U.S. gas prices have increased far more than ten percent in recent years and exceeded the seasonal record this spring and fall. Oil prices remain very high, at about $100 a barrel (the record was $147 in July of 2008). It is very likely that prices will continue to rise in coming years due to the ongoing structural imbalance between supply and demand, which is partly masked by the ongoing global economic problems. As the global economy continues to recover, prices will rise further, and conservation will increase. 

Figure 3. Gasoline consumption vs. prices in the US (source: EIA data). 

It is impossible to predict, of course, exactly where prices will be in coming years and decades. And ditto with price-induced conservation. But the fact that prices have stayed so high even during global recession is strongly suggestive that those who believe we have reached some kind of global peak in oil production are right. Time will tell. My feeling is that we’ll see a sustained and accelerating reduction in oil consumption because of ever-increasing prices in coming years (with periodic price dips caused by recession, as we saw from mid-2008 to 2010).

Electric vehicles lead the way?

Now, how about electric vehicles? This is the most speculative of the three trends I’ve identified because we are so early in the adoption of this new/old technology. As mentioned, electric cars were predominant in the 18th Century. There are now six electric or plug-in hybrid vehicles available in the U.S., and far more models available around the world. The only mass market models in the U.S. are the Tesla Roadster (an expensive sports car), the Nissan Leaf and the Chevy Volt (a plug-in hybrid), but a number of new models are expected in 2012.  

Sales of the Roadster are relatively low (about 1,800), which is understandable when we consider the $100,000+ price tag. The Leaf and Volt are brand new in 2011 and sales so far have been good but not stellar. Chevy projected 10,000 sales in 2011 and has actually achieved about 8,000 so far. Customers love their Volts, however, with Consumer Reports finding that the Volt earned the highest ratings in 2011 for all new cars.

The Leaf is doing better than the Volt in terms of sales, with over 15,000 sold worldwide (about 9,000 in the U.S.) by October of 2011. If 20,000 are sold by the end of 2011, the end of the first year of sales, the Leaf will have eclipsed by about a factor of six the sales of the Toyota Prius when it first went on sale in 1997 and sold only about 3,000 units that year. The Prius has now sold more than three million units worldwide, 14 years after its debut. The Leaf appears to be well on its way to surpassing this record, which bodes very well for consumers and the environment. (Some feel that the first year sales figures represent a lot of pent-up demand from consumers who have waited years for a viable electric vehicle, but time will tell whether these figures are artificially high or indicative of sustainable market demand.)

At least ten more electric vehicles and three more plug-in hybrids are slated for sale in the U.S. by 2014, according to the EPA’s fueleconomy.gov website.

There isn’t yet a “killer app” electric car because vehicle prices are still too high. The Leaf costs about $33,000 before tax credits and about $26,000 after. The Volt is even more pricey, at about $40,000 before tax incentives and $33,000 after. The Leaf and Volt are, according to most testimonials, great cars. But they’re still too expensive to become even as pervasive as the Toyota Prius anytime soon, which is by far the most popular hybrid vehicle.

The good news here is that battery prices, which comprise as much as a third of the cost of these vehicles, are dropping fast and a glut is predicted by 2015. This may be bad for some battery manufacturers but it is unequivocally good for consumers and the environment because a glut will lead to far lower prices. The federal government projected in 2010 that prices would drop by 70% by 2015 and we appear to be headed in that direction.

It’s way too early to attempt an accurate extrapolation of current electric vehicle sales two or more decades into the future. Electric cars are still very much in the low foothills of sales and forecasts are all over the place. Nevertheless many companies still try to forecast sales. Morgan Stanley’s most recent projection of global EV sales is a dramatic downgrade from previous estimates (Figure 4). Even at the reduced projection levels, however, the figures are quite encouraging when compared with hybrid vehicle sales, which are now, 14 years after the Prius became available, still at only about 2.5% of total U.S. sales. Morgan Stanley projects this level being reached by about 2018, twice as fast as that achieved by hybrid car sales.

Research company IDC Insights feels far more optimistic than Morgan Stanley, concluding recently that global sales of EVs are likely to reach 120,000 in North American in 2012, up from 20,000 or so in 2011!

After a few more years, we’ll have a much better indication of the real potential for these ground-breaking new cars to reduce petroleum consumption substantially. The drop in battery prices could easily reverse the more pessimistic sales projections again as EV vehicles prices fall to the point, perhaps, where they are as cheap or cheaper than equivalent gasoline vehicles.

Figure 4. Morgan Stanley projection of EV global sales. 

More efficient cars

We shouldn’t let the glamor of electric cars overshadow entirely the contributions of more efficient cars such as smaller cars, hybrids and “mild hybrids.” Buick’s new LaCrosse, a mild hybrid, gets better gas mileage than the Honda Fit or Mazda2, at 36 miles per gallon on the highway! Hybridcars.com reports that 108 models of hybrid cars (about half of the total) and electric vehicles are expected by 2015, with a doubling of available models in 2011 alone. This rate of innovation and market interest is itself very encouraging.