Green Car Congress

Wrapping Up Oil Week, and It’s Not Looking Good

Results from the first week of oil company earnings reports are in; of the super majors, only Total is missing, and it reports next week. Below are two plots of the change in daily oil production from these leading international oil companies and a few others.

It’s a sobering picture. From the second quarter of 2003 to the second quarter of 2004, the combined production from these companies dropped some 437,000 barrels per day. Only ExxonMobil managed a significant increase. At the same time, combined capital spending on exploration and production from those companies has increased more than $1.5 billion.

Companies did not uniformly lose production across the globe. For those who have a presence there, Africa was a prime source of increase.

Russia and the Caspian area are also contributing a great deal. If we factor in BP’s new joint venture with TNK (TNK-BP), it pushes BP into positive ground, with a net increase of 560,000 barrels per day, or 31.6%. Production from BP’s own core resources—the ones it had in 2003—declined the charted 15%.

Then again, there was the decline from Kazakhstan I noted in the ChevronTexaco post below.

Some suggest that this picture of declining production reflects a global conspiracy on the part of greedy oil executives to maintain high prices at a time of increasing need. I don’t think so.

First, the results are uneven, with ExxonMobil, for one, increasing production.

Second, even for companies that posted a production loss, certain regions within those companies saw gains—in Africa, for example.

Third, regional drops in production tend to correspond to areas either known to have peaked, or that have been under production for a long time.

Fourth, companies are spending billions on Exploration and Production. As a percentage of revenue, the top oil companies’ average capital expenditure on exploration and production dropped slightly from 4.16% in 1H 2003 to 3.92% in 1H 2004. Given the increase in revenue—that’s a lot of extra money. In most cases, those expenditures would already have been approved well before the price increase hit. In other words, the execs thought they would be spending more as a percentage of revenue than they actually did because of the pricing windfall.

These results also highlight the increasing power of the national oil companies in various areas of the globe; the increase in supply to meet demand isn’t coming from the companies one traditionally thinks of as “Big Oil”.

I think that what we are seeing is a reflection of just how difficult it is to find major new oil systems in a world that has been drilling for more than 100 years, and that has been heavily explored with increasing technological sophistication for at least 60. Finding and producing more oil is difficult, and getting more so.

At a certain point, this becomes like a game of musical chairs. There are only so many chairs, there is only so much oil. Depletion removes both, some players lose.

The market concerns over Yukos and Iraq specifically, and terrorism in general, are overshadowing the larger fundamental issues about exploration and production. As long as global demand continues to grow, the supply-demand situation will keep prices high—and rising.

The only way out is through conservation, efficiency and multiple alternative sources of energy. None of this is quick. We’ve gotten started—but with nowhere nearly enough urgency and focus.

ChevronTexaco: Profits Up, Production Down..and What’s With Kazakhstan?

ChevronTexaco brought in record 2Q net income of $4.1 billion, slightly more than 2.5 times the $1.6 billion on the same quarter last year. Half-year to half-year, net income rose to $6.687 billion from $3.520 billion.

Production of crude and liquids dropped 4.4% quarter-to-quarter (4% half-to-half). The charts below show the volume picture for each quarter (left) and the amount of change for each region. Note again that Africa is the area of only substantial growth.

I was intrigued to see the production drop in Kazakhstan (albeit very slight) and in the Neutral Zone (Saudi-Kuwaiti, not Romulan).

Kazakhstan is one of the critical Caspian Sea region countries, and is expected to be a significant player in world oil markets in years to come. There are three enormous Kazakh oil fields: Tengiz, Karachaganak and Kashagan.

ChevronTexaco has stakes in two of these three (Tengiz and Karachaganak) and is the largest single producer in Kazakhstan. It expects Tengiz eventually to be able to produce 700,000 barrels per day. (Map to the right. Click to enlarge.) ChevronTexaco is the leader of the Caspian Pipeline Consortium, and just recently contracted an engineering study on doubling the capacity of the Tengiz-Novorossiysk pipeline.

So why the drop in production? One would think—given the developmental work and the presumed potential—that output would be increasing.

The Partitioned Neutral Zone (PNZ) is an area between Saudi Arabia and Kuwait. In 1984, ChevronTexaco acquired the Getty Oil Company, including its operations in the onshore PNZ. There it operates on behalf of Saudi Arabia in a joint operation with the Kuwait Oil Company. According to Chevron Texaco (April 2004), production from the PNZ has roughly tripled since 1990; output passed the 1 billion barrel mark in 1997. The PNZ currently has some 700 active wells. Recent area discoveries indicate the presence of significantly lighter crude—excellent for gasoline.

So why the drop in production? Estimates place the total PNZ recoverable reserves at 5 billion barrels—split equally between Kuwait and Saudi Arabia. Conceptually, then, PNZ was almost at the Saudi midway production point 7 years ago. (50% of 5 billion = 2.5 billion. Midway point = 1.25 billion.) Saudi PNZ may have peaked.

Ethanol Fuel Cell

Physorg.com. Intelligent Energy has successfully completed trials of its stationary, ethanol-based fuel cell system. The company is targeting distributed power generation in Latin America as an opportune market for technology such as this.

Intelligent Energy formed in 2001 and set about acquiring three other companies that became the building blocks of its business. Those companies were:

• Advanced Power Sources, a UK PEM fuel cells research and development company
• Element One Enterprises, US-based hydrogen fuel experts
• MesoFuel, a New Mexico company that develops micro-devices for the conversion of liquid and gaseous hydrocarbons into pure hydrogen for storage and use in PEM and other fuel cells.

The combination of the three allowed Intelligent Energy to deliver the solution described above. The Mesofuel technology reforms the ethanol to hydrogen, which then fuels the PEM fuel cell. Apparently the reformers work with light and heavy hydrocarbons (natural gas through to diesel), renewable fuels (such as ethanol, biodiesel and others) and decarbonized fuels (such as ammonia). The company is targeting stationary and mobile applications.

On the PEM side, they claim to have a unique stack architecture that is simpler and thus earier to build, offering a range of power outputs. Neat. I’d love to find more substantive detail.

I’m expecting to see many more rollups or combinations such as this, in multiple sectors, as business entrepreneurs combine with technology innovators.

Doing the Math

Dave Guilford, from Automotive News.

There are an estimated 835 million motor vehicles on the world’s roads, according to J.D. Power and Associates.

The big number — global vehicle count — is expected to swell from today’s 835 million to 1.1 billion within 15 years. That would be an increase of 265 million vehicles — more than the total number on U.S. roads today.

