Winning the Oil Endgame

332 Pages·2004·1.971 MB·English

by  Amory B. Lovins, E. Kyle, Datta Odd-Even Bustnes, Jonathan G. Koomey, Nathan J. Glasgow

“We’ve embarked on the beginning of the Last Days of the Age of Oil. Nations of the world
that are striving to modernize will make choices different from the ones we have made. They
will have to. And even today’s industrial powers will shift energy use patterns....[T]he market
share for carbon-rich fuels will diminish, as the demand for other forms of energy grows. And
energy companies have a choice: to embrace the future and recognize the growing demand for
a wide array of fuels; or ignore reality, and slowly—but surely—be left behind.”
—Mike Bowlin, Chairman and CEO, ARCO,
and Chairman, American Petroleum Institute,
9 Feb. 19991
“My personal opinion is that we are at the peak of the oil age and at the same time the begin-
ning of the hydrogen age. Anything else is an interim solution in my view. The transition will
be very messy, and will take many and diverse competing technological paths, but the long-
term future will be in hydrogen and fuel cells.”
—Herman Kuipers, Business Team Manager,
Innovation & Research, Shell Global Solutions,
1. Bowlin 1999. 21 Nov. 20002
“The days of the traditional oil company are numbered, in part because of emerging technolo-
2. Kuipers 2000.
gies such as fuel cells....”
3. Bijur, undated. —Peter I. Bijur, Chairman and CEO, Texaco, Inc.,
late 1990s3
4. Ingriselli 2001.
“Market forces, greenery, and innovation are shaping the future of our industry and propelling
5. Gibson-Smith 1998. us inexorably towards hydrogen energy. Those who don’t pursue it…will rue it.”
—Frank Ingriselli, President, Texaco Technology
6. Fagan 2000. Ventures, 23 April 20014
“…[W]e’ll evolve from a world of hydrocarbon dependency to a mixture of hydrocarbon and
alternative energies use. Vast quantities of liquid hydrocarbons (oil and gas) will be left behind
in the ground, just as solid hydrocarbons (coal) are being left behind today.”
—Chris Gibson-Smith, Managing Director, BP,
25 Sept. 19985
“Thirty years from now there will be a huge amount of oil—and no buyers. Oil will be left in
the ground. The Stone Age came to an end, not because we had a lack of stones, and the Oil
Age will come to an end not because we have a lack of oil....[Fuel cell technology] is coming
before the end of the decade and will cut gasoline consumption by almost 100 per cent....On
the supply side it is easy to find oil and produce it, and on the demand side there are so many
new technologies, especially when it comes to automobiles.”
—Sheikh Zaki Yamani,
Oil Minister of Saudi Arabia (1962–86), June 20006
“So why is Sheikh Yamani predicting the end of the Oil Age? Because he believes that some-
thing fundamental has shifted since...[1973]—and, sadly for countries like Saudi Arabia, he is
quite right. Finally, advances in technology are beginning to offer a way for economies...to
diversify their supplies of energy and reduce their demand for petroleum, thus loosening the
grip of oil and the countries that produce it....The only long-term solution...is to reduce the
world’s reliance on oil. Achieving this once seemed pie-in-the-sky. No longer. Hydrogen fuel
cells are at last becoming a viable alternative....One day, these new energy technologies will
toss the OPEC cartel in the dustbin of history. It cannot happen soon enough.”
—“The End of the Oil Age,” editorial,
The Economist, 25 Oct. 2003
“The markets for renewable energy are the fastest growing energy markets in the world today.
***[S]uccessfully promoting renewables over the period to 2030 will prove less expensive than
...‘business as usual’...within any realistic range of real discount rates.***[T]he G8 should give
priority to efforts to trigger a step change in renewable energy markets.”
