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Here’s a phrase you might want to remember: necessity is the mother of invention. Catchy, don’t you think? What made me coin this phrase was watching last Sunday’s “60 Minutes” story about Saudi Aramco. Among the many wonders of the guided tour hosted by the Saudi oil minister, Ali Al-Naimi, was a research lab where the Saudis are working to develop new ways to make oil into a cleaner burning and more efficient fuel.

Clearly the Saudis are concerned about the future of their primary export. They see the western world coalescing around new technologies for transportation that minimize, if not eliminate, the role of oil. That vision is clearly not consistent with the best interests of the Saudi royals.

So the Saudis are working to change both the reality and the image of oil. It therefore makes perfect sense that the Saudi’s would host Lesley Stahl and her crew for a tour of their gigantic new fields, their super-high-tech production technologies, their western-style liberal social mores (within Saudi Aramco), and…yes, their very-high tech R&D efforts to improve the way oil works so it will burn cleaner and more efficiently.

The Saudi selling proposition is simple. Oil can be re-formulated into a fuel that - with the aid of new improvements in the way the internal combustion engine (ICE) works - cars won’t spew CO2 and will become far more efficient. They aren’t selling it yet because they don’t have the product yet. But if they - and the hundreds of companies around the world that are working on various approaches to achieving the same goals - ultimately succeed, they would have a pretty good chance to change the whole thinking of the “alternative energy” paradigm that is now ascendant in the U.S. and Europe.

The Saudi plan is not so far-fetched as it might seem for several reasons. First, we sometimes loose sight of the fact that oil is the most efficient, transportable, easy-to-handle, low-cost energy source mankind has ever found. So it’s not surprising that new ways might be found to wring even more value from it once the need to do so has presented itself. Second, more improvements to the ICE and ICE-powered car are already coming on stream rapidly. Cars that get 40, 50, even higher miles per gallon are on the street now such as the Yaris, the Smart, and the Mini. There is even a Mercedes diesel that gets more than 40 mpg. Third, if you can avoid adding a battery-powered element and stick with an ICE by itself you can probably save $10,000 of additional cost per vehicle. Fourth, the ICE infrastructure is totally in place. Continuing to use the ICE means no costs for battery manufacturing, recharging or exchanging infrastructure that would be needed world-wide.

An example of the sort of ICE developments we may see in the coming years is a new fuel injection system developed be the Delphi Corporation that will be incorporated into the new Mercedes model C250. It makes diesel fuel work far more cleanly and efficiently. In announcing it, Delphi did not provide mpg numbers, but they say, “Overall benefits include a considerable reduction in emissions, more torque and power across all engine speeds, and significantly improved fuel economy and refinement.” Significant improvement in fuel economy could mean anything but it would not be surprising to see greater than 50 mpg - maybe even 75 - given that diesels can now do better than 40 mpg.

The possibility of a clean, fuel efficient future powered by oil brings up a number of questions that energy investors need to be asking. First, might it not be a cheaper and faster solution to “oil independence” than battery based solutions that do not exist today in economical forms? Second, if we could have a 100% - 200% improvement in fleet efficiency over a reasonably short period without requiring a new battery technology that does not yet exist, might not the global oil use be reduced faster and more steeply? Perhaps the U.S. could go from its full-economy 21 mb/d usage to something on the order of 15 mb/d. That wouldn’t eliminate Middle Eastern oil, but it would go a very long way toward mitigating the problem of oil dependency.

But, you say, it takes 17 years to change over the fleet. Well, what if government began to subsidize the purchase of super-efficient cars on a vast scale? Remember, these are not hugely expensive cars to start with so with a large government rebate they would probably fly out the door. Say the Obama administration decided to provide a $5,000 rebate for all cars that get over 40 mpg? If that program resulted in 10 million highly fuel efficient cars per year - let’s say a 50 mpg average fuel efficiency - the cost would be $50B per year to the government, not a huge amount. It would get 10 million new 50 mpg cars per year on the road. Over eight years, that’s 80 million cars or about 40% of the fleet. If that were to happen, the price of oil might well stay contained over any reasonable investment horizon. Such a program might also be a solution for both the U.S. auto industry’s viability and for the current economic downturn that is being caused in no small part by an important downturn in car sales.

If the fleet could get 60 mpg just with new ICEs we could probably save 7 mb/d in the U.S. and 4 mb/d in the rest of the world - maybe more. That would get us at least 2/3rds of the way toward the goals that might be achieved via an all-electric car solution. And it could well be cheaper and quicker because there would be no new battery technology required.

