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Meet the Israeli entrepreneur trying to bring down the U.S. oil monopoly

In the second half of the 19th century, a young entrepreneur from Cleveland, Ohio, named John D. Rockefeller discovered the enormous potential in refining crude oil. The American oil industry was still in its infancy and most other entrepreneurs were looking to drill – but not refine. Because of Rockefeller’s sharp business instincts and the innovative new methods of refining he developed with his partners, his company, Standard Oil, became a huge and aggressive monopoly that, at its height, controlled over 90% of the U.S. oil market, and charged consumers excessive prices.

While Standard Oil was still at the peak of its power, another young man, named Henry Ford, built a car company that also created a technological revolution of its own. Ford believed that biofuels were the future for transportation, and designed the engine of his Model T – his flagship model and the first car to be mass produced – in such a way that it could run on ethanol as well as gasoline products. Ford saw how the United States could produce fuel from corn, potatoes and other agricultural crops as needed.

Rockefeller’s bid to control the market, however, was boosted hugely by the Prohibition era. From 1919 to 1933, sales of alcohol in the United States were completely banned, including for biofuels. Ford’s fuel of the future was sidelined, and oil remained the only real alternative available to U.S. drivers. At the same time, car makers and oil companies, including General Motors and Standard Oil, saw the American electric public transportation system – the world’s best and cheapest at the time – as a competitor, and chose a creative way to fight it. The oil companies and car manufacturers established a cartel and a jointly owned firm that bought up a large part of the beloved electric tram system, destroyed it and converted the lines to buses. Buses powered by oil, of course.

Some 150 years after Rockefeller’s first steps, the United States now spends $700 billion a year on oil, making it the world’s largest consumer of the commodity. The country is being held captive by oil, and its fate at any moment depends on the price of black gold. Oil has led the country to a number of crises over the past decades, the largest coming in 1973 after the OPEC oil embargo following the Yom Kippur War. It has also led to wars, and made American foreign policy dependent on the goal of guaranteeing the continued free flow of the black stuff that runs the world economy.

These stories partially explain how the United States – and the rest of the world behind it – has become addicted to oil. They appear in the new documentary film “Pump,” which was released last month in the United States. The movie, directed by the couple Joshua Tickell and Rebecca Harrell Tickell, tries to explain the details behind this addiction; the economic and cultural causes of it; and to describe its destructive implications on the American environment, economy and foreign policy over the past 100 years.

Destructive dependence on oil

Behind the film is an Israeli investor and philanthropist, Joseph (Yossie) Hollander, the founder of New Dimension Software, which he sold to BMC for $650 million in 1999. Hollander, 57, produced and financed the movie. For him, this is just another stage in his battle over the past 10 years to free the United States from its destructive dependence on oil.

“Oil is in everything we touch, in everything we do,” said Hollander, now living in California, in an interview with TheMarker. Oil is what runs the economy and there is no economy without fuel. This expresses itself in all sorts of things: In expenditures on health, in the air we breathe and the diseases it causes, and the cost of everything we buy includes a huge component of oil, argues Hollander.

The price of oil is a weight on the entire economy. The value of all the gold in the world is estimated at $8 trillion; all the publicly traded countries in the world are worth together $65 trillion. All the government bonds are worth a total of $102 trillion – and the value of the world’s oil reserves is $180 trillion. “We don’t have enough money to buy all the oil in the world. Oil is bankrupting us,” he says.

At the beginning of the millennium, after his exit from New Dimension, Hollander started being involved in philanthropy. He gave, among other things, for goals such as commemorating the Holocaust and advancing scientific research, and founded an Israeli institute for economic planning.

At the same time, he began to be involved in an issue that interested him more and more: alternative fuels. “The more I looked and learned, I understood that solar and wind energy are not the story. They are small numbers. The big numbers are in oil. Oil is the number one source for greenhouse gas emissions, but most green energy is dedicated to replacing coal. So I say: We don’t have an energy problem; we have an oil problem,” said Hollander.

Two years ago he established the Fuel Freedom Foundation, a nonprofit organization whose goal is to break American dependence on oil by smashing the oil monopoly and increasing competition, such as other fuels, cheaper and less polluting for the transportation sector.

Hollander believes that high oil prices are the result of a systematic monopoly that preserves the role of oil as the sole fuel available for transportation. This monopoly is disastrous for the environment, the world economy and politics, he argues. It creates economic crises, worsens climate change, and pays for the support of extremist regimes in the Middle East and Russia, which, thanks to the high price of oil, can do whatever they wish. And all this does not include the growing demand for oil in China, which should lead to further increases in oil prices in coming years.

“We can have oil for 1,000 [more] years, but at the price of $1,000 per barrel,” he says. The demand for oil has grown faster than the ability to increase the supply, he explains. “What we are trying to do is lower the price of oil to $50-$60 per barrel within only a few years, and to replace it with competition from cheaper but cleaner fuels.

