Not really.
First, both the US and other developed
countries got that way with "moderately expensive" energy, not cheap
energy. Oil and electricity have been cheap in the US in the post-WWII
period, but energy was rather higher in years before that: coal and
electricity cost much more, adjusted for inflation. The US, and other
countries, succeeded quite well in growing strongly even when energy was
much more expensive, whether it was coal or oil.
Wind
power is quite affordable (if perhaps not quite as dirt cheap as US
post-WWII oil and electricity prices), scalable, high-E-ROI, etc, etc.
So are nuclear, and solar even if they aren't quite as cheap at the
moment (coal is also plentiful and cheap, unfortunately), so I see no
reason to expect energy to ever be more than "moderately expensive".
The
fact that energy pre-WWII was a much higher portion of GDP means that
it was a much heavier burden on the economy. If wind and solar are a
little more expensive, that means that the wind/solar sector has to be a
little larger than otherwise to power the rest of the economy. This
analysis suggests that this is not a big deal: that sector would still
be a much smaller portion of the economy than pre-WWII.
Second,
fossil fuels aren't nearly as cheap as they seem. Pollution is an
unrecognized, external cost. So are the military costs we're seeing
currently of roughly $500B per year. Those pollution costs aren't
sustainable (especially CO2), but unfortunately the military costs
of security for oil supplies probably are (in fact, many corporate interests are quite comfortable
with them...). Not that they don't entail many costs to the economy, including diverting
scarce scientific and engineering talent away from creating new products, and growing the economy. Moving away from oil and other fossil fuels will actually
be much cheaper in the long-run than BAU.
Finally,
let's assume that Business As Usual involved spending about 5% of our
economic activity (perhaps measured by GDP) acquiring energy. If the
cost of acquiring energy doubles, then we have to dedicate another 5% to
that activity. GDP might go down by 5% quickly, in case we'd have a
deep recession. Or, it might happen over time - if it took 10 years,
then we'd see a reduction in economic growth of .5% per year, for 10
years. After that transition was complete, economic growth would
continue. So, a reduction in "net energy" has a significant impact, but
it's not TEOTWAWKI.
Does unusually strong growth since 1945 show the value of cheap energy in that period?
No, US growth was faster before 1945, using moderately expensive, non-oil energy:
1800-1900: 4.13%
1900-1945: 3.53%
1945-2000: 3.17%
"real GDP" at http://www.measuringworth.com/growth/index.php
March 30, 2013
February 19, 2013
How high could oil prices rise?
I think prices will stay in a range of $100-125 for quite a while: Saudi Arabia would reduce production if prices were to fall below $100, and consumption would fall if prices rose above around $125.
When oil went from $20 to $100, US oil imports dropped in half. $2/liter fuel in Europe has been the primary reason (geology and history the 2nd) that personal fuel consumption is only 18% of the US and Canada. If fuel were properly priced in the US at, say, $7/gallon, the US would reduce fuel consumption very quickly.
Oil consumption only decreased by about 10% when prices even though prices more than tripled from 2002 to 2012 ($30 to $100). Couldn't prices triple again?
Percentage increases aren't important. What's important is absolute increases, and their level compared to the substitutes. Below about $60/bbl there are no economic substitutes for oil, but as oil gets farther and farther above $60 substitutes become more and more obvious and pressing. In other words, this is not a linear function.
But don't we normally use the percent change when looking at consumer responses to a change in prices?
Sure, and that's just fine most of the time. The problem: that assumes a constant relationship: e.g., "10% increase in price causes 3% decline in consumption". I'm arguing that doesn't apply here. A doubling in price of oil from $20 to $40 is pretty trivial. A doubling from $100 to $200 is a very big deal. A doubling from $200 to $400 just won't happen unless the Persian Gulf is in flames, and even then it wouldn't last that long.
Why the difference?
Several reasons.
1st, $40 oil is small relative to income.
2nd, $40 oil is small relative to other costs, including oil production-related costs like refining, distribution, profit and taxes; and small relative to other consumer costs, such as vehicle depreciation.
