A World without Oil: Companies Prepare for a Fossil-Free Future

Part 2: Turning Adversity into a Virtue

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For Nils Zimmermann, the pain threshold has already been exceeded. Zimmermann owns a parquet floor installation business in the Hamburg district of Bramfeld. He has 11 employees, and with the exception of the secretary, they are almost constantly on the road. He explains that his total gasoline costs came to about €30,000 last year, compared to costs that were about a third lower five years ago. "We had to think of something new," Zimmermann says.

At the beginning of the year, Zimmermann added an electric car to his company's fleet of vehicles: a refitted Fiat 500. The electric car costs him €4.50 per 100 kilometers, says Zimmermann, adding that his SUV is five times as expensive to operate. He plans to gradually phase out his other vehicles and replace with more fuel-efficient alternatives. "That's the future," says Zimmermann.

In many other industries, the transition isn't going quite as smoothly. High oil prices are a serious blow to airlines, for example. Lufthansa has already imposed a strict conservation program. The German airline's kerosene expenditures increased by €1.3 billion to €6.3 billion last year, and this year it expects fuel costs to go up by another €1.2 billion.

Indeed, skyrocketing energy costs are causing problems for the entire transportation sector, forcing freight forwarders, shipping companies and package-delivery businesses to recalculate their costs. For a company like the German postal service, Deutsche Post, with its 50,000 vehicles, each additional cent it pays at the gas station affects the bottom line by millions. Deutsche Bahn, the German national railroad, is another case in point. It spends more on energy -- €2.5 billion last year alone -- than any other German company.

Sticker Shock

The sticker shock is striking at the nerve center of the entire economy. Germany, with its broad industrial base and its flagship industries of car manufacturing, machine-building and chemical production, is more dependent on energy than any other country in the European Union. Germany's spending on oil has increased dramatically, growing by more than €23 billion within two years -- an increase equivalent to almost 1 percent of the country's gross domestic product. This translates into lower profits and less investment.

In addition, Germany, as the world's top exporting economy for many years, suffers more than most countries when shipping expenses become a significant cost factor again. The screws, sheet metal and other primary products that German companies buy on the world market are usually shipped by sea or air, and the finished products are then sold around the world. In times of three-digit oil prices, shipping goods halfway around the globe becomes prohibitively expensive, says Canadian economist Jeff Rubin. A former investment banker, Rubin expects to see a growing trend back to regional and location production. He predicts that our world "is about to get a whole lot smaller."

A world that is smaller in this sense doesn't have to be worse off. But there should be no room in it for those excesses of the international division of labor that are only possible because of a low oil price. An example is the shipping of crabs from the North Sea coast to Morocco, where they are shelled, and then transported back to Germany on trucks.

Cheap oil helped fuel globalization. More expensive oil would hardly stop it, but it might slow it down -- at least until the day alternative fuels replace fossil fuels. "Economic history teaches us that hardship sparks invention," says economist Rubin.

This is the alternative that would lead the consuming countries out of the fossil-fuel trap. The oil-producing countries, for their part, appear to be the winners at the moment. This spring, they were paid more for their mineral resources than ever before.

But easily earned petro-dollars have made countries like Russia, Venezuela and Nigeria corrupt and lethargic. The oil billions have not stimulated economic development. In fact, they have tended to achieve the opposite effect, because it didn't seem necessary to develop other industries.

Planning for the Long Term

So far, only a few oil and gas-producing countries are beginning to realize that they have to develop a broader base for their economies. The search is on for sources of affluence beyond oil -- even in countries like the United Arab Emirates, where reserves are still plentiful and could feed at least another generation. But what would happen after that?

Perhaps it has something to do with the country's Bedouin traditions that the Nahyan ruling family has even asked itself such a question. Those who have learned to survive in the desert have also learned to stock up and plan for the future.

About two-thirds of oil revenues in the UAE are saved, primarily through Abu Dhabi's ADIA sovereign wealth fund. With worldwide assets of $627 billion, the ADIA represents the largest financial cushion of any country, and is larger than similar sovereign wealth funds operated by China, Norway and Saudi Arabia. Where the other third of oil revenues goes, becomes apparent on the outskirts of Abu Dhabi.

The main building of the new Zayed University, with its curved, futuristic-looking roof, stands on the outskirts of the city. Abu Dhabi's leaders built the university as a place where a young generation of Arabs could study at a top international institution. Across the street is the lens-shaped headquarters building of the Aldar investment company, which operates the future financial center and various tourism-related projects. Beyond that is the Yas Island Formula 1 racetrack. Next to the racetrack, in the desert dust, construction cranes mark the spot where Masdar City, the ultimate showcase project for a post-oil future, is being built.

