The Truth About Cars » energy http://www.thetruthaboutcars.com The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. Mon, 25 May 2015 14:29:49 +0000 en-US hourly 1 http://wordpress.org/?v=4.2.2 The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. The Truth About Cars no The Truth About Cars editors@ttac.com editors@ttac.com (The Truth About Cars) 2006-2009 The Truth About Cars The Truth About Cars » energy http://www.thetruthaboutcars.com/wp-content/themes/ttac-theme/images/logo.gif http://www.thetruthaboutcars.com While You Were Sleeping: Jeep GC Pickup Render, Brilliance V3 Debut and Jobs, Jobs, Jobs (Or a Lack Thereof) http://www.thetruthaboutcars.com/2015/05/sleeping-jeep-gc-pickup-render-brilliance-v3-debut-jobs-jobs-jobs-lack-thereof/ http://www.thetruthaboutcars.com/2015/05/sleeping-jeep-gc-pickup-render-brilliance-v3-debut-jobs-jobs-jobs-lack-thereof/#comments Fri, 08 May 2015 10:11:11 +0000 http://www.thetruthaboutcars.com/?p=1064017 As trucks ride a heat wave of interest from consumers, I look at this Grand Cherokee render and think, “That’ll do.” Jeep Trailhawk (Theophilus Chin) Self-titled Automotive Manipulator Theophilus Chin has put together a compelling image of a Jeep Grand Cherokee pickup. Exclusive: Honda Australia pensions off Civic diesel (GoAuto) As car enthusiasts scream for diesel […]

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Jeep Trailhawk Truck Render

As trucks ride a heat wave of interest from consumers, I look at this Grand Cherokee render and think, “That’ll do.”

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Biggest Supplier of U.S. Foreign Oil Elects Democratic Socialist Government http://www.thetruthaboutcars.com/2015/05/biggest-supplier-u-s-foreign-oil-elects-democratic-socialist-government/ http://www.thetruthaboutcars.com/2015/05/biggest-supplier-u-s-foreign-oil-elects-democratic-socialist-government/#comments Wed, 06 May 2015 13:27:12 +0000 http://www.thetruthaboutcars.com/?p=1062762 Last night, it became official: Alberta, the largest producer of oil in Canada, ended the 40 year reign of the Progressive Conservatives in favor of the New Democratic Party (NDP), a democratic socialist party. This could mean big changes in the energy sector, from oil patch to gas pump. The Alberta NDP, under the leadership of […]

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Rachel Notley, Alberta NDP Leader

Last night, it became official: Alberta, the largest producer of oil in Canada, ended the 40 year reign of the Progressive Conservatives in favor of the New Democratic Party (NDP), a democratic socialist party.

This could mean big changes in the energy sector, from oil patch to gas pump.

The Alberta NDP, under the leadership of new premier Rachel Notley, campaigned on a promise to review energy royalties. With the previous government known for charging royalties far below average, it’s likely a review will find an increase favorable for Albertans. And, as is the case, customers will be footing the bill and the energy lobby has already come out swinging.

From CBC:

Altacorp Capital, a Calgary investment bank that is partly owned by the provincial government, expressed a similar view in a report earlier this week, before the election.

The report pointed out that energy investors, especially those based outside of Canada, have lots of options when it comes to investing.

“Unfortunately, with Alberta possibly heading for a third royalty change in eight years now, we believe global investors will add a degree of caution with the province’s ability to maintain a stable investable environment.”

Other platform promises including raising corporate income tax rates from 10 to 12 percent, increasing the minimum wage to $15 per hour by 2018, more tax brackets and higher taxes for making over $125,000 per year, and a ban on corporate and union political donations.

Canada is the largest outside supplier of petroleum to the United States at 3.39 million barrels per day, 37 percent of gross imports, more than all OPEC countries combined in 2014.

[Image source: Rachel Notley Facebook Page]

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Dude, Where’s My Cheap Gasoline? The Truth about Oil Part III http://www.thetruthaboutcars.com/2015/03/dude-wheres-cheap-gasoline-truth-oil-part-iii/ http://www.thetruthaboutcars.com/2015/03/dude-wheres-cheap-gasoline-truth-oil-part-iii/#comments Thu, 05 Mar 2015 22:36:46 +0000 http://www.thetruthaboutcars.com/?p=1016578   If you drive a Tesla, Leaf or a Volt, you may not have been to a gas pump lately. For the rest of us you’re probably wondering how in the Hell did he get it so wrong! There are some pretty amazing things happening in the oil industry, and a perfect storm gathered to […]

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Workers of French oil giant Total and the SFDM Society, and SNCF railway workers block the entrance of the deposit of the society SFDM near the oil refinery of Donges

 

If you drive a Tesla, Leaf or a Volt, you may not have been to a gas pump lately. For the rest of us you’re probably wondering how in the Hell did he get it so wrong! There are some pretty amazing things happening in the oil industry, and a perfect storm gathered to spike gasoline prices in the short term, and has set up a tidal wave of oil that could completely collapse both crude oil and refined fuel products just as the summer driving season begins.

To get an idea of what is going on, you need to look at three charts, which paint a fascinating picture. First, take a look at West Texas Intermediate (WTI) oil prices (NYMEX short contract).

chart1

Next, take a look at ethanol futures (short contract):

chart2

And finally, take a look at gasoline futures (short contract):

chart3

The price of oil was very volatile in the month of February. WTI hit a basement on January 28, 2015 of $44.08 per barrel, and then rose 21-1/2% in just 20 days, closing at $53.56 on February 17th. It has since dropped 8% in just six more days, which is as much data that was available as of this writing. If we were talking about equities, I would be calling this a classic “dead cat bounce.”

Now look at the price of gasoline futures.  At the same time oil started to go up, gasoline prices spiked up even faster, with one key difference, the prices have largely kept going up, settling in at just under $2.00 per gallon even as oil went back down.

If we look at ethanol we can see another, apparently disconnected trend, with ethanol prices dropping and not mirroring the increase in gasoline futures, trading in a rather narrow band of about fifteen cents in February. What in the name of the Wild World of Sports is going on here?

The biggest driver of rising gasoline prices, as much as a dollar a gallon in just a month in places like California, has been caused by a significant number of disruptions to US refinery capabilities in just the last 30 days:

There has been massive disruption to oil refining capabilities causing the price of gasoline, diesel, and aviation fuel to skyrocket. US refinery utilization is normally at 81% to 85%, a 20% loss of capacity just from the strike, has created a situation where less motor fuel is being produced to meet the needs of the buyers lined up for products. Supply of gasoline has tightened, so the prices have gone up.