“I am not against oil,” he continues. “Today, we have no way to replace oil completely.” He also does not advocate a specific solution, only competition. He wants to make three or four types of fuel available and let consumers choose. “What I say is this: Why should you or I decide what others need to put in their cars? If someone does not like ethanol, then they shouldn’t buy ethanol. There are 100 types of breakfast cereal in the supermarket, and nonetheless the only choice we have for fuel is between 95 and 96 octane [gasoline],” said Hollander.

The Brazilian revolution, coming soon to the U.S.?

Hollander says he went over every word and frame in the movie 10 times. It is the biggest public exposure the Foundation has made to explain to the U.S. public why it is addicted to oil, what this addiction is doing to it, and how the power to change it is in its own hands. The production is narrated by actor Jason Bateman (“Arrested Development”) and features a long list of interviewees as “stars,” including former Brazilian President Lula da Silva and Elon Musk. The film deals only with the United States, but since the story of the United States is the story that was repeated time after time around the world, it shows how almost all the entire world missed out on the opportunities to free itself from oil.

The model Hollander wants to imitate is that of Brazil, a country similar in size to the United States. Brazil freed itself from foreign oil a number of years ago, without having its economy collapse. Already in the 1970s, after the first major oil crisis, the Brazilian government decided to put an end to its dependence on foreign oil – which at the time made up over 90% of its oil usage. It replaced gasoline with ethanol made from sugar cane, and since the late 1970s, Brazilian gas stations have provided ethanol. Today, drivers in Brazil have the option in every gas station of ethanol or gasoline.

Demand for ethanol in Brazil only really started to compete with gasoline in the 1990s, when Brazilian engineers developed technology for cars allowing them to run on both fossil fuels and ethanol, called Flex Fuel. Brazilian cars can now run on either gasoline or ethanol – and the ethanol revolution also helped jump‑start the Brazilian economy.

As for Israel, the country can switch to Flex Fuel tomorrow morning, says Hollander. What needs to be done is to convert natural gas to fuel for vehicles. Instead of exporting gas to Europe, Israel should use it to act smartly and replace oil‑based fuels. This would create a huge technological flowering in Israel, but for now the Israeli bureaucracy is blocking it, he says. As for smaller gas exports to Jordan and the Palestinians, that is something else, he says, since that is a strategic interest for Israel.

(Article Credit: Asher Shnechter, Haaretz)
(Photo Credit: Ofer Vaknin, Haaretz)

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Natural Gas, Corn Stover And The Restricted Ethanol Market

The nation is lucky to have Gina McCarthy as the head of the EPA. Her background is exquisite, her intellect is superior and her sensitivity to and understanding of the environmental issues facing America is second to none. She has been a fine EPA Administrator.

Then why am I worried when we have such a surfeit of riches in one individual leader? Long before McCarthy became Administrator, the EPA began working on a new set of guidelines governing the amount and use of ethanol in gasoline sold at the pump. The guidelines, more than likely, were ready in draft form simultaneously with Gina McCarthy’s appointment and the pressure to release them was intense, given earlier promises.

Because the positives and negatives of an increase or decrease in the RFS concerning ethanol use are imprecise, no real precise judgment can be made as to the final numbers, except the admonition, similar to the Hippocratic Oath: they do no harm and, do what the EPA suggests they probably will do, improve the economy, the environment and open fuel choices to the consumer. Sounds simple, but it isn’t! The EPA is considering modification of relatively recently determined RFS.

I understand the position of the oil companies to reduce what are effectively ethanol set asides. They have a financial stake in selling less corn-based ethanol with each gallon of gas, particularly when the content of ethanol rises to E85. Declining gas sales and prices make them eager to secure lower total annual ethanol requirements. Although the data is mixed, I also commiserate with the cattle growers who indicate they have had to pay, at times, higher prices for corn because of ethanol’s reliance on corn. Similarly, I am sensitive to environmentalists who worry that the acreage for corn-based ethanol is eating (excuse the pun) into conservation land and that total greenhouse gas emissions from production to use in vehicles of corn-based ethanol is not, generally, a good deal for the environment. I am not trying to be all things to all groups, but I am trying to weave my way through an intellectual and practical thicket.

The corn farmer’s advocacy of ethanol appears rational from an opportunity-cost standpoint. Corn-based ethanol seems, to them, to support higher prices for corn. They have done well in most recent years. While the facts remain unclear (credible researchers, such as those in the World Bank, have wavered over time on their position), the arguments made by groups and individuals concerned with what they believe is the relationship between corn-based ethanol and food supply should be debated fully. I, also, am inclined to believe those in the security business who feel that increased use of ethanol will reduce our dependency on important oil and lessen the nation’s need to fight wars in part to assure the world and the U.S. a share of global oil supply. Weaning ourselves from oil dependency is national need and priority.

