The Oil Drum

Executive Summary: The current cost to produce a gallon of ethanol is approximately $3/gal. The current price of ethanol is $2.86/gal, which explains why ethanol producers are shutting down. If corn and natural gas prices remain high, I think ethanol has to rise to something like $3.40-$3.60/gal to make it worthwhile to ethanol producers. So, if I was a commmodities investor, I would probably go long ethanol right now. The only risk factors I can see - given that there is a mandated (and rising) demand for ethanol - is if corn or natural gas prices collapse. The other remote possibility is that that mandate is repealed, but I don't see that happening.

The hydrogen and ethanol powered car

[Editor's note, 10:30 UK Tuesday: Andris now has 44 excellent comments to contemplate (up from 10 on Friday). All are well worth reading. If you feel strongly about this then please leave him a message.]

“Alright!” says the Actress, “You’ve convinced me we have a problem with oil. So what’s the answer?” Well, actually I didn’t. Eloquent and persuasive though I might like to think that I am, what really convinced her was the price she had to pay to fill the gas tank in her car. And it is that way with most of the world. We can talk about the causes, and explain why the situation won’t get better, with graphs and projections and calculations, and most folk will, under the cynical guidance of most of the press, merely look for someone to blame. Oh, and there had better be an answer, pretty quick.

In my last post I tried to show that new solutions take time, more time than I believe that we have available. And because of this, if we are going to get through this evolving period we are largely going to be stuck with the solutions that are already either being introduced or are close to large-scale implementation. Though that is one of the things I tried to allude to in the earlier post about Camry mileage. The scale of the difference between likely supply and demand at a decent price is going to get quite large. If a solution does not provide supply levels that measure in millions of barrels a day (or significant fractions thereof) then it is not going to have enough impact to make much difference in the medium term.

For a bit of weekend energy listening, here's a conversation that I had with Tad Patzek (who should need no introduction around here), talking about ethanol's energy balance. This was recorded 2 years ago now, but it still remains quite timely today. You can listen to the mp3 either by downloading the link or clicking play in the built in audio player.

or download mp3: Conversation with Tad Patzek (52min, 21MB)

A long transcript of this conversation is available below the fold.

This discussion is especially relevant in Canada now because of Bill C-33 which amends the Canadian Environmental Protection Act and is supposed to be debated in the House of Commons around May 28th, 2008:

Amendments to the Canadian Environmental Protection Act, 1999 proposed in this bill allow the federal government to implement regulations requiring 5% average renewable content in gasoline by 2010. Subsequent regulations will also require 2% average renewable content in diesel and heating oil by 2012 on successful demonstration of renewable diesel fuel use under the range of Canadian environmental conditions.

Back at the beginning of January I changed cars, and now drive a Camry Hybrid. It came with the usual displays for mpg, where the power was flowing and such, and for a month I played with looking at the different displays and then, as with most new toys, started to ignore them. However, pulling into the garage one night just over a month ago, I switched off the engine and a little “Excellent” appeared in a hitherto un-noticed final display on the dash. Now how do I confess this? Since then my driving habits have changed - more than I would freely admit - by the wish to be praised by a machine. The commute home is under three miles, and in somewhat hilly country so this requires a little effort on my part, but more often than not I now get that little glow of satisfaction from such a sign as I enter the house, generating a feeling that I am doing my part.

Well, not completely, and in terms of the greater scheme of things not even at any level of significance. The problem that we are coming to face is much larger, and more imminent than can be solved with simple small measures. Yet by touting the gains in efficiency through use of hybrid cars, or the growth rates of the solar and wind industries, one can convey to the general public that there is a considerable amount of technical progress being made in solving what “short term inconvenience” we might face as this “peak oil thingee” comes to pass and we have to live through it. The scale of the problem is glossed over, and the inadequacy of currently proposed solutions in their impact on the overall size of the problem is lost in the debate over issues that may be resolved with additional investment and time.

This is a guest post by Alexis Ziegler. Alexis is a communitarian, builder, orchardist and environmental activist living in central Virginia. He is the author of a recently published book, Culture Change: Civil Liberty, Peak Oil, and the End of Empire. More information can be found at conev.org.

Abstract

The rapid expansion of biofuel production worldwide has paralleled a dramatic rise in food prices. The expansion of biofuels has been supported by a wide spectrum of people, from environmentalists looking for "sustainable" energy to conservatives wanting to reduce U.S. dependency on foreign oil. With food riots spreading, the U.S. remains committed to an expansion of biofuel.

Biofuels are part of a larger movement toward green capitalism, the idea that we can scale down our energy use through technologies that improve the efficiency of the consumer society. Biofuels are emblematic of the dark side of green capitalism, which is focused almost entirely on the well being of the global upper class. Biofuels are a form of nationalistic environmentalism that is creating a foundation on which more extreme nationalists will try to wed the racist tools of yesterday with a version of "sustainability" that will include the destruction of the global poor.

Real solutions are both impossibly difficult and simple. The cooperative societies in which most humans have always lived are capable of supporting a high standard of living with far less resources than the individualized, consumer society. Enlightened political leadership would be helpful, but we can create a sustainable society without it. Indeed, we have to.

Queensland opposition leader Lawrence Springborg seems oblivious to the recent backlash against biofuels (or doesn't care - it is not clear which) and is pushing for a mandatory 10% ethanol content in fuel sold in Queensland by 2011. The Queensland government isn't much better, proposing a 5% target instead.

While I've long been puzzled about the lack of any sugar ethanol plants in Queensland, I don't think turning any more grain into biofuel can possibly be justified, so if they do go ahead and legislate for ethanol production I hope it will be limited to sugar based ethanol only.

Thanks to TOD reader Tim R. for pointing out this piece on the food v. fuel problem in the Seattle PI yesterday. One takeaway message (but is it a valid one?) is contained in this chart from a group at The University of Washington (click to enlarge):

UNDER THE FOLD, you will find two youtube videos that are worth your time. The first is from Fast Money (CNBC) yesterday entitled "It's Supply, Stupid." After a bit of discussion on the panel, Joe Terranova provides a really nice discussion (about 4 mins) of the reasoning behind why the price oil is rising: supply and demand. Sure, it's a little bit the weak dollar, it's a little bit speculation, but Terranova makes an elegant argument as to why it's mostly the fundamentals--which is kinda what we've been saying for a while around here, eh?

The second video, is Jim Cramer of CNBC's Mad Money (1:30) discussing ethanol and its implications for food; he uses the words "Wall of Ethanol Truth," "that issue is killing Americans," "ending the ethanol mandate," and "Malthusian." Wow. Let's discuss.

As I traveled through India on a recent business trip, the topic of energy was constantly on my mind (as it is every time I travel). I found out some interesting things about jatropha, toured a sugarcane ethanol plant, found a wind farm in the middle of nowhere, and encountered a native ethanol skeptic. Here are my impressions.

In response to a recent query from an independent student newspaper in the UK, I wrote up an editorial piece on the politics of biofuels. That essay is reproduced below the fold. (The original can be found here.)

One of the intentions was to point out for European readers why the U.S. and the EU have begun to diverge on their biofuel policies. In the U.S. this is mostly a political issue, because our primary biofuel is home grown. In the EU, biofuels are mostly imported, so the EU can take a more objective view.