According to the US Energy Information Association, Weekly US Refiner and Blender Adjusted Net Production of Finished Motor Gasoline hit an all-time production record of 10,195,000 barrels per day in December of 2014. By the week of February 6th, production had dropped a whopping 15%. Gasoline production is tied more to just-in-time economics, so disruptions in refinery capacity due to accidents, weather, normal seasonal transition from winter to summer blends, and work stoppages have swift impacts to prices. So, now you understand why gasoline prices have shot up, but what about oil?

Oil prices spiked, bouncing off the $44 basement, and have settled in to a narrow range of $49 to $50 a barrel. The reason these two trend lines have disconnected, with gasoline continuing to climb up and oil starting to decline again is simple economics of supply and demand. Refiners buy crude oil to turn it into finished motor fuels. But if refiners are offline due to strikes, accidents, weather, seasonal change over, or all of the above, then they are buying less oil, and that is exactly what is happening.

Crude oil markets are faced with a no win situation. They can either cancel contracts on the oil they promised to buy, and pay huge penalties on top of an already battered market, or they can accept the oil and stockpile it in storage tanks waiting for the refinery disruptions to end. With fall 2015 oil futures at higher prices than the current market, oil producers have little incentive to send their oil to refiners anyway, so they’re incentivized to stockpile, which is exactly what they’re doing. Currently, the United States is producing and importing about one-million excess barrels of crude oil a day.

This issue of over capacity has gotten worse because of the Flanagan South Pipeline. Haven’t heard of it? It hasn’t been very news worthy because Flanagan South isn’t USDA prime click bait that generates the fury of a thousand suns that headlines around Keystone XL create. The 36” pipe went online in November, and is now pumping 550,000 barrels a day of heavy oil from western Canada directly to the United States through Pontiac, Michigan. It is what Keystone XL is proposed to do, already happening today.  Huge amounts of crude oil from Canada oil sands are moving to Illinois refineries and Cushing, Oklahoma for storage.

Here is the critical problem. The United States is running out of room to store oil.  By April every forecast is indicating the United States will be at tank top. Producers are already signing leases for oil tankers to store crude oil off the coasts of the United States in anticipation of hitting the top for onshore storage. The 13 pipelines that flow into Cushing, Oklahoma are pouring 1.7 million barrels of oil a day into the facility.

It is a perfect storm coming together. Diminished refinery capacity nationwide sent gasoline prices up swiftly, but reduced the need for crude oil at the same time. Crude oil producers having no incentive to send their oil down to the Gulf of Mexico refineries for production and export, because current futures prices indicate more profit can be made if they wait, and the refineries can’t use it anyway because of the strike. Record amounts of oil are already in place and have reached the critical point where all possible storage for crude oil will be filled up.

Fine, so why doesn’t China just buy the stuff, or Europe, or Brazil? China oil consumption is down as their economy has cooled and Europe had a rather normal winter and near flat economic growth. The fundamental issue of too much oil and not enough consumption hasn’t changed. What has changed for the short term is a tightening of gasoline supply within the United States causing a temporary spike in gasoline prices.

So what happens if we top out in April? Commodity price Armageddon is what happens. Oil will start to flow southward and refiners will be under huge pressure to increase output, into a market with an oversupply problem as it is. Refiners will be under huge pressure to settle with the United Steelworkers union to get production back up.The price of oil and motor fuels will have nowhere to go but down, and there is a growing chorus of analysts saying that crude oil will drop to below $30 a barrel, and take gasoline with it.

If the crude oil has nowhere to go, producers will be forced to throttle back production. That means any plunge in both oil and gasoline prices will be short lived. The pendulum will swing back the other way as the supply tightens quickly, and that ugly price spike that I wrote about coming in 2016 right around the time of US elections, that would be the next step.

I still think it’s still OK to plan that cross country drive in your Challenger Hellcat, but maybe time it closer to Labor Day.

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US Once Again the Swing Oil Producer: Whither Gas Prices? http://www.thetruthaboutcars.com/2015/01/us-swing-oil-producer-whither-gas-prices/ http://www.thetruthaboutcars.com/2015/01/us-swing-oil-producer-whither-gas-prices/#comments Thu, 29 Jan 2015 23:00:24 +0000 http://www.thetruthaboutcars.com/?p=989498 Despite a collapse in oil prices of 50 percent since summer’s end, Saudi Arabia, whose vast production capacity has enabled that country to modulate world oil prices by adjusting its output, “effectively resigned from that role,” Daniel Yergin wrote in this past Sunday’s New York Times Week in Review. “…OPEC handed over all responsibility for […]

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oil-refinery.jpg

Despite a collapse in oil prices of 50 percent since summer’s end, Saudi Arabia, whose vast production capacity has enabled that country to modulate world oil prices by adjusting its output, “effectively resigned from that role,” Daniel Yergin wrote in this past Sunday’s New York Times Week in Review. “…OPEC handed over all responsibility for oil prices to the market, which the Saudi oil minister, Ali Al-Naimi, predicted would ‘stabilize itself eventually.’”

For those unfamiliar with Yergin, since at least the late 1970s, he has been a leading expert and author on oil and its intersection with international economics and politics. He writes that the Saudis’ motivation for relinquishing control—a decision which was far from unanimous among OPEC nations—included fear of losing market share if they turned off the spigots, particularly to Iraq, which they view as a satellite of Iran, and to Iran itself, should sanctions end, bringing that country’s million-plus bbls/day back onto the market.

Now, Yergin writes, the US, long ago the “swing producer” of oil, has been granted that status once again by virtue of Saudi Arabia’s abdication.

The US “was once, by far, the world’s largest oil producer and exporter,” Yergin writes. American production peaked in 1970 at 9.6 million barrels a day, but by 2008, had fallen by nearly half, while oil prices had climbed to $147/bbl (raising the specter of peak oil).

Then, technology came to the rescue, in the form of fracking and horizontal drilling. In 2010, writes Yergin, these nascent gas-harvesting technologies were unleashed upon oil, and by 2014 brought American oil production most of the way back to the 1970 peak. That, and slowing world economic growth brought prices from the stratosphere back down to more terrestrial levels of less than $50/bbl.

Yergin expects shale oil producers to find ways to “drive down costs” so that even if oil prices stay well south of $100/bbl, shale oil production will remain strong. He doesn’t speculate what prices will do beyond 2016, short of saying a growing economy may stimulate more demand. (We were unable to reach him for comment, as he was traveling overseas.)

Providing additional perspective in a New York Times “Upshot” column, the NYT’s David Leonhardt says the current nationwide average price of gasoline, $2.03/gallon, is actually more expensive than at anytime during the 1990s. From 1986 through 2002, the inflation-adjusted cost of a gallon averaged $1.87.

