Mass Produced Electric Cars? Sooner Than You Think

WASHINGTON –  The still unresolved issue that will determine if and when there will be real mass demand for Electric Vehicles, EVs, is how to design and manufacture cheaper, lighter batteries for EVs with a higher energy reservoir, and therefore capable of traveling longer distances with one electric charge.

Getting there

The optimists tell us that we are getting there. They cite significant technological innovations and dramatic cost reductions already achieved in the past few years. All true. Batteries are cheaper. EVs now can travel farther. And the optimists also tell us that new collaborative efforts now underway may help expedite additional progress in battery design and effectiveness.

Cheaper batteries, coming soon 

Here is a good example. “Cheaper, more powerful electric car batteries are on the horizon.” This headline appeared on ScienceDaily, 9 August 2016. The story is about a new joint effort linking the U.S. Department of Energy, several U.S. academic institutions and the private sector, under the leadership of a Binghamton University expert.

“The White House —Science Daily wrote— recently announced the creation of the Battery500 Consortium, a multidisciplinary group led by the U.S. Department of Energy (DOE), Pacific Northwest National Laboratory (PNNL) working to reduce the cost of vehicle battery technologies. The Battery500 Consortium will receive an award of up to $10 million per year for five years to drive progress on DOE’s goal of reducing the cost of vehicle battery technologies.”

“[Assuming success, this effort] will result in a significantly smaller, lighter weight, less expensive battery pack (below $100/kWh) and more affordable electric vehicles. 

M. Stanley Whittingham, distinguished professor of chemistry at Binghamton University, will lead his Energy Storage team in the charge.”

“We hope to extract as much energy as possible while, at the same time, producing a battery that is smaller and cheaper to produce,” said Whittingham. “This consortium includes some of the brightest minds in the field, and I look forward to working with them to create lithium batteries that will power future electric vehicles more affordably.”

According to the Science Daily story, other Battery500 Consortium members include:

• Pacific Northwest National Laboratory

• Brookhaven National Laboratory

• Idaho National Laboratory

• SLAC National Accelerator Laboratory

• Stanford University

• University of California, San Diego

• University of Texas at Austin

• University of Washington

• IBM (advisory board member)

• Tesla Motors, Inc. (advisory board member)

Breakthrough? 

Well, is this an indication that we are on the verge of a major breakthrough when it comes to the most critical component of future generation EVs? Who knows, really.

Still, if I were the CEO of a major oil company, I would feel very nervous.

Never mind OPEC and its mixed signals regarding its willingness and ability to freeze/cut production in order to stabilize global oil prices. Never mind the ongoing tensions between political rivals Saudi Arabia and Iran and their potential impact on oil markets.

Oil will become obsolete

The real scary thought is that oil may soon become obsolete. Yes, you got it right: “Oil may soon become obsolete”.

Of course this will not happen suddenly. And of course there will still be a significant need for many oil derived products other than gasoline for automobiles. (Think jet fuel, diesel for heavy trucks, oil for plastics and other petrochemical products, and a lot more).

Still, the fact is that on a global scale crude is used mostly to produce the gigantic rivers of oil-derived gasoline that end up in the tanks of hundreds of millions of cars powered by internal combustion engines. Tanks that need to be refilled very often with more and more gasoline.

End of the conventional car

If and when cheaper EVs powered by cost-effective new generation batteries hit the road, there will be a fairly rapid revolution. This will be the end of the conventional car powered by an internal combustion engine.

Indeed, an electric charge is much cheaper than filling your tank with gasoline. Much cheaper batteries, assuming some companies will manage to manufacture them relatively soon, will lower the price of future electric vehicles, while increasing the distance EVs can cover with one charge.

As soon as this happens, there will be a consumers-led revolution. Millions of drivers across the world will quickly switch to EVs because they will be finally affordable, dependable, and much cheaper to operate, not to mention far cleaner than their gasoline powered counterparts. (By the way: not entirely clean. EVs run on electricity, a zero emission fuel. However, a significant percentage of electricity in the U.S. and elsewhere is produced by burning coal and natural gas. Which is to say that if you consider the source of their fuel, although emissions free, EVs are still not entirely “clean”).

How soon? 

That said, the big, open question for any oil executive is: “How much time do we have left before the whole oil sector will collapse, due to lack of demand”?

It is very clear that this revolutionary transformation brought about by mass-produced EVs will happen. But nobody knows when: 5 years? 10 Years? 15 Years?

And here is the big problem for the oil industry. In order to properly run their businesses, oil executives must plan ahead. And these plans entail major capital investments needed now in order to reap significant gains to be realized several years down the road in terms of new oil production coming on line.

Indeed, for oil companies to stay profitable, mature wells close to exhaustion need to be replaced by fresh production. And this means investing now, sometimes on a massive scale, in order to secure continuity of future oil production. This is how the industry works. Except that now this traditional approach is no longer a sure bet.

