Good post Walter, the way the oil producing calcualte their reserves is a little foggy. Lack of information causes jitters. Throw in two needless wars in Asia, and no big oil fields discovered in over 30 years and you get higher prices.
If Bush announced troop withdrawals from Iraq, I bet the price of a barrel of oil would drop $25 in a week.
But Bush won't for the same reasons big oil won't get religion regarding alternative energy. It's just not in their parochial interest. But GM got religion for alternative fuels. It's in the Saturday Globe and Mail Report on Business.
GM wakes up and plugs in. Now comes the hard part
By GREG KEENAN AND BARRIE MCKENNA
Saturday, June 7, 2008 Page B4
TORONTO AND WASHINGTON -- Mark LaNeve, chief salesman for General Motors Corp.
, strode to the microphone in Detroit in January and pointed to his company's newest green vehicle. It was, of all things, a Hummer, one powered by biofuels, a feature that would be available on all Hummer models by 2010.
Engines were being downsized, too, with the first Hummer powered by a V6 engine on its way, Mr. LaNeve told an assembled throng at the North American International Auto Show.
"It does make sense," he declared. Less than five months later, that incremental step of making more fuel-efficient Hummers became a full-fledged retreat.
GM decided that the symbol of conspicuous gas consumption no longer made sense. It will be sold off, killed off or remade into a home for smaller vehicles.
Smaller Hummers? No Hummers? What's hit GM? A tsunami of high oil prices and sales of pickup trucks and sport utility vehicles falling off a cliff, and the realization that getting back in the black for a sustained period means going green.
GM and its Detroit rivals, Ford Motor Co.
and Chrysler LLC
, are entering uncharted waters on their way to a new world. It is possible - perhaps even probable - that one or two of them will not survive.
Going green is going to take more than a change in mindset. That, in itself, was monumental for GM, but it will likely end up being the easy part. Going green can save the Detroit Three only if they can quickly change their business model to one that generates profits from the sale of cars, instead of trucks and SUVs. And even then, only if they can develop the right environmental technologies that drivers - and North American governments - are demanding in an era of expensive gasoline.
Of course, even if they do all that right, they'll still face Toyota and Honda on the other side, ready to steal even more market share. In fact, their Japanese rivals have already pulled ahead in the race to go green.
Unfortunately, the Detroit Three seem to take decisive action only when a gun is pointed at their heads.
"Sometimes the gun is at their temple and it takes three or four homicidal events for them to move," a former GM executive quips.
Gasoline at $4 (U.S.) a gallon looks like the gun that is prompting them to try to save themselves. Whether they will won't be known for several years.
The immediate concern is energizing companies that move at a glacial pace to respond more quickly to consumers who have reacted to gas prices - at lightning speed, in recent months - by abandoning the pickup trucks and sport utility vehicles that the companies have relied on for more than a decade to generate profits.
It involves quick thinking now, but it also demands a longer-term strategy that starts looking beyond oil, says GM's major green visionary.
Larry Burns, GM's vice-president of research and development, summed it up like this in a recent interview with The Globe and Mail: "I think the issue is the auto industry and our world's dependence on petroleum as a single commodity for automotive energy."
One of the daunting challenges facing GM and its rivals is that they must lay down several expensive bets at the same time. One wager is already being played out - hybrids. Another growing quickly is the use of ethanol and other biofuels as a replacement for gasoline.
Then there are the really high-risk gambles. There are so-called plug-in hybrids, also known as extended-range electric vehicles, and, finally, the technology that is ultimately the holy grail to wean the industry off gasoline - hydrogen-powered fuel cells.
Development of hybrids, plug-ins and fuel cells by GM and global rivals such as Toyota are part of a race against the clock to transform the industry to meet new U.S. fuel economy standards set to take effect in 2017. With the surge in U.S. gasoline prices to around $4 a gallon, this now has also become a race to satisfy consumers who demand more fuel-efficient vehicles, but are not willing to drive subcompacts.
This is perhaps the most expensive proposition Detroit has ever faced. There are estimates that the total bill may come to more than $100-billion. That's an enormous tab for a healthy sector, never mind for three struggling companies.
"The ultimate question for the Detroit Three is how do they fund this activity," said auto consultant Bill Pochiluk, president of AutomotiveCompass LLC in West Chester, Pa.
They have posted losses of tens of billions of dollars, and the biggest sales slump in more than a decade means there is no hope of turning that financial situation around in the short term.