Nonetheless, if maintained, the current low fuel cost could lift some financial burden from the middle class on down. Leonhardt notes that political leaders from President Obama to three likely presidential candidates—Hillary, Jeb Bush, and Scott Walker “consider the wage slowdown to be the country’s most pressing issue.” The wage slowdown refers to the fact that American middle class wages have been so stagnant for the last several decades that our middle class is no longer the world’s most affluent.

Leonhardt asserts that energy costs were a major factor behind the wage slowdown. He writes that the beginning of the wage slowdown coincided with the end of cheap gas. But if gas prices hold to current levels, Americans will have an additional $180 billion their accounts this year, he says (that’s about $562 per capita).

(But maybe energy is not such a major factor: the $180 billion represents less than 1.5 percent of personal income. Tufts economist David Dapice blames the wage slowdown more on rising medical costs, globalization and the breaking up of unions, and slack in labor markets. And Harvard economist George Borjas says mass immigration takes a 3-4 percent bite out of income.)

But if gas remains cheap, rising demand could boost prices. Leonhardt notes in the early ‘80s, CAFE helped dampen demand for fuel. In the mid-‘80s, the best selling vehicles were the Chevy Celebrity, Honda Accord, Ford Escort, and Ford Tempo, “all modest size,” writes Leonhardt. But by the cheap oil era’s end, in 2002, the CAFE truck loophole had catapulted the Explorer, the Trailblazer, the Silverado, and the Ram to the top (See Derek’s article on that loophole.)

“Left to its own devices, the energy market will repeat this cycle,” Leonhardt warns, adding that SUV and pickup truck sales in December 2014 had risen 12 percent over December 2013, compared to just 5 percent for cars.

Avoiding this cycle is the logic behind taxing either gasoline or carbon enough to dampen demand, and rebating at least some of that money to consumers, in the form of tax cuts, as Larry Summers and Charles Krauthammer both advocated, and as the Energy and Enterprise Institute has been promoting. Thus, the external costs of both could be internalized without harming the economy.

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A Brief History Of The Oil Crash http://www.thetruthaboutcars.com/2015/01/brief-history-oil-crash/ http://www.thetruthaboutcars.com/2015/01/brief-history-oil-crash/#comments Fri, 16 Jan 2015 14:30:25 +0000 http://www.thetruthaboutcars.com/?p=984457 Reuters Energy analyst John Kemp has published a timeline of events that explain the latest crash in crude oil prices. As energy prices enter a new era, we’ll be focusing more and more on this sector, and how it relates to the automobile.

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Click here to view the embedded video.

Reuters Energy analyst John Kemp has published a timeline of events that explain the latest crash in crude oil prices. As energy prices enter a new era, we’ll be focusing more and more on this sector, and how it relates to the automobile.

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Pundits Push Gas Tax Hike From Left and Right http://www.thetruthaboutcars.com/2015/01/pundits-push-gas-tax-hike-left-right/ http://www.thetruthaboutcars.com/2015/01/pundits-push-gas-tax-hike-left-right/#comments Thu, 15 Jan 2015 14:53:52 +0000 http://www.thetruthaboutcars.com/?p=983849 Last week, I bought gasoline for less than $2/gallon for the first time in probably more than a decade. A tankful for my ’08 Civic (stick) cost me sixteen whole dollars and fifty-three cents. Now two leading thinkers, one from each party, have called for taking the opportunity of low gas prices to slap a […]

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oklahoma-gas-prices

Last week, I bought gasoline for less than $2/gallon for the first time in probably more than a decade. A tankful for my ’08 Civic (stick) cost me sixteen whole dollars and fifty-three cents.

Now two leading thinkers, one from each party, have called for taking the opportunity of low gas prices to slap a tax on petroleum—or on carbon.

The impetus for such a tax is what economists dryly call “internalizing externalities.” Our appetite for petroleum causes harm through global warming, chronic health conditions, and large payments to countries that do not have our best interests at heart. All this harm is a bundle of externalities that goes unaccounted for in the price of fuel.

Last Friday, Charles Krauthammer, a conservative Washington Post columnist, wrote that he’s been pushing for a “major tax on petroleum” for the last 32 years, and he advocated raising the price of gasoline by a dollar. The revenue, $12 per week per average American, Krauthammer calculated, “should be used to reduce the Social Security tax.”

Krauthammer said his gas tax would do far more to boost gas mileage than CAFE, which he asserted forces carmakers “to manufacture acres of unsellable cars in order to meet an arbitrary, bureaucratic “fleet” gas consumption average.” (No argument there!).

The previous Monday, Larry Summers, who was Secretary of the Treasury under President Clinton, and who is former director of President Obama’s White House National Economic Council, called for applying a $25/ton carbon tax—a level he refers to as “a good place to start.” That would raise gasoline prices by 25 cents. But it would also boost the cost of all carbon fuels, letting the market decide where best to cut back. Summers proposed dividing the revenues between infrastructure and “pro-work tax credits.”

Summers advocated levying that tax not just on American goods and services, but on imports from countries that lack carbon taxes. He sees the carbon tax as important both practically and symbolically, to encourage the rest of the world to address climate change.

“I thought both op-eds were terrific,” says Alex Bozmoski, director of strategy and operations at the Energy and Enterprise Initiative (E&EI), at George Mason University. E&EI was founded several years ago by Bob Inglis, a former Republican congressman from South Carolina, to promote conservative strategies for mitigating global warming.

Bozmoski first appreciated the issue’s importance when he took a climate science class in order to heckle the professor, but came to realize that the scientific uncertainties he harped on were the essence of risk—of which there was plenty to go around. Examining the two proposals, he prefers a carbon tax to a gas tax for its greater efficiency at reducing greenhouse emissions, and its encouragement of innovation in a broader field of technologies. He notes that a carbon tax would be expected to rise over time, and that businesses buying power plants would take future costs into consideration.

But Bozmoski also calls Krauthammer’s proposal “outstanding,” and “a clear, major improvement over the status quo.” Krauthammer, he says, is “a thought leader of the conservative movement. He’s asking the question, ‘doesn’t it make more sense to tax things that we want to use less of [gasoline] rather than things we want more of [jobs]?’.”

In his quest, Krauthammer compared himself to Don Quixote. There’s hope that he’s wrong. Currently, key Republican law makers are open to raising the gas tax (and Democrats are clamoring for action). Money raised by a petroleum tax is money that would stay in the United States instead of boosting Vlad Putin’s political fortunes and enriching Middle Eastern countries that abet terrorists. And by encouraging Americans to purchase more fuel efficient vehicles, and insulate their houses—long-term investments in efficiency—a petroleum tax would be a gift that keeps on giving.

