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When recently asked why the (West Texas Intermediate) oil price at the end of June (2011) had declined from 112 dollars per barrel (=$112/b) to almost 90$/b in a fairly short time, I informed some visitors to the 2011 international meeting of the International Association for Energy Economics (IAEE, Stockholm) that it was probably because the OPEC directors were on their vacations instead of at their desks in Vienna, and as a result, when the oil price suddenly and unexpectedly moved below what I regard as its focal point, unadulterated market forces were able to take command, and the oil price was subjected to a palpable downward pressure.
Focal point is an expression from game theory, and what it means in this context is a price that all producers can accept, that in an economic sense cannot be regarded as wholly unacceptable given external circumstances, and in these circumstances can function as an axis of coordination for a formal or informal strategy. For aesthetic reasons I usually call $100/b the present focal point, and in case you forgot, if this is the average oil price this year -- for a melange of WTI and Brent prices -- OPEC will collect a record one trillion dollars for its exports of crude oil. Not bad for an organization that the Nobel Laureate Professor Milton Friedman once predicted would soon be a historical oddment, and its precious oil would be selling for 5 dollars a barrel, or less.
In my lecture at a privatization conference that was held the week before the IAEE meeting, I made it quite clear to colleagues that there is an 'iron law' of economics that is at least as important as Albert Einstein's E = mc2. That law goes as follows: for the most part, people prefer more than less! I have used this law in my forthcoming energy economics textbook (2011) to explain why the proposed nuclear retreat in Germany will eventually turn out to be a meaningless economic gesture, and in another departure why OPEC countries are going to keep their output of crude oil as low as possible, regardless of what they might say and what their customers might desire. This does NOT however exclude OPEC from making some effort to recognize the macroeconomics trials and tribulations of the oil importing countries. After all, who would be so irrational as to jeopardize an expected income of a trillion dollars a year?
In the lectures in my course on oil and gas economics at the Asian Institute of Technology (Bangkok), and to a lesser extent the main direction taken in my new and previous energy economics textbooks, I pinpoint (or zero-in) on some critical events in the intertemporal energy economics spectrum. (For example, for peak oil I explain in detail the circumstances associated with the peaking of oil production in the United States in l970, and for nuclear matters I concentrate on the construction of the Swedish nuclear sector.) I claim that the key to the oil price future can be found in the diagram that I borrowed from one of the most important oil economists, David Cohen (2009).
The thing that readers should be particularly careful to note is the sustained upward movement of the oil price after 2002-2003, because between those dates and 2008 something was taking place that probably had never been seen in the oil market in modern times. Readers should be even more aware that while the price of oil fell to about $32/b when the macroeconomic bad news intensified toward the end of 2008, and a number of distinguished students of the oil market announced that the oil price was going to continue to move down until it reached the point where they thought it belonged if the laws of supply and demand -- the so-called fundamentals -- became valid once more, OPEC quickly restored the situation in their favour. They restored the situation even though the international macroeconomy was moving into a partial meltdown. This point should never be forgotten, because it is a measure of the power of OPEC!
One of the particularly controversial assertions I made in lectures in Paris and Bangkok a few years ago is that the most important occurrence in Figure 1 might have been the spike-like movement at the end of the previous century, when trend-wise the oil price was collapsing. With so-called energy experts in the major business publications predicting an OPEC shipwreck, the OPEC management switched into a scientific mode where their reasoning was concerned, and ascertained what solidarity and knowledge should accomplish when oil production was peaking in important producing regions like the North Sea, flattening elsewhere, and large discoveries of conventional reserves were NOT taking place. That told them and some of us what could happen very early in the new century.
Then, in 2003-04, the escalating oil demand of China and India gave OPEC the opportunity they had always dreamed of, and they took advantage of it. What about speculation? In the diagram, in the background to the price movements from 1991 to the beginning of the new century, there was plenty of speculation, with smart speculators (who were usually called traders when they worked for investment banks) registering excellent incomes and bonuses; but from 2003 speculators -- or traders as they are described on their visiting cards -- did not have to be particularly smart. What they had to do to make serious money was to recognize that demand was outrunning supply, and one of the reasons for this is OPEC and its agenda becoming the determining factor on the supply side of the oil market, which is still the case!