Other industry sages see similar growth. Garel Rhys, director of the Centre for Automotive Industry Research at Cardiff University in Wales, predicts that the industry will crank out more vehicles in the next 20 years than the 1.8 billion it built in its first 110 years.

But we have to look at what is visible today. What we can see coming vastly increases the pressure to replace petroleum-fueled engines with fuel cells, ethanol, electric vehicles, compressed natural gas or some combination of those.

As Larry Burns, General Motors’ fuel cell point man, put it recently, “We really have to ask ourselves, can the world sustain 1 billion automobiles?“

If they all burn petroleum, probably not.

ConocoPhillips: Profits Up, Production Down

ConocoPhillips (COP) reported a 53% increase in profit for the first half of this year, climbing to $3.691 billion from $2.408 billion for the same period last year. Second quarter profit increased a whopping 75% to $2.075 billion from $1.187 billion in 2Q 2003.

Crude oil production declined half to half 2.5%. If we back out the production from the equity affiliates of COP, the decline in consolidated COP production increases to 5.4%

I’ve posted the results in my standard format for this “oil week” below and to the left. Because ConocoPhillips provides some additional regional detail, I plotted the regional changes, half to half, below and to the right. (Click to enlarge.)

For ConocoPhillips, Asia has been the key area of growth, while production in the US and Europe (UK and Norway) steadily declines.

ExxonMobil: Record Revenue, Production Up

ExxonMobil posted a record quarter, excluding special items, of $5.8 billion, up 39% from the second quarter of 2003. It also posted a gain in crude oil production, up 4.2% to 2.58 million barrels of oil per day.

ExxonMobil, the world’s largest energy company, has a geographically balanced portfolio. You’ll see in the chart to the right, however, that Africa is rapidly increasing in importance as a source. If all goes as planned, it will become the largest contributor by region sometime around 2010.

No accident, then, that Lee Raymond, the chairman, paid his first official visit to Nigeria two weeks ago and met with the president, Olusegun Obasanjo.

ExxonMobil did not do so well with natural gas, posting a 3% drop in global production quarter to quarter, despite new projects coming online. Overall, using the BOE measure (barrels of oil equivalent), XOM’s production increased 1% quarter to quarter, up to 4.08 mboe per day.

Announcement material is here.

Shell Production Dropping, Reserve Replacement Low

Pushed by the “strong tailwind” of oil prices, Royal Dutch Shell posted a hefty $8.7 Billion profit for the first half of 2004, up 7% from the same period the year before. This incorporated a $4B profit for the second quarter, up 54% from 2Q 2003. At the same time, the company announced it was paying penalties to both US and UK regulators to resolve the reserve scandal from earlier this year—some $150 million worth. That works out to about 4% of the profit just from the second quarter. Not a bad deal to get that off your back.

The timing of the penalty announcement also deflected attention on more serious underlying conditions:

• Shell’s upstream production, both in crude oil and natural gas, is dropping.
• Shell’s reserve replacement ratio is extremely low.

Globally, Shell’s crude oil production dropped 6.5% from the first half of 2003 to the first half of this year. As you can see from the chart, the only area of substantial increase is in Africa. Shell will look to increase production from Russia and the Former Soviet Union as well. Shell is also putting a great deal of effort into oil production from oil sands to offset the decline in regular oil.

With all that, however, Shell sees no net increase in production for the next several years.

Production in 2005 and 2006 is likely to remain in the range of 3.5 to 3.8 million boe [barrels of oil equivalent—everything in, normalized to the measure of a barrel of crude] per day, again subject to price effects.

In other words, in an era of unprecedented energy demand, the best, stated case is that Shell cannot produce more—hence it will be steadily losing market share. Who picks up the slack? More disturbing from a long-term view is this:

The latest outlook for the proven reserves replacement ratio (RRR) for 2004 is some 60% to 80%.

The reserves replacement ration (RRR) is a measure of offsetting the production depletion of a company’s resources. An RRR of 100% means that for every barrel pumped, a new barrel appears in the reserves. An RRR of less than 100% indicates that your reserves are declining. Shell in essence is saying that it will be drawing down on its reserves accounts without replacing them fully. Not a good position for an energy company dependent upon hydrocarbons, and definitely worrisome for a global economy that maintains its dependency on the same.

Shell’s RRR has been low for several years now: down to 63% in 2003, and at an average 66% for the five years from 1999-2003.

Analysts were mildly disappointed by the overall financial results—as a group, they had expected Shell to benefit even more from the oil price surge. That it did not reflects the production issues, including the rising cost of production.

Presentations, financials and other documents from the results announcement are here.

Hydrogenics and Deere for Commercial H2

Hydrogenics entered into a five-year agreement with Deere & Company for continued R&D into hydrogen fuel cells in commercial vehicles. The agreement comes following earlier joint projects involving the integration of Hydrogenics’ fuel cell power module technology into Deere ePower vehicles.

Hydrogenics develops and manufactures fuel cell and related new energy technologies for portable, stationary and mobile applications. To complement its fuel cell product development initiatives, it is also beginning to develop and to manufacture hydrogen generation products.

Earlier this year, the company, in which GM has a minority stake, launched an off-road mobility initiative as it believes that sector offers earlier viable markets for hydrogen fuel cells than the broader consumer auto sector.

There is a nifty demonstration video of a John Deere concept H₂ utility vehicle zipping around over a gentle off-road path (looks like a golf course) accessible from the home page here.

EPA, CARB: 2nd Gen Honda H2 Good to Go

Both the EPA and CARB (California Air Resource Board) have certified the 2005 Honda FCX fuel cell vehicle as ready for commercial use.

The second generation of the model, the 2005 FCX is the first to be powered by a Honda designed and manufactured fuel cell stack, and offers some performance improvements over the first model. The basic stats for each:

	2004 FCX	2005 FCX	%Δ
Peak Power (hp)	80	107	33%
Max Speed (mph)	93	93	–
EPA city/hway/comb (miles/kg H2)	51/46/48	62/51/57	19% (comb)
Range (miles)	160	190	19%
Maximum torque (ft-lbs)	201	201	–
Fuel Cell Stack type	PEFC (Polymer Electrolyte)	PEMFC (Proton Exchange Membrane)
Fuel Cell Max Output (kW)	78	86	10%
Fuel type	Compressed H2	Compressed H2
Fuel Storage	High-pressure tank	High-pressure tank
Max pressure (psi)	5,000	5,000
Capacity (liters)	156.6	156.6

(In terms of energy efficiency, one mile per kilogram (mpkg) of hydrogen is almost equivalent to one mile per gallon (mpg) of gasoline.)

The improvements in power and range stem from the new Honda FC stack. It also allows the 2005 FCX to start and operate in temperatures as low as -20 C (-4 F). (Clearly a necessary hurdle to overcome.)

