Glen Hiemstra Quarterly Forecast Q3 2008: This is not a drill
By Glen Hiemstra, July 23, 2008
Everyone has seen on film or TV, and a few have personally experienced the following: an emergency begins – a fire, an air raid, a ship collision. For a while there is confusion, and people mill around, not sure what is happening. Then, a voice comes over a PA system: “THIS IS NOT A DRILL. REPEAT, THIS IS NOT A DRILL.â€
That was the simple point I attempted to make in early July 2008 in a keynote for the Mississippi Valley Conference of state highway and transportation officials meeting in Kansas City. I was referring to our energy, transportation, and economic situation.
For a least a couple of decades, experts have been warning that a time would come when oil production would peak, prices would increase, climate change would challenge us, and putting all of that together we would come to end of the first automobile era. In fact, I predicted just that in a keynote speech in 1987, in Sun Valley, Idaho.
Now, it appears that we have arrived at the confluence of these forces. Many people in this audience, and any audience for that matter, hold out hope that the current situation is temporary, a mere blip in normal business and oil price cycles, and that before long we’ll be back, perhaps all the way to 1999 when the price of oil was $10 a barrel, and home values will be rising again.
But, this is not a drill. China, India, Russia, Saudi Arabia and the rest of the world are using more and more oil products, and buying more cars. Here in the U.S. we are our own worst enemies when it comes to consumption. Seemingly without much thought we’ve grown typical houses from an average of 980 square feet for 3.4 people, to 5000-8000 square feet for 2.6 people. Our vehicles have ballooned in size until bus-sized SUV’s and Hummers lumber down the road.
Now, a variety of factors will push us to re-think energy, housing and transportation policy.
• The millennial generation will not stand for an approach to the future which merely attempts to repeat the past.
• Climate change impacts are hitting us sooner than previously expected, including a rapid increase in the number of major floods, and fires, world wide.
• The economy in the near term is staggering under the weight of the financial crisis. (Note: the week of July 7-11, 2008 really brought this fact home, as the stock market went from the worst month of June since the great depression, to its lowest level in years, while oil reached another all-time high price.)
• Oil prices are high now primarily because there is no slack in the system. The world produces, and uses, about 85-86 million barrels a day, while a cushion of 8-10% would be required to reduce supply & demand pressures. Oil exports are flat as producing nations use more of their own product.
• Housing is not coming back for a very long time if it ever does return to the recently inflated levels. This is another generational shift – as many as 20 million very large homes will be surplus by the mid-2020’s, too large, too remote, and too expensive to attract buyers.
The Future of Oil
The scenarios promoted by oil industry leaders for increasing oil production in the US and abroad are overly optimistic…The highly touted “hugeâ€ fields of the future are for the most part either unproven, or small by historical standards. Most will amount to a few months of global consumption.
For example, consider some possibilities, keeping in mind that the U.S. uses about 20-21 million barrels of oil a day:
• The Bakken shale area of the Dakotas and Montana: 23 days of oil for U.S.
• Arctic Wildlife Refuge – 1.5 years of U.S. demand
• Alberta tar sands – anticipated maximum daily production yields 3 hours a day of U.S. needs, a few minutes of global demand.
• Opening the off-shore Continental shelf – 2.5 years of U.S. demand, but not beginning until 7-10 years from now.
Prediction: Oil will fluctuate between $120 and $150 for the summer months (‘08) and then fall back toward $110 or a bit lower as demand moderates in response to high prices. Then will see a climb to $200, where oil will settle by year’s end.
*Note: On December 21, 2007 when oil was in the $90 range, we predicted a price of $140-150 by mid-year (See Outlook 2008 on our web site).â€
The Future of Housing
Prediction: Contrary to the majority view among financial advisors and real estate agents; the crisis in housing is likely to continue until 2012 at least. This means three more years of above average foreclosure rates which will contribute to the oversupply of housing.
The supply/demand equation combined with the high cost of energy has accelerated the small house movement. This will lead to rezoning of neighborhoods with large homes to allow multi-family dwellings.
Note: Recent efforts by the federal government to stabilize the residential housing market will be neutralized by tighter lending standards. But is primarily the general economic stress of a financial system that was out of control that will prevent an early come back.
The Future of Transportation
Prediction: The next 15 years will see a transition in automobiles far faster than imagined today. The vehicle future includes:
Plug-in hybrids: This is the strategy behind the GM “Voltâ€. While current hybrid vehicles use an electric motor to supplement a gasoline engine, in a plug-in hybrid the concept is reversed. A small gasoline motor is used solely to run a generator to recharge batteries when needed, while the drive train is all-electric. GM is working with two different companies on next generation batteries aiming for high power, fast charging and long life cycle performance that will tip the scale toward an electric future. The question for GM is whether they can survive long enough to implement this new technology. Other companies, Toyota included, intend to introduce similar plug-in hybrids in the next two years.
Fuel-Cell Electrics: A decade ago it was assumed by many experts that next generation vehicles would mostly be all-electric vehicles powered by hydrogen-based fuel cells. It is an elegant idea – a car so clean it emits only water from the tail pipe. An even greater advantage is that a fuel cell car is, potentially, a mobile private power station. Since a car is typically driven an hour or two a day, the rest of time a fuel cell car could generate enough electricity to power most needs of a typical home. The problem is of course is that while hydrogen is abundant, it must be separated from other substances, ideally water, and then transported and stored. All of this is complex and expensive. Because of these problems most experts today have reversed course, and do not consider hydrogen fuel cells to be a significant part of the vehicle future. However, both Mercedes and Honda continue to place bets on a hydrogen future, and the state of California continues to work toward a hydrogen infrastructure.
Plug-in All Electric: This is the dominant play, I believe, and the one with the most critical implications for the lubricant industry. A plug-in electric is a simple solution. All you need is an electric motor (or four of them, one for each wheel), and a battery pack capable of the same high power, and fast charging time as needed in a plug-in hybrid. You also need the battery to be capable of longer life for longer distances. The Tesla is a proof of concept car that can travel upwards of 200 miles on a charge. AltairNano, A123 Systems, and other “nano-batteryâ€ developers aim for life-cycles of 15000 charges, such that a battery would outlive a car. Charge times are on the order of 10 minutes with high voltage systems that could be standard at filling stations. The nation of Israel may be the first to go all-electric with a service station strategy of swappable batteries: drive in, replace your battery module, and drive out. Mercedes includes a plug-in electric in a reported plan to phase out gasoline and diesel vehicles by 2015.
You can view a copy of the PowerPoint slides that I used in my recent keynote from which part of this quarterly report was drawn, here.
Glen Hiemstra is a futurist speaker, author, consultant, blogger, internet video host and Founder of Futurist.com. To arrange for a speech contact Futurist.com.