Unlike the situation when I published my oil book, the futures market for crude oil now occupies a significant role in the pricing of oil. I don't pay as much attention to this as I did when I was teaching international finance, because to my present way of thinking if the actions of speculators or /traders or dealers in physical oil were not validated by fundamentals -- i.e. supply and demand -- a price movement of the steepness shown in the diagram could not possibly have taken place! Some algebra might be useful here, but it will be excluded because neither algebra nor anything else is acceptable nor desirable to the new chorus of hard-line populists who are resolutely determined to blame 'Wall Street' for the present macroeconomic meltdown, as well as the failure of the oil price to collapse as a result.
(2011) Banks, Ferdinand E. Energy and Economic Theory. Singapore, London and New York: World Scientific (Forthcoming).'
(2008) 'The sum of many hopes and fears about the energy resources of the Middle East'. Lecture given at the Ecole Normale Superieure (Paris).
(2007) 'The Political Economy of World Energy: An Introductory Textbook'. Singapore and New York: World Scientific.
(1980) 'The Political Economy of Oil'. Lexington and Toronto: D.C. Heath. Cohen, David
(2009) 'Mr Market gets it wrong again'. 321 Energy (May29). Constanty, H.
(1995) 'Nucleaire: le grand trouble'. L'Expansion (68-73). Bezat, Jean-Michel
(2008) Petrole: le pouvoir a changé de camp. Le Monde (20, Mai) Hunt, Tam
(2011) 'The peak oil catastrophe in waiting'. Energy Pulse (03/10/11). Harlinger, Hildegard
(1975) 'Neue modelle für die zukunft der menshheit' IFO Institut für Wirtschaftsforschung (Munich). Salameh, Mamdouh G.
(2004) 'Over a Barrel'. Beirut: Joseph D. Raidy. Saunders, Harry D.
(1983) 'Optimal oil producer behaviour considering macrofeedbacks'. The Energy Journal, Volume 4, Number 4.
For information on purchasing reprints of this article, contact sales. Copyright 2013 CyberTech, Inc.
What I try to do is to give my students a few things they should remember because of their supreme importance. One of those things is in this article, and I hope that it is remembered by everyone who reads the article: when the oil price collapsed to $32/b, OPEC had a meeting and a short time later it was at 70 +. When that price collapsed, the half-educated experts in the top business magazines and elsewhere were talking about it continuing to go south, What kind of nonsense was that?
With just a little luck, OPEC should rake in a trillion dollars this year. I say congratulations - way to go! And for importers, wake up!
Len Gould 9.19.11
China is very near to building and selling locally 20 million cars per year.
Harry Valentine 9.20.11
There is much offshore oil potential along the Atlantic coasts of Southern Brazil and Northern Argentina, off the coat of Angola and also off the southern tip of Africa . . . within about 500-miles of Cape Town. Within the next decade, some of this oil would likely begin to enter world markets and either keep oil prices steady or push prices down.
Don Hirschberg 9.20.11
As Len suggests, China could be building 20 million cars a year starting now. I have been looking for a good figure for the amount of oil it takes to build an automobile. Some years ago I saw figures of 40 to 60 barrels per car but have no idea whether this is reality. (Anyone?) Unlike North America, Japan, and Europe where current production is largely for replacements, in China nearly all current production adds to the size of the fleet – and will for years to come. I understand the Chinese car buyer wants a Buick sedan, not a Tata.
If it does take 50 barrels of oil to make a car (some would be used outside of China) then we are talking about 2.7 million B/D going to making cars before they go a mile. At even ½ gallon useage per day per car just one year’s production would add 268 thousand B/D to motor fuel consumption or an additional 3 million B/D (2.7 +.268) by the end of the first year.
Ferdinand E. Banks 9.21.11
Harry, OPEC is in charge of the oil price, and they are not going to let it fall, They are doing us a favor now by not raising it, knowing as they do that the global macroeconomy is in bad shape.
