Dependent on Gas

A couple of weeks ago I included a short item about how the popular hybrid gas/electric vehicles don't get the great gas mileage they are advertised to have. On average, the vehicles can be expected to have 75% of the advertised mileage (which is still great) and this isn't so much a deceptive effort by manufacturers but a deficiency in the EPA's methods for calculating gas mileage, which haven't been updated in 25 years. Anyway, long story short, someone comments in a huff about how my attitude is exactly why these vehicles haven't caught on... left me a little mystified because they are selling like crazy. He (she?) then went on to blast be for supporting President Bush and whatever policies he puts forward... huh? Don't know what that had to do with anything, but whatever. Besides, I'm all for hybrid vehicles today and fuel cells tomorrow because this is the greatest technology shift in a hundred years in terms of economic activity that will cause everyone to buy new vehicles, new manufacturers to appear, and loads of high technology to proliferate. In short, this is a capitalists dream come true.

But let's get right to the point of dependence on oil today. Anyone that thinks getting a few more miles to the gallon (kilometres and litres for you Euros) is going to diminish our reliance on oil is fooling themselves. Dependence on foreign oil? Well that is a geo-political issue more than anything else.

Believe it or not, gasoline is not the only product that comes out of a barrel of crude oil. A barrel of crude oil is about 42 gallons and the final end-user product breaks down like this, give or take some rounding:

19 gallons of gasoline
9 gallons of diesel fuel and home heating oil
4 gallons of jet fuel (which is basically kerosene)
2 gallons heavy fuel oil (bunker fuel, it's used in ships and big apps like power generation)
2 gallons still gas (highly refined white gas)
2 gallons coke (I think this is another heavy fuel stock)
1.5 gallon asphalt
1.5 gallon petrochem feedstocks (fertilizer)
.5 gallon of lubricants
.5 gallon true kerosene
other stuff like naptha, gases and various thinners

so the bottom line is that we're still going to be drilling and pumping a lot of crude oil to supply the world with all of the other products, besides gasoline, that a barrel of crude oil results in even if we drive (no pun intended) our gasoline consumption down dramatically. Just think about all the jet fuel that is consumed on a daily basis, as an example.

Let's shift gears and talk about how internal combustion engines work. Essentially, a mixture of air and fuel is fed into a chamber and compressed, ignited, and burned. In gasoline engines and turbines the hydrocarbon is burned, while in diesel engines the hydrocarbon is exploded. You can substitute hydrocarbons in either case, for example, gasoline engines are converted to run on natural gas, while diesel engines are benefiting from the move to recycle used cooking oil (yeah, can you believe it?) in the form of bio-diesel.

So you want to reduce the world's dependence on crude oil? Great, let's get to work on coming up with an alternative hydrocarbon, not just higher mileage vehicles. There is no reason why in time science cannot come up with a hydrocarbon that produces the same amount of energy as gasoline on a per-molecule basis, is reasonable expensive to manufacture, and releases less carbon into the atmosphere (a gallon of gasoline releases about 6 pounds of carbon, and the U.S. alone consumes 360 million gallons of gasoline each day). And remember, even if we replace gasoline, we still have to deal with diesel, jet fuel, industrial fuels and home heating oil.

I am not saying that absent of an obvious alternative, we just shouldn't bother at all. In fact, it is THAT jumped to conclusion that is the nexus of our current political division. The left thinks that the right wants nothing more than a planet full of Hummers, while the right thinks the left is dead set on government mandates for hemp powered vehicles. I don't think there is anyone that doesn't really want to come up with an energy strategy that makes sense for both the environment, the consumer, and business alike. There is no quick fix or silver bullet, it's going to take a long series of technical advances to put in place a basket of energy solutions, here's just a couple of electicity and hydrocarbon options:

Solar: great idea, but not currently cost efficient. In addition to the cost and life span issues of the panels themselves, there are only a few places where you can put solar farms and you still have to move the power.
Geo: would be great, but is constrained by what nature have provided, and the small problem that the land around geo-thermal plants sinks over time
Wind: great option, but costly and the current dustup about wind farms killing birds illustrates another problem
Hydrogen: years and years away, plus you still have to produce the hydrogen and that takes gobs of electricity (see below)
Electricity: Well, most of the solutions on my list are used to produce electricity, which is currently bulk produced by coal, natural gas, and jet fuel driven plants. There is the little problem of distribution and that's actually a great big bear of a problem. Anyone who lives in California knows what I mean, the electricity grid in the U.S. and many parts of the world is at capacity. Plus, you can't store electricity on a large scale.
Electricity for vehicles: It's the obvious alternative, plus electrical engines can generate a lot more torque than gas engines, which means that car running on electricity could be much higher performance. But the thing that isn't talked about a lot is the batteries, which are environmentally toxic in their own rite, but have a limited charge lifespan. In short, we need much better battery technology before electrical cars goes mainstream, even in the current hybrid trend.
Hydro-electrical: generates gobs of power, but we're learning that daming up rivers creates other problems. Besides, I think it would take an act of God to get permits for a new dam in the U.S.
Nuclear: yeah, right.
Coal: it's come a long way from your grand-daddy's coal fired power plant, but it's still a limited resource.
Diesel (vehicle specific): definitely a better option than gasoline, but the U.S. won't switch to low sulfur diesel until 2006 so until then the modern diesel technology for capturing pollutants won't work.

It's a multi-generational problem to solve, many dedicated professionals already at work on it. Improving gas mileage in vehicles is really important, no question about it. I think hybrid vehicles that get high 30's a gallon is great, especially because they are ultra-low emissions. Where I have a problem is with hybrid vehicles costing $5-6k more than conventional models that get pretty damn good mileage on their own (look at the Honda Civic vs. the Civic hybrid). In basic fuel costs, the Civic hybrid owner is getting 8 miles to the gallon more than the regular Civic, translates into about $250 a year in fuel savings... and in 20 years they will have broken even on the cost difference between the two. See where I am coming from? You can't avoid the cost issues in the mass market, because those dollars (in the words of Yogi Berra) are as good as cash.

Comments

[Ed]

This is one area that strikes me as ripe for serious leadership from the federal government. While there are many private-sector resources at work on all the above, it seems that both talk and money at the federal level could go a long way towards refocusing academia, entrepreneurs, the media, and manufacturers on what is arguably the most strategically important challenge of our generation.

[John Beatty]

Nice post. Where did you get the breakdown for the uses of crude? Wikipedia is currently lacking in detail; I'd like to add this to the crude oil article.

This is a really good log of '04 Prius mileage. His average is ~46 mixed highway/city.

[John Beatty]

Oops, typepad doesn't accept HTML links in comments. Here's the links:

Wikipedia on crude oil:
http://en.wikipedia.org/wiki/Crude_oil

Prius mileage: http://silverlining.greatnow.com/

[jeff]

the crude oil production breakdown came from here, http://auto.howstuffworks.com/framed.htm?parent=question417.htm&url=http://www.petroleum.org/petrokids/petroperbbl.htm and I heard similar stats on NPR a couple of weeks ago so I think they are pretty accurate.

[jeff]

Ed,
yes, this is an area where the Federal government should take leadership. I would look for taxes and tax incentives to shape specific behaviors and encourage development of technology in this area, as well as direct investment in development either through academic or foundations.

As a VC, I think it's a fairly natural progression to see investment in technology develop out of the already significant areas of energy investing. For example, I know a lot of investment has been made in advancing the state of the art in battery technology. Power distribution and metering would be another area of build out.

I'm actually very encouraged that a solution will be found, the stakes are so high and the reward so great. I have come to the point where I think that energy technology will be the defining technology of the 21st century.

[ppk]

Forget all that fancy stuff, it's all about bananas.

http://story.news.yahoo.com/news?tmpl=story&cid=857&ncid=757&e=10&u=/nm/20040601/od_uk_nm/oukoe_life_australia_banana