Given developments in EV battery technologies, today oil executives know that this cycle of investments-exploitation-new investments-future exploitation will no longer work indefinitely.

The end of oil companies as giant players 

If and when EVs will become dominant because of technological and cost breakthroughs in batteries technology, this will signal the beginning of the end for major oil companies.

In the not so distant future, many of them will run the risk of being caught with new expensive projects half completed that all of a sudden are no longer economically viable on account of collapsing demand for their product –oil– once coveted, and now out of fashion.

Beyond these contingencies, because of EVs almost all oil companies will have to cut production, concentrating on the cheapest crude, in order to survive in a new energy era characterized by drastically diminished demand for oil and oil products. The weakest players will not be able to make it. They will go under, or they will be bought by bigger companies.

Oil will still be needed 

Having said all this, will EVs amount to a final catastrophe for the oil sector? Not entirely. Let’s keep all this in perspective. Even assuming state of the art, cost-effective EVs quickly replacing an enormous global fleet of gasoline powered vehicles, there will still be demand for oil.

Heavy trucks and ships will continue to run on oil derived diesel fuel for many, many years. Likewise, thousands upon thousands of civilian and military airplanes will still rely on jet fuel made from crude oil. Petrochemical and plastics industries across the globe will continue to need oil derived products.

All this is true. However, assuming a fairly rapid switch to EVs, the global demand for oil, now driven largely by demand for oil derived gasoline, will collapse. All of a sudden, the global oil industry will face gigantic over capacity: too much oil and too little demand. Only the ultra lean, low-cost operators with a solid financial base will survive.

Good bye Exxon? 

Hard to think of a world in which Exxon Mobil will be a mid-sized company confined to producing oil for jet fuel and diesel trucks only, since millions of cars will run on electricity, and no longer on gasoline. But we are getting there. And this may happen sooner than we think. Call it the next “oil shock”.

 




Oil Prices Will Stay Low

WASHINGTON – I am not at all surprised to see that the Doha oil talks aimed at finding an agreement about stabilizing output among major producers failed. Saudi Arabia would have liked to freeze production at current levels, which means at the Kingdom’s highest level in modern times, (more than 10 million barrels a day).

No deal with Iran 

However, it was obvious that Iran could not possibly have agreed to freeze its own production at current levels. Tehran wants to ramp production up to its pre-sanctions peak. And how could anybody have assumed anything else? Of course the Iranians want to increase their oil production and regain lost market share.

Therefore, no deal. As a consequence, oil prices are once again headed lower. There was a time in which low prices were really good news in the West. But now it is a mixed bag, especially in the U.S.A.

Oil was good news in America 

And how so? Well, because “unconventional oil” exploration and recovery –we are talking about shale oil– has been one of the brightest spots in the otherwise timid U.S. post 2008 economic recovery. Tens of thousands of new, high paying jobs made things better in many oil-producing states, from North Dakota to Texas.

U.S. oil in recession 

But now, lower prices are bad news for a sector composed primarily of small to medium-sized companies, many of them under capitalized and highly indebted.

For small U.S. energy companies it was easy to get bank loans when oil was at $ 100 a barrel, and therefore future profitability was not in question. But now it is at $ 40, possibly headed even lower. And therefore the U.S. oil patch is in a recession. Moody’s just downgraded many U.S. energy companies. Tens of thousands of good jobs have already been lost, with more losses to come. This will have a nasty effect in the affected regions, and some negative impact on the overall American economy.

Resilience 

Things are not awful across the board. In fact, the shale oil sector has proven to be much more resilient than most analysts had predicted. A combination of aggressive cost cutting and vastly improved production technologies allows at least some shale oil companies to stay profitable even with oil at $ 40. But this is only about some companies.

The other good news is that shale oil production is relatively flexible. It is not too complicated to shut down wells and then start production again in better times, when prices have recovered. Still, idled wells do not generate any income. Weak producers close down, or go bankrupt. Some may be bought by bigger competitors with deeper pockets.

Sure, at some point this cycle will end. Saudi Arabia cannot afford huge budget deficits for ever. Its bizarre policy of keeping production at these levels, (this way depressing prices), while the Kingdom needs to get into debt in order to fund current government operations (and that includes almost the entire country getting some money from the Royal Family) will end. But it will take a while. In the meantime, hard for U.S. oil workers to find other jobs that will pay so well.

Good news for consumers 

That said, depressed oil prices, while they hurt an important sector of the U.S. economy, on balance are positive. America is still a major net oil importer. Lower prices translate into a smaller balance of trade deficit. And for the average consumer cheap oil must be good news. Who can complain when finding lower prices at the pump? For tens of millions of American drivers low gasoline prices are equivalent to a tax cut. More money in their pockets.

