The Ergosphere
Sunday, May 14, 2006

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:

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.

"Last, hybrids appear to be very reliable and have likely lifespans far greater than 156,000 miles."

Sure they are Toyotas and Hondas. Their regular cars are very reliable as well. Just wait until GM starts cranking out Hybrids.
Electric motors are going to be simple, and regenerative braking is going to take a big load off of brake linings and other components, no matter who makes the car.  Besides, even Ford and GM have come a long way; my last Ford went 10 years and almost 170,000 miles without any major work on the drivetrain.

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.
good post.

people have long noted that conservation and efficiency are the most cost effective energy "sources."

that idea has a hard time permeating society.

fwiw, my favorite org:

bonus link:
If the numbers are as reported, and if the long-term selling price of oil is $60/bbl, then:

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
Hey, we're talkin' negawatts here! Seems that Dr. Lovins has infiltrated E-P's thinking more than he realized! ;)

One of Lovin's earlier theories is that the US was better off subsidizing the purchase of high-efficiency ICE cars than subsidizing the oil industry.

odograph - the problem with preaching conservation is that it implies 'getting by with less.' There are plenty of ways out there increase energy efficiency without one iota of change to your lifestyle. It is in these areas that I have the most hope, but it takes more effort on the part of the consumers to educate themselves and plan ahead, since the lower-efficiency alternatives are all too capable of satisfying 'buy it now' instant gratification propensities.
Conservation is a lost cause as an alternative to the investment in oil exploration. The only way it might work is if it was enforced by the federal government across the board. As in, "Thou shalt all drive hybrids effective next year." Otherwise, for every guy who buys a hybrid (and helps to keep demand and prices down) you have a guy driving a Hummer and eating the difference.
Jevons' "Paradox" is no such thing.  Furthermore, it doesn't apply to a case where resources are constrained and more production is impossible.

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?
I understand what you are saying about the 'paradox' but I think the ideas still apply to oil to a degree.

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!
(Now that I can actually post to my own blog again...)

"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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