Why is Strait of Hormuz the World's Most Important Oil Artery

6 hours ago, Wastral said:

Pipelines already exist for both SA and UAE...

Now are they big enough for 100%?  No.  ~5Mbbl SA and 1.5Mbbl for UAE

These pipelines were built long ago at the time of the Iran-Iraq war

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1 hour ago, ceo_energemsier said:

These pipelines were built long ago at the time of the Iran-Iraq war

SA Yes, UAE, wasn't that in the last decade?  Not that it matters other than they exist. 

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5 hours ago, Wallace907 said:

Just because governments can release strategic reserves does not mean prices will go down-but perhaps they would keep them from going any higher. The man who predicted over $300/bbl is one of the worlds biggest traders, but he did not mention for how long in his projection. Having said all that, I would tend to agree that a spike of that magnitude would be somewhat short lived. Although, traditional deep-water and on-shore drilling takes quite a while for investment to pay-off, years even.  Conventional shale production can quickly complete wells already drilled and make more quickly, but we've seen bottlenecks in midstream that would surely limit the take-away capacity. 

I also believe that oil has shown to be quite resilient and an inelastic product. We've been producing higher efficient vehicles and finding alternative fuel sources with increasing intensity, yet our consumption continues to grow. Add to that the growing economies around the world and the prospect of lower demand seems scarce.  

I do think saudi arabia could manage to build pipelines quicker than we could, however that may be limited to outbreaks of sabotage and war in the region. China has shown to be able to quickly change policy and build infrastructure at a breakneck pace. But, their economy is one that continues to thirst for more energy. Russia also benefits from government controlled entities, yet they do not have the burdens of a fast growing economy.

To the world's largest energy producers and consumers, Venezuela has a worrisome amount of proven reserves. I think this is why we have a triad of nations vying for influence. I also think the trump administration has set the table for US energy expansion and independence, perhaps in order to prepare for disruptions in oil imports.

I agree that some devastating confrontations are about to go down. I think oil could stabilize but still be over $100/bbl throughout the next decade. Electric cars and LNG are getting some major investment, but scaling it up has shown to come at great cost--further limiting its impact of oil demand. At the end of the day, I think developed countries are prepared to evolve from ICE and growing economies will suffer the greatest. The rich get richer and the poor get poorer from inelastic demand for crude.

Oil has shown to be quite resilient and an inelastic product at moderate prices.  I included charts of demand destruction during past oil crises to show what can be done when the world's collective attention is focused on the issue. 

Likewise, there have been supply bottlenecks at moderate prices.  At $100/bbl, we'd see projects being expedited.  At $150/bbl, we'd see a worldwide, all-hands-on-deck, money-is-no-object effort.  At those prices, we'd make oil elastic. 

People doubt what markets are capable of given the right incentives.  Consider that during World War II, the already large American productive output doubled every year from 1941 to 1945.  That wasn't a single industry; they doubled the entire economy.  Every year.  With millions of able-bodied workers off to war.  If we were serious about destroying oil demand, we could.  We're just not trying. 

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3 hours ago, Wastral said:

SA Yes, UAE, wasn't that in the last decade?  Not that it matters other than they exist. 

Yes, was referring to the Saudi pipelines, the UAE ones are much more recent

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30 minutes ago, BenFranklin'sSpectacles said:

If we were serious about destroying oil demand, we could.  We're just not trying. 

Very true. To demonstrate, I set forth that the fastest way to destroy oil demand is to build private cars to run on compressed air. 

To explain, think of compressed air as being the little brother of steam.  Where the power reserves in a steam locomotive are in the boiler, the air system uses tanks with cold compressed air.  The air is fed to a piston motor that is coupled to the driveshaft(s).  You have this conventional throttle pedal to regulated the air flow to the air piston motor.  Simple enough.  As a practical matter, you could pull out the gasoline engine out of any used car out there and drop in a compressed air motor and tanks, it would be a direct replacement. 

Can you conserve the stored potential energy of a car at the top of the grade, and salvage it for regenerative use?  Of course you can.  And you can do it either with compressed air, or with a hydraulic accumulator. A hydraulic accumulator system would tend to be heavy, but you can store vast amounts of energy very rapidly inside an accumulator, then release it whenever you want, those hydraulic motors have tremendous torque, great for hill-climbing.  Now the big advantage of either system, hydraulic or air, is that the re-charge is so fast.  You have no battery inrush currents to worry about, no batteries to build, no fire hazard - none of it.  Great simple (and cheap) system. 

