Oil at $100? It's No Longer a Pipe Dream

Cat Herder · Understander of unimportant things

Crude Oil

LoudmouthMormon · Profuse Pontificator

I just got one thing to say.

Nuclearbiodieselsolarwindwaveethanolgeothermalhydroelectricultracleancoalhydrogen.

LM

arbilad · Head Chef

LM, show me where to buy a reasonably priced consumer vehicle using any of those technologies. I would love to have a hydrogen powered car, for instance. But I don't have a small fortune to spend, for instance, on one of the BMW prototypes like the one that NASA is studying.

LoudmouthMormon · Profuse Pontificator

A big factor in "reasonably priced", is what the others options cost. Since $40/bbl oil seems to be a thing of the past, much more attention is being paid to these alternate forms of energy.

More attention means more research dollars, more business ventures, more tests of more ideas. And all of that means we get better at it the more we work at it - that's what humans do.

And of course, better at it, eventually means cheaper.

5 years ago, I was thinking "in my children's lifetime". These days, I'm thinking in the next 10-20 years. Cat's link makes me think 5-10, if oil stays that high.

LM

-- Edited by LoudmouthMormon at 14:24, 2007-11-02

Cat Herder · Understander of unimportant things

Don't bet on it being 5 - 10 years, LM...

As long as there are exorbitant profits to be made, there is N-O incentive to develop anything else when the defacto industrial hegomony (auto and oil) in the sector exert near monopoly power... costs of entry to the industry are purposely set high.

The technology already exists for a variety of safe hydrogen powered vehicles. No one is willing to implement it beyond a token gesture of "being a responsible corporate citizen."

The federal and state governments have taken such a laizess faire (sic?) approach to the auto and oil industry since WWII, they are essentially powerless to get the behemoths to really do anything different... disincent them via tarrifs and fines... fine, they send jobs overseas... incent them with tax abatements and the like... it turns into corporate welfare and they still change nothing about the way they do things.

The lifecycle of just bringing a vehicle from concept to production (should it survive beyond concept phase) takes around 5 years.

And then, as far as a tax relief issue for consumers on gasoline... forget it. States and the Federal government are too vested and dependent in receiving these consumption based taxes to say let's do away with some or all of it to help our citizenry out.

salesortonscom · Wise and Revered Master

I think the media isn't talking about it because if they do they have to talk about Iraq and they don't want to point out that there are actually some improvements happening there. The violence is way down. Good news is bad so they don't report it.

I am also beginning to believe there is a conspiracy going on. I used to believe that the auto companies weren't giving us the technology because it just isn't viable or economical. Then I read this story in last month's Fastcompany at http://www.fastcompany.com/magazine/120/motorhead-messiah.html

This guy is using GM parts already on the shelf for over 90% of the modification he is making. On gas guzzlers he is doubling fuel economy and doing something Detroit said was impossible, actually doubling horsepower at the same time. So twice as much horsepower for half the fuel. Hmmm. The cost of doing this would be negligible if it was done for every vehicle coming out of the big 3. So I'm left to believe that the Big 3 are either inept (possibly), stupid (very likely), or in some sort of conspiracy with the oil companies. After reading the article, you decide.

LoudmouthMormon · Profuse Pontificator

Cat Herder wrote:
As long as there are exorbitant profits to be made, there is N-O incentive to develop anything else when the defacto industrial hegomony (auto and oil) in the sector exert near monopoly power... costs of entry to the industry are purposely set high.

You can focus on who's rich and who's lucky and who's in charge and who is pulling their strings from the shadows for as long as you wish. At the end of the day, the rich/lucky/in charge puppetmaster people will do what's best for business and power. And they're not dumb.

Oil is getting more expensive. If your business involves selling stuff to people that runs on oil, you'll consider selling stuff to people that runs on something else. If your business involves selling oil, and you see that people are 10 years away from harvesting it from algae farms, you start planning how to retool your industry so you stay on top.

