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When In A Hole, Stop Digging

by Richard T. Stuebi

I never cease to be amazed by the frequency and vehemence of opinions expressed on energy and environmental matters by people who are spectacularly underinformed. So in this exposition about oil, let’s first begin with a Top Ten List of clear-cut facts.

1. World oil production (which is essentially equal to consumption) is at approximately 85 million barrels per day, or 31 billion barrels per year — and has essentially remained at these levels continuously since mid-2005, even though oil prices have doubled (from about $60/barrel) since then.

2. The U.S. consumes about 25% of the world’s annual oil production, implying U.S. demand levels of about 21 million barrels/day (almost 8 billion barrels per year), but holds under its territory only about 2% of the world’s proven oil reserves of 1.2 trillion barrels.

3. In contrast, the Oil Producing and Exporting Countries (OPEC) control almost 80% of the world’s oil reserves, yet produce only about 40% of annual oil supplies.

4. OPEC production was 31 million barrels/day in 1973, and 32 million barrels/day in 2007, despite the world economy having doubled in the intervening years.

5. OPEC includes among its members the following countries that are unstable, corrupt and/or unfriendly to the U.S.: Saudi Arabia, Iraq, Iran, Venezuela, Nigeria.

6. The Middle Eastern members of OPEC represent over 75% of total OPEC capacity, of which the single largest player (without which the world oil markets would collapse) is Saudi Arabia, alone accounting for 22% of the world’s remaining proven oil reserves.

7. This year, the U.S. will send an estimated $700 billion to the Middle East to purchase oil — more than the U.S. defense budget (about $600 billion).

8. An unknown portion of these proceeds, but widely-agreed to be a significant amount, funds anti-American (and anti-women, and anti-Semitic, and anti-homosexual, and so on) sentiment — including outright terrorist activities.

9. About 99% of the energy consumed by the U.S. transportation sector derives from petroleum.

10. The vast majority of American citizens live and work in a manner requires oil-fueled transportation to maintain their basic lifestyles (commuting, shopping, etc.)

So, here we are, the United States of America, utterly reliant on one strategic commodity supplied mainly by a powerful cartel that doesn’t hold American long-term interests at heart. What is our response to this predicament?

We complain. We complain about high energy prices, and ask the government to do something about it. When, in fact, there’s very little the government can do about energy prices. OPEC makes it abundantly clear that we are price-takers, not price-setters. Why else would President Bush travel to Riyadh, hat-in-hand, to effectively beg the Saudis to supply us more oil? And, how else could the Saudi’s rebuff their best customer?

This, of course, is the same President Bush that declared famously in 2006 State of the Union speech that the U.S. is “addicted to oil.” Factoring in all the negative connotations of the word “addiction”, that’s a strong statement, coming from a proud Texan.

As Thomas Friedman so aptly noted in a recent editorial, the President has revealed his implicit strategy for dealing with our addiction to oil: “Get more addicted to oil.”

You might ask what else we might do, beyond pandering to our pushers.

Cutting demand certainly helps. Unfortunately, we can’t quickly/easily/cheaply reconfigure our infrastructure of buildings and roads, so we’re stuck for a long time with the landscape we’ve created: we’ll unavoidably need to move around lots of people and goods for quite a while. (See Fact #10.) So, our need for vehicle-based ransportation will not diminish rapidly.

The recent passage of Energy Independence and Security Act of 2007 tightens fuel economy standards to improve efficiencies of new vehicles – including, for the first time, SUVs. And, higher fuel prices are clearly beginning to discourage U.S. demand.

Unfortunately, U.S. demand-reduction measures won’t help much in the grand scheme of things. First, over its 35 year history, OPEC has clearly learned an ability to withhold production to keep oil prices high: when others produce more, OPEC produces less. (See Facts #3 and #4.) Second, the incessant growth in energy demand from the developing world (most notably, China and India) will probably eat up any declines in oil demand the U.S. might be able to achieve on its own.

