Jonathan Koomey Stanford University JGKoomey@stanford.edu

Advisory Board Meeting, Mineral Acquisition Partners, Inc.

21 July 2004

Confidential preview

of work in progress,

strictly embargoed

to release on 20

September 2004

Copyright © 2004 Rocky Mountain Institute. All rights reserved. Hypercar® is a registered trademark of Hypercar, Inc.

Introduction

◊  “Winning the oil endgame” report to be released in September 2004

◊  Audience is business and military leaders

◊  Focus on 4 potential sources of oil displacement   Efficiency

  Substitution of natural gas

  Substitution of biofuels   Substitution of hydrogen

The U.S. oil problem

  Americans use 26%, produce 9%, and own 2-3% of the world’s oil. So we can’t drill our way out

  Fungible in world market; issue is use, not imports

  The next barrel is cheaper abroad than at home

  Security is an issue at 70% import dependence, with Saudi Arabia as the only swing producer

  Only three solutions in a market economy   Protectionism

  Trade

  Substitution

  Three basic approaches to oil strategy   Ostrich

  Drill and kill

  Innovate and revitalize – cheaper, safer, surer; our focus

Growth in U.S. oil use dominated by light trucks & heavy vehicles

1

0

2

4

6

8

10

12

14

16

18

20

22

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

Source: Transportation Energy Data Book: Edition 23, DOE/ORNL-6970, October 2003, and EIA Annual Energy Outlook 2004, January 2004

Mill

ions

of B

arre

ls p

er D

ay

DomesticProduction

Actual Projected

Light Trucks

Heavy Vehicles

Year

Air

Marine

RailOff-road

Cars

Transportation Petroleum Use by Mode (1970-2025)

Three illustrative scenarios

technology→

policy↓

Conventional Wisdom (CW)

State of the Art (SOA)

Gridlock as Usual DRIFT [State of the Shelf]

Coherent Engagement

LET’S GET STARTED MOBILIZATION

More innovation→ More b

usin

ess leadersh

ip →

U.S. oil consumption and net oil imports 1950–2025

0

5

10

15

20

25

30

1950 1960 1970 1980 1990 2000 2010 2020

Year

millio

n b

arr

els

/d

ay

Total Petroleum Use (AEO) Net Imports (AEO)Total Petroleum Use (CW) Net Imports (CW)Total Petroleum Use (SOA) Net Imports (SOA)

The future is very flexible

preliminary data; transition dynamics schematic; only efficiency shown, not alt. supply

{alt. supply exceeds this

To Win: Four Issues to Resolve

  Is there cost effective technology on the horizon to radically improve end use efficiency?

  What will it take for business to adopt these innovations?

  What is the most effective role of government to accelerate change?

  What will it cost, and where do we get the money?

Ultralight-but-safe light vehicles open a new and roughly free design space

1990–2004 comparison of absolute mpg vs.incremental costs for new U.S. light vehicles

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

20 30 40 50 60 70 80 90

Absolute miles per U.S. gallon (EPA adjusted, combined city/highway)

Pri

ce in

crease

(M

SR

P 2

00

0$

)

DeCicco & Ross 1995 Full Avg Cars

DeCicco, An, & Ross 2001 Mod & Adv Cars

NRC Low 2001 Cars

NRC High 2001 Cars

2004 Prius (2004 actual to ~2007 goal)

2000 Revolution w/AWD hybrid powertrain

2000 Revolutionw/AWD ICE

2004 RMI ConventionalWisdom average car

1992 VX subcompact

2002 ULSAB-AVC

2004 RMI State of the Artaverage car

2004 RMI State of the Art average light truck2004 RMI

ConventionalWisdom average light truck

All vehicles shown in green are adjusted to EIA's 2025 acceleration capability for that class of vehicle (treating Revolution as a

small SUV). RMI's 2004 average vehicles are for EIA's 2025 sales mix.