It is tough to judge the efficacy of projections of ethanol sales, because of uncertain economic factors and the constraints put on consumer fuel choices by the oil industry’s almost-monopolistic restrictions at gas stations (just try buying safe, less costly alternative fuels at most gas stations) and federal regulations governing alternative fuel use as well as the sale of conversion kits. There is no free market for fuel.

Responding clearly to the conflicts over the value of corn-based ethanol and the annual total requirements for ethanol is not easy and should suggest the complexity of the involved issues and their presumed relationship to one another. Maybe increased use of corn stover and certainly natural gas-based ethanol for E85 would reduce food for fuel conflicts and lessen possible environmental problems. Nothing is perfect, but the production of ethanol using alternative feedstocks, such as stover and, hopefully soon, natural gas, could make a difference in providing better replacement fuels than just the use of corn based ethanol. Like a Talmudic scholar, I frequently, instead of counting sheep, find myself saying “on one hand, on the other hand” while trying to fall sleep. (I haven’t slept more than three full hours a night since Eisenhower was president.) I end up agreeing with the King in the King and I — “It’s a puzzlement!”

The EPA’s job is a tough one. Its lowering of the total amount of ethanol required to be used with gasoline may or may not have been the right decision. I know the EPA is considering modifying its initial estimates upward. We will have to wait and see what the Agency produces and then take part in a reasonable dialogue as to benefits and costs.

I am a somewhat more concerned about the basis used by the EPA to decide to lower ethanol requirements, at this point in time, than the new rules themselves. The rationale for the amended guidelines will become embedded in rulemaking and decisions could well generate unnecessary policy and constituent conflicts.

The Agency explained its recent decisions, in part, in terms of the absence of infrastructure and the possible harm that higher ethanol blends can do to vehicle engines. “EPA is proposing to adjust the applicable volumes of advanced biofuel and total renewable fuel to address projected availability of qualifying renewable fuels and limitations on the volume of ethanol that can be consumed in gasoline given practical constraints on the supply of higher ethanol blends to the vehicles that can use them and other limits on ethanol blend levels in gasoline (the ethanol blend wall).” Note that for the most part, the EPA does not dwell on environmental, economic or security issues in its basic rationale.

The EPA seems to mix supply and demand in a rather imprecise way. Ethanol is ethanol. Traditional infrastructure (e.g., pipelines) is not readily available now to transport ethanol from corn-based ethanol producers to blenders of gasoline and ethanol. But trains and heavy-duty vehicles are accessible and have provided reasonably efficient pipeline alternatives. Indeed, their availability, assuming modifications for safety concerns, particularly concerning trains, extends strategic options regarding the location of refineries/blenders and storage capacity to lessen leakage of environmentally harmful emissions.

The EPA’s argument for lowering ethanol requirements appears to rest, to a large degree, on a somewhat unconventional definition of supply. As one observer put it, the EPA’s regulations “muddle” the definition of supply with demand. There is an ample supply of ethanol now, indeed, a surplus. The EPA’s decision will likely increase the surplus or reduce the suppliers.

Demand for higher ethanol blends really has not been fairly tested in the analytical prelude to the recently changed regulations. Detroit and its dealers seem unwilling to clearly inform consumers of the government-approved use of blends higher than E15 in the flex-fuel cars that they are now producing and or are committed to producing in the future. Oil company franchise agreements limit replacement fuel pumps at their stations, often to off-center locations…somewhere near the men or women’s bathrooms, if at all. Correspondingly, the EPA’s regulations appear to mute the Agency’s own (and others) positive engine testing on E15 and its approval of E15 and E85 blends, within certain restrictions. Earlier, EPA studies were a bulwark against recent sustained attacks by the oil and, sometimes, the auto industry, as well as their friends on ethanol and its supposed negative affect on engines.

The EPA’s analysis of demand seems further blurred by the fact that if the Agency increased the supply of approved conversion kits, increased numbers of owners of existing vehicles would likely convert from gasoline to less-expensive ethanol-based fuels.

The EPA’s background rationale for the new RFS regulations understandably does not reflect the ability to produce ethanol from natural gas, a fuel in plentiful supply, and a natural gas to ethanol conversion process that may relatively soon be available. To do so would likely require an amendment to the RFS because natural gas is not a renewable fuel. The benefits include lower costs to the consumer, reduced import dependency and likely a decrease in pollutants and emissions. It appears a reasonable approach and provides a reasonable replacement fuel until renewable fuels are ready to compete for prime market time. Natural gas-based ethanol, as well as, as noted earlier, possible use of corn stover, would lessen the intensity of the food vs. fuel debate and the environmentalist concerns.

The EPA has tried hard to develop regulations that secure the public interest and appeal to varied constituencies. I respect its efforts. It’s a complicated task. I remember being asked by the U.S. Department of Housing and Urban Development (HUD) to develop a report on simplifying its regulations for diverse programs. If I remember correctly, my report was over 600 pages long. Sufficiently said!

