Monthly Archives: September 2008

Mercedes-Benz’s first hybrid sedan will be equipped with state-of-the-art batteries from Continental

Mercedes-Benz is going to equip its first hybrid car ever with lithium-ion batteries produced by the German Continental AG, a leading manufacturer of brake systems, tires, and many other sophisticated parts for the auto industry. The batteries of the new Mercedes-Benz luxury sedan S400 BlueHybrid that is set to hit the market in summer 2009 will have a higher storage capacity and an overall better performance than the Nickel-metal hydride batteries which are currently used in the best-known hybrid, the Toyota Prius. The batteries produced by Continental are more advanced and relatively small. They should just weigh 25 kilogramms. This battery was being developed mainly for use in hybrid cars and plug-in hybrids. The battery set should have a minimum lifetime of ten years. For Continental, the newly developed Li-ion battery is part of an attempt to become a leading supplier of batteries for use not only in hybrids, but also in electric cars with “range extender” like the Chevrolet Volt and all-electric cars(Read: The electric car revolution is about to happen). The management of Continental already admits that the cars running on nothing but electricity have the potential to play a central role in the automotive industry in the future. Therefore, Continental wants to become a major supplier of electric motors, too. Furthermore, the company’s engineers are developing several systems for regaining energy e.g. while braking and using it to recharge the battery. Until today, there are no information available about the price of the new battery, but being used in luxury sedans first, the extra-costs for the battery will be moderate in comparison with the total price of the car. The first-time application of li-ion batteries in a mass-produced car is an opportunity for Continental to gain experience and keep improving the technology. For the next generation, the aim is a battery which should be 30% smaller than the current model.

Moreover, Continental is working with GM to provide the battery pack for the Chevy Volt semi-electric car.

For Mercedes-Benz, the hybrid version of its luxury flagship car is the reaction to first, high-gasoline prices and second, the European Union’s plan to punish car makers with a fleet with high CO2 emissions. The punishments could increase the price of large cars by several thousand euros. The parent company Daimler is also testing an electric version of the microcar Smart.

Read why oil prices are that high and why the era of cheap energy is over:

Our prosperity hangs by a thread as it is based on a limited resource – oil

An electric car without an electric motor:

The Air Car could revolutionize transportation – an electric car without an electric motor


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up and down, up and down, up and up and … ?

Whoever says he knows where crude oil will be trading in one or two weeks, don’t listen! No expert can make any accurate short-term predictions as we’ve been experiencing extreme fluctuations recently.

Crude oil prices have been on the move in the recent years, but what we saw in the last couple of weeks is unprecedented. We saw oil prices falling from their all-time high of $147.27 per barrel in July to about $90 per barrel last week. Then it rose sharply, and completely unexpected to $130 a barrel on Monday. Monday’s $25 gain was the largest single-day price increase ever for crude oil. Today, crude oil is trading at about $105 a barrel. These hefty fluctuations are not at all backed by the fundamentals of supply and demand – though the long-term price increase can be attributed to growing demand and limited supply. Given these fluctuations, no serious analyst can make a crude oil price forecast for the short term.

The reason why oil prices came down again the last few days is mainly the uncertainty about the steps the administration is going to take in order to stabilize the financial markets. With the turmoil going on at Walll Street, investors pour more money into commodities. After the end of the last remaining investment banks in the United States and the acquisition of Washington Mutual by J.P. Morgan Chase, commodities seem to be a rather safe investment. Investors know that the price of oil is almost certain to rise in the foreseeable future. We are at the beginning of an energy crisis that the world has never before experienced. This means lots of challenges, need for change and last but not least, a whole bunch of opportunities! Western countries have to take the lead in energy technology as this can become the key to future growth, stability and wealth. Which economy can afford living with today’s dependence on foreign energy supplies and the unpredictable price fluctuations. Alternative energy sources will stabilize the price and price fluctuations will become rare. Moreover, the costs of these green technologies are gradually coming down. That’s why we have to get involved into this exciting and promising industry.

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Our prosperity hangs by a thread as it is based on a limited resource – oil

Undoubtedly, oil is – next to water – the most vital resource for today’s economies. We depend on its energy in almost any regard ranging from transportation to heating and cooling to power generation to chemistry. Without it, the economy would come to a standstill and our prosperity would sink steeply. In consideration of this, we must be mad to rely on our very vulnerable oil supplies on such a grand scale. A disruption of oil supplies would immediately have disastrous consequences for everyone.