David C. Holzman writes from Lexington, Massachusetts. His website is motorlegends.com. There, you can see photos of the Yugo Next exhibit, learn about Richard Nixon’s biggest mistake (which had to do with LBJ’s ’53 Buick, “Hannibal,”) and purchase a ’58 Edsel or ’57 Chevy shirt.

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Ur-Turn: The Truth About Oil, Part Two – The Good, The Bad, And The Ugly http://www.thetruthaboutcars.com/2015/01/ur-turn-truth-oil-part-two-good-bad-ugly/ http://www.thetruthaboutcars.com/2015/01/ur-turn-truth-oil-part-two-good-bad-ugly/#comments Wed, 14 Jan 2015 21:25:08 +0000 http://www.thetruthaboutcars.com/?p=983225 David Obelcz is back with Part Two of his series on oil prices. Part One can be viewed here. In the 1966 Spaghetti Western classic The Good, the Bad, and the Ugly, the three principal characters come together in what is considered the most iconic standoff in cinematic history. Three parties hostile to each other […]

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David Obelcz is back with Part Two of his series on oil prices. Part One can be viewed here.

In the 1966 Spaghetti Western classic The Good, the Bad, and the Ugly, the three principal characters come together in what is considered the most iconic standoff in cinematic history. Three parties hostile to each other and the first one to shoot is the most likely loser.

At no time in modern history has the overall global economy been so good and the commodity price of oil crashed so fast, and so hard. As of this writing short contract West Texas Intermediate (WTI) is below $46 USD a barrel with no sign of price support. We are deep into market crash territory with pumping out of the ground tipping over into a money losing proposition. OPEC nations, state producers, and global multinationals have each other in check on the world chessboard, and no one wants to move their pieces.

Although there are plenty of conspiracy theories on why the price of oil has declined so fast, it is the simple economics of supply and demand. Production over capacity has bloated from 700,000 barrels a day this summer to 1.3 million barrels. Although there is a growing list of drilling rig contract cancelations, existing production sources are pumping more. Over supply will continue to grow because the three goliaths of oil production (OPEC nations, state owned and corporate producers) are fighting to cling to their existing market share at any cost.

Russia has increased production through 2014 despite a battered Ruble and the price of oil sitting at less than half of where it needs to be to support the Russian government. Russian producers are hoping to capture more market share, ironically from the same western European nations that Moscow is growing increasingly resentful of, to help bolster overall revenues. The Putin government position to the Russian people is the price decline is an economic assault on their nation. This message resonates well outside of major population centers, but dissatisfaction and fear of a 1998 grade collapse are growing.

Vladimir Putin has enjoyed high approval ratings because the standard of living has improved dramatically under his leadership. For Putin to maintain power, he has to keep the Russian economy out of collapse and cannot permit a repeat of 1994 and 1998. Eleven-percent inflation, 17% interest rates, and a three-trillion Ruble budget deficit projected for 2015 is a tough hill to climb. Although the General Motors strategy of, “we’ll make it up in volume,” is folly, it keeps people employed and revenue flowing.

Saudi Prince Alwaleed bin Talal has stated that Saudi Arabia will not reduce production regardless of the direction of the market, and that oil will never be $100 barrel again. The reason behind this is the wellbeing of the Saudi royal family and the viability of the Saudi government is interdependent on national prosperity.

Compared to their neighbors, Saudi citizens enjoy a higher standard of living, which makes the average Saudi less likely to want to overthrow the existing, western friendly government. During the oil crashes of 1986 and 1998, the OPEC cartel, led by Saudi Arabia, agreed to reduce production capacity to help stabilize oil markets. A number of OPEC nations cheated and didn’t cut production, causing Saudi Arabia to permanently lose market share after each correction. Although you can make a strong case that the Saudi government turns a blind eye to those who fund radical Islam in other parts of the world, they are showing little interest in allowing it to ferment inside their own borders. For the Saudi royal family, heads could literally roll if their influence in the global oil market is lost.

In the Powder River Basin, Eagle Ford, Bakken, and the oil sands of Canada, leveraged producers and corporate interests are looking for long term return on investment, and increasingly economic survival. A growing list of analysts are saying that Texas should prepare for a recession, and the gravy train of $30 an hour day labor jobs in North Dakota are coming to an end. Smelling blood in the water against the other large producers in the world, the strongest players believe they can keep the pressure up until someone cuts production, and capture the smaller producers as they consolidate.

In prior oil crashes, ExxonMobil, BP, Chevron, etc. have treated commodity weakness as buying opportunities. Because major oil corporations are morphing into energy companies, are vertically integrated, and have record cash reserves, they can carry out a long term war of oil price attrition. The contract drillers, their suppliers, rig operators, and the support network are already reeling from the price collapse, but with a dividend yield of more than four-percent for blue chip oil stocks, shareholders will remain patient, for now.

No one wants to give up market share because no one can afford to give up market share. If anyone cuts production, the risk is becoming irrelevant in this post oil crash market. Anyone who yields market share today, yields it forever.

To get an idea of how much global production has grown, the U.S. Energy Information Administration (EIA) has tables of data you can download for fun and profit. Since 2008 US oil production has almost doubled. From September 2010, when the Great Recession started to wind down, to September 2014, US oil production has increased 31%, making the United States the largest oil producing nation in the world.

 

Top Five Oil Producing Nations
Country Production (thousands of barrels per day) Four Year Increase/Decrease
United States 14,246 30.80%
Saudi Arabia 11,558 3.98%
Russia 10,564 3.65%
Canada 4,612 27.86%
China 4,470 -0.03%

Source, USEIA – http://www.eia.gov, as of September 2014

Of the top ten oil producing nations, only Iran has had a statistically meaningful decline in production during the last four years. Recent reports of United States oil production growth slowing to the lowest level in 5 years makes for great headlines, but when you’ve grown 90% since 2008, you reach a point where deceleration is inevitable.

At the same time of this unprecedented expansion in production and the complex geopolitical situation of radicalization and militarization, oil consumption growth has dropped to just 2/10 of a percent through 2013. More remarkable, although all the data isn’t available, it appears for 2014 global consumption increases has flattened to zero, and may have even retracted.

China is expecting to grow by a relatively tepid 7%, India has cut their growth forecast in half, Japan is expected to be flat, and Russia is expecting to contract by 3%. Although the United States is enjoying strong GDP and job growth, conservation programs and increasingly stringent CAFE standards are having a real impact on consumption. In the January 13, 2015 short-term energy outlook released by the EIA, global consumption is expected to grow 900,000 barrels per day through 2015, even when factoring increased US gasoline consumption forecasts.

