Mobility in the World of $200 Oil

By Bill Moore

Posted: 19 Feb 2010

GM Vice Chairman Bob Lutz recently lamented that hybrid-electric cars will never be profitable and that they will always remain a small segment of the auto market, around 10 per cent, he guessed. Given GM's disappointing sales track record for its various attempts at building and selling hybrid cars and pickups, starting with its Silverado Hybrid pickup line more than five years ago and culminating in the cancellation of its Malibu Hybrid program and termination of the Saturn car line, which offered the Vue Hybrid, his remarks are understandable. General Motors just hasn't figured out how to make a hybrid that makes a difference both in terms of costs and fuel economy. It's not easy for a lot of people to justify the difference between a $25,000 Prius and a $17,000 Corolla, the former offering a 50% improvement in fuel economy; while the Chevy Tahoe Hybrid, running in the $53,000 price range only promises a 15% improvement over its non-hybrid sibling, costing $13,000 less.

Besides highlighting serious flaws in GM's product development strategy over the past decade, Bob's comments also underscore a larger issue: how to make any type of alternative fuel vehicle affordable in an era of constrained economic growth, while facing the looming threat of intensifying global competition for oil reserves that have reached their maximum level of production; very likely sometime after the middle of this decade, warns a growing chorus of voices.

What happens in a world where $150 barrel is the norm, not the exception? The last time oil hit close to that brief peak in 2008, the global economy nearly plunged into a depression, spared largely because of vigorous economic growth in China, which allowed their banks to buy U.S. Treasury Bills to help fund President Obama's economic stimulus program, along with similar initiatives in Europe. With the exception of China, the rest of the world continues to limp along with massive unemployment and government deficits, with everyone hoping 2010 will be better year.

One of Lutz's other recent comments, quoted in Australian media, was that demand for oil by China will cause the world to go through more boom and bust cycles, largely because that demand, combined with that of India and the slowly recovering Western economies, will outstrip production. Until the world can find a way to "turn oil into salt", to quote Gal Luft and Anne Korin, turning it into just another commodity instead of a strategic asset, the world after 2015 or 2017, depending on whose analysis you tend to believe, is going to be a lot different than the one in which we live today. Being able to afford a $40,000 Volt or $30,000 Leaf (both numbers being just speculation at this point), presumes either sufficient personal wealth (savings) or income (a steady, high-paying job... with medical benefits).

Assuming that the projections of the like of the UK Industry Taskforce on Peak Oil, Deutsche Bank, Macquarie Bank, CIBC's Jeff Rubin are correct and oil production starts to slide towards $200 a barrel oil and $10 a gallon gasoline, what will your mobility options be? Here are some possibilities to consider.

Adopt Different Travel Modes

Downsize: The most obvious solution many people are going to make -- as they already are -- is downsizing to smaller, more fuel efficient motor vehicles. Trading from a 18 mpg Toyota Landcruiser to a 35 mpg Yaris not only reduces your capital investment from $65,000 to $15,000, but also slashes your taxes, insurance and operating costs. Similar American-made models offer similar savings.

Rightsize: Not every trip requires firing up a 4,500 lbs behemoth to drive 2 miles to pick up a loaf of bread, a quart of milk or a bottle of aspirin. Use the right sized vehicle for the job, starting with your own two feet. Often two wheels, in the from of a bicycle (pedal or electric assist) are the most efficient and cost-effective means of travel for short distances. Motor scooters, motor bikes and motorcycles can be suitable for longer runs of 2-5 miles, preferably powered by electric drives. While the average motorcycle seems to be a good substitute for driving a car, it turns out they aren't all that more energy efficient and they generate far more pollution. As I have been arguing here in my home state, small, efficient Neighborhood Electric Vehicles offer a excellent middle ground between two-wheeled vehicles and the conventional automobile. They are safer than a bicycle in mixed traffic and far more economical than a gasoline car.

