Category: Energy

Can Fuel Efficiency Save Us From Peak Oil?

With gas prices rising daily, Americans are focusing on energy issues of late, and Peak Oil is beginning to enter the common lexicon. Peak oil represents the moment of peak oil production on Earth, after which oil production will plateau and eventually decline. This does not mean that poof – one day the oil is all gone! Rather, it means that oil production growth will slow, and eventually become negative, causing ever higher oil prices until or unless demand also declines.

Many prognosticators now believe that an oil production peak is imminent or has already occurred. While optimists predict production growth for decades to come, and pessimists believe that oil production will soon crash, many forecasts suggest that oil production will soon plateau for a period before beginning to decline. This will indeed be the case if new oil exploration projects just manage to replace declining production in aging fields.

Can the world economy continue to grow if constrained by oil production of 85M barrels per day? The EIA (Energy Information Administration) has estimated that oil demand will grow to 120M barrels per day by 2025, with two-thirds of this total expected to be used for motor transport. These estimates are created using estimates of growth in total vehicle ownership and usage. But what about fuel efficiency? Worldwide vehicle fuel efficiency averages around 20 mpg today; what if this number could be doubled by 2030 using the latest technologies? Doubling worldwide fuel efficiency would reduce demand in 2030 from 120M barrels/day to 80M barrels/day, enabling significant growth in worldwide vehicle usage while keeping oil demand below current consumption! This assumes no fuel efficiency gains in industrial and other oil uses.

Hybrid cars on the market today get in excess of 40 mpg, and new innovations like the Toyota Prius plugin modification (100+ mpg) and the coming VW Golf diesel hybrid (70mpg) push the boundaries much further. Buses, trucks, and other large vehicles are also joining the party, with major shippers like Fedex and UPS acquiring efficient vehicles for their fleets. The lifespan of the average vehicle is 16 years in the US today, so it will take time for high oil prices to cause a worldwide fleet turnover. But the the market signal of high oil prices is unmistakable, with manufacturers like Ford announcing cutbacks in SUV production and a focus on smaller vehicles. And if fuel efficiency can get us from today to 2030, that buys a lot of time for an economic transition to more long-term energy sources.

Posted on by praveenghanta 1

How much will gas cost in 3 months?

This question is actually fairly easy to answer. If we look at wholesale gasoline futures prices, we can see with pretty good accuracy what wholesale gasoline will cost in a month or two. It takes a couple of weeks (or longer) for wholesale gasoline to make it to your local gas station, so that we can look out and see mid summer gasoline prices today.

Take a look at Bloomberg’s Energy Prices page, and you’ll see that NYMEX gasoline futures are trading at just under 3 dollars (297 cents) as of April 18th, 2008.

On average, federal and state governments add another 47 cents in taxes to this figure. The federal government adds 18.4 cents in taxes, and each state’s total gas tax is listed here.

Gasoline storage, distribution, marketing, and retail markup add a bit more than 10%, or 30-35 cents to the final price.

All told, that means that $3.80 regular unleaded is on the way for the summer in low tax states, with gas just over $4 in California, Nevada, and other states with higher gas taxes.

But don’t think I’d have it any other way – just as in the late 70’s, high gas prices will be Americans’ best incentive to ditch their gas guzzlers and start conserving.

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Return on our Iraq Investment

As the fifth anniversary of the start of the Iraq war comes and goes, the Bush administration touts the success of the “surge” in American force levels begun last year, while those opposed to the war point to a litany of failures to denounce the entire enterprise. Both the administration and presidential hopeful John McCain contend that success in Iraq will pay huge dividends for future generations. Which side is right, and how can we measure the true cost (and benefits) of our Iraq engagement?

An estimate of the Iraq War’s return on investment can measured by weighing estimates of its total cost against its current and projected future benefits. On the cost front, the most conservative measure of the cost of the war is $600 Billion, roughly the amount directly spent on the war over its first five years. The benefits of the war can be measured in terms of its effects on US national security, US political relations, US energy security, and potential social and economic benefits for Iraq.
Read the full entry (461 words) …

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Why are Oil Prices so High? An Energy Primer

10/21/2008 Update:Supply and Demand have now driven prices down significantly, as fears of a global depression, and reduced driving worldwide, have led to decreased use of oil. How significant was speculation in the runup to $147 oil? Certainly it played a part, just as speculation played a part in the dot com boom and the housing bubble. But oil is still up 700% from its lows around the turn of the century, and that’s due to the fundamentals explained further below.

05/22/2008 Update: As this article has become far and away my most-read, and since oil is now cruising towards $140 a barrel, I thought an update was deserved. For those without the time to explore the links below, oil is rising for a simple reason: oil production has not risen significantly since 2005, while demand for oil worldwide continues to rise rapidly. The simple law of supply and demand is moving oil prices up, and no number of Congressional hearings will change that.

With news of crude oil prices topping $110/barrel today, it’s no surprise that the price of gasoline and oil are once again on people’s minds. As an introduction, here are a few links on the global transportation energy (oil) situation today, and on various risks that we might face in the future.

What is Peak Oil? – This Wikipedia article on peak oil outlines the notion that oil production must someday hit a peak, since oil is a finite resource drawn from Earth’s crust.

Export Land Model – Jeffrey Brown, an independent oil geologist, and others at The Oil Drum provide insight into the effects of a simultaneous plateau or drop in oil production coupled with rapidly rising oil consumption in oil exporting countries. The ELM is a simple model that graphically illustrates some of the forces driving energy prices rapidly higher.
Read the full entry (271 words) …

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Tax Pollution, Not Work

How could it possibly be a bad idea? Environmental pollution is the largest single economic externality faced by modern market economies like the United States. Households and companies alike do not suffer direct costs for their pollution, and therefore have no incentive to curtail it. Meanwhile we all suffer its negative effects, which include increased rates of asthma and respiratory illness, and also include rising temperatures worldwide.
Read the full entry (365 words) …

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Gas Prices – and what ever happened to the gas guzzler tax?

Americans have been complaining about gas prices lately; recent polls have shown that high gas prices are their number one economic concern. Of course, high gas prices are driven by high oil prices, which are in turn driven by supply, demand, and a healthy premium to account for terrorism, hurricanes, and other delights. Demand has grown faster than supply lately, shrinking surplus capacity to a minimum. Many point outside our shores to emerging economies as the source of this growth. But no one likes to look inward, right?

Since the late 80’s, fuel economy in American consumer vehicles has decreased, while vehicle weight and performance have increased (the EIA has the details). Since American vehicles consume 20% of the world’s oil, our driving habits have a huge effect on oil prices. Since everyone seemed to want an SUV until recently, the increased demand eventually impacted gas prices. Another way to look at this: if average fuel economy got back to what we achieved in 1987, we would consume 2 million less barrels of oil per day, driving oil prices down significantly, and cutting our import requirements by 20%.

The federal government instituted a tax on inefficient vehicles – the “gas guzzler” tax – back in 1978. So why hasn’t it had any effect on the demand for inefficient vehicles? The gas guzzler tax doesn’t apply to trucks of any kind, so it doesn’t apply to SUVs and trucks even though they account for 54% of all US vehicle sales today! If you buy a Lamborghini, expect to pay up to $8000 in gas guzzler taxes; if you buy an 8000 pound Excursion, laugh at the other guy on your way out!

Extending the gas guzzler tax to apply equally across all vehicles would seem a logical start to encouraging conservation and decreasing oil dependency. Then again, I’m not aware of any lobbyists who get a paycheck for that, while I expect the auto industry has its forces lining up against this already…

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