Just imagine what would happen if global oil supplies were reduced by 6 % from one day to the next. A 5% decline in global oil supplies is enough to push the entire global economy into a severe recession. Probably an unprecedented global recession affecting both, people in rich and in poor countries. Oil prices would at once head towards $300 to $400 dollars a barrel and higher. Gasoline would become unaffordable for large parts of the population. Nevertheless, shortages would occur. It is almost impossible to ration the oil reserves. Cars would become unsalable. Rental prices in cities would also hit record levels. People were forced to move close to their workplace. Airlines would go bankrupt and cease operations with the exception of a few flights for the super-wealthy. Public transport would become the major mean of transportation and ticket prices would also increase decisively. Unemployment could reach 25% and higher. In other parts of the world, the situation would spark violence and destabilize many countries. Aid organizations could hardly do their job. Food riots would break out. Oil fields would be occupied by rebels and government troops. The army would have to protect refineries and gas stations. But is this scenario an inevitable disaster? Is this likely to happen? How could this happen?

First, such a scenario is possible. Second, Whether it would be a disaster or not depends on how dependent we will be at the point of time this happens. If we were hit without warning, we are likely to exprience such a disaster. And finally, how could this happen? There are many incidents that could cause a sudden oil production decline. An omnipresent threat to the stability of oil supplies is the fact that most of the world’s oil reserves are located in politically unstable regions. A revolution in Saudi Arabia could have disastrous consequences for the rest of the world. Politically motivated supply reductions could be the consequence of a deeper polticalstandoff between Iran and the United States. Besides, Iran threatens to disrupt sea traffic in the Strait of Hormuz in the case of an attack by Israel or the U.S. With 40% of the global oil supplies passing through this strategic hotspot, the consequences can be extremely painful. (Check out Has the bubble popped? ) But beside all the political fragility, an accident in the world’s largest known oil field has also the potential to derail the world economy.

Ghawar Oil Field

The Ghawar oil field in Saudi Arabia which is by far the largest oil field in the world is currently producing about 5 million barrels a day which is the equivalent of 6.25% of the global production. More than 60% of the Saudi oil production between 1948 and 2000 came from Ghawar. Though Ghawar is gigantic, we don’t know much about the remaining oil reserves. Some oil experts say that Saudi Arabia is greatly exaggerating its oil reserves. This is aimed at first, causing western countries to stop worrying about scarce oil and second, to be able to pump out more oil as OPEC limits its members’ production based on the proven reserves. There are experts who expect that Ghawarhas already peaked and is dying. We don’t know whether this is true or not, as the Saudis would keep it a secret as long as possible. Anyway, oil reserves are a state-secret in Saudi Arabia. But we already know that Saudi Aramco, the state-owned largest oil corporation in the world is eagerly exploring new and unprofitable oil fields. Besides, they make a tremendous effort to get the oil out from below the desert. They’ve been injecting water into the oil fields in order to force the oil out. Seawater is pumped underneath the oil. The resulting pressure makes the oil come out more easily. But increasingly, what they’re bringing up is more water than oil. In 2004, the “watercut” was 55%. Saudi Aramco is injecting more than 7 million barrels of seawater per day into the Ghawar field. This shows the risk of an accident disrupting the oil flow. If one day, the injected water rose quicker than the  oil, when the water surpasses the oil on the way up, this could mean that no more oil would come out of the well. If one day the engineers of Saudi Aramco realize that they’re just pumping out water of the ground, this is very bad news for all of us.

The oil would never again flow out of the ground naturally. New drilling would be necessary and it would take years for Saudi Aramco to resume oil production at the Ghawar field. Ghawar is extremely important to the world’s well-being, but it an accident could kick it out of production. Even without an accident, the production rate will decline and Ghawar will die inevitably. At the same time, many oil fields all around the globe where oil can be pumped out easily are declining. Peak oil does not mean that there’s no more oil from one day to the next, but it does mean that we’re running out of cheap oil. The energy industry insider Matthew Simmons predicts the peak of Ghawar and he doubts that Saudi Arabia is able to maintain its production at current rates.