From where I'm standing, new sources of energy coming to market doesn't really interfere with your mindset about how stuff is all screwed up and wrong and da man is out to get you. Why assume he's any less powerful or evil just because he's now selling you a hydrogen hybrid car with a solar panel on the roof?

LM

-- Edited by LoudmouthMormon at 16:03, 2007-11-02

TitusTodd · Senior Member

Due to reduced demand, the cost of gas has not kept up with the cost of crude. Now gas prices are expected to catch up dramatically.

If it will sell and at a profit auto companies will sell it. Environmentally friendly is selling all sorts of things these days. There has to be more to the story.

A couple of notes from the article:

Talk to car-industry experts, and they'll point out a number of serious barriers to introducing radically new alternative-fuel vehicles on a scale that will make a difference. One of the highest is that low-emission fuels--biodiesel, ethanol, electricity, hydrogen, all of which account for less than 3% of the nation's fuel supply--just aren't widely available on American highways.

Boeckmann believes hydrogen is the true "silver bullet" for ending greenhouse gases but thinks it'll take more than a decade to figure out how to create and distribute it cheaply.

Sure, the auto companies are moving slow even when considering the viable reasons it can't happen overnight but I don't thing there is some conspiracy with the oil companies.

There will be a plug-in hybrid by 2010 according to GM (and there are definite signs it is happing). Its called the Volt. A test fleet of 100 hydrogen fuel cell SUVs is going out into major cities this year (again, GM). Other car makers are also moving in the same direction. Infrastructure is one obstacle (hydrogen fueling stations, for example).

Cat Herder · Understander of unimportant things

LoudmouthMormon wrote:

Oil is getting more expensive. If your business involves selling stuff to people that runs on oil, you'll consider selling stuff to people that runs on something else. If your business involves selling oil, and you see that people are 10 years away from harvesting it from algae farms, you start planning how to retool your industry so you stay on top.

The last part of your post didn't make any sense to me... I'm not talking about the "evil man" of the corporate world. I'm talking about incentive to let the innovative technologies come to market as well as pushing them to market.

What I quoted above is the part I did want to respond to. Yes, business leaders are not dumb. But, in general, particularly in the U.S. Auto industry (and I've been working in the heart of it for a decade now) does not look to change the status quo. They give lip service to hybrids or alternate fuel source vehicles. Granted, the following statement leans towards gross exaggeration, but The Big Three essentially do not measure success except by profit and number of vehicles sold. If you didn't catch it, Chrysler LLC (whose HQ I can see out my office window) just announced they were eliminating another 12,000 jobs yesterday... this after the union ratified a new contract with them. Why? Because they have been making more cars than they have been selling. The Big Three simply have a way of doing things that takes several years to move from concept to stock production. So do the Japanese and Korean auto makers, but their cycle is not nearly as long.

Why do we not have an extensive passenger rail system in the U.S.? We did up to and during WWII, so what happened? The Big Three. Rail is a much more efficient method of travel compared to the energy expended for a typical rush hour with tens of thousands of autos. But, we don't have it except in a few areas now. The Big Three purchased up lots of railway right of ways as the trucking industry started putting the crunch on rail freight and the improvement of the nations highways. Those right of ways were then redeveloped. That was long term strategy and planning.

We don't have that in the Big Three today, and I don't think it can be said many of the energy companies are much better. They all work for Wall Street. Wall Street dictates that you turn a profit in a short time period and then continue to improve upon that. One of the maxims that nearly every MBA learns in MBA school is that the chief responsibility of the CEO and board and executive leadership of a publicly traded company is "To Maximize Shareholder Wealth". A CEO is going to get fired if he or she decides to take a risk that is going to impact adversely (even in the short run) the pocket book of the big institutional investors and venture capitalists... particularly when the technology and / or product they have now is doing adequately to maximize their wealth at a known or predictable risk.

So, when it comes to hybrids and the like, rather than embracing them so that consumers will embrace them, the auto manufacturers have actually been putting them at a premium price compared to the non-hybrid models. It ends up turning into a boon to them if people still go ahead and buy them in droves, and if demand is not sufficient, it is proof to them that the market just won't justify them changing what they're doing.