“The 2005 Honda FCX achieves a significant milestone in the progress toward a hydrogen economy,” said Terry Tamminen, Agency Secretary of the California Environmental Protection Agency. “This second generation fuel cell from Honda makes further simultaneous progress in key areas including performance, range, efficiency and cold weather operability while achieving zero emissions.”

According to Honda, the new FC stack utilizes a new structure made of stamped metal separators and new aromatic membrane material, features 50% percent fewer components than its predecessor, and is easier to manufacture.

There still remains much work to do in power, storage (range) and fuel infrastructure—but the steady pace of innovation and development is very encouraging.

Diesel Dreamin’

Dan Neil at the LA Times on diesels. Nice backgrounder, review of the VW Touareg, and a good conclusion.

I would argue that diesel is highly underrated by environmentally conscious consumers. For as giddy as people are about gas-electric hybrids such as the Toyota Prius or the coming-soon Honda Accord hybrid, imagine a diesel-hybrid, perhaps with a plug-in option. Such a vehicle could return mileage of 50 to 70 mpg, with commensurate reductions in greenhouse gas and hydrocarbon emissions.

Even more tantalizing is the promise of biodiesel. Biodiesel is vastly cleaner than conventional diesel fuel, offering something like 75% improvement in greenhouse-gas emissions over petroleum; it is derived from sustainable resources; it works perfectly in any diesel engine and may be blended with regular diesel fuel; it qualifies as an alternative fuel, which means that vehicles using it may avail themselves of coveted high-occupancy vehicle lane access; nearly two dozen retailers sell biodiesel blends in California.

So how much imagination does it take? What if a large percentage of America’s rolling stock were diesel-electric hybrids fueled with super-clean renewable fuels made from products grown in America’s farm states which could comprise the Saudi Arabia of biodiesel?

Excellent! We need more pieces like this from mainstream media. Informed, analytical, raising the level of the discussion.

Window of Vulnerability

John Robb continues to write in Global Guerrillas on the extreme vulnerability of the global economy to a successful terrorist disruption of the oil/energy system.

Today, the price of oil hit a record high of $43.05 a barrel (UPDATE). A combination of excessive demand, uncertainty, and a lack of spare producation capacity have combined to create this price. This situation, as it persists through this fall/winter, is a window of vulnerability that can be exploited by global guerrillas. A series of well orchestrated GG [Global Guerrillas] attacks on Saudi, Caspian, and Iraqi oil infrastructure (while these conditions persist) would drive the price over $100 and keep it there.

The only real question is whether operational GGs have developed a strategic understanding of their current capacity to control global markets and national economies.

His analyses are on target—you should definitely check in there. What he describes does not strike me as a containable problem—at least given current knowledge, strategy and tactics.

We need immediate defenses against terrorism and this immediate vulnerability of disruption. The economy also needs a medium-term defense against the disruption that will occur when geology, not global guerrillas, begins closing the taps. And, for those concerned by the long-term devastating impact of climate change, we need a defense for that as well.

Solutions for the latter two come through urgent, aggressive support for efficiency, and R&D and deployment of alternatives. And, as a nice long-term gift with purchase, as we reduce the dependency on petroleum by reducing demand through efficiency, or displacing demand through alternatives and renewables, we reduce our vulnerability to the swarms of GGs. Not that terrorism goes away; but the impact becomes more local, more contained. Less devastating globally, although tragic locally.

Dodging the immediate bullet (GGs) doesn’t solve the larger problems. Putting the majority of time, money and focus into the short term still leaves us exposed.

Oil Up, Markets Down

A conversation with a colleague led me to this simple exercise: plot oil prices against the performance of the market indices over the last few months. Result: almost a classic inverse relationship. Oil up, markets down.

The plots use data from 3 May through 27 July, using the closing spot price for Texas West Intermediate crude, and the closing numbers for both NASDAQ and Dow Jones Indices. (Click to enlarge.)

Spot prices are what you’d pay today. (“I’ll take that barrel now, please.”) Futures prices try to predict what the market will look like in a few months, a year, so on. Futures prices currently are below the spot price—the further out in time, the lower the price drops (although it is still substantially higher than many expected even a few months ago).

That reflects an expectation, although perhaps a diminishing expectation, that the situation will improve. That Iraq will stabilize. That Russia won’t be too heavy handed with the oil companies. That terrorists won’t cripple the Saudi oil industry. That economic growth may cool and self-regulate oil demand to the point where the tension between demand and supply is not so high. In other words—the price premiums stem from political or economic factors. The market has yet to acknowledge or to factor in the possibility of production peaking sooner rather than later.

The charts above provide a peek at the impact of short term price spikes. Consider the impact of long term shortage and decline. Moving rapidly to alternative fuels and sustainable energy isn’t just good for the environment. It is, to paraphrase THK from the convention last night, good business.

A Blog and a Book

I came across WorldChanging, a very interesting and substantive group effort on “Models, Tools, and Ideas for Building a Bright Green Future.” What caught my eye was this review and recommendation of an online resource at the American Institue of Physics—The Discovery of Global Warming— that surveys the breadth and depth of research over the years into climate change and global warming.

If you already accept the global climatological consensus that anthropogenic global warming is happening and is getting worse, The Discovery of Global Warming will provide abundant detail to help you better understand how that consensus came about. If you have been honestly skeptical about the global warming threat, but willing to listen, this site will help you better understand why there is a broad scientific consensus about climate disruption in the first place. It may not change your mind, but you’ll see why so many scientists take the problem so very seriously.

Both blog and book appear to be excellent resources. Worldchanging is now in my feeds list.

Pirates Attack LPG Tanker in Indonesia

Reuters. Pirates stormed a Liquefied Petroleum Gas (LPG) tanker at anchor in Indonesia, firing shots at the crew.

The International Maritime Bureau (IMB) said five men armed with automatic rifles boarded a Liquefied Petroleum Gas (LPG) tanker anchored at Anyer on Monday and fired at the crew before escaping with equipment.

No one was injured in the shootout but the IMB’s director, Captain Pottengal Mukundan, classed the attack as extremely serious. “This is very dangerous because an LPG tanker is the last place you want to have a gun battle,” he told Reuters.

Although pirate attacks have declined globally since last year (which recorded the second highest number of attacks since 1992), they remain a significant worry especially in specific areas of the globe: the foremost being Indonesia and the Strait of Malacca.

In its half yearly piracy report on Monday the IMB ranked Indonesian waters as the world’s most dangerous, with 50 attacks reported, or more than a quarter of the world’s total. The IMB also reported two new attacks in the Malacca Straits, one of the world’s busiest sea lanes.

