Prius Designer Says Industry Must Lose Oil Addiction (Update1)
Prius Designer Says Industry Must Lose Oil Addiction (Update1)
By John Lippert and Alan Ohnsman
Jan. 23 (Bloomberg) — Bill Reinert, who helped design
Toyota Motor Corp.;s Prius hybrid, hovers in a helicopter 1,000
feet over Fort McMurray, Alberta. On this clear November
morning, he;s craning for a look at one of the world;s largest
petroleum reserves where there;s not an oil well in sight.
Instead, in a 2-mile-wide pit below, trucks head to
refineries with loads of sand weighing more than Boeing 747s.
Yellow flames shoot skyward as 900-degree-Fahrenheit (482-
degree-Celsius) heat liquefies any embedded petroleum. Floating
scarecrows and propane-powered cannons do their best to chase
migrating birds from lethal wastewater ponds.
Eventually, nuclear reactors may surround the crater 270
miles (435 kilometers) northeast of Edmonton, Alberta,
delivering the power required to wring oil from sand.
“This is what the end of the age of oil means,;; says
Reinert, 60, who plans the vehicles Toyota will make in a
quarter century as national manager for advanced technology at
the U.S. sales unit in Torrance, California. “The car-based
culture, the business-as-usual of building cars and trucks, is
going to change dramatically.;;
Since Henry Ford introduced the moving assembly line in
1913, the world;s automakers have relied on a single source of
power — the gasoline-dependent internal combustion engine.
Under the Gun
Today, the twin threats of $100-a-barrel oil and global
warming are convulsing an industry addicted to cheap, abundant
petroleum. Auto companies, already hurt in 2007 by the lowest
U.S. demand in a decade, are struggling to perfect cars that run
on ethanol, diesel, natural gas, hydrogen and household
electricity.
They;re under the gun from California and more than a dozen
other states to cut carbon exhaust by 2020 with vehicles that
must get 44 miles per gallon (19 kilometers per liter) of
gasoline, about double today;s average. On Dec. 19, President
George W. Bush signed a law that mandates fuel-efficiency of 35
mpg nationwide by that year.
Reinert says automakers are endangering themselves by
basing sales and profits on the big, fast cars that many U.S.
customers say they want in 2008.
In five years, as oil shortages and global warming
intensify, car companies may be out of step with drivers;
demands for fuel-efficient vehicles. Even worse, degrading
stretches of the planet like Fort McMurray will only delay –not
prevent — the time when the world must function in a post-peak-
petroleum economy.
`Sacrifice Zone;
Canada;s oil sands region may eventually provide a quarter
of U.S. crude oil demand, currently at 21.3 million barrels per
day, Reinert says.
“At that point, the environmental impacts are totally
irreversible,;; he says. “You turn this area into an ecological
sacrifice zone.;;
Toyota investors, whose shares tumbled 36 percent to 5,100
yen in the 12 months ended today, say the company;s priority
must be weathering a weak U.S. market, not chasing breakthroughs
in green technology. Last year, U.S. sales declined 2.5 percent
to 16.1 million vehicles industrywide.
“There;s cake, and there;s frosting,;; says Jeffrey
Scharf, president of Santa Cruz, California-based Scharf
Investments, a fund firm that owns Toyota stock among its $700
million in assets. “Hybrids are more into the area of
frosting.;;
Shareholder ambivalence about clean cars is only one hurdle
to surviving the end of easy oil.
No Blueprint
Reinert, a former Navy submariner who stands 6 feet 1 inch
(1.85 meters) tall, says he lies awake at 2:30 a.m. wondering
whether he;s making the right recommendations for the future of
Toyota — and the planet.
His suggestions run from building lightweight compacts and
plug-in hybrids to redesigning smog- and people-choked cities
and populating them with electric-only cars.
Reinert says nobody can say for sure how the separate
tailpipe emission, fuel economy and manufacturing regulations
promulgated worldwide by multiple levels of government will
affect the environment. There;s no blueprint for the impact of
increasingly scarce oil on a U.S. economy already laboring with
a mortgage crisis and a dropping dollar.
Add industrialization in China and India, and the number of
cars and trucks worldwide may double to 2.1 billion by 2030,
according to the Paris-based International Energy Agency.