Though officially, the Saudi Arabian government wants the oil community to believe that its reserves will still last for decades, they are pouring billions of dollars into the exploration of new and old smaller oil fields that were considered not worth operating due to the bad quality or high amount of energy necessary to extract the oil. Next to the efforts to maintain the production capacity, an enormous amount of money is spend to strengthen the private sector. With the oil industry accounting for 45% of Saudi Arabia’s GDP and 90% of the country’s export earnings (according to Wikipedia), Riyadh’s ruling family tries to diversify the economy. A few mega projects are underway which should jump start the diversification process. Six so-called “economic cities” are planned to be launched in many parts of the country.

The King Abdullah Economic City which is due to completion in 2020 is the first planned city in Saudi Arabia which is being constructed in an undeveloped but centrally located area on the shore of the Red Sea. The city is set to become a commercial hub attracting domestic and international investments. Next to the planned largest seaport in the region, King Abdullah Economic City will also be home to a major financial center for the region. Quality of life was a major consideration during the planning stage and thus, parks and green spaces as well as many other public amenities are to make it a good place to live for the 500,000 people which are expected to move there. The city will also play a major role in the country’s aspiration to raise the educational level to international standards. Featuring several universities and R&D parks, international companies are supposed to find a qualified workforce.

The Economic Cities currently planned in Saudi Arabia are partly similar to the Masdar carbon-free city in the United Arab Emirates and the Dongtan eco-city in China.

So, what is the bottom line? If Saudi Arabia and other oil exporting countries make an effort to become less dependent on oil (exports), we have to get away from oil as it is our best interest! That’s why it is absolutely irresponsible for a presidential candidate to say that we just need some offshore drilling and the problem is fixed. John McCain even called for a “gas-tax holiday” earlier this year. This shows that he has obviously no idea of how serious the situation is and that the has no plan what needs to be done. I agree up to a point that it’s not a bad idea to explore the North American continental shelf and to evaluate whether drilling for oil is profitable there. But this should not be aimed at reducing prices at the gas pump! High prices indicate scarcity, that’s how the market works. This should prompt everybody to save gasoline wherever possible and to switch to alternatives. The longer we wait, the more painful will the impact of rising oil prices and dependence be. Even if we started offshore drilling right now, this wouldn’t have a considerable effect on gasoline prices. Moreover, it’s stupid to waste precious domestic oil by overcooling buildings or by driving inefficient SUVs withcombustion engines. We don’t have to hurry with offshore drilling. It’s good to know that there is oil in case we need it one day.

From; a depleted oil field in Azerbaijan:

Right now, high prices can help to encourage investments and research in the field of energy technology. At the moment, we need to reduce the insatiable demand for oil, not only to save money, but also to combat global warming. This requires some innovative changes in the way we live, work and travel. As the energy expert Matthew Simmons demands, we need to liberate the workforce to eliminate long-distance commuting. Next to reducing unnecessary driving, we ought to stop consuming oil wherever possible. Electric cars are likely to revolutionize transportation in just a few years from now. We will see many of them hitting the market in 2010 from all major car makers. The “reinvention of the automobile” Rick Wagoner, the CEO of GM, mentioned is absolutely necessary.

 Energy efficient buildings and intelligent heating and cooling systems can also help to cut consumption and costs. 

Whatever can be done to reduce our oil consumption has to be done. Oil prices will rise to new record levels in the medium and long term. The so-called “energy return on investment” ratio which compares the energy that goes into the process to the energy that comes out in the form of oil or natural gas, etc. has been declining steadily since the beginning of the 20th century. Whereas in the early 1900s, it took only the energy of one barrel of oil to get 100 barrels, today it takes the same amount of energy to get just 15 barrels of oil. This decline is due to the intensity of drilling. The production costs will keep rising,  the E.R.O.I. ratio will keep declining and global demand for oil will keep rising with the emerging economies’ strong growth rates. 

That means that the era of cheap energy is over. This does not necessarily mean that our living standard has to decline. Far from it! As soon as alternative energy sources are available at home, the transfer of wealth from western countries to oil-exporting countries will come to an end and such potentates as Hugo Chavez from Venezuela will face harder times.

Energy independence is vital for western countries and the death-blow for the OPEC cartel which recently decided to cut its output in order to prevent oil prices from falling below $100 per barrel. Instead, new industries will be created at home, millions of new jobs can be created and our carbon dioxide emissions can be reduced. Furthermore, alternative energy technologies can help to reduce price fluctuations. On top of that, e.g. the price of solar power wil come down with solar technology advancing and solar panels being mass produced.