More than 11 million barrels of oil per day flow through the Strait, according to the US EIA, making it the second-most critical global chokepoint by volume for oil transport.

The Strait of Malacca, linking the Indian and Pacific Oceans, is the shortest sea route between three of the world’s most populous countries—India, China, and Indonesia—and therefore is considered to be the key choke point in Asia.

The narrowest point of this shipping lane is the Phillips Channel in the Singapore Strait, which is only 1.5 miles wide at its narrowest point. This creates a natural bottleneck, with the potential for a collision, grounding, or oil spill (in addition, piracy is a regular occurrence in the Singapore Strait).

If the strait were closed, nearly half of the world’s fleet would be required to sail further, generating a substantial increase in the requirement for vessel capacity. All excess capacity of the world fleet might be absorbed, with the effect strongest for crude oil shipments and dry bulk such as coal. More than 50,000 vessels per year transit the Strait of Malacca. With Chinese oil imports from the Middle East increasing steadily, the Strait of Malacca is likely to grow in strategic importance in coming years.

One of the major worries is that the terrorist attacks on oil infrastructure that are evolving in Iraq will morph into an assault on shipping at a critical chokepoint—such as the Strait of Malacca.

Piracy has plagued the strait for centuries but has worsened in recent years. Regional governments and security experts fear the growing lawlessness could result in a terrorist strike.

The price of oil would climb even more. A successful attack on an LNG carrier could have even longer-term ramifications for both producers and consumers. (Indonesia currently is the world’s largest producer of LNG, so there are ample opportunities.)

Indonesia, Singapore and Malayasia are cooperating in defense of the strait. (BBC.)

A final note on piracy in this post. Nigeria follows right after Indonesia and the Strait of Malacca in terms of number of attacks; the attacks in Nigeria are more deadly, accounting for 50% of the piracy-related fatalities in the first half of this year. allAfrica.com.

GM Expands (and Greens?) Hummer Line

Chicago Tribune / AP. First, the specifics. GM is adding to its Hummer lineup: a smaller, midsize H3, and a higher performance, more efficient version of the H1 called the Alpha.

GM has been talking about the H3 for months—a vehicle clearly targeted at DaimlerChrysler’s Jeep franchise, and a larger market than the one served by GM’s $100,000+ H1s and $50,000+ H2s.

The H3 uses a 220-horsepower, 3.5-liter inline five-cylinder engine, similar to the one in the mid-size Chevy Colorado. That vehicle carries an EPA mileage rating of 18mpg city / 23mpg highway. (GM apparently is building the H3 on the Colorado frame.)

The 2006 H1 Alpha, debuts in mid-2005 with a 300-horsepower, 6.6-liter turbo-diesel V-8 engine, presumably offering improved emissions performance and fuel economy over the original H1.

Why are we talking about this? GM seems to be taking the approach of trying to improve faltering Hummer sales by broadening the lineup and by stressing fuel efficiency and emissions reductions. That will seem counter-intuitive both to fans of the Hummer (who probably don’t spend a lot of time on those issues) and to foes (who see the Hummer as a fuel-guzzling, emissions-spewing, lumbering behemoth with no place on city streets). But here are some interesting comments from an interview in the San Diego Union-Tribune:

“We definitely have a concern about gas prices,” says Mike DiGiovanni, Hummer marketing general manager. “We are going to be looking at improving fuel economy.”

“I think it is silly to put your head in the sand,” DiGiovanni says. “You should address the issues head-on. So we are looking at improved gasoline engines, diesel engines and hybrids.”

More significant fuel economy changes are scheduled for the H2 around the 2007 or 2008 model year, when a diesel and possibly a hybrid-electric engine will be offered.

“We are not going to compromise being an authentic Hummer because that’s what our DNA is,” DiGiovanni says. “But we are going to try and make Hummers more fuel-efficient.”

A couple of takeaways from this for me:

• GM is increasingly concerned about its perception by the market with respect to fuel economy—not just with the Hummer, but with its entire lineup. That concern is clearly heightened by the sales results of the past two months. This could signal the beginning of a dash to scramble for position, in marketing if not in products, in case the oil price/availability picture continues to degrade.
• GM recognizes that Toyota has accelerated to the front of the pack with its positioning around the Prius. You’ll start to see “hybrid” appear more frequently in GM statements. Where does the new Silverado “hybrid” fit in this? Stay tuned.
• Many of GM’s improvements are incremental. Applied over millions of vehicles, those increments can add up to a lot—but it still may not be enough.
• Car product planners—and not just at GM—are working with a more leisurely timeline than we or they may have. I’m sure it does not seem leisurely to them, given the accelerated rollout of new models and the time it takes to do the appropriate development, design, production, and so on. But external market factors don’t necessarily track to the same Gantt chart. There is no discernible sense of urgency. Urgency—focused, in-control urgency, not hair-on-fire panic—is the pathway to market leadership and sector dominance. Whoever gets it and executes on it in both product design and marketing is going to be set up to win. At this point, Toyota is closest.

GM has a terrific opportunity in the Hummer area if they’d take it. The company is already building diesel-hybrid pickup prototypes for the Army; it should definitively announce that this is a platform for a future Hummer, assuming it wants to stick with that brand. That keeps the quasi-military cachet so important to the initial Hummer buyers, and combines it with one of the better solutions for fuel efficiency and emissions management. GM could take a leading position, rather than look like it is scrambling to catch up.

Audi8 TDi: Tipping Europe into a Diesel Age?

European Car. It’s not just rational; it’s emotional.

The history of the last 20 years has been filled with tipping points—the moments when one commodity gives place to another. [In] Europe at least, we may well be experiencing a tipping point in which petrol gives place to diesel power.

As little as two years ago, the case for diesel was still made on rational grounds—diesel cars used less fuel, which meant they were significantly cheaper to run. But with the advent of second-generation common rail technology, the decision to “go diesel” has become more emotive. In many instances, the diesel variant has become the most desirable car in the range, and this is certainly true of the Audi A8.

A very enthusiastic review follows, summarized with:

The rational case for the TDi surrounds the fuel costs—it averages 29.4 mpg compared with the 4.2’s 23.7 mpg—but it is even easier to make an argument for the diesel by describing its performance, refinement and sheer desirability. The age of the diesel really is upon us.

As we’ve discussed earlier, diesel has made a stunning penetration into the European market in the last ten years, accounting for more than 50% of new cars sold in some countries. In a region where gas prices are currently 2 to 3 times those in the US, the additional fuel economy (and attendant environmental benefits coming from reduced fuel consumption) are certainly attractive. It proves that a different technology can not only penetrate a market, but come to lead it in a short period of time, given the appropriate factors.