So, this leads us to what has become the hottest topic in the Presidential campaign: drilling for more oil in the U.S.

You’ve probably seen the bumper stickers: “Drill Here, Drill Now, Pay Less”. I recently overheard someone in a bar claim with pride that the recent modest drop in oil prices can be attributed to OPEC’s cowering in fear now that the U.S. is getting serious about drilling for more oil domestically.

Get real. As Executive Director of the Institute for the Analysis of Global Security Dr. Gal Luft, arguably one of the most knowledgeable observers of the world oil situation, said in a recent speech in the Cleveland area: “Go ahead, drill all you want, it won’t make any difference.”

This is because the U.S. only has about 3% of the world’s reserves, but demands 20% of current world production. (See Fact #2.) Bluntly, we want way more than our share of the oil allotment, but there’s no way around this inconvenient truth: we can’t change our geography or our geology. (This reminds me of another bumper sticker: “What’s Our Oil Doing Under Their Soil?”)

It is true that there are significant reserves untapped offshore in the Gulf of Mexico, in Northern Alaska (Arctic National Wildlife Refuge, ANWR), and elsewhere in the U.S.: in ANWR alone, perhaps as much as 16 billion barrels. This sounds like a lot, and at $120/barrel, it is financially worth a lot. But, even with a bonanza of 50 billion new barrels heretofore inaccessible, this only supplies current U.S. requirements for not even 7 years. It supplies global requirements for less than 2 years.

Moreover, as noted previously, OPEC is capable of reducing its supply to compensate for whatever incremental production the U.S. is able to achieve, thereby nullifying the effect of the U.S. exertions to open up these assets to extraction.

With this as backdrop, let me ask a simple question: is it worth pinning the country’s hopes on a multi-year project to drill some new holes, only to find that it doesn’t solve our underlying problem? According to analysis by the U.S. Department of Energy, opening up new areas to drilling “would not have a significant impact on domestic crude oil and natural gas production or prices before 2030. Leasing would begin no sooner than 2012, and production would not be expected to start before 2017.” This doesn’t sound to me like any significant solution for our dilemmas.

It sounds like all I’m offering is problems, not solutions. Well, what do you expect? With a long-held conviction to pursue an energy policy of “cheap oil, at all costs”, the U.S. has painted itself into a nasty corner. Everyone wants easy answers, but unfortunately there are none.

One ray of hope is offered by unconventional hydrocarbon production. The U.S. is the so-called “Saudi Arabia of coal”, with hundreds of years of reserves at current demand levels (although this “runway” would be reduced dramatically by a concerted move to coal-based fuels for transportation). In addition, the U.S. holds huge amounts of oil-equivalents in the form of shale in the Rocky Mountains, estimated to be far larger in quantity than the oil in Saudi Arabia. Both of these sources can technically be extracted and converted into transportation fuels — but possibly at significant financial and environmental costs. Hopefully, new technologies under development will eliminate (or at least significantly) reduce these costs — but if not, are we willing to pay them?

More fundamentally, I believe that Dr. Luft is onto the central problem: unless and until we sever the link between transportation and petroleum, the U.S. is doomed to declining power and ultimate subjugation.

Right now, just about every car and truck sold in the U.S. is constructed to run only on a petroleum-based fuel. Since each vehicle has about a 16 year operating life, and since over 7 million new vehicles a year are sold in the U.S., each consuming hundreds of gallons per year, every additional year that virtually all cars sold in the U.S. are oil-dependent “locks in” tens of billion barrels of U.S. aggregate demand for oil.

Dr. Luft’s solution: eliminate the strategic value of petroleum, by taking low-cost and rapid steps to make vehicles fuel-flexible. Only with competition among fuel types for the transportation market will OPEC lose its stranglehold on our economy.