3rd, $40 oil is cheaper than substitutes such as hybrids, plug-ins, carpooling, ethanol, CNG, online shopping, etc. As long as prices are below the price of substitutes, there will be no substitution.
Now, why haven't we seen more substitution since prices rose above $60?
1st, short term elasticity is much smaller than long-term. Oil prices haven't been high for very long, and Peak-Lite is something that didn't exist in the history of the oil industry until about 2005.
2nd Many consumers, such as long-distance truckers, don't have good "visibility". Many are *still* waiting to see if, say, natural gas prices stay low, and oil prices stay high. They have good reason, given historic volatility. Others have only recently decided that high prices are here to stay, and are still in the transition - taxis, for instance, will take several years to move fully to hybrids.
3rd, the oil industry has fought viciously to confuse the public about this issue. It has succeeded pretty well. Only prices staying high for a long time will break through that, and that delays the transition.
4th, R&D, and capital investments, take a while. Plug-ins (pure and EREV), for instance, only really took off in 2012, 7 years since 2005.
5th, change has many costs, including new infrastructure, new maintenance procedures, training of everyone involved, etc. As long as the savings from substitution are small, change won't happen. As the difference between oil prices and substitutes rises, the incentive gets larger until it breaks through. That's a non-linear relationship.
Still, you have to realize that things would change quickly if prices rose above about $150. The last time prices rose above $125 things started to change very quickly. Prices were above that level for 3 or four months only, but Industrial/Commercial users starting cutting back quite sharply, which is part of why oil prices dropped to $40 briefly, before KSA could cut back on production.
For instance, container ships started slowing down: they can reduce fuel consumption by 50% by only slowing down by 20%. For another example, when oil prices rose in the 1970's Industrial consumers switched away from oil for process heat essentially overnight. There would be many short-term changes like that. There would also be sharp medium term changes: in the 70's the US got 20% of it's electricity from oil - that went to 5% relatively quickly, and now is about .7%.
That's the nice thing about decentralized markets: they are very flexible, and they can change things around in a million ways to optimize costs. Of course, markets are inhabited by humans who can make mistakes, as noted above, but when they get moving, don't get in their way or you'll be run down.
But, Europe still uses a lot of oil, half of US levels per capita.
Yes, because European I/C users aren't taxed as much as consumers. Consumers use 18% as much, while Industrial/Commercials actually use more than the US.
As the BRIC countries and other rapidly growing countries aspire to European levels of petroleum consumption, won't much more reduction of petroleum use will be needed?
Substitutes work as well for them as they do for OECD countries. The economics of batteries, for instance, are the same. Above about $80, electric transportation starts to be cheaper.When oil prices are at $100, the difference is only $20, which isn't enough to overcome the "friction" of change. But prices at $120 double that incentive, and prices at $160 quadruple it.
Just as importantly, BRIC countries still have some price controls/subsidies for fuel consumption, and those are on the edge of bankrupting the government or quasi-government entities that bear the burden of those subsidies. Those subsidies would have to be abandoned in the face of $200 oil, which would be dramatically raise consumer and I/C fuel costs For instance, India has recently had to abandon gasoline subsidies, and is on the precipice with diesel.
When oil went from $20 to $100, US oil imports dropped in half. $2/liter fuel in Europe has been the primary reason (geology and history the 2nd) that personal fuel consumption is only 18% of the US and Canada. If fuel were properly priced in the US at, say, $7/gallon, the US would reduce fuel consumption very quickly.
Oil consumption only decreased by about 10% when prices even though prices more than tripled from 2002 to 2012 ($30 to $100). Couldn't prices triple again?
Percentage increases aren't important. What's important is absolute increases, and their level compared to the substitutes. Below about $60/bbl there are no economic substitutes for oil, but as oil gets farther and farther above $60 substitutes become more and more obvious and pressing. In other words, this is not a linear function.
But don't we normally use the percent change when looking at consumer responses to a change in prices?
Sure, and that's just fine most of the time. The problem: that assumes a constant relationship: e.g., "10% increase in price causes 3% decline in consumption". I'm arguing that doesn't apply here. A doubling in price of oil from $20 to $40 is pretty trivial. A doubling from $100 to $200 is a very big deal. A doubling from $200 to $400 just won't happen unless the Persian Gulf is in flames, and even then it wouldn't last that long.
