Countries By Peak Oil Date – 2011 Data Update

January 21, 2012 at 11:18 pm · Filed under Energy, Geopolitics ·Tagged , , , ,

In 2009 I wrote a post in which I compiled a comprehensive list of the world’s oil producing nations by peak-oil status, based on BP’s annually-released Statistical Review of World Energy. I’ve updated that list here using the data released in 2011, which includes production data through 2010. The new list shows that several more countries have either passed peak production or are currently stuck on a production plateau. Here is the data:

Country Peak Prod % Off Peak 2010 Prod Peak Yr
US 11,297 -33.5% 7,513 1970
Venezuela 3,754 -34.2% 2,471 1970
Other Middle East 79 -52.2% 38 1970
Libya 3,357 -50.6% 1,659 1970
Kuwait 3,339 -24.9% 2,508 1972
Iran 6,060 -30.0% 4,245 1974
Romania 313 -71.5% 89 1976
Indonesia 1,685 -41.5% 986 1977
Trinidad & Tobago 230 -36.6% 146 1978
Iraq 3,489 -29.5% 2,460 1979?
Brunei 261 -34.0% 172 1979
Peru 196 -19.8% 157 1980
Tunisia 118 -32.7% 80 1980
Other Europe & Eurasia 12,938 -97.1% 374 1983
Other Africa 241 -41.0% 143 1985
Russian Federation 11,484 -10.6% 10,270 1987
Egypt 941 -21.7% 736 1993
Syria 596 -35.4% 385 1995
Gabon 365 -32.8% 245 1996
Argentina 890 -26.9% 651 1998
Uzbekistan 191 -54.5% 87 1998
Colombia 838 -4.5% 801 1999?
United Kingdom 2,909 -54.0% 1,339 1999
Australia 809 -30.5% 562 2000
Norway 3,418 -37.5% 2,137 2001
Oman 960 -9.9% 865 2001?
Yemen 457 -42.2% 264 2002
Other S. & Cent. America 153 -14.2% 131 2003
Mexico 3,824 -22.6% 2,958 2004
Denmark 390 -36.0% 249 2004
Malaysia 793 -9.7% 716 2004?
Vietnam 427 -13.5% 370 2004
Italy 127 -16.4% 106 2005
Saudi Arabia 11,114 -10.0% 10,007 2005?
Chad 173 -29.7% 122 2005
Equatorial Guinea 358 -23.5% 274 2005
Nigeria 2,499 -3.9% 2,402 2005?
Ecuador 545 -9.1% 495 2006?
United Arab Emirates 3,149 -9.5% 2,849 2006?
Algeria 2,016 -10.2% 1,809 2007
Angola 1,875 -1.3% 1,851 2008 / Growing
Other Asia Pacific 340 -8.2% 312 2008?
Canada 3,336 - 3,336 Growing
Brazil 2,137 - 2,137 Growing
Azerbaijan 1,037 - 1,037 Growing
Kazakhstan 1,757 - 1,757 Growing
Turkmenistan 216 - 216 Growing
Qatar 1,569 - 1,569 Growing
Rep. of Congo (Brazzaville) 292 - 292 Growing
Sudan 486 - 486 Growing
China 4,071 - 4,071 Growing
India 826 - 826 Growing
Thailand 334 - 334 Growing
Peaked / Flat Countries Total

64,182 78.2% of world oil production
Growing Countries Total

17,912 21.8% of world oil production

This analysis shows that since 2009, a considerably larger proportion of the world’s total oil production is occurring in countries that may be at or past peak production. Only 12 countries are definitely still pushing oil production past previous highs. Saudi Arabia is a bit of a question mark – it produced 10% less than its peak year (2005) in 2010, but claims that it has ample spare capacity and reserves to push beyond the old highs.  The 2010 data may also suffer from the after-effects of the financial crisis, although world oil prices and production did rebound sharply in late 2009 and 2010. While the 2012 data will show higher total world production, will they show increasing reliance on a shrinking number of growing producers?