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What the world needs now is land (and honesty) to get to replacement fuels

I had the good fortune to meet and work a bit with Dr. Edwin Land, the inventor of the Polaroid camera. We were both on an informal poverty task force created by President Kennedy. I always admired Land. Throughout his life, his comments were always thought-provoking. His suggestion that “politeness is the poison of collaboration” really challenged, and continues to challenge, many of the facilitation and leadership gurus and practitioners who sometimes seem to have invented linguistic anti-depressants. Translated: don’t get angry, hold your tongue, mind your manners, mute some of your views or make them sound less critical, try to be nice and likeable, move toward a win-win situation, compromise and, if you get intense, take a break and go out for a while. Have a beer?

Times have changed, but only a bit, since Land died in the early nineties. Many participants still go into a collaborative and/or facilitative policy process with squeamishness about being direct and honest about their concerns. Because of this fact, it takes many sessions, rather than a few, to get real, difficult issues on the table and achieve a real meaningful and honest dialogue. Bonding and game playing (real and surreal) are often seen as more important than advocacy as well as early substantive dialogue. There is often little chance to compromise because the people at the table compromise their own views before they speak. They want to be polite. We don’t really know what they really think. Building collaboration in the hands of a facilitherapist (my own word), is regrettably, at times, using everyone’s favorite term, an existential threat. It makes collaborative victories, frequently short-term ones, in light of the fact that underlying disputes and tension were not given an airing.

With this as context, let’s look at key policy and behavioral issues now confronting the nation, concerning the harmful link between gasoline, the economy and social welfare, and the environment, particularly greenhouse gas (GHG) emissions and other pollutants. As relevant, let’s also think about why it’s been so tough to move toward replacement fuels for gasoline, even though such options would benefit consumers and the nation.

Gasoline now fuels approximately 250,000,000 vehicles in the U.S. While GHG emissions from gasoline are down because of improved technology in vehicles, gas still generally spews more GHG than alternative fuels such as ethanol, methanol, electricity or fuel cells. Gasoline also fails health and well- being tests when measured against a range of other pollutants, including NOx and VOCs (volatile organic compounds). Gasoline prices, while seemingly low (only) compared to the recent past, in some cases remain higher than alternative fuels, by a significant amount, whether based on renewables or fossil fuel. In this context, most of you reading this column are neither poor nor near poor. Imagine though, that you are, and in order to work, you need find housing at a reasonable cost relatively close to your job, see a doctor or take your family to see an aunt or uncle. But if you secure these and other basics, you have fewer choices since you have to spend from between 10-15 percent of your meager income on fuel. This is a verity now for most low- and moderate-income households. Indeed, based on EIA projections of gas prices and conservative as well as liberal economists conclusions concerning job growth and income, the percentages, likely, will increase in the future. If you were a person of very limited means, what would you limit first: travel to and from work, decent housing, health care or food, etc.?

Now, none of the replacement fuels are perfect. Most, including those based on or derived from fossil fuels such as natural gas, do emit some measurable GHG and other pollutants. This includes electric cars, particularly those that do secure their power from coal-fired electric utilities. But all are better than gasoline on environmental, economic and social welfare indices.

Why then is there not a clear movement toward transitional replacement fuels? Sure, electric car sales and CNG sales are up and hydro fuels will soon be on the market. Hopefully, they all will succeed in attracting consumers. But right now, all three together constitute from 1.5 to 3 percent of sales of new cars.

Why? Well, electric cars, CNG and hydrogen fuel cars are expensive and out of reach for many American households. For some, particularly those who purchase lower-end electric cars, the miles per charge often create road fear on the part of drivers. “What if I get stuck on the L.A. freeway?” Fuel stations are few and often far between for both electric, CNG and hydrogen fuel.

New electric, CNG or hydrogen fueled cars, at least for the near future, will illustrate for us all the comparative purchasing power of the haves, the have nots and the almost haves. Hopefully someday soon, most Americans will be able to compete — price, technology and design wise — for larger shares of the automobile market. But even if they become competitive, they will not be able to generate a major dent in the number of existing vehicles that rely on the internal combustion engine for a long time. Look at the data yourselves! Given their predicted annual sales, how many years would it take before the fleet of privately owned vehicles contained a very large percentage of electric, CNG, or hydrogen fueled vehicles (perhaps as much as 50 to 75 percent or more)? I have seen figures ranging up to almost several decades from respected analysts . Clearly, if sales of hybrid and plug-in vehicles are counted in the totals, the amount of time, it takes will be lower. However, achievement of a proportionately large share of the total number of cars will still extend out a many many years.

What can we do to achieve legitimate important national objectives concerning the environment, the economy and consumer costs for vehicles and fuel almost immediately? We can move to expand the number of FFVs (flex-fuel vehicles) in the country, first, by encouraging Detroit to build more each year and second, by asking public, nonprofit and private sectors to work together with the EPA to certify more conversion kits as well as existing in-use cars for conversion to FFV status. The net results would be vehicles able to use much higher percentages of ethanol (E85) derived from natural gas or from corn cobs, husks and stalks as well as other biofuels.