The future of oil

That said, going forward, the real challenge for the U.S. oil sector is not Saudi Arabia flooding the global market. The real challenge will be new, non oil-based technologies.

Despite its uncertain beginnings, the electric car sooner or later will become economically viable. Elon Musk of Tesla has bet everything on making affordable, mid-sized electric vehicles, EVs. We are not there yet. Money losing Tesla may be will fail. But even if it does, others will follow. And when someone will hit the sweet spot with easy to recharge, attractive EVs with a good range that the average consumer can afford, it is good-bye to oil.

Saying good-bye 

And that will be a real good-bye. It will not be about temporary sector recessions, or fluctuating prices due to Saudi shenanigans. It will be the end of the oil era.

Here in the U.S. at least someone will be prepared for this gigantic transformation. But economies such as Russia, Venezuela and Saudi Arabia which depend entirely on oil revenues to fund “everything” will be in deep, deep trouble.

All told, better to be in America. This society, with all its problems, is still capable of promoting change while embracing it when it comes.




Will Tesla Be The Electric Car Maker of The Future?

WASHINGTON – Thank God, US IT tech companies are still in the lead. It is hard to match the combined strength of Apple, Google, Intel, Facebook, Cisco, Microsoft, Oracle, and so many others.

A high-tech car company

But now we also have Tesla, the high-tech electric vehicle (EV) manufacturer, aspiring to be part of the super high-tech, high valuation technology companies club.

And here is a problem. Undoubtedly, Tesla is a tech company. But it makes cars, not software. Can Elon Musk, its founder, keep saying that because he is creating a technology revolution about to transform the automotive sector the metrics about unit costs and profitability that would apply to traditional car makers do not apply to Tesla?

You buy into the revolution 

Who knows really. As Philip Delves Broughton notes in a well crafted FT op-ed piece, (To be rational about Tesla is to miss the point, August 27, 2015), if you are buying Tesla’s stock you are buying into a huge bet. And the bet is that this particular EV technology will indeed disrupt the entire car industry, soon enough displacing the old, established players.

If this is indeed so, then forget about the traditional metrics. Forget about the fact that Tesla’s stock is absurdly over valued. Indeed, as Broughton notes, the entire company is worth about half as much as BMW, a competitor that makes 35 times as many cars.

You buy Tesla stock simply because you believe what Musk says about massive future sales based on the guaranteed success of new, affordable EV models that have yet to be produced.

Well, if Musk is right, then he is the man who will transform the world automotive industry. Again, if this is so, then Tesla stock at $ 200 or even $ 300 a share is a bargain.

If Musk is wrong 

But if Musk is just a clever marketer, your investment most likely will be worth nothing in just a few years. Indeed, what if Tesla EVs cannot deliver any real profits? What if there are other companies out there that will come up with a more efficient electric engine and/or a new generation of truly revolutionary low-cost, high charge, low weight batteries?

Well, then it is good-bye Tesla, the trail-blazer that got it only half right.

Subsidies 

And just one more thing. Tesla current lousy numbers would be a lot worse without the subsidies that Tesla and other EV manufactures receive from the federal and state governments.

Policy-makers love anything that replaces the internal combustion engine. Therefore Tesla buyers benefit from a tax rebate, while the company gets carbon credits that it can sell to others, this way making extra profits.

Look, nobody denies that Tesla already makes a great car. The Model S gets fantastic reviews. But it is not a cost-effective product.

The Concorde was great, but it kept losing money 

By the same token, when a French-British consortium launched the Concorde, back in the late 70s, many thought that we had entered a brand new era of cost-effective supersonic air travel.

Well, it was not so. Nobody said that flying the Concorde was a bad experience. On the contrary, it was wonderful. But it was a commercial disaster. Therefore, after a long agony, the Concorde was finally pulled out of service in 2003. This does not mean that supersonic commercial jets will never be made. It simply means that it will have to be something other than Concorde.

Now, are Tesla vehicles the real thing, or just the automotive versions of the old Concorde?




Tesla Motors Stock Is Incredibly Overvalued

WASHINGTON – I have written before that Elon Musk, the founder of Tesla Motors, is a real pioneer. With dogged determination, he proved that it is possible to make an attractive, high performance, highly desirable electric vehicle. Now Musk is trying to go to the next level, by creating new, lower priced models that will be affordable for the general buyer.

Overvalued stock

All this is good. What is not good, however, is the incredible ascendance of Tesla’s stock. It grew more than 70% in 2014. It retreated a bit more recently, but it is still fantastically high.

Consider this. Right now, the market capitalization of Tesla is about $ 26 billion. And yet Tesla makes only 33,000 vehicles a year. Fiat Chrysler is worth about $ 20 billion, considerably less. And yet Chrysler made 1,8 million vehicles in the US in 2012. The group’s worldwide production was 2.37 million.