[1] Here is my spreadsheet, based on the BP data. All production numbers in the table above are expressed in thousands of barrels of oil per day.

[2] The original 2011 BP Statistical Review of World Energy spreadsheet can be found here.

[3] As in the first version of this list, a country must be 10% below peak production, and its peak must have occurred more than five years in the past, to be considered as having peaked.

[4] The notes in the original list still apply for the following countries: Russia, Malaysia, Other Africa, Nigeria, Chad, and Ecuador.

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US State Economic Rankings

January 1, 2012 at 11:09 pm · Filed under Business, Economics, Policy, Politics ·Tagged , , ,

I previously wrote a comparion of California and Texas, in which I noted that Texas was superior in terms of unemployment rate and employment growth, while Californians experience higher per-capita GDP growth. That got me thinking – why not create a more comprehensive comparison of US state economic rankings? I’ve done so here, using four variables: GDP growth, per-capita gdp growth, unemployment rate, and employment growth rate. With two variables measuring different aspects of growth, and two measuring employment prospects, I think this is a reasonably fair approach (Gladwell’s caveats on heterogenous rankings duly noted). Here are the rankings, followed by the raw data:

Rank State / District Avg GDP Growth Avg GDP / Capita Growth Avg Unemp. Rate Avg Employment Growth Rate Total Score
1 North Dakota 6 1 1 12 20
2 South Dakota 4 2 2 13 21
3 Wyoming 2 3 6 14 25
4 Idaho 1 7 17 9 34
5 Virginia 10 12 7 7 36
6 Arizona 5 19 32 1 57
7 Utah 8 34 14 2 58
8 Maryland 13 11 11 25 60
9 New Hampshire 19 15 5 22 61
10 Vermont 23 9 8 24 64
11 Colorado 9 21 25 10 65
12 New Mexico 18 24 19 11 72
13 Montana 25 20 10 20 75
14 Oregon 3 4 50 19 76
16 Nebraska 27 16 3 31 77
16 Texas 11 32 30 4 77
17 Iowa 26 13 9 33 81
18 District of Columbia 17 6 46 15 84
20 Kansas 30 22 16 18 86
20 Washington 16 28 39 3 86
22 Minnesota 20 17 15 35 87
22 New York 21 5 31 30 87
23 Oklahoma 28 23 12 28 91
24 Florida 14 37 34 8 93
25 Massachusetts 22 8 22 42 94
26 Connecticut 32 18 21 26 97
27 Nevada 7 51 45 5 108
28 Arkansas 31 33 28 17 109
29 California 12 10 49 39 110
30 North Carolina 15 39 41 21 116
31 Maine 38 25 18 37 118
32 Hawaii 39 42 4 34 119
33 Delaware 24 41 13 44 122
35 Louisiana 46 29 20 32 127
35 Rhode Island 33 14 40 40 127
37 Georgia 29 49 33 23 134
37 Pennsylvania 44 26 26 38 134
38 New Jersey 40 30 29 36 135
40 Alabama 34 31 24 48 137
40 Alaska 42 46 43 6 137
41 Tennessee 35 43 37 27 142
42 Wisconsin 41 38 23 43 145
43 South Carolina 37 48 48 16 149
44 West Virginia 47 27 27 49 150
45 Indiana 36 36 35 50 157
46 Kentucky 48 44 44 29 165
47 Illinois 45 40 42 41 168
48 Mississippi 43 35 47 45 170
50 Missouri 49 47 36 47 179
50 Ohio 50 45 38 46 179
51 Michigan 51 50 51 51 203

The rankings show, unsurprisingly, that states riding the commodity boom (the Dakotas, Wyoming, etc) and states riding the government boom (Virginia, Maryland) have performed well over the last decade. But other high-performers like Arizona, New Hampshire, Vermont, and Colorado defy easy categorization. The low performers are predominantly found in the Southeast and Midwest.

The raw data used in the rankings is provided below. Here is a link to the actual excel spreadsheet containing all data for those interested.