The proposed strategy is a transitional one. Clearly, electric, CNG and hydro fueled cars, when able to meet market tests concerning consumer needs, should join the mix of choices at the pump. I am optimistic. For example, twenty two states led by Colorado and Oklahoma have agreed to use CNG fueled cars to replace older cars retired from their state’s fleets. Detroit with the pool of CNG cars purchased by the states has agreed make best efforts to develop a lower cost CNG vehicle. Electric cars are coming down in costs. Hydro fueled cars will likely be produced in larger numbers soon and technology over time will reduce vehicle prices.

Now back to Edwin Land. I believe his comments about politeness, perhaps a bit too absolute, reflect his and my own views that the ground rules for collaborative efforts and consensus building may impede honesty concerning discussions of difficult topics. Being polite sometimes circumscribes and weakens important strategic dialogue. Involved participants fear being direct and sometimes avoid linking their intense feelings to their commentary. They try to avoid criticism or be seen as breaking the mythology of togetherness concerning long-term objectives and initiatives. Indeed, both objectives and initiatives are often so long term, that they are vague and don’t really matter to folks at the table. So why not go along? Individuals either avoid saying things that might lead to even temporary policy, program or behavior conflict and debate.

Politeness, certainly, is generally a virtue in most circumstances. Perhaps Land went too far in his choice of words. But the term, if used to guide collaborative efforts, often serves to mask real disagreements and necessarily blunt conversation. I have done lots of facilitative sessions on policy issues between senior officials of different nations and the U.S., as well as between community leaders on education, growth, environmental, race and poverty issues. Maybe the difference is miniscule, but I like the term being “civil” rather than being “polite;” the former presumes disagreement and allows for willingness to entertain tough dialogue and the possibility that the dialogue might step, at times, on intellectual toes; the latter, when translated into behavior, often suggests a willingness to skirt conflicts regarding ideas, if it temporarily reduces the ambience at the table.

Leaders from all sectors need to help build a collaborative “coalition of the willing” among environmental, public interest, government, private sector, nonprofit and academic leaders to push for flex fuel cars and replacement fuels. The criteria for coalition selection should be relevance to the policy and political issues related to gaining the public’s access to multiple fuel choices at the pump and to secure a much larger number of new FFVs as well as existing vehicles converted to FFV status. Identification and selection should not be limited to leaders who think exactly like us. But both should be limited to individuals who care about the environment, the economic and job growth of this nation, the well-being of consumers, particularly low- and moderate-income consumers and, although not discussed above, the security of this nation and the world. Claims of absolute wisdom should be a non starter for membership.

I suspect if the leadership group is diverse enough and if reasonable ground rules concerning structure and processes are set at the outset (ones that encourage substantive dialogue and debate ), disagreements can be bridged based on the data and agreements reached on transitional replacement fuel strategies that would influence public and private sector decision makers. A good facilitator would be needed, one weaned on policy and strategy more than psychology. A nationally respected foundation, or possibly even EPA, could either support or indeed facilitate the proposed serious exercise in collaboration and democracy. Civility, not politeness, should be a principle governing the dialogue.

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Bring back Woodstock and passion, and bring on replacement fuels

The ‘60s and early ‘70s were exhilarating at times and depressing at other times. America seemed angry and divided about the Vietnam War, the struggle over civil rights and equal rights for women. Many of those who were against the war and supported civil rights for minorities and equal rights for women were passionate about their views and saw themselves as change agents in an America that they viewed as perfectible but not perfect. They debated, they marched, they shouted, they irritated, and they (at times) exceeded legal boundaries. Some even took personal risks by becoming Freedom Riders in the south. By the early ‘70s, they had made a positive difference. They had become legends in their own time, capped off by Woodstock — an exotic, culture-changing, music rebellion concert. America would never again be the same!

I ask myself why the effort to break up the oil industry’s monopoly at the gas pump has won intellectual interest among some, but not the passion and the emotion of the ‘60s. No one is riding in a vehicle column through the nation, stopping at gas stations to plead for an opportunity for consumers to choose among alternative or replacement fuels. No one is shouting en masse about the extensive environmental harm and economic loss caused by our reliance on gasoline. Very few are concerned with the widening income gap and increasing poverty in America. Where is the concern about the negative impact that gas prices have on the purchasing power of the poor?

Surprisingly, very few Americans seem worried that most of the wars we are fighting either overtly or covertly involve (to some degree) our or our allies’ dependence on oil and, sometimes, lead to our becoming allied with some unsavory folks. I keep remembering a relatively recent conversation I had with a special services soldier who quite clearly indicated that he and his colleagues believed the U.S. was in Iraq not because of the quest for democracy or freedom, but because of the West’s need for oil. He indicated that it was b.s. — all this talk about building democracy. Whether it’s Iraq, Syria, or Egypt, Americans themselves are having growing doubts about why we have been, are now, or might be in the future, involved in Middle Eastern wars. Many, if not most, hope that their kids are not the first in and the last out.