Making Excuses
“We don;t have a past, a history or a database that allows
us to explore the simultaneous impact of recessions, disruptions
to the energy supply and climate change,;; says Reinert, who
spent six years in the 1980s maintaining solar- and wind-powered
telephone towers in Colorado;s Rocky Mountains.
“We don;t have the legislative, regulatory, financial or
product planning tools.;;
Toyota is making excuses for not moving faster on fuel-
efficiency, says Daniel Becker, a Washington lawyer and former
head of global warming programs at environmental group Sierra
Club. Since Toyota;s 2003 hit with the second-generation Prius,
which gets as much as 45 mpg in city driving, the company has
slid backwards, he says.
In early 2004, Toyota and other carmakers refused to
negotiate with state legislators before California developed its
carbon restrictions. In December 2004, they sued to strip
California of its ability to enact its own limits, prompting
counterclaims that may end up in the U.S. Supreme Court.
“People like Bill Reinert understand the issues,;; Becker
says. “That hasn;t stopped the company from turning to large
trucks and SUVs to boost sales.;;
Defending SUVs
Reinert defends Toyota;s need for sport utility vehicles,
minivans and pickups, which contributed 42 percent of its 2.6
million U.S. vehicle sales in 2007.
The company earns about $6,000 before taxes in the U.S. on
an SUV. That compares with a $1,000 profit on a Corolla and a
small loss on a Prius, says David Healy, an analyst at New York-
based Burnham Securities Inc.
The Toyota City, Japan-based company made 450.9 billion yen
($4.2 billion) in the three months ended on Sept. 30 compared
with 405.7 billion yen a year earlier. Sales rose 11.3 percent
to 6.49 trillion yen.
“Without these profits, where does the investment capital
come from for our research on plug-ins or fuel cells?;; Reinert
asks.
Yet he fears Toyota and other carmakers may be too
bureaucratic and profit driven to prepare for the energy-
constrained future.
Craving Growth
Toyota;s U.S. sales headquarters employed 400 people when
Reinert was hired in 1990; today, 8,000 work there, and the U.S.
is Toyota;s most profitable market.
“There;s a tension between pickups and hybrids within
Toyota,;; says David Schearer, chief scientist for California
Environmental Associates and a consultant on the Prius. “They
want to do the right thing, but the Prius is a relatively small
piece in terms of overall sales volume.;;
Prius sales totaled 181,221 in the U.S. last year compared
with 30,000 in Toyota;s original forecast when the car went on
sale in 1997.
Toyota built 9.51 million cars and trucks last year versus
an estimated 9.26 million for General Motors Corp. The companies
appear to have tied in global sales for 2007, with GM saying
today it sold 9.37 million vehicles worldwide, the same volume
Toyota reported on Jan. 10.
Given Toyota;s craving for growth and profits, Reinert says
he feels like a 21st-century Cassandra, endowed with the gift of
prophecy about the oil-related crises to come but fated not to
be believed.
`Crisis on Top of Crisis;
The environmental desecration at Fort McMurray and the
dangers in petroleum-rich countries such as Iraq and Saudi
Arabia show why it;s foolish to brush off warnings about an
energy-depleted future, says Jan Kreider, an engineering
professor at the University of Colorado at Boulder who had
Reinert as a graduate student.
“We;re going to have to have crisis on top of crisis
before energy policies change,;; he says. “Americans have this
shock mentality where they do what they want to do for as long
as they can and then set up massive programs to fix everything
in a few years.;;
So far, Americans are embracing small steps such as
switching to fluorescent light bulbs. Meanwhile, at Fort
McMurray;s pit mines, it takes 2 tons of sand, 250 gallons (947
liters) of water and 1,400 cubic feet (39.6 cubic meters) of
natural gas to produce one barrel of synthetic crude, says Peter
Wells, director of research firm Neftex Petroleum Consultants
Ltd. in Abingdon, England.
Schlepping Sand
That;s enough water for a day;s use for a U.S. family of
four and enough natural gas for 5.6 days. The gas is burned to
power a process that extracts a tarry substance called bitumen
from the sand and then refines it into synthetic crude.