State Avg GDP Growth Avg GDP / Capita Growth Avg Unemp. Rate Avg Employment Growth Rate
Alabama 1.81% 1.10% 5.84 -0.59%
Alaska 1.57% 0.37% 7.04 1.09%
Arizona 3.83% 1.41% 6.21 1.74%
Arkansas 1.98% 1.07% 5.94 0.50%
California 2.99% 1.89% 7.55 -0.19%
Colorado 3.16% 1.36% 5.86 0.70%
Connecticut 1.97% 1.46% 5.75 0.16%
Delaware 2.26% 0.85% 5.04 -0.38%
District of Columbia 2.50% 2.01% 7.35 0.55%
Florida 2.73% 1.03% 6.32 0.79%
Georgia 2.02% 0.19% 6.24 0.30%
Hawaii 1.66% 0.73% 4.24 -0.02%
Idaho 3.95% 2.00% 5.46 0.74%
Illinois 1.37% 0.96% 6.92 -0.25%
Indiana 1.70% 1.03% 6.33 -0.73%
Iowa 2.20% 1.78% 4.54 0.01%
Kansas 1.98% 1.35% 5.39 0.40%
Kentucky 1.23% 0.50% 7.04 0.09%
Louisiana 1.34% 1.13% 5.74 0.04%
Maine 1.67% 1.23% 5.53 -0.14%
Maryland 2.76% 1.86% 4.96 0.20%
Massachusetts 2.35% 1.94% 5.77 -0.26%
Michigan 0.12% 0.06% 8.25 -1.63%
Minnesota 2.39% 1.53% 5.29 -0.03%
Mississippi 1.56% 1.04% 7.51 -0.49%
Missouri 1.04% 0.34% 6.33 -0.55%
Montana 2.20% 1.36% 4.77 0.35%
Nebraska 2.18% 1.54% 3.76 0.07%
Nevada 3.37% -0.01% 7.32 1.14%
New Hampshire 2.45% 1.64% 4.39 0.30%
New Jersey 1.64% 1.11% 6.09 -0.10%
New Mexico 2.46% 1.27% 5.62 0.70%
New York 2.35% 2.05% 6.14 0.09%
North Carolina 2.71% 0.97% 6.91 0.33%
North Dakota 3.79% 3.49% 3.44 0.63%
Ohio 0.56% 0.38% 6.79 -0.53%
Oklahoma 2.16% 1.31% 5 0.12%
Oregon 3.89% 2.70% 7.63 0.39%
Pennsylvania 1.51% 1.21% 5.91 -0.15%
Rhode Island 1.95% 1.73% 6.91 -0.23%
South Carolina 1.68% 0.25% 7.53 0.54%
South Dakota 3.84% 3.10% 3.71 0.61%
Tennessee 1.79% 0.66% 6.6 0.14%
Texas 3.01% 1.08% 6.12 1.22%
Utah 3.18% 1.06% 5.11 1.48%
Vermont 2.29% 1.92% 4.52 0.28%
Virginia 3.07% 1.80% 4.41 1.08%
Washington 2.51% 1.15% 6.86 1.23%
West Virginia 1.31% 1.17% 5.91 -0.70%
Wisconsin 1.62% 1.02% 5.81 -0.34%
Wyoming 3.93% 2.79% 4.4 0.60%

Notes on ranking construction:

  • If it’s not obvious, the total ranking for each state was determined by simply summing its rank in each category, and then ranking the states by total score, with lowest being best. While this method weights each category ranking equally, it may penalize some states which perform as numerical outliers in certain categories but not in others. On the other hand, the overall rankings pass the smell test – if anyone sees an egregious error caused by the methodology, let me know. This is V1!
  • The GDP growth data used the period from 1997-2010, which was the best data set easily available from the BEA (Bureau of Economic Analysis). The employment data used the period from Jan. 2001 through October 2011. These periods obviously don’t align exactly – but given the nature of the analysis (heterogenous ranking), I chose to go with best available data rather than with exactly matching time periods. Matching the time periods would have reduced the data available to 2001-2010, eliminating both some of the late 90′s boom and the current recovery.
  • Even given the caveats above, all states (plus DC) were ranked using the exact same data sets, and the combination of categories prevents (in my view) bias towards either a growth orientation, an income orientation, or an employment orientation. Others may disagree – heterogenous ranking systems are by nature somewhat subjective (in the choice and weighting of data used), and I thus provide all the raw data so that you can draw your own conclusions.

