Toyota's View of the Future

Part of Toyota’s (TM) annual “Sustainability Report” for 2008 contains an interesting look at how the company foresees the growth of vehicles and energy requirements globally.   It says,

“Approximately 800 to 900 million passenger vehicles exist worldwide, increasing by around 100 million vehicles every five years for the past two decades. Toyota projects that “this increase is expected to continue in the future, particularly in developing countries, meaning that ownership will likely exceed 1 billion vehicles in 2010 and reach 1.5 billion vehicles in 2020.”

Although an explicit strategy to reduce the overall greenhouse gas production of its products is noticeably absent from the Toyota’s greenhouse gas reduction goals, Sustainability Report 2008 reflects signs of concern within the company that externalities may bring growth to a halt before that time:

Additionally, with the continuing expansion of the economies of the BRICs countries (Brazil, Russia, India, and China), which have experienced tremendous growth since the 1990’s, global energy consumption is forecast to continue rising. This situation increases both the possibility of supply shortages and resource exhaustion, and the severity of the air pollution issue caused by production activities in factories and the use of vehicles for logistical and human transportation.”

What does an extra 100 - 200 million vehicles by 2010 mean?  At an average of 5,000 miles per year (people drive less in most non-U.S. countries) and 35 miles per gallon and 42 gallons per barrel, 100 million new cars on the roads equates to an extra 340 million barrels or nearly 1 mb/d if demand - and that is only for cars.  If we were to assume that 1/3rd of the vehicles were trucks which drive much further and are far less efficient, the increase in demand might be 1.6 mb/d.  Since vehicles account for about 70% of oil use in the U.S. the total extra demand in 2010 could be 2.2 mb/d. 

That sort of growth in oil demand has been fairly typical in recent years.  My recent analysis of Megaprojects projections assumed an additional 1.75 mb/d of   increased demand  by 2010, so it may have been conservative by about 500 kb/d, particularly since the above arithmetic is based on just 100 million new vehicles even though Toyota estimates anywhere from 100 to 200 million.  But if you look out to 2015, my numbers are even further eclipsed by Toyota, which assumes about 400 million more vehicles or about 8.8 mb/d of added oil demand.  My numbers were only 4.5 mb/d of added demand - which was sufficient to totally break the bank by 2013. 

What is even more alarming, I think, is the impact that the current decline in oil prices may have on demand.  If oil prices stay around $100 - or perhaps decline even further - for the next year or so while the world tries to recover from the credit crunch induced economic slowdown, it is entirely possible that the lower prices will cause oil demand in OECD countries to resume its former growth track.  That would add important new pressure to the supply shortfall that the Megaprojects analysis indicates is likely to begin after 2008.

In a sense, the pullback in oil prices could act on world demand just the way that Enhanced Oil Recovery technologies like gas and water pressurization of old fields has been acting on the oil supply.  It tends to make things look better in the present at the expense of a much worse situation in the future.  This is the fate we are witnessing in Cantarell.  It may well become the fate of Ghawar prior to 2015.  And it may also be the fate of global oil demand by front-loading  it with currently “cheap” oil only to the ultimate detriment of demand when oil prices explode in a few years.

Comments

[mangolfer:]

The sudden oil price bubble that occurred is a big reason for the collapse of the financials and all the price increases in consumer products. Until oil gets close to pre-Katrina prices, it will be ugly.

2008 Sep 05 11:49 AM

[you_can_cal...:]

This follows a line of thinking I've had since first hearing about peak oil. Specifically, in 2005 it seemed that any honest-to-God flattening in production would be met with an excess of demand within 12-24 months and with a concurrent spike in price. At some point there would be a reaction, and most of the easy-to-fix wastefulness (mainly in the U.S.) would be eliminated. Hindsight tells us that $147 per barrel was the point of maximum pain, and folks were losing the SUVs, using public transport, not driving to the neighbor next door, etc.... Demand has now fallen below production capacity once again, so we should expect to see a pretty dramatic fall in price to nearly pre-runup prices ($80?). Things probably won't go all the way back down, of course, because some buyers will recognize future scarcity and create support somewhat above that level (higher if there are many, lower if there are few).

Now for the good part, cheap prices will act to increase demand as mentioned above, but to some extent the genie is out of the bottle. Americans are likely to shy away from guzzlers and are less likely to return to the totally profligate attitudes of, well ...the last fifty years. Offsetting this: 1) some people WILL return to those attitudes, and 2) declining global production as new finds fail to offset the weakening giants. The former will happen almost immediately, the latter in the next few years.

Where the right entry points sits boils down to some basic questions:
1) How quickly can auto makers get large numbers of alternative vehicles on the road? Alternative here means anything that doesn't use gasoline (NG, EV, dilithium crystals, ...who cares?).
2) When will the giants start to fall off in earnest? Cantarell is in free fall. If the others follow its example (not likely) then we're in for a very big spike indeed. Most likely, they will fall off more slowly, but it's still a big problem.
3) Finally, at what point will EXPORTS fall? As declining giants become common knowledge, oil producing countries will be less willing to sell their resources than before, and the price per unit demand will rise. This last point is seldom recognized.

