May 06, 2005
Oil-hungry Europe is now in need of a new car revolution By Graham Searjeant, Financial Editor
NEXT from Brussels: the 62 mph speed limit. Andris Piebalgs, the EU's Latvian Energy Commissioner, says that EU drivers ought to adopt the 100 kilometre per hour upper speed limit suggested at the Paris-based International Energy Association. He raised the idea suitably gently in Germany, where autobahn drivers like to drive twice as fast and have no rule to stop them.
Elsewhere, the compulsion to limit speeds on any road is as old as the car but until now it has normally been argued on grounds of safety. For Mr Piebalgs and the IEA, it is because higher speeds "use a lot of petrol".
They are not thinking about global warming, just that we might run short.
[image: *] <http://ad.uk.doubleclick.net/click%3Bh=v3|3271|3|0|%2a|e%3B16080181%3B0-0%3B2%3B8645578%3B4307-300|250%3B10113180|10131076|1%3B%3B%7Esscs%3D%3fhttp://ad.uk.tangozebra.com/a/ac/c_noscript/3763/4237/8298;TIMESTAMP?http%3A%2F%2Fad.doubleclick.net%2Fclick%3Bh%3Dv2%7C353E%7C0%7C0%7C%252a%7Cq%3B15983636%3B0-0%3B0%3B11281881%3B31-1%7C1%3B10059636%7C10077532%7C1%3B%3B%253fhttp%3A%2F%2Fwww.audi.co.uk%2Fjserv%2Fredirector%2F371>
<javascript:tz_clickthrough_00003763(0,"static");void(0);>Two years ago a barrel of Brent crude oil, the main European benchmark, could be bought for less than $24. A month ago it reached $56, and it still hovers at $50.
China's rapid growth and America's recovery led the rise in demand. The recoil is already being felt in slower growth in the US, the eurozone and in Britain.
Oil has many uses but the price was buoyed by demand for petrol, America's gasoline. A wide gap opened between prices of low-sulphur crudes such as North Sea Brent, which yield more petrol relatively cheaply, and the tarry, high-sulphur heavy sour crudes more common in the Middle East. America's domestic benchmark, also a light, sweet crude, rose highest.
Electricity can be generated in many different ways according to relative prices, environmental choices, geography, market structure and fashion. But virtually all the world's vehicles are powered by petrol or diesel oil.
Outside Brazil virtually all of this comes from exhaustible mineral reserves.
We can safely predict that more cars will need more fuel in future. Unless high oil prices stifle development in Asia, Africa and Latin America, the numbers of lorries, cars and scooters on the world's roads could double in
25 years.
Some experts think world oil output has peaked; others, including the IEA, see it peaking in ten or 30 years' time and then slowly but relentlessly declining. Up to 5 per cent of the world's known reserves are being burned each year.
No wonder the IEA, which mainly worries on behalf of importing developed countries, thinks we need to invest more in energy resources. Claude Mandil, its director-general, says that we need to invest $16,000 billion (£8,400
billion) by 2030. This is equivalent to £350 billion, or 30 per cent of UK national income, every year. Much of this money would be spent on power stations and refineries. But the biggest chunk would go to finding and developing oilfields. Mr Mandil criticises top oil companies for testing the viability of projects at a $20-25 oil price. BP uses $30. They remember oil falling from $40 to $8 in the 1980s. Having winnowed out high-risk projects, they placate financiers with share buybacks instead of stepping up their traditionally hefty investment spending.
Investment is mostly needed in dodgy places. Shell is returning to Libya for a gas deal but who is anxious to sink vast sums irretrievably into Iraq just now, or Saudi Arabia or Vladimir Putin's post-Yukos Russia? Anyone for Venezuela? These are places where reserves need developing.
Suddenly, getting around with less petrol looks a more attractive proposition. That can ease short-run scarcity, send less carbon dioxide into the atmosphere and give a chance to the hundreds of millions more people who will want motor vehicles to raise their family living standards.
The world is not going to accept a 62 mph limit for long-distance driving.
There is no such barrier to new forms of propulsion but the economics of changing over can make driving on the opposite side of the road seem straightforward. The zero emission hydrogen cell, into which Americans are pouring billions, is now feasible. But it would take many decades to make a big impact. It requires a different infrastructure so it can only spread gradually via buses and other fleets of vehicles using common bases.
Hybrid petrol-electric cars are as practical as conventional ones except that they can save half the petrol and most of the urban pollution. Oddly, they have made little progress in Europe, where petrol prices are generally high. In America, the Toyota Prius and a few others have gained almost 1 per cent share of the market which could double to nearly 2 per cent in the year when US petrol prices hurt.
This week Toyota announced that it would start making a hybrid version of its next Camry model in America next year. The Camry, surprisingly, is claimed to be America's top-selling passenger car. Nissan is to follow suit.
Honda imports several models. Ford has introduced a hybrid sports utility vehicle. General Motors and Chrysler plan launches, perhaps in 2008.
Equally, there is little prospect of these vehicles becoming the norm. They cost £2,000 to £3,000 more and even at today's US petrol prices are unlikely to recover this within the average car's life. Tax can move us on to the tipping point, as it did for unleaded petrol in the UK. In the US, there are proposals for federal tax rebates that would cut the net extra cost but none for the variable, maximum $1 a gallon tax on petrol that would stabilise prices at a level where hybrid cars might make cash sense.
The UK offers savings on car licences for low-emission vehicles and modest grants. The EU does not seem so keen, for instance, as to permit VAT to be waived. EU manufacturers seem uninterested in offering anything but conventional cars for the mass market and will therefore try to block progress. Over to you Mr Piebalgs, and do forget about making Germans halve their speed.
