It's Rishi

The price of oil is creeping up fast. Right now as I write this post, oil has just risen above $93, a 50% increase over the average price of oil in 2006 (about $60 according to this data). While the current crude oil prices are in absolute dollar figures a record high, on an inflation-adjusted basis, we are not quite at the all-time record level of ~$98 set in 1980; source).

Without getting into the details of why oil prices are rising and if the trend will continue, let’s discuss a certain key question. A co-worker of mine recently asked me if I had changed my driving habits as a result of the increased gas prices in the past year. That was an easy answer for me: “No”. Then he asked the more interesting question: “At what price will you change? $4? $5? $10?”. $10 gas may sound ludicrous, but it’s really not that farfetched. After all, gas prices in most of Europe is at least twice what it is here. In fact, gas is approaching $9/gallon in the UK! (source)

So, what is my magic number? It’s hard to throw out a number but I do know that it’s a high number. My weekly routine does generally involve a fair amount of driving, and there’s few to zero suitable public transportation solutions. Let’s say I drive 1k miles per month and my car averages 25mpg. That’s 40 gallons a month. At current gas prices that’s about $150. At $10/gallon, that’s $400. Annualized, that’s $5,000, or about $8,000 on a pre income tax basis! If gas prices went extremely high, I would undoubtedly need to change my living requirements. Specifically the route from home to the office would either need to involve a short drive or primarily public transport. My driving habits and the fuel economy of my car are very average. With that in mind, let’s remember that the US median household income is not much more than $40,000. About 15% of your post-tax income dedicated just to gas is an impossibly high expense.

The truly scary aspect of rising oil prices is its compounded effect on the cost of living. It’s no secret that higher oil prices correlates with inflation. Not only does high gas prices increase the wallet burden at the gas pump, it also affects the price of many common consumer items because the costs associated with transporting those items rises.

It is often said that Americans view cheap oil as a God-given right. Whether that’s true or not (I tend to agree that it is true), we may soon find that right revoked for good. And at the current rate, it may happen a lot sooner than anyone had predicted. How that affects the landscape of this nation in the decades to come will be absolutely fascinating to watch.

Last year, in my highlights from the 2006 NAIAS post, two of the ten highlights were focused on alternative fuel technologies. I commented on Daimler-Chrysler’s exciting announcement of the stateside arrival of Bluetec diesel cars. As a big proponent of diesel power, I was excited to hear the news. Finally, with the growing availability of low-sulfur diesel fuel in the US, we can enjoy the advanced diesel powerplants that Europe (over 50% of new cars sold in the EU are diesel) and other parts of the world are.

For along time I’ve been trying to convince people that diesel represents a better near-term solution for improved energy efficiency than hybrid does. What I’ve been saying all along about diesel’s practical advantages over hybrid is finally being recognized by Honda also. For the next-generation, US-market Accord coming in MY2008, it is being reported that Honda may be replacing the outgoing petrol V6 Hybrid with a diesel V6 or possibly inline-4 turbo-diesel. A diesel Honda?? Yup! Honda has developed their own “i-CTDi” diesel technology which employs similar techniques as found in TDI, Bluetec, etc: high-pressure common-rail fuel ignition, oxidation catalysts and particulate filters to minimize emissions. In typical Honda fashion, though, they’ve one-upped their competitiors by creating a nitrogen-oxide emissions control system which does not require periodic ammonia replenishment (a two-stage catalyst technology actually combines nitrogen and hydrogen to produce ammonia), thus becoming a maintenance-free design. Pretty slick.

With both the Germans and soon the Japanese bringing 50-state legal diesel models to the US, it’s only a matter of time before US buyers throw away their negative perceptions about loud, noisy diesels of yesteryear and embrace modern, efficient diesel technology. Already experts are forecasting diesel marketshare in the US to double to 7.5% by 2010.

The other big news at the show is plug-in hybrids, particularly the Chevy Volt Concept that GM surprised the show with.

