Carmakers in Japan, Europe and now the US see the hand writing on the wall. No one will be able to afford to drive their gasoline powered cars when oil is between $100 to $330 a barrel.

Why we don't get it
Like many of you I have been hoping that gasoline and diesel prices will come down. It's getting very expensive to drive my old diesel car. Now that diesel costs $4.50 a gallon, I have relegate driving it only on the weekends. Besides that, prices of housing materials and food will go up dramatically too as higher gasoline prices are passed on to us.

I think that it's very difficult to understand why prices keep on going up, because we are so far removed from oil fields and areas where people are extracting oil. We have relatively clean air and water and often think of far away places like the Middle East, Venezuela or the North Sea when we think of drilling for oil. No more. Just look north Canada and you will understand why oil prices are not coming down and why carmakers are pushing alternative energy cars and trucks.

The situation in Canada is very telling
Some of you may be cheering over the fact that Canada is into oil exploration. At least it's a US ally. All too true, but before you break out the champaign listen to how it's being done and ask yourself why they are even doing it when oil can be had for 1/5 the cost.

I've been in the energy/enviromental field for more than 25 years. However, nothing prepared me for an article in Bloomberg Markets March 2008 issue entitled "End of the Oil Age." I usually understand and accept the environmental trade offs that must be made to increase energy supplies, but I am drawing the line here.

Here's what is going on in Canada to produce a single barrel of crude oil from oil sands. The monetary cost to extract the oil from oil sands is $50 a barrel. Keep in mind that the price of a barrel of oil reached $120 a barrel in recent days and natural gas prices are increasing as well. Here is the recipe to make a barrel of oil from Canadian oil sands.

Recipe for One Barrel of Oil
(Makes 19.5 gallons of gasoline after refining)

• Take 2 tons of oil sands preferably far away from where most people live and break up any lumps,
• Mix sand with 250 gallons (947 liters) of water to create a nice slurry,
• Heat the slurry to 900 degrees F (482 degrees C) to separate the bitumen, and
• Skim off bitumen to process into a barrel of oil.

To really understand the magnitude of the operation watch the video below. Keep in mind that each heavy loader can carry 212 tons of oil sands.

The environmental and resource trade offs are as follows:

• Create a 2-mile wide pit and series of toxic waste ponds that would make many of us flinch,
• Use 250 gallons of fresh water per barrel of new oil - the amount of water that a family of four would use in a day,
• Use 1,400 cubic feet of natural gas per barrel- enough to heat an average home for about 5 days,
• Produce 110 kilograms of carbon dioxide, which is equivalent to producing 3 barrels of light crude oil from traditional means.

I am really bothered by the above. Aside from the environmental effects, the cost of housing and food will continue to rise if oil prices continue to rise. With the demand for natural gas to convert oil sands into a barrel of oil, the price of electricity will only increase.

Actions speak louder than data
Carmakers have really taken this to heart. I personally think they don't really rely on government figures regarding future prices or amounts of oil any more. Instead they are standing back and watching how energy companies are investing huge amounts of capital in Canada to get a barrel of oil for $50. In contrast, the same barrel costs $10 to produce in other places. Many of those places are in politically unstable areas.

The carmakers also seem to believe that oil prices will be between $110 and $300 a barrel. Even if oil prices go down, do we really think that Canadian companies who are extracting oil at $50 a barrel are going to sell it to use below their cost?

Carmakers now finally seem serious about offering more choices in the form of hybrids, fuel cell powered cars, electric vehicles and plug in electric vehicles. But is it too little too late to ease the pain.

See my Article on Never Buy Gasoline Again

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