As a result of (a) having some experience with mass adoption of new engine platforms and (b) having a large and increasing diesel base as a foundation, Europe may well become the first serious market for diesel hybrids. According to several studies, the interesting thing about a diesel-hybrid platform from the perspective of a complete emissions and energy lifecycle (well-to-wheel) is that such a platform actually performs as well as or even better than a hydrogen fuel cell vehicle, given current dominant production methods for hydrogen. More on this in a coming post.

BP: Results Up, Production Declining

BP announced record-breaking half-year results, posting a profit of $8.625 billion, up 20% from $7.213 Billion in the first half of 2003. Despite the strong results, analysts were slightly disappointed as the results were a bit lower than they had forecast.

Lord Browne, CEO of BP, noted in his remarks during the investors’ call that the results were driven by increasing demand in China, Russia, India and Brazil; that uncertainty was pushing prices; and that despite more capacity coming onstream in the next several years, that “It does now seem likely that oil prices will be very significantly high above the long run average of $20 a barrel for some time to come.”

At the top level on the production side, BP seems to have had a great first half, with total production of barrels of oil equivalent rising 14% from 3.49 million barrels oil equivalent per day to 3.993 mboed. The “oil equivalent” is a measure of total production— it converts natural gas to an equivalent measure of barrels of oil, factors in other liquids, and so on. If we look just at crude oil, however, we see that BP’s production 1H to 1H rose an astonishing 31%, from 1.771 to 2.331 million barrels of crude oil per day.

Peel it back further, though, and you see that the result is due to the new TNK-BP joint venture in Russia. The oil results from that JV just in the first six months of this year accounted for 33.8% of BP’s total crude production, and for all of the production increases posted by the company.

As Lord Browne stated in his remarks:

Production from the existing profit centres is declining but Clair and other projects in the North Sea, Argentina and elsewhere are helping to keep that production decline in the range of 3% to 4% a year.

That 3-4% reflects total production decline (in other words, including gas, etc.). If we were to back out the TNK-BP crude oil contribution from the total crude oil production figures, it would reflect a 13% drop in crude oil production 1H 2003 to 1H 2004.

Alaskan production, which was enormous for BP, is flattening out at around 310 thousand barrels per day, the gradual decline in regular oil production being offset by BP’s working with more viscous oil— harder and more expensive to produce.

Russia now represents the largest geographic element in BP’s production portfolio, thereby making Russia BP’s key strategic partner, at least for now.

Transcript of the investor presentation is here. Webcast is here. Supporting material is here.

Oil Week and Indonesia Peaking

This is going to be an Oil week. With the production figures coming out from the majors, I thought I’d spend some time poking around those, plus a few other aspects of global oil production and fuels that I’ve been wanting to explore for awhile but haven’t made the time to do so.

The availability of oil has a direct impact on decisions that we’re making in transportation and energy; it’s worth spending some time on it. From a post a few weeks back:

Toyota became a leading pioneer in hybrid technology because it could see increased environmental restrictions in the future. But it may be pressure from oil prices that will be the biggest driver of the technology.

Indonesia. As posted earlier, oil production from Indonesia, one of the OPEC countries, has slipped to the point where it is a net importer, not exporter of oil. As shown in the chart on the right (click to enlarge), the country’s production seems to have tipped over the point of peak production, and is rapidly heading down the slope on the other side.

The annual data comes from the BP Statistical Review; the monthly from the US EIA.

The dip and rise in the 1980s reflects what the Association for the Study of Peak Oil calls the “OPEC saddle”—the policy-based production restrictions in that decade. You’ll see that currently, however, Indonesia’s production is far below its theoretical production quota.

There is some hope, expressed by the US EIA, that Indonesia may be able to up its daily rate based on the production of some new fields. As detailed in the quote below, however, even those fields, presuming they do come online, won’t reverse the inexorable trend.

The country’s declining oil production could be turned around once the new Cepu field in Java comes online. The field, estimated to hold reserves of at least 600 million barrels of oil, is being developed by ExxonMobil in partnership with Pertamina. However, the two oil giants have been unable to reach an agreement over profit sharing, with Pertamina demanding half the field’s output and ExxonMobil demanding that Pertamina cover half the field's production costs. Additionally, ExxonMobil wants Jakarta to extend its technical assistance contract, due to expire in 2010, for 20 years. ExxonMobil officials have indicated that the field could be operational in 2006 and could produce up to 180,000 bbl/d, according to recent reports.

Smaller fields could help boost production numbers if they become fully operational in 2004 and 2005. Unocal’s West Seno field, under development offshore from East Kalimatan, is producing 40,000 bbl/d and is expected to produce up to 60,000 bbl/d when the second phase of development is completed in early 2005. ExxonMobil’s Banyu Urip field, in Java, is expected to come onstream in 2006, according to the company, and reach its peak production capacity of 100,000 bbl/d soon after. Even with these new fields, though, Indonesia’s oil production is not likely to rise markedly, due to the continuing decline of mature fields.

This mirrors fairly precisely the peak production scenarios laid out by numerous geologists such as Deffeyes, Campbell and Laherre and some on the business side such as Simmons: the biggest fields have already been found, new discoveries are smaller, enhanced production technology accelerates the rate of depletion. Data seems to be mounting in support of those who are predicting global peaking sooner rather than later...

More Prisues Promised—Perhaps

Autoweek. Production, allocation and delivery constraints and delays are giving Toyota some problems. With new hybrids from other vendors coming out this fall, Toyota needs to resolve its issues. Dealers and customers are getting a bit antsy, and Toyota will lose some of its momentum if it is unable to fulfill the demand it has created.

Toyota Motor Corp. President Fujio Cho has promised to “ship more Priuses to the United States.” But Cho and other top executives refuse to say how many more of the popular hybrid cars will go to Prius-starved U.S. dealers. A lower-level official says an extra 12,500 to 15,000 Priuses might go to the United States by the end of 2004. That would be in addition to the 47,000 allocated to the U.S. market this year.

A shortage of key components such as batteries rules out further output increases, Cho said. Batteries for the Prius are made by a joint venture between Toyota and Matsushita Electric. If Toyota can solve the parts-shortage problem, Toyota might build the hybrid in a second plant, a Toyota official in the United States told Automotive News.

Until last December, Toyota’s allocation system gave Japan and the United States roughly the same number of Prius sedans. At the time, the shortage of Priuses in Japan was comparable to that in the United States. Then Toyota tilted the system in favor of Japan, even though the U.S. market has taken more Priuses over the life of the vehicle.