As to the exorbitant profit, the increased cost in oil gets passed down the whole distribution chain to the end consumer. No one within it hurts, in fact they generally all do a little better off until you get to the consumer facing distributor (aka gas station). The oil producing companies have winfall earnings (revenue and perhaps even profit as the cost to produce and transport the crude has not increased), the distribution and refining is able to utilize the increased revenue by plowing it back into capital improvements in their facilities and capacity to produce more. So, they have no incentive to put capital elsewhere in building a different type of infrastructure.

LoudmouthMormon · Profuse Pontificator

Hi Cat,

From what I can tell, you and I agree about 80%.

Cat Herder wrote:
But, in general, particularly in the U.S. Auto industry (and I've been working in the heart of it for a decade now) does not look to change the status quo.

Right - as long as the status quo makes money, and the not-so-status-quo doesn't, that's rational behavior.

My point: The status quo shows signs of changing. A few patriotic Americans in the '70's put up blocky solar panels on their house, but it was expensive and didn't work very well. Pollution was a problem, but fixable by improving existing technology. The '80's and '90's saw lots of good cheap energy, and gas was the cheapest it had ever been, after adjusting for inflation. Nobody wanted to change.

These days, we have many things challenging the status quo:
* High oil costs
* Worldwide grassroots concerns about global warming and diminishing oil reserves and such. (With activists finally learning strategies that work, like buying stock in companies and having a say at shareholder meetings.)
* Renewed desire to reduce/eliminate dependence on foreign oil, and desire to kill off the backwards 13th century regimes we buy oil from.
* Alternative-energy technologies are starting to break through the 'economically feasable' barrier. Evidence: Utility-owned wind farms springing up, companies that will give you a free windmill if you sign over the surplus energy savings to them, LED flashlights working off of pull-strings, portable cheap solar battery chargers, solar walkway lighting in every WalMart and Sam's Club in America, etc.
* Increased interest and demand in nuclear power. Political arguments are pretty much killed by pointing to how many nuke plants France has. The anti-nuclear activists seem to have gone home a decade ago. Bush laid the groundwork for reinvesting in this technology, and it didn't make a blip on anybody's angry radar.

The Big Three essentially do not measure success except by profit and number of vehicles sold.Right - them, and every other business out there. In the finance world, we call them "rational actors".

Why do we not have an extensive passenger rail system in the U.S.? We did up to and during WWII, so what happened? The Big Three.The way I see it, autos replaced rail because us rich Americans liked them more. The technology showed up. We were feelling superior on our post-war high, and 'better living through technology' was right around the corner. Efficient-schmefficient - our grandpas wanted to keep up with their neighbor, the next town over, the next state over. Of course the auto companies bought the rail lines.  Yes, it was a calculated way to establish an infrastructure.  But IMO, the calculation was driven by changing status-quo's. The scheming business men out to become powerful were a consequence, not a driver. Every successful business in a capitalist system is run by scheming business men.

That was long term strategy and planning. We don't have that in the Big Three today, and I don't think it can be said many of the energy companies are much better. They all work for Wall Street. Wall Street dictates that you turn a profit in a short time period and then continue to improve upon that.I guess here's our biggest disconnect. I work in high-tech, in an R&D department.  We're funded at a certain percent of revenue, depending on market conditions. Our planning group does indeed think 5-10 years down the road, and they do so very visibly.

Are you in a position to know for certain that similar funding models and planning groups do NOT exist anywhere in the automotive industry? (Remember, absence of evidence is not necessarily the same as evidence of absence...)

You speak of "Maximizing Shareholder Wealth".  Well, shareholders are smart too. And I have a really hard time believing that people owning major positions in GM are not interested in what their stock will be worth in 5-10 years, and never talk about it with the business.

So, when it comes to hybrids and the like, rather than embracing them so that consumers will embrace them, the auto manufacturers have actually been putting them at a premium price compared to the non-hybrid models. It ends up turning into a boon to them if people still go ahead and buy them in droves, and if demand is not sufficient, it is proof to them that the market just won't justify them changing what they're doing.Back to my point - I see the boon coming. In our lifetimes.

