I'd rather switch than pay
Over at The Oil Drum, Colonel Drake quotes the NYT:
According the the NY Times today in the business section "To increase output from the current 9 million barrels a day, to 10.5 million in 2030, Russia will need to invest $900 billion in oil field technology".
That's a good chunk of change, roughly $600,000 to get one barrel per day of additional output*. It made me wonder how it compared to the investment required to save a barrel per day? So, since I'm writing this piece as a stream-of-consciousness, I'll crunch the numbers as I go.
Suppose that our current vehicle fleet is comparable to Toyota Camrys at ~25 MPG, and we have a choice of new ones, Prius-equivalents at 46 MPG, or Prius+ equivalents at 120 MPG (plus electricity). All cars travel the average of 13,000 miles per year. The Prius-equivalent costs $2000 over the Camry-equivalent, and the PHEV costs $6000 more (assuming cheaper batteries and volume discounts). Further, each car lasts 12 years so you need to pay the premium twice.
The fuel consumption of each vehicle is as follows:
| Vehicle | Gallons/year | Savings over Camry, gal/yr |
bbl/day saved | $/bbl/day | Savings over drilling, $/bbl/day |
| Camry-clone | 520 | ||||
| Prius-clone | 283 | 237 | 0.0155 | $238000 | $362000 |
| Prius+-clone | 108 | 412 | 0.0269 | $447000 | $153000 |
It appears that a nation full of Priuses takes less than 40% of the investment required of the equivalent in Camrys plus the additional oil production to feed them. The Prius+ would be somewhat less economic at about 75% of the required investment, but still better than drilling. Further, the improvements in balance of trade, air quality and national security from the reduced oil demand are not measured as savings in this analysis. (The utter folly of cancelling the PNGV five years ago is now glaringly obvious.)
This is a hypothetical. Our true situation is considerably better than this:
- Much of the US fleet consists of vehicles like Ford Explorers and Chevy Tahoes which burn more fuel than the Camry and never go off-road; they could probably be replaced with passenger sedans at negative marginal cost.
- Further, the leap to a fleet of PHEVs need not be made all at once; any hybrid could be designed with the necessary fixtures for conversion to plug-in, and the batteries added at a later date (when they've become cheaper).
- Last, hybrids appear to be very reliable and have likely lifespans far greater than 156,000 miles. Some vehicles built today might go the full 24 years with just a new battery pack, making the hybrid option the one with the least investment in vehicles as well as overall.
If we are really interested in saving money on fuel, one of our best options appears to be to make our vehicle fleet more efficient. It's far cheaper than going out to drill for more oil right now, and if it turns out that we need that oil after 2030... it would still be there!
* Maybe not that much, because much of that investment would probably be required just to keep production level at 9 mmbbl/day. But that's the quote.
¶ 5/14/2006 09:53:00 PM
Sure they are Toyotas and Hondas. Their regular cars are very reliable as well. Just wait until GM starts cranking out Hybrids.
Japan has raised the bar, and I don't think we have much to worry about backsliding from the locals. It's corporate suicide now and they know it.
1 incremental bbl/day=$21900
..which would be a truly terrible return on capital of 3.65%--and that's assuming that the capital improvements, whatever they are, last forever and have no incremental operating costs.
Which makes me wonder if this was really reported correct.y
http://en.wikipedia.org/wiki/Jevons_paradox
If the whole world was made of oil, there would still be only a finite amount of it. At some point it will be so far gone that production will decline. When no investment in exploration can increase production, what's your recipe? Roll over and die?
The thought is that when some segment of the population buys into efficient technology and conservation it allows others to continue and/or expand use of inefficient technology and it also increases overall economic activity (because some are living/working cheaper through conservation). Both results serve to eat up the 'savings' that the efficient technology offered to begin with.
So if you had the option of investing this money in increasing oil production or say, subsidizing hybrid cars and other efficient technologies, I'd choose door number 3 and invest in solar energy so that we could actually build a real alternative to oil. Imagine what $100 billion could do invested there!
"The thought is that when some segment of the population buys into efficient technology and conservation it allows others to continue and/or expand use of inefficient technology and it also increases overall economic activity (because some are living/working cheaper through conservation). Both results serve to eat up the 'savings' that the efficient technology offered to begin with."
You've made two errors:
1. The efficiency of other users does not stop the commodity price from rising, and the more-efficient users have an economic advantage over the inefficient ones.
2. If the efficiency allows consumption of product to expand, the inefficient consumers will be bid out of the market.
If you really want to see a move to solar, wind and biofuels you should be welcoming these advances with open arms. The biggest problems with solar and biofuels (less so with wind) is that they are expensive. If efficiency improvements cause energy to become a much smaller fraction of the cost, the barrier to conversion becomes smaller and smaller.
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