"Where are you going to find the additional capital?" Mr. Pochiluk asked. "Which gets you to the point that you're going to have shut some marginal operations down to save some capital to focus in on the right things."
GM and Ford lost a whopping $65-billion in the past three years. Chrysler too, has lost billions, but it is private so exact numbers are impossible to obtain. Ford and GM are mortgaged to the hilt. And the consensus among analysts is that Chrysler's owner Cerberus Capital Management LP is in the auto business only for a short time.
Few believe Chrysler has the financial resources to run with the big boys in the environmental race, and even before that game gets into the late innings next decade, the No. 3 Detroit auto maker already is in rough shape. It sells mainly trucks amid a market turning with lightning speed back to passenger cars - the development that sparked GM's announcement this week that it will shut four truck and SUV assembly plants, including its Oshawa, Ont., pickup plant.
"Chrysler's extremely light product pipeline leads us to believe that Chrysler's current owners do not have a long-term commitment to the business in its current form and it will most likely be broken up," Merrill Lynch & Co. Inc. analyst John Murphy wrote in a recent research note.
If that happens over the next five or even 10 years, Detroit will look radically different, although it might also give GM and Ford some new customers to try to win over.
Erred pulling plug-in plug
Sources familiar with GM's most recent foray into the environmental space said there was no single eureka moment when it dawned on the company's executives that they had to act to change the perception that their company was a home to gas-guzzling hulks.
It was an ongoing process over a period of time at a company that, under chief executive officer Rick Wagoner, has taken a step-by-step approach to tackling problems that have long plagued it.
Ironically, GM once enjoyed a significant lead in the electric car business. In the late 1990s, it produced more than 1,000 experimental EV1 electric cars - one of the greenest vehicles ever made. GM leased the cars to hundreds of enthusiasts, who fell in love with the plug-in vehicle.
But in 2000, the company pulled the plug on the plug-in after sinking $1-billion into the venture, convinced that it would never make money selling a fringe car to geeks.
Eight years and a quadrupling in the price of gasoline later, Mr. Wagoner now readily admits killing the EV1 was one of his biggest mistakes.
It wasn't GM's only slipup on the road to green. The largest U.S. auto maker is guilty of being, at once, too farsighted and too shortsighted. While rejecting electric, GM's top brass bet that the future of autos would be hydrogen fuel cell-powered vehicles. So, early this decade, they redirected their development dollars into the faraway promise of hydrogen - "a moon shot," as GM vice-chairman Bob Lutz once called it. GM has already sunk more than $1-billion into hydrogen vehicles, and will spend another $1-billion by 2010 - money that could have been spent on hybrids and electrics.
That long-term gamble may well pay off for GM in the future. But the present of green is electric.
And even then, car makers still have a lot of work to do.
'thermal events' a worry
The battery is the missing link between the hybrids on the road today and the plug-in electric vehicles of the near future. It is the critical short-term challenge.
The Toyota Prius, for example, runs on a nickel metal hydride battery, which kicks in to power the car's electric engine at low speeds and then recharges while the car runs at higher speeds on gasoline.
GM's great white hope, the Chevrolet Volt, is destined to run on a lithium ion battery - a larger version of the batteries that power most laptop computers, cellphones and MP3 players.
The main advantage is that a lithium ion battery packs the same amount of juice in roughly half the size of a nickel metal hydride, allowing a car to run for hours between charges. Experts predict the lithium ion battery will eventually push the range for electric cars to more than 300 kilometres, and enable quick recharges in just slightly more time than it takes to fill up at the pump. Initially, the Volt would run for a more modest 64 kilometres before its gasoline engine kicks in to recharge the battery.
But with just two years before the Volt's planned launch, lithium ion batteries are completely unproven for cars. The industry isn't currently producing them. GM's greatest challenge will be to produce batteries that are safe and in sufficiently large quantities to meet the company's commitment to large-scale production of the Volt in 2010.
The batteries will be road ready for the Volt's launch, GM insists. Suppliers have their doubts, fretting privately they may not be able to produce the batteries in large enough quantities to meet the Volt's tight deadline.
"Battery makers are very concerned," said Brett Smith, assistant director of manufacturing, engineering and technology at the Center for Automotive Research in Ann Arbor, Mich. "There is a lot of uncertainty. Less than large-scale production, they can handle. Beyond that, you look at much different manufacturing strategies, and that's what they're struggling with."
