The oil the world depends on is fraught with problems. We need only look to the aftershocks in the world oil markets in the wake of Hurricane Katrina to see how fragile our current position is. The fundamental fact is that oil is a finite resource which will not always be available. As Chevron noted, the era of easy oil is over. No one can say with absolute certainty when oil production will begin to drop off—or whether it might already be happening. In 1956, Shell geophysicist M. King Hubbert proposed what has come to be known as Hubbert’s curve, to model the total amount of usable oil available in the world. He originally predicted the highest point of oil production—which has come to be known as Hubbert’s Peak—would come around the year 2000, but some additional oil reserves, unknown at the time, have pushed that date out somewhat. In the aftermath of Hurricane Katrina, some observers believe we may have already reached Hubbert’s Peak. Though there is debate over exactly when the world will reach Hubbert’s Peak, with an ever increasing global demand for fuel, and significant growth coming from China and India , there is no doubt that this finite resource will eventually be exhausted. As a result we will be face with what Andy Grove would describe as a 10X change and a strategic inflection point. The end of oil driven by a sustained demand in the face of higher production costs and decreased availability will force a domino effect of 10X changes.

1. Biodiesel
Analysis and Strategy
EMT 677 – Team Case 2
Team Andrews
Damian Bucovsky
Robert Cain
Thomas D’Eletto
Shakeel Munshi
December 8, 2005

2. Oil is fraught with problems
• Witnessed fragility of the
market in the wake of
Hurricane Katrina
• About 60% of the oil
consumed in the US comes
from abroad, much of it
from the politically unstable
Middle East

3. Oil is a finite resource
• World oil consumption is growing
• Supply is shrinking
World Oil Consumption (thousands of barrels per day)—2005

4. The end of oil
• Hubbert’s Peak
• Originally forecast in the 1950’s by Shell
geophysicist M. King Hubbert

5. How can we extend oil?
• With a renewable resource
• Domestically produced
• Better for the environment
Biodiesel

6. How can we extend oil?

7. Managing biodiesel
• What company do we think can best
manage, improve and promote
biodiesel?
• We chose existing oil company
– US based
– Infrastructure
– Political ties
– Financial resources
– Above average environmental record

8. Chevron
to manage biodiesel
• Chevron is the world’s fifth-largest
energy company
• Conduct businesses in approximately 180
countries
• Global work force of 53,000 employees
• In 2004, produced 2.5 million barrels of oil per
day
• 25,700 retail outlets in nearly 90 countries

9. Chevron brands and products
•Additives
•Aviation
•Chemicals
•Fuels
•Lubricants
•Marine
•Power Services
•Specialty Products
•Technology & Energy
Services

10. Chevron’s capability to
commercialize biodiesel
• Already has capability to manufacture and
distribute biodiesel
• Spent $1 billion since 2000 on alternative
fuel research and development
• Nearly all the commercial stations around
the country that offer B99 Biodiesel are
associated with Chevron and they offer
alternative fuels in almost every state

11. Environmental commitment
“Energy will be one of the
defining issues of this
century. One thing is clear:
the era of easy oil is over.
What we do next will
determine how well we meet
the energy needs of the
entire world in this century
and beyond.”
Chevron’s Environmental Program

12. Government assistance needed
• Tax incentives for using biodiesel
• Tax incentives for creating new biodiesel
refining and manufacturing facilities
• Mandating the use of biodiesel in all the
government diesel vehicles (e.g., trucks and
buses)
– Some local state government already offer tax
incentives for alternate fuel refining and use
e.g., California, Kentucky, Oregon, Illinois

13. Markets for biodiesel
• Fleet (buses, etc)
– Commercial trucks
– Buses (both city and school), Greyhound
– US Postal Service, UPS, FedEx
• Marine
– Passenger ships
– Military ships
• Passenger vehicles
– Diesel cars (Volkswagen, Peugeot, Volvo,
Mercedes-Benz)
• Home and commercial heating

14. Customer and market definition
• 0% sulfur emissions and
low particle release
• Additional customer
benefit: lubricity is the
fuel quality that prevents or minimizes
wear in diesel fuel injection equipment
• No changes to national infrastructure
• Demand is up 300% from 2004 and
15,000% from 1999

15. Organizational implications
• Current demand (75 million) only
represents 0.125% of diesel fuel market
• Current diesel fuel market is 60 billon
• Chevron can open up pumps to offer
biodiesel on a larger scale
• Commercialization
• Risks of the organizational model

16. Organizational
recommendations
• Closely managed strategic business unit with
limited independence
• Not a separate organization—too much of the
existing infrastructure can be reused
• Strong lobby government for incentives
• Partner with large agriculture (soy) producers
• Promote the environmental advantages

17. Alternatives
• Improvements in fossil fuels technology and
underestimation of its availability
 Limited improvements & finite availability.
• CNG Technology
 Cleaner & available, but expensive to switch.
• Hydrogen fuel cell technology
 Good but it still needs a lot of work!
• Biodiesel
 Easy transition & available. Needs some improvements and
investments to reach its full potential.

