Friday, March 13, 2009

Oil, Refineries, and Cars

There were more developments in the oil, refining, and transportation sectors this week.  

First, ExxonMobil today (March 13) announced the discovery of a huge oil field off the coast of Brazil.  The recoverable barrels of oil is estimated at 8 billion.   The day of Peak Oil is moving further out, as it always has.  

Meanwhile, back in the U.S., Marathon announced the extension or delay of their refinery expansion project in Detroit, Michigan.  The decline in gasoline demand has quite a lot to do with that, I suspect.   Project completion is now scheduled for mid-2012, an 18 month delay. 

And in transportation, Honda announced their Insight Hybrid LX will cost around $20,000, much less than Toyota's Prius.  The Insight will achieve around 43 mpg.   The annual savings with gasoline at $2 per gallon will not be great, but I suspect few buyers believe that gasoline will stay that cheap for long. 

Also, BYD, the car maker from China, will begin selling its plug-in hybrid soon.  Warren Buffett plans to have one on display at Berkshire Hathaway's annual meeting.  Buffett purchased 10 percent of BYD in 2008.    The BYD is advertised as driving 150 miles on one charge of the battery, before the gasoline engine kicks in.   If it only gets 100 miles per charge, that is still a huge improvement over US offerings.  

On the renewable energy front, in which California aims to have 20 percent of all electric power sales be from renewable energy by 12/31/2010, there currently are approximately 4,500 MW of solar thermal power plants announced or under review by the California Energy Commission.  There is an additional 800 MW of photovoltaic solar power to be built. 

All of this is just beating around the bush.  What I really want to write about is what was said at a meeting I attended earlier this week.  I was astonished at what I heard.  Perhaps my two regular readers are so jaded that this will not raise your eyebrows, but it certainly did mine! 

A spokesperson for a never-to-be-named company told a group of us that her company cut its carbon footprint by 45 percent in the late 1990's after 20-plus years of operating a fabric finishing plant as part of their manufacturing operation.   This was announced to the group as a worthwhile thing to do, as it saved the company more than $50 million per year in operating costs.   The reduced carbon footprint is now being touted as a leading attention-grabber, and the sales are increased dramatically by tipping the undecided buyers to their products because they are so green.  Not that all their products are a shade of green, just that their carbon footprint is lower so they can be called green.  Green can be red, or blue, or any other color that guys never know that to call it, somewhere between peach and apricot is where I throw in the towel.  

What immediately came to my mind, as the spokesperson spoke, was how much money did it cost the company to achieve that 45 percent carbon emission reduction?  Assuming around a $50 million per year savings, did they invest $150 million, for a 3-year payout?   So, I asked the lady the question.   She seemed quite upset with the question, and did not answer it.  She did say that part of it cost them nothing at all!  

That then led me to my followup statement, directed at the others in the meeting.  I said, if a company has an investment opportunity that will save them energy with a short payout, or can be done with no investment, it shows a level of neglect to not have identified this and acted much earlier.   What I did not say was, somebody was asleep at the wheel for a long time.   Perhaps this is what comes when management cuts the payroll and fires the technical staff.  Or cuts expenses by not hiring an energy analyst.  

From my refinery engineering days, we would have identified such an opportunity in the early 1980's just after the Iranian oil crisis and OPEC shortage with increased prices.  

So, maybe my pessimism about AB 32 and the energy savings that will make all this worthwhile is not aligned with reality.  Can California really have that many asleep-at-the-wheel business owners, who have a gold-mine sitting on their premises and just do not know it?   Could be.  Stranger things have happened in this state, as my two regular readers will know. 

Roger E. Sowell, Esq. 
Legal website is here

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