Why the difference?
Several reasons.
1st, $40 oil is small relative to income.
2nd, $40 oil is small relative to other costs, including oil production-related costs like refining, distribution, profit and taxes; and small relative to other consumer costs, such as vehicle depreciation.
3rd, $40 oil is cheaper than substitutes such as hybrids, plug-ins, carpooling, ethanol, CNG, online shopping, etc. As long as prices are below the price of substitutes, there will be no substitution.
Now, why haven't we seen more substitution since prices rose above $60?
1st, short term elasticity is much smaller than long-term. Oil prices haven't been high for very long, and Peak-Lite is something that didn't exist in the history of the oil industry until about 2005.
2nd Many consumers, such as long-distance truckers, don't have good "visibility". Many are *still* waiting to see if, say, natural gas prices stay low, and oil prices stay high. They have good reason, given historic volatility. Others have only recently decided that high prices are here to stay, and are still in the transition - taxis, for instance, will take several years to move fully to hybrids.
3rd, the oil industry has fought viciously to confuse the public about this issue. It has succeeded pretty well. Only prices staying high for a long time will break through that, and that delays the transition.
4th, R&D, and capital investments, take a while. Plug-ins (pure and EREV), for instance, only really took off in 2012, 7 years since 2005.
5th, change has many costs, including new infrastructure, new maintenance procedures, training of everyone involved, etc. As long as the savings from substitution are small, change won't happen. As the difference between oil prices and substitutes rises, the incentive gets larger until it breaks through. That's a non-linear relationship.
Still, you have to realize that things would change quickly if prices rose above about $150. The last time prices rose above $125 things started to change very quickly. Prices were above that level for 3 or four months only, but Industrial/Commercial users starting cutting back quite sharply, which is part of why oil prices dropped to $40 briefly, before KSA could cut back on production.
For instance, container ships started slowing down: they can reduce fuel consumption by 50% by only slowing down by 20%. For another example, when oil prices rose in the 1970's Industrial consumers switched away from oil for process heat essentially overnight. There would be many short-term changes like that. There would also be sharp medium term changes: in the 70's the US got 20% of it's electricity from oil - that went to 5% relatively quickly, and now is about .7%.
That's the nice thing about decentralized markets: they are very flexible, and they can change things around in a million ways to optimize costs. Of course, markets are inhabited by humans who can make mistakes, as noted above, but when they get moving, don't get in their way or you'll be run down.
But, Europe still uses a lot of oil, half of US levels per capita.
Yes, because European I/C users aren't taxed as much as consumers. Consumers use 18% as much, while Industrial/Commercials actually use more than the US.
As the BRIC countries and other rapidly growing countries aspire to European levels of petroleum consumption, won't much more reduction of petroleum use will be needed?
Substitutes work as well for them as they do for OECD countries. The economics of batteries, for instance, are the same. Above about $80, electric transportation starts to be cheaper.When oil prices are at $100, the difference is only $20, which isn't enough to overcome the "friction" of change. But prices at $120 double that incentive, and prices at $160 quadruple it.
Just as importantly, BRIC countries still have some price controls/subsidies for fuel consumption, and those are on the edge of bankrupting the government or quasi-government entities that bear the burden of those subsidies. Those subsidies would have to be abandoned in the face of $200 oil, which would be dramatically raise consumer and I/C fuel costs For instance, India has recently had to abandon gasoline subsidies, and is on the precipice with diesel.
January 31, 2013
Will driverless cars save fuel?
No, I don't think so. It might reduce the numbers of cars somewhat. I suspect driverless cars will make car-sharing much more attractive - having one's car close at hand is a big reason for car ownership, and driverless cars could be mighty convenient even if dispatched from a distance.
On the other hand, I only take the train because it's safe, and it gives me a chauffeur. I think driverless cars will help kill mass transit.
Finally, Vehicle Miles Traveled will explode:
First, driving becomes much, much easier, even attractive.