Good discussion!

LM

-- Edited by LoudmouthMormon at 10:39, 2007-11-03

-- Edited by LoudmouthMormon at 11:01, 2007-11-03

Cat Herder · Understander of unimportant things

I'm sure there isn't a huge disconnect between what we agree and disagree on about this topic LM, but on one thing, I think perhaps the disconnect is significant.

Perhaps the hi-tech R&D perspective you are coming from is more altruistic than what one sees in heavy industry. To maintain competitive advantage in hi-tech, R&D is an integral part of the industry. Compared to other industries, hi-tech is a relatively low cost of entry for new comers to the playing field. Innovation, invention, and finding new applications so new products can be sold.

Heavy industry does not operate that way, though. Heavy industry is all about capital expense and capital investment, with high cost of entry to the respective industries. R&D is utilized in these industries, but only insofar as it makes it cheaper for them to do their core competency, e.g. produce their product and provide a sustainable competitive advantage. The oil industry only incorporates environmental stuff and alternative energy technology when 1. forced to by government regulation and 2. their core competency activity is no longer profitable. The auto industry is much in the same category.

Oil prices are based on speculation of the future with regards to production / distribution of said commodity. Not the actual supply versus demand. And not on production or distribution cost. It is based on anticipated demand versus anticipated problems with or disruption to supply. In other words, what a barrel of oil is costing is based pretty entirely off what a buyer tells the producer... "I'm wanting to by x barrels of oil on z day. And to ensure you sell it to me instead of another buyer, I will offer you y dollars / barrel. If you agree to this transaction, see to it that you deliver x barrels on z day to my refinery / tanker /etc." It isn't the seller saying, "I've only got 100 barrels of oil, here is the starting price and highest bidder gets it." The former scenario implies there is no shortage only a perception there will be increased competition for the commodity on z date. The latter (which the public assumes is what happens) infers there is a severely limited amount available and the commodity available is exponentially shrinking.

High oil prices are not a disincentive for the oil industry. Actually, it is the opposite. There is no risk of newcomers to the industry, as the costs of entry to the industry are one of the highest of any industry. The industry has absolutely no incentive to give more than lip service to alternative energy sources under normal circumstances, so why should they be interested in doing more when they are making huge profits? The strategy is to make as much money as quickly as possible. The money that is not passed on to shareholders is banked away and some of it is rolled back into the industry as capital improvements to existing capacity and the technology being used to produce what is making them the greatest return on investment currently. That is the least risk to the investors. Higher risk (which is anything other than the status quo), the more they have to pay to the investors in the form of returns as dividends. Higher risk items are only undertaken if there is the evidence it will give them a competitive advantage and will have a long, sustainable great return on investment.

To illustrate this somewhat, we just received a flier from our electric utility. I'm pretty sure most of their power is generated using coal. They used to have a nuclear plant, but it was taken off line and decommissioned. As part of that, consumers were given a monthly credit on their utility bill. I don't understand why a credit would be given to consumers for taking a nuclear plant off line, but there the credit was for several years until the project was done. I didn't complain about getting it. The flier we just received was talking about their "Green" energy plans, which include a windfarm and biomass gas. Okay, sounds great. But guess what, if you want to be a "consumer" of the electricity generated by either of these endeavors, you have to sign up and then get the privilege of paying an additional fee each month.

What the? I have to pay you more money just so that I can claim I'm getting my electricity generated from a windfarm or from the methane off garbage dumps?! Once the electricity is generated, it is no different from any other electricity... rolleyes

You can't pull a segment of electricity out of the grid and identify it as sourced from nuclear or hydro or oil or coal or wind or hamster in exercise wheel.

Okay, anyway, response to your points:

* High oil costs

I think what I indicated above probably discounts that...

* Worldwide grassroots concerns about global warming and diminishing oil reserves and such. (With activists finally learning strategies that work, like buying stock in companies and having a say at shareholder meetings.)

