and other trouble mean that OPEC does not have much control over where the prices are going.

CERAweek and CERA's oil production forecast

2005-02-22T22:35:00.000-05:00

CEAR held it's annual conference last week. On CERA's website, you can listen to David O'Reilly's interview with Dan Yergin. On the oil day, CERA released it's tally of oil production capacity by 2010. It is hard to believe a 20% increase in capacity in the next five years, but CERA has been consistently saying that.