There's no doubt that there's some corruption in the commodities markets (duh), but its existence does not negate the underlying forces. It merely exacerbates them. If/when these people are discovered, it would be a mistake to then assume that the oil problem is "solved." Look forward to one more spike in the next few years before alternative vehicles are produced in earnest. That one will probably be worse, but at least the problem will get solved once and for all. Congress, alternative vehicles are the answer, suing OPEC is not.

2008 Sep 06 12:21 AM

[David Martin:]

Switchback rises and falls in oil prices also mean that it is much more difficult to finance investment in either other energy sources or getting out the more expensive oil that remains.
The worst thing that could happen to security of supply would be for oil prices to fall to $80 or lower.

2008 Sep 06 09:54 AM

[Sober Realist:]

Mangolfer, how could you be that naive. Granted, the increase in energy costs has contributed to increases in consumer prices, but the collapse of the financials is NOT a result of the oil shock. The Financial collapse is a result of the following:
1.) Huge current-account deficits we are running and the financing of these deficits by borrowing from abroad in ways that have exposed us to the national equivalent of bank runs. By 2040, our U.S. national debt will be 3 times our GDP. See Charts:
www.financialsense.com...
www.financialsense.com...
www.chrismartenson.com...
2.) Poorly regulated banking systems plagued by excessive borrowing and reckless lending: weak corporate governance, shoddy underwriting, securitization, negligence on the part of the credit-rating agencies and lax government oversight.
3.) An entire subprime financial system: credit-card debt,
student-loan debt, auto loans, commercial real estate loans, mortgage loans and home-equity loans, corporate debt and loans that financed leveraged buyouts. Household debt has doubled in only 7 years. Total credit market debt now stands at nearly $50 trillion. The total economy of the U.S. is only about $14 trillion.
See charts:
chrismartenson.com/fil...
chrismartenson.com/fil...

As Chris Martenson points out, our money system is based on a system that must continuously grow. We even define a shrinking economy as "negative growth." We have an exponential growth, debt-based money system. We're a society based on the false belief of continuous growth.The delusions of cheap energy fueled this belief. And as we know, the world and its resources are finite, not infinte.

"Be careful what you wish for"....so said Joe Clark, founder and CIO of FEG, on CNBC yesterday. He says that input costs for oil exploration/extraction don't disappear with lowering oil prices. For oil extraction from the Canadian oil sands, the input cost is close to $70 per barrel and for deep water Gulf oil, it's around $95. The most recent estimate from the Canadian Association of Petroleum Producers (CAPP) puts the cost for oil sand extraction at $75 to $90.
Extracting petroleum from the oil sands requires a massive amount of energy and water to separate the petroleum from the sand, rock, and other substances. “They’re moving four tonnes of the stuff to extract a single barrel from the oil sands,” says Simon Dyer, director of the oil sands program at an environmental think tank called the Pembina Institute, “two tonnes of overburden and two tonnes of the oil sands itself just to get one barrel.” The extraction process uses 2 to 4 ½ barrels of water for each barrel of oil produced, according to the Pembina Institute. Production from Alberta's oil sands climbed to an average 1.32 million barrels a day last year, a 5 percent rise over 2006 and could get to 3.2 million per day by 2017, the province's energy regulator said recently.
Concerning deep water Gulf oil, it can take years to construct a new offshore rig. That includes the time it takes to collect the skyrocketing input costs for piping, metals, deep-sea drilling, and labor. You can't just flick a switch and turn on a new rig. It takes time. Offshore rigs - where the daily lease rates are still soaring - remain in a net supply deficit. A supply shortage for classes of offshore rigs capable of drilling in up to 10,000 feet of water means that the daily rate that operators pay to rent a high-end, deep-water drilling rig is now $500,000 to $550,000. That’s up from a day rate of $450,000 to $500,000 a year ago-and more than double the price per day on the spot market just three years ago, according to ODS-Petrodata Consulting & Research. ExxonMobilOil, PetroChina, and other oil exploration companies should expect the extended up-cycle in day rates to rent these rigs to continue unabated. Declining yields from mature, onshore energy fields coupled with increasing natural gas and oil prices is driving the demand for global drilling activity in deep-water provinces, pushing fleet utilization rates for high-end rig counts close to 100 percent, too. Exploration and production costs in the first-quarter Y/Y at ExxonMobil, Royal Dutch Shell, and BP, rose 30 percent to $5.8 billion, 39 percent to 7.4 billion, and 59 percent to $10.0 billion, respectively. The U.S. Gulf Coast accounts for about 25 percent of domestic oil production and 15 percent of natural gas output, according to the MMS.

2008 Sep 06 11:40 AM