Again, I think what I indicated above discounts any real movement there... for there to be real movement, the oil companies would have to be behaving as if there is a signifcantly diminishing resource that they need to find an alternative to. Do we see them actually doing that? No. And, with the huge cost to entry in the energy industry, it isn't likely that the grassroots movements will get anywhere except when the state is backing it... and we have yet to see how and if this will force alternative and viable sources that don't have unanticipated environmental / economic impacts.

* Renewed desire to reduce/eliminate dependence on foreign oil, and desire to kill off the backwards 13th century regimes we buy oil from.

Okay sure... except we are more dependent on foreign oil than we were the first time the backwards 13th century regimes that control the cartel on production determined they could hold the world hostage in the '70's.

* Alternative-energy technologies are starting to break through the 'economically feasable' barrier. Evidence: Utility-owned wind farms springing up, companies that will give you a free windmill if you sign over the surplus energy savings to them, LED flashlights working off of pull-strings, portable cheap solar battery chargers, solar walkway lighting in every WalMart and Sam's Club in America, etc.

Okay, but is any of that new technology or stuff that was not known about 30 years or more ago? And, are these alternative technologies universally applicable across the nation? No. Solar panels / battery systems are not viable in my part of the nation, nor are folks having their own windmill in their backyard...

* Increased interest and demand in nuclear power. Political arguments are pretty much killed by pointing to how many nuke plants France has. The anti-nuclear activists seem to have gone home a decade ago. Bush laid the groundwork for reinvesting in this technology, and it didn't make a blip on anybody's angry radar.

The activists may have gone home, but their legacy is still around in the form of laws that prevent the building of new plants or expansion of existing nuclear capacity. Much the same way it is with oil refining...

LoudmouthMormon · Profuse Pontificator

Good post. I have the sneaking suspicion that I'm talking to someone who just knows more about it than I do, and I always come away better in such conversations.

I've heard dozens of explanations and opinions about why a barrel of oil costs what it does. Yours certainly makes good sense, better than most. I think it's my new favorite. At the very least, I think I'll copy off your explanation and show it to the next guy that has it all figured out, we'll see if he can shoot any holes in it.

High oil prices are not a disincentive for the oil industry. Actually, it is the opposite.Now, I hear what you're saying about barriers to entry and all that. I just can't seem to shake the comparison of high cotton prices favoring the cotton industry too, until someone invented nylon.

if you want to be a "consumer" of the electricity generated by either of these endeavors, you have to sign up and then get the privilege of paying an additional fee each month. What the? I have to pay you more money just so that I can claim I'm getting my electricity generated from a windfarm or from the methane off garbage dumps?! Once the electricity is generated, it is no different from any other electricity... You can't pull a segment of electricity out of the grid and identify it as sourced from nuclear or hydro or oil or coal or wind or hamster in exercise wheel.Well, this is true, but the companies have to account for the varying costs somehow. If a KW of energy costs $10 at the coal plant, and $11 at the wind farm, what's a PUC to do? Assuming the PUC buys equal amounts of electricity, you can charge everyone $10.50 Or maybe charge everyone $10.25, and let people sign up for green power and pay $11.75. This of course, is an inexact science, relying on forecasts and whatnot. Past period's results will help dictate how much you buy from each source next period. But it does make sense doesn't it, as long as you believe the PUC when they tell you green currently costs more...

LM

salesortonscom · Wise and Revered Master

What I don't understand is that we could do simple things right now like using more diesel engines that will increase economy now and provide more options for fuel to use. You don't have to put in any new infrastructure for alternative fuels. Europe and other parts of the world do it. But we keep trucking along sucking down gas when this easy option is right in front of us. Today's diesel engines are quieter than gas engines and burn cleaner. I have some new tractors we got in this year that you cannot even tell they are running when you start them up sitting in the cab. I've had guys who though the engine died because it was so quiet. It's not the final solution but any easy first step that auto companies could do now, that they already are doing overseas.

arbilad · Head Chef

I was in a ward with someone whose job sent him to France for a year. They leased a natural gas minivan while there, because after the government subsidies it was cheaper for them than a gas car. Apparently there were enough natural gas filling stations to make it feasible for them.

salesortonscom · Wise and Revered Master

My brother in law had a CNG car a couple years ago. He found that just about every town in his area had one place to fill it up and that was all he needed. Of course he and my sister has since upgraded to a Prius and they love that car. They are making the car payment with their fuel savings over their old Suzuki Outback. I drove it and was surprised at how much power the car had and how fun it was to drive.