Another key question mark hovering over lithium ion batteries is the danger of fire. Computer makers have struggled for years with overheating lithium ion batteries, recalling millions of laptops.
The threat of overheating is likely to be even greater with much larger car batteries - a touchy subject around GM. GM's product development czar Mr. Lutz said earlier this year during a discussion about the Volt and batteries that it's best not to refer to fires, but rather the danger of "thermal events."
Any car company serious about electric vehicles is teaming up with battery makers to improve the technology. Toyota and Matsu****a Electric plan to spend about $700-million to boost output of several kinds of batteries to one million units a year by 2011. They plan to begin producing lithium ion batteries in 2010.
Hedging its bets, GM has struck deals with two potential consortiums - Johnson Controls/Saft Advanced Power Solutions and Cobasys/A123Systems.
Similarly, Volkswagen is teaming up with Sanyo. Nissan has linked up with NEC Corp. of Japan in a $115-million battery project.
GM is still very committed to hydrogen fuel cells. Mr. Burns, the research and development guru, is a true believer.
"Three things remain to be done," he said. "We need to get the costs down, we need to get the durability up and we need the infrastructure."
Auto makers and their partners in the fuel cell race should, he said, be able to get the costs down and the durability up to the point where fuel cell vehicles could come to market by 2018.
That leaves the key question of whether the oil industry or someone else will step up to provide the hydrogen infrastructure to fill up the vehicles.
Affordability an issue
Once GM overcomes the battery challenge, the auto maker will have to figure out how to make cars people want, at a profit. That could prove to be a tall order, considering that it lost an average of $690 for every vehicle it made in North America in the first quarter, more than double its loss a year earlier. And it has been steadily ceding market share - to less than 20 per cent in the U.S., down from 50 per cent at its peak in the 1970s.
"Even if you deliver the vehicles people want, there still may be fewer [buyers] who can afford them, and therefore you have a smaller industry," said Mr. Smith of the Center for Automotive Research. "That's an enormously scary discussion for the auto industry."
Sustained high gas prices could potentially shrink the overall car market by 20 to 30 per cent, leaving GM with a shrunken business as the foundation of its revival, Mr. Smith estimated.
"It could be a big payoff, but it's a huge risk for General Motors," Mr. Smith concluded. All the engine, electronics and battery technology comes at a price. GM estimates the Volt's hybrid electric features will add about $10,000 to the price tag (the company expects the Volt to retail for $30,000 to $45,000).
That's a significant premium over the existing Prius, whose hybrid components account for $4,000 of its roughly $21,500 base price.
The Volt must come in at considerably less than $40,000, said the former GM executive, or buyers won't save enough on fuel to make up for the premium.
Already, the Japanese, and Toyota in particular, enjoy a substantial technological lead on the Detroit Three in the race to develop environmentally friendly vehicles. Toyota plans to launch a plug-in version of the Prius in 2010, the same year the Volt hits showrooms.
As many as three-quarters of GM's 50 models may need to be retrofitted in some way to get better fuel efficiency. "They're a generation behind on hybrid technology," Peter Morici, a professor of international business at the University of Maryland, said of GM. "It's going to be a while before [the Volt] turns into a money maker."
The success Toyota and Honda have had in small cars and their long-established footprints in the hybrid market put them ahead of GM, and much farther in front of Chrysler and Ford, said Mr. Pochiluk. He said any company seeking to join the leaders therefore must tell itself this: "We can't be as good as, we have to be better than."
Toyota, which is battling tooth and nail with GM for world sales leadership, said yesterday that a new fuel cell hybrid car it has developed will travel 830 kilometres before it needs refuelling, more than double the distance of its previous fuel cell model.
What GM does have are the resources to play catch-up, unlike Ford and Chrysler. But success will depend on getting customers to embrace its transformational journey from Hummer maker to the champion of green. And on that front, GM has a major sales job ahead of it, after years of pushing SUVs and pickups.
"They will never be viewed as the green leaders," Mr. Smith said of the Detroit Three. "In the near to mid-term, it will be extremely difficult to overcome 100 years of producing gas-guzzling dinosaurs. Toyota does too, of course. But perception is more important than reality in the marketing world."
It's also too early to tell if consumers will embrace electric cars, although U.S. drivers are migrating back to cars and crossover utility vehicles from pickups and SUVs.