Has compressed air ever been used in transportation?  Sure it has.  Alexander Graham Bell built a water-ski boat using compressed air tanks so he could run around silently, and no gasoline to spill, on a lake in Nova Scotia - and that was a hundred years ago. 

Here's a steam locomotive converted to run only on compressed air, a hundred years ago. Lots and lots of torque in this beast:

image.png.2fcf70faa84a748e62cf89dd54abb39f.png

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3 hours ago, Jan van Eck said:

Very true. To demonstrate, I set forth that the fastest way to destroy oil demand is to build private cars to run on compressed air. 

To explain, think of compressed air as being the little brother of steam.  Where the power reserves in a steam locomotive are in the boiler, the air system uses tanks with cold compressed air.  The air is fed to a piston motor that is coupled to the driveshaft(s).  You have this conventional throttle pedal to regulated the air flow to the air piston motor.  Simple enough.  As a practical matter, you could pull out the gasoline engine out of any used car out there and drop in a compressed air motor and tanks, it would be a direct replacement. 

Can you conserve the stored potential energy of a car at the top of the grade, and salvage it for regenerative use?  Of course you can.  And you can do it either with compressed air, or with a hydraulic accumulator. A hydraulic accumulator system would tend to be heavy, but you can store vast amounts of energy very rapidly inside an accumulator, then release it whenever you want, those hydraulic motors have tremendous torque, great for hill-climbing.  Now the big advantage of either system, hydraulic or air, is that the re-charge is so fast.  You have no battery inrush currents to worry about, no batteries to build, no fire hazard - none of it.  Great simple (and cheap) system. 

Has compressed air ever been used in transportation?  Sure it has.  Alexander Graham Bell built a water-ski boat using compressed air tanks so he could run around silently, and no gasoline to spill, on a lake in Nova Scotia - and that was a hundred years ago. 

Here's a steam locomotive converted to run only on compressed air, a hundred years ago. Lots and lots of torque in this beast:

image.png.2fcf70faa84a748e62cf89dd54abb39f.png

In warm weather decompression would give you free "air conditioning" too. Water condensation on and/or in cold parts could be an issue.

"Refueling" would also release a bunch of, possibly unwanted, heat.

There is a massive explosion hazard - highly compressed gas has a lot of energy -  which is why when you pressure test something you fill most of the void with a non-compressible fluid. 

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3 hours ago, Jan van Eck said:

 compressed air.

It's also a great energy storage device and transportation device for renewable energy. :)

Even at very high voltages with excellent conductors electricity transmission wastes massive amounts of energy.  Compressed gas can be transmitted long distances to a remote turbine generator and the large volume pipeline acts as a natural buffer to demand. With sufficient refinement you could put a micro-turbine in every large building.

You could also use traditional (mechanical) windmills to drive pumps and skip electricity generation at the power source entirely.

 

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1 minute ago, Enthalpic said:

you could put a micro-turbine in every large building.

All true.  Personally I would choose an air-piston motor, but hey,  Canadians always do things differently  :D

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Various Asian buyers of Middle Eastern crude oil expressed some concerns over the safe passage of their term cargoes following the recent sabotage attack on Saudi oil tankers, prompting several refiners to consider lifting Persian Gulf barrels in smaller vessels as a means of reducing supply disruption risk.

Saudi Aramco’s term crude oil customers in South Korea, China, Thailand and Japan have adopted additional precautionary measures in lifting and bringing in their May-loading term cargoes, refinery sources told S&P Global Platts.

“We have been making numerous calls to the ships’ captains and all relevant logistics management personnel to ensure the safety of the crew, and we are still discussing the most safe and efficient passage options for the cargoes,” an official at South Korea’s biggest refiner SK Innovation said.

Saudi Arabia’s oil minister Khalid Al Falih said two of the kingdom’s oil tankers faced a “sabotage attack” off the coast of Fujairah, UAE, on Sunday, the Saudi Press Agency reported Monday.

The tankers were on their way to cross the Arabian Gulf, with one of them scheduled to load Saudi crude from the port of Ras Tanura for delivery to Saudi Aramco’s customers in the US, SPA said, citing Falih.

According to a survey of major refiners in Asia conducted by S&P Global Platts, at least five companies in South Korea, China, Japan and Southeast Asia said they may consider lifting some Saudi or other Middle Eastern crude and condensate in smaller vessels in the event of additional hostilities on oil tankers in the region.

