Overview of the World Fuel Outlook

Mention the word "fuel" at any gathering- of automotive people, and you are bound to wind up with a divergence of opinions, and even an argument or two. That is why at the annual convention of the National Association of Fleet administrators, one of the most popular speakers was Bruce Netschert, vice president of National Economic Research Associates, Inc. The following is a condensed version of Netschert's lengthy and informative address to convention participants.

If was eight years ago that I last spoke to you. Remember the circumstances at that time? The Great Oil Embargo and the lines at the gas pumps had just ended. My advice to you then was not to throw away your ulcer medicine. If you took that advice you were in better shape to suffer through the second price shock and the reappearance of gas lines five years later.

In 1974 I concluded that mileage performance in cars was here to stay, along with that public consciousness. That is just what has happened, as there has been a decline in consumption and of the energy experts in contending that OPEC price rises could not go on indefinitely. Supposedly rational people were soberly forecasting uninflated crude oil prices of $50, $75 or even $100 a barrel, ft was almost a kind of mass hysteria, which ignored fundamental economics and assumed the world as a whole was experiencing the first symptoms of running out of oil.

It is now clear that we are not running out of oil. Proved reserves in Saudi Arabia are double the official figures, and Sheikh Yamani has said that as for that country's total reserves, if they were stated out loud, you'd have to fasten your seat belt.

What OPEC did with price increases was to create new, producible reserves out of oil resources whose existence had been known, to stimulate research for new sources throughout the world, and to give massive encouragement to conservation and substitution. Experts predicting the sky was falling have retreated into silence or are issuing predictions opposite their previous views.

How many of you ever thought you would see a pump price below one dollar a gallon anywhere in this country? The fundamental weakness of oil markets was demonstrated by the failure of prices to respond with their usual rise during a severe winter when stocks of heating oil are drawn down.

Prices will certainly continue to be soft for the remainder of 1982 and perhaps for a year or so longer. The Saudis must keep prices and supply in a certain order in order to maintain revenues at the level necessary to meet their enormous investment, program, and they must maintain oil output at a level that yields enough of the natural gas that is produced along with the oil to feed the large petrochemical and gas processing plants they have built.

How far will oil prices decline? Here I'll stick my neck out. I think governments would get very nervous if the price got down to $25 per barrel, and J would expect prompt action to keep the price from going much lower.

There will be no supply problem through the remainder of this century, and probably for some time thereafter. World oil prices a year hence will probably be lower than they are now. What happens thereafter depends in part on general economic conditions. All the world's depressed economies are contributing to the current oil glut.

What about a severe problem in the Middle East resulting in a shortage of crude? Where does that leave you fleet administrators?

I suggest it leaves you in a very nasty position indeed. I am sure you have bitter memories of how the DOE officials handled allocation under the Garter Administration, but if we do have an oil crisis guarantees trouble.

With a straight face, this Ad­ministration proposes to stand aside in a simply crisis and let the market take care of things. Obviously, this cannot be allowed to apply to absolutely essential, vital services. Certain uses must be satisfied: police, fire protection, ambulances and so forth. Are local governments and hospitals going to bid against each other in the market? Of course not. There is no way the federal government can avoid having to commandeer and set aside the quantities of motor fuel needed by these vital services.

Consider the impact of rising prices in a free market during a. shortage on postal and trucking services. How much will food delivered by truck cost? Think of the inflationary impact of this approach on all transportation. Reliance on the market would cut discretionary fuel use, but it is by no means clear that the effect on all legitimate uses would not be more disruptive than complete government control and allocation of supply.

Suppose one half of our normal oil supply was cut off. Government officials are then faced with an agonizing dilemma. They know that the longer the cutoff lasts, the more it will be necessary to tap our (at this time) 16 day reserve for absolutely vital needs. The prudent course is to play it safe. It is quite possible that no use of the reserve will be made of at all. When the embargo ended in 1974, this country had more oil in reserve than when the embargo had begun.

From the administrator's point of view, a government policy of allocation would seem to be infinitely preferable to reliance; on the market during an emergency. That way, you can make plans and carry on accordingly.

Now, let's take a look at several motor fuels, conventional and otherwise, which are or might be of interest to a fleet administrator.

Gasoline. The price outlook for oil translates pretty directly into the outlook for gasoline. As long as we have inflation there will be upwards pressure on gas prices, but gas should not outpace inflation. It may well fall behind it.

Next is diesel oil. If you want good mileage per gallon, there's just nothing to compare it to except motorcycles. The price outlook here is somewhat different. Traditionally, diesel fuel has sold for less than gas, which made the cars very attractive. But right now (May 5), diesel is more expensive than gas, and if it does not stay that way in the short, term, I expect that it will over the long pull.

This may seem odd, since diesel comes from the middle of the barrel and is less expensive to make than gasoline. But demand is growing and gasoline demand shrinks. Nevertheless, more expensive or not, the combination of greater efficiency and less maintenance makes it possible for savings in cost per mile to more than offset the higher initial cost of the diesel engine. Provided, of course, you keep the car long enough.