What is it going to take to stimulate the adrenaline of Americans when it comes to the oil industry’s ability to limit competition at the gas pump through price management, franchise agreements, and political muscle in Congress? I suspect the draft helped energize the public’s antipathy toward the Vietnam War, but for the most part, the anti-Vietnam movement secured the intense support of only a minority of Americans. Indeed, polls at the time indicated that both the women’s and the civil rights movements also had less than majority support. Yet, in all three instances, the overlapping minorities among the population wielded a big political voice, bigger than their numbers.

Why? I suspect media-savvy, bright, and committed leadership had much to do with it. Further, they were helped by the tragic assassinations of President Kennedy; his brother, U.S. Attorney General Robert Kennedy; and Martin Luther King, Jr. Growing public distrust of politicians caused by the gap between the facts on the ground and press releases concerning Vietnam increased the willingness of the American public to support the marchers. Polls began to shift on the war, civil rights, and equality for women. All three issues won increasing numbers and granted legitimacy to efforts to end the war and to assist the “have nots” and the “have less” among us. Given the federal budget authorizations and appropriations, an argument could be made that the halcyon days of the Great Society actually occurred during the first years of President Nixon. This is not heresy. Look at the budget details from 1965 through the early ‘70s.

Can we replicate the passion associated with the Vietnam War, civil rights and women’s rights movements and focus it on more democracy and freedom for consumers concerning choice of fuels? Probably not! The issues involved are difficult to grasp for the public. It is unlikely that families will sit down at the dinner table and stimulate conversation on the benefits and costs of replacement fuels or flex-fuel vehicles. Americans are not going to “March on Exxon” as they did on the Pentagon or gather at the National Mall in D.C. in the hundreds of thousands as they did for civil rights.

The term “silent majority” has been used without a hard and sustained predictable meaning in the last four or five decades. It’s a phrase that needs amplification and definition today. It could become the missing public change agent concerning replacement fuels. Coalition building among supportive pro-environmentalists, businesses, consumers, and anti-poverty groups could lead to the development of multitasked, innovative, and interactive national education program with a broad reach (e.g., town meetings, the newspaper and website articles, webinars, Twitter, movies, YouTube, etc.). Its success could convert a now-silent majority or near majority into a thoughtful, articulate majority focused on breaking up the monopoly at the pump. Success would be reflected in poll numbers supportive of federal, state, and local leaders who are willing to push for open fuel markets and increased FFVs. There would be a coalition of the willing; that is, an increasing number of Americans who would provide backbone to public policymakers who, in turn, would commit to challenging the oil companies’ understandable desire to sustain restricted fuel markets and the status quo favoring gasoline over environmentally better, safer, and cheaper replacement fuels. Their support would be conveyed through voting, and the use of innovative communication technology, rather than marching. The results would be illustrated by new, important, expanded democratically made choices by you and me, regarding fuel and vehicles — and maybe a new Woodstock composed of music celebrating America’s new freedoms. I didn’t go to the last one, but will go to the next one celebrating expanded choice for consumers, a healthier economy, and an improved environment. ­

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Shakespeare and Julia Child on monopolies, competition and alternative fuels

You must remember the famous community activist who once asked, “To be, or not to be, that is the policy and behavior question; whether ‘tis nobler in the mind to suffer the slings and arrows of outrageously high, constantly shifting gasoline prices or to take arms against a sea of troubles generated by monopolistic fuel markets and open them up and end them.” I’m paraphrasing, of course.

Unfortunately, Shakespeare, now that we need him, is no longer available. But his question, articulated by his political friend Hamlet, still needs to be answered. I suggest we respond to his query in the context of another question: Is competition in the market for vehicular fuel a public good and in the public interest? Ah ha, you ask, why must we ask this question? Don’t we live in a capitalist or quasi-capitalist nation? Gosh, ever since we all were kids, were we not brought up on the wisdom of free markets and their ostensible link to freedom and democracy, a trifecta holy grail?

Sure we were! But the presented wisdom apparently didn’t mean all markets, and most important for this article, the market where most of us purchase fuel. By and large, the market for fuel is limited to a single, generally similar, primary product — gasoline. Competition, when it exists, generates from relatively small price differences, more often than not. Overblown value propositions in advertising concerning engine performance benefits from brand X or Y notwithstanding.

Consumers who, many times, assiduously read the papers or go online to find out where different brands of tires are cheapest or travel miles to visit dealers to get a perceived “good deal” on a car are frequently constrained to their neighborhood gas stations or the stations located near the nearest shopping center or big box store. While price may be a key factor in driving their decision as to which station will fill up their tank, absence of diverse fuel alternatives results in a relatively narrow band of prices per gallon and a competitive floor on consumer savings and costs.