[Non-text portions of this message have been removed]
Oil-hungry Europe is now in need of a new car revolution By Graham Searjeant, Financial Editor
NEXT from Brussels: the 62 mph speed limit. Andris Piebalgs, the EU's Latvian Energy Commissioner, says that EU drivers ought to adopt the 100 kilometre per hour upper speed limit suggested at the Paris-based International Energy Association. He raised the idea suitably gently in Germany, where autobahn drivers like to drive twice as fast and have no rule to stop them.
Elsewhere, the compulsion to limit speeds on any road is as old as the car but until now it has normally been argued on grounds of safety. For Mr Piebalgs and the IEA, it is because higher speeds "use a lot of petrol".
They are not thinking about global warming, just that we might run short.
[image: *] <http://ad.uk.doubleclick.net/click%3Bh=v3|3271|3|0|%2a|e%3B16080181%3B0-0%3B2%3B8645578%3B4307-300|250%3B10113180|10131076|1%3B%3B%7Esscs%3D%3fhttp://ad.uk.tangozebra.com/a/ac/c_noscript/3763/4237/8298;TIMESTAMP?http%3A%2F%2Fad.doubleclick.net%2Fclick%3Bh%3Dv2%7C353E%7C0%7C0%7C%252a%7Cq%3B15983636%3B0-0%3B0%3B11281881%3B31-1%7C1%3B10059636%7C10077532%7C1%3B%3B%253fhttp%3A%2F%2Fwww.audi.co.uk%2Fjserv%2Fredirector%2F371>
<javascript:tz_clickthrough_00003763(0,"static");void(0);>Two years ago a barrel of Brent crude oil, the main European benchmark, could be bought for less than $24. A month ago it reached $56, and it still hovers at $50.
China's rapid growth and America's recovery led the rise in demand. The recoil is already being felt in slower growth in the US, the eurozone and in Britain.
Oil has many uses but the price was buoyed by demand for petrol, America's gasoline. A wide gap opened between prices of low-sulphur crudes such as North Sea Brent, which yield more petrol relatively cheaply, and the tarry, high-sulphur heavy sour crudes more common in the Middle East. America's domestic benchmark, also a light, sweet crude, rose highest.
Electricity can be generated in many different ways according to relative prices, environmental choices, geography, market structure and fashion. But virtually all the world's vehicles are powered by petrol or diesel oil.
Outside Brazil virtually all of this comes from exhaustible mineral reserves.
We can safely predict that more cars will need more fuel in future. Unless high oil prices stifle development in Asia, Africa and Latin America, the numbers of lorries, cars and scooters on the world's roads could double in
25 years.
Some experts think world oil output has peaked; others, including the IEA, see it peaking in ten or 30 years' time and then slowly but relentlessly declining. Up to 5 per cent of the world's known reserves are being burned each year.
No wonder the IEA, which mainly worries on behalf of importing developed countries, thinks we need to invest more in energy resources. Claude Mandil, its director-general, says that we need to invest $16,000 billion (£8,400
billion) by 2030. This is equivalent to £350 billion, or 30 per cent of UK national income, every year. Much of this money would be spent on power stations and refineries. But the biggest chunk would go to finding and developing oilfields. Mr Mandil criticises top oil companies for testing the viability of projects at a $20-25 oil price. BP uses $30. They remember oil falling from $40 to $8 in the 1980s. Having winnowed out high-risk projects, they placate financiers with share buybacks instead of stepping up their traditionally hefty investment spending.
Investment is mostly needed in dodgy places. Shell is returning to Libya for a gas deal but who is anxious to sink vast sums irretrievably into Iraq just now, or Saudi Arabia or Vladimir Putin's post-Yukos Russia? Anyone for Venezuela? These are places where reserves need developing.
Suddenly, getting around with less petrol looks a more attractive proposition. That can ease short-run scarcity, send less carbon dioxide into the atmosphere and give a chance to the hundreds of millions more people who will want motor vehicles to raise their family living standards.
The world is not going to accept a 62 mph limit for long-distance driving.
There is no such barrier to new forms of propulsion but the economics of changing over can make driving on the opposite side of the road seem straightforward. The zero emission hydrogen cell, into which Americans are pouring billions, is now feasible. But it would take many decades to make a big impact. It requires a different infrastructure so it can only spread gradually via buses and other fleets of vehicles using common bases.
Hybrid petrol-electric cars are as practical as conventional ones except that they can save half the petrol and most of the urban pollution. Oddly, they have made little progress in Europe, where petrol prices are generally high. In America, the Toyota Prius and a few others have gained almost 1 per cent share of the market which could double to nearly 2 per cent in the year when US petrol prices hurt.
This week Toyota announced that it would start making a hybrid version of its next Camry model in America next year. The Camry, surprisingly, is claimed to be America's top-selling passenger car. Nissan is to follow suit.
Honda imports several models. Ford has introduced a hybrid sports utility vehicle. General Motors and Chrysler plan launches, perhaps in 2008.
Equally, there is little prospect of these vehicles becoming the norm. They cost £2,000 to £3,000 more and even at today's US petrol prices are unlikely to recover this within the average car's life. Tax can move us on to the tipping point, as it did for unleaded petrol in the UK. In the US, there are proposals for federal tax rebates that would cut the net extra cost but none for the variable, maximum $1 a gallon tax on petrol that would stabilise prices at a level where hybrid cars might make cash sense.
The UK offers savings on car licences for low-emission vehicles and modest grants. The EU does not seem so keen, for instance, as to permit VAT to be waived. EU manufacturers seem uninterested in offering anything but conventional cars for the mass market and will therefore try to block progress. Over to you Mr Piebalgs, and do forget about making Germans halve their speed.
[Non-text portions of this message have been removed]