Wonderful calculation Don. I wonder if people are crazy on this subject. They start a war in Libya for oil, and now that it is over think that they will get cheap oil. As for the 40 to 60 barrels per car, make it 40 for safety
Len Gould 9.21.11
Don: In addition to the embeeded oil in auto production, how much oil goes into the new road and bridge construction to make the new roads for an additional 20 million cars / year to drive on?
Also, take these figures and extrapolate them across Brazil, India, M.E., SE Asia, .....
Bob Amorosi 9.21.11
Fred is right Harry, even if those other oil fields were to enter production over the next decade, nothing prevents OPEC from turning down their production to counteract the extra supply, and thus keep prices pushed up to whatever they want. OPEC will still have the biggest oil pipe into the market.
Bob Amorosi 9.21.11
Don's calculations are pretty scary aren't they? If I were a betting person, I would bet on electric vehicles as the only way America can reduce its oil use. Because if America doesn't substantially cut back on its oil consumption, the looming oil price hikes down the road will continue to suck the life from the broader economy, and any perceived ability to bring down the massively growing US federal debt.
Watch for electric vehicles sales to grow strongly with mass consumer markets over the next 5 to 10 years, and, more importantly with virtually every auto manufacturer on board making them, the money they will spend on R&D to improve battery technology will grow substantially.
Jim Beyer 9.21.11
Someone pointed out that the oil trade represents a 2.5 trillion dollar shift of wealth to oil producing countries, every year. For the U.S., that would be about 600 Billion per year, annually. If that outflow could be redirected domestically (to power plants charging PHEVs, for example) that would present a great stimulus for one's own country. Even though electric cars are more expensive overall than gas users, some premium to cost would still be worthwhile and overall beneficial to the economy. (There's limits on that; PHEVs can't be 10X costlier than regular cars for example; I'm not quite THAT crazy.)
Ferdinand E. Banks 9.22.11
Don, the oil price has gone down slightly, but as I understand the situation, OPEC was planning on raking in a trillion dollars this year. And Bob Amorosi has it right. This oil thing is a real problem. I'm optimistic enough - or dumb enough - to believe if there was any real intelligence in Washington, the economic show could be put back on the road, but oil might be an insuperable obstacle.
Don Hirschberg 9.23.11
In living memory, i.e. mine, world oil production and world oil usage was very small and largely confined to the US. Only a few years prior to my early memories the Model T Ford alone was a major user of gasoline and lighting of RR passenger cars was a major user of kerosene. (When I was still working the RR specifications for kerosene had to be met even though nearly all “kerosene” was refined to meet various jet fuel specs.) The magnificent public transportation system of street cars, elevated trains and inter urban trains ran on electricity – that is, on coal. Rail transportation could take you to almost every city and town in the country – towns without rail were either never built or died.
There was next day mail for 3 cents between Chicago and general delivery at a New York RR station. Also very civilized travel that might mean boarding a train after work, allowing for a quite elegant dinner enroute, maybe a bridge game and a comfortable bed before arriving perhaps early enough the next day to do some work or have a meeting. And it was all done with coal.
The American Legion had a contest every year. On an unannounced day 6th grade students would spend the entire afternoon writing an article of their choosing. I wrote about what I saw as a great problem: our utter dependence on coal. My father rode a coal stoked train to and from work. My home and all those around me and the school were heated by coal. The Commonwealth Edison plants I saw used mountains of coal to make electricity that furnished energy for every factory and street car.
World population had just ticked over to an incredible 2 billion.
Len Gould 9.23.11
You've got it all right Don. Now, just substitute that coal-generated electricity for solar.
Mark McClurkin 9.23.11
Fred always enjoy your work. On the day that your article came out I happened to be listening to the talking heads on a financial network observing long term decreases or at least stabilizing oil prices and that in part this is due to Brazil bringing on production. Well that might make sense if they were going to export 10M to 20M bbls/day and had half a trillion bbls (ha ha).
I swear everyday I see one more of those Nissan LEAFs in the area and so I fantasize about the reduction in imported oil with every one of those new sightings; a bbl here a bbl there. No....it is not the sam LEAF driving circles around me.....
More seriously, I thought we heard that year on year gasoline demand was down a few percent. So how much is that driven by the "hidden" recession and how much is due to new car fuel economies increasing over the past few years? Or is it my LEAF fantasy (ha ha)?