China’s Sinopec may possibly consider lifting some of its term Middle Eastern crude barrels in smaller vessels, rather than using entirely VLCCs, if such incidents occur frequently, a source at the state-run refiner told Platts.

“Two reasons really, smaller vessels can travel faster and would probably draw less attention from any hostile forces,” a feedstock procurement manager at a Southeast Asian refiner said.

“Two Suezmax tankers, rather than a VLCC … this will be a lot more expensive obviously, so it’s not the best option to take but it’s still one of the options,” a trading source at Hanwha Total Petrochemical said.

Tensions have risen in the Middle East since the US waivers ended on Iran’s shipments of crude. The US has reasserted its commitment to safeguard shipping in the region in response to Iranian threats to disrupt the Strait of Hormuz, the world’s largest crude oil shipping chokepoint.

Some 30% of all maritime oil trade moves through the Hormuz, according to the US Energy Information Administration.

DUBAI MARKET STRUCTURE
The Dubai crude market structure could extend the upward momentum as the latest trade route disruption in Persian Gulf waters could further tighten medium sour crude and condensate supply for Asian consumers, market participants said.

Sentiment for Middle East sour crude cargoes has been riding the bullish momentum over the past several weeks amid sharply reduced Venezuelan crude exports.

In addition, the US announced in late April that it was not extending waivers on Iranian sanctions, effectively barring Asian end-users, the largest buyers of Iranian crude and condensate, from any Iranian oil purchases.

The Dubai cash to swap spread, an indicator of sentiment in the Middle East sour crude market, was assessed at $2.48/b Friday, up 20 cents/b on the day.

This was the highest the spread has been since November 27, 2013, when it was at $2.56/b.

Similarly, the Oman spread to Dubai swap rose 11 cents/b on the day to be assessed at $3.14/b Friday, the highest since September 18, 2013, when it was at $3.19/b.

Despite Asia’s growing appetite for US and African crude amid ongoing efforts to diversify crude supply sources amid OPEC production cuts, Middle East producers remain the biggest refinery feedstock supplier to East Asia.

South Korea imported 202.12 million barrels of crude from the Middle East in Q1, which accounted for 72.5% of its total imports of 278.69 million barrels, according to latest data from state-run Korea National Oil Corp.

“We are much concerned about the situation around the Strait of Hormuz. The area is a vital oil shipping route because South Korean refiners still depend heavily on Middle East crude,” an official at another South Korean refiner said. “We are very closely watching the situation, and we hope there would be no problems in loading [South Korean] cargoes out there.”

Japan received 1.273 million b/d of crude from Saudi Arabia in March, accounting for nearly 40% of the Asian buyer’s total oil imports for the month, latest data from the Ministry of Economy, Trade and Industry showed.

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On 5/18/2019 at 3:03 PM, BenFranklin'sSpectacles said:

Oil has shown to be quite resilient and an inelastic product at moderate prices.  I included charts of demand destruction during past oil crises to show what can be done when the world's collective attention is focused on the issue. 

Likewise, there have been supply bottlenecks at moderate prices.  At $100/bbl, we'd see projects being expedited.  At $150/bbl, we'd see a worldwide, all-hands-on-deck, money-is-no-object effort.  At those prices, we'd make oil elastic. 

People doubt what markets are capable of given the right incentives.  Consider that during World War II, the already large American productive output doubled every year from 1941 to 1945.  That wasn't a single industry; they doubled the entire economy.  Every year.  With millions of able-bodied workers off to war.  If we were serious about destroying oil demand, we could.  We're just not trying. 

I wholeheartedly agree with the crux of your argument. I will say that after considering and adjusting for inflation, I feel that $100/bbl is fairly moderate and $150 is at the upper limit of moderate. If oil were to spike 3-5 fold(upwards of $300) as it did during the oil crisis of the 70's, then sure, all sorts of projects would be funded & expedited. That said, I couldn't imagine us being able to build pipelines and deep ports overnight in any scenario due to a host of shortages.

In '73, at the height of the energy crisis, it took 3 years to build the Alyeska pipeline with all hands on deck--with money not an object. Demand destruction is an idea that has been thrown around for quite some time, and yet alternative sources keep getting pushed down. You're absolutely right that we could influence oil demand, but the present infrastructure and oil economy is a very powerful and gainful enterprise throughout the world. I don't think this economy would mind testing those limits yet again. With our takeaway capacity in the permian basin alone looking to gain another 2mm bbls/d, it appears we will be somewhat willing to embrace a far-reaching supply disruption IMHO.  

