Daily Archives: February 9, 2015

World Oil Price and Electric Vehicles

February 9, 2015Electric Cars, Energy and Climate Change, OpinionTrevor Larkum

LEVA’s Ed Benjamin enumerates the many reasons that plummeting oil prices will not only be short-lived, but that multiple other drivers will compel a shift to electric vehicles

As I write this, the price of Brent Light Crude is $51.35 / bbl. That is down from about $110 / bbl. 7 months earlier.

Filling a car, or an airplane, or a motorcycle, has become much more affordable.

It is easy to believe that this is a serious blow to electric vehicles. We have seen in the past that high fuel price helps move people, investment, and interest to electric vehicles of all sorts.

For many in the electric vehicle business, a high price for oil is a hoped for dream – that appeared to be occurring until last year.

Over the 150+ years of the world oil industry, there has been a repetitive cycle of rising and falling prices. Boom and bust for both oil men and their customers. It is easy to believe that 2014 was simply more of the same. That the high prices of 2008 would never come back, and that technology has solved the oil supply problems of the world. We can relax and keep on buying gasoline cars with confidence…

In my career, I have monitored the price of oil, read on the economics of the oil industry, and been oft surprised at the complex, seemingly mysterious events and contortions of the oil market due to the many forces that act on it.

So when the price of oil dropped so dramatically in 2014, surprising me once again, I looked a bit harder.

A premise that has been floated in the media, was that the Saudis had arranged to pull the price down to destroy the efforts of oilmen who were bringing oil sands, oil shales, and extensive fracking into production. These sources of oil (along with deep ocean wells) are MUCH more expensive sources of oil than the oil fields of the Middle East.

I have seen generalizations that it might cost $1-2 / bbl to find and extract oil from the Saudi wells compared to $70 / bbl for these more difficult sources.

So cheaper oil is still profitable to the Saudis, went the thinking, but discouraging of production, exploration and investment for oil sands, oil shales, fracking and deep ocean production.

Another idea that has some play is that advances in petroleum extraction technology have restored the USA to a nearly self sufficient level of production, and this, plus cheap natural gas, has pushed the price down.

These may be part, but not be the whole, or even the most important part of the story.

A key factor in oil price is the match between supply and demand.

Oil is produced in immense quantities, and then used in immense quantities.

Enough oil is produced every day to fill 600 average oil tankers. Add in the oil that is in motion at any one time…through pipelines, tankers, trucks, and there is a lot of oil requiring storage and transport. Think of it this way: If all oil moved by tanker (more moves by pipeline) and the average time for a tanker to make it’s destination and return was 20 days, then the world would need about 12,000 tankers plying the oceans just to keep the world moving. (But only about 4,000 tankers exist…)

The oil industry depends on smooth and reliable movement of oil from well to refinery to consumers at about the pace in which it is created and consumed. There is limited ability to deal with any sort of disruption, slow down, or sudden extra demand. (Since I live in Florida, I have had direct experience with this. When a hurricane caused shipments of oil to be postponed a few days, nearly every gas station in the southern half of the state was sold out of gasoline in about 30 hours.)

If the world is using 85 million barrels of oil per day…and the oil industry is producing very close to that amount per day….and then demand changes….the results can be dramatic.

If oil demand was only 1% less than production – the result would be about 850,000 extra barrels of oil EVERY day. There are not a lot of ways for the industry to store extra oil, and one way to think of this is that the extra oil would, in one month, fill about 150 average oil tankers swinging on their anchors with no place to take the oil. The oil storage facilities of the world are simply not big enough to handle such mismatches in production and demand.

Oil tankers anchored offshore (Image: EV World)

Such a mismatch exists today. Partly blamed on mistakes in projections of world use, partly due to the increased supplies coming in the USA.

Graphs of fuel consumption in the developed world show that, unlike expectations that there would be a steady growth in fuel consumption, today’s consumption is declining instead. This may have contributed to errors in planning of production.

This reduced consumption is attributed to cars with better gas mileage, reduced mileage being driven by Americans, and a less than stellar economy world wide.

Consumption in the developing world is both heavily affected by price, and is the primary driver of increased oil consumption world wide. Thus, high prices limit growth. Which combined with decreased consumption by the “high price” market, the slow down hit oil predictions hard.

So the oil price must drop until it is low enough to spur enough consumption to use all the oil being produced. Normally this would happen in combination with production being slowed and prices being kept relatively high – but in 2014, the Saudis did not decrease production, as they have in the past, keeping the mismatch going. So the price kept dropping. We can speculate that this will not continue for a long time, since every one in the oil business, including the Saudis, suffers from this big dip in revenue.