Second, who would ever pay for parking?? You'd hop out of the car and tell it to circle the block until you're ready. Any city with sufficient congestion to require paid parking will instantly have much more congestion from all those cars waiting for their owners - an enormous positive feedback loop! Those additional cars will drive very efficiently, so they may not slow traffic down, but they'll be there.
I think EVs (partial and full) are the only way to reduce vehicle oil consumption.
On the other hand, I only take the train because it's safe, and it gives me a chauffeur. I think driverless cars will help kill mass transit.
Finally, Vehicle Miles Traveled will explode:
First, driving becomes much, much easier, even attractive.
Second, who would ever pay for parking?? You'd hop out of the car and tell it to circle the block until you're ready. Any city with sufficient congestion to require paid parking will instantly have much more congestion from all those cars waiting for their owners - an enormous positive feedback loop! Those additional cars will drive very efficiently, so they may not slow traffic down, but they'll be there.
I think EVs (partial and full) are the only way to reduce vehicle oil consumption.
October 3, 2012
Can Congress be Bought? - Resistance to Change #10
Yes. In fact, the Return on Investment can't be beat:
Republican Strength In Congress Aids Super-Rich, President's Affiliation Has No Effect
"According to the study, "The Rise of the Super-Rich: Power Resources, Taxes, Financial Markets, and the Dynamics of the Top 1 Percent, 1949 to 2008," following years of relative stability post World War II, the income share of the top 1 percent grew rapidly after 1980—from 10 percent in 1981 to 23.5 percent in 2007, a 135 percent increase. The income share of the super-rich dropped to about 21 percent in 2008, likely as a result of the financial crisis that had begun, Volscho said. By way of comparison, the income share of the top 1 percent was 11.7 percent in 1949.
"We found evidence that congressional shifts to the Republican Party, diminishing union membership, lower top tax rates, and financial asset bubbles in stock and real estate markets played a strong role in the rise of the 1 percent," said Volscho
... From 1949 through 2008, the impact of a one percentage point increase in the share of seats (just over five seats) held by Republicans in Congress raised the top income share by about .08 percentage points, according to the study.
"At first glance, this might seem negligible, but that's really not the case," said Volscho. "Given that the estimated national income in 2008 was more than $7.8 trillion, an increase of only 1 percent in Republican seat share would raise the income of the top 1 percent by nearly $6.6 billion. That equates to about $6,600 per family in the top 1 percent."
In terms of labor unions, over the course of the study period, Volscho and Kelly found that a one percentage point decrease in union membership among private sector workers was associated with more than a .40 percentage point increase in the income share of the super-rich. According to Volscho, private sector union membership was 34.9 percent in 1949, but had dropped to 7.6 percent by 2008.
Based on the estimated 2008 national income, the effect of a one percentage point drop in private sector union membership would transfer $33.4 billion to the top 1 percent, Volscho said. ...
Study: The Rise of the Super-Rich: Power Resources, Taxes, Financial Markets, and the Dynamics of the Top 1 Percent, 1949 to 2008.
http://www.asanet.org/journals/ASR/Oct12ASRFeature.pdf
August 7, 2012
Will battery prices continue to fall?
Yes, battery prices appear to be continuing their long-term decline rate of 7-10% per year. The Reuters article below indicates that consumer li-ion is going for $300/kWh: that's 25% less than several years ago. Please note that consumer devices have the advantage of large volumes, but their size is small and costly. For instance, an iPhone has a 5.3 watt hour battery. The Volt's battery pack at 16 kWh is 3,000 times as large. So, when the Volt gets to 25k vehicles per year, that's equivalent to 75M cell phones (a little more than Apple sold in 2011). That's pretty good scale.
http://in.reuters.com/article/2012/07/11/autos-batteries-idINL2E8IB5UT20120711
On the other hand, individual cells for automotive uses are much larger, which is cheaper to manufacture (per unit capacity) and can use cheaper materials (because weight isn't nearly as critical).
The bottom line: automotive traction batteries will stay cheaper than consumer batteries (which will continue to fall in price, driven by intense pressure from places like Apple).