U.S. shoppers must wait six to seven months for a Prius. Buyers who can get one in some cases pay $5,000 over sticker. Some dealers have stopped taking orders for 2004 Priuses. In turn, some customers are giving up and leaving showrooms unhappy. But today Japanese consumers have to wait only about six weeks for a Prius.

Toyota in December [2003] raised the 2004 U.S. allocation of Prius cars by 34 percent, from 35,000 set in September [2003] to 47,000. It nearly doubled the 2004 Japan allocation from 36,000 to 70,000. Toyota also raised Prius output in April from 7,500 a month to 10,000 a month. It plans to build 130,000 this year, including 10,000 to be made on overtime and Saturdays.

Irv Miller, group vice president of corporate communications for Toyota Motor Sales U.S.A. Inc., told Automotive News that the automaker has reached a breaking point with its popular gasoline-electric hybrid. “I would be surprised if (Toyota) does not respond with some kind of increase in Prius production and allocation to the United States,” Miller said. “Our belief is that we can sell significantly more than what our current sales volume is.”

Said Miller: “Frankly speaking, we’re greedy, and we don’t want to lose the market share we’ve built up and the customers that have raised their hands.”

The Sticky Situation With Oil Sands

The Toronto Star does a nice job in a long piece outlining the opportunities and the downside risks associated with the processing of Canada’s oil sands into usable oil. Some snippets:

The flow of synthetic crude out of the oil sands today now exceeds that of conventional crude from Alberta’s conventional southern oil fields. In theory, their capacity is second only to the oil fields of Saudi Arabia.

The sands are not just a source of energy; they’re also a voracious consumer of energy in the form of natural gas — and in that capacity are competing with homeowners and industrial gas users who use natural gas both for heat and as a source of chemicals for products ranging from fertilizer to plastics. As both a source and a consumer of fossil fuels, the sands also are a big source of greenhouse gases, pushing Canada away from its goals of cutting emissions.

Oil sands plants make or lose money on labour costs and the cost of the energy they need to drive the plants — both of which are only marginally important to conventional oil. Their success also depends on their success in bringing massive, complex projects in on schedule and on budget — a problem that has plagued all of the major projects in Canada’s oil sands to date.

It’s a use of natural gas that some critics question. Gas is not only a clean fuel, it's a rich source of raw material for the petrochemical industry.

Using a high quality fuel — natural gas — to produce a low quality fuel — bitumen — is, in the words of Tom Adams of Energy Probe, “crazy.”

It also raises the question: How much gas do we have? If we're using increasing amounts to produce our oil, how does it affect other uses, such as home heating and petrochemicals?

Industry experts talk about gas supplies with varying degrees of urgency, but it’s no heresy to suggest gas will become scarcer.

What’s the $ Impact on Automakers?

A report issued late last year by the World Resource Institute and Sustainable Asset Management attempts to quantify the economic impact on the top 10 automakers in the face of increasing regulation on fuel-efficiency and greenhouse gas emissions. The report, Changing Drivers: The Impact of Climate Change on Competitiveness and Value Creation in the Automotive Industry is available in full here.

It’s an interesting read. The team is very explicit about the different factors they considered in the analysis. I’m posting one of the summary charts to the right in which they try to represent the position of the 10 manufacturers measured against financial risk and management-driven opportunity. (Click to enlarge.)

Given that the focus of this is response to emissions and fuel-efficiency regulations, Toyota comes out leading the pack.

Some other observations from the report:

• Ford and GM both have above average value exposure and below average management quality regarding climate risks. Their value exposure is driven principally by the relatively low fuel efficiency of their current vehicle mix. While much of this is due to their leadership in the carbon-intensive segments of the US market, which may not face immediate constraints, their current bias towards heavy vehicles coupled with below average positioning on hybrid and diesel technology may limit their near-term competitiveness in non-US markets.
• Toyota emerges as the clear leader on carbon-related management quality with a strong position in all three technologies that will be key for long-term competitiveness.
• DaimlerChrysler has above average management quality with regard to carbon constraints, and a strong potential foundation with its focus on diesel and fuel cell technologies.
• Honda is the OEM that has the lowest value exposure. It faces the least immediate risk from carbon constraints as the current high fuel efficiency of its vehicles implies only minimal costs to meet new standards.

The analysis seems to be getting some traction on Wall Street. The New York Times reports on a conference call organized by John Casesa at Merrill Lynch to discuss the potential cost impacts on automakers as outlined in the report.

It’s easy to see why—in addition to calculating the additional cost per vehicle that meeting regulations would likely cause, the reports also calculates a range of possible impact on profits by 2015. The outcome is not pretty. Ford and GM have the greatest relative potential for financial downside.(Click to enlarge.)

Perhaps the most troubling finding for GM and Ford, the last two major automakers based in the United States, is that some foreign competitors, particularly Toyota, may actually be helped by tougher regulations because they have already invested much more in fuel-efficiency technologies, like hybrid gas-electric engine systems, that could generate profits.

“As a U.S. auto analyst, I’m very concerned about the risk side of the equation,” said Mr. Casesa of Merrill Lynch. “For the domestic auto companies, we’ve had an accommodating energy policy, but there are new issues like climate change, and there are new geopolitical issues, defense issues, that relate to our energy policy.

“There’s the potential for a confluence of events to occur,” he added. “Americans could be more concerned about climate change, while at the same time we try to reduce our dependence on the Middle East for oil, for national security or political reasons. If these two strands come together, that would put a lot of pressure on policy makers, which would invariably lead back to higher fuel-economy standards.“

That would be especially painful for Ford and GM because they rely heavily on sales of light-duty passenger vehicles that are the least fuel-efficient: large sport utility vehicles and pickup trucks.

Yup.

Ford President on Hybrids and Fuel Cells

LA Times interview with Ford President Nick Scheele. Some interesting observations on cars vs. trucks, fuel cells and hybrids.

Q: Don’t trucks still account for about two-thirds of your unit sales?
A: But we saw that we couldn’t keep milking the truck market while competitors were climbing into it more and more every day. That caused some sobering reactions. I don’t like to think that we are too truck-heavy, but we are light on passenger cars and we are now stressing development of cars.

Q: The green car movement is gaining momentum in the U.S. What’s Ford up to?
A: Well, the Holy Grail is the hydrogen fuel cell. But with all that needs to be done to make it practical, I believe it is still 15 years or more before it will be a significant part of the market. You’ve got to develop a hydrogen [fuel station] infrastructure, and you’ve got to have more hybrids [gas and electric-powered vehicles] because the hybrid powertrain control strategy leads to fuel cell controls.