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Was Cash For Clunkers A Success?

November 2, 2011 at 8:02 pm · Filed under Business, Economics, Policy ·Tagged , , , ,

Far from failing, the CARS Program may have been the highest ROI investment made by the Federal government in years.

The passage of time has brought much ridicule to the Cash For Clunkers program, which was intended to boost auto sales and raise the average fuel efficiency of American vehicles. The data show that the program led to a temporary spike in automobile purchases, prompted by a subsequent decline. This has led most to conclude that the program was a failure, as it did little to jump-start economic recovery.

But what about the other goal? Did Cash For Clunkers raise the average fuel efficiency of the American auto fleet? How much less gasoline have Americans purchased as a result of the program, and does this savings outweigh the program’s cost?

Here are some statistics from the Department of Transportation’s CARS Report to Congress:

  • 677,842 vehicles were turned in under the CARS program
  • $2.85 Billion was paid out in rebates for these vehicles
  • New vehicles purchased had an average MPG of 24.9
  • Old vehicles turned in had an average MPG of 15.7
  • $2.8 Billion in fuel savings based on the early retirement of less efficient vehicles

The report also estimates that roughly half of the sales spurred by the program were incremental sales that would not have occurred otherwise. Edmunds.com performed a more conservative analysis showing that only 125,000 incremental sales occurred as a result of the program.

Using Edmunds’ more conservative 125k number, and an average sales price (after rebate) of roughly $25,000, Cash for Clunkers generated $3.125 Billion in incremental vehicle sales. These incremental sales added directly to US GDP, and this more conservative analysis shows less than half the economic impact of $7 Billion estimated by DOT.

Combining the fuel savings and GDP benefit yields a total benefit to American taxpayers of roughly $6 Billion for a program that cost the government roughly $3 Billion to operate! If only more government programs could fail like this!  Even using the more conservative fuel savings calculations provided below, the program would have provided over $5.5 Billion in benefit against a $3B investment. Far from being shut down, the Cash for Clunkers program should have been expanded.

 

Alternate calculation of fuel savings from junking old vehicles:

0. By junking an old vehicle and taking it off the road, you are permanently increasing the fuel economy of the American vehicle fleet – this is the source of savings for the American economy. Since 100% of marginal US oil consumption is provided by foreign sources, a dollar of oil saved is a dollar added to GDP (since imports actually subtract from GDP as we send money overseas).

1. Assume that the old vehicle would be driven for an additional 50,000 miles over its lifetime (CARS survey respondents said they averaged 10k miles per year on their old vehicles, so even with gradual declines this is reasonable).

2. The old vehicles got an average of 15.7 MPG, requiring roughly 3200 gallons of gasoline over that 50k miles.

3. The new vehicle got an average of 24.9 MPG, requiring 2000 gallons of gasoline over the 50k miles that they replaced.

4. The difference of roughly 1200 gallons of gasoline equates to roughly $3600 per vehicle (assuming $3 per gallon excluding taxes). With roughly 680k vehicles in the program, this equals a fuel cost savings of $2.5 Billion – a slightly more conservative estimate than that computed by DOT.

 

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A One-Line Fix For Medicare Spending

September 3, 2011 at 10:54 pm · Filed under Health Care ·Tagged , , , , , ,

My one-line Medicare / Medicaid spending fix:

Medicare should continue to pay 80% of health care costs for recipients’ care below $40,000 per calendar year, but should pay only 50% of health care costs above $40,000 per calendar year.