Turning to the exotics, the closest thing to gasoline is gasohol. We hear a lot less about it now then we did a few years ago, and for good reason: it is just not economic. It was made marginally competitive only through some healthy subsidization at the federal and state levels. Ethanol is simply too expensive on an energy basis...the price of gas would have to be closer to $2 a gallon for it to be competitive.

Beyond that, there is a fundamental limitation on supply. Switching a substantial portion of cropland would be necessary to provide the product for the inherently inefficient fermentation process. Gasohol was a flash in the pan; I don't see it as ever being a significant contributor to the supply of motor fuel.

Methanol is different. It can be made from any vegetable matter without fermentation, as well as from coal and natural gas. It can be mixed with gasoline or used in pure form in any properly modified gasoline engine. It has only about half the energy content of gasoline, and it is corrosive on rubber and plastics. Thus, the fittings on an engine must be different and the gas tank must be larger.

Despite these drawbacks and the fact that it is currently more expensive than gasoline, its prospects are very good. Costs should come down sharply with large scale production, and engines fitted for methanol at the factory will cost little more than standard engines. Things look so good there is nibbling at the edge from several directions. Conoco is testing methanol in a two year road test. The Bank of America, Pacific Telephone and Pacific Gas and Electric are all trying it. A recent study indicated a profitable market for manufacturers at a level of 150,000 cars annually. Over 100,000 miles, the methanol car would cost $1700 less to operate than a gasoline car.

The real attraction of methanol is that it offers a surefire means of being totally independent of OPEC.

Perhaps ten years from now it may well be an attractive alternative for some fleet operators.

Whether or not you use propane, to move on, I am sure you are aware of its availability, advantages and disadvantages. Last year LPG dealers around the country converted 12,000 vehicles for a reported savings of 5 cents per mile. Ford has announced commercial production of a propane car and the Granadas and Cougars are being delivered at this time.

Propane's major advantage is price. It is about 50 cents less than gasoline per gallon, and in two years the $900 extra price of the converted cars is recouped in gas savings. For those with a centrally- garaged fleet, that is all you need to know. For the rest of you, the number of propane fueled vehicles is growing as are filling stations, due in part to some aggressive marketing by LPG dealers.

Propane will keep its price advantage into the future. Both Persian Gulf countries and Mexico have in­ vested in processing plants to recover the liquids associated with natural gas, and chief among them is propane. The only problem experts foresee for propane is chronic oversupply, meaning the market will not lead to higher prices.

The last of the fuels to currently consider is CNG, compressed natural gas. The natural gas, or methane, industry, thinks it has the opportunity to create a large market. More than 30,000 vehicles of one sort or another are running on CNG in this country, at an equivalent gasoline cost of 60 cents per gallon.

The Canadian government will make grants for conversion of cars to CNG, which has spurred a supplier to establish fueling depots in several Canadian cities this year. Toronto alone is scheduled for ten CNG stations.

Natural gas is still under price control, which will expire for about 60 percent of the total supply in

1985. Prices will double or more, and there goes the advantage. The conversion costs of $1000 to $1500 per car plus the costs of the special facilities required limit the use of this fuel to centrally-garaged fleets and those circumstances where the local gas utility is able to supply the gas. If it weren't for the price outlook, CNG would be an attractive alternative.

To be complete, we should mention electricity as a fuel. The conventional lead acid battery is simply too heavy for the job. To date, nothing has really emerged to replace it. The electric vehicle has limited range, limited power and limited ability to carry the accessories that are essential for it to win a spot in the market place. No electric vehicle to date has been deemed insurable by underwriters. They are just too fragile.

Finally, we should also mention hydrogen as a possibility for the very long run. The advantages of hydrogen are so great that it is the ideal fuel. A hydrogen fueled economy would be based on water...and it would be a pollution- free fuel as well. Much research is now in progress on a means of lowering the energy requirements for the electrolysis process necessary to separate hydrogen atoms from oxygen atoms. Another avenue being pursued is the use of sunlight as an energy source for the process. The breakthrough may not come in our lifetimes, but I would bet that eventually the world will be using hydrogen as a major fuel.

The point I would like to leave you with is good news. One thing I don't think you'll have to worry about is the cost of fuels. The price of gasoline will not hold constant for long while inflation is rampant, but there is a good chance it will not rise as fast as inflation.

Beyond that, you are being offered a widening choice of fuels that are cheaper than gasoline and should remain so. What more could a fleet administrator want?

Living With The Propane Fords

AUTOMOTIVE FLEET has had the opportunity to test-drive the 1982 Granada and Cougar autos powered by a factory- installed proper system.

They averaged 16.2 mpg. They come complete with a booklet listing 5000 propane filling stations around the nation. They produce very little smog in operation.

However, there is a scarcity of filling stations, and many of them close at 5 pm and are closed on weekends. Most of them provide slow service, not being attuned to automotive needs. Some states require all occupants to leave the car when filling, and the propane smell stays in the car for minutes after filling.

Best point - propane averages $l.00 a gallon plus state sales taxes. If we were running a centralized, high mileage fleet of cars or trucks (police delivery service, etc.) we'd give it serious consideration as an alternative fuel.