Masdar, the Arabic world for "source," is practically an alchemistic venture, where $22 billion dirty petro-dollars will be transformed into a clean, zero-emissions city, designed by British architect Sir Norman Foster. The new city will also be a center for research and production related to eliminating the fossil-fuel economy.

The students' powerful cars are in parked in the underground garage, but they reach the campus on magnetically controlled electric vehicles known as "pad cars." At the campus, a "wind tower" disperses cooling breezes, and the streets and alleys are designed to take advantage of shade and drafts, as in the traditional old cities of the Arab world.

So far, the project is little more than a showcase for visiting foreign leaders, a fig leaf for a country in which every tree has to be watered with artificially desalinated sea water. But the country is planning for the long term, as Masdar Capital invests in renewable technologies worldwide.

A company from the Emirates is producing solar modules in the eastern German state of Thuringia. Abu Dhabi is a shareholder in Gemasolar in Andalusia in southern Spain, the world's first commercial-scale solar power plant. It has also invested €120 million in the Finnish wind turbine manufacturer Winwind and, in a joint venture with the German utility E.on, is building the world's largest offshore wind farm in the waters off the Thames Estuary.

A 'Clean' City

Masdar may be geared to a time without oil. Nevertheless, this environmental utopia in the desert sand is highly dependent on the price curve. When oil prices collapsed after the 2008 financial crisis, the project had to be trimmed considerably.

The concept of a building that produces more energy than it consumes was abandoned, and the entire city was connected to the dirty electric grid. Instead of being referred to as "CO2 neutral," Masdar is now being called "clean."

Many German companies, including Bayer, BASF and Bosch, are involved in the development of Masdar. Electronics giant Siemens is building its headquarters for Asia and the Middle East in the experimental city. These are all companies that ran their businesses on the basis of fossil fuels for decades, and did very well as a result.

Now that conditions are changing dramatically, they are trying to turn adversity into a virtue.

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1. A World Without Oil
wildberry 04/03/2012
It's not all that often that respectable newspapers like Der Spiegel make hilariously fatuous statements. But when they do, oh boy, they do it in spades. Take today's statement: "If every person on Earth used as much energy as the average person in the United States, today's known oil reserves would be exhausted within nine years.” It’s the sort of headline grabbing rubbish that people are supposed to read and then look at each other in trepidation. A moment’s thought would be sufficient to demonstrate its utter absurdity on several levels. But for some people a moment is a long time; and thought is difficult. However, let us not waste time analysing a patently daft statement. Rather deal with the impression the writer is trying to make. The aim is to emphasise the danger of fossil fuel’s running out and leaving us with no energy – or impossibly expensive energy. Forget it; it’s not going to happen. Fossil fuel is increasing far in excess of the need for it. But isn’t it a finite resource? Well yes, but only in a strictly theoretical way. To all intents and purposes it is going to keep on increasing and increasing until there is more than enough for everyone. Wasting time and money on ugly solar cells and useless windmills is a modish fashion that the market will eventually destroy. If it had not been for the willingness of politicians to throw EU and national taxpayers’ money down what might as well be a hole in the ground, the market would have killed it off years ago. The reasons are not difficult to understand. But they are so unpalatable that few of our rulers are willing even to contemplate them. After all, these are the same rulers who have been doing all the money-throwing. Anyone who wishes to understand the enormity of the vast swindle we have been fed – and I include the author of this patently nonsensical article – need simply to read a thoughtful little piece by Lawrence Solomon in last week’s Financial Post. It’s entitled “A World Awash in Oil”. And I commend it to anyone interested in straightforward clear thinking of a kind foreign to the overpaid journalist who appear to enjoy to frightening readers of Der Spiegel!
2.
yt75 04/05/2012
About oil and peak oil, please do not hesitate to sign (and forward) a call to French presidential candidates "mobilizing society in the face of peak oil" originally published March 22nd in lemonde.fr. Signed by : Pierre René Bauquis - Former Director of Strategy and Planning at Total Jean-Marie Bourdaire - Former Director of Economic Studies at Total, former Director of Studies at World Energy Council (WEC) Yves Cochet - European Deputy, former Environment Minister. Jean-Marc Jancovici – Consultant, energy and CO2 issues, ASPO France Jean Laherrère - Former Chief of Exploration Technologies at Total Yves Mathieu - Former Hydrocarbon Reserves Project Manager at the Institut Francais du Petrole (French Petroleum Institute) Translation published on Energy Bulletin : http://www.energybulletin.net/stories/2012-03-29/mobilizing-society-face-peak-oil-call-french-presidential-candidates And on a dedicated site (with petition/join the call functionality) : http://tribune-pic-petrolier.org/mobilizing-society-in-the-face-of-peak-oil/ Any language welcomed for the message! Thanks Yves
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