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On 5/20/2019 at 4:41 AM, Wallace907 said:

I wholeheartedly agree with the crux of your argument. I will say that after considering and adjusting for inflation, I feel that $100/bbl is fairly moderate and $150 is at the upper limit of moderate. If oil were to spike 3-5 fold(upwards of $300) as it did during the oil crisis of the 70's, then sure, all sorts of projects would be funded & expedited. That said, I couldn't imagine us being able to build pipelines and deep ports overnight in any scenario due to a host of shortages.

In '73, at the height of the energy crisis, it took 3 years to build the Alyeska pipeline with all hands on deck--with money not an object. Demand destruction is an idea that has been thrown around for quite some time, and yet alternative sources keep getting pushed down. You're absolutely right that we could influence oil demand, but the present infrastructure and oil economy is a very powerful and gainful enterprise throughout the world. I don't think this economy would mind testing those limits yet again. With our takeaway capacity in the permian basin alone looking to gain another 2mm bbls/d, it appears we will be somewhat willing to embrace a far-reaching supply disruption IMHO.   

I'd agree with you if oil pipelines and ports were our only options.  They're not:

1)  The short-term spike would be tempered by release of strategic reserves & other government actions.  Politicians around the world would act to squelch prices lest they incur the wrath of their constituents.  This government action would keep prices reasonable until supply balanced demand. 
2)  "Demand Destruction" can be as simple as changing consumer behavior.  That requires no investment and has no lead time.  E.g. Americans could cut 5-10% of their gasoline consumption by simply not driving like jackasses.  If some of them also properly maintained their vehicles, carpooled, consolidated trips, took fewer road trips, drove 5mph under the speed limit, and cut back on non-essential driving, fuel consumption would drop further.  Likewise, truckers have already proven they can save 5-10% just by slowing down.  With fuel north of $5/gallon, this is exactly what they would do. 
3)  $150/bbl oil would trigger a flood of new vehicle purchases, alternative fuel conversions, and other upgrades.  Suddenly, the cost of financing new equipment would be lower than the cost of fueling old equipment - even for light duty vehicles.  With economies faltering, federal reserve banks around the world would slash interest rates, further encouraging investment.  Some purchases would simply be newer, more efficient, conventional vehicles.  These would save anywhere from 10% to 50% of fuel costs, depending on what was replaced.  Some would be hybrids, saving even more.  Some would be full electric or natural gas, eliminating oil consumption entirely.  Americans, in particular, would rediscover small, efficient vehicles.  The limiting factor would be the world's manufacturing capacity, which can replace more than 10% of the world fleet annually.  At the right price, factories would run 24/7, and mechanics would work overtime installing conversions/upgrades.  The technology has already been developed, the factories already exist, and commercial fleets already have operational experience.  Demand destruction would begin its inexorable march within weeks. 
4)  Some markets have immediately available substitutes.  E.g. civil engineers would specify concrete in lieu of asphalt.  The concrete infrastructure already exists, so there would be no lead time.  Some trucking would shift to trains, which consume far less fuel. 
5)  Developing economies would immediately suffer.  Oil is inelastic in the West because we can afford it. - our whining notwithstanding.  Developing nations cannot afford it; it's too large a fraction of their income.  Thus, oil consumption in developing nations would decline alongside their economies. 
6)  Maritime oil consumption would automatically decrease as trade slowed.  Even as shipped tonnage decreased, fuel consumption per ton-mile would improve as the oldest, least-efficient ships were scrapped and ships decreased speed.  As this was happening, LNG new builds and LNG conversions would be expedited.
7)  Where pipeline bottlenecks exist, trains would be used more extensively to transport oil.  The $10-20/bbl cost of transporting oil by train is bearable when oil sells for $150/bbl.  The fleet of oil cars would run at max capacity, and new cars would be constructed. 

You get the picture.  Politicians would react immediately, consumer behavior would adjust within weeks,  world economies would shift within a few months, investment-driven demand destruction would be apparent within a year, and large-scale projects enter the market thereafter.  There would be a brief price spike followed by an inexorable march back to the reasonable range. 

In the first oil crisis, the world was taken by surprise and had few tools at its disposal.  Thus, $300/bbl oil.  After five decades of fighting OPEC, the world is prepared.  I would be surprised if oil exceeded $150/bbl long enough to matter.  I'd be even more surprised if it stayed above $100/bbl for more than 3 years. 