In turn, each barrel generates as much as 110 kilograms
(240 pounds) of carbon dioxide equivalents, the same as refining
three barrels of traditional light crude.
“When you;re schlepping around two tons of sand for a
barrel of crude, it shows that conventional oil is already well
into depletion,;; says Jeffrey Rubin, chief economist at CIBC
World Markets Inc. in Toronto.
“Price will ultimately ration demand. People won;t be able
to afford to drive.;;
End of Era
Canadian Association of Petroleum Producers Vice President
Greg Stringham generally agrees with Wells;s numbers. He says
each barrel of synthetic crude requires only 900 cubic feet of
natural gas and puts out about 96 kilograms of carbon dioxide
equivalents.
“It;s definitely true that the era of cheap and easy oil
is over,;; says Brad Bellows, spokesman for Suncor Energy Inc.,
which opened Fort McMurray;s first commercial oil sands mine in
1967. “Industry is looking offshore and to unconventional
sources like oil sands.;;
Oil sands facility operators are working to minimize
environmental harm by recycling water faster and using the
refining process to produce heat that;s now generated with gas,
Stringham and Bellows say. They;re also trying to sequester
carbon dioxide emissions underground and quickly restore land to
its original condition.
`What People Will Pay;
Wells predicts world oil production will peak at about 100
million barrels a day in about a decade. By 2030, output will
fall to today;s level of 87 million barrels. Declining
production will collide with rising demand, which could hit 118
million barrels a day by 2030 if trends were to continue, the
U.S. Energy Information Administration forecasts.
“When production levels off, if the price is $200 or $300
a barrel, then that;s what people will pay.;; Wells says.
Reinert says that although oil may drop in price because of
a global recession, it;s likely to gyrate between $75 and $125 a
barrel for the next five years. Crude oil for February delivery
traded at $88.36 a barrel on the New York Mercantile Exchange on
Jan. 22. It hit $100 for the first time on Jan. 2.
“Peter;s scenarios for future energy are the ones I
embrace,;; Reinert says.
Toyota;s rivals are struggling with the same predictions.
“The biggest risk is the risk of a recession, of a shock to the
global economy,;; says Larry Burns, vice president of research
and development at General Motors.
Clarity Fuel Cell
“The second risk is China. China;s growth is unbelievable,
and it depends on energy. In every country that;s providing
China with commodities, you;re seeing record years in car
sales.;;
GM plans to sell 16 models of gas-electric hybrids in North
America by 2011. One of these, a Silverado pickup, gets 40
percent better fuel economy in city driving than the gasoline
version, which gets 15 mpg.
At Nissan Motor Co., 25 percent of sales in five years may
come from electric cars, hybrids and clean-burning diesels, up
from 5 percent today, Chief Executive Officer Carlos Ghosn says.
“I don;t consider climate change or oil prices as a
threat,;; he says. “I consider it an opportunity.;;
In an industry first, Honda Motor Co. will start leasing
its Clarity fuel-cell car in California this year. Fuel cells
create electricity in a chemical process that combines hydrogen
and oxygen, with water vapor as the only byproduct. The Clarity
has a top speed of 100 miles an hour, a range of 270 miles and
lease payments of $600 a month.
`Carbon Free;
Such advances may not come soon enough, says Reinert, who
counts Toyota Executive Technical Adviser Norihiko Nakamura as
an ally who shares his urgency. Nakamura, one of a handful of
occupants on the top floor of Toyota;s Higashi Fuji Technical
Center near Mt. Fuji, says he worries the world;s oceans could
get so hot that they;ll release carbon instead of storing it –
with catastrophic consequences for human life.
Nakamura takes his own measurements of atmospheric
pollution and is scouring the world for alternative fuels. He;s
targeting hydrogen, electricity or ammonia as replacements for
petroleum to ensure that auto, aircraft and ship builders remain
viable for another century.
“Oil and natural gas are getting scarce, and there;s
global warming, so we need something that;s carbon free,;; says
Nakamura, 65, whose white hair almost reaches his shoulders.
“Toyota has a sense of crisis that there are only several years
left to do something about this.;;
`Mad Max;
The United Nations; Intergovernmental Panel on Climate
Change, which shared the 2007 Nobel Peace Prize with former U.S.