With the ongoing debt-ceiling debate and political discussions over how to cut spending dominating discourse, I thought I’d chime in with a simple plan to fix America’s long term budget crisis. The majority of America’s future budget deficits are a result of runaway growth in health care spending, despite reductions in Medicare spending put in place with the recently passed health care reform. Paul Ryan and other conservatives propose to fix this by ending the Medicare program, and replacing it with an insurance-voucher scheme. President Obama proposes to control cost growth through the IPAB, a board with the power to control Medicare reimbursement policies.

My plan is far simpler than either, and will preserve Medicare as it exists today for 90% of recipients. How does this plan work? Kaiser Foundation research shows that 90% of Medicare recipients receive less than 40k per year in health care. The remaining 10% of recipients actually spend 60% of the Medicare budget. The proposed change would require these recipients to either shoulder more of the cost of expensive treatments, or to utilize less expensive treatments. Note that Medicare would not leave any recipient high-and-dry, but it would require even cost sharing for expensive treatments.

When faced with higher cost-sharing, many Medicare recipients would opt not to receive the newest cancer drugs, or the latest titanium hip replacement. It’s also quite likely that when faced with this two tier reimbursement structure, many health care providers would change treatments and pricing to stay competitive within the new structure – there’s evidence that today, health care providers charge Medicare what they do simply because Medicare will pay.

How much money would the proposed change save? Assuming that most spending above the $40k mark is eliminated [1], then Medicare and Medicaid might save $200B in the first year alone. This kind of change would also reduce health care cost inflation, since high-cost care would be curtailed significantly. It’s quite likely that this change would completely eliminate Medicare’s unfunded liability, without changing the program significantly for the majority of beneficiaries. But clearly this is too simple and non-ideological a change to stand a chance [2]!

[1] According to CMS, in 2011 total Medicare and Medicaid spending will total $1 Trillion. If my proposal to cut government cost sharing to 50% above 40k eliminated most spending above the 40k line (since many Medicare patients would not be able to pay their increased share above 40k), then the federal government would save half of the money expended above the 40k line. In 2006 the average expenditure for the high spenders in Medicare was $48k – in 2011 this would likely be over $60k per year with inflation and cost growth totaling 5% per year. Assume that the entire 20k per year above the 40 line were saved – that would mean that the high spenders’ health care expenditures would be reduced by 33%, reducing total government health care expenditure by 20% (one-third of the 60% spend on these expensive patients).

[2] I should note that this plan would leave some patients with expensive conditions to make difficult choices. By ending the endless spigot of government health care money, 10% of current beneficiaries would have to decide whether they could afford to have certain expensive procedures. But patients, not regulators, would be able to decide – the patients would simply be required to pay an even share for expensive treatment.

[3] In actual implementation, such a plan would have to be phased in. For instance, Medicare could initiate a 1 percentage point reduction in cost-sharing for each of the next thirty years, gradually moving from 80% to 50% for expenditures over the threshold.

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California vs Texas

July 9, 2011 at 9:03 am · Filed under Economics, Policy, Politics ·Tagged , , , ,

Conservatives and Texas boosters have been gloating of late that Texas has outperformed California economically of late – so why is California’s per capita GDP growth higher?

It has become fashionable in conservative circles of late to use Texas as a glowing example of the success of conservative economic policy, and to use California as an example of the failures of liberal economic policy. Texas has indeed recorded faster GDP growth and lower unemployment than California in recent years. Texas has also experienced rapid population growth of late. Its core industry (energy) has boomed with global oil prices, but Texas’ diversified economy has performed well across multiple sectors. Conservative politicians in Texas and nationwide point to low taxes and a friendly regulatory environments as the reasons for success.

Let’s look at some numbers to get a clearer comparison [1]:

Texas California
Total GDP Growth, 1997-2010: 46.6% 45.8%
Per Capita GDP, 2010: [2] $48,196 $52,631
Total Per Capita GDP Growth, 1997-2010: 12.6% 28.5%
Unemployment Rate, May 2011: 8.0% 11.7%

While raw GDP growth is important, per capita GDP and per capita GDP growth are much more important to the well-being of citizens (Luxembourg is a nicer place to live than China). On both these measures, California is significantly ahead of Texas. Since 1997, California’s per capita GDP growth has exceeded Texas growth – while California and Texas were once similar in per-capita GDP, the gap is now widening in California’s favor, not shrinking! If Texas is doing everything right, and California everything wrong, then why is California’s economy becoming wealthier relative to Texas?