The transition into a self-sufficient society has just began with the disillusionment of those who believed and acted as if energy were inexpensive and inexhaustible. However, the market alone cannot fix the problem itself. The problem is that there is the need to replace a technology that is already existent and cheaper. And it takes government intervention to make the price of the new technologies competitive. Europe is ahead in this regard as hefty taxation pushed gasoline prices to levels which are more than twice as high as in America. Though paying more at first is painful, it’s better to spend the money at home than to pour the money into the budgets of unreliable partners.

Check out to get an insight into the art of calculating oil reserves.

Read also Crude oil below $100 a barrel – should we stop worrying about energy efficiency, energy dependence and all the eco-stuff?

A Crude Awakening – The Oilcrash Movie:


Filed under Economy, Environment, Global Issues, Politics, Uncategorized

The new generation of cars – Chrysler is going to reveal its electric car models to dealers

Chrysler which was late to start developing electric vehicles (Finally, even Chrysler switches to electric cars) announced that it would unveil its business strategies to its dealers. Electric cars seem to be an essential part of Chrysler’s business strategies –  the very survival of the automaker could depend on these!

Apparently, Chrysler has been working on plug-in electric vehicles, but the company does not provide many details. When should these new cars hit the market? Will they be all-electric or semi-electric with a range extender like the Chevrolet Volt? What will the driving range be? Will their price be competitive with the one of conventional cars? Will these new cars fit into Chrysler’s product lineup which relies on SUVs and pickups that make up 70% of Chrysler’s cars. Will Chrysler – prompted by nosedived sales numbers – change its product lineup essentially and shift away from gas-guzzlers?

Of course, there’s lots of economical potential when introducing electric motors to SUVs and pickups who have an enormous gasoline consumption. But on the other hand, this could turn out ot be a major hindrance for a sufficient driving range.

How challenging ever this might be, Chrysler has at least the chance to find costumers for its new products.

Alan Helfman, vice president of River Oaks Chrysler Jeep in Houston, said: “This new generation of cars, from what I’ve been hearing, are the next generation of electric cars. They should be great sellers”

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“We’re reinventing the automobile” – Rick Wagoner, CEO and chairman of GM on the occasion of the grand old car maker’s 100th birthday

General Motors turned 100 today and the company’s management tried eagerly to convey the message of change and optimism. The once largest car maker in the world, incorporated by Billy Durant in 1908,  is in a deep crisis. GM created a giant $38.7 billion loss in 2007. GM’s sales numbers in the U.S. have nosedived, primarily due to the sharp increase in gasoline prices and the higher awareness for fuel economy of car buyers as well as the economic slowdown. The product line-up, famous for gas-guzzlers like Hummers or GMC trucks, is simply not anymore meeting demand. Competitors, especially Japanese automakers, pushed forward with more efficient models and popular hybrids. Though Toyota’s hybrid car sales are small in comparison with the large pick-up trucks Toyota sells in the United States, the company managed to establish a green image. Intelligent advertising and the hybrid hype worked out for Toyota….

Despite all the odds, GM appeared to be determined to maintain its position as a major car producer and to regain its former competitiveness.

Rick Wagoner left no doubt that GM is absolutely focused on its future now. Looking forward! That’s the slogan of the day. In his speech, Wagoner mentioned highlights of General Motor’s past 100 years. “…amazing heritage…” / “….tremendous heritage…”  are all word’s Mr. Wagoner used when referring to GM’s time as the leading car manufacturer in the world. Confidently, he spoke about GM continuing this legacy into its second century – he was also talking of a “bright future”.  Dramatic changes are going on right now, all over the world. Wagoner assured that GM “kept up with that change”, with which I only agree up to a point. In recent years, General Motors failed to adapt its product line-up, failed to meet demand, failed to remain profitable. As it was the case with Chrysler and Ford, the management was ignorant and made self-centered decisions… The market changed, and they denied it. Now, however, it seems as if the leading figures of GM have become aware of what’s going on and what needs to be done:

“We’re committed to leading our industry on the most important issue we face over the next generation: The development of alternative fuel propulsion.”

Rick Wagoner pushes forward the “reinvention of the automobile”, shifting from mechanically driven vehicles to electrically driven ones.