Something else to understand is that the world is currently using, mostly, oil that comes from huge oil fields that were discovered decades in the past. These fields could be tapped by drilling a well, and the pressure present in the oil field would push oil into the well in …. ever decreasing quantities as the field was depleted. And when the well was on land – even in a desert, it was vey convenient, and inexpensive to drill and transport. The discovery of such oil fields peaked in the 60’s and 70’s and the far fewer recent discoveries are in places that are… hard and expensive to reach.

The oil from such fields is what most refineries are designed to handle, and that is also very important. Refineries are designed to handle certain sorts of oil. When an oil is different, it may need to be shipped great distances to appropriate facilities. And refineries are multi billion dollar investments that are built rarely. (Most USA refineries were built in the 60’s and 70’s. )

These fields, near 1000 “giant” oil fields share some important characteristics. First, they are ALL in decline. Most of them are in politically unstable places. They have been worked as hard as technology and investment knows how, and there is probably not much that can be done to improve their decline in production. In the last decade, only about 75 new giant oil fields have been discovered, and except for the ones in the Arctic, they are in the same general areas as the existing fields.

New discoveries in oil supplies can be generalized as: Expensive, inconvenient, and often the wrong type of oil.

The USA consumers and much of the world are currently relaxing in the face of low gas prices. Overall, it is very good news as the vast amounts of money that are being saved by consumers is not only improving their lives, but is also being spent on goods an services instead of being stored in the accounts of sovereign wealth funds, or pockets of billionaires. This is a much needed help in today’s difficult economy.

But there are some issues that are not obvious.

Much of the increased oil production in the USA is lighter crude. Not only is that not the most useful or versatile oil, but is is refined by only a few plants.

Oil from oil sands and oil shales is energy intensive to extract and refine. While the technology changes all the time, at present there is avery large amount of energy required to extract oil from oil sands, as a percentage of the total energy that is created as usable fuels. There are some dramatic environmental costs associated with that. And this means that is is more expensive in many dimensions.

There is a dramatic increase in the production of natural gas in the USA. And the technology for this increase is expected to result in major increases in natural gas production world wide in coming years. NG is used in minor quantities for vehicle fuels, but very heavily for electrical generation. It has replaced some oil that was burned for electricity.

The extraction methods for this NG, and for the oil are controversial, with claims that there is substantial environmental damage – especially to water supplies.

New NG supplies have the primary effect of reducing the demand for coal. (And NG has fewer adverse environmental effects.)

Should we fear that the lower price of oil, no matter what the reason, will hamper the development and sale of electric vehicles?

My answer: Maybe a little.

I am not going to change my career, for I see this as a temporary factor, one that is good for consumers, and has limited long term effect on either human energy use, or on electric vehicles.

There are many reasons to expect a return to oil priced at more than $100 / bbl.

All the big oil fields are declining in production. This is not news, but is more and more apparent each year. This decline is substantial.

Discoveries do not keep pace with consumption

Newer sources of fossil fuels cost dramatically more to exploit than older ones. $70 / bbl is an oft citied floor for such sources. Many new discoveries will not be profitable until oil is even more expensive than that.

The expanded production in the USA is very light crude, and thought to be limited in quantity.

Many existing fields are in places that are in political turmoil, or bordered by such turmoil. War, sanctions, unrest, sabotage, neglected infrastructure, and other problems are found at the locations of perhaps half the world’s oil.

The economies of major oil producers (Russia is an example) depend on high priced oil. Russia is similar to Saudi Arabia in oil production quantity and they, and other producers, will strive to get the price back up. And even for the Saudi’s, higher oil prices are very good for their pockets.

The claimed reserves of any and all oil producers must be regarded as suspect. Over history, what the industry claims to have, often seems to be fiction.

They have had huge and sudden adjustments (usually downward) to what they claim to have available as taxes, quotas, and politics affect them. And in some cases (Saudi Arabia) their claims have never been audited by outside parties. Even the claims of USA oil and gas producers are controversial, with some voices predicting that the fracking and NG boom of today is going to be much shorter lived than the producers claim.

So, I predict, with confidence, that we will see $100/bbl oil again, and soon.

All of the oil producers are eager to see high priced oil as soon as possible. The economies of several nations depend on the revenues, and we can rely on them to find a way to increase the prices.

And the booms in energy production created by numerous new wells in existing fields, new methods of extraction and fracking are going to be short lived. Although it is hard to say exactly what that will mean. It could range from a few years to a few decades, but experts are saying it is more likely to be shorter than longer.