The answer to this question isn’t simple – California’s dominance in high tech, media, and other high-paying industries may be partly responsible. While California’s state government is near paralysis, and its referendum system has complicated governance, it possesses perhaps the finest public academic institutions in the world in the University of California system. California’s government may be dysfunctional, but it’s inaccurate to describe the state in the same terms.

Conservatives and Texas politicians should take note – if the Texas way is better, why is California still pulling away? The reality is that the best economic model is somewhere in-between – but what politician would support both strategic public investment and leaner public spending? That’s too complicated for a sound bite.

[1] Download the data used in this analysis at the BEA. From the download page, select Per Capita Real GDP by State, All states and regions, All industry total, and All years from the respective drop-downs.

[2] Per-capita GDP for 2010 was calculated by taking the data from step [1], which is expressed in terms of 2005 dollars, and adjusting it to 2010 values using CPI as indicated on measuringworth.com (multiplying the 2005 values by 1.12).

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Will Solar Power Meet World Electricity Demands?

May 10, 2011 at 2:32 pm · Filed under Economics, Energy, Environment ·Tagged , , ,

Proponents have looked to solar power as a potential panacea to the world’s current and future energy needs, while critics note that solar power still provides less than 1% of the world’s electricity. While wind power has grown to scale much faster, conventional wind technology has much less capacity to scale than solar power, and the theoretical limits on solar power are significantly higher [1]. When might solar power fulfill the hype and generate much of our electricity? Solar energy has grown at a rapid clip since its infancy in the 1970′s, from 0 to 20GW (nameplate capacity) in 2009. How much of worldwide electricity demand will solar be able to fulfill if it maintains this growth rate?

Total solar power capacity continues to grow at 20-25% per year, a rate of growth it has maintained for decades. It’s not surprising that solar photovoltaic technology is advancing rapidly, as it is a cousin of traditional semiconductor technology. For almost four decades semiconductor technology advanced according to Moore’s Law, with chips roughly doubling in transistor density (and speed) every 18 months. At a 20% annual rate of growth, installed solar capacity would rise from 21 GW in 2009 to almost 6000 GW by 2040. This install base could generate 12 trillion kilowatt-hours of electricity per year, or two-thirds of today’s worldwide electricity consumption [2]. However, the EIA estimates that by 2040 worldwide electricity demand will hit 35 trillion kilowatt-hours!

Even assuming that solar energy installations grow at a 20% clip for three decades, the total install base will not be sufficient to meet world energy demands. Despite the industry’s rapid growth, replacing a hundred years of fossil-fuel based generation capacity by mid-century may be close to impossible. Nonetheless, if solar energy manages to scale on this trajectory, its contribution would still be enormous, and would likely bring total renewable generation to over 50% of all electricity.

Can it be done? Did anyone in the 1960′s believe that a 2010 phone would have more processing capacity than all the world’s computers combined?

[1] From Without The Hot Air – all wind power resources worldwide could supply a significant fraction of total power needs, while solar energy in the Sahara alone could theoretically supply all world energy needs.

[2] The EIA International Energy Outlook shows current worldwide electrical demand of roughly 18 trillion kilowatt-hours, with this figure growing to 35 trillion kWh by 2035.


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Are Superbowl Ads Worth It?

February 15, 2011 at 5:09 pm · Filed under Business ·Tagged , , , , ,

The recent Superbowl win by the Packers was watched by a record number of viewers, and the advertising time was priced to match, with 30 seconds retailing for roughly $3 million. While the Superbowl is one of the few remaining media events with a true nationwide draw, do those ads represent a good value for advertisers?

On one hand, Superbowl ad inventory consistently sells out, and the market thus speaks to the ads’ value. But what about a comparison with other TV ad time? How do Superbowl ads compare on a CPM basis?