Another important question is, "Does OPEC want a price spike?"  In the 1970's, OPEC was under the impression that the world needed them at any price.  The world disabused them of that notion.  After that, OPEC dabbled in price spikes, but neither as high nor for as long.  If they were greedy, the world would destroy demand with long-term capital investments.  Unfortunately, they miscalculated.  Cheap shale oil, natural gas, and electrification have now eliminated their leverage.  OPEC doesn't dare send prices over $100/bbl because the demand destruction would be immediate and, once gone, their market share would never return.  Their leverage is gone; they cannot win.  Iran will talk about closing the strait of Hormuz, but they won't do it.  It would be a temporary inconvenience for the world and a death sentence for them. 

The West, on the other hand, might actually want a price spike.  Not too high though; just enough to trigger investment.  Lawyers and bankers - who I assume are the de facto leaders of the Western world - make money on capital investment.  They'd also be interested in ridding themselves of OPEC and obtaining greater leverage over China.  That's why it doesn't surprise me to see the US gutting OPEC countries one-by-one.  At the moment, a massive Middle Eastern war that shut down the Strait of Hormuz would be painful.  Survivable, but painful.  Within a few years, whoever is running this show will have tweaked oil markets such that a massive, Middle Eastern war would produce a beneficial spike: high enough to trigger demand destruction, but low enough to avoid political unrest.  They could then reap profits selling weapons to the combatants, return OPEC's wealth to developed nations, and let OPEC's oil production decline to irrelevance as The West and Russia capture that market share.  In the end, the Middle East will be returned to the irrelevance from whence it came.

And good riddance.  The world would be better without a volatile, violent, medieval entity like OPEC. 

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(edited)

On 5/18/2019 at 7:47 PM, Enthalpic said:

It's also a great energy storage device and transportation device for renewable energy. :)

Even at very high voltages with excellent conductors electricity transmission wastes massive amounts of energy.  Compressed gas can be transmitted long distances to a remote turbine generator and the large volume pipeline acts as a natural buffer to demand. With sufficient refinement you could put a micro-turbine in every large building.

You could also use traditional (mechanical) windmills to drive pumps and skip electricity generation at the power source entirely.

Compressed gas isn't widely used for two reasons:
1) Low volumetric density
2) Low efficiency due to the heat generated and subsequently lost. 
Compressed air consumes the most energy of all options.  Because of this, it only makes sense when electricity prices are much lower than alternatives.

As for using purely mechanical systems in mines & factories... I don't know where to begin with that.  I try to give people the benefit of the doubt by saying, "You're not wrong", but this is completely wrong.  To understand why, I'd review the history of electricity, starting with the problems electrification solved in factories. 

Edited by BenFranklin'sSpectacles
Phrasing. No change to meaning.

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1 hour ago, BenFranklin'sSpectacles said:

 

As for using purely mechanical systems in mines & factories... I don't know where to begin with that.  I try to give people the benefit of the doubt by saying, "You're not wrong", but this is completely wrong.  To understand why, I'd start by learning the history of electricity, starting with the problems electrification solved in factories. 

I didn't say anything about a mine or factory, I said run a pump.

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6 minutes ago, Enthalpic said:

I didn't say anything about a mine or factory, I said run a pump. 

What else are you going to run a pump for?  Or are you restricting yourself to an insignificant fraction of energy consumption, rendering your point moot to begin with? 

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21 minutes ago, BenFranklin'sSpectacles said:

What else are you going to run a pump for?  Or are you restricting yourself to an insignificant fraction of energy consumption, rendering your point moot to begin with? 

Moving (distribution, irrigation, sewage lift stations, pumped hydro storage, etc.) or purifying water (reverse osmosis).  I'll admit it was mostly theoretical and probably is a small fraction of energy consumption.

There has to be some cases where we are doing needless energy conversions (mechanical, to electrical, then back to mechanical) with the associated losses in useful energy. 

Most forms of wave energy are based off simple pumps.

Edited by Enthalpic

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2 hours ago, Enthalpic said:

Moving (distribution, irrigation, sewage lift stations, pumped hydro storage, etc.) or purifying water (reverse osmosis).  I'll admit it was mostly theoretical and probably is a small fraction of energy consumption.

There has to be some cases where we are doing needless energy conversions (mechanical, to electrical, then back to mechanical) with the associated losses in useful energy.  