But…oil price is not the only driver for the electric two wheeler market. We do not depend on high priced oil as much as might be thought. (And keep in mind that $53.00 / bbl oil is low priced only compared to recent years. Not long ago (2000) we thought $12.00 /bbl was a reasonable price…)

I have come to believe that these drivers are much more important than the price of oil:

Humans all over the world are moving into bigger and denser cities. This is typified by 20 odd story apartment buildings standing a few meters apart, for many square kilometers. There is no need for a car since most daily services are within a short walk, and the workplace is reached by a metro or bus that can be reached on foot or bicycle. When 45,000 or more people live in a square kilometer, there is no room for big roads, no parking lots, no tolerance for noise or air pollution. Bicycles, electric bikes, and electric scooters are better choices.

People are starting to understand that electric vehicles are functional, affordable, reliable, and superior in many ways. This has been a lesson slow to be learned, but with Tesla the new status automobile, the Prius the suburban mom required vehicle, and electric vehicles of all sorts proliferating – the public gets it.

The world population is also aging. While we have some nations that are, on the average, quite young…many important nations have average ages that make them very interested in electric bikes as extenders of enjoyment and transportation.

Electric bikes for sport and recreation are now coming into their own. Electric mountain bikes, rental electric bikes at tourist destinations, touring on electric bikes instead of manual bikes are all important extensions of the product.

Government regulation encourages electric vehicles in many places, and in many ways.

Many people seek ways to reduce their personal carbon footprint. Electric vehicles are an affordable way for nearly anyone to do this.

As the developing world increases in wealth, many will buy cars. But many more will buy powered two wheelers. And today, the electric powered two wheeler is a viable competitor in many cases.

Air pollution is an important issue for much of humanity. Electricity for charging a two wheeler can easily come from a variety of renewable sources. Or from the existing grid. There is no “tail pipe” to dirty the air.

My conclusion: We face a bright future.

Source: EV World

Seize the day

February 9, 2015Energy and Climate Change, OpinionTrevor Larkum

The fall in the price of oil and gas provides a once-in-a-generation opportunity to fix bad energy policies

MOST of the time, economic policymaking is about tinkering at the edges. Politicians argue furiously about modest changes to taxes or spending. Once in a while, however, momentous shifts are possible. From Deng Xiaoping’s market opening in 1978 to Poland’s adoption of “shock therapy” in 1990, bold politicians have seized propitious circumstances to push through reforms that transformed their countries. Such a once-in-a-generation opportunity exists today.

Oil Mountain (Image: D. Bacon/Shutterstock/Economist)

The plunging price of oil, coupled with advances in clean energy and conservation, offers politicians around the world the chance to rationalise energy policy. They can get rid of billions of dollars of distorting subsidies, especially for dirty fuels, whilst shifting taxes towards carbon use. A cheaper, greener and more reliable energy future could be within reach.

The most obvious reason for optimism is the plunge in energy costs. Not only has the price of oil halved in the past six months, but natural gas is the cheapest it has been in a decade, bar a few panicked months after Lehman Brothers collapsed, when the world economy appeared to be imploding. There are growing signs that low prices are here to stay: the rising chatter of megamergers in the oil industry is a sure sign that oilmen are bracing for a shake-out. Less noticed, the price of cleaner forms of energy is also falling, as our special report this week explains. And new technology is allowing better management of the consumption of energy, especially electricity. That should help cut waste and thus lower costs still further. For decades the big question about energy was whether the world could produce enough of it, in any form and at any cost. Now, suddenly, the challenge should be one of managing abundance.

Clean up a dirty business

That abundance provides the potential for reform. Far too many economies are littered with the detritus of daft energy policies, based on fears about supply. Even though fracking has boosted America’s oil output by two-thirds in just four years, the country still bans the export of oil and restricts exports of natural gas, a legacy of the oil shocks of the 1970s—and a boondoggle for American refiners and petrochemical firms. Congress also keeps handing out money to Iowa’s already coddled corn farmers to produce ethanol and has not reviewed generous subsidies for nuclear power despite the Fukushima disaster and ruinous cost over-runs at new Western plants. Instead, it has spent four long years bickering about whether to allow the proposed Keystone XL pipeline to Canada’s tar sands. In Europe the giveaways are a little different—billions have gone to wind and solar projects—but the same madness often prevails: Germany’s rushed exit from nuclear power ended up helping boost American coal and Russian gas.

The most straightforward piece of reform, pretty much everywhere, is simply to remove all the subsidies for producing or consuming fossil fuels. Last year governments around the world threw $550 billion down that rathole—on everything from holding down the price of petrol in poor countries to encouraging companies to search for oil. By one count, such handouts led to extra consumption that was responsible for 36% of global carbon emissions in 1980-2010.