Here are the statistics from a 2007 blog post entitled The Ad Man Answers #4:

Super Bowl TV:  $2,600,000 per spot / 93,890,400 x 1,000 = $27 CPM
Columbus newspaper: $6,680 per insertion / 231,881 x 1,000 = $29 CPM
San Fran KFOG radio: $900 per spot / 104,864 x 1,000 = $9 CPM
Ent Weekly magazine: $72,025 per week/ 6,162,853 x 1,000 = $12 CPM
LA freeway billboard: $20,000 per month / 5,640,000 x 1,000 = $4 CPM

This year’s Superbowl was priced similarly, with 111 million views for $3 million, or a CPM of $27.02.

The Ad Man also provides the following general CPM statistics:

Typical Advertising CPMs
Outdoor = $1-5 CPM
Cable TV = $5-8 CPM
Radio = $8 CPM
Online = $5-30 CPM
Network/Local TV = $20 CPM
Magazine = $10-30 CPM
Newspaper = $30-35 CPM
Direct Mail = $250 CPM

Based on these metrics, Superbowl ads look to be quite a reasonable buy, particularly for advertisers that want to reach a broad swath of American consumers. With the NFL at an all-time high in ratings and interest, and Superbowl ads having become their own phenomenon, it’s no wonder that advertisers line up to take part!

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Hybrid Economics Part II

February 6, 2011 at 2:05 pm · Filed under Business, Economics, Environment ·Tagged , , , ,

In part I of this post, I outlined a number of variables that impact the cost-benefit of buying a hybrid-electric vehicle.

First, the spreadsheet model.

To recap, here are the variables included in the model, with the default assumptions made:

  • Price of gasoline = $3/gallon
  • Annual mileage driven = 12k/year
  • Standard-car MPG (mileage of the same car or similar car without hybrid technology) = 20mpg
  • Hybrid MPG / electric MPGe = 100 mpge
  • Risk-free discount rate = 3%
  • Projected annual increase in gasoline prices = 5%
  • Hybrid price premium = $18k
  • Length of car ownership = 8 years

There’s one more important variable to add to this list:

  • Time savings from reducing gas station stops = 300 minutes, or 5 hours per year

Time savings can be a huge hidden savings for upper-middle class and wealthy Americans (those able to afford a car like the Chevy Volt). If the value of a Volt driver’s time is $50/hour (equivalent to a 100k/yr salary), then eliminating a single gas station stop of 10 minutes is worth over $8. Ten minutes may sound long for a stop at the gas station, but is not unrealistic when considering total time lost leaving and re-entering a normal commute.

Using the assumptions provided above, we find that the total fuel and time cost savings of driving a Chevy Volt for eight years are around $9000. Since the Chevy Volt costs $18,000 more than a comparable loaded Chevy Cruze, it’s not yet cost competitive, even with government tax credits and with time savings taken into account.

Key Conclusions:

  • Gas prices of $7 per gallon are required to make the Chevy Volt cost-effective at current prices (without the government tax credit)
  • Once plugin hybrid premiums drop to $9000, they will be cost-competitive.
  • The Nissan Leaf currently offers buyers significant savings WITH the $7500 tax credit, as the total savings of $16,500 exceeds the $12,000 price premium. Even without the tax credit, the Leaf is very close to being cost-competitive at current pricing.

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The Inflation of Gold

February 4, 2011 at 7:24 pm · Filed under Business, Economics ·Tagged , , , , , , ,

Note: I originally published this on HiddenLevers.com

There are gold bulls, and there are gold bears. There are those who will tell you gold is going to $6000, and those who will tell you it’s going to $600. The reality will depend in no small part on how major macro events unfold over the next several years (see a couple of gold-moving scenarios at bottom). What I’d like to focus on here is the dynamics of gold supply and demand, in order to introduce the notion that gold itself has a rate of inflation. Just as a rising US money supply can breed inflation in the broader economy, a rising gold supply can breed “inflation” in gold, meaning that gold’s purchasing power (its price) can drop in dollar terms.

