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

Drivers may hate rising gas prices, but some companies are delighted as they watch the oil price soar. Firms like BMW and Airbus which are leaders in fuel efficiency actually benefit from expensive oil. They are just two of a growing number of companies that are already developing technologies for a post-fossil-fuel world. By SPIEGEL Staff

A few cents more and a liter of super unleaded gasoline will cost German drivers €1.80 (around $9 a gallon). That means that someone driving a BMW 3 Series will have to pay over €110 ($150) to fill up the tank, with its 63 liter (17 gallon) capacity.

But Norbert Reithofer, the CEO of BMW, seems surprisingly relaxed for an executive whose company's products depend on gasoline and diesel. "One could see this as a threat," Reithofer says. But the auto executive actually views the rising price of fuel as "an opportunity." He is convinced that his company will in fact "derive a benefit from this."

The Munich-based automaker has invested billions of euros in fuel-saving technologies, such as efficient engines, brake energy recovery and ultra-lightweight carbon fiber car bodies. BMW is now considered a leader in the field, and the company's record sales in 2011 suggest that this is something its customers are willing to pay for. And that, Reithofer believes, is why the company will ultimately benefit from high prices at the pump.

Airbus CEO Tom Enders uses a similar argument. He ought to be upset about high kerosene prices. They have sharply affected his customers, the airlines, whose profits are shrinking and who are investing less money in buying new planes as a result. Nevertheless, Airbus has never had as many orders on its books as it does today.

Last year, Airbus received well over 1,000 orders for its A320 neo model, with scheduled delivery starting in 2015. Thanks to new engines and special wings, the plane uses about 15 percent less fuel, making it significantly more fuel-efficient than competitor Boeing's comparable models. This is a critical selling argument in times of high kerosene prices, says Enders. "To a certain extent, we do benefit from the high price of oil," he adds.

Addicted to Oil

This is certainly one way of looking at things. Drivers are upset about the record high prices at the pump. But on the positive side, they also force companies to change the way they are using the increasingly precious commodity, so that they consume it more consciously and not as wastefully. And that change is necessary.

The world is addicted to a material that is being used up from day to day and from hour to hour, a material that is also much too valuable to be burned. The prosperity of the human race is based on limited resources. Most people know this, and yet they refuse to accept the necessary consequence: reducing their use of fossil fuels.

The record high prices for gasoline are probably the most effective incentive for us to finally kick the oil habit and search for alternatives. And they are fueling the modernization of the economy in the process.

The withdrawal will undoubtedly be tough. The economy will be affected when it is deprived of its lubricant. But consumers and business owners have no choice, and the longer they delay, the more painful the transition will be.

No Plan B

When gas prices go down, people drive more and buy more powerful cars, which in turn leads to higher fuel consumption. But when that happens, the world heads toward the inevitable end of the oil era even more quickly than it already is. At some point, it will consume the last drop of oil and end up without a plan B.

But if gasoline becomes noticeably more expensive, phasing out fossil fuels could be relatively pain-free, as paradoxical as it sounds, because it will prolong the transition into the post-oil era. The world would be buying time for an energy revolution, gaining a reprieve in which scientists could develop more efficient batteries for electric vehicles, for example, or grow energy plants to produce biofuel in a way that takes up as little agricultural land as possible. Higher fuel prices would enable the world to stave off the fossil-fuel finale.

If the United States, France, Great Britain and Japan do in fact release their oil reserves, the stockpiles of fuel that are built up to deal with crises like disruptions in supply, wars or natural disasters -- as some politicians have been calling for -- it will probably bring down prices at first, but it will also send precisely the wrong message.

By now, it isn't just environmentalists, but also liberal economists who advocate a strategy of increasing fuel prices. Oil is apparently still far too cheap, or else consumers wouldn't be as wasteful with it, says Thomas Straubhaar, president of the Hamburg Institute of International Economics. "The whip of scarcity is the most effective tool for driving innovation."

This brutal mechanism could be seen for the first time after the 1973/74 oil crisis. At the time, the oil producing industry searched for new sources to reduce dependency on oil from the Middle East. This led to discoveries of deposits under the ocean floor in the North Sea and the Gulf of Mexico.

Approaching the Limits

But now the Earth's supply of oil is approaching its limits. The development of new fields is becoming more and more complicated, costly and dangerous, as the accident at the Elgin natural gas platform in the North Sea demonstrated last week. Even more important is the fact that not even all of the oil in the Arctic and the deep sea will be enough to quench the immense thirst for energy developing in East Asia.

China already consumes 9 million barrels of oil a day, or almost twice as much as it did 10 years ago. It is estimated that by 2020 the number of new cars sold in China will be 70 percent higher than today, and all those additional cars will lead to more traffic congestion. A huge new generation of energy users is emerging in the People's Republic and in India, and they are emulating the Western model of consumption, complete with air-conditioned homes and a car in the garage. The two countries, both with populations of more than a billion people, have a lot of catching up to do.

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.

Worldwide energy use will almost double by 2050, predicts the Organization for Economic Cooperation and Development (OECD). The most problematic aspect of this is that, according to scientists, the share of energy consumption attributable to oil, gas and coal will not decrease. Today, four-fifths of the energy we use comes from fossil sources. "The erosion of our natural environmental capital will increase the risk of irreversible changes that could jeopardize two centuries of rising living standards," warns the OECD in its report.

The message behind this warning is that commodity prices must send a clear signal, namely that society can no longer afford a prosperity that is based on the squandering of natural resources. But what are the consequences for consumers? How much more expensive do fuels have to get so that people change their behavior?