Ferdinand E. Banks 9.24.11
Thanks for the compliment Mark, but on that topic I cannot help you. I've got a new textbook to proof read and maybe extend (for my own use). I limit myself now to oil and nuclear, and I flatter myself that I have something to offer, like most of the people contributing to this forum with articles and comments have. My gut feeling where electric cars and phevs are concerned is that they have something to offer in some - but not all - regions. A very smart man in Switzerland - John Petersen - might say that I am wrong if you ask him, but that doesn't worry me. The people who should be able to answer this question are right there - or should be there - in the United States Department of Energy, but the boss of that organization has evidently forgottn them to ask them to tell people like poor me..
Of course, some people are a little tired of my insisting that OPEC determines the oil price, and nuclear makes economic sense, but as far as I am concerned the proof of this is right there in front of anybody who wants or needs proof.
And Don, that transportation system in Chicago was indeed magnificent. In fact, in those days a lot of things in Chicago were great, which is why I got out before things went sour.
Malcolm Rawlingson 9.26.11
Mark, As a power industry engineer for well over 40 years now I have seen many many attempts at introducing electric cars. The concept has merits - not least of which is the possibility of moving away from fossil fuels in a dramatic way and using home generated electricity as the transportation fuel. Over the entire 40 plus years the single problem has been the battery and it still is. Despite improvements in battery technology the major problem still is - how do we store electricity economically?
While I am sure the proud owners of the new leafs running around your neighbourhood are thumbing their noses at the gas station operators, when the LiH batteries need to be replaced in four years time at a cost of well over half the cost of the car the smiling will turn to agony as one debates whether to send ones 4 year old Leaf to the dump (useless and cannot be sold unless the battery is good) or fork out $18,000 for a new battery bank.
The problem was, is now and will always be the battery. Until that nut is cracked you can forget about electric cars.
We have been studying it for well over a hundred years and the best we can do for power density is the Lead Acid Battery.
Malcolm Rawlingson 9.26.11
While, as noted above, I rather like the concept of electric cars, the reality is that the move in transportation fuels will not be from oil to electricity but from oil to natural gas. With gas supplies very plentiful across the US and Canada and with gas shale basins being exploited all over the world the price of the commodity is going to be very low for many years to come. Almost all conventional gasoline engines can be converted to natural gas. The transaction cost of moving from oil to gas is far lower than the move from oil to electricity largely due to the very high cost and limited lifespan of current battery technology as noted above.
As oil prices increase, as I think everyone expects they will, people will look for an alternate fuel and that will be natural gas.
As an example, Poland is sitting on top of at least five shale gas and coal bed methane fields hitherto inaccessible but now due to modern technology very accessible. They have recently made the decision to exploit these fields.. This of course will suppress natural gas prices across Europe once those supplies come on stream and make it much cheaper than gasoline as a fuel. Switching engines to burn natural gas is simple. The ease with which fuels can be replaced is the key and I think the argument is strongly in favour or gasoline to natural gas rather than gasoline to electricity.
Furthermore, a number of companies are developing the technology to make natural gas into gasoline and that of course would avoid conversion costs altogether and remove dependence on imported oil.
Mark McClurkin 9.27.11
Malcolm, anything to reduce our dependence on foreign sources of fuel is good by me and hopefully the rest of my fellow travelers on the road. And I have heard the conversion cost for existing engines to gas is nominal. Distribution stations are increasing. But at some point we will start to deplete those resources also. So NG is a great IMMEDIATE transition fuel that could carry us for many decades as battery technology and recycling improves.
I did run across a So Cal Edison individual that indicated that they had some test electric vehicles running in their fleet for the past 10 years or so on original batteries. Dont know the make or model of those batteries. And there is the flow batteries that MIT and others are working on that show some promise for increasing battery energy density by 10 times.
At the end of the day I also see the battle between combustion and electricity being won by the axiom, "simple is best".....the electric motor is simpler than a piston or even turbine.
But I am still with you that nat gas has immediate benefits (cost and geopolitical) that we should embrace full on at least until simplicity wins.....