As has been widely documented, it is possible to make gasoline powered vehicles able to run on a limitless variety of alcohol/petroleum blends with the addition of equipment that is about $100 per vehicle. Dr. Luft and other luminaries (e.g., James Woolsey, Robert “Bud” McFarlane) have formed the Set America Free Coalition to promote the Open Fuel Standard Act, which would require that 50% of all vehicles sold in the U.S. in 2010 must be fuel-flexible. According to Dr. Luft, the major automakers say this is doable.

(Interestingly, Dr. Luft claims that the big oil companies are discouraging their affiliated retailers from installing ethanol-capable pumps. This sounds like something worth investigating.)

In addition, Dr. Luft argues compellingly for the end of ludicrous U.S. agricultural policies that tax imported ethanol (but not, notably, imported petroleum or petroleum-based fuels) and that place quotas on sugar imports. The effect of these policies is to discourage or prevent the possibility of cost-effectively importing sugar-based ethanol from over 100 countries in the tropics around the globe where sugar (a highly efficient feedstock for ethanol production, much better than corn) can grow abundantly.

These countries tend to be poor, based on subsistence agriculture, and they are being killed by high oil prices. In Dr. Luft’s view, this represents “the worst regressive tax in history”, and he thinks we should send a few hundred billion dollars a year to those countries – “some of whom still like us” – instead of to OPEC countries. As an incidental benefit, this would increase economic aid to the developing world by about an order of magnitude.

(As an aside, Dr. Luft is convinced that the now-heated arguments against ethanol — food vs. fuel, too-lucrative incentives — are overhyped bunk, and has some interesting analyses to prove his point, but that is a subject for another day.)

So, it seems that some important answers to our energy crises may be found in skewed agricultural policies — a non-intuitive target for critical attention. If you want to take this on, contact Dr. Luft: he is looking for fellow revolutionaries to help us claw our way out of the hole we’ve dug for ourselves with our oil addiction.

Richard T. Stuebi is the BP Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc.

Plug-in Drivers Get Charged

By John Addison (7/31/08). In 1971, a bright engineer, Dr. Andy Frank, was looking to the future. He knew that oil production had peaked in the U.S. and that cheap oil would later peak globally. He calculated how to get 100 miles per gallon, and then he built a hybrid-electric car.

A few years later there was a crisis in the Mideast. Oil tankers stopped moving through the Suez Canal. There were hour gas lines in the United States with engines fuming emissions and drivers fuming with anger. Gasoline was rationed. The crisis intensified Andy Frank’s commitment to build great vehicles with outstanding fuel economy. He has been on that mission ever since.

Andy Frank took me for a ride in a big GM Equinox SUV that got double the fuel economy of a conventional SUV because he converted it to a plug-in hybrid. The ride was the same as in any other SUV except it was more quiet. Fuel economy doubled because much of the time the vehicle ran on electricity with the engine off.

This vehicle was typical of many projects. The large engine was removed. An engine less-than half its size was put in its place. His team saved hundreds of extra pounds by replacing the standard GM transmission with a smaller and lighter continuously variable transmission. Even with an added electric motor and lithium batteries, the vehicle weighed less than a standard Equinox. The air conditioning and other accessories ran electrically, instead of placing mechanical demands on a large engine. Converted to be powered electrically, the air conditioning could run with the engine off.

Andy Frank is the father of plug-in hybrids. His students at U. C. Davis have gone on to be some of the brightest minds in automotive design and transportation management. Over the past 15 years, he and his students have built over ten different plug-in hybrids. They have ranged from sport cars to full-sized SUVs. Typically these PHEV can go over 40 miles (64km) in electric-only range and weigh no more than their standard counterparts. U. C. Davis Team Fate Vehicles

The idea of plugging-in is not new. We are in the habit of recharging our mobile phone every night. Soon, we may also be recharging our vehicle every night. Plug-in hybrid vehicles (PHEVs) look and drive like regular hybrids. They have a large battery pack that captures braking and engine-generated energy. Like hybrids they have computer chips that decide when to run only the electric motor, using no gas, when to run the gasoline engine, and when to run both. Many plug-in hybrids are programmed to run on only electricity for ten to forty miles before engaging the engine. Heavy duty vehicles, and eventually some passenger cars, will use more efficient diesel engines, not gasoline.

