Entries from June 2008 ↓

Here it is, plainly spoken:

I saw an article the other day that set off my peeve alarm when it discussed a plugin hybrid that got 100 MPG.  Now most everyone knows that MPG is Miles Per Gallon.  That means that for every gallon, you get 100 miles.  But since this is a plugin hybrid, many of those 100 miles are coming from the battery being charged from the grid, not the gallon – so its just not fair to count those miles in a MPG rating.  There are some ways to count kwH as gas equivalents – but no attempt was made to do this.  Again, the key point is that in a regular hybrid, the only energy input is the gas.  So MPG = MPG.  But with a plugin there is another energy source, so you can’t calculate a simple MPG from Miles traveled per gallons used.  Put another way, if I carried around a gallon of gas in an all electric vehicle – would that count as an infinite MPG car?

This article in the NY Times has several passages that I think illustrate why there are at least two phenomena that could be leading to a delayed impact of the current high oil prices.

First – There is an issue of the latency in large production quantities of both raw materials and finished goods.  Dow Chemical may make a batch resin, that then is made into luggage.  Each of these is made in relatively large production runs, then may be bought in large shipments.  Each of these steps adds a certain amount of time buffer.  Here is a quote from the above article

Costco’s profit was up in the first quarter, but James D. Sinegal, the chief executive, says he is “starting to be confronted with unprecedented price increases” for the merchandise that Costco buys to stock its stores. His first response has been to buy in extra large quantities so that he has stock on hand to carry him through subsequent price increases.

“We just made a big purchase of Tumi luggage,” Mr. Sinegal said.

So the 138 barrel oil prices are just making their way into some of the raw chemical materials now, they may take months before these higher prices reach the inventory of the luggage maker, and it may be months more before Costco has to buy another big shipment of the now much more expensive luggage.  We may watch oil prices hour by hour, or day by day – but the impact many highly processed complex products can lag quite a bit.

Second and perhaps a bigger issue is that companies, under the general impression that oil prices will be going back down, and in a highly competitive retail market, have decided to not pass on many of the energy cost increases, but instead have taken the hit in their own profits.  As profits were high at the start of the recent run up in oil prices, they could afford to be a buffer – but as oil prices stay high, and profits continue to shrink, they will have to pass on these higher energy costs.

Since last spring, the average profits of the nation’s corporations — from behemoths like Goodyear to small neighborhood retailers — have declined at an annual rate of nearly 6 percent, government data show.

If this rate continues, companies will HAVE to pass on the higher costs to maintain any profit, and then inflation, which has been hidden by this buffering has the potential to slam hard – on top of continued job cuts and decreased corporate profits (read stock prices), and the housing decline etc etc.  I guess you could label me a bear.

Wow – it doesn’t get much dumber than this article on CNN.  I know its risky to be on any side that is saying “This time its different”, as nearly everything is cyclical.  But cyclical and exponential trends can’t mix forever.  What people continue to not understand is that the problems of Peak Oil are not about remaining quantities remaining (either conventional or unconventional).  It is a problem of production (rate) and the quality of that production (light sweet vs heavy sour).

This clone of Apple’s keynote presentation program in the form of an amazing javascript website is darn impressive.