The symbol of GM’s new direction is the outstanding Chevrolet Volt, an electric car with range-extender. (Read more about the Chevy Volt in Electric vehicles are competitive with gasoline-diven vehicles The electric car revolution is about to happen ) It’s expected that the production version is unveiled today during the GM Next live broadcast. All the excitement about the Chevy Volt is justified, if the shift to electric cars fails, the company is not likely be there anymore in 100 years…

Jack Smith, the retired CEO of General Motors, refers to GM’s future as “an exciting time”… He’s absolutely right!

GMnext – past v.s. future

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Vattenfall launches a pilot project in Germany of a coal-fired power plant without C02 emissions using CO2 sequestration technology – another showcase project to greenwash the European shift to coal?

Politicians in many countries love environmental showcase projects. Especially in Europe, governments try to appear as dedicated to environmental protection as possible. The EU climate dictatorship pushes energy suppliers and governments to reduce CO2 emissions by expanding the European emissions trading program. Therefore, all major CO2 emitters are busily trying to reduce their carbon footprints to avoid paying too much money by auctioning CO2 emissions permits. Generally, this development is to be appreciated. The more it’s surprising that some European countries are embracing coal again. Too many coal-fired power plants are under construction all over Europe. Especially Germany faces a dilemma, cause the idealistic former government decided to phase out all emissions-free nuclear power plants. Of course there are other ways of generating green power, but Germany has already numerous wind turbines and solar panels (, though they’d never be economical without hefty government subsidies driving up electricity prices as electricity generation is insufficient due to a lack of sunshine) . In fact, there aren’t many places where new wind propellers could be set up as there are already many of them at all good places and they are ruining the landscape. That’s why many politicians and power companies consider coal a good way to produce electricity. To counter the justified doubts of the sustainability of coal-fired power plants, power companies are spurring lots of money into creative ways to respond to environmental concerns. But carbon capture and storage will not change anything about the fact that burning coal is one of the most harmful ways to generate power at all.

Anyway, the Swedish power company Vattenfall officially launched a new testing facility for CO2 sequestration in Eastern Germany on Tuesday. The €70 million project is considered a milestone on the way to clean energy from coal by Vattenfall and local politicians. The CEO of Vattenfall Europe, Tuomo Hatakka, said: “Today industrial history is being written. Coal has a future, we are convinced of that, but the carbon dioxide emissions from it have no future.” The almost emissions free power plant uses Carbon Capture and Storage (CCS) technology: The coal is burned in pure oxygen, after that, the CO2 is captured, then liquefied and transported to a storage site, where it is pumped into an underground depleted gas field so that it doesn’t contribute to global warming – at least not at the moment. The trucks transporting the liquefied gas 350 kilometers to the place where it is buried run on biofuel, of course. Every day, 4 trucks transport about 240 tonnes of gas. If applied on a large scale, pipelines would be necessary to transport the carbon dioxide gas.


Source: Spiegel

It’s no surprise that this technology is extremely expensive and inefficient. The CCS technology can reduce the amount of electricity produced by up to 40%. This means that more coal must be burned. Besides, it drives up electricity prices even further. Though the WWF considers the CCStechnology as a “technological bridge” until better technologies are available, it’s a very expensive one! Instead of taking babysteps, it takes an ambitious and comprehensive approach to energy independence and sustainability. And this means using all means of energy generation we have. Nuclear power should be part of this approach, as it is extremely competitive and emissions-free. Alternative energy is undeniable the key to sustainability and energy independence, but alternatives must be applied wisely. In my opinion, solar power is the most viable form of energy generation. The sun provides more power to the earth than we could ever consume. Just a small part of the Sahara desert covered with solar collectors would be enough to feed the entire global energy consumption. There are many places where solar power generation is already competitive, e.g. southern California, New Mexico, Arizona, Texas, Florida, large parts of Africa, southern Europe, Australia…. However, government subsidies are essential to encourage efforts. As soon as money is pend on energy from domestic power sources, using domestic technology, jobs are created, the amount of wealth that is transferred to OPEC countries is lowered. Wind power is also close to being competitive in some places, especially along the coast. In Denmark, for instance, wind power accounts for 20% of the country’s energy consumption. Geothermal energy, biomass, combined heat and power plants also make Denmark an energy-efficient place. Denmark was prompted to completely change its energy policies by the 1973 Arab oil embargo. On the occasion of the Yom Kippur War, most oil-exporting countries in the Middle East stopped exporting oil to Western countries. Denmark was hit badly as it was 99% dependent on foreign oil. Today, Denmark is not at all depend on Middle Eastern oil. This shift was brought about by a strategic and relentless effort by the Danish government to get away from foreign oil. High taxes on gasoline and other forms of energy from fossil fuels in combination with subsidies for renewables and domestic oil, the Danes have become very energy efficient. Commuters use public transport or bikes in most cases.