Top Five Oil Consuming Nations
Country Consumption (thousands of barrels per day) 2012 to 2013 Increase/Decrease
United States 18,961 2.55%
China 10,116 1.37%
Japan 4,530 -3.49%
India 3,509 1.71%
Russia 3,320 -2.21%

Source, USEIA – http://www.eia.gov, as of 2013

2015 is shaping up to be the 1967 of this generation. We are in a golden age of power and efficiency. Three-hundred horsepower is commonplace and 500 reliable horsepower, or more, is obtainable to a wider demographic than at any other time. Buyers can choose from the Charger, Challenger, Mustang, Camaro, Corvette, or SS if they want to get their ‘Merica old school V8 rear-wheel-drive on. The Hellcat, Shelby GT 350, magnetic ride control and manual transmission equipped SS, and C7 couldn’t have come at a better time. Never mind an almost endless list of sedans, CUVs and SUVs with performance numbers that makes a 1967 GTO gimpy in comparison.

Many who didn’t learn to drive in the Detroit malaise and British Leyland era believe a traffic ramp sprint to 60 MPH (or 62 KPH if you please) that takes longer than eight seconds is dangerously slow. The fears of a performance Armageddon driven by stringent global fuel economy standards appears to have been completely unfounded (your author, guilty as charged). A growing list of states is raising interstate speed limits and consumers are enjoying at least a short term gain in disposable income.

The love affair North America has with fullsize trucks will continue unabated, and will accelerate this year. Manufacturers with strong CUV and SUV line ups can look forward to growing demand in 2015, while mainstream subcompact, compact, and midsize sedan sales will slow. Think Jeep had a good 2014, wait until you see 2015. The General Motor twins of the Colorado and Canyon, as well as the Chevrolet Trax are, for the short term, ill-timed. For Ford, 2.7 liter Ecoboost engines in aluminum fullsize trucks might not be as strong a selling point if gasoline had taken a path in the other direction. For the growing list of diesel powered cars, trucks, and SUVs that United States buyers can choose from, the timing couldn’t be worse. The premium both in Average Transaction Price (ATP) and at the pump for diesel means that the math simply doesn’t add up.

But what about those cars which aren’t powered by gasoline, or are only partially powered? Tesla continues to benefit as a boutique luxury brand, and should be immune from current conditions. The Toyota Prius line up will further decline year-over-year in 2015. Low gasoline prices coupled with low ATP on Camry and Corolla makes the Prii a tougher sale. Chevrolet Volt version 2.0 is appearing at the wrong time. The Toyota Mirai should be immune to market conditions because of its green credentials and the future is now hydrogen fuel cell driveline. Because of its early adopter cred, the Mirai is likely a bigger threat to Tesla Model S sales than gasoline under $2 a gallon.

So what about the price of oil? With consumption growth not outstripping production through 2015 barring some huge unforeseen event, the price can only go down. History indicates the lowest it could go is about $23.50 a barrel, which when adjusted for inflation, is at the 1986 basement. I see oil finding support at $28 a barrel in the summer of 2015, and gasoline future dropping below $1 a gallon USD. The Midwestern states which typically have lower motor fuel costs could see the average price of regular gasoline hit $1.50 a gallon by the start of the summer driving season.

If you were thinking about a cross country road trip in a Challenger Hellcat, this is the year to do it.

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Is This E85’s Time To Shine? http://www.thetruthaboutcars.com/2015/01/e85s-time-shine/ http://www.thetruthaboutcars.com/2015/01/e85s-time-shine/#comments Tue, 06 Jan 2015 14:30:34 +0000 http://www.thetruthaboutcars.com/?p=971810 The recent fall in fuel prices isn’t just an opportunity for Americans to demonstrate their collective inability to remember the events of even the recent past; it’s also a decisive hammerblow to E85 plants and retailers across the country. This has to be the case, right? Well, it’s certainly the tack that the media has […]

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The recent fall in fuel prices isn’t just an opportunity for Americans to demonstrate their collective inability to remember the events of even the recent past; it’s also a decisive hammerblow to E85 plants and retailers across the country.

This has to be the case, right?

Well, it’s certainly the tack that the media has been taking over the past month, with most media outlets reporting significant drops in E85 consumption as “natural gasoline” falls below the $2 mark in many markets. Certainly, gasoline is lower in terms of inflation-adjusted pricing than it’s been in decades. I filled up my Accord the other day from below the “E” mark for a price of $30.20, obtaining 421 mixed-use miles from the resulting fillup. Each mile is costing me about six cents in fuel, compared to the approximately twenty cents per mile I paid to operate my Town Car eighteen months ago.

As fate would have it, however, the very thing that causes opponents of E85 to decry its assistance is allowing it to deliver some fairly staggering pricing. The “consensus opinion” is that a gallon of petroleum energy creates between 1.24 and 1.6 gallons of corn-based E85. Other base crops like sugar cane and switchgrass can offer much higher yields, but fundamentally when we think “ethanol” in the United States we think about corn-based ethanol. When the cost of petroleum drops, therefore, it has a massive effect of the cost of ethanol production.

Long-time TTAC readers will remember that I ran my now-deceased Town Car on E85 for some time and observed lower fuel economy, some stumbling, and skanky behavior as a result. At the time, E85 was $2.29 and gasoline was $2.79, numbers that didn’t quite work for E85.

What about $1.19 vs. $1.89? That’s a much bigger (62% vs. 82%) gap, and it’s courtesy of Michigan’s Yellow Hose Program. Gasoline hasn’t been that cheap since before Nixon. Seeing $1.19 on a fuel station sign, or even seeing the $1.36 that my local Kroger is asking for E85, is psychologically important, and we’re a country that runs on stuff like that.

I’m not going to fill up my not-quite-Super-Coupe with E85; it’s the one modern Honda that can’t handle the juice even with an adapter. Still, the numbers on E85 are now good enough that municipalities might consider filling their flex-fuel cars from the yellow hose, and corporations might follow. I’m also considering building a NASA race car that runs exclusively on E85. If I do that, look for future E85 reports from this writer to have much more factual data and much less descriptions of vodka spilled between someone’s legs, okay?

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It’s Official: Oil Is Now Cheaper Than Whisky http://www.thetruthaboutcars.com/2015/01/official-oil-now-cheaper-whisky/ http://www.thetruthaboutcars.com/2015/01/official-oil-now-cheaper-whisky/#comments Mon, 05 Jan 2015 20:09:40 +0000 http://www.thetruthaboutcars.com/?p=971586 As of 3:03 P.M., a barrel of West Texas Intermediate crude oil is sitting at $49.90 USD. For $42.48, you can get a fifth of Wiser’s Legacy Canadian Whisky – decent stuff, but nothing fancy. If you’ll excuse me, I’m off to buy myself a Hellcat.