Ford is worth about $ 60 billion, a bit more than double Tesla’s value. But Tesla’s total annual production is the equivalent of the number of cars Ford makes in just one day. Got that? A full year production versus just one day.

How about another interesting comparison? As a recent WSJ article put it: “Tesla sells about 90 cars a day. GM sells 90 every five minutes. But Tesla is worth nearly half as much as GM”.

And, by the way, Tesla is not profitable. In the first 9 months of 2014 it lost $ 186 million.

What’s going on?

So, what is going on here? I am not sure. But, whatever it is, as a minimum it is not healthy. Worse case scenario, those who buy Tesla’s stock at these prices are certifiable.

Look, we understand that stock valuations are a reflection of what investors believe to be not so much today’s value of a company, but tomorrow’s. A high stock price is a vote of confidence on future prospects.

And it may very well be true that Elon Musk is onto something really big. It may very well be that Tesla’s new, lower priced electric vehicle models will engineer a major revolution in the automotive world. Hence the vote of confidence that yielded this fantastic stock valuation.

Think again

And yet, think again. Tesla’s total production is the equivalent of what Ford makes in just one day. But Tesla’s market capitalization is about half Ford’s.

This is absolutely crazy.




Electric Vehicle Technology Advances May Destroy The Global Oil Industry

WASHINGTON – Joseph Schumpeter famously called it “creative destruction”. This was and still is the best way to describe how in a free market, capitalistic economy technological advances, (this is the “creative” part), inevitably cause the death of pre-existing technologies, systems and modalities (and here you have the “destruction” part). The problem with truly disruptive innovation (the outcome of very good creation) is that incredibly positive technological developments in many cases spell disaster for established industries, especially capital-intensive industries.

Oil sector, always a winner?

Take energy, for instance. I applaud American ingenuity that pushed the development of technologies –hydraulic fracturing and horizontal drilling– that now allow the successful economic exploitation of domestic shale oil and shale gas. Considering America’s (seemingly) never-ending need for oil in order to produce the rivers of gasoline needed to power our hundreds of millions of vehicles, more oil discovered and produced here at home is good news.

Indeed, the more oil we get at home, the less we need to buy from other producers, some of them troubled Middle Eastern OPEC countries. Therefore, investing in additional domestic oil production should be looked at as a very smart move. It is good for our balance of payments, (more of our money stays at home), and definitely good for our energy security. Finally, it is very good business for the oil industry.

EVs, Electric Vehicles, may change everything

All true –until yesterday. Today, we do not know for sure anymore, on account of possible technological advances that can make most, if not all, of the oil industry obsolete. What? Oil obsolete?

Yes, this seemingly outrageous prediction may be true. The fact is that right now –and even more so going forward– the oil industry has to deal with the potentially catastrophic consequences of disruptive breakthroughs occurring in the relatively new electric vehicles, EV, sector. Indeed, if and when technologically viable and truly cost competitive EVs come to market, this will be the end of the oil industry as we know it. This will be capitalism’s “creative destruction” on a gigantic scale.

Let’s look at this in perspective. Until a few years ago, the world knew only the internal combustion engine. And this engine required oil-derived gasoline. There were no alternatives.

Technological breakthroughs?

But now it is different. Now we know that there can be  alternatives. Granted, EV technology is still in its infancy. However, looking at the global offerings of electric vehicles (totally electric, as well as hybrids) I see well over 20 models. In other words, we begin to see a real effort, on the part of newcomers as well as established auto manufacturers, in the USA, Europe and Asia to make and sell more advanced electric cars.

We all know that the still unsolved technological challenge faced by this new industry is to create cheap batteries that will allow you to drive your vehicle for longer distances before you have to stop and recharge.

This is still a real problem holding back EVs. But we also know that lots of smart people across the globe, from Japan, to China, to Germany, France and the US are busy working on it.

Invest in oil?

Now, if I were in the shoes of a major oil company CEO, knowing all this would make me nervous, very nervous. I know that, in order to stay in business, I need to identify, secure the drilling rights and then put into production more and more oil fields. This requires committing a huge percentage of my profits, billions and billions of dollars for the likes of Exxon and Chevron, into developing new resources. All this will done on the basis of some key assumption about demand for oil products and therefore prices.

Cheap EVs coming tomorrow?

However, how do I prepare for an announcement coming, say, a year from now in which Tesla Motors declares that it has come up with a brand new battery that costs 1/3 of its cheapest model, while it allows you to drive 400 miles before recharging? This is unlikely; but not impossible.