On top of all efforts to make improvements on the side of energy generation, saving energy is even more powerful and much cheaper in the beginning. When I was in Florida last month, I got an impression of how unconcerned people are with energy efficiency. While outdoors, people are sweating at 90°F, inside buildings you ought to wear jacket not to catch a cold. That’s noting but stupid. Cooling down a bit less aggressively would first, make it easier for the body to adapt to the temperature differences and second, would save a tremendous amount of energy and money! Besides from their homes, people can reduce their spending and their energy consumption by driving more efficient cars and cut the amount of unnecessary driving. Especially the urban sprawl is a major cause of extra driving every day.

To come back on the topic, CO2 sequestration has numerous disadvantages: CO2 sequestration is not the solution to the problems we are facing. It just draws off the attention from the need to act. It’s the same with offshore drilling. We don’t need politicians telling us we just need to drill a bit more off our costs and everything will be fine. I absolutely agree that (almost) everything is fine that helps us to reduce our dependence on oil from OPEC countries, but I absolutely disagree that offshore drilling is the solution! First, the ultimate goal is to get away from any kind of fossil fuel in order to combat global warming. Second, we will still need oil in the future for chemistry, aviation, etc..  These industries cannot switch to alternatives. Cars can. We have to switch to alternatives wherever it is possible AND economical. As you can read in numerous posts, electric cars are almost ready to replace cars with inefficient combustion engines that pollute the environment.

And again I got a bit sidetracked… Another concern many experts have about carbon storage, is that it can not be considered absolutely safe. A leakage could have deadly consequences for the people living in the surrounding. Moreover, in the course of time, carbon dioxide gas could gradually be released into the atmosphere. Nobody can promise that the storage would be permanent. Furthermore, the CO2 gas needs a few times more space to be stored than the coal that is burned. Therefore, we would soon run out of space if coal sequestration were applied on a large scale. Environmental groups claim that big power companies just want to get the permission to build more coal-fired power plants by featuring a couple of green projects every few years.

Read more:

Today, for the first time in Europe CO2 gas was injected below the surface at Europe’s first CO2 stoaring test facility in Germany
While Germany is taking all its nuclear power plants offline, the EU’s climate policy is aimed at a mix of nuclear and renewable energy sources
Coal on the comeback trail?
Various forms of CO2 storage – and unforeseeable consequences
Mediterranean Union will feature flagship initiatives such as solar energy development in sunny North Africa
Wrong-Way Driver Germany,2933,203293,00.html


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Crude oil below $100 a barrel – should we stop worrying about energy efficiency, energy dependence and all the eco-stuff?

As you can also read in Has the bubble popped?, we could see oil prices rise steeply from $16 a barrel in 1999, to $60 dollars with some ups and downs in early 2007, reaching $100 per barrel on January 2nd 2008 and hitting a new record high on July 11th2008 at $147.27 a barrel. Today, U.S. oil is trading a few dollars above $100 a barrel, London Brent crude is hovering slightly below the $100-a-barrel mark. What’s happened? Is this the long awaited turnaround? Should we abandon all that inconvenient talk about energy issues on the occasion of a five month low? Are oil prices now heading downwards, even causing OPEC oil ministers worrying about not being able to pay their bills anymore? Will the Hummer brand turn out to be GM’s saving grace and profit earner? Are airlines set to cut fuel surcharges? Are gasoline prices coming down to $3 a gallon and lower? …

Gasoline price chart by the EIA

Gasoline price chart by the EIA

Would be great! But, I have to disappoint you. I can assure you this won’t happen. But,…. Well, if there’s been a bubble, it has definitely popped. After the influx of $60 billion into the oil futures markets between January and May, almost two thirds of that money has already been withdrawn from the markets. And are the fundamentals of demand and supply finally working? Has the high price lowered demand,  and caused prices to fall again? Well, probably the high price slowed demand growth at least a bit, but there are other reasons that brought oil prices back towards the $100 mark. The unprecedented price hike in the first seven months of this year was driven by growing demand mainly from emerging economies which need petroleum to fuel the fast pace of their economic growth. Especially China had an additional oil consumption due to the Olympic Games. Another important factor was the weak U.S. dollar and out-of-hand inflation in most parts of the world. With the Federal Reserve cutting interest rates to tackle the effects of the subprime crisis, the inflationary pressures on commodity prices increased. And as I already mentioned, investors poured huge amounts of money into commodities futures as the dollar was sinking in value against other currencies.