Falling prices provide an opportunity to rethink this nonsense. Cash-strapped developing countries such as India and Indonesia have bravely begun to cut fuel subsidies, freeing up money to spend on hospitals and schools. But the big oil exporters in the poor world, which tend to be the most egregious subsidisers of domestic fuel prices, have not followed their lead. Venezuela is close to default, yet petrol still costs a few cents a litre in Caracas. And rich countries still underwrite the production of oil and gas. Why should American taxpayers pay for Exxon to find hydrocarbons? All these subsidies should be binned.

What a better policy would look like

That should be just the beginning. Politicians, for the most part, have refused to raise taxes on fossil fuels in recent years, on the grounds that making driving or heating homes more expensive would not only annoy voters but also hurt the economy. With petrol and natural gas getting cheaper by the day, that excuse has gone. Higher taxes would encourage conservation, dampen future price swings and provide a more sensible way for governments to raise money.

An obvious starting point is to target petrol. America’s federal government levies a tax of just 18 cents a gallon (five cents a litre)—a figure that it has not dared change since 1993. Even better would be a tax on carbon. Burning fossil fuels harms the health of both the planet and its inhabitants. Taxing carbon would nudge energy firms and consumers towards using cleaner fuels. As fuel prices fall, a carbon tax is becoming less politically daunting.

That points to the biggest blessing cheaper energy brings: the chance to inject some coherence into the world’s energy policies. Governments have a legitimate role in making sure that energy is abundant, clean and secure. But they need to learn the difference between picking goals and deciding how to reach them. Broad incentives are fine; second-guessing scientists and investors is not. A carbon tax, in other words, is a much better way to reduce emissions of greenhouse gases than subsidies for windmills and nuclear plants.

By the same token, in the name of security of supply, governments should be encouraging the growth of seamless global energy markets. Scrapping unfair obstacles to energy investments is just as important as dispensing with subsidies. The more cross-border pipelines and power cables the better. America should approve Keystone XL and lift its export restrictions, while European politicians should make it much easier to exploit the oil and gas in the shale beneath their feet.

This ambitious to-do list will drive regiments of energy lobbyists potty. But for the first time in years it is within the realm of the politically possible. And it would plainly lead to a more efficient and greener energy future. So our message to politicians is a simple one. Seize the day.

Source: Economist

London council brings in parking surcharge for diesel vehicles

February 9, 2015Electric Cars, Energy and Climate Change, News, Reviews and CommentTrevor Larkum

Islington Council votes for a £96 additional ‘diesel’ charge for resident parking permits

Islington Council in north London is thought to have become the first local authority to put a surcharge on the ownership of diesel-powered vehicles. On 15 January, the 48 members of the council (47 Labour and 1 Green) voted to increase the cost of a parking permit by £96 per year for all diesel vehicles registered with the borough.

If the vote is carried through the three-day ‘cooling off’ period, the charges will begin in April.

While London black cabs will be exempt in the Islington scheme, commercial vehicles with more than a 3.5-tonne overall weight will only be considered for exemptions on a ‘case-by-case’ basis.

Islington isn’t the first council to introduce surcharges for diesel vehicle parking permits. Kensington and Chelsea introduced an £18 surcharge, but it exempted diesel cars with newest Euro 5-rated engines.

However, the ‘blanket’ nature of the surcharge in Islington has sounded alarm bells within the car industry, sources have told Autocar.

It is feared that moves against all diesel vehicles – rather than just the oldest and most polluting examples – will be the beginning of a demonization of diesel as a fuel and seriously hamper the car industry’s attempts to meet the 2020 EU fleet laws for CO2 emissions.

Just ahead of the council vote, the Society of Motor Manufacturers and Traders (SMMT) wrote to the Islington Council executive to argue against the surcharge plans.

The SMMT said:

“We are concerned that the proposals to levy a £96 surcharge on parking permits for all diesel vehicles are disproportionate and do not recognise the huge technological advances made in recent years to make diesel vehicles cleaner,

“Intelligent engine design and highly efficient exhaust after-treatments, including particulate filters, now capture more than 99 per cent of particulates and around two-thirds of NOx emissions from diesel vehicles.

“The diesel surcharge will discourage uptake of the very latest diesel vehicles and could threaten further improvements in air quality and efforts to reduce CO2 emissions.

“We urge you to reconsider this proposal and would welcome a meeting with you and colleagues at your earliest convenience to discuss how technology is delivering improvements in air quality and CO2.”