If and when electric vehicles become affordable and viable, given the lower cost of electric power, gasoline demand will dwindle and then vanish. Indeed. And this will spell the end of the oil industry as we know it today. (We shall still need oil for jet fuel and other uses. But they would amount to a small fraction of today’s demand).

Given all this, and the rather uncertain future created by R&D in EVs, is it really smart to invest massive amounts of capital in oil?

Who knows really. Real breakthroughs in EV technology may be around the corner, or they may happen 20 years from now. It is impossible to make believable predictions when it comes to rapidly evolving technologies.

Risk

Capitalism is about taking risks. Sometimes huge risks. And this is difficult, as so many predictions (based on incorrect assumptions, we find out later) turn out to be wrong. It is really hard to be in a capital-intensive, mature industry threatened by potentially viable newcomers.




Elon Musk, Tesla Motors’ Founder, Came to America Because He Believed That This Country Would Offer Opportunity

By Paolo von Schirach

Related story:

http://schirachreport.com/index.php/2013/08/07/electric-cars-are-not-selling-well-but-quality-will-improve-for-heavy-trucks-though-the-future-fuel-is-natural-gas-not-electricity/

August 12, 2013

WASHINGTON – I wrote recently that it is going to be a while before electric vehicle (EV) maker Tesla Motors and others like it will be able to radically transform the US automotive industry. (See link above to related story). Indeed, while Tesla’s model S is doing very well, it is on track to sell at most 21,000 vehicles this year. This is obviously very good for a company that sells very expensive, high performance EVs; but it is hardly transformative.

The value of new ideas

Still, having said that, it is really important to reflect on the incredible value of entrepreneurs like Elon Musk, Tesla’s founder. What needs to be stressed here is that Musk is a true, modern trail blazer. Musk ventured into practically virgin territory with what appeared to most analysts a really crazy idea: making a high performance, high price, sporty EV. Remember that many years ago when Musk got started people thought that EVs should be designed for young or middle aged tree-huggers, people focused on saving the planet. Whereas Musk focused on an entirely different market: quality conscious wealthy people interested in a brand new experience: a high performance (and consequently high price) EV.

Well, this is beginning to work. Of course, when it comes to market expansion, much will depend on Tesla’s ability to roll out equally interesting but much more affordable electric cars. We shall see.

Enterprise is our future

But this is not the point today. The point today is to celebrate Elon Musk and many others like him. These are the people willing to take huge chances in order to see if they can indeed push the envelope. It is obvious that when it comes to innovation many “Grand Ideas” are destined to fail. But some will not. And the record shows how, failures notwithstanding, many determined entrepreneurs will keep going at it. May be on their second or third try they will come up with something really important.

Focus on stagnant sectors

And we should be grateful for all these efforts. Indeed, it is mostly because of people like Musk that America can keep its position as technology leader. In a recent TV appearance Musk  indicated that innovators should really focus on sectors that have been stagnant, sectors that no longer deliver any special value. Real entrepreneurs should really look at ways in which they can introduce disruptive innovation that will cause a real paradigm shift. He talked for instance about the “Hyperloop”. This is really science fiction stuff. A totally new idea for an ultra fast inter city transportation system that is light years ahead of even the best super fast trains that still rely on tracks and locomotives, however advanced.

The “Hyperloop” is on the drawing boards, and most likely it will not happen any time soon. Still, this is just an example of Musk’s ability to think big and think boldly, even when some of his ideas may invite jokes.

Once again, many “Bold Ideas” that promise huge technological transformation will be failures. Sometimes costly failures. But it does not matter. Hopefully, those who tried and failed will not be discouraged. They will learn from their  lessons and try something else.

Policy makers have to keep America’s unique pro-business environment

That said, US policy makers must realize that they need to put in place every possible incentive for innovators. Indeed, for America to keep its coveted position as the world’s premiere “Innovation Hub”, it needs to attract people like Elon Musk who are willing to think big and take big chances. To this end, we need to do our best to reaffirm America’s credentials as the best place for true innovators. Do keep in mind that Tesla’s Elon Musk was born in South Africa. He came to America because he thought that the US would be an ideal home base. If people around the world stop believing this, if we lose this edge, the smart innovators will go somewhere else. 

 




Electric Cars Do Not Sell – Just Like Renewable Energy, A Good Idea Whose Time Has Yet To Come – Innovation Will Replace Carbon Based Energy, But Not Today

[the-subtitle ]

By Paolo von Schirach

February 4, 2013

WASHINGTON – The New Green Economy that would have created tens of thousands of new and highly paid jobs was one of Obama’s first term promises. It sounded good, and it seemed to be in step with the unfolding new era of expensive (and scarce) oil and global warming. Going green appeared both smart and virtuous.