The big deal with plug-in hybrids is that unlike traditional hybrids which ultimately rely on gasoline power to re-charge, plug-in hybrids let you run indefinitely on battery, without ever burning a drop of gasoline, as long as you stay within the battery’s range. For the Volt, Chevy is saying 40 miles. However, as is usual the case with electric motivation, the primary obstacle is in the battery. Here’s some info from a recent Wired.com blog post on the Volt:

The lithium ion batteries are managed to not be charged more than 80 percent or less than 30 percent so that they will last the lifetime of the vehicle, according to GM’s Tony Posawatz.

Lithium ion is the better bet than nickel metal hydride to provide more range, according to Dan Edmunds, of automotive website Edmunds.com. If only they could be managed to go closer to 100 percent utilization while retaining their lifetime, we’d see a car that would get an effective efficiency of 200 mpg.

The Wired.com post also points out that the 40 mile electric range of the Volt is a scant improvement over the decade-old GM EV1 electric car. Without a doubt, the hybrid configuration and plug-in charging ability make the Volt a vastly more practical vehicle than the EV1 was. However, it is a sad commentary on the progress that has been made. GM is saying that it will take five years to develop production-ready lithium-ion batteries suitable for a car like the Volt. They’re also hoping that the Volt will excite battery manufacturers to get serious about finding ways to reduce the cost (from ~$10k to ~2k) of large, lithium-ion batteries.

One last interesting bit regarding plug-in hybrids: Honda might be getting into the game!

Once all the big debuts have been made, I’ll do another Top 10 NAIAS highlights post.

What do you notice about these four sets of gas prices (click to enlarge)?

While I was filling up at the gas station today, I noticed it too. No matter what the price of gas is, the difference between Regular, Mid-Grade, and Premium always seems to be just about 10 cents. What’s up with that?

I did some quick research on the Web and could not find any information on this topic except for another blogger questioning the same phenomenon: Mercer On Value: Why are gas prices exactly 10 cents higher per grade? As Chris Mercer, the author of this post, points out, from a cost standpoint, the only difference between the various grades of fuel would be a little bit of octane booster – likely either toluene (paint thinner; used in Formula1 and other racing leagues) or ethanol or MTBE (I think they stopped using this as it was found to cause contamination of municipal water supplies). I’m sure the prices of these octane booster fluctuates quite frequently and moreover, I highly doubt that, at the volumes that oil companies produce, the cost of these octane boosters is anywhere even close to 10 cents per gallon.

I have to agree with Chris that the 10 cents pricing differential is simply the price elasticity of demand. Oil companies (and I guess to some extent the gas retailers) must have figured out over the decades that 10 cents is the magic number.

1) 10 cents is small enough to hook customers who voluntarily choose to purchase a higher grade of gas than their car’s requirement. (i.e. buying 89oct midgrade for a 87oct requirement car) Many consumers are willing to pay $1-$2 extra per tank to feel like they’re making their engine happier.

2) 10 cents is not large enough to persuade customers to downgrade to a lower octane even if their car requires premium fuel. (i.e. downgrade to 89oct instead of the 91oct required by their car). Because the engine performance difference between mid-grade and premium fuel is generally very slight, most consumers could downgrade and never notice the difference. The oil companies know this and this puts an upper bound for the price differential between fuel grades.

What grade fuel do you use and have you either switched or considered switching up or down?

A few months back I posted about how hydrogen fuel cell cars actually are significantly less fuel-efficient than current gasoline-powered cars due to the fact that producing hydrogen fuel is itself a horribly inefficient process given the present methods. Ed Ring, editor of EcoWorld, recently published an article titled “The Hydrogen Hoax” explaining his belief that hydrogen research should take a back seat to further development and implementation of technologies which are commercially viable today: clean diesel cars, serial hybrid cars, and battery powered cars.

Will scientists figure out someday how to store hydrogen in practical, economical ways? Will they ever figure out how to build cheap, safe and durable fuel cells? The answer to these questions is yes, but probably not before they figure out how to develop ultra-capacitors or cheap batteries with extremely high energy densities.

It’s a short editorial, give it a read if you get a minute.

“The Hydrogen RE features a rotary engine that can run on either gasoline or hydrogen with the flick of a switch.”

Curb weight is still pretty svelte at 1,460kg (~3200lb). Max hydrogen output is 109PS and gasoline is 210PS.

Pretty damn cool. Unfortunately, Mazda is only selling 10 vehicles this year on a lease-only basis at a pricetag of over $3,500/month

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