Malcolm Rawlingson 9.27.11
Thanks Mark, I think you are right that natural gas will likely be a transition fuel but the development of workable battery technology is still some way off. I hope it occurs sooner rather than later but I could easily wind the clock back 30 years and the groundbreaking battery was just around the corner then too. So I am not holding my breath. I recall similar enthusiasm for Ballard and its fuel cells only to see it wane when the practicalities of life hit the technology. NASA has been working on battery technology for many years with very similar design parameters to those of the automobile on earth (light weight, high power density, longevity, low maintenance) but nothing of practical use yet. In other words this is a very tough nut to crack, we are not any where near cracking it yet and we are running out of time.
There is another consideration here besides the simple "get off oil" mantra. Electric cars are indeed very simple and very very very low maintenance. The impact of widespread electric car use will have catastrophic effects on employment in North America and throughout the world. Lets put our mind in an electric car world. There are no mufflers - therefore every single muffler factory and installation shop is gone. The platinum and palladium used in their exhaust systems will no longer be required throwing thousands of miners in South Africa and Russia out of work as the jewelry uses of the metals are insignificant. There are no gas stations - therefore tens of thousands of businesses disappear along with all the delivery truck drivers and the people that make the tankers. There are no gas pumps therefore all the gas pump manufacturers and maintenance people are no longer required. There are no gas tanks - in the ground or in the cars so all the people that make those are out of work. There are no gearboxes since electric motors control each wheel so all the gearbox manufacturers and service centres are out of business. There are no oil refineries since they mostly produce gasoline. I could go on but I am sure you see the point that our dependence on oil goes far beyond the simple replacement of the fuel. Electric cars will be a massive unemployment machine putting millions and millions of Americans and Canadians out of work.
The very simplicity and low maintenance which we all desire has some very high social costs associated with it and as a society this transition needs to be thought out very carefully.
I do not know how many people worldwide are dependent upon the automobile for their employment - I am sure Len Gould will find that out for us - but it is a certainty that their numbers will be vastly lower once a dependable and cheap electric car is mass produced.
Can you envisage in your own community how many businesses would be destroyed by the electric car. There would be very few new ones that is for sure. The only ones that will survive will be brakes, suspension and steering and paint and body shops. Every oil change shop in the country will be history. Every gas station bulldozed flat and replaced with unmanned charging stations. Every air, oil and fuel filter manufacturer out of business. Engine gasket manufacturers gone. Engine casting plants gone. Engine assembly plants gone. Gearbox repair shops gone. Spark plug manufacturers gone. Electronic ignition manufacturers gone, Fuel injection systems manufacturers gone. It is said that for every 1 person employed in the auto industry there are 7 other workers that are employed as a result. That means the knock on effect of closure of all of the plants noted above will result in economic catastrophe. Therefore any such move to all electric vehicles must be done extremely carefully and slowly. Unfortunately I see no government with any strategic plan for the large scale deployment of electric vehicles.
So while we don't much like sending our oil money to the Middle East, Western economies will be in a total shambles without the employment created by the current automobile and oil industry. it is a fact that few even consider in the headlong rush to electric vehicles. It is time they did.
Ferdinand E. Banks 9.28.11
Very interesting comment, Malcolm. It requires careful study.
Of course, as Don Hirshberg would tell you if you asked him politely, population growth plus a few other things are going to add to the misery.
Len Gould 9.28.11
So Don. Thanks for the challenge lol. According to US Bureau of Labour Stats, in 2008 there were a) 763,700 people working as auto service techs., b) 185,900 people working as auto body repair techs, c) 877,000 people working in motor vehicle parts manufacturing including trucks and motorhomes etc., and d) approx. estd. 88,000 working in final assembly automotive.
(BLS - workers in manufacturing for all transportation equipment 1,624,900 )
So guessing that the group vulnerable to job loss due to auto electrification is only a) and c) and only perhaps 60% of those jobs might be lost due to complete electricification, that number comes to perhaps 1,600,000 jobs. Given about a 5 to 1 ratio of secondary service jobs lost per primary job lost, that makes about 9,600,000 jobs possibly vulnerable, or perhaps 7% ?? of the US workforce.