Shared Mobility: For a lot of people, full-time car ownership is an economic obligation they neither want nor can they afford. Car-share programs like ZipCar offers an alternative, as would community-owned fleets. Not long after the introduction of the Tata Nano in India, I suggested that entrepreneurs there should follow the example of the Grameen 'telephone ladies' who bought cellphones and rented them on a per-call-basis to their poorer neighbors. Why not do the same with the Nano? Buy several Nanos for a village or neighborhood and then hire them out on a per-trip basis. Another version of shared mobility is the always difficult to implement, car pool, and various spin-offs of that. Actually the concept was first introduced during the war years of the 1940s when fuel, cars productions and tires were being rationed to the civilian population. My guess is, we're going to see that return in spades in countries around the world.

Public Transit Reborn: During the 1930s and during the post-War years, most of America's public transit system was gutted, trolleys were torched and rail lines either ripped out or buried under asphalt, effectively creating the transportation equivalent of a mono-culture, powered mostly by petroleum, of which, at the time, America had vast reserves. When President Eisenhower signed the act creating the U.S. Interstate highway system, he also signed the death warrant of passenger rail travel in America. Only within a past decade or so have city planners and government official begun to recognize the folly of those efforts, along with the creation of suburbia. It took $4 a gallon gasoline in 2008 to begin to get Americans out of their automobiles and back onto public buses and rapid transit trains, at least in those communities that had the vision and foresight to either retain them or build them.

Evolving Driver Behavior

Long before we see even $5 gasoline in America, we will begin to see changes in driver behavior, starting with when, where, why and how we drive.

When: One of the biggest wastes of gasoline is millions are cars stuck in rush hour traffic jams. To reduce this waste, I foresee local governments, setting schedules on when people can drive their vehicles. Paris, France has done this to try and reduce ozone pollution in the past. Mexico City's mayor requires all city employees to ride bicycles to work once a month.

Where: Dozens of European cities have established limited, car-free days, banning travel into certain sections of their city with the objective being to reduce pollution, but also saving fuel, in the process. Beijing issues specially numbered license plates that allow drives access to only certain rings of the city. London charges a hefty daily fee to drive a car into its city center.

Why: Steep energy prices are going to cause people to think twice before turning on their aging oil-burner. Trips will be combined certainly within households and possibly even within neighborhoods. The days of parents sitting parked in idling SUVs in front of grade schools waiting for their child to emerge so they can drive them the four or five blocks back home will be history.

How: If you drive, you will be driving a lot differently than you do today, starting by watching carefully the driver performance display on your car, one that either came as standard equipment or you bought as a add-on, like the Kiwi MPG display I have on my Chevy S10, E-85-burning pickup. "Pulse and glide" will have killed the "jackrabbit."

Alternative Fuel Options

Gasoline will be around for a long time to come, as the Saudi's and other like to assert. But as Toyota's Jim Lentz told an audience at San Francisco's Commonwealth Club in November 2009, it will be "prohibitively expensive." Long before then, we will be looking for other options: compressed natural gas is beginning to gain traction, as is ethanol. Iran is in the process of a mass conversion of its aging vehicle fleet to run on compressed natural gas, of which it has one of the largest reserves in the world. Brazil long ago shifted its fleet over to flex-fuel, the primary one being ethanol. By the mid-2020's we could see biomass-derived methanol running in cars, along with algae-produced biodiesel and ethanol. Some regions or countries may go the synthetic fuel route. All of these options can be utilized in conventional IC engines with some minor adaptations, but by its very nature, the spark ignition engine is both inefficient and polluting, especially in terms of NOx emissions; and I would expect that they will also be relatively expensive.

Certainly, electricity will become an increasingly important energy source for transportation, but in the age of $200 oil, it too will likely be more expensive relative to its cost today, largely because of capital improvement costs for new distribution systems, cleaner power plants and environmental laws. Whether we go down the renewable energy or nuclear power paths, or a combination of both, the cost per kilowatt will be, in my view, edging upward, not downward, at least for the next quarter century.

I would love to believe that hundreds of millions of people will be motoring around in the 2020s in electric cars from American manufacturers, but my suspicion is that most of those millions of little e-cars will be coming from Indian and Chinese manufacturers, perhaps with assembly facilities in Mexico or Haiti, in order to save on transportation costs.

The world of personal mobility beyond Hubbert's Peak (the bell-shaped curve of oil field production first identified by M. King Hubbert in the 1950s) will be far different than it is today. It will take getting used to and that won't be easy, but until we can fuel our vehicles with "unobtainum", we have to expect it and prepare for it.

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