Vice President Al Gore, says carbon emissions must peak in 2015
to avoid irreversible climate shifts.
In its November 2007 report, the panel concluded that
emissions of greenhouse gases at or above current rates will
cause changes in the 21st century that are likely to be larger
than those in the 20th century.
Among them are probable increases in heat waves, heavy
precipitation and cyclones; reduction in the size of areas
covered by snow; and a decrease in Arctic sea ice.
Reinert says that without action, oil may become so
expensive that the world would resemble the one in “Blade
Runner.;; In the 1982 film, the rich live hundreds of stories
high and the poor walk dark, rain-soaked streets.
Or the lack of oil may cause the breakdown of social order
depicted in the 1979 movie “Mad Max.;;
Reinert says Fort McMurray provides a window into such
fictional portrayals.
`Epic Proportions;
He predicts that the clamor for energy security will trump
all environmental concerns worldwide. And he forecasts that most
alternatives to conventional petroleum, such as oil sands and
ethanol, will make climate change and water shortages worse.
Signs of indelible change already are emerging at Fort
McMurray, whose soil was saturated with petroleum when
landmasses collided to form the Rocky Mountains millions of
years ago.
Oil-related development has displaced 330 square kilometers
(127 square miles) of previously untouched forest rich with
spruce trees and peat bogs. The population has doubled to 64,441
in 10 years, with another 20,000 people living in mining and
construction camps.
Network of Refineries
Refineries, mines and so-called in situ extraction, in
which underground oil sands are melted with high-pressure steam
or set afire, have drawn investments totaling 155.6 billion
Canadian dollars (US$151 billion) since 1997.
“It;s an enterprise of epic proportions, akin to building
the pyramids or China;s Great Wall,;; Canadian Prime Minister
Stephen Harper said at a Canada-United Kingdom Chamber of
Commerce meeting in London last year.
In total, 175 billion barrels of recoverable oil exist in
an area the size of Florida, Stringham says. That compares with
259 billion barrels in Saudi Arabia.
“It won;t be a lack of resources that causes a shift away
from oil,;; Stringham says. “There;s lots of oil.;;
Daily output of oil from Fort McMurray may reach 6 million
barrels by 2050, up from 1.2 million last year, Wells says. Some
of the natural gas to fuel production could come from the
proposed $16 billion Mackenzie Valley Pipeline running 800 miles
from Alberta north to the Beaufort Sea.
Connecting to Grid
Today, most of Fort McMurray;s oil is transformed into
gasoline, diesel and jet fuel in a network of refineries
stretching to Edmonton, Denver, Chicago and Houston.
Reinert says it;s not too late to mitigate the
environmental toll of such development. Part of the answer lies
in more Corolla-style compacts with light materials and four-
cylinder engines. Part lies in hybrids such as the Prius and the
Camry.
Governments and corporations will have to get better at
setting priorities. Carbon emissions from buildings can be
reduced for $50 a ton with measures like insulation. In
comparison, it costs $2,000 a ton to cut carbon tailpipe
emissions by redesigning cars, he says.
Cities must be redesigned too. People need to rely on mass
transit and live closer to where they work. “In a place like
New York, there may not be a role for our traditional product –
I don;t mean today but 20 or 30 years from now,;; he says.
Right now, Reinert;s main job is designing the features
that will attract customers to plug-in hybrids. In the prototype
stage, plug-ins resemble the Prius with a small door on their
side for hooking to an electrical outlet.
Milking Its Edge
“The transportation sector worldwide is 95 percent
dependent on liquid hydrocarbons,;; says Gary Kendall, a World
Wildlife Fund energy analyst in Brussels. “The way to reduce
this dependence is with a grid-connected vehicle.;;
Electricity from nuclear power could be sent directly to
the vehicles instead of digging up oil sands to produce liquid
fuel, he says.
“I;m confident there will be an industry-leading plug-in
from Toyota,;; Reinert says. The company plans to start leasing
plug-ins to global fleet customers by 2010, he says.
