Writing Internal Combustion’s Obituary

The reign the internal combustion engine is drawing to a close.

That’s not from Greenpeace or the IPCC or some loonie lefty. It’s straight from the mouth of Rick Wagoner, chairman and CEO of General Motors. From the Sydney Morning Herald reporting from the Detroit Motor Show:

In a stunning announcement at the opening of the Detroit motor show, Rick Wagoner, GM’s chairman and chief executive, also said ethanol was an “important interim solution” to the world’s demand for oil, until battery technology improved to give electric cars the same driving range as petrol-powered cars.

Mr Wagoner cited US Department of Energy figures which show the world is consuming roughly 1000 barrels of oil every second of the day, and yet demand for oil is likely to increase by 70 per cent over the next 20 years. Some experts believe the supply of oil peaked in 2006.

The remaining oil reserves are deeper below the Earth’s surface and therefore more costly to mine and refine.

“There is no doubt demand for oil is outpacing supply at a rapid pace, and has been for some time now,” Mr Wagoner said. “As a business necessity and an obligation to society we need to develop alternative sources of propulsion.”

He added: “So, are electrically driven vehicles the answer for the mid- and long-term? Yes, for sure. But … we need something else to significantly reduce our reliance on petroleum in the interim.”

GM is so convinced about ethanol it has signed an agreement with a supplier that claims to have come up with a way of producing ethanol that is cheaper and more efficient than refining oil. The supplier claims it can produce ethanol from “almost any material” such as farm waste, municipal waste, discarded plastics – even old tyres.

 

The Unstoppable Tar Sands

They’re Canada’s environmental disgrace, the oil recovery projects in the Athabasca Tar Sands, and yet the chances of anything being done to effectively clean them up are almost non-existant.

A CIBC report today suggests world oil prices will hit $150 per barrel within five years. Part of this is a tacit acknowledgement of the “peak oil” phenomenon and part is blamed on delays in bringing alternative oil projects such as Tar Sands expansion on line. The report warns Canadians to brace themselves for $1.50/litre pump prices.

Before you start thinking that the answer to all your problems is to dump that SUV for a fuel-efficient compact (although that is a good idea), remember that we’re an oil-based economy. Higher oil prices are going to find their way into your wallet at every turn whether you’re at an airline ticket counter or the produce aisle in your grocery store or laying in your winter stock of heating oil. Pretty much everything you buy is going to have some form of transportation cost premium worked into the price.

For those already struggling on fixed incomes, life could become a real bitch. Lots of money is going to be made in Canada but our government, by defunding itself through tax cuts, is making sure that there won’t be much left lying around for the truly needy. It’s a trick they’ve learned from their American Idols in the White House and Congress.

So, since there’ll be no stopping Tar Sands expansion and that bitumen is going to become vastly more profitable, where is all this clean technology Big Oil has been bragging about for years now? How’s that carbon sequestration project coming anyway? Harpo’s claimed Canada is going to be a “clean” energy superpower. Okay, show us the goods Steve.

Carbon sequestration is turning out to be a bit trickier and more expensive than was once believed and, let’s face it, Big Oil isn’t going to dip into its Tar Sands profits that far until Ottawa makes them do it and, even then, they can still count on Alberta to run interference for them for years before mandatory cleanup becomes a reality.

Meanwhile, how’s that Ford Excursion anyway?

 

The Oily Truth

Hey all you SUV jockeys out there! We may have just reached Peak Oil, the point at which global oil production begins its decline.

The Economist reports that Big Oil profits dropped in the third quarter of 2007 despite the world oil price steadily nearing $100 a barrel. Exxon Mobil was down 10% but they were lucky. Overall, earnings fell an average of 15%.

So how do revenues take such a hit while prices soar? Easy, a shortage of labour and equipment drove production costs up almost twice as fast as price increases but the real key – declines in production.

“According to Citigroup, the average decline in overall output was 3.3%. If the relatively steady supply of natural gas is stripped out, the numbers look even worse: oil production fell by 9% on average. No matter how high the price goes, the oil majors cannot make a profit from oil they do not produce.”

The International Energy Agency forecasts that we’ll see production shortfalls of 12.5-million barrels a day by 2015.

And here’s an ominous development. Samsung Heavy Industries has just launched the world’s first ice-breaking oil tanker. The ship was ordered in 2005 by Sovcomflot, a shipping company owned by the Russian government. I wonder why on earth they would want an icebreaker/oil tanker? Oh, wait a minute, I get it.