Hybrid Car sales in 2007 are going to be determined by many factors. These include gas prices, federal and state tax credits, new models arriving, new clean diesel sales (as well as other alternative gas engine fuels), and finally, the continued reliability of the hybrid cars that are out there.

Gas prices and hybrid car sales tend to follow each other closely. Gas prices are expected to stay around what we’ve seen in the past year. Unless some other natural (or man-made) disaster occurs, what we see now is what we should expect to see with some fluctuation up and down (the EIA is projecting prices to go down slightly). This stabilization should keep a downward pressure on hybrid car sales.

Toyota has broken through the 60,000 units sold barrier for the federal tax credits. And so, since October, federal tax credits were halved on all Toyota hybrids sold. Toyota has publicly blamed the lack of an increase in hybrid sales on that reduction. But on the other half of that coin, Toyota is still selling three of the four most popular hybrid vehicles on the road.

Also, no other car maker is likely to break through that barrier in the next year. Despite a rash of new hybrid vehicles that will be coming out and will be eligible for the federal tax credit, Toyota seems to have taken a huge lead in hybrid image, with the Prius especially becoming synonymous with hybrid. So, I don’t expect this to have a huge affect on hybrid car sales in the coming months, even after Toyotas credits get halved again in March.

Various states and cities are considering or are offering other incentives, from car pool lane preferences to tax credits to free parking. As more incentives are offered, more buyers will pull the trigger.

I do expect large increases in sales due to the new models coming out in 2007. Despite being disparaged as not a full hybrid, the Vue hybrid sold 700 units in October. As each new hybrid models get released, I expect corresponding big jumps in hybrid car sales. Especially when the Nissan Hybrid Altima comes out, even in its limited sales areas. Other new hybrids expected to hit the road in 2007 include the Saturn Aura, the Chevrolet Equinox, Malibu, Tahoe, GMC Yukon, and Chevy Silverado.

Other issues hybrid car sales will face is competition from other alternatives to the traditional internal combustion engine (ICE). These include new clean diesel engines and bio-fuels. Hybrids will fight back with better gas mileage (the next generation Prius will possible get 90+ mpg, for instance) and by plugging in. Also, you may see more mergers between the alternatives, as diesels become hybrids.

One other issue that may affect hybrid cars in 2007 is their continued reliability and the continued satisfaction hybrid car owners have. Despite being accused of smugness in 2006 (ie. South Park), hybrid car owners have shown very high satisfaction (consumer reports survey) with their choices and rightly so based on the reliability of hybrids so far. It will be hard to maintain such high ratings as new hybrid cars (from automakers with lower reliability ratings) enter the field, but we’ll just have to wait and see what happens.

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More Hybrid Car information can be found at http://hybridreview.blogspot.com
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There has been a lot of speculation lately over whether the Saudi oil production cuts over the past year have been voluntary. I have argued that they were voluntary based on a combination of what was happening with inventories last spring (crude inventories were very high and trending higher), and then price (started falling in the summer and fell for the rest of the year). But I think we will soon know for sure.

This is subscriber information from the daily OPIS report, so I will only post a small portion of the report:

Over the past five weeks, there has been a fundamental shift in the oil Market — a shift that has resulted in increasingly higher prices. The shift has to do with basic fundamentals; not speculation, not hedge funds, not futures trading. Oil supplies in the U.S. have dwindled sharply in the past five weeks, more than some people may realize.

According to the EIA, in the U.S., total company-held oil inventories have shed 87.4 million barrels since OPEC’s 0ct. 20 meeting. By the end of the first quarter of 2007, stocks will be 100 million barrels below end-September 2006 levels, the EIA forecasts. Meanwhile, demand has been higher than normal, so the “supply cushion” has been depleted.

Over the past five weeks total product inventories have dropped nearly 60 million barrels, an average of more than 10 million barrels per week. Gasoline supplies, which comprise the largest part of the U.S. petroleum stock base, have shrunk as well. Inventory dipped almost 4 million barrels this week leaving supplies 8 million barrels under year-ago levels and less than 3 million barrels over the five-year average for this time of year.