2002 ULSAB-AVChybrid (rough RMI estimate of initial and more mature cost)

NRC Low 2001 Light

Trucks

NRC High 2001 Light

Trucks

Baseline Vehicle(2004 Audi AllRoad

2.7T) Gal/Y

51% MassReduction *

Reduced PowerFrom Better

Integration, Aero,Tires, Powertrain

Hybridization Gallons Per YearUsed by Lightweight

Hybrid Vehicles

Critical Insight: Light weight before aerodynamics and powertrain creates 68% of the light-vehicle fuel savings

Reduce mass first, because 2/3 to 3/4 of fuel use is mass-related, and energy saved at the wheels saves ~7–8× in gasoline

956 461

105 111

279

Yet other studies ignore much or all of effect from mass reduction, focusing instead just on hybridization!

Carbon fiber is strong but light

Fig. 14. The strength of ultralight carbon-fiber autobodies was illustrated in November 2003 in Capetown when a Mercedes SLR McLaren was rammed by a VW Golf running a red light. The SLR—a 1,768-kg hand-layup, 626-hp, 207-mph, 16-mpg, street-licensed Formula One supercar priced at a half-million dollars—sustained only minor damage despite being hit on the driver’s-side door (the photograph shows a carbon side panel popped off). The unfortunate steel Golf, roughly one-fourth lighter than the SLR, had to be towed.

Modern materials = lighter, safer, & bigger vehicles — AND less fuel-burn

Lighter Materials:

= Safer   Better head-on energy absorption:

  Light CC car at ~1/2 mass of steel car

  CC-on-steel 3–5× safer than same-mass steel-on-steel*

= More efficient   Less mass, less fuel

= Bigger   More volume even at reduced mass

  Size is protective, mass is hostile

  So big-but-light provides protection without hostility

  U.S. policy shift toward penalizing downweighting and rewarding upweighting (except for the heaviest vehicles) is technically unsound and will make U.S. cars unsellable abroad

20 40

250

Steel Aluminum Carbon/ Thermoplastic

Carbon composites absorb ~12× more energy than steel (2× for Al) per kg Energy-absorption ability, kJ/kg, best shape

638

100

M, Steel M, Carbon/ thermoplastic

Carbon composites (CC) absorb ~6× more energy than steel per car* Normalized energy-absorption for m = 1/2M and absorption by M of steel set to 100 kJ/car

* Without momentum-change correction, factor would be ~638/100, but momentum difference reduces this

End: 12.5 mpg, then ~16 mpg- equivalent w/further improve- ments

Main sources: MIT, ANL, industry tests

Heavy trucks use 19% of all US oil, same technologies could save 65% at 33¢/gal diesel

-$0.50

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

0.00 0.20 0.40 0.60 0.80 1.00 1.20

Diesel Fuel Saved (Mbbl/d) in 2025 (From EIA Reference Case by Fuel Adoption)

Cos

t of S

aved

Ene

rgy

(200

0$/G

al D

iese

l)

Conventional Wisdom Average CSE = $0.13/gal

State of the Art Average CSE = $0.33/gal

EIA 2025 Pre Tax Diesel Price (1.04/gal)

EIA 2025 Post Tax Diesel Price (1.34/gal)

Start: 6.2 mpg

The future is already here: today’s concept vehicle approaches will be tomorrow’s mainstream …

  CARS

  TRUCKS

Top-left, clockwise: Four carbon-fiber concept cars   1991 GM 4-seat Ultralite (635 kg, Cd 0.192, 0–

60 mph in 7.3 s, 84 mpg [2.8 L/100 km], gasoline ICE, not hybrid

  2002 Opel 2-seat Eco-Speedster Diesel hybrid (660 kg, Cd 0.20, max. 155 mph [250 km/h], 94 mpg [2.5 L/100 km], below Euro 4 emissions.

  2004 Toyota Alessandro Volta, 3 seats abreast, by-wire, 408-hp hybrid, 32 mpg, 0–60 mph in <4 s, top speed governed to 155 mph.

  2000 Hypercar Revolution show car of a midsize SUV virtual design (857 kg, 5 seats, by-wire, Cd

0.26, 0–60 mph in 8.2 s, 114 mpg-equiv. [2.06 L/100 km-equiv.) w/ direct-hydrogen fuel cell, ~68 mpg [3.5 L/100 km] with gasoline hybrid).