—G8 Renewable Energy Task Force, July 20017
“We...need to make great strides in transport efficiency....We need to engage the consumer, not 7. Clini & Moody-Stuart 2001,
pp. 5, 15, 9, and 7.
force him or her into public transport. A European Environment minister once asked me how
to get people off their love affair with the motor car. I believe we should not even try and
8. Moody-Stuart 2002.
interfere with that love. It is deeply imbedded, and interfering in other people’s love affairs is
seldom productive. But the love is with personal movement and space and the freedom that it
brings, not the internal combustion engine per se. We have to make eco-efficiency as fashionable 9. Ford, Jr. 2000.
as 4-wheel-drive vehicles. We need to use the powers of social pressure and the attraction of
beautiful engineering. This is not hairshirt stuff—it should be eco-hedonism—taking pleasure 10. Berlin event with
Chancellor Schröder, quoted
from comfort, operating performance as well as eco-efficiency.”
in Autoweb.com.au 2000.
—Sir Mark Moody-Stuart, Chairman,
AngloAmerican, and former Chairman, 11. First part verified but not
Royal Dutch/Shell Group, May 20028 dated or specifically cited
by speaker (personal commu-
nication, 25 January 2004);
“...I believe fuel cells will finally end the 100-year reign of the internal combustion engine....
second part from Burns 2003,
Fuel cells could be the predominant automotive power source in 25 years.” percentage written out.
—William Clay Ford, Jr., Chairman and CEO,
Ford Motor Company, 5 Oct. 20009
“There have already been two oil crises; we are obligated to prevent a third one. The fuel cell offers
a realistic opportunity to supplement the ‘petroleum monoculture’over the long term. All over the
world, the auto industry is working in high gear on the fuel cell. We intend to be the market leader
in this field. Then we will have the technology, the secured patents and the jobs on our side. In
this manner, we will optimize conditions for profitable growth.”
—Jürgen Schrempp, Chairman of the Board of
Management, DaimlerChrysler, Nov. 200010
“General Motors absolutely sees the long-term future of the world being based on a hydrogen econ-
omy.***Forty-five percent of Fortune 50 companies will be affected, impacting almost two trillion
dollars in revenue.”
—Larry Burns, VP R&D and Planning, General Motors
Corporation, undated and 10–11 Feb. 200311
Innovation for Profits, Jobs,
and Security
Amory B. Lovins,
E. Kyle Datta, Odd-Even Bustnes, Jonathan G. Koomey, and Nathan J. Glasgow
with
Jeff Bannon, Lena Hansen, Joshua Haacker, Jamie Fergusson, Joel Swisher PE,
Joanie Henderson, Jason Denner, James Newcomb, Ginny Yang, and Brett Farmery
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Spassky (USSR).It shows the endgame position after 61.Be7-f8,
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Fischer,playing Black (but shown as White in our stylized artwork),
won with a trapped rook and five passed pawns against rook,bishop,and pawn.
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Overview Contents
Detailed Contents . . . . . . . . . . . . . . . . . . iv
Abstract . . . . . . . . . . . . . . . . . . . . . . . . . vii
Executive Summary . . . . . . . . . . . . . . . . ix
Forewords . . . . . . . . . . . . . . . . . . . . . . . xv
George P. Shultz xv
www.oilendgame.com
Sir Mark Moody-Stuart xviii
Frontispiece . . . . . . . . . . . . . . . . . . . . xxiii
Oil Dependence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
This Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Saving Oil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Substituting for Oil . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Combined Conventional Potential . . . . . . . . . . . . . 123
Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
Implications and Conclusions . . . . . . . . . . . . . . . . . 243
Image credits . . . . . . . . . . . . . . . . . . . . 276
Table of figures and tables . . . . . . . . . 277
Acknowledgments . . . . . . . . . . . . . . . . 278
About the publisher and authors . . . . . 282
References . . . . . . . . . . . . . . . . . . . . . . 286
Other RMI publications 307
Detailed Contents
Winning the Oil Endgame: Innovation for Profits, Jobs, and Security
Oil Dependence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Boxes Oil is the lifeblood of modern industrial economies—but not forever 1
Even an important industry can be displaced by competitors 4