What we are seeing right now is a combination of falling inventories and rising prices. This should provide both the opportunity and the motive for Saudi to increase production. Demand will really kick up in April and May, when refineries are coming out of their turnarounds. If the current trend continues, the Saudis are going to be called upon to bump up production pretty soon.

If they don’t, then I will conclude that at least for the time being, they can’t. That may mean that their production has peaked, either due to geological constraints, or because they failed to anticipate demand and didn’t bring their projects online soon enough. I have seen the announced projects they have in the pipeline, and they won’t be enough to satisfy demand any time soon. If their current reduction is involuntary we are in for some tough sledding ahead, resulting in all kinds of price records this year. I might start thinking about buying a more fuel efficient vehicle if I hadn’t just bought one.

As I often do on a Saturday morning, I was up early reading through energy headlines. I happened across this story on eSolar:

Bill Gross’s Solar Breakthrough

“We are producing the lowest cost solar electrons in the history of the world,” Bill Gross is telling me. “Nobody’s ever done it. Nobody’s close.”

“We have a cost-effective, no-subsidy solar power solution and it’s for sale, anywhere around the world,” he says.

The article was intriguing, and inevitably led me back to eSolar’s website to get a better idea of whether the claims appear to have merit. There, I watched the slide show on the technology, and caught this bit: A single unit generates 46 MW of clean electricity on a footprint of 160 acres.

While this doesn’t help me figure out whether they can deliver on the hype, it does enable me to update a couple of essays that I have written before:

A Solar Thought Experiment

Replacing Gasoline with Solar Power

In the first, I made an attempt to calculate the area that would be required to equal the entire installed electric capacity of the U.S. – using only solar power. (Yes, I understand that this number falls to zero at night). The numbers quoted above from eSolar – combined with the latest data on installed electrical generating capacity – enabled me to update that calculation.

Per the EIA, total installed electrical generating capacity in the U.S. is approximately 1 million megawatts. If we scale up eSolar’s claim of a required footprint of 160 acres to produce 46 MW of electricity, then it would require 5,435 square miles of eSolar technology to equal current U.S. electrical capacity. This is a square of 73.7 miles by 73.7 miles. This is greater than the 2,531 square miles calculated in the previous essay, but that essay only considered the area for solar panels. The present calculation encompasses the footprint of the plant.

Looking back at the gasoline calculation, I came up with 1,300 square miles required in my previous essay to replace the energy gasoline provides. Using the current eSolar numbers changes that number to 2,413 square miles, or a square of 49 miles on each side.

Of course all of the normal caveats apply as spelled out in the previous essays. The key point is not to read these sorts of thought experiments too literally. I tend to do them to get my head around the scale of certain problems. Complaints of “the cost is too great” or “the power is intermittent” – addressed by caveats in the previous essays – completely miss the point of the essay. It is sort of like trying to figure out how much biomass would be required to power the world. If the calculation is 10 times the current annual output of biomass, then that’s not going to work. If it is 1/100th the current annual output of biomass, then that might work (again, pending lots of other things working out).

In this case, I find this eSolar thought experiment encouraging insofar as the required land area isn’t a clear knockout.

I just spent a fruitful week in Canada, learning about some of the biomass resources in Alberta. There are some interesting opportunities there for the right technology, and I expect that I will be making future trips up there.

One of the questions I was asked this week by one of my new Canadian friends was “Do you believe fossil fuels will still be the dominant power source in 20 years?” Without hesitation, I said “Absolutely.” Others around the table nodded their heads in agreement, and the questioner said “So do I.” It isn’t that this is what we want, but this is how we see it. Government agencies like the EIA see it the same way. While they show renewable energy growing, there is a very long hill to climb before they begin to challenge fossil fuels for supremacy.