Of course 100% electrification is probably decades away.
Len Gould 9.28.11
Your guesses on assembly worker per parts manufacturing worker ratio and secondary service job ratios may vary of course.
You are correct, there is no doubt the elimination of internal combustion engines would kill huge sectors of the economy in North America as well as in foreign countries. These industry sectors are so big and important that you will recall both the Canadian and American federal and provincial/state governments spent many billions of dollars to keep GM and Chrysler afloat in the Great Recession just two years ago, because if they didn't we would have seen much of the economic catastrophe you allude to.
Consider this however Malcolm. Even if we don't see a rapid deployment of electric vehicles, the future of these huge industry sectors is bleak to say the least. Peak oil means we are in for ever increasing numbers of oil price spikes, and overall increased oil prices on average in the years ahead. This will put a huge damper on sales of gasoline and diesel automobiles that will stifle any growth in these industry sectors. Indeed they will slowly shrink such that these sectors of the economy will die a slow death by a thousand small cuts over many years.
So whether we see rapid deployment of EVs or not, there has to be creation of other industries for the millions of people working in these industry sectors that will surely face unemployment down the road.
And, Malcolm, it’s not just the automobile industries that will be affected by oil prices. Think of the airlines, and large retailers like Walmart etc. They all depend on cheap oil for their successful business models. When oil prices go up they suffer big time, so peak oil means many of these companies will go under over time too.
Yes my friends, structural unemployment in today’s economy may be unacceptably bad, but it will pale by comparison if we don’t create new industries with millions of new types of jobs over time.
Save your pennies guys, we’re going to need them.
Mark McClurkin 9.28.11
Gentlemen, Now the conversation is getting really interesting. So what happened to the horse and buggey carriage industry, along with the crops and whip industries and the hapless workers in those thriving endeavours? The descendants of all of the blacksmiths and horse hoof shodders are installing the mufflers and changing oil now, I suppose. Whose subsequent descendants will be installing NG conversion kits on existing combustion engines, who will then be making electric cars and recycling batteries and then there is all the fusion reactors that sometime in the very distant future may need to get built. But if we don't get going on some of this new transport technology stuff we may actually be back on the horses....I am working on a lighter, faster riding crop made of recyclable material in anticipation of the this coming disruptive equinary technology (ha ha)
I do have a concern as Malcom so correctly has, that if technology changes come so quickly can industry and workers deal with the disruptions in their lives as they are forced to re-educate or relocate themselves ever so more frequently.
Jim Beyer 9.28.11
Mark and Malcolm,
I will try to cite some facts as best I know them.
The Toyota RAV-4 EV was built with 95-amp hour NIMH batteries (called "EV-95") built by Panasonic. These have proven to be very durable and have lasted in excess of 200,000 miles. Perhaps these are the vehicles that the So Cal Edison people were speaking of. Because of a patent infringement issue, Panasonic shut down the line that built these batteries. NiMH batteries of this type are limited to about 12-amp-hours. The patent will expire soon, but obviously the momentum on this technology was lost. (They were built in 1998-2001 or thereabouts.) One could argue conspiracy theories, etc., but that's not the point of this note.
The point is that these were "good enough" to give reasonable range to a small SUV vehicle by electric power alone. But what did they cost? I have no idea. Probably a large amount of money. But given 10 years and large production, what would they cost? Probably something pretty reasonable. The battery brains are sold that Lithium Ion is the way to go, and I hope they are right, but I have my concerns.
I think there is still a permanent place for IC engines, at least small ones, on vehicles for extending range. The billions spent on refining the IC engine can still be well-used.
Malcolm's comment on worker displacement is interesting, but a little extreme. I'm not sure employing lots of folks is the best justification for an extreme consumptive society. (The automobile, which is tossed after 10 years, is an example of perhaps unsustainable consumption, more extreme than the great marketing move of disposable razor blades.) But I submit that people will still be fickle w.r.t styling, so perhaps the automakers can rebuild or remodel long-running vehicles, perhaps making better use of the durable 'cores' of the engine/batteries. So we get 'new' cars at a lower cost, and lower waste. Maybe everyone wins.