Steven Chu to the rescue

America would finally shake off its dependence on oil, while creating new, sustainable and at the same time highly profitable sectors. To make all this happen, Obama called upon Steven Chu, eminent scientist and Nobel Prize recipient, to run the Department of Energy. The mandate was clear: Washington would deliberately push forward the development and the adoption of the best renewable energy solutions.

Bad timing

Great plan, at least in principle. But horrible timing. As Chu was providing credits and grants to renewables, the US shale oil and gas revolution was unfolding, with zero Washington backing and zero US Government appreciation of its enormous consequences. Shale oil and gas represent a real game changer. At least for a few decades, America will have much more carbon based energy reserves than any estimates had previously envisaged. The US has now the cheapest gas in the developed world. These reserves will last for about a century. So much for shortages and sky high prices for imported natural gas.

This shale revolution undercut at least part of the rationale for the quick adoption of renewable energy sources. Especially when it comes to power generation, hard to beat current prices for US natural gas.

Electric cars doing poorly

And what about the revamped and re-engineered electric cars, (EVs)? Well, the millions of anti-carbon US environmentalists looking for truly green alternatives apparently do not like them enough. Nobody is buying them. Worldwide sales are pitiful. In the US only 14,687 EVs sold in 2012. This is 0.1% of total US auto sales of 14.5 million, well below all auto makers projections.

At some point some kind of vehicle not relying on internal combustion will be developed. But we are not there yet. The unresolved issues plaguing EVs are the cost of batteries, the still limited distance you can travel with one charge, the long time required to recharge, and the lack of a national infrastructure of recharging stations.

There will be new technologies

All these problems may be resolved at some point. Or we may be surprised by some totally unexpected and different breakthrough that will transform the auto industry. Still, for the moment, auto companies do well with more fuel efficient gasoline engines, while hybrids also do well.

Lesson: Government should not try to time innovation

The lesson of all this is that it is unwise for public policy to try and time the level and pace of innovation deployments. Common sense tells us that “at some point” we shall have to move away from limited and environmentally unfriendly carbon energy sources. (In this respect please note that abundant US natural gas is also the cleanest hydrocarbon). But only when we have something better that really works.

Departing Secretary Chu should reflect on this

Forced adoption of renewables via subsidies and mandates to utilities often resulted in sub optimal choices and waste of money. As Secretary Chu is getting ready to leave office, he may want to reflect on this. Broadly speaking, the Green Tech plan was good; its timing unfortunately was not.




The Current Fossil Fuels Revolution Is An Economic Blessing For America – Still, The US Should Pursue R&D In Renewable Energy

[the-subtitle ]

By Paolo von Schirach

October 7, 2012

WASHINGTON – The year is 2050. Exxon is reporting its earnings from its main economic activity: commercial real estate. Indeed by 2040 Exxon had got out of the fossil fuels business entirely, after oil prices had collapsed following the large scale introduction of super cheap electricity from renewable sources that now fuel most of the world’s vehicles. A total fantasy? Not really. But getting there will take time, assuming intelligent policy makers.

The promises of green energy

Let’s take a step back. Green energy was supposed to provide a clean, efficient, low cost and above all virtuous way out of our sad dependence on dirty and expensive fossil fuels foisted on unaware societies by greedy coal, oil and gas interests. And so the battle for clean energy became a battle to clean not just the environment but our souls as well. We were promised an abundant and affordable stream of renewable energy that would have satisfied all our needs without any of the horrible consequences caused by the use and abuse of carbon.

Well, none of this happened, except for the significant waste of public resources due to the forced adoption of renewable energy mandated by ideological policy makers who really believed that this was the only way out of ecological disaster.

Renewables more cost effective, but not yet competitive

Sure enough, due in part to mandates and forced adoption of wind and solar power, renewable technologies have made significant progress. They are becoming more cost effective. Still, at present they are not yet fully competitive. Wind is doing much better than solar; but the economic (as opposed to moral) case for renewable energy has yet to be won.

This does not mean that viable, truly cost effective, renewable energy alternatives is out of the question and therefore should not be pursued. Of course they should be pursued. But one thing is to go spend money on research and development and quite another to force the adoption of still imperfect technologies today, on the assumption that emerging technologies need some extra help to get established in a highly regulated and thus non competitive energy sectors. While the general proposition regarding highly regulated sectors is true, it does not follow that it is smart policy to force the adoption of non yet fully viable alternatives that will require subsidies for an indefinite period of time.

Running out of oil and gas?

That said, until just a few years ago it was still possible to make a convincing case for the rapid adoption of renewable energy. Most forecasts indicated that we were running out of fossil fuels. It was assumed that the rapid modernization of Asia and then Africa would result in increased demand for existing fossil fuels that could not possibly be matched by existing supply.

Beyond environmental concerns, renewable energy therefore became also an urgent matter encompassing economic survival and national security, unless we wanted to contemplate a world in which energy hungry nations would go to war with one another to secure dwindling oil supplies for themselves.