Add to this concept the fact that natural gas in North America has recently moved from an outlook of increasing scarcity to the prospect of having a hundred year’s supply due to new techniques for extracting it from shale and related deposits. With abundant natural gas, people are initiating efforts to use more natural gas in transportation. Some substitution is already happening in fleets of larger vehicles - trucks and busses. NG substitution would tend to reduce global dependence on oil above and beyond the scenario described above.

I recently wrote about the fact that oil now looks to be swinging between the extremes of plenty and scarcity. That essay assumed business as usual. It seems to me that with a radical restructuring of the car business based on creative leadership in both the business and political realms it might be possible to find a sustainable happy medium for the price of oil. I don’t say this will happen. It would require a huge and concerted effort by business and government working together. But it could be a game-changer, or at least a game-modifier, in terms of what we might reasonably project to be the expected future prices for oil.

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This article has 23 comments:

  •  
    I think the consumer got fed up with fossile fuel engines, now they are considered annoying and obsolete, so I dont blame them for not buying combustion engines and switching to green technologies, I also hope the big three learn their lesson and get rid of for good of those combustion polluting engines.
    2008 Dec 10 10:38 AM | Link | Reply
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    It is fun to speculate but that is all this is. Even if this came true it still wouldn't change the peak oil profile by more than a few years. Transportation energy will change over the next few decades.
    2008 Dec 10 11:05 AM | Link | Reply
  •  
    What giant new fields? They have one giant field, aging Ghawar, and a host of smaller ones that have not shown to be anywhere near as productive as anticipated.
    2008 Dec 10 11:08 AM | Link | Reply
  •  
    Relying on future Saudi technology is not very high on my wish list.

    The US has a great opportunity to change its future by great reducing dependancy on Middle East oil. Instead of giving the of the big "3" billions of dollars without any conditions, impose the following conditions on any money loaned or given to them.

    1) CAFE on all vehicles must be doubled from 27 mpg to 54 mpg with no light truck exemptions. 75% of all oil used in the United States is used for transportation. Doubling CAFE, would reducing the US daily consumption from 22 million barrels to 15 million barrels.

    2) Force the big "3" to make NG powered cars available. Using locally produced natural gas (more NG is available now than in the past thanks to new tight gas extraction technology) would shave off another couple of millions barrels off the daily total. Implementation of the T. Boone Pickens
    plan could transfer 20% of the total NG used in the US for electricity to powering vehicles.

    3) Also make a greater number of Flex cars available running off cellulosic ethanol (made from non-edible sources like switchgrass, algae and sweet sorghum). Money to corn ethanol producers should be stopped and redirected to cellulosic ethanol producers.
    2008 Dec 10 11:11 AM | Link | Reply
  •  
    Europe already has vehicles that get 40-50 mpg using clean diesel. Why North America doesn't do the same thing is mind boggling.

    The N.A. people tend to have a preconceived notion that all diesel is dirty, but the new low-sulfur diesel is just as clean as gasoline. The simple fact is that diesel is much more fuel efficient but we're afraid of it due to poor stereotypes. If Ford and GM were allowed to bring their EU models to N.A. there would be a big enough increase without a new ICE and they'd be able to meet congresses new fuel standards without reinventing their N.A. models.
    2008 Dec 10 02:58 PM | Link | Reply
  •  
    This article is reminiscent of a Readers Digest puff piece that might have been written in the 60's, 70's, 80's, 90's and now the in the 'New Century'.

    It is the very essence of fuzzy wuzzy.
    2008 Dec 10 03:36 PM | Link | Reply
  •  
    You are a little late. The phrase "necessity is the mother of invention" was already used by Plato around 300 BC. It's quite impossible that you have not heard it mentioned by somebody else before.
    2008 Dec 10 05:18 PM | Link | Reply
  •  
    The United States needs to become independent of foreign oil. What we have experienced the last few years with oil pricing ,should be a wake up call to everyone in the U.S that we can be held hostage from foreign companies and governments that have there own interests at heart. The current oil network is running at such high capacity that even the slightest problem can cause prices to fluctuate. We need to invest our monies in green transportation products made in the U.S.A Lets get smart and recreate our jobs and this time keep them here instead of giving them away to third world nations. If we are not careful the next third world nation being used for cheap labor will be us.
    2008 Dec 10 05:37 PM | Link | Reply
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    The ICE will continue as the predominant propulsion force for the next 30 years. The price and type of its fuel will be the question.