I think the question was meant to gauge whether I am realistic about the potential contribution of biofuels in the years ahead. I believe that I am. While I believe that biofuels – or more appropriately renewable energy in general – will eventually become our predominant source of energy, that is going to take a long time. I also believe that it is going to happen by necessity – because of the depletion of fossil fuels – rather than a breakthrough that makes something like algal biofuel as cheap to produce as petroleum. Regardless, we need to pave the path to that potential future today, so when the need is pressing we aren’t scrambling to come up with solutions.

Speaking of algae, you may have seen the story on ExxonMobil plunking down $600 million for algal biofuel development. When I was in Canada, someone referred to this as “Dead Money Walking”:

Exxon’s algae

Exxon, the west’s biggest oil company, has launched a new research programme into producing biofuels from algae, in a break from its general antipathy towards alternative energy.

At first sight, this looks a pretty bizarre thing for the company to be doing. Rex Tillerson, Exxon’s CEO, has been consistently sceptical about biofuels, even the advanced “second generation” variety. (Or, as Steven Chu, US energy secretary, described them to the FT, “fourth generation” biofuels.)

Incidentally, I did an interview in the airport yesterday on “4th generation biofuels.” I told the interviewer that I hate that term “4th generation biofuels.” Can we at least wait until we see what the 2nd generation really looks like?

But back to the ExxonMobil story. I am highly skeptical of the conventional paths to produce biodiesel from algae. In fact, John Benemann recently commented here that if you really want to know where algal biofuels stand, offer to buy some for $100/gal. He said you can’t get it. On the other hand ExxonMobil is certainly not stupid, so you have to wonder about their angle. The reporter I spoke with asked about algal biofuel, and I did say that I could see one circumstance in which it might work. If you could engineer/breed algae that excreted oil, you could potentially collect it by skimming it instead of collecting and pressing the algae. That would potentially be a much lower cost fuel, provided the production rates were decent.

Finally, it looks like I have 100 responses to the previous open thread, and I presume at least some of those are questions for me. I will try to work my way through those over the next few days. First, as indicated before I will speak with POET tomorrow about their ethanol work, and I will report on that conversation here in the next couple of days. If you have anything that you would like to ask them, let me know in the comments and I will try to get your questions answered.

I started this post almost a year ago, but forgot about it. But someone at The Oil Drum just said they wished they had more information on where our gasoline imports come from. No need to wonder, because the EIA publishes this information.

For 2007, our Top 10 importers of finished gasoline into the U.S. in thousand barrels were:

1. United Kingdom (Thousand Barrels) 25147
2. U.S. Virgin Islands (Thousand Barrels) 23590
3. France (Thousand Barrels) 11209
4. Canada (Thousand Barrels) 10605
5. Netherlands (Thousand Barrels) 10518
6. Norway (Thousand Barrels) 8406
7. Germany (Thousand Barrels) 8351
8. Russia (Thousand Barrels) 7387
9. Italy (Thousand Barrels) 7239
10. OPEC Countries (Thousand Barrels) 5516

Europeans demand more diesel. Since you get diesel and gasoline from the refining process, they get rid of their excess gasoline by sending it to the U.S. That helps keep gasoline prices in check. Take a look at diesel prices to see what gasoline prices might look like if not for the imports.

Source: U.S. Imports by Country of Origin

Retail gasoline prices in the U.S. peaked back in July at $4.17 a gallon. (Source: EIA). At the end of 2008, gasoline had fallen to $1.67. We typically use about 140 billion gallons of gasoline each year, so that $2.50 drop amounts to an annualized difference of $350 billion in the pockets of consumers – and into the U.S. economy instead of the economies of Saudi Arabia and Venezuela. Add in the drop in diesel, home heating oil, and jet fuel and you are looking at half a trillion dollars. And while I am strongly in favor of raising gasoline taxes to reduce our fossil fuel consumption (and demand has been sharply down as a result of high prices), the economy can certainly use this sort of stimulus right now.