18. Alternative technologies risk profiling
Fossil Fuels
Hydrogen Fuel Cell
CNG
Biodiesel
Technology
Risk
Market
Risk
Organizational Risk
None Low High
High
Low
None

19. Scenario variables
Trends
1. Population Growth
2. Increase Industrialization of
China & India
3. Exploitation of Alaska
4. Improved Hybrid-Electric
5. Improved Efficiency of Diesel
Engines
6. Higher Fuel Cost
Uncertainties
1. Production Decline in America and the North Sea
2. New Sources in Russia & Caspian Sea
3. Unknown Size of Remaining Supplies by OPEC?
4. Hydrogen Fuel Cell Technology
5. CNG Technology
6. Emissions Regulations
7. Ecological Catastrophe
8. Fuel Friendly Administration
9. Environment Friendly Administration
10. Middle East Democratization
11. Anti-West Islamic Fundamentalism
12. Booming World Economy
13. Recessive World Economy
14. Improved Efficiency/Cost of Biodiesel
15. Mega-Production of Biodiesel

20. Population Growth
China & India
U.S. Production Decline
Explotation of Alaska
Russia & Caspian Sea
OPEC Reserves
Hydrogen Fuel Cells
CNG
Hybrid-Electric
Fuel Efficiency
Regulation
Ecological Catastrophe
Fuel Friendly
Environment Friendly
M iddle East Democracy
Fundamentalism
Booming Economy
Recesion
$$$ Fuel
Biodiesel Price
M ega Production
0
1
2
3
4
5
6
0 1 2 3 4 5 6
Uncertainty
Importance
Population Growth
China & India
U.S. Production Decline
Explotation of Alaska
Russia & Caspian Sea
OPEC Reserves
Hydrogen Fuel Cells
CNG
Hybrid-Electric
Fuel Efficiency
Regulation
Ecological Catastrophe
Fuel Friendly
Environment Friendly
Middle East Democracy
Fundamentalism
Booming Economy
Recesion
$$$ Fuel
Biodiesel Price
Mega Production

21. Political Climate in the U.S.
Fuel Friendly Environment Friendly
Development
of
Alternative
Technologies
(Other
than
Biodiesel)
Rapid
Scenario 1:
“The Bush Family”
The efforts of environmentalists and the scientific community
pay up with breakthrough advances in Hydrogen technology.
The lack of support from the government keeps the world
stuck to fossil fuels until the end. Biodiesel and other
alternative technologies gain some ground but remain
expensive. Once fuel reserves start falling short of the
demand, only developed countries are able to afford it.
Biodiesel slowly finds its ways into the rest of the world.
Scenario 2:
“The Bridge”
Tax advantages for biodiesel are felt right at the pump.
Most of the world switches to B20 before 2010, B50 and B75
follow soon after. The mix of Biodiesel with Fossil Fuels
fosters the development of Mega-Farms which in turn help
improve the economy of development countries. As fuel
starts to run low the Hydrogen Fuel Cell technology is ready
to hit the markets and the transition is smooth. As a side
effect of the Mega-Farms the price of food is lowered and
the greenhouse gases are reduced back to pre-
industrialization levels.
Slow
Scenario 3:
“A New Order”
Biodiesel was never adopted in the U.S. because of lack of
support from the government. No other technology is found
in time and the price of fuel raises as supply becomes unable
to support the demand and the reserves have been
extinguished. China never fully emerges as a superpower due
to lack of energy sources once their supplies from Russia and
the Caspian Sea run out. The economic downturn allows the
democratization of the Middle-East once the Oil-Prices loose
power, and the Islamic fundamentalists loose their funding.
Europe embraces Biodiesel and establishes Mega-Farms in
Africa and South America shifting the balance of power.
Scenario 4:
“The Green Party in the White House”
A favorable administration helps the development of
alternative fuels through regulation and tax benefits. The
efforts in Hydrogen Fuel Cell Technology do not produce
the expected breakthroughs that could take the technology
to the main stream markets. The introduction of Biodiesel
and the improvements in Hybrid technology help postpone
the Energy Crisis by three decades. However, as fossil fuels
start to run low the prospects for the future look grim.
Scenarios

22. Scenario 2: The bridge
Risk profiling
Fossil Fuels
Hydrogen Fuel Cell
CNG
Biodiesel
Technology
Risk
Market
Risk
Organizational Risk
None Low High
High
Low
None

23. Summary
• Biodiesel can reduce US dependence on
foreign oil
• It’s better for the environment
• Gives farmers a profitable cash crop
• Can be used with the current
infrastructure

24. Summary
Thank you
Questions?