US Money Supply

The St. Louis Federal Reserve does an excellent job of tracking the money supply through its Adjusted Monetary Base, which sums up the various components in the money supply to create a single metric. Their latest research shows that the Adjusted Monetary Base did indeed climb rapidly during the tail end of the recession, but that it is now showing zero growth. The velocity of money has yet to recover to pre-recession levels as well, which explains why the 2008/2009 money drop by the Fed did not cause broader inflation.

Gold Supply and Demand

First, gold supply: the World Gold Council reports that mine production has averaged 2497 tonnes per year over the last five years (see the text in supply section of article). This amounts to a 1.5% annual increase in physical gold stocks. While 57% of this gold is used in jewelry, and 11% goes to industrial uses, a key feature of the gold market is that gold is never destroyed. Other commodities like oil are constantly being consumed – hence fears about peak oil, or potash shortages. But since gold is never destroyed, gold demand must constantly rise to account for both increased mining production and increased total stocks. Currently, investment demand is the key driver of gold prices – while both jewelry and industrial gold demand can be met by current mining production, investment demand is being met only through increased gold recycling.

Gold vs USD

Long term gold charts show that previous gold rallies occurred in the context of high inflation. The current rally has occurred with an absence of high inflation, as the CPI crossed 5% only once in the last decade. Back to the original idea – the world’s gold supply is rising faster than the US money supply at the moment. If this situation persists, then a gold collapse is inevitable, as gold’s inexorable supply increase couples with a stable dollar to push gold prices down. Clearly gold bugs believe the opposite: that inflation will come roaring back, and that dollar money supply will explode. But anything less, and gold prices are likely coming back to earth.

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Hybrid Economics Part I

December 29, 2010 at 1:03 am · Filed under Economics, Energy, Environment ·Tagged , , , , ,

With the arrival of the Chevy Volt and Nissan Leaf, and plans for many more hybrid and electric vehicles in the works, I’d like to revisit the cost-benefit of purchasing a hybrid (or electric) vehicle. Externalities* (pollution) and cool-factor aside, a hybrid vehicle is a cost-effective purchase only if the total present value of gasoline savings equals the price premium paid for hybrid technology. A number of factors impact the calculation:

  • Price of gasoline
  • Annual mileage driven
  • Standard-car MPG (mileage of the same car or similar car without hybrid technology)
  • Hybrid MPG / electric MPGe
  • Risk-free discount rate
  • Projected annual increase in gasoline prices
  • Hybrid price premium
  • Length of car ownership

In part II of this post, I’ll attach a detailed spreadsheet to analyze this problem. But it’s possible to come up with a quick best-case estimate without a whole lot of math. Assume that gas costs $3 a gallon, that we drive 15,000 miles per year, that a comparable non-hybrid gets 30 MPG, and that the risk-free discount rate (currently in the 3% range) and gas price inflation roughly cancel out. In a year we’ll have to buy 500 gallons of gas for $1500. If we own the car for eight years, that makes $12,000 in maximum possible gas savings – if the hybrid were to use no fuel at all!

The Chevy Volt and Nissan Leaf both appear to cost significantly more than $12,000 above vanilla gasoline competitors. At $40,280, the Chevy Volt is more than 18k more than a loaded Chevy Cruze, and that’s with GM selling at a loss! The Nissan Leaf is similarly 15k more than a maxed-out Nissan Versa. Perhaps this is not surprising, as new technology often commands a price premium, and early adopters may be happy to pay that premium.

In Part II I’ll introduce the complete model, and add one more variable that may tip the balance back in hybrids’ favor. Stay tuned…

 

*Why leave out externalities like pollution from the analysis? True externalities are outside the traditional economic transaction, and so a car buyer doesn’t take them into account when making a purchasing decision. In reality, a large number of hybrid buyers purchase the vehicles precisely because they value the environmental benefits of the vehicle. But in order to scale past that crowd, hybrids will have to be cost-effective for the rest of consumers – so it makes sense to leave this out environmental benefits here.

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