Q: So will you pursue hydrogen fuel cells or hybrids?
A: I see us going down both roads…. On the hybrid side, we have the hybrid Escape [SUV] coming this year and two other hybrids shortly after that. They will sell for about $3,000 more than the equivalent gasoline model, and we’ve got to press on getting costs down. We need to because while there are some people willing to pay that premium, there probably are not enough to sustain a 10% market share for hybrids that we need.

Q: It sounds as if a breakthrough in alternative fuels is still a long way off.
A: There’s nothing free. We have got to talk this environmental issue through, but not on an emotional level…. We’ve got to do it on a technical and scientific level and we must determine our priority — reducing emissions or improving fuel economy. There’s a different answer for each one.

Q: Is there anyone short of the White House with the leadership to pull it all together?
A: Unfortunately not. The discussion must be at the national level.

Q: Hybrid-powered cars, like the Toyota Prius, are very popular in California. But Ford has said it will only build 20,000 Escape Hybrids. Are you artificially limiting supplies?
A: We’ve got annual capacity for 25,000. It is constrained by the supply chain. And yes, that is significantly under demand. So we must improve the supply chain and develop the second-generation car.

It is probably noteworthy that the bulk of the interview—or at least the portion of the interview published—was focused on “green” tech.

If what the LA Times published of what Scheele said accurately reflects Ford’s stance, then I fear the automaker, for all of the good and great things it might be doing on the engineering side, doesn’t get it at a strategic level.

Toyota is not waiting for US national leadership; it is building cars, getting them out in the market, and building its brand. Two things I find the most lacking in this interview: urgency, and a sense of the possibilities inherent in relying on your customers.

Mack Gets $2M Boost for Diesel-Hybrid Powertrain

Congress has approved an additional $2 million appropriation for Mac Trucks to continue its development of a diesel-hybrid powertrain for military and commercial use. (An earlier post on Mack diesel-hybrids here.)

The $2M supplements funding in a contract for diesel-hybrids for the AirForce awarded at the beginning of this year.

“We believe this technology shows promise in the refuse vehicle area for the same reasons that the Air Force is interested in the refueler—reduced cost of operations and emissions without loss of performance,” said Guy Rini, Mack program manager for the hybrid technology project. Mack is the leading manufacturer of refuse vehicles in North America with approximately 70 percent of the market.

Rini said Mack Powertrain has already defined a prototype vehicle configuration and, in conjunction with strategic partner Enova Systems, Inc., initiated design work on the motor and drive electronics. The goal is to deliver a working prototype to the Air Force by March 2005, he added.

Mack is having a good year. Sales in North America for the first half ending June are up 26% from 2003, climbing to 10,811 from 8,602.

Hybrid Diesel Schoolbuses

eSchoolNews Online. ISE Corp. and engine manufacturer Advanced Energy are both exploring hybrid-diesel options for schoolbuses.

Headquartered in San Diego, ISE Corp., a manufacturer of fuel-efficient technologies and drive systems for public transit, is in talks with The Education Foundation of Harris, Texas, and the state’s Adopt-A-School Bus Program—an extension of the EPA’s Clean School Bus USA initiative—to demonstrate 10 hybrid diesel-electric, ultra-low sulfur diesel school buses in the Houston area. The deal is still waiting for final approval. Engine manufacturer Advanced Energy is pursuing a similar project in North Carolina.

Cheaper, Better Biodiesel

The EPA has awarded the University of Nevada, Reno, a $69,000 grant to investigate a cheaper, cleaner way to produce biodiesel from renewable fats and vegetable oils using ethanol rather than methanol.

Oil Majors Production Figures Looming

Times Online. Next week a number of the oil majors will announce their earings and production figures for the first half. The Times reflects on what it expects to see: little production growth.

More interesting is what is not happening at these energy goliaths. With the Brent crude price close to $40, we know BP and Shell are making pots of money; a failure by an oil company to display good profits next week would be disastrous.

What is not happening is growth. Most of the oil majors will report flat or falling oil production volumes, with the only significant gains coming from BP because of the addition this year of oil output from its Russian acquisition, TNK-BP.

Strip out Russia, and Deutsche Bank reckons that BP’s output will fall by a couple of per cent. Merrill Lynch believes net oil output at Shell could be down between 4 per cent and 5 per cent in the second quarter, because of divestments, operational problems and falling well output. ExxonMobil is barely growing and asset sales at ChevronTexaco will send output falling, leaving Total the only company that consistently raises the bar.

OPEC’s spare capacity is very slim, the oil majors are keeping spending [for exploration] tight and the oil-producing countries are becoming more, not less, volatile. Expect an exciting ride.

The discussion point should then be: Why? Some, including the Times, will argue that it is primarily a function of the amount of investment the majors make into exploration. Spend more, find more, produce more. That’s an economist’s argument. Spend more, find some, produce some, maybe, is more the geologists’ argument.

Ultimately it will come down to how much extra spending, for how much return, and at what final cost. That is the core of the peak production and depletion argument. It’s not that the world will “run out of oil”; it is that it will become increasingly expensive to find and produce the oil, until the point is reached at which it is not feasible.

We can defer that point in time a bit through conservation, efficiency and development of alternative and renewable energy sources; but the point will come. What I expect we’ll see next week in the announcements are some signposts marking our movement down that road.

When Is Ethanol Not Ethanol?

When it is imported. Or, perhaps, if it does not come from corn.

The flap over Cargill’s plan to import 63 million gallons of Brazilian ethanol into the 3 billion gallon a year market continues to escalate. (Earlier post here.)

Senator Daschle has fired off a letter stating his intention to introduce legislation that would preclude imported ethanol from qualifying underneath his proposed Renewable Fuels Standard (RFS).

The key to the next growth spurt in the domestic ethanol industry is bipartisan legislation I wrote with Sen. Dick Lugar (R-IN) that would encourage investment in new plants and expand a market for corn that farmers can count on through mandatory annual production targets created by a renewable fuels standard. Plans to import ethanol inject an element of market uncertainty into the RFS discussion that could dampen investment in community-sized ethanol facilities and compromise the RFS’s potential for farmers.

The RFS program is designed to stimulate domestic production and enhance US energy security, not to create a market opportunity for foreign ethanol. Cargill accountants should not count on the new demand created by the renewable fuels standard to justify any scheme to import ethanol. Therefore, I am leading a group that includes two Republicans, Senator Lugar and Senator Chuck Hagel (R-NE), and Senator Ben Nelson (D-NE) in introducing legislation to ensure that only domestically produced ethanol would qualify for eligibility under the RFS.