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As of 3:03 P.M., a barrel of West Texas Intermediate crude oil is sitting at $49.90 USD. For $42.48, you can get a fifth of Wiser’s Legacy Canadian Whisky – decent stuff, but nothing fancy. If you’ll excuse me, I’m off to buy myself a Hellcat.

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Consumers On Track To Save $80 Billion Due To Lower Gas Prices http://www.thetruthaboutcars.com/2015/01/consumers-track-save-80-billion-due-lower-gas-prices/ http://www.thetruthaboutcars.com/2015/01/consumers-track-save-80-billion-due-lower-gas-prices/#comments Fri, 02 Jan 2015 15:20:28 +0000 http://www.thetruthaboutcars.com/?p=970330 The auto world may be on an extended vacation thanks to the timing of New Year’s day, but the energy markets are still moving. Matt Smith of the Energy Burrito blog (and energy firm Schneider Electric) discusses the impact of lower gasoline prices for the American consumer. According to Smith, the savings amount to $378 […]

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The auto world may be on an extended vacation thanks to the timing of New Year’s day, but the energy markets are still moving. Matt Smith of the Energy Burrito blog (and energy firm Schneider Electric) discusses the impact of lower gasoline prices for the American consumer. According to Smith, the savings amount to $378 million per day, or $80 billion annually.

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President Obama Says New CAFE Standards Will Save Average Driver $8,000 a Year. http://www.thetruthaboutcars.com/2012/03/president-obama-says-new-cafe-standards-will-save-average-driver-8000-a-year/ http://www.thetruthaboutcars.com/2012/03/president-obama-says-new-cafe-standards-will-save-average-driver-8000-a-year/#comments Thu, 15 Mar 2012 15:23:37 +0000 http://www.thetruthaboutcars.com/?p=435096 Last week in a speech at Daimler owned Freightliner truck plant, President Obama said that the new 55mpg CAFE standards will save a typical American family $8,000 a year on gasoline. That would be great news to most American drivers if it were true but the president took political science and law courses in college, […]

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Last week in a speech at Daimler owned Freightliner truck plant, President Obama said that the new 55mpg CAFE standards will save a typical American family $8,000 a year on gasoline. That would be great news to most American drivers if it were true but the president took political science and law courses in college, not math. Or maybe his math isn’t off.

“When I ran for office, I went to Detroit and I gave a speech to automakers where I promised that I was going to raise fuel standards on our cars, so that they’d go further on a gallon of gas.  I said we should do the same thing on trucks.  I have to tell you, when I said it, I didn’t get a lot of applause in the room, because there was a time when automakers were resisting higher fuel standards — because change isn’t easy.  But you know what, after three decades of not doing anything, we got together with the oil companies, we got together with the unions, we got together with folks who usually do not see eye to eye, and we negotiated new fuel economy standards that are going to make sure our cars average nearly 55 miles per gallon by the middle of the next decade.  That’s nearly double what they get today — nearly double.  (Applause.)

Now, because of these new standards for cars and trucks, they’re going to — all going to be able to go further and use less fuel every year.  And that means pretty soon you’ll be able to fill up your car every two weeks instead of every week -– and, over time, that saves you, a typical family, about $8,000 a year.”

A typical American family can’t save $8,000 a year on gas because a typical family in American doesn’t spend that much on gas a year in the first place. Using the president’s math, the average car gets 55/2=27.5mpg. The average driver drives about 12,000 miles per year, which works out to 436 gallons @ 27.5 mpg. Even at $4/gallon, that’s still only $1745/year. Cutting that hypothetical typical American driver’s gasoline bill in half will save $872.72 a year, not $8,000.

Reading over the transcript of the president’s remarks it’s possible the he simply misspoke. According to estimates, the new CAFE standards will save about $8,200 over the life of the vehicle, not in one year. Earlier in the speech Obama praised Freightliner’s participation in the federal “SuperTruck” initiative, whose target is saving $15,000/year per large truck. A big over the road truck travels so many miles in a year that a significant improvement in fuel economy could save that much. A typical American family, though, doesn’t drive their car 100,000 miles a year. So maybe the president confused savings per year with savings over the life of the vehicle and didn’t just make a bad math error.

On the other hand, there is one way that the president’s math works out. His recent press conference remarks about rising gas prices not being good for him politically are true. However, the president is talking about the savings that will take place in “the middle of the next decade”, meaning 2025, thirteen years hence, when he’ll be long out of office and earning six figure honoraria for his speeches. An average family could indeed save $8,000 a year if gasoline rises to $37/gal by 2025. While I believe that the president’s policies are aimed at making traditional energy more expensive in order to make alternative energy more financially viable, I sincerely doubt that even he would want a nine fold increase in the price of gasoline over the next decade.

Ronnie Schreiber edits Cars In Depth, a realistic perspective on cars & car culture and the original 3D car site. If you found this post worthwhile, you can dig deeper at Cars In Depth. If the 3D thing freaks you out, don’t worry, all the photo and video players in use at the site have mono options. Thanks for reading– RJS

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Blind Spot: Obama No Longer Dreams Of Electric Cars http://www.thetruthaboutcars.com/2012/03/blind-spot-obama-no-longer-dreams-of-electric-cars/ http://www.thetruthaboutcars.com/2012/03/blind-spot-obama-no-longer-dreams-of-electric-cars/#comments Tue, 13 Mar 2012 00:00:31 +0000 http://www.thetruthaboutcars.com/?p=434742 “The electric things have their life too. Paltry as those lives are.” Phillip K. Dick, Do Androids Dream Of Electric Sheep? At the High School I attended, progress reports were never a good thing. Halfway through each term, students who were averaging a D or lower would receive a print-out of their grade accompanied by […]

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“The electric things have their life too. Paltry as those lives are.”

Phillip K. Dick, Do Androids Dream Of Electric Sheep?

At the High School I attended, progress reports were never a good thing. Halfway through each term, students who were averaging a D or lower would receive a print-out of their grade accompanied by a line from the teacher explaining how the miscreant in question was failing to live up to expectations. True to form, the White House’s just-released “One Year Progress Report” [PDF] on President Obama’s “Blueprint For A Secure Energy Agenda” includes some devastating evidence of abject failure. But unlike my post-progress report conversations with the parental stakeholders, Obama has a lot more to explain to voters than a simple “insufficient homework turned in.”

Just over a year ago,  in his 2011 State Of The Union, President Obama unveiled plan to stimulate “One Million Electric Vehicles By 2015,” arguing that

“With more research and incentives, we can break our dependence on oil with biofuels, and become the first country to have a million electric vehicles on the road by 2015″

Shortly thereafter, his Department of Energy released a report that touted wildly-optimistic production goals for several pure-electric cars, concluding that

Reaching the goal is not likely to be constrained by production capacity. Major vehicle manufacturers have announced (or been the subject of media reports) that indicate a cumulative electric drive vehicle manufacturing capacity of over 1.2 million vehicles through 2015.