But in the long run it is very important how people use that money. And we seem to be reverting to bad habits. How quickly we forget $4 gasoline:

Big is back: As pump prices plunge, SUV sales surge

NEWPORT NEWS – It looks like the Highlander is in and the Prius is out — for now at least.

Trucks and sport utility vehicles will outsell cars for the first time since February, according to a December report by Edmunds.com, which tracks industry statistics.

“Despite all the public discussion of fuel efficiency, SUVs and trucks are the industry’s biggest sellers right now as a remarkable number of buyers seem to be compelled by three factors: great deals, low gas prices and winter weather,” said Michelle Krebs of AutoObserver.com, a division of Edmunds.com, in a prepared statement.

And the punch line:

The surge in SUV and truck sales suggests that the issue of fuel efficiency has faded in the minds of many consumers.

Toyota has already slowed production of the industry’s flagship hybrid vehicle, the Prius, due to lack of interest and a growing inventory of the once best-selling model, Edmunds.com reported.

All this might mean a setback for fuel-efficient models that were heralded as a remedy for the country’s addiction to oil.

If people are going to flock back to gas guzzlers instead of using their extra pocket money to pay down their debt, then I would rather gas prices go ahead and recover. Based on the trends in vehicle sales, I am sure I will see that wish fulfilled before too long.

Update:

This week’s report highlights:

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 0.7 million barrels compared to the previous week. At 333.4 million barrels, U.S. crude oil inventories are just above the upper end of the average range for this time of year. Total motor gasoline inventories fell by 5.5 million barrels last week, and are just below the lower end of the average range. Distillate fuel inventories inched higher by 0.1 million barrels, and are slightly above the upper end of the average range for this time of year.

U.S. crude oil imports averaged 9.8 million barrels per day last week, down 441,000 barrels per day from the previous week. Over the last four weeks, crude oil imports have averaged over 10.0 million barrels per day, or 202,000 barrels per day more than averaged over the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 953,000 barrels per day. Distillate fuel imports averaged 259,000 barrels per day last week.

That’s another unexpectedly large draw on gasoline stocks, and the second week in a row that the estimate was badly missed by the analysts. Expect gasoline prices to continue rising. However, I would expect this plunging inventory situation to reverse within 1 to 2 weeks.

What’s Driving Prices?

If you follow the petroleum markets, or you just want to know what is going on in the world of energy, the weekly report from the Energy Information Administration (EIA) is invaluable. Every Wednesday the EIA releases a report detailing information on petroleum and product inventory levels, imports, prices, refinery utilization, etc. For those who follow this information, the recent run-up in prices is not a surprise, as you would have seen it coming. It is not driven – as some have insisted – by a renewed willingness on the part of oil companies to gouge consumers. (It is still hard for me to believe that intelligent people can believe things like that). No, the graph of gasoline stocks shows why gas prices have risen.

Note the gasoline inventory trend over the past year. If I plotted price on top of that, you would see a very strong inverse correlation between price and inventory level. If inventories are falling fast, as they have been recently, price will rise fast. And price will continue to rise as long as inventory levels are plunging. “Supply and demand” is not just a cliché. It is a predictor of trends. And while gasoline inventories are not yet in terrible shape, if they fall for another week or two they will be in danger of dropping below the normal range – just as we head into high-demand season. Also, while inventories do tend to fall at this time of year, the steepness of the plunge this year is unusual, and is the primary driver in the recent rise in gasoline prices.

Inventory Levels

The next obvious question then is, “Why are inventory levels falling?” As you saw in my previous essay, the FTCR, an organization who thinks $2.00/gallon gasoline is a consumer right (!), asserts that refiners are purposely keeping inventory levels low by withholding capacity. They have put out 2 news releases in the last couple of days making that accusation, which included (both times) the illogical leap that lower capacity = deliberate restriction.

However, as I pointed out in the previous essay, not only is overall refining capacity up on the West Coast, it is up across the U.S. The problem is that demand is increasing so fast that excess capacity has been eroded. Ten years ago, if a refinery went offline for maintenance, there was enough spare capacity that there was no real impact on the market. That is no longer the case. So, that leaves 2 options for addressing the increasing demand: Higher prices or rationing. Which do you prefer?