Steve Ghadiri 9.28.11
We cannot disregard the progress made under a century mostly dominated by the proliferation of fossil fuels. We will not be transforming our society because oil is vanishing on earth, but because we will provide a better substitute or alternative, just as the invention of bow and arrow made throwing the stones useless by our early ancestors.
We have to embrace the technology if it makes sense and has societal benefits regardless of the jobs that are saved or lost. I agree with Mark 's comment as the industry will transform itself just like horse and buggy industry changed into the automobile service industry. Of course, this did not happen overnigh eithert! Having millions of electric cars on the road would mean infrastructures support for maintenance, repair, charging stations, diagnosis mechanics, and parts replacement. What you will encounter will be the auto parts stores, for example, catering to large demand of customers for batteries and accessories, or etc. The communication industry did not miss the call operators that used to connect callers, either. Most were absorbed and employed elsewhere in the same or similar industry.
Malcolm Rawlingson 9.28.11
Fascinating and interesting comments from everyone. I read them all with great interest. I perhaps conveyed the impression that we should not embrace new technology for fear of the disruption it would undoubtedly cause. The point I was attempting to make (not very well it seems) is that (a) The change from gasoline driven engines other types of drive needs to be carefully managed (b) the move to full electric drives is inevitable and will happen sooner or later (My personal view is later than most anticipate) and (c) the ideal "filler" or transition technology is natural gas.
A steady move to natural gas fueled vehicles will start the downsizing process for gas stations, oil refineries and gasoline distribution networks but would not affect the vehicle production side of the equation much and consequently the jobs that are allied to it. That change would come later with all electric vehicles.
I do concede the point that is made by Mark and others that we seemed to have successfully made the transition from horse and buggy to internal combustion engines, however the extent to which the entire economy has become entwined with the automobile makes the effects of a transition to all electric cars much more severe that of a hundred or so years ago. For example much of the repairs to horse drawn transport was done at home or on the farm - there was no "Speedy Horseshoes" equivalent to the speedy muffler of today. True, many businesses were affected but remember in the early days all they did was unhitch the horse and put an engine in so it was really only the services for the horse that were discontinued on a large scale.
So it is my view that a rapid and uncontrolled move to all electric vehicles will be very socially disruptive on a world wide scale. To compound the effect the factories that mass produce electric vehicles and their component parts will be brand new, use the latest manufacturing technologies and be fully robotic with very few workers. It will not be a matter of retraining for new skills or new jobs. There will not be any jobs to retrain for.
As I have noted on this site before the "jobless recoveries" western economies have experienced recently has been blamed on the Chinese and Indian work forces. There is an element of truth to that but the real culprit is automation. Factories are using robots in every increasing roles. even in Chine robots are replacing workers because the capital cost has dropped dramatically in the last 10 years along with increased capabilities. With artificial intelligence human production line jobs will disappear - permanently - however much the GDP grows.
So what is at stake is 9.6 million jobs in the USA alone (thank you Len for rising to the challenge - very much appreciated). That number has major social disruption written all over it.
In our rush to get off oil we may shoot ourselves very accurately in the foot
Malcolm Rawlingson 9.28.11
Steve, I would like to respond to a couple of interesting points you make. The purpose of electric vehicles in North America is to wean us off oil right? Mark made the observation that electric vehicles are much simpler and more reliable than their gasoline driven counterparts. So one needs to assess the repercussions of reaching the desired goal of oil independence achieved through the introduction of electric cars. There is indeed very little to go wrong with a battery and four electric motors. The tyres, wheel bearings, steering and suspension of course would be much the same as before. The point is that with the elimination of each component comes the corresponding elimination of the entire industry that supports it. The whole point of the exercise is to stop paying vast sums of money to middle eastern countries the purpose of which I presume is to increase our standard of living. The complete opposite will be the case - our standard of living with the loss of 9.6 million jobs will take a catastrophic hit.
If you are of the opinion that it is not (or should not be) a matter of jobs then take a look at the Swiss watch industry. The quartz crystal technology (invented incidentally BY the Swiss but completely ignored until Seiko saw the potential) almost wiped out the Swiss watch industry overnight and caused serious economic and social repercussions in Switzerland. It took many years for the Swiss to recover from that disaster and we are nowhere near as dependent industrially on watches as we are on cars.