But now all these dire predictions have vanished. And this is because, while global demand has increased and will continue to increase, so has global fossil fuels supply. There is a lot more oil than we thought. Production is up in the United States. Canada will flood world markets with oil extracted from its Alberta oil sands. More oil will come from Arctic regions previously inaccessible, along with more oil that will be extracted from off shore deposits in Brazil and elsewhere.

Enter shale gas

But the real game changer is shale gas, an abundant fossil fuel that could not be extracted in a cost effective manner until just a few years ago. Shale gas has transformed the entire American power generation industry. From being scarce and expensive, natural gas is now adundant and super cheap. And the good news is that, while America leads the world in shale gas extraction technologies, (hydraulic fracturing and horizontal drilling), there is plenty of shale gas around the world, from China to Poland and Argentina.

This means that the barrier to entry for renewable energy alternatives, including nuclear power, has just been raised. The US has enough natural gas for more than 100 of consumption. This is not an eternity; but it is a really long time. Hard to make the case to forgo the immediate, medium and long term economic benefits of this inexpensive fossil fuel because we really need to push the adoption of clean energy solutions.

Fossil fuels will be displaced by better alternatives

But this does not mean that innovation in energy and in all the critical energy related sectors has to stop. Indeed, Sheikh Ahmed Zaki Yamani, a former Saudi Oil Minister, famously said many years ago that “the stone age did not come to an end because we had a lack of stones, and the oil age will not come to an end because we have a lack of oil”. Take it from a pro: the real game changer will not be the depletion of oil supplies, but human ingenuity that will come up with something better than oil.

This being the case, policy makers will have to pursue at the same time parallel and seemingly contradictory policies. They will have to encourage the speedy utilization of new fossil fuel reserves, while fostering research and development of new technologies aimed at eventually displacing carbon based fuels.

Smart public policies?

This is inherently difficult because the established sectors do not like competition, while the innovators fear that without special treatment they will have no chance against the powerful fossil fuel lobbies that encompass large industrial sectors, ranging from utilities and oil services companies to gas stations owners. Given this complexity, an honest and not emotionally charged national energy debate would really help.

In the end, while we should look at the current fossil fuel bonanza as an economic blessing, we should also look forward to the day in which Exxon is no longer in the oil and gas business. A world with abundant, clean and inexpensive renewable energy will be a much better world.




In An Uncertain Energy Environment, The Best Policy To Encourage Innovation Is To Increase The Federal Gasoline Tax – Clear Long Term Prices For Oil Based Products Will Tell Innovators What They Are Up Against

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By Paolo von Schirach

October 1, 2012

WASHINGTON – New generation electric vehicles (EVs) are not living up to their promise. The GM Volt is not selling, high end electric car maker Tesla Motors is struggling, while Coda Automotive, another EV start up, is also doing poorly, despite its sophisticated backers. Are electric vehicles simply a bad idea? Or is it that the technology still needs to grow and mature a lot more in order to find market acceptance?

Energy uncertainty

At a different end of the energy spectrum, are more stringent CAFE standards the best tool to optimize the efficiency of traditional gasoline burning internal combustion engines?

And finally, should there be a major effort to make and sell heavy trucks that burn liquefied natural gas (LNG) instead of diesel, on account of the extremely low price of domestic natural gas, as opposed to (mostly imported) oil derived fuels?

Impossible to know the correct answer to these critical questions. The picture regarding energy supplies and new technologies keeps changing. And this is problematic because enormous investments affecting entire industries and the behavior of hundreds of millions of consumers in the USA and worldwide are and will be affected.

Conventional wisdom proved to be wrong

Unfortunately, the energy outlook does not provide any clear leads. Until not too long ago, the emerging conventional wisdom was that major oil consumers would have to quickly find new energy supplies. It was predicted that oil would become more scarce and more expensive, while its environmental impact was worse than previously assumed. The future had to be in renewables and that was supposed to include nuclear energy, notwithstanding fears about accidents and the still unresolved issue of waste disposal. Biofuels, solar and wind would be the new clean energy frontiers. America would lead the world in green technologies. This was the picture in 2009.

More oil and shale gas

But now, just a few years later, it all looks different. New technologies have increased oil reserves and supplies worldwide, and in the US in particular. While oil prices are still high, we are not going to run out of crude any time soon. In the US the outlook is much better: more domestic supplies, (think North Dakota, now the second most important oil producing state), and increased imports from Canada indicate quasi oil self-sufficiency within a decade.

Beyond that, the US shale gas revolution has had and will have enormous ripple effects. Because of the shale gas revolution, natural gas will displace coal as the major power supply for electricity. But shale gas has also displaced renewables. Natural gas is abundant and cheap. It does not need subsidies.