Some background:

• Since 1980, the US has imposed a $0.54 per gallon tariff on imported ethanol—the only exception to that being ethanol from CBI (Caribbean Basin Initiative) nations, and El Salvador, the portal through which Cargill would bring the Brazilian ethanol, being part of that group.
• The CBI allows up to 7% of the previous year’s US fuel grade ethanol production to be exempt from that import duty. Based on last year’s production of 2.81 billion gallons, that would allow 196 million gallons into the country via CBI nations tariff-free.
• Brazil is the leading world producer of ethanol (3.6 billion gallons of ethanol in 2003, although the US is closing fast). Brazilian ethanol is produced from sugar cane feedstock at a cost of about $0.50 per gallon to produce.
• Corn-based ethanol in the US costs between $1.00 to $1.25 per gallon to produce, depending up the size of the plant and the process used. (Detailed analysis of corn ethanol costs available from Kansas State University here.)

From the letter:

[South Dakota farmers] rightly fear that ethanol imports could undercut the growth of the domestic ethanol industry and undermine our effort to establish ethanol as a major domestic energy source.

But my obligation is to South Dakota farmers, ethanol producers, and motorists who view increased ethanol demand as a means to establish greater control over their economic and energy future.

I understand the Senator’s desire to protect his constituency (the corn growers), but this is bad logic and a bad precedent.

The analogy he draws between importing oil and importing ethanol seems flawed to me. In the case of the former, we do not have sufficient domestic resources, and those we have are dwindling. (A non-renewable resource.) In the case of the latter, we have plenty of raw material, and it is renewable. What we don’t seem to have is cost parity.

I haven’t seemed to notice a great deal of opposition and trepidation on building out new ethanol plants coming from the investment community. Where I have seen the opposition and trepidation is in local communities (primarily non-agricultural) that don’t want a plant in the neighborhood. (NIMBY) Let’s deal with that.

In general, I’m not wild about tariffs, although sometimes I think they are necessary. But with tariffs already in place and demand for ethanol booming, this just seems like a way to continue to shield an industry that has been shielded for 24 years. Where’s the competitive pressure to come up with a better, more cost-effective means of producing ethanol? What happens as biotech innovation provides second and third-generation production mechanisms that don’t use corn as a feedstock? Will those fuels not qualify under an RFS either, since conceptually one could regard them as “undercutting” corn ethanol?

The global market for ethanol is rapidly increasing; let’s get competitive. Let’s go get some of that market for ourselves. That’s a way to maintain energy independence: to have a market-leading renewable fuels industry that exports as well as serves our internal market.

Until Technology Offers a Better Solution...

California Air Resources Board (CARB) adopted a diesel air toxic control measure that requires big rig truck and interstate bus operators to shut their engines down after five minutes of non-essential idling.

The new regulation affects the more than 400,000 heavy-duty diesel trucks and buses registered in California and all out-of-state trucks and buses operating in California. The regulation will eliminate 166 tons of particulate pollution per year and about 6,600 tons per year of smog-forming nitrogen oxide emissions from the state's air. As a result of the new measure, California truck and bus operators will each save about 125 gallons of diesel fuel per year, or collectively over one million gallons each week.

More detail from the San Francisco Chronicle here. Information from CARB on the restriction here.

California: Pro-environment, Pro-hybrids

A survey by the Public Policy Institute of California found that 55% of Californians believe that the environment should be the top policy priority, even at the expense of economic growth.

A copy of the full report is here.

Additional finds include:

• 81 percent of residents support requiring automakers to reduce greenhouse gas emissions in new cars by 2009. Support for such a law is high across the political spectrum (Democrats 88%, Independents 86%, Republicans 71%) and among SUV owners (77%).
• Nearly three-fourths (73%) of state residents believe automakers should be required to significantly improve fuel efficiency in new vehicles sold in the U.S.—even if it increases consumers’ costs.
• About 66% back a $6 increase in vehicle license fees to pay for cleaner engines on older diesel vehicles.
• 63% of residents would seriously consider buying or leasing a hybrid because of rising fuel prices. 47% would consider buying a hybrid even if more costly.
• 56% believe that the recent jump in gasoline prices represents a permanent change in prices, and more than half (55%) also say that the price increases have caused them financial hardship.
• Nearly three-fourths of the state’s residents (71%) believe that unchecked amounts of carbon dioxide and other greenhouse gases released into the air will lead to global warming. 76 percent believe immediate steps should be taken to counter the effects of this phenomenon.

Automakers, pay attention! This is a business opportunity! You can build, market and sell cars that are environmentally friendly. Take the right approach, do the appropriate marketing and market development, and people will buy them—even if those cars cost a bit more. Trust and educate your customers.

GM: Revenue Up, Marketshare Down

GM posted close to a 50% surge in earnings in the second quarter, from $879 million in 2003 to $1.3 billion this year. Like Ford, the majority of its revenue came from the financing arm. Unlike Ford, GM’s auto operations improved dramatically year-to-year and pulled in a more substantial chunk of the final revenue: 39%. Yet GM execs were not entirely happy with results. 2Q earnings report material is available here.
(Click on any chart to enlarge.) To the right is a plot comparing financing revenue and revenue from auto sales on a quarter-to-quarter basis. GM clearly did much better on the auto side this quarter, even given that it had a bad sales month in June.
Europe is clearly the most troubled spot in revenue for GM. GM’s success in China is driving its improvement in Asia-Pacific, and the Latin America-Africa-Middle East region also improved greatly year-to-year. Europe is probably in for some restructuring.
In terms of marketshare, GM lost 1.2 percentage points in the US, the largest single market; 1 percentage point in North America; and 0.2 percentage points globally. In the US, GM truck sales as a percentage of total sales increased 1.2 percentage points from 59.3% to 60.5%

It’s no wonder GM execs were dissatisfied.

From the Detroit Free Press:

Overall, [GM CFO John] Devine struck a more cautious tone than he did at the beginning of the year, when he and other GM executives expected stronger auto sales, improved market share and slowing incentives. Overall sales have held strong, but GM’s share of the industry is down and incentives are headed up again.

“I think on the margin, he’s not as optimistic as he has been in the past,” said [Daman] Blakeney [an equity analyst for Victory Capital Management]. “The whole environment is more challenging for GM. Their trucks are one year older. There is more competition. Interest rates aren’t as favorable as they were.“

GM indicates that the first week of July seems to have better from a sales point of view—incentives kicking in again. It will be interesting to see how the rest of the summer goes for the vehicle sales mix, given ongoing strength in oil prices and the advent of new hybrids from Toyota, Honda and Ford. If I were GM, I’d want to be emphasizing something besides my strength in trucks and SUVs.