I guess my message is be careful what you wish for. The result may not be what you expect.
Technology of course will not be stopped because of job losses and I do not advocate that. I certainly agree with you on that point. What I do advocate is the careful and measured introduction of electric cars so that society has the opportunity to adjust. My fear is that with the speed of technological change we may not have time or be able to control the social unrest and disruption that will result from massive job elimination in the auto sector.
Don Hirschberg 9.29.11
I am many posts in arrears so I hope I will not make a great gaff about something already discussed.
I think it should be noted how good present and recent cars are. I have a 1997 Winnebago Rialta, a little motor home mounted on a VW truck chassis, a 2003 Venture van (Chevrolet), and a 2002 Tracker (Chevrolet). The engines, transmissions of these vehicles have never requires any service what-so-ever. Except for encounters with deer the Tracker has required exactly one fuse, and an oxygen sensor. Except for being hit by a delaminating semi truck tire the van has required no service other than routine filters and lub. The Rialta has required some house keeping Winnebago and tire service. But except for A/C service nothing pertaining to the VW truck on which it is mounted except for replacing plugs and leads and a serious leak downstream of the fuel pump, both expensive.)
Not only has maintenance cost been lower than I thought possible but mileage has been better than I thought possible.
I stopped keeping gasoline records on the Rialta years ago but up till then it was an accumulative 18 mpg. The van from day one until now has averaged 25.2 mpg, and the Tracker (w/4seldom used 4 wheel drive) has averaged 27.63 mpg.
A child of the Great Depression I have always been miserly about energy and wasting food.
Len Gould 9.29.11
Interesting Don. Also, During 2010, US dealers recorded 11,590,274 new-vehicle sales - R. L. Polk & Co. - Green Car Congress. At that rate, the US fleet turns over in about 9 years, though many of the used vehicles see new life in foreign markets I think.
Mark McClurkin 9.30.11
All points well taken and the disruption is coming......higher oil prices and alternative vehicles....simple will still win regardless of the amount of technological effort that has gone into the IC engine....I am reminded of a couple of lines from "No Country for Old Men"......."You can't stop what's coming. Nothing you fear... can prepare you for him. " ......whoa, another LEAF just drove by my window....one less bbl from my former employer overseas will be consumed today.
Malcolm Rawlingson 9.30.11
Good points Mark...and I agree progress will not be stopped. But taking it to the individual level each - leaf that passes your door is indeed one less barrel of oil but it is also one less exhaust system and more auto sector employees on the unemployment line. Who will be left to buy the leafs - Wall Street banksters? I think they prefer Ferraris and Maseratis don't they? Malcolm
Jim Beyer 10.3.11
Some quick back of the envelope; Assume a $30K car getting 25 mpg runs for 200,000 miles and needs $5K in service over its lifetime. But that would also be at least $24K in funds going overseas for the fuel.
Compare this with an electric vehicle, needing perhaps $2K in service and $7500 spent domestically on electricity. So less money for servicing vehicle, but less cash going overseas; I think it's a net win.
Don Hirschberg 10.4.11
Jim, my slide rule working on my envelope gets lower oil saving than you do - though far from rigorous or precise. Maybew your numbeers are better than mine.
Your hypothetical car would use 200,000/25 = 8000 gallons. About half of that would be from domestic crude oil. That leaves 4000 gallons from imported oil. If we assume $80/B for imports (equitant to maybe $100/B for West Texas Intermediate) then the reduction in payments to foreigners would be 4000 X 80/42 =7619 vs your “at least 24,000 dollars.” Lest we forget,The biggest “foreign” source is Canada.
But actually it gets much more complicated. American refiners get about 50% yield of gasoline from crude oil. An imported barrel of crude also would also yield LPG, diesel, jet fuels, home heating oil, bunker oil, road oil (asphalt), roofing oil, and chemical plant feed stock for a myriad of products. Plasic bags to Pharmaceuticals. The demand for these would not be decreased by our use of more electric cars.