Opening up gas markets will be tough. The oil industry controls or strongly influences over 40 percent of the stations and holds a big, profitable stick concerning what can be sold and how it can be sold at its franchised facilities. Prices are set low enough to scare independents into selecting less-than-favorable locations, or pricey enough to give them some room to keep their own costs relatively high.

To date, state pilot or demonstration programs concerning alternative fuels like ethanol and methanol have had mixed results. Why? Their costs of production and their environmental/GHG costs are lower than gasoline. Are we Americans just dumb? No. Initiatives to date have had to surmount problems including: consumer access to fuel stations with flex-fuel pumps (their costs range from $50,000 to over $100,000); a growing but still relatively small percentage of flex fuel autos compared to the total number of vehicles; the lack of consumer information concerning their own flex-fuel vehicle’s ability to use ethanol; the fear generated by some interest groups often related to the oil industry about the impact of alternative fuels on engines; the seeming ability of the oil industry to manage local prices; and the decisions by supply chain participants, particularly retailers to raise alternative fuel prices to capture immediate profits (reducing their intermediate and long-term ability — as the new kid on the block — to compete with gasoline.)

Evidence from Brazil suggests that demand emanating from an educated public, combined with a commitment to increase the pool of alternative-fuel vehicles and readily accessible fuel stations with ethanol pumps will cause a reduction in gasoline prices. Juliano J. Assunção, Joao Paulo Pessoa and Leonardo Rezende noted in a December 2013 London School of Economics publication, “Our estimates suggest that the model prediction is correct and that as the percentage of flex cars increase by 10%, ethanol and gasoline energy equivalent prices per liter fall by approximately 8 cents and 2 cents, respectively. Considering the volume of sales and size of the flex fuel fleet in 2007, a rough estimate suggests consumer savings to the order of 70 million Reais in the Rio de Janeiro state that year. Our estimates also show that the price gap as well as the price correlation between the two fuels has increased with the increased penetration of flex fuel cars.” Other studies have suggested similar positive impacts.

A U.S. recipe appears clear and consistent with America’s assumed belief in letting the market decide most resource allocation issues connected to the production of non-social welfare related goods and services. Ingredient one: Amend laws and regulations to encourage individual owners to convert older cars to flex-fuel automobiles; ingredient two: mix the resulting converted cars with newer flex-fuel vehicles to create a large flex-fuel pool; ingredient three: liberally sprinkle in enough information to inform consumers and potential-ethanol-supply-chain participants, including potential blenders and retailers, of the potential demand for ethanol as a fuel; ingredient four: add real, solid seasoning to the mix by fostering development, distribution and the sale of natural-gas-based ethanol to achieve significant increased environmental and cost benefits. Julia Child couldn’t build a better dish for the nation as it simultaneously tries to expand the viability of renewable fuels, and Shakespeare’s friend, Hamlet, would not need antidepressants.

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Let freedom ring: Oil companies, capitalism and fuel choice

It’s a free county, ain’t it? Americans have many choices that are denied to citizens of other less-fortunate nations. But we forget how many decisions are made for us, sometimes out of necessity, such as paying taxes; sometimes out of greed, such as the monopolistic actions of oil companies in denying many Americans the ability to purchase alcohol-based fuels at their corner gas station. Try it someday! On your way home from work, on your shopping trip to your friendly supermarket or on your way to see a movie at your favorite theater, make a stop for fuel at a gas station. Make sure to have some gasoline in your tank, because it likely will take you a lot of time to find a gas station that sells E85 or even E15.

Now, I went to Harvard Law School for four days, before I decided that there were too many lawyers around and memorizing case studies was not my forte. But Harvard provides significant value added, apart from being near Harvard Square and Boston. I was exposed to terms and content related to antitrust, restraint of trade, collusion and monopolies. Now, I didn’t stay long enough to know whether those concepts applied to oil companies that restrict consumer choices of alternative fuel. Probably not, because I am sure, by now, one of my Harvard colleagues would have filed a well-reimbursed case to break open the fuel market to options like ethanol, methanol and more. But whether legal or not, oil companies deserve their comeuppance for limiting many of us who, too often, are required to use more expensive, environmentally harmful gasoline, instead of existing, safe, alternative fuels.

How do they do this? Well, if you are a gas station owned or franchised by an oil company, your contract and rules related to behavior often prevent you from adding a pump or adding to an existing pump to sell E15 or E85. As relevant, since oil companies generally require the stations they own to buy fuel from them, and since they don’t sell E15 or E85, adding a pump would be akin to waiting for the hereafter (and acting on faith that you will get there).

Wait, there is more! Every now and then an oil company wants to publicly show it is a bit beneficent (for image purposes), but don’t hold your breath with respect to proof that image and reality are the same. Sure, you might find an alternative-fuel pump near the rear side of the garage proximate to the men’s room, or, if you are lucky, on the side of the station near the air pump. Most oil-company-owned stations and franchisees are generally precluded from putting an alternative-fuel pump under the covered island or space out front. They also face restrictions on advertising alternative fuels as an available product and oil-company pricing limits competition from alternative fuels.