Strong incentives, research and development, and assistance in establishing manufacturing and infrastructure is underway or planned. These activities directly support consumer demand of these technologies, and mitigate some of the uncertainty associated with the large-scale adoption of electric drive vehicles.

That argument became conclusively moot this year, when production of the Chevrolet Volt was stopped for the third time in its short lifetime, as unwanted cars piled up on dealer lots. Though the Volt has been defined as a symbol of GM’s bailout, it is even more politically significant as a component of Obama’s bold million-plugin plan. In last year’s report, the Department of Energy estimated that 120,000 Volts would be put on the road in the US this year, when the Volt hs actually only just broke 1,000 units sold per month for the first time in February. That 90% discrepancy between expectation and reality is crucial to Obama’s pledge, as the “1.2m production capacity through 2015″ that the DOE took for granted included some 505,000 Volts (at 120k/year from 2012-2015). With the Volt selling at 10% of DOE estimates, the entire goal falls apart (the next-closest vehicle, Nissan’s Leaf, isn’t estimated to hit 100,000 units per year until 2014).

Having seen the Volt’s underperformance coming, I’ve been wondering when the Obama Administration would recognize reality and admit that its goal was out of reach. But this being politics, you can’t just hand ammunition to your opponents. Admissions of failure must be couched in obfuscation and swaddled in unrelated good news. Which brings us to the just-released “Progress Report,” which is something like the polar opposite of landing on an aircraft carrier festooned with “Mission Accomplished” banners.

A sunny, upbeat document, the “Progress Report” introduces itself with wide-eyed optimism:

On the one-year anniversary of your Blueprint for a Secure Energy Future, which outlined your goals for American energy, we wanted to present a report on the significant progress we have made. During the last year alone, we established new incentives to increase safe and responsible domestic oil and gas production; proposed the toughest fuel economy standards for cars and trucks in history; provided millions of Americans with efficient and affordable transportation choices; launched new programs to improve energy efficiency in our homes, buildings, public transit, aviation and roadway systems; and took unprecedented steps to make the United States a leader in the clean energy
race.

But if we skip ahead to the section regarding EVs, we find that all the sugary good news is just helping mask the rank scent of failure. So, how does a sitting president admit failure? It’s as easy as writing

“By 2015, the United States will be able to produce enough batteries and components to support one million plug-in hybrid and electric vehicles.”

Notice the key difference: then, the argument was that government action would put a million EVs on the road, now the argument is that the infrastructure will be in place to meet the goal. Oh, and in case you’re a fellow ADD-sufferer, remember that the DOE determined just one year ago that

Reaching the goal is not likely to be constrained by production capacity.

In essence this report repeats the exact same thing. The difference is simply that a year ago, the President could pretend that the market would simply soak up whatever number of EVs the car companies (most of whom had received some form of government support) said they would build. Now even the most hardened partisan can’t maintain such obvious self-delusion, as the demand for EVs (the Volt in particular) has been proven to be well below expectations. This failure is made explicit in the Progress Report, which notes that

in March 2012, the President launched a clean energy grand challenge to make electric-powered vehicles as affordable and convenient as gasoline-powered vehicles for the average American family within a decade.

In short, the message has gone from “thanks to government intervention, the future is now” to “thanks to government intervention, the future might be here in a decade.” Or, to quote a certain former presidential candidate, “whoops!”

Some might argue that this is a textbook example of government wasting money trying to affect the market, and a clear sign that the market is going to do what it wants regardless of our publicly-funded exercises in futility. Instead, President Obama is “doubling down” by requesting a billion dollars be spent on a “Community Deployment” scheme aimed at boosting demand for “advanced technology vehicles” through local partnerships, and tax credits for advanced technology vehicles be bumped to a maximum of $10,000. To be fair, the retreat from EVs is reflected in the new “technology neutral” approach, which doesn’t limit subsidies to EVs but

allow[s] communities to determine if electrification, natural gas, or biofuels would be the best fit.

But the proposed changes to the consumer tax credit [PDF] have some very vague and confusing stipulations, namely that

(1) the vehicle operates primarily on an alternative to petroleum; (2) as of the January 1, 2012, there are few vehicles in operation in the U.S. using the same technology as such vehicle.

The vagueness of those rules makes them hard to interpret, but it seems that clause (1) excludes high-efficiency, small battery plug-ins like the Prius Plug-In while clause (2) could well exclude natural gas vehicles (there were well over 100k NGVs on the road as of 2010). In which case, this policy is merely a continuation of the attempt to create a market for EVs (and since we’re talking disappointing technologies, possibly hydrogen cars). The community deployment scheme seems more technologically neutral, but is flawed in the extent that it assumes that local solutions will be more broadly applicable. Besides, most local governments with strong “green car” demand potential are already incentivizing public EV charging stations and the like. And don’t get me started about the fact that the government is even pretending that biofuels are a serious solution to either environmental or energy security concerns.

As gas prices go up, we could see EV and plug-in sales improve, but it’s clear that there won’t be one million EVs on American roads by 2015. Especially with policy appearing to shift towards a more “technology neutral” mode, there is a very real threat that the huge oversupply of natural gas could create a short term market for NGVs that could doom EVs for another decade or more. If the goal of Obama’s energy policy were to improve energy independence or help the efficient use of resources, this would be good news as it’s much easier and cheaper to build (and therefore, subsidize) NGVs than EVs (even without considering the low cost of natural gas itself). Unfortunately, we have already made a significant national investment in EV/battery technology, which satisfies yet another political constituency: environmentalists.

Without clearly communicated goals, government policies will never gain the credibility with markets they need to impact. And given President Obama’s track record so far, it’s clear  he needs to more clearly admit that his EV initiative has failed and express a clear set of goals for America’s transportation and energy sectors. Unfortunately, the fact that that he’s chosen to admit that the EV dream is over in such an oblique manner indicates that expecting such forthrightness would seem more than a little naive. All of which simply confirms that this issue, like so many others facing the nation, is no longer a question of policy, but of politics.