Top-left, clockwise: Four high-efficiency Cl. 8 trucks

  ~7.5-mpg Kenworth T2000.

  PACCAR concept tractor. Photo Copyright 2004 courtesy PACCAR Inc.

  Engineer’s rendering of a lightweight, highly aerodynamic future tractor

  11.25-mpg tanker truck designed by Luigi Colani, from http://www.spitzer-silo.com/ colani/index.htm

 Results hypothetically assuming full deployment in 2025

-$70

-$50

-$30

-$10

$10

$30

$50

0 5 10 15

Oil Saved by Full Deployment in 2025 (Mbbl/d)

Cos

t of S

aved

Ene

rgy

(200

0 $/

bbl)

25% of 2025 Baseline Use

50% of 2025 Baseline Use

Conventional Wisdom (Avg. CSE = $8/bbl)

EIA 2025 Crude Oil Price

State of the Art (Avg. CSE = $12/bbl)

It pays to be bold: although CW efficiency technologies can save 26% of oil use cheaply ($8/bbl), State of the Art eff. technologies can save ≥50% of 2025 oil for only~$12/bbl

New biofuels technologies could provide 3.7 Mbbl/d cheaper than oil without subsidies

Biofuels Substitution Supply Curve (Net Mbbl/d)

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

0.00 1.00 2.00 3.00 4.00 5.00

SOA Net Mbbl/d

$26/bbl

Biofuel Supply (Net Mbbl/d)

2000

$/b

bl a

t Bio

fuel

Ref

iner

y G

ate

CW Net Mbbl/d

+ 1 Mbbl/d in biomaterials

“Imports” includes oil, product, or biofuel imports

H2 just from leftover saved US gas exceeds the US 2025 oil output shown.

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

EIA 2025Demand

SOA &Coherent

Mobilization

Net 2025Demand

Biofuels Natural Gas Domestic Oil Imports

Dem

and

on S

uppl

y (M

bbl/d

) 25.49 8.52

16.97 4.71

1.28 8.62

2.36

2025 demand-supply integration

Crude Oil Equivalent Supply & Demand, 2025

What will it take for business to adopt these innovations?

  Consumer demand

  Consistent and coherent government policies

  Capital

  Management leadership

Key issues that must be solved to accelerate technology adoption

  Create an advanced-materials industrial cluster

  Dramatically accelerate capital stock turnover

  Shift customers’ choice to superefficient vehicles while enhancing customers’ freedom of choice and increasing consumer & producer surpluses

  Capitalize retooling/new plants to make efficient vehicles (hard to do with OEM balance sheets)   For all vehicles, marginal investment ~$90b

  For light vehicles, new technologies can lower investment risk

›  Capital intensity ÷2–4, plant scale ÷2–6

5 ways Government can help

1) Stimulate Demand   Feebates

  Military and Govt. fleet procurement

  Create new markets through leasing to low income

2) Build vibrant 21st Century industries by sharing research and development risk   Military R&D should finance advanced materials

3) Lower Risk of Investment for new manufacturing plants through loan guarantees and/or tax credits

4) Support Development of domestic energy supply infrastructure

5) Remove barriers to efficiency through coherent policies and elimination of perverse incentives

How the strategy could unfold

Military & Government

Policy

Automotive Manufacturers

Oil Companies

Civil Society

2010

RFS Enacted

Retooling Loan

Guarantees

Feebates Enacted

Platinum Carrot

Awarded

2005 2015 0

5

10

15

20

25

30

35

Mb

bl/

d

2020

New Sales Reach 15%

US Oil

Demand

2025

New Sales Reach 50%

Conclusions

◊  Large reservoirs of potential oil savings appear to be cost effective from society’s perspective

◊  The transition will likely be led by business, but some policy changes are also needed

◊  If we don’t change our direction, we’ll end up where we’re headed!

“We are the people we have been waiting for”

Coming 20 September 2004 at

www.oilendgame.org