Fri Apr 28th, 2006 at 04:46:12 PM EST
(I should caveat these comments by stating I am a novice in the subject of oil, much of my knowledge coming from Jerome's many articles. But I follow investing, and thought the intersection of these two topics might be interesting to the peak oil dialogue at ET.)
I was watching an investment cable show and heard the prediction that E85 (ethanol) will win out in the alternate fuel race in the US--that surprised me. The industry analyst (sorry, missed his name) said that there are currently 5 million vehicles in the US with "flex fuel" capability. From the Alternate Fuel Vehicle Institute,
E85 is an alternative fuel blend of 85% ethanol and 15% gasoline. E85 can only be used in so-called flex fuel vehicles (FFVs), which can run either E85, gasoline, or any blend of the two fuels. Drivers may fill the tank with whatever fuel is available.
The analyst predicted that E85 will dominate, followed by hybrids and then diesels. He says diesel suffers from Americans still having an image of diesels as stinky (a technical term I guess), not environmentally friendly, and slow.
Thanks to Jerome, we have been very aware of these issues. The investment community has been awakening to these issues for a while now, and while almost everyone is aware of the peak oil debate today, it seems to me that only now are the implications of this hitting the more "mainstream investment" news media. The implications for the auto industry, and also for fuel delivery channels (gas stations and the supporting logistics channels) are of course enormous. Automakers face chaos of choice in alternative fuels
With rising gas prices, more customers will turn to other types of fuel, experts predict
The OEMs (Original Equipment Manufacturers) are after a single bullet -- a one-size-fits-all powertrain solution," said Chris Cowland, technical director of AVL Powertrain Engineering Inc. The company helps carmakers design new engines. "But in reality that's not going to happen."
The panel, composed of engine experts from AVL, Honda and BMW, and fuel experts from Shell and the U.S. Environmental Protection Agency, said the future of the automobile will involve gasoline, hybrid, diesel and ethanol, one panel of engineers concluded. That will happen within two to five years. After that, chaos will reign in the world's fuel markets, they predicted.
"We're going through a paradigm shift," said Jeff Alson, a senior policy analyst with the EPA's air quality office. "In a $60 (a barrel) oil world, I think you'll see a lot more fuels become competitive. And there will be an array of powertrains available."
The future "gas" station might even sell hydrogen, eventually. But, the experts decided, by 2015 North American fuel stations will probably offer as many different kinds and grades of fuel as an upscale deli does olive oil.
The high price of future oil and the lack of a clear alternative is going to force automakers to build a variety of powertrains so consumers can decide for themselves what they can afford.
You may recall that we had a diary here, can't recall who wrote it, 6 or 7 months ago that pointed out a number of venture capital backed startups that were investing in the alternative fuel area. I haven't seen any data on this yet, but with investors becoming more and more convinced that the price of oil might actually stabilize at $60/barrell (likely eventually Jerome's $100), this of course means that higher cost alternative fuels, and all of the infrastructure required to support them, may now be justified. That will (maybe has) open the floodgates of investment dollars coming into this area. Imagine the somewhat boring area of retail gasoline (gas stations) turning to look anything like Starbucks (forgive the hyperbole). But the opportunity for dramatic shifts in automotive market shares, for new logistic channels. It looks like the investment side of alternate approaches may be starting to happen. At the same time, if the unlikely event happened of the price of oil falling back into the $30--40/barrel, this could quell that investment enthusiasm significantly, and lead to big losses for those that moved ahead--I'm definitely not predicting that, just giving some flavor to the thinking of "early stage" investors.