Nope.  Your first assumption is that conversion losses dominate mechanical losses, which isn't always the case.  Your second assumption is that conversion/mechanical losses are the only losses, which is definitely not the case.  The largest loss in mechanical systems is usually that mechanical coupling forces components to operate at sub-optimal speeds.  We can add a transmission, but that increases cost and has its own losses.  Electrification mechanically decouples components, allowing each to operate optimally all the time. 

Electrical components also reduce maintenance (mechanical parts are the most maintenance intensive on any system) and improves longevity (electrical components typically last orders of magnitude longer than mechanical components).  That, more than anything else, is why electrical systems are used everywhere they're feasible.

As electrical technology has advanced (95% efficient motors, variable frequency drives, lightweight components, computer controls, etc), we've seen mechanical controls & components pushed into niche applications.  Anymore, systems have just enough mechanical to achieve the necessary motion.  E.g. robots need joints to move; there's no way around that.  Electrical sensors, motors, and controllers handling nearly everything else. 

The final frontier is electrifying moving vehicles - and that's not limited to "hybrids".  "Conventional" engines are slowly electrifying auxiliary systems.  Air conditioning, oil pumps, water pumps, cooling fans, and power steering will all electrify for the same reason factories electrified: it decouples these systems from the engine speed, allowing them to operate at optimal speeds and eliminating mechanical losses.  For arcane reasons dealing with semiconductors, you'll see this technology spread when cars switch to 48+V electrical systems. 

One of Honda's hybrid systems harnesses this effect by creating an electric "transmission": the engine drives a generator, which in turn drives a motor.  The battery is a glorified capacitor; there is no transmission.  Gains in engine efficiency dominate the conversion losses, leading to a more efficient vehicle overall.  The most extreme example I've seen is a superconducting jet engine that mechanically decouples the compressor and turbine.  If that kind of technology succeeds at cost, even turbine shafts would disappear, replaced by internal electrical generators. 

Basically, mechanical is expensive, inefficient, unreliable technology.  We avoid it wherever possible.

Edited by BenFranklin'sSpectacles
Typo.
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6 minutes ago, BenFranklin'sSpectacles said:

Basically, mechanical is expensive, inefficient, unreliable technology.  We avoid it wherever possible.

Ok, I'll agree.

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2 hours ago, BenFranklin'sSpectacles said:

Nope.  Your first assumption is that conversion losses dominate mechanical losses, which isn't always the case.  Your second assumption is that conversion/mechanical losses are the only losses, which is definitely not the case.  The largest loss in mechanical systems is usually that mechanical coupling forces components to operate at sub-optimal speeds.  We can add a transmission, but that increases cost and has its own losses.  Electrification mechanically decouples components, allowing each to operate optimally all the time. 

Electrical components also reduce maintenance (mechanical parts are the most maintenance intensive on any system) and improves longevity (electrical components typically last orders of magnitude longer than mechanical components).  That, more than anything else, is why electrical systems are used everywhere they're feasible.

As electrical technology has advanced (95% efficient motors, variable frequency drives, lightweight components, computer controls, etc), we've seen mechanical controls & components pushed into niche applications.  Anymore, systems have just enough mechanical to achieve the necessary motion.  E.g. robots need joints to move; there's no way around that.  Electrical sensors, motors, and controllers handling nearly everything else. 

The final frontier is electrifying moving vehicles - and that's not limited to "hybrids".  "Conventional" engines are slowly electrifying auxiliary systems.  Air conditioning, oil pumps, water pumps, cooling fans, and power steering will all electrify for the same reason factories electrified: it decouples these systems from the engine speed, allowing them to operate at optimal speeds and eliminating mechanical losses.  For arcane reasons dealing with semiconductors, you'll see this technology spread when cars switch to 48+V electrical systems. 

One of Honda's hybrid systems harnesses this effect by creating an electric "transmission": the engine drives a generator, which in turn drives a motor.  The battery is a glorified capacitor; there is no transmission.  Gains in engine efficiency dominate the conversion losses, leading to a more efficient vehicle overall.  The most extreme example I've seen is a superconducting jet engine that mechanically decouples the compressor and turbine.  If that kind of technology succeeds at cost, even turbine shafts would disappear, replaced by internal electrical generators. 

Basically, mechanical is expensive, inefficient, unreliable technology.  We avoid it wherever possible.

You made some excellent points I hadn't considered.