Now, the situation is a little bit different. China’s oil consumption will keep growing as it’s the case in Brazil, Russia and India; but the pace of China’s growth is already slowing down. Besides, the United States and many European economies are facing weaker economic growth or even recession. Especially the oil consumption of the United States fell decisively which is not only caused by the economic downturn, but also by the increased awareness for fuel consumption and energy efficiency. American drivers are slowly changing their habits – shifting away from gas-guzzlers (that’s why GM, Ford and Chrysler have problems selling their SUVs and trucks) andcutting unnecessary driving. Public transport companies all around the country report increasing passenger numbers. Moreover, suburban living is not anymore as popular as it once was.

Moreover, the ICE Futures U.S. dollar index, measuring the value of the USD against six other currencies rose to a one-year high according to Reuters. Generally, the trajectories of the USD and the crude oil price change contraryily. When the dollar slides, the price of oil rises and the other way around.

Another factor that could stabilize oil supplies and prices is the huge production potential of Iraq. Much of Iraq’s drilling infrastructure was damaged by the war and the violent conditions have prevented oil production on a scale that could be possible otherwise. But now, Iraq is gradually stabilizing and Western companies try to revive efforts to tap into Iraq’s huge oil reserves and benefit from the extremely competitive production costs of just two dollars a barrel. With the security situation in Iraq having improved, the Dutch and British oil company Shell plans to return to Iraq after 35 years, begin with reconstruction and restart gas extraction at Iraqi oil fields together with an Iraqi partner. Furthermore, Iraq’s oil reserves could prove to be much bigger than generally assumed, because the exploration data and estimates concerning the oil reserves are outdated.

Despite a few positive developments in terms of oil prices, we shouldn’t expect a long-standing period of lower energy prices. On the one hand, demand will inevitably exceed supply (Check out: Oil will become even more expensive, a coming up fundamental transition – scary news) in the long term, and on the other hand, the Organization of Petroleum Exporting Countries (OPEC) is eagerly trying to keep prices high in order to generate enormous amounts of money. To conserve the member’s profits and to prevent oil prices from dipping too far below the $100 mark, the oil exporting cartel decided yesterday night to cut it’s output by half a million barrels a day. Nevertheless, experts don’t expect that the OPEC’s announcement to cut oil production has a lasting impact. The oil price is driven by the global economic development and by emotional behavior on the side of traders and consumers. However, the OPEC’s ignorant and selfish policy should encourage us to push forward efforts to get away from oil. Reducing our dependence on fossil fuels reduces not only our dependence on the OPEC cartel and fragile oil exporting countries, but also reduces the amount of money that is poured into the hands of regimes from Venezuela to Iran. Another point is the environmental aspect and last but not least the economy. Alternatives to fossil fuels help to save CO2 emissions and technologies that help us to get away from oil, create jobs and value at home. So, by embracing environmentally friendly technologies, focusing on efficiency and reducing the waste of resources, we can slow down global warming, save lots of money and reduce pollution.

A quote which a good friend of mine spotted on a Starbuck’s cup lately when I was in Miami Beach: “So-called ‘global warming’ is just a secret ploy by wacko tree-huggers to make America energy independent, clean our air and water, improve the fuel efficiency of our vehicles, kick-start 21st-century industries, and make our cities safer and more livable. Don’t let them get away with it!” Chip Giller

For the rest of the year, most analysts predict oil prices around $100. In the case that a major hurricane threatens the offshore oil production in the Gulf of Mexico, or that violent tensions erupt in the Middle East, prices are likely to go up again. Other experts predict crude oil prices at $80 a barrel by the end of the year. The president of OPEC, Chakib Khelil , said yesterday: “‘Over the next few months, I think everybody agrees that the price is going to stay where it is.”

For those who are interested in this important topic, I recommend to read the International Energy Outlook 2008 from the EIA:


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