    ICE's can run on gasoline, diesel, ethanol, natural gas, and other less easy to store fuels such as hydrogen or wood chips - just kidding. Some even run on plain water (LOL!!!!).

    CO2 emissions decrease as fuel economy increases (If I may be allowed to state the obvious and I will). However, achieving 50+ mpg currently requires certain sacrifices that many consumers aren't going to be willing to make (driving slower is one) - especially now that gasoline has become "affordable" once again (at least until early April 2009 anyway).

    High fuel economy can only be achieved in the following progressively more expensive ways - small light vehicles with small gasoline or diesel ICEs, vehicles with turbo or supercharged gasoline or diesel ICEs, hybrid ICE vehicles (Prius), plug in hybrid with auxiliary ICE (Volt) or fully electric (Tesla).

    The first on the list is the most likely choice for consumers in the progressively poorer first world industrialized nations and those in the up and coming emerging Asian powerhouses. The rich can buy whatever they want and will continue to do so no matter where they live.

    So generally speaking, it will be tiny econoboxes or Ferrari's for everyone.

    2008 Dec 10 08:03 PM | Link | Reply
  •  
    Been there, done that. The mpg boasts remind me so much of the '70's. As for the "oughts," I'm freezing my (here you can fill in your favorite Chicago/Illinois politician's swear word) tail off. Please dear Lord, if I produce enough carbon dioxide will things warm up here in Minnesota?
    2008 Dec 10 09:42 PM | Link | Reply
  •  
    I have a 2005 VW Jetta wagon that gets about 37 mpg and could get more if I didn't always have surfboards and bikes on the roof. I put bio diesel in the car whenever I can and the bio is cheaper than the petrol. During all of the months of high fuel costs I never considered reducing my driving. We have clean diesel here in the US but we don't have anyone making the cars. I have written the big three on numerous occasions about manufacturing diesels. Only Jeep Liberty had a diesel engine model.

    Diesel is the solution not hybrids or electric.
    2008 Dec 10 10:03 PM | Link | Reply
  •  
    to coin a phase means to invent one, not as you mean to use someone elses
    2008 Dec 11 08:15 AM | Link | Reply
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    value - clean diesel is well established in europe, 50% of new car sales use it.

    this fuel is not available in u.s.a, the oil co's don't want to make it/

    i operated 2 nissan LD28 diesels during 1981-95. they were suitable for constant speed travel in flat terrain but in hills you had to turn the airconditioning off in order to get up the hill. due to the excess engine weight the frames were overstressed & cracked. the wheels had only 4-bolt attachment, you need a minimum of 5, i occasionally lost wheels because of this. don't buy a diesel auto unless the machine is well engineered. i was told this engine is still in production for use in forklifts.
    > jack
    2008 Dec 11 09:25 AM | Link | Reply
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    The various points of view suggest that this question will present a supreme test for the collective intellect, pragmatism and decision making process of the Obama administration. My bet is that sound decision making in the next eight years will reverse the quagmire of the last eight.
    2008 Dec 11 09:26 AM | Link | Reply
  •  
    Interesting article that deserves to be widely circulated and examined in detail, but it contains one piece of information that I intend to ignore, which is about a 100 year supply of gas in North America. Even if this turns out to be true, it is too early to pass this estimate to the decision makers, and also to the environmentalists who would use it to bad-mouth nuclear.
    2008 Dec 11 10:53 AM | Link | Reply
  •  
    I agree with shutterbugtodd. Even if the USA has the reduction in demand with more efficient ICEs, that still leaves a considerable amount of imported oil dependency. And, this means billions of $$ will continue to flow elsewhere and continue our trade balance of payments problem.


    On Dec 10 05:37 PM shutterbugtodd wrote:

    > The United States needs to become independent of foreign oil. What
    > we have experienced the last few years with oil pricing ,should be
    > a wake up call to everyone in the U.S that we can be held hostage
    > from foreign companies and governments that have there own interests
    > at heart. The current oil network is running at such high capacity
    > that even the slightest problem can cause prices to fluctuate. We
    > need to invest our monies in green transportation products made in
    > the U.S.A Lets get smart and recreate our jobs and this time keep
    > them here instead of giving them away to third world nations. If
    > we are not careful the next third world nation being used for cheap
    > labor will be us.
    2008 Dec 11 12:14 PM | Link | Reply
  •  
    One quibble with the initial post--assuming a $5k subsidy and accelerated replacement to the automotive fleet meeting higher mileage standards on some form of tweaks to the ICE--what happens to the replaced vehicles? I agree that most of the major oil producing countries are not friendly to the USA, and suspect that the Saudi Royal family will go the way of the Shah of Iran, our former great and good friend. I do think that diesel is a realistic alternative. Unfortunately, California voters rejected Prop. 8, which would have subsidized infrastructure for CNG. We have plenty of domestic nat. gas, but it is not as energy efficient and LNG terminals have the potential for blowing up. There is a lot of research in battery technology and an existing distribution network (which urgently requires rebuild in any event) but weight and disposal issues make it unpromising absent a paradigm shift in technology.
    2008 Dec 11 01:04 PM | Link | Reply
  •  
    Electric motors are 3 or 4 times more efficient than ICE engines. The electric grid charged Volt battery can go 40 miles and gets the equivalent of 95 MPG when gas in $2 a gallon. We waste more than enough electric power to charge enough batteries to power enough electric vehicles to replace all our ICE vehicles. The cost of the Volt and other electric vehicles and their batteries will rapidly go down because of increased production and rapid technology advances.

    But I am not going to junk my Acura because as electric vehicles replace ICE vehicles the price of petroleum will go down as demand goes down. A properly maintained modern ICE vehicle will easily last over 20 years. Electric vehicles should last even longer and require less maintenance.

    We can also use sustainable biomass technology to produce all the chemicals that we currently produce from petroleum. Sorghum Molasses, switchgrass, algae, Salicornia, Hemp, cellulose, fermentation, pyrolysis, We can grow plants near chemical plants and use CO2 to grow them. The cost of finding, extracting, shipping, and processing petroleum will not make any sense in a few more years.

    Lawyers and accountants will fight to slow the acceptance of new technology that they do not understand and cannot control but change will continue and accelerate until a Natural Disaster or Human greed and stupidity cause a new Dark Age.

    2008 Dec 11 01:50 PM | Link | Reply
  •  
    Regarding alternatives to crude:
    all of the above except corn ethanol.
    I don't like paying gasoline prices for food.

    The key here is timing. And timing depends in large part on substitution cost. OIl won't run out. It will just get more expensive and the 25% used for non-fuel will displace the other uses. If the transition away from crude fuel is to be relatively painless, then these technologies all will play a role. There is no one panacea. I would buy an econobox electric car in an instant to replace my Yaris. Hybrids are a pain-all the disadvantages of both technologies in one expensive package.

    The efficiency of ICE has improved hugely since the first oil panic in 1973 mainly due to technology. The premise of this article is the Saudi's can continue this progress by improving the fuel. This is so much BS. Sure, they can probably make it burn cleaner (less CO2??), but I doubt they can increase the chemical energy in a gallon of regular gasoline. So, "They aren’t selling it yet because they don’t have the product yet". Don't hold your breath.

    According to the book "The Seven Sisters", oil prices have been highly volatile since Titusville. Did they have speculators back then too?

    Oh yeah, I didn't know Frank Zappa read Plato, but it doesn't surprise me.
    2008 Dec 11 03:34 PM | Link | Reply
  •  
    I don't know what the Saudis are smoking, but its impossible to to have a ICE produce motion or energy without producing CO2. Someone is selling them a fairy tale.

    High mileage, yes, but no CO2 emissions? Like the fantasy of "Clean Coal" its a PR campaign that will deceive the unknowing and allow them to continue wrecking the environment.

    Just like a junkie wants another fix.


    2008 Dec 11 04:56 PM | Link | Reply
  •  
    The Saudis and other parties working on making gasoline burn more efficiently in the ICE had better hurry. Fortunately, we don't have to worry about these developments one way or the other.

    Here in the U.S. we'll be running our ICE's on cleaner and less expensive DOMESTICALLY produced NG, and we have PLENTY to last us for the forseeable future.
    2008 Dec 11 05:17 PM | Link | Reply
  •  
    I have an electric car and also a high mileage gasoline burning car. Both were perfected 50 years ago, or more. The "greenfrauds" and productive engineers use them too. It is named: Club Car. There is another one named: Par Car.
    Now can we move on to a really hot firebox and generate some electricity? No inventions are needed. The French will help US, for a fee. They have been doing this for decades. Pass the uranium please.
    2008 Dec 12 08:44 PM | Link | Reply
  •  
    And one more thing; diesel is 30% more efficent than gasoline to go the same distance. Diesel fuel is currently 50% more than gasoline. Does anyone know how to figger? Or how to start an older diesel in winter. Huh.
    2008 Dec 12 08:55 PM | Link | Reply