Ford – which has just opened a new facility in Dagenham to build the latest-generation diesel engines – is also thought to have strongly backed the SMMT’s stance.

Recent publicity, especially in the capital, about the levels of particulate and nitrogen oxide pollution is starting to shift sentiment against diesel power, while London mayor Boris Johnson is consulting on his plans for an ‘Ultra Low Emission Zone’, which would cover central London and run on a ‘24/7′ basis from 7 September 2020.

Many in the automotive world fear that this means no diesel vehicle would be allowed into central London by the end of the decade, aside from diesel-electric hybrid buses. Such developments in the capital usually heavily influence thinking around the rest of the country.

Source: Autocar

Low Gas Prices Can’t Hold Back EV Sales

February 9, 2015Electric Cars, OpinionTrevor Larkum

If you thought low gas prices could kill the electric vehicle revolution, the industry’s record sales in December will come as a big surprise. According to InsideEVs, 12,874 EVs were sold in the U.S. during December, more than any month in history. This comes as gas prices were plunging toward $2 per gallon.

We shouldn’t draw too many conclusions from a single month, but this could be a sign that EVs have become a sustainable business, driven by more than just high gas prices.

EV sales jump in 2014

Overall, EV sales were up 23% in 2014 to 119,710 units, despite a lack of major product introductions. BMW was the only major newcomer to the EV market, launching the i3 and i8 in May and August, respectively, and BMW’s sales totaled just 6,647 units.

Incredibly, as gas prices fell, EV sales were constant to slightly higher, highlighted by record December sales of 12,874 units. Below, you can see how overall sales trended during 2014 versus gas prices. The correlation you might expect, of sales dropping as gas prices drop, hasn’t come to fruition yet.

2014 Electric Vehicle Sales vs. Gas Prices (Image: EIA/InsideEVs)

Part of that may be a lag between low gas prices and changing buying decisions, but SUV sales were up late in 2014, so other parts of the auto market adapted quickly to lower prices. Maybe EVs are becoming a mainstay in the auto industry?

Who is selling all those EVs?

Surprisingly, Tesla Motors (NASDAQ: TSLA ) wasn’t the leader in U.S. EV sales during 2014, despite leading the industry in headlines. The company sold and estimated 17,300 Model S during the year, less 15% of the market and only good enough for third place.

The industry’s leader was the Nissan Leaf, which sold 30,200 units, followed by General Motors’ (NYSE: GM ) Chevy Volt at 18,805 units. Toyota’s Prius PHV and the Ford Fusion Energi followed in 4th and 5th place, with 13,264 and 11,550 units, respectively.

Sales growth in 2014 is great, and December’s figure was impressive, but for EVs to be more than a bit player in the auto market, there still need to be more offerings and technology improvements that make them more competitive. That’s where 2015 could bring some key advancements.

The Tesla Model S has become an icon of the EV market, but it doesn’t lead the U.S. in sales.

How EVs can grow in 2015 and beyond

The last five years have shown that consumers are willing to trade in conventional vehicles for EVs if they can get where they need to go. The Chevy Volt, for example, is actually a hybrid, reducing EV range anxiety that buyers inevitably have. Tesla has answered the range question by offering nearly 300 miles in range in its high-end Model S. But further improvements have to bring adoption of EVs to an even wider audience. For now, it looks like most automakers are tiptoeing into the market with hybrids rather than betting the farm on a full EV.

In 2015, we’ll see a number of new EVs hit the road, most notably in the SUV and crossover market. Tesla’s all electric Model X is due out in the second half of the year and is the most anticipated EV of the year. The hybrid BMW X5 eDrive, Audi Q7 Plug-in, Volvo XC90 T8, and Mercedes-Benz GLE-Class Plug-in are a few others that could catch the attention of drivers.

Expanded product offering and investments by new EV players is good, but for EVs to grow significantly in 2015 and beyond, more companies need to advance EV range, beyond the 300 mile limit Tesla is bumping up against. To completely replace a conventional vehicle range anxiety can’t be an issue, and even at 300 miles, it would be a stretch for long trips. To move beyond that, battery technology likely needs to take another leap forward, which may take a few years.

EVs are showing some staying power

The 2014 sales numbers for EVs are impressive, and new vehicles coming out in 2015 should expand the market incrementally. But the challenge competing against $2 per gallon gas will come down to offering a vehicle that can go far enough on a charge to ease range anxiety and offers better performance than a standard car.

I’m bullish on the future of EVs, but it may be a while before a majority of the population sees them as a real option when buying a vehicle. Until then, small steps forward in EV offerings and technology will slowly grow the market until range anxiety is a problem of the past.

Source: Fool