Looking forward, in light of its low cost, should natural gas be adopted as transportation fuel, starting with heavy vehicles? Probably yes; yet more easily said than done, as this shift would entail huge up front costs for manufacturers that would need to retool plants and fleet operators that would need to buy new trucks. Not to mention the need to construct a national network of natural gas refueling stations.

Electric cars?

Finally, electric cars have a long way to go. It was assumed that high gasoline prices, combined with fears about the negative impact of fossil fuels emissions, (climate change), would be enough to make a case for clean vehicles that can be refueled at a minimum cost. But, while this may indeed be the future, we are not there yet. EVs are too expensive. Batteries are heavy and still too costly. Finally, the range is limited, and we have no national network of recharging stations.

Increase the federal gasoline tax

So, given rapid changes in our energy supply outlook and no sure indications about clear technology winners, the best approach would be to increase the US federal gasoline tax. By world standards US gasoline prices are still very low. It is possible to gradually increase gasoline taxes and it is possible to do so in a revenue neutral way, by lowering taxes elsewhere.

The signal to the market place would be: “We favor energy conservation and/or viable alternatives to oil, much of it imported. If you make conventional cars, focus on truly energy efficient models. If you work on EVs, higher gasoline prices will give you a benchmark of what you need to do to be competitive. Likewise, if you want to introduce trucks that burn natural gas, a clear understanding of where diesel prices are and are going to be will give you a sense of what you need to do to provide a cost effective LNG based alternative”.

Tax better than subsidies

Eventually the world will have to find alternatives to carbon based fuels. Still, instead of betting on evolving technologies whose long term viability is still unproven, US public policy should provide incentives to innovators by telling them what the price of carbon based fuel is and is going to be.

This way innovators and entrepreneurs will have an understanding of what they are up against, if they want to introduce competitive products. Providing ad hoc incentives and subsidies to this or that technology or fuel, depending on political pressures and favors, is not a better strategy.




The Tesla Model S Is A Great Electric Vehicle That Performs Better Than Most Luxury Cars

WASHINGTON – The recently launched Tesla Model S is the first, and most impressive, US made all electric sedan. This Electric Vehicle, (EV), is produced by Tesla Motors, the company that is already producing a smaller roadster. All of them are part of (South African born) entrepreneur Elon Musk’s effort to demonstrate that electric vehicles are commercially viable in America.

Innovators are welcome

I am all in favor of innovation and of all original dreamers who have the courage and the drive to push the envelope trying something new.

For these reasons I admire Elon Musk; who by the way is also behind SpaceX, the company that just managed to send an unmanned space vehicle full of supplies to link up with the International Space Station. A first for any private business.

Great car…

The Tesla Model S just had a glowing review in The Wall Street Journal Off Duty Section, (July 7-8, 2012). A huge, enticing headline, (I Am Silent Hear Me Roar), plus a nice big picture and a long piece. That said, and with full recognition that this is a beautiful piece of engineering, that this is a car that proves that it is possible to have an EV that drives like a Ferrari, minus the engine noise, (yes, electric engines are silent), this is not a game changer.

…But too expensive

This is another fancy, if sophisticated, toy that goes just a bit beyond “proof of concept”. The problem is that the car is too expensive. The model used by the WSJ reviewer costs almost $ 100,000. The rock bottom version of the same Model S goes for $ 50,000 minimum, (after a tax rebate). While not prohibitively expensive, a motor vehicle in the $ 50,000 to 100,000 range has a limited market.

Gas savings not enough

And, most certainly, the people who will buy it are not driven by the desire to save on the cost of gasoline. Somehow I don’t think that anybody who can shell 70,000 for a new car is that concerned about the price of fuel.

And yet the main selling point for even thinking about EVs as an alternative to internal combustion cars is that an electric charge is much cheaper than gasoline.

However, if the EV is too expensive to begin with, all your fuel savings are offset by the higher price of the car, a cost difference that the average EV driver will never recover through lower operating costs, assuming current or even higher gasoline prices.

From “cute” to transformative

I think that it is Bill Gates who said that solar panels are mostly “cute”. Indeed, at this stage of the technology, while they may make the rich people who install them on their roofs feel good about their green credentials, they are not game changers, because they are still too expensive.

By the same token, a souped up, beautiful electric sedan may be a sensation among California millionaires who want to be green and trendy, but it is not a game changer.

Waiting for affordable EVs

This does not mean that Tesla or may be other companies will not come up at some point with an affordable all electric car that costs only $ 20,000 to $25,000.

That would be a game changer.

However, until then, most of us will continue to think that fuel efficient cars are vehicles that have improved internal combustion engines, so that they can give us more miles per gallon of gasoline.

Yes, it sounds so yesterday compared to the futuristic wonders of a high performance EV. But, alas, most of us cannot get one.