America can replace oil quickly—and already has 7
1:An example of domestic
energy vulnerability (p.12) Oil supplies are becoming more concentrated and less secure 8
Domestic oil is limited 12
2:Oil is fungible(p.14)
Counting the direct cost of oil dependence 15
3: The uncounted economic
Oil dependence’s hidden costs may well exceed its direct costs 17
cost of oil-price volatility
(p.16) Petrodollars tend to destabilize 18
Sociopolitical instability drives military costs 19
4: Hedging the risk of oil
Nonmilitary societal costs 21
depletion (p.24)
Adding up the hidden costs 22
Could less oil dependence be not only worthy but also profitable? 26
Beliefs that hold us back 26
Whatever exists is possible 29
This Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5: Conventions (p.39) Structure and methodology 33
Conservatisms and conventions 37
Saving Oil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Option 1. Efficient use of oil 43
Transportation 44
Light vehicles 44
The conventional view 49
6: How do light vehicles
Advanced automotive technologies: lightweight, low-drag, highly integrated 52
use fuel, and how can they
Drag and rolling resistance 52
save fuel? (p.46)
Lightweighting: the emerging revolution 53
7: Superefficient but
Ultralight but ultrastrong 57
uncompromised (p.62)
Applying ultralight materials 61
8: Analyzing an ultralight Lighter-but-safer vehicles dramatically extend cheap oil savings 64
hybrid’s efficiency (p.68) Heavy trucks 73
Medium trucks 77
9: Analyzing and extending
Intelligent highway systems (IHS) 78
ultralight vehicle costs
(p.69) Other civilian highway and off-road vehicles 79
Trains 79
10: Comparing light-vehicle
Ships 79
prices (p.72)
Airplanes 79
11: Saving oil in existing Military vehicles 84
military platforms(p.86)
The fuel logistics burden 84
Military efficiency potential 85
Feedstocks and other nonfuel uses of oil 93
Industrial fuel 97
Buildings 97
Electricity generation 98
Combined efficiency potential 99
iv
Detailed Contents (continued)
Substituting for Oil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Option 2. Substituting biofuels and biomaterials 103
The input side: biomass feedstocks and rural economies 107
Biomaterials 110 Boxes(continued)
Option 3. Substituting saved natural gas 111
Overview 111
12:Replacing one-third of
Saving natural gas 112
remaining non-transportation
Electric utilities 113
oil use with saved natural gas
Buildings 115
(p. 118)
Industrial fuel 115
Substituting saved gas for oil 117
Combined Conventional Potential . . . . . . . . . . . . . . . . . 123
Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
Strategic vision 127
The prize 127
Vaulting the barriers 128
The endangered automotive sector—why it’s important to act now 130
Four competitive threats 132
China and India 135 13:Guilt-free driving:
hybrid cars enter the market
Suppressing the signals 136
(p. 131)
Crafting an effective energy strategy: transformative business innovation 137
14:Opening moves: Boeing’s
The creative destruction dilemma 138
bet on fuel efficiency as the
Business challenges: market, business, and customer realities 139
future for commercial aircraft
Most U.S. light-vehicle buyers scarcely value fuel economy 139
(p. 133)
Most firms underinvest in energy efficiency too 141
The risk of being risk-averse 143 15:Radically simpler
Business opportunities: competitive strategy for profitable transformation in the automaking with advanced
transportation sector 145 composites (p. 147)
Lowering light vehicles’ manufacturing risk 146 16:Flying high:
Manufacturing investment and variable cost 146 fuel savings arbitrage
Market adoption 149 (p. 156)
Restoring profitability in the trucking sector 150
Revitalizing the airline and airplane industries 154
Getting generation-after-next planes off the ground 157
Creating a new high-technology industrial cluster 159
Restoring farming, ranching, and forest economies 162
If we don’t act soon, the invisible hand will become the invisible fist 166
(Implementationcontinued next page)
Winning the Oil Endgame: Innovation for Profits, Jobs, and Security v
Detailed Contents (continued)
Winning the Oil Endgame: Innovation for Profits, Jobs, and Security
(Implementationcontinued from previous page)
Crafting coherent supportive policies 169
Government’s role in implementation 169
Fuel taxes 173
Boxes(continued)
Standards, mandates, and quotas 175
Federal policy recommendations for light vehicles 178
17:Gridlock as Usual Feebates 186
according to Thucycides, Low-income scrap-and-replace program 191
ca. 431–404 BCE(p. 170) Smart government fleet procurement 197
“Golden Carrots” and technology procurement 199
18:Modeling the effects
“Platinum Carrot” advanced-technology contest 201
of policy on light vehicle
sales and stocks (p. 182) Supporting automotive retooling and retraining 203
R&D and early military procurement 204
19:How feebates work
Automotive efficiency and safety regulation: first, do no harm 206
(p. 186)
Other federal policy recommendations 208
20:More antidotes to Supporting investment in domestic energy supply infrastructure 208
regressivity (p. 196) Heavy-vehicle policy 211
21:Golden Carrots: theme Aircraft policy 212
and variations (p. 200) Other transportation policy 212
Shifting taxation from fuel to roads and driving 212
22:Realigning auto-safety
Integrating transportation systems 214
policy with modern
Is this trip necessary (and desired)? 214
engineering (p. 207)
Non-transportation federal policy 215
23:Pay-at-the-Pump
States: incubators and accelerators 216
car insurance (p. 218)
Transportation 216
Electricity and natural-gas pricing 219
Renewable energy 220
Military policy: fuel efficiency for mission effectiveness 221
Civil preparedness: evolving toward resilience 222
Civil society: the sum of all choices 223
Beyond gridlock: changing politics 225
Option 4. Substituting hydrogen 227
Beyond mobilization to a basic shift in primary energy supply 227
Hydrogen: practical after all 230
Eight basic questions 233
Why is hydrogen important, and is it safe? 233
How would a light vehicle safely and affordably store enough hydrogen
to drive 300+ miles? 233
Under what conditions is hydrogen a cheaper light-vehicle fuel than oil? 234
What’s the cheapest way to produce and deliver hydrogen to meet the economic
conditions required for adoption? 236
Are there enough primary energy sources for this transition? 238
What technologies are required to enable the hydrogen transition? 241
How can the U.S. profitably make the transition from oil to hydrogen? 241
When could this transition occur? 242
vi
Detailed Contents (continued)
Implications and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . 243
Implications 243
Employment 243
Allies and trading partners 244
Developing countries 245
Boxes(continued)
Leapfrog development 245
Climate change and development 246
The global economy, oil savings, and development 247 24:Shell’s visionary energy
Oil-exporting countries 248 futures(p. 252)
The creative destruction challenge for oil companies 250 25:What about nuclear power?
Other energy industries 257 (p. 258)
U.S. military force structure, posture, and doctrine 261
Toward a new strategic doctrine 262
U.S. federal budget 265
Environment, public health, and quality of life 268
Conclusions 271
Abstract:
This independent, peer-reviewed synthesis for American business and military leaders charts a roadmap for getting the
United States completely, attractively, and profitably off oil. Our strategy integrates four technological ways to displace oil:
using oil twice as efficiently, then substituting biofuels, saved natural gas, and, optionally, hydrogen. Fully applying today’s
best efficiency technologies in a doubled-GDP 2025 economy would save half the projected U.S. oil use at half its forecast
cost per barrel. Non-oil substitutes for the remaining consumption would also cost less than oil. These comparisons con-
servatively assign zero value to avoiding oil’s many “externalized” costs, including the costs incurred by military insecurity,
rivalry with developing countries, pollution, and depletion. The vehicle improvements and other savings required needn’t be
as fast as those achieved after the 1979 oil shock.
The route we suggest for the transition beyond oil will expand customer choice and wealth, and will be led by business for
profit. We propose novel public policies to accelerate this transition that are market-oriented without taxes and innovation-
driven without mandates. A $180-billion investment over the next decade will yield $130-billion annualsavings by 2025;
revitalize the automotive, truck, aviation, and hydrocarbon industries; create a million jobs in both industrial and rural
areas; rebalance trade; make the United States more secure, prosperous, equitable, and environmentally healthy;
encourage other countries to get off oil too; and make the world more developed, fair, and peaceful.
Winning the Oil Endgame: Innovation for Profits, Jobs, and Security vii