LoudmouthMormon · Profuse Pontificator

salesortonscom wrote:
What I don't understand is that we could do simple things right now like using more diesel engines that will increase economy now and provide more options for fuel to use. You don't have to put in any new infrastructure for alternative fuels.

I read an article somewhere, tracking the refinements and efficiencies gained in internal combustion vehicles over the decades. They painted a very convincing picture that these advances in technology didn't end up with better gas mileage, they ended up with more horsepower and added performance.

Yes, America could have 40-50 mpg cars. But instead, America got what America wants. Which is an extra 150 hp, 0-60 in nothing flat, and a zillion electronic gadgets - all powered by an engine the same size as it was 3 decades ago.

Consider - when I learned how to drive in the '80's, I always knew not to wait at the stoplight in the line with the truck or bus. Because they took forever to get up to speed. These days, if the choice is get behind one empty bus or five cars, I'll choose the bus. Because they accellerate almost as quickly as the cars do.

LM

TitusTodd · Senior Member

The auto industry moves frustratingly slow. It is a valid point that at one time we were more concerned about horsepower than fuel economy here in the US. There has also been a stigma against diesel as a dirty fuel. That is not a valid point but to change the direction of US auto industry is huge endeavor. Manufacturers are looking into bringing more diesels here now but the emission standards are different between here and Europe so some tweaking has to be done in that regard and most of our automobile models are engineered differently than Europe so you can't just swap engines out. Biodiesels look promising so I hope to see greater availability of diesel engines here. A hybrid diesel would be a great option.

Cat Herder · Understander of unimportant things

I think we need Chuck Norris to get involved...

LoudmouthMormon · Profuse Pontificator

When Chuck Norris does a pushup, he isnt lifting himself up, hes pushing the Earth down.

Cat Herder · Understander of unimportant things

Brazilian Oil Field May Hold 8B Barrels

Yea for Brazil... wonder what this means long term for oil prices and for political stability (reserves to rival those controlled by El-nutto Hugo Boss in Venezuela... you know he ain't gonna like that...).

salesortonscom · Wise and Revered Master

Since Brazil doesn't import oil I guess this could help the rest of the world. I heard some speculation at a Farm Equipment meeting over the weekend that the oil cartels are purposely driving up the price of oil to really get the ethonol deal hopping and that as soon as everyone is geared up and going they will drop the price and break the ethenol producers. It is just speculation by some industry talking heads but it makes one wonder.

arbilad · Head Chef

The US has huge reserves of oil that we aren't even planning to tap. We don't even use everything that we produce now, because we lack the refinery capacity. A lot of our oil is sent to overseas refineries.
Let's start building refineries in this country, tapping oil reserves, and stop funding terrorist nations.

TitusTodd · Senior Member

I imagine you just mis-typed your information. You are right, we do not use everything we produce, exporting about 1 million barrels of oil per day but we import close to 10 million of barrels per day (2/3 of our consumed oil is from imports according to the CIA fact book). Most of that 1 million that is exported goes to Canada where it is refined and returns to the US as gasoline.

From the Energy Information Administration:

In 2005, United States refineries produced over 90 percent of the gasoline used in the United States. Less than 40 percent of the crude oil used by U.S. refineries was produced in the United States.

We do need to tap all our resources, as many of them are left untouched.

-- Edited by TitusTodd at 13:35, 2007-11-12

Cat Herder · Understander of unimportant things

Hey, but the hippies are happy!

DaKnife · Senior Member

I find this discussion very Crude!