I manually turn on and off my air conditioner when my low-powered Yaris is pissing me off.  Sadly turning off the AC does make a noticeable performance difference in rolling terrain... it should do that automatically and offset the demand to the downhills. :)  My next car will be efficient and have high-torque electric motor so I can drive for fun on occasion.

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4 hours ago, BenFranklin'sSpectacles said:

I'd agree with you if oil pipelines and ports were our only options.  They're not:

1)  The short-term spike would be tempered by release of strategic reserves & other government actions.  Politicians around the world would act to squelch prices lest they incur the wrath of their constituents.  This government action would keep prices reasonable until supply balanced demand. The max withdrawal capacity of SPR is 4.4 mm bbls/d. The US imports over 10mm bbls/d with about 10% coming from Saudi Arabia. The rate of imports has dramatically fallen since the rise of shale production. Again, Im not sure how long the expert projected $300/bbl to last, but I've also doubted how long that would be sustainable. That said, I'm not sure where you find such faith in our politicians, but I certainly don't share the same enthusiasm. Although, lifting moratoriums on protected waters and land would encourage long-term investments. I guess we could get into all types of hypotheticals but I think more energy would be spent trying to resolve issues in the middle east than on making new legislation. 


2)  "Demand Destruction" can be as simple as changing consumer behavior.  That requires no investment and has no lead time.  E.g. Americans could cut 5-10% of their gasoline consumption by simply not driving like jackasses.  If some of them also properly maintained their vehicles, carpooled, consolidated trips, took fewer road trips, drove 5mph under the speed limit, and cut back on non-essential driving, fuel consumption would drop further.  Likewise, truckers have already proven they can save 5-10% just by slowing down.  With fuel north of $5/gallon, this is exactly what they would do. Lots of hypotheticals but our infrastructure is designed so that most people have to drive to work. This fact certainly sets a limit for how much consumption we can conserve. Speed limits, daylight savings, insulation, and rationing has never quenched our thirst of crude.

 


3)  $150/bbl oil would trigger a flood of new vehicle purchases, alternative fuel conversions, and other upgrades.  Suddenly, the cost of financing new equipment would be lower than the cost of fueling old equipment - even for light duty vehicles.  With economies faltering, federal reserve banks around the world would slash interest rates, further encouraging investment.  Some purchases would simply be newer, more efficient, conventional vehicles.  These would save anywhere from 10% to 50% of fuel costs, depending on what was replaced.  Some would be hybrids, saving even more.  Some would be full electric or natural gas, eliminating oil consumption entirely.  Americans, in particular, would rediscover small, efficient vehicles.  The limiting factor would be the world's manufacturing capacity, which can replace more than 10% of the world fleet annually.  At the right price, factories would run 24/7, and mechanics would work overtime installing conversions/upgrades.  The technology has already been developed, the factories already exist, and commercial fleets already have operational experience.  Demand destruction would begin its inexorable march within weeks. This is exactly what happened after the crisis in the '70s, although this took many years to facilitate. The probability of replacing the entire country's car population (or even a significant amount) is not feasible for less than the average car lifespan (approx. 10 years?) not just because of manufacturing capacity, but also consumer finance. Disposable income is the real loser here, which is I am to believe is around $3,258 per month for americans--that creates plenty of room for high gas prices.


4)  Some markets have immediately available substitutes.  E.g. civil engineers would specify concrete in lieu of asphalt.  The concrete infrastructure already exists, so there would be no lead time.  Some trucking would shift to trains, which consume far less fuel. 
5)  Developing economies would immediately suffer.  Oil is inelastic in the West because we can afford it. - our whining notwithstanding.  Developing nations cannot afford it; it's too large a fraction of their income.  Thus, oil consumption in developing nations would decline alongside their economies. Agree, but oil is inelastic as a function of a country's infrastructure, not from its income. In places like europe, china, korea, New York-- people might take a train instead. We couldn't build enough alternative cars in any short-term scenario.
6)  Maritime oil consumption would automatically decrease as trade slowed.  Even as shipped tonnage decreased, fuel consumption per ton-mile would improve as the oldest, least-efficient ships were scrapped and ships decreased speed.  As this was happening, LNG new builds and LNG conversions would be expedited. With the oncoming IMO 2020, 25% of shippers plan to switch to LNG, the rest plan to use diesel or use sulfur stripping equipment.
7)  Where pipeline bottlenecks exist, trains would be used more extensively to transport oil.  The $10-20/bbl cost of transporting oil by train is bearable when oil sells for $150/bbl.  The fleet of oil cars would run at max capacity, and new cars would be constructed. 