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U.S. Congress Stops Ethanol Subsidies & Tariff on Brazilian Imports http://www.thetruthaboutcars.com/2011/12/u-s-congress-stops-ethanol-subsidies-tariff-on-brazilian-imports/ http://www.thetruthaboutcars.com/2011/12/u-s-congress-stops-ethanol-subsidies-tariff-on-brazilian-imports/#comments Tue, 27 Dec 2011 20:24:36 +0000 http://www.thetruthaboutcars.com/?p=423476 After spending thirty years and $45 billion dollars encouraging the use of ethanol the United States Congress has adjourned for the year without extending tax subsidies to the to ethanol industry. The subsidy currently costs taxpayers $6 billion a year. A related import tariff on Brazilian ethanol was also allowed to expire. With a wide […]

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After spending thirty years and $45 billion dollars encouraging the use of ethanol the United States Congress has adjourned for the year without extending tax subsidies to the to ethanol industry. The subsidy currently costs taxpayers $6 billion a year. A related import tariff on Brazilian ethanol was also allowed to expire. With a wide group of critics, cutting across political and ideological lines, the tax break had become unpopular in Washington. Business interests in the food and cattle industry as well as environmentalists opposed the law which paid 45 cents per gallon to fuel blenders to subsidize their costs for producing E10 gasoline/ethanol blend. The subsidy resulting in corn being diverted from feedlots and food processors to ethanol production, raising the cost of many foodstuffs. The environmental movement now opposes corn ethanol as a fuel it because it considers the fuel and its production to be “dirty”, in the words of Friends of the Earth.

Ethanol trade groups have said that the industry would survive the loss of the subsidy, now that the US ethanol production industry has become established. The industry is still protected by congressional mandates that call for 15 billion gallons of renewable fuels by 2015 and 36 billion gallons by 2022.

The ethanol issue involves a number of powerful players, corn growers and affiliated industries on one side and food interests, automakers and engine builders on the other. Then there’s the EPA to consider. The EPA has approved the use of E15, an 85/15 gasoline/ethanol blend, for use in post 2001 cars. Manufacturers say that without modifications, E15 will damage engines. In February, in a bipartisan move the House voted 285-136 to block the EPA from moving ahead with E15 regulations.

While ending the subsidy would seemingly discourage ethanol’s use, the end of the 54 cents per gallon tariff on imported Brazilian ethanol might do more to encourage that use than the subsidies did. Brazil is one place where it makes sense to use ethanol as a fuel because of Brazil’s huge sugar industry. The ratio of energy needed to produce it vs the energy obtained in the fuel for ethanol made from corn is barely greater than one, 1.3:1, compared to 2:1 for using sugar beets and 8:1 for sugar cane, the feedstock for Brazil’s ethanol. It costs half as much to make Brazilian cane ethanol as it does to make American corn ethanol. According to one academic study transportation costs to US ports eliminate that competitive advantage, but if that was a certainty, Brazilian sugar cane producers wouldn’t have threatened to start a trade war if the tariff wasn’t ended.

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Lack Of Stable Power Brings Japan’s Industry To Its Knees http://www.thetruthaboutcars.com/2011/04/lack-of-stable-power-brings-japan%e2%80%99s-industry-to-its-knees/ http://www.thetruthaboutcars.com/2011/04/lack-of-stable-power-brings-japan%e2%80%99s-industry-to-its-knees/#comments Mon, 04 Apr 2011 12:22:37 +0000 http://www.thetruthaboutcars.com/?p=389730 The Japanese tsunami impacts everything, from cars to toilet paper. Most Japanese car makers were closed since after the catastrophe and will remain closed at least until mid April. Many paper mills are in the affected area, and all paper, from glossy stock to the softer kind, is in short supply. Publishers of Japanese illustrated […]

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The Japanese tsunami impacts everything, from cars to toilet paper. Most Japanese car makers were closed since after the catastrophe and will remain closed at least until mid April. Many paper mills are in the affected area, and all paper, from glossy stock to the softer kind, is in short supply. Publishers of Japanese illustrated pulp fiction have canceled the printed version and direct their readers to the Internet instead. Tokyo corporations battle a wave of toilet rolls vanishing from their restrooms, from where they find a way to the toire at home. While these may be temporary outages, the lack of stable electrical power emerges more and more as the biggest impediment to the recovery of the Japanese industry. It will affect you and your car, in one way or the other.

Bloomberg figures that “the earthquake and tsunami destroyed 21 million kilowatts of electrical generating capacity, or about the amount that would be generated by 10 Hoover Dams.”

Last weekend’s Heard on the Street column in the Wall Street Journal puts it more succinctly:

“The region around Tokyo, which accounts for 40% of the nation’s economy, most of Japan Inc.’s head offices and a third of the population, can barely meet peak demand now. In the event of a hot summer, there may only be enough electricity to supply three-quarters of demand. Shortfalls could last months, or years.“

A handy graph, based on data supplied by troubled TEPCO, shows only four out of 17 nuclear reactors producing power. Two of the four are scheduled to be brought down for maintenance in August.

It could be a long time until the shut reactors come back up. “Four years after a 2007 quake, three of seven reactors in the Kashiwazaki Kariwa nuclear plant operated by Tokyo Electric Power Co. still aren’t generating power,” says the Journal.

In this odd twist of fate, electric power, hailed as the savior of the automotive industry, is bringing the industry to its knees. Stable power is essential for the making of many products, from castings to copper foil for printed circuit boards. There are a lot of those in a car, populated by many chips. Chips need stable power even more. Writes Hans Greimel in Plastic News:

“And because the worst-hit suppliers are in the electronics and chip-making sectors, getting them back up to speed is a big hurdle. Vehicle assembly lines are relatively easy to stop and restart, but chip-making equipment is far more sensitive and can get really messed up by an unscheduled shutdown.

After those lines stop it can take up to three days to recalibrate them. And the restart process must begin again from scratch if it is interrupted by a power outage or aftershock — both of which continue to plague Japan. Simply scheduling a sustained restart around the blackouts is hard.”

Also, now we know why the plans of voluntary shutdowns — say Toyota on Monday, Nissan on Tuesday, Wednesday is Honda day – were a non-starter, and why Japan’s majors vehemently denied such plans: This kind of industry coordination would be against the law.

Negotiated shutdowns “could be deemed as forming a cartel to adjust production volume, banned under the Anti-Monopoly Law,” writes The Nikkei [sub].

Even setting the thermostat of the office A/C to more moderate degrees could collide with labor laws or building maintenance regulations.

According to The Nikkei, the Japanese government will ask its industry watchdog, the Japan Fair Trade Commission, to lie down for a while. The government will also temporarily revise ordinances setting enforcement rules. With this in place, the industry can finally sit down and come to a sensible power-sharing arrangement.

Another step is to allow companies to set up their own power generation. Currently, “installing power generation equipment in open spaces on a company’s premises could breach land usage and air pollution laws,” says The Nikkei.

The Japanese government is expected to ease enforcement rules and to allow the installation of generators.

Speaking of generators: There aree none to be had in Japan.

Distributors were sold out three days after the quake. Now, genset makers are scrambling for – parts.

According to the Bloomberg report, “Honda has secured enough parts to partially resume production of large generators at a factory in Kumamoto, southwest Japan, though the company doesn’t know how long it may take to start making portable units.”

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