2) The overall price of an EV is a very complex mix, and can't be reduced to the cost of the battery. Car makers have many costs: drive train; ancillary devices such as steering and braking; suspension/wheels; body (including aerodynamics); etc. Almost all of these have to be redesigned for an electric drive train (which includes EV/HEV/PHEV/EREV) because the design requirements are very different. For instance, ICE vehicle efficiency is dominated by weight. Weight is much less important for EVs because they have regenerative braking, so aerodynamics move strongly to the forefront. Another example: elimination of mechanical control and power transmission (brakes, steering, etc) affects a lot of secondary systems. Heck, window wipers get redesigned!
Battery packs are complex: there are the individual cells; the connections; cooling and heating systems (air and liquid); charge and discharge management systems; temperature sensors, heat insulators and radiators; electronic communications and control, with hardware and software (including 10M lines of code, more than recent fighter jets); containment systems, structural support and crash protection; etc.
So, economies of scale apply to the whole car, and cost comparisons are complex. That's why I raise the example of the Prius C, which has the advantage of Toyota's economies of scale and willingness/ability to aggressively price a new vehicle based on long-term costs before it has achieved the large sale volumes which will enable those low costs.
A Prius C has both ICE and electric drivetrains, each of which are sufficient to drive the vehicle. That's substantial duplication. And, they have a full battery pack (with battery management), yet they can price the vehicle starting at $19k. We can get a pretty good idea what a small PHEV could cost, based on that. Of course, we have a plug-in Prius for the purpose of analysis, but it's larger, and IMO Toyota isn't pricing it quite as aggressively because it's newer tech (e.g., it uses li-ion), and Toyota is very careful with it's roll-out rampup of new tech (especially lately, with it's recent quality failures).
The Ford quote is a good example of this complexity. Look at the range of costs: 12k-15k! Ford's purchasing guys know the battery cost to the penny, so that tells us that Mulally is including a lot of stuff in that figure, and signalling to us that the line of inclusion is very fuzzy. The alternative is that Mullally doesn't know anything about the EV program, which seems unlikely to me.
3) I think everyone in the car industry is agreed that li-ion is the future. On the other hand, Toyota can be paradoxically conservative, and NIMH has worked quite well for them, so they're going to transition away from it slowly. For instance, the main Prius and the C continue to use NIMH, but some new versions like the plug-in, and the V (in Japan and Europe) are using li-ion.
A final note - I don't think oil prices will stay above $150 for an extended period of time any time soon. I used hyperbole in my last post to point out the cost effectiveness of EVs (including all their variations), so that we can all be clear that suburbia is not threatened by PO (for better or worse).
http://in.reuters.com/article/2012/07/11/autos-batteries-idINL2E8IB5UT20120711
On the other hand, individual cells for automotive uses are much larger, which is cheaper to manufacture (per unit capacity) and can use cheaper materials (because weight isn't nearly as critical).
The bottom line: automotive traction batteries will stay cheaper than consumer batteries (which will continue to fall in price, driven by intense pressure from places like Apple).
2) The overall price of an EV is a very complex mix, and can't be reduced to the cost of the battery. Car makers have many costs: drive train; ancillary devices such as steering and braking; suspension/wheels; body (including aerodynamics); etc. Almost all of these have to be redesigned for an electric drive train (which includes EV/HEV/PHEV/EREV) because the design requirements are very different. For instance, ICE vehicle efficiency is dominated by weight. Weight is much less important for EVs because they have regenerative braking, so aerodynamics move strongly to the forefront. Another example: elimination of mechanical control and power transmission (brakes, steering, etc) affects a lot of secondary systems. Heck, window wipers get redesigned!
Battery packs are complex: there are the individual cells; the connections; cooling and heating systems (air and liquid); charge and discharge management systems; temperature sensors, heat insulators and radiators; electronic communications and control, with hardware and software (including 10M lines of code, more than recent fighter jets); containment systems, structural support and crash protection; etc.
So, economies of scale apply to the whole car, and cost comparisons are complex. That's why I raise the example of the Prius C, which has the advantage of Toyota's economies of scale and willingness/ability to aggressively price a new vehicle based on long-term costs before it has achieved the large sale volumes which will enable those low costs.