This Week in Petroleum

The links you want to bookmark, if you really want to be more informed about what’s happening in the world of energy, are:

Text File of Highlights

This is the first report to come out. It is released at 10:30 a.m. EST each Wednesday. This is a text file that provides all of the important details, although without the graphics. But it is a link that I typically click into within 5 minutes of the release of the report each week.

The second link that I read every Wednesday is:

This Week in Petroleum:

This is a comprehensive and graphical look at the trends and developments. I pulled the graph above from this week’s report. The report is released at 1 p.m. EST (and the author of that report has dropped by this blog and commented before).

This Week’s Predictions

Often you can find the analyst’s predictions of what the report will contain. Sometimes they will miss badly, as they did last week. Here is what they are predicting for this week:

Analysts surveyed by Dow Jones Newswires expect gasoline inventories to have dropped by an average of 1.3 million barrels last week from the previous week. Analysts are also calling for a 900,000 barrel decline in distillate stockpiles — which include diesel fuel and heating oil — and a build of 1.6 million barrels in crude oil supplies.

I will update this when the report is released. It was at this point last year that refineries began to come out of their turnarounds and gasoline finally reversed the declines. I expect that to happen within the next couple of weeks. Imports will also be key. Gasoline imports have been high as prices have risen, and as long as they continue to arrive it will take some pressure off of prices.

I have a challenge for the conspiracy theorists out there who think oil companies purposely dropped the price of gas leading up to the recent elections. Here is the gasoline inventory graph for the past year, which the EIA just updated today at This Week in Petroleum:

Note that gasoline has dropped below the bottom range of where inventories typically run at this time of year. We are one pipeline or major refinery issue away from having a serious gasoline supply crunch. So, what do you do? If prices increase, people cry foul. Yet demand hit an all time record for this week of the year (despite this, prices fell today). Personally, I think prices need to come up (as they have been trending lately). Obviously, though, they haven’t come up enough yet to stem demand.

So, what are the options? Do you 1). Raise prices and have people cry conspiracy; 2). Keep prices steady and start rationing gasoline; 3). Just risk having lower inventories?

Or if you have another solution, let’s hear it. Note that refinery utilization is back over 90%, so cranking up the refineries is out. Gasoline imports dropped off precisely because prices had fallen, so it is going to be tough to attract more imports without a price increase.

This is the dilemma for oil companies. There really is only one fix for this, but it comes with charges of conspiracy. As one profanity-laced diatribe (that I deleted) noted in the comments a few days ago “You claim inventories are driving prices, but the public knows it’s just greedy oil companies.” I guess I should have asked him for a solution before I deleted his post.

Some surprises in this week’s numbers:

The Energy Department’s Energy Information Administration reported that crude inventories fell by 3.8 million barrels during the week ended Sept. 14, more than double the 1.5 million-barrel decline analysts surveyed by Dow Jones Newswires, on average, had expected. However, crude inventories remain at the upper end of their average range for this time of year, the EIA said.

Gasoline supplies rose by 400,000 barrels, the EIA said, countering analyst predictions of a 1.3 million-barrel decline.

Refinery utilization fell by 0.9 percentage point to 89.6 percent of capacity. Analysts expected a decline of 0.5 percentage point.

Crude oil imports averaged 9.8 million barrels last week, an increase of 242,000 barrels per day. Gasoline imports averaged 1 million barrels a day, down slightly from a week earlier.

Demand for gasoline averaged nearly 9.5 million barrels a day over the last four weeks, the EIA said, 0.5 percent above the same period last year.

I am pretty surprised that gasoline inventories increased. Last week’s hurricane shut down some pretty big refineries, so I expected gasoline supplies to take a dip. Incidentally, I have read speculation that utilization is down because refiners can’t get oil (confirming Peak Oil Now for some). Not so. Utilization was down because of the hurricane. It is about to fall even more as fall turnaround season kicks into gear. So don’t take that as additional confirmation.