Although conventional wisdom is that hybrids are taking over, at the moment, they make up less than 1 per cent of GM's U.S. car sales, and one in 10 of Toyota's sales. Car makers sold a total of 347,000 hybrids last year in the U.S., and sales are up about 4 per cent so far this year. That's still just 2 per cent of all light vehicle sales.
And yet high gas prices are rapidly changing the landscape. People are driving less and turning to public transit. And, according to a May survey by RBC Dominion Securities, 82 per cent of U.S. respondents would consider buying a hybrid.
The big question now is: Are the masses willing to pay a premium to go green? In the past, consumer enthusiasm has typically cooled in the showroom, where price quickly becomes the prime mover.
Says Mr. Smith, the auto analyst: "People speak more often with their wallets than with their green hearts."
That's the task for GM. Getting consumers to part with the green in their wallets.
How they work
Vehicles are powered by a fuel cell that creates power through a chemical reaction. In a stack of membranes and separators, hydrogen obtained from a source such as natural gas or methanol is combined with oxygen to generate enough electricity to power the vehicle's electric motor without releasing harmful emissions.
Because the only byproducts of combining hydrogen and oxygen are heat and water - and because the hydrogen packs don't need to be plugged in for recharging - the technology is considered by many as the best solution to environmental woes.
Despite hundreds of millions of dollars spent on research and development in the past 20 years, experts believe the technology is still more than 10 years away from becoming mainstream. The prototypes are expensive, and the logistics of creating a supply and storage system for hydrogen refills on roads and highways is difficult.
In the news
Perhaps as a sign of the shift away from the immediate feasibility of developing fuel cell-powered cars, Ballard Power Systems Inc. of Burnaby, B.C., sold its pioneering auto fuel cell business last year to Daimler AG and Ford Motor Co. and changed its emphasis to fuel cell markets such as forklifts, backup power and co-generators.
How they work
Hybrid technology combines a combustion engine and an electric motor with a small, on-board battery pack to run accessories, move the vehicle for short distances and provide a power boost when accelerating.
Hybrids deliver better gas mileage than conventional engines, and at a time when car buyers are going for smaller and more fuel-efficient vehicles, the technology is the most proven in the market. Hybrid technology is spreading to many larger vehicles. GE Rail, for instance, has designed a hybrid locomotive and there are several hybrid trucks and SUVs available.
There are still doubts about the long-term economics of hybrids. Most studies have shown that you have to drive a hybrid car for more than five years, on average, to recover the premium through fuel efficiency. Most hybrids cost significantly more than similar vehicles with conventional engines.
In the news
In April, the U.S. Congress introduced a measure to study the potential dangers hybrid cars pose to the blind and other pedestrians because they are so quiet.
How they work
Dubbed the "next-generation hybrid," plug-ins use the same basic technology but benefit from rechargeable lithium ion batteries - like those in power drills - that can be charged using an everyday power outlet.
The advantage of plug-ins is that they run longer on electricity than regular hybrids. Supporters of plug-ins tout huge fuel economy gains. Theoretically, owners who drive less than 60 to 80 kilometres a day will never need to fill up on gasoline.
The mass production of plug-ins is being held back by high costs and battery technology that limits the vehicles' range. Lithium ion batteries are required, but no supplier has developed one proven to be safe, durable and affordable. Plus, accessible electrical outlets aren't available in many places.
In the news
Henrik Fisker, the Danish-born former designer for BMW and Aston Martin, has teamed with Google and Quantum Fuel Systems. They plan to have the Fisker Karma, an $80,000 (U.S.) battery-powered, luxury plug-in, on the market some time next year. The Chevrolet Volt is likely to be the first plug-in to hit the mass market in 2010.
How it works
Ethanol - another term for ethyl alcohol - is grain alcohol, usually refined from corn or sugar cane, that can be used as a fuel additive. Added to gasoline, ethanol reduces greenhouse emissions such as carbon monoxide and nitrogen oxide.
Biofuels such as ethanol have emerged as an economically feasible and renewable alternative to oil. Higher gas prices make ethanol increasingly attractive as an alternative.
Some say booming ethanol production has slowed global food production by reducing available farm land. There are also questions about the net benefit of ethanol on the environment because of its lower energy content versus gasoline. In 2005, a Cornell University study found that producing ethanol from plants such as corn, sunflowers and soybeans uses more energy than the fuel generates.
In the news
Ethanol has had several resurgences over the years. It was used in the 1850s to fuel lamps and again during the Second World War when gas and diesel supplies ran low.
DAVID HUTTON, MATTHEW TREVISAN