Turning Adversity into a Virtue

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.

Chemical Giant BASF Bets on Batteries

BASF, the world's largest chemical company, headquartered in the southwestern German city of Ludwigshafen, is more dependent on crude oil than almost any other German business. This is advantageous for BASF, which, thanks to its close business ties to Russian energy giant Gazprom, is benefiting from the record-high prices. But there is also a serious drawback to this dependency: Oil and its products, especially petroleum, are the key raw materials for chemical products like plastics and paints.

"The oil price is currently our biggest concern," concedes CEO Kurt Bock, while presenting an otherwise stellar bottom line. The company currently bases its financial planning on a price level of $110 a barrel. But that picture will change considerably if the price rise, warns Bock.

That's why Bock has recently begun investing in a field that has nothing at all to do with oil. BASF has entered the battery business in a big way and soon hopes to become a major player worldwide. To achieve its goal, BASF is spending several hundred million euros, buying up specialty businesses and hiring dozens of scientists. Many of them work in building M 100 at the northern end of the Ludwigshafen plant grounds. With its high ceilings and wide stone staircases, M 100 feels like an old school building. The building is hallowed ground for every chemist.

A century ago, Fritz Haber and Carl Bosch developed a process there to synthetically produce ammonia, the key prerequisite for the production of synthetic fertilizer, which was a revolution for global food production. Now Andreas Fischer, an electrochemist, is searching for a solution for another problem facing humanity: mobility in the post-fossil age.

Painful Process

Fischer, who has worked for the company since 1997, heads its battery research unit. For many years, electrochemistry tended to be sidelined at BASF, but that has now changed. More than 100 employees are hard at work trying to develop better components for lithium ion batteries. In this case, better means that the batteries must have a high energy density and cannot be subject to as much wear during charging and discharging. They also have to be lightweight, fireproof and affordable.

These are goals that all players in the highly competitive battery market are trying to reach. Everyone wants to be ready when the anticipated wave of electric cars hits the assembly lines. Fischer admits that the Asians are several years ahead when it comes to battery storage in consumer goods like mobile phones. But that is not the case in the business of the car of the future, where, as Fischer says, "the cards are now being reshuffled."

At the end of the year, BASF will begin mass production of cathode materials for batteries at its new plant in the US state of Ohio. But the question of when electromobility achieves its breakthrough and becomes profitable for BASF will not depend solely on the performance of his team, explains Fischer: "The price of gasoline is also a factor."

The higher the gas price, the more worthwhile the investment and the greater the prospects for selling battery technology. In this way, the rising price of oil accelerates structural change in the economy, a painful process for everyone who falls by the wayside. But it is also exceptionally advantageous for those companies that have figured out how to use scarce resources in particularly efficient ways.

More Out of Less

There are many such companies in Germany, such as makers of heat pumps, insulation material and condensing boiler heating systems. One reason they are so strong is that Germans are accustomed to a lack of natural resources. The growing importance of energy efficiency is evident in the fact that a leading trade fair devoted to environment technology, IndustrialGreenTec, will be held in the German city of Hanover for the first time in 2012.

Bosch will also be represented at the trade fair. The engineers at the German automotive parts supplier have made it their goal to use modern technology to reduce fuel consumption in a vehicle in the Volkswagen Golf category from 5.4 liters to 3.6 liters per 100 kilometers (from 44 to 65 miles per gallon). To achieve this, they are using such features as automatic start-stop technology and dispensing with the fourth cylinder.

"You don't notice anything when you're driving," says Bernd Bohr, the head of the vehicle technology division. Bohr and his colleagues are consumed with one question: How do you get more out of less? The answer will also shape Bosch's success as a business. "Resource efficiency is a key growth driver for our company," says Bohr.

The same applies to Mercedes, the world's largest truck maker. The Stuttgart-based company is currently introducing the new Actros, a large truck that will use 5 percent less fuel than the precursor model, partly as a result of a new generation of engine that employs a fuel injection pressure of 2,100 bar. As modest as a 5 percent reduction in fuel consumption sounds, it adds to significant amounts in a business in which energy makes up 35 to 40 percent of total costs.

Andreas Renschler, the head of Daimler's truck division, expects sales to grow as fuel prices go up. "It increases the pressure to replace old trucks, which use more gasoline, with new ones."

Morally Reprehensible

New business opportunities are emerging from the challenges faced by an economy that has to make do with less and less oil. In Germany, the decoupling of prosperity from energy has been happening for some time. Last year, the economy grew by 3 percent while consumption of oil, natural gas and coal declined by almost 5 percent.

But in most countries of the world, especially the emerging countries, economic growth and energy consumption still go hand in hand. A global change of course is overdue, according to the German Advisory Council on Global Change. "The carbon-based world economic model," say the scientists on the council, constitutes "a normatively unsustainable situation" and is as morally reprehensible as slavery or child labor.

With a view to the United Nations Conference on Sustainable Development in Rio de Janeiro in mid-June, the nine scientists on the council have prepared a master plan outlining the necessary changes. They include the expansion of renewable energy, as well as increasing the cost of fossil fuels.

Perhaps this will make the transition easier and delay the end of the age of oil a little longer -- by a few years, or perhaps even a decade. Whatever happens, the fossil finale is inevitable.

REPORTED BY DIETMAR HAWRANEK, ALEXANDER JUNG, ALEXANDER SMOLTCZYK AND FLORIAN ZERFASS

Translated from the German by Christopher Sultan