How much land would it take for solar power to satisfy the electricity demands of the U.S.? I made some attempts to calculate this before, but a recent story may enable me to calculate some more reliable numbers if the solar is provided via solar thermal power:

Solar Power Heats Up: Another Plant Planned for Southwest

Two bits caught my eye:

Abengoa Solar, a subsidiary of a similarly named technology company based in Seville, Spain, and Arizona Public Service on Thursday announced plans to build a 280-megawatt solar thermal power plant about 70 miles southwest of Phoenix.

So we know the planned capacity of the solar thermal plant. In case you are unfamiliar with solar thermal:

Solano will use parabolic mirrors to follow the sun across the sky and concentrate its energy, heating a fluid to 700 degrees Fahrenheit, and using the fluid to make steam that will spin turbines to generate electricity. The plant will use an unspecified heat storage technology so the plant can continue generating electricity for six hours after sunset.

So, how much area to produce 280-megawatts?

The project will bring economic benefits, too. During three years of construction, it will employ 1,500 workers at the 1,900-acre site near Gila Bend. After completion, 80 permanent employees will work at Solano.

OK, let me say before running through this calculation that I have no idea how it is going to turn out. And if someone spots an error in math or logic, please bring it to my attention. I am going to scale this up to produce all current U.S. electricity demands.

Peak U.S. demand, according to the EIA, is almost 800,000 megawatts. Actual available capacity is 900,000 megawatts. So let’s make our solar capacity equal to today’s total installed electrical generating capacity.

Assuming the entire 1,900 acres is needed for the plant (maybe not a good assumption, but all I have), then this breaks down to (280 megawatts)/(1,900 acres), or 0.147 megawatts per acre. This of course includes all of the land associated with support functions, and it may include area for future expansions. So the calculation may be conservative.

The second assumption is that the areas in which will put our solar plants will be as productive as this one in Arizona. That is not a conservative assumption, and will somewhat offset the previous conservative calculations.

Then to get 900,000 megawatts is going to take (900,000 megawatts)/(0.147 megawatts per acre), or 6.1 million acres. How large of an area is this? I don’t know. I have to get out my calculator.

My calculator indicates that 6.1 million acres is an area of 9,531 square miles, which is equivalent to a square of just under 100 miles by 100 miles (which would be 10,000 square miles). That’s a large area, to be sure. But the possibility is there.

A couple of caveats. First, this calculation does not make a provision for a mass migration to electric transport. That would clearly require (a lot) more power. On the other hand, we already have a lot of installed electrical capacity in the form of hydroelectric (78,000 megawatts), other renewables (24,000 megawatts), and nuclear power (100,000 megawatts). This lessens the power requirement from solar.

How does this compare with my previous calculation for solar PV? I don’t know. Let me check.

OK, I checked. Not too bad. In A Solar Thought Experiment, I had assumed a slightly lower power requirement and only included the actual area of the solar cells. I came up with an area of about 50 miles by 50 miles of PV panel surface area. So it was in the ballpark. The 100 by 100 mile number is probably more realistic (and is for solar thermal – a different animal), given the need for the real estate for supporting infrastructure.

Other conclusions from the previous essay remain the same. For solar PV, there are around 100 million houses in the U.S., so there is quite a bit of surface area readily available, right where the power is needed. Your results will obviously vary depending on whether you live in Maine or Nevada. The cost is still a staggering $6 trillion. However, to put that number in perspective, at $100/bbl, the U.S. would spend $6 trillion on oil in less than 8 years.

What is the limiting factor? Are there particular components that are critical, but not available in large enough quantities to make this work? Possibly, but I don’t know what those might be. I actually believe that this could be our Manhattan Project, and it could be done. But it doesn’t even have to offset all of our current electrical capacity. We just need to start chipping away, and substituting solar in place of fossil fuels and new capacity that is needed.

Can we afford it? The key question to me is, “Can we afford not to try?”