A Prius C has both ICE and electric drivetrains, each of which are sufficient to drive the vehicle. That's substantial duplication. And, they have a full battery pack (with battery management), yet they can price the vehicle starting at $19k. We can get a pretty good idea what a small PHEV could cost, based on that. Of course, we have a plug-in Prius for the purpose of analysis, but it's larger, and IMO Toyota isn't pricing it quite as aggressively because it's newer tech (e.g., it uses li-ion), and Toyota is very careful with it's roll-out rampup of new tech (especially lately, with it's recent quality failures).
The Ford quote is a good example of this complexity. Look at the range of costs: 12k-15k! Ford's purchasing guys know the battery cost to the penny, so that tells us that Mulally is including a lot of stuff in that figure, and signalling to us that the line of inclusion is very fuzzy. The alternative is that Mullally doesn't know anything about the EV program, which seems unlikely to me.
3) I think everyone in the car industry is agreed that li-ion is the future. On the other hand, Toyota can be paradoxically conservative, and NIMH has worked quite well for them, so they're going to transition away from it slowly. For instance, the main Prius and the C continue to use NIMH, but some new versions like the plug-in, and the V (in Japan and Europe) are using li-ion.
A final note - I don't think oil prices will stay above $150 for an extended period of time any time soon. I used hyperbole in my last post to point out the cost effectiveness of EVs (including all their variations), so that we can all be clear that suburbia is not threatened by PO (for better or worse).
July 24, 2012
Are EVs affordable in a Post Peak Oil world?
Sure.
Consider the Prius C: it costs 2/3 as much as the average US new light vehicle($20k vs 30k), and uses 40% as much fuel. If oil prices tripled the cost of fuel per mile in a Prius C would still be no higher than the average US light vehicle. As best I can tell (based on Edmunds data), the C has the lowest total cost of ownership for any light vehicle.
Then, if we add $10k in batteries to the Prius C (20kWh, assuming a conservatively high cost per kWh for cells of $500), bringing the cost only up to that of the average US new light vehicle, we'd have a plug-in with an electric range of 60 miles (3 miles/kWh x 20kWh), reducing fuel consumption to less than 10% of the average US light vehicle. That's a scale small enough to be covered by solely by ethanol.
Electric vehicles of various sorts will work very well (though some people will have to wait for them to become available used). The only thing stopping them now is artificially low fuel prices.
Consider the Prius C: it costs 2/3 as much as the average US new light vehicle($20k vs 30k), and uses 40% as much fuel. If oil prices tripled the cost of fuel per mile in a Prius C would still be no higher than the average US light vehicle. As best I can tell (based on Edmunds data), the C has the lowest total cost of ownership for any light vehicle.
Then, if we add $10k in batteries to the Prius C (20kWh, assuming a conservatively high cost per kWh for cells of $500), bringing the cost only up to that of the average US new light vehicle, we'd have a plug-in with an electric range of 60 miles (3 miles/kWh x 20kWh), reducing fuel consumption to less than 10% of the average US light vehicle. That's a scale small enough to be covered by solely by ethanol.
Electric vehicles of various sorts will work very well (though some people will have to wait for them to become available used). The only thing stopping them now is artificially low fuel prices.
May 18, 2012
Is it easy to forecast oil production and pricing?
No, it's very, very difficult.
Here's an example.
"Bloomberg’s survey of oil analysts and traders, conducted each Thursday, asks for an assessment of whether crude oil futures are likely to rise, fall or remain neutral in the coming week.
...The oil survey has correctly predicted the direction of futures 49 percent of the time since its start in April 2004. "
That means that we could achieve better accuracy by flipping a coin!
http://www.bloomberg.com/news/2012-05-17/oil-may-fall-as-seaway-insufficient-to-ease-glut-survey-shows.html
Here's an example.
"Bloomberg’s survey of oil analysts and traders, conducted each Thursday, asks for an assessment of whether crude oil futures are likely to rise, fall or remain neutral in the coming week.
...The oil survey has correctly predicted the direction of futures 49 percent of the time since its start in April 2004. "
That means that we could achieve better accuracy by flipping a coin!
http://www.bloomberg.com/news/2012-05-17/oil-may-fall-as-seaway-insufficient-to-ease-glut-survey-shows.html
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