Congress has refused to enact open fuels legislation, which would require oil companies to open up their gas stations to other fuels. Ongoing efforts by public and private sector advocates, as well as nonprofit groups, to encourage policies that would convert older cars to flex-fuel vehicles and to encourage Detroit to build more FFVs could well lead to a large consumer market for alternative fuels and generate a positive market reaction among independent gas companies and, perhaps, even some smart oil companies. While I have been wading through the pros and cons of allowing oil companies to increase exports to other nations, I do believe that if increased exports are in the nation’s future, they should be approved only if the oil companies agree to require their stations and franchises to offer alternative fuels in a primary space alongside gasoline. A bit of tat for tat is in the public interest. Let freedom ring for consumer! Let capitalism mean competition for gasoline and alternative fuels at your nearby gas station! Oh, I forgot, alternative fuel station!

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Right, wrong and indifferent — the AAA, oil and alternative fuels

My favorite automobile service group — the AAA — has once again treaded without fear or trepidation into analysis. Remember earlier, when it suggested that E15 harms engines, based on what looked like an oil-industry-generated study? The AAA’s methodology was weak and its conclusions suspect, a judgment supported by the EPA’s response. According to the agency, AAA’s conclusions were erroneous and based on a limited sample. EPA’s own findings were generated from a relatively large sample of cars, indicating that E15 is safe for most engine types and reaffirmed the wisdom of its approval of E15 usage.

I was surprised to find an article in Oil Price by blogger Daniel Graeber, based to a large degree on comments from AAA’s Michael Green suggesting that the oil shale boom has prevented gas prices from going higher than they are now. Graeber approvingly quoted Green, who said, “Sadly, the days of cheap gasoline may never return for most American drivers despite the recent boom in North American crude oil production.” Assumedly, Green meant that the cost of drilling tight oil will remain high and the costs per barrel of oil will follow suit.

Green apparently went on to indicate that political leaders, particularly, members of Congress who argue for a drill-baby-drill policy, are wrong to link more wells to significant price relief for folks who find gas costs a real problem.

The AAA is right when it suggests that, despite the oil shale boom and signs of increasing demand in America, refineries are sending increased amounts of oil-based products overseas. Understandably, their patriotism doesn’t extend to accepting a lower price for oil in the U.S. when they can get higher prices overseas.

The article appears inconsistent, when at one point it mentions that crude oil inventories are running above average, and later blames current exports for low supplies and low supplies for preventing a drop in prices at the pumps.

Both are correct in indicating sales of oil products abroad probably do have an effect on costs-up to now probably marginal. Certainly, if Washington extends export privileges, increased sales of oil abroad may have a more significant impact on consumer costs. More relevant, however, concerning gasoline costs at the pump, will be economic recovery in the U.S., investor speculation and the oil sector’s ability to manage prices.

Cheap oil has been, recently, and likely will be in the future, a fantasy. The cost of oil per barrel has hovered at around $100 and upward for an extended period, and drilling in shale is relatively expensive. Continuous exogenous and existential (don’t you like those words — they create great passion and emotion) threats from the Middle East and Eastern Europe, also, will likely tilt oil prices upward in the near future.

I would commend the AAA, assumed by many to be the leading advocate for automobile owners in the nation, for grasping the fact that the behavior of producers is likely to lead to higher gas costs and create burdens, particularly for low and moderate-income groups. Now with this knowledge, shouldn’t the AAA argue for breaking oil’s near monopoly on fuel? If the AAA was really interested in helping vehicle owners lower their cost of fuel, it might take the lead in arguing for choice at the pump. Wouldn’t it be great if they really stood up for more open fuel markets as well as alcohol-based transitional fuels, such as ethanol and methanol? Competition at the pump from flex-fuel vehicles, combined with conversion of older vehicles to flex-fuel cars would, over time, mute increases in gas prices and, at the same, time generate environmental benefits for a better America. Support for alcohol-based fuels is consistent with support for renewable fuels, if one is concerned about the environment and GHG emissions. Let’s bring them on as fast as we can. But let’s acknowledge that renewable fuels are not really ready yet for prime time. They are too expensive for many Americans and their technical limitations, particularly concerning electric batteries, are not yet coincident with the desires of most Americans.

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It’s not the oil we import that makes us vulnerable, it’s the price

The United States Energy Security Council has written a brilliant report explaining why neither increased production nor improved conservation will solve our oil problems or free us from dependence on world events.

The Council numbers 32 luminaries from across the political spectrum, including such diverse figures as former National Security Advisors Hon. Robert McFarlane and Hon. William P. Clark, former Secretary of State Hon. George P. Shultz, Gen. Wesley Clark, T. Boone Pickens and former Sen. Gary Hart. The