Plug-ins can;t arrive sooner because Toyota hasn;t figured
out how to mass-produce lithium-ion batteries that are
affordable, durable and powerful enough for cars, Toyota
President Katsuaki Watanabe said in Detroit on Jan. 14.
Kendall says the company can work faster. “Toyota could
bring plug-ins to market very quickly, but perhaps it;s not in
their business interest,;; he says. “They;re milking the
technological edge they have now with the Prius.;;
The delay in consumer sales until after 2010 means Toyota
must endure taunts from GM Vice Chairman Robert Lutz. He told
reporters at the Los Angeles auto show in November that his
company will test-drive plug-ins in March 2008 and mass-produce
them in November 2010.
“We;ll find out who is right — and whose credibility
takes a serious dent,;; Lutz said.
World;s Cleanest Car
Menahem Anderman, president of Advanced Automotive
Batteries, a consulting firm in Oregon House, California,
predicts Toyota will introduce plug-ins first. Toyota spent $7.7
billion on research and development in 2006, the most of any
public company surveyed worldwide by Booz Allen Hamilton Inc., a
New York-based management consulting firm.
To move beyond automakers; lead-acid and nickel-metal
batteries, Toyota has as many as 300 in-house engineers studying
the chemistry of lithium batteries, Anderman says. GM has no in-
house researchers for lithium chemistry, relying instead on
suppliers, according to Joseph LoGrasso, GM;s engineering group
manager for plug-ins.
GM spent $6.6 billion on research in 2006.
For all of the recent research, the Prius may still be the
world;s cleanest car. During its lifetime, it emits 110,000
pounds of carbon dioxide equivalents, including the amount put
out during manufacturing, says Kreider, the Colorado professor.
That compares with 180,000 pounds for a Camry and 310,000
pounds for a Tundra pickup.
Less Friendly
“Toyota;s leading position in the hybrid arena remains one
of their key competitive advantages, especially given the recent
high-oil-price environment,;; says Wendy Trevisani, who manages
Santa Fe, New Mexico-based Thornburg Investment Management
Inc.;s $17.4 billion International Value Fund. As of July, the
fund held 8 million Toyota shares.
Some new Toyota vehicles are less friendly to the
environment.
The 2009 Corolla with a 1.8-liter engine is 193 pounds
heavier than its predecessor, with just a 1-mpg improvement in
highway fuel economy. The Lexus RX400h hybrid SUV gets 24 mpg on
the highway, 2 miles more than the gas-only version, and, at
$42,689, costs 10 percent more.
`Increasing Our Profits;
“We;re focused on increasing our profits, and the U.S. is
key,;; Reinert says. “This necessarily limits some of the
options we might have pursued, especially as we move toward
being a volume manufacturer, and especially in a down market.;;
If Reinert is sure of anything, it;s that Toyota can;t go
into reverse.
Since 1950, the world has been blessed with an eightfold
increase in oil production.
Yet the peak discoveries for new oil came in 1962,
petroleum consultant Wells says. Total production outside the
former Soviet Union and the Organization of Petroleum Exporting
Countries topped out two years ago, he says. Oil in the former
Soviet Union will reach its highest level in about five years;
OPEC will peak in about 10, he says.
In the interim, nations will be more dependent on the
Middle East, where getting oil is complicated by war, political
turmoil and declining output from mature wells.
`Governments Fail;
“After a series of incidents in the Persian Gulf, or a
low-level nuclear exchange that shuts off oil supplies, you
wouldn;t have a short-term disruption like Katrina,;; Reinert
says. “You would have a profound one- or two- or three-year
period in which economies and governments fail.;;
Even when he;s delivering dire assessments, Reinert speaks
in the easygoing tones of a popular college professor. His
interest in science came in fits and starts.
During the early 1950s, when he was growing up in Parcoal,
West Virginia, he was poor enough to see running water and a
telephone installed in his house. He moved to Kansas City,
Missouri, after his mother, who;d been divorced, married a Ford
Motor Co. assembly line worker.
Instead of following his buddies to Vietnam after high
school, Reinert joined the Navy and ran engine rooms in nuclear
submarines under the polar ice cap.
Reinert says his life fell apart after the Navy. His
darkest day came while he was working at the Ford plant. He was
put in shackles in front of his stepfather;s friends for buying
$6 worth of marijuana.
University of Colorado
After three weeks in jail, he enrolled in the University of
Colorado and got a bachelor;s degree in biopsychology. In 1979,
when the fall of Iran;s Shah Mohammed Reza Pahlavi sparked an
oil crisis, he joined the university;s master;s program in
energy engineering.
Reinert graduated and was hired by Kreider. His job was to
attach solar panels and windmills to microwave telephone towers
that were otherwise dependent on diesel fuel airlifted into the
Rockies. He became a pioneer in so-called power electronics,
coordinating electricity from wind and the sun with a battery
and diesel engine. He maintained the towers via helicopters
based in Grand Junction, Colorado.
Piceance Basin
The flights took him over the Piceance Basin, a 1,200-
square-mile area atop natural gas deposits and as many as 1.1
trillion barrels of recoverable oil embedded in shale.
Reinert joined Toyota to run energy operations at the
California sales headquarters in 1990. He spent eight years
badgering top brass to let him use power electronics to design
cars. He helped imbue the Prius with a hatchback and fold-down
back seats for maximum cargo space and acceleration of 0-60
miles per hour in 10.4 seconds — 4 seconds faster than its
predecessor.
Reinert won the assignment of chauffeuring actress Charlize
Theron in 2004 on the night she won an Oscar for “Monster.;; He
remembers how she hugged her mother when paparazzi pounded on
their fuel cell-powered SUV.
The Prius earned Reinert the right to speak on
environmental trends inside Toyota and to outside groups.
“Having a voice that may not be the company line is ultimately
good for Toyota,;; says Jim Lentz, president of Toyota;s U.S.
sales unit.
Galapagos Islands
Reinert believes in changing individual behavior. After the
oil tanker Rebecca sank off the Galapagos Islands in 2001, he,
Toyota and the World Wildlife Fund joined Ecuador in a multiyear
cleanup. They designed an oil delivery dock to replace the
leaking structure built during World War II. They set up
recycling centers for motor oil that would otherwise be dumped
into the ocean and household trash that would be burned.
“We could actually make a measurable difference in a
geographically defined area,;; Reinert says.
There;s evidence in his personal life that such efforts may
not be enough. Reinert and his wife, Pam, can;t walk their dogs
around their home in Rancho Santa Margarita, California, because
forest fires exacerbated by drought and global warming are
driving coyotes down from the nearby Saddleback Mountains.
When Reinert lies awake, he worries about the Piceance
Basin, where he put his life back together after doing jail time
and learned to be a hands-on scientist.
`Something;s Been Amputated;
Petroleum hovering around $100 a barrel is rekindling the
1970s oil shale boom. Roads and tunnels are snaking into the
mesas around Grand Junction; natural gas derricks dot the
horizon. Shell Oil Co. is testing ways to heat underground shale
to 400 degrees Celsius and capture the melted oil inside rock
frozen solid by pumped-in refrigerants.
Daily output of synthetic crude from Colorado, Utah and
Wyoming may reach 1 million barrels a day by 2040, Wells says.
Flying over the Piceance in a Cessna 182 in November,
Reinert searches for the bald eagles, wild horses and elk he
knew in his youth. He can;t find any.
He studies the creeks that used to feed the Colorado River
from melting snowpacks and finds them dry.
The river, which would nourish oil shale extraction and the
growing populations in Las Vegas, Los Angeles and Phoenix, is
narrower than the I-70 freeway alongside it.
Strip mines cut straight down into solid rock even after 30
years of reclamation. Another oil shale boom would further
deface the Piceance.
“I feel an abject sense of hopelessness that I can;t do
anything to stop this,;; he says. “I feel like I;ve lost part
of myself, like something;s been amputated.;;
Desecrated Forests
Toyota;s technical triumph with the petroleum-saving Prius
shows carmakers can be a force in mitigating the environmental
damage Reinert worries about. He says that;s only a start.
As threats from the end of easy oil multiply and global
warming accelerates, the desecrated forests and scarred earth at
Fort McMurray may be harbingers of what;s to come if automakers
and politicians fail to act.
To contact the reporters on this story:
John Lippert at