Andy Frank was all smiles as a crowd of 600 applauded at the Plug-in 2008 Conference in San Jose, California, last week. Many in the crowd now drive plug-in hybrids as part of their fleet demonstration programs. A number in the crowd had converted their personal Toyota Priuses or Ford Escape Hybrids. This was a crowd of plug-in converts.

Some visionary fleet managers have accelerated the development of plug-in hybrids. Rather than wait years for major vehicle manufacturers to offer plug-ins, these fleets have contracted for conversions then used their own maintenance teams to keep the experimental vehicles running. For example, Google is getting 93 miles per gallon (mpg) with its converted plug-in Priuses, over double the 48 mpg of its normal Priuses. Google uses solar power to charge the cars. Google’s RechargeIT.org

In Southern California, 24 million people live in an area where the mountains trap smog and damage people’s lungs. South Coast Air Quality Management District plans to reduce emissions by contracting the conversion to plug-in of 10 Priuses, 20 Ford Escape Hybrids, and several Daimler Sprinter Vans. The vehicles are being put into a variety of fleets with hopes that “a thousand flowers will bloom.”

Fleets are piloting plug-in conversions around the country. These fleets include New York City, the National Renewable Energy Lab in Colorado, King and Chelan County Counties in Washington, Minneapolis and the City of Santa Monica.

Electric utilities have started a variety of plug-in hybrid pilot projects involving everything from cars to large trouble trucks. These utilities include Southern California Edison, Austin Energy, Duke Energy, Wisconsin Power, and Pacific Gas and Electric to name a few. At a time when there are desperate discussions about being more dependent on oil, including taking ten years to get oil from environmentally sensitive areas, electric utilities are coming to the rescue by increasingly powering our vehicles.

Because some plug-ins will go up to 40 miles in electric mode at slower speeds, it is possible to get over 100 miles per gallon. With short trips in cold weather, little improvement might be seen. Driving on freeways without recharging will not help. However, for most driving cycles, plug-ins can dramatically reduce the need for expensive gasoline fill-ups.

You can get over 100 miles per gallon (mpg) by either adding a kit to an existing hybrid, or by waiting until late 2010 to order a new car from the car makers that will be discussed in next week’s article. Due to probable wait lists, it may be three years before individuals can get delivery of plug-ins from car makers. If you are now getting only 20 mpg, getting 100 mpg would cut your gasoline bill 80%. Over the next few years, you will have a growing number of choices of plug-in hybrids.

Plug-In Supply unveiled its $4,995 Conversion Kit at the Plug-in 2008 Conference. The lead acid (PbA) conversion kit, based on the CalCars Open Source design, converts a Prius into a plug-in hybrid with an all-electric range of up to 15 miles if kept to a maximum of 52 mph. At freeway speed the gasoline engine will be engaged. Green Car Congress Article

Most fleets and people who convert prefer to deal with a system integrator, garage, or mechanic that is experienced with plug-in conversions and can maintain the vehicles. For example, Luscious Garage has converted about 20 vehicles. A garage might charge $2,000 or more to install a plug-in kit.

A123 Hymotion is establishing certified conversion centers throughout the nation so that people can convert their Toyota Priuses to plug-in hybrids for $9,995 per car. The conversion kit includes interfacing to the Prius computer that controls hybrid operation, interfacing with existing Prius NiMH battery, and includes a 5kWh A123 lithium battery.

Many early converts are enthusiastic about their plug-in hybrids. They report that electricity is only costing the equivalent of 75 cents per gallon, compared to over $4 per gallon of gasoline. If you plan to convert a hybrid to a plug-in, be sure that you have a safe and convenient place for recharging at home, work, or other location. For most, a 110 volt garage line will be the best option.

CalCars.org, a leading plug-in non-profit group, has been a major force in the growth of plug-in hybrids. Technical guru, Ron Gremban converted a Prius in 2004, and now contributes in many areas including the development of an Open Source plug-in platform. CalCars Founder Felix Kramer has patiently nurtured the expanding support of electric vehicle groups, environmental groups, media, legislatures, and auto makers. He has made “plug-in” a household name. There are a growing number of batteries, plug-in conversion kits, and garages for plug-in conversions. CalCars summarizes offerings and provides links.

In California, Sven Thesen converted his family’s Prius to a plug-in with help from CalCars.org. He and his wife love it, and share the plug-in Prius as their only vehicle. For them, it was not about saving money, rather it was to protect the future for their young daughters and everyone’s children. In Boston, students Zoë and Melissa converted because they see conventional cars as bad for the environment. In Texas, Jim Philippi replaced his 12 mpg Yukon with a converted plug-in that gets over 100 mpg. He buys renewable energy credits to use wind power for the plug-in charging. See Videos and Read about over 100 Plug-in Drivers

There is some truth to the old adage that you can recognize the pioneers by the arrows in their backs. Early conversions have sometimes produced problems and downtime. The conversions typically add an expensive second battery pack to the vehicle’s existing nickel metal hydride battery pack. To make the plug-in hybrid controls work, the manufacturer’s control system must be “fooled” with new input signals.

The added battery pack often displaces the Prius spare tire. In the Escape, a larger battery pack is often placed in the rear cargo area, behind the passengers seating in the rear seat. Battery life is a function of the state of charge. In hybrids, auto makers only use a narrow range of charging and discharging, so that they can warranty batteries for up to ten years. In plug-in hybrids, batteries are usually deeply discharged, reducing battery life. Kits may only warranty the expensive batteries for up to three years.

If anything goes wrong, auto makers like Toyota and Ford, may claim that the conversion created the problem and that their warranty is void. Although the car owner may have legal recourse, many are leery of warranty issues.

Even if vehicle lifecycle operating costs are higher with plug-in conversions and warranties limited, these issues have not stopped plug-in hybrid enthusiasts who strongly feel that we cannot wait for the big auto makers. They want rapid adoption of solutions to address global warming and oil addiction to end now. These early drivers of plug-in hybrids are leading the way — at 100 miles per gallon.

I returned from the conference to learn that my wife was spending $2,000 for new drapes. This was good news, for I assumed that it would therefore be no problem for me to spend $24,000 on a new Prius, less a nice trade-in for our 2002 model, and another $10,000 to convert it to a plug-in. An interesting discussion ensued.

We both want to save gas and take some leadership in making the future better, but $25,000+ (after trade-in) is a lot of money, especially in this economy. If the battery is dead in three years, that could be another $10,000, or less if kit providers offer extended warranties. Giving up the spare tire space is another concern. At least three times in my travels, I have needed to put on the emergency spare.

Like many, we are more likely to wait until the end of 2010, hoping for several electric vehicle and plug-in offerings for auto makers. These vehicles will be designed to be plug-ins, with smaller engines, only one lithium battery pack, better drive systems, and balanced vehicle weight. These new offerings will be discussed in my next article.

We can all be thankful for those who refuse to wait, often concerned with climate and energy security issues. There are over 200 converted plug-in hybrids now on the road. One year from now, there may be over 1,000 plug-in hybrids of all shapes and sizes in use.

By the end of 2010, we may be able to start buying plug-in hybrids from major auto makers. Once cars designed from the ground-up to be plug-ins are made in volume, prices differentials will drop to a fraction of the current charge of converted hybrids. In a few years, plug-ins, with long battery warranties may cost less than $5,000 more than their hybrid counterparts.

Plug-in hybrids will succeed because of Andy Frank and the early leaders who converted their vehicles to use more electricity and less petroleum. We will all benefit from the reduced gasoline use and cleaner air that started with the courageous pioneering of the plug-in converts.

John Addison publishes the Clean Fleet Report and speaks at conferences.

Copyright (c) 2008 John Addison. Portions of this article will appear in John Addison’s next book.