You get the picture.  Politicians would react immediately, consumer behavior would adjust within weeks,  world economies would shift within a few months, investment-driven demand destruction would be apparent within a year, and large-scale projects enter the market thereafter.  There would be a brief price spike followed by an inexorable march back to the reasonable range. 

In the first oil crisis, the world was taken by surprise and had few tools at its disposal.  Thus, $300/bbl oil.  After five decades of fighting OPEC, the world is prepared.  I would be surprised if oil exceeded $150/bbl long enough to matter.  I'd be even more surprised if it stayed above $100/bbl for more than 3 years. 

Another important question is, "Does OPEC want a price spike?"  In the 1970's, OPEC was under the impression that the world needed them at any price.  The world disabused them of that notion.  After that, OPEC dabbled in price spikes, but neither as high nor for as long.  If they were greedy, the world would destroy demand with long-term capital investments.  Unfortunately, they miscalculated.  Cheap shale oil, natural gas, and electrification have now eliminated their leverage.  OPEC doesn't dare send prices over $100/bbl because the demand destruction would be immediate and, once gone, their market share would never return.  Their leverage is gone; they cannot win.  Iran will talk about closing the strait of Hormuz, but they won't do it.  It would be a temporary inconvenience for the world and a death sentence for them. 

The West, on the other hand, might actually want a price spike.  Not too high though; just enough to trigger investment.  Lawyers and bankers - who I assume are the de facto leaders of the Western world - make money on capital investment.  They'd also be interested in ridding themselves of OPEC and obtaining greater leverage over China.  That's why it doesn't surprise me to see the US gutting OPEC countries one-by-one.  At the moment, a massive Middle Eastern war that shut down the Strait of Hormuz would be painful.  Survivable, but painful.  Within a few years, whoever is running this show will have tweaked oil markets such that a massive, Middle Eastern war would produce a beneficial spike: high enough to trigger demand destruction, but low enough to avoid political unrest.  They could then reap profits selling weapons to the combatants, return OPEC's wealth to developed nations, and let OPEC's oil production decline to irrelevance as The West and Russia capture that market share.  In the end, the Middle East will be returned to the irrelevance from whence it came.

And good riddance.  The world would be better without a volatile, violent, medieval entity like OPEC. 

Fundamentally agree.

 

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15 hours ago, Wallace907 said:

 

Clarifying question: does "fundamentally" mean "completely" or "in principle, but not in detail"? 

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15 hours ago, Enthalpic said:

You made some excellent points I hadn't considered.

I manually turn on and off my air conditioner when my low-powered Yaris is pissing me off.  Sadly turning off the AC does make a noticeable performance difference in rolling terrain... it should do that automatically and offset the demand to the downhills. :)  My next car will be efficient and have high-torque electric motor so I can drive for fun on occasion.

Yeah... that's an example of a sacrifice I'm not willing to make for efficiency.  I drove a Jetta TDI for years and generally hated the experience.  When I finally replaced it with a BMW 328i, I realized I could get 30-40MPG along with comfort and style. 

Saving the planet doesn't mean life has to suck. 

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31 minutes ago, BenFranklin'sSpectacles said:

Saving the planet doesn't mean life has to suck. 

I think some people would disagree with that wholeheartedly. :) "Saving the planet", whatever that means, comes with sacrifices--sacrifices that many are unwilling to make.

But I digress.

Weren't we talking about the Strait of Hormuz? 

 

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7 minutes ago, Rodent said:

I think some people would disagree with that wholeheartedly. :) "Saving the planet", whatever that means, comes with sacrifices--sacrifices that many are unwilling to make.

But I digress.

Weren't we talking about the Strait of Hormuz? 

If they want to make sacrifices, more power to them.  Personally, I think they should commit ritualistic mass suicide.  The power of the Ultimate Virtue Signal will align the planets, focusing the universe's energies on earth and saving us from the Dark Forces of Pollution.  In honor of their sacrifice, we the survivors will celebrate Vegan Day, on which no animals will be slaughtered or consumed. 

But anyway, the Strait of Hormuz.  I think its relevance will end in a few years as the Middle East loses market share and pipelines are built to circumvent it.  In the mean time, I don't think Iran would dare close it because that would trigger an immediate, violent end to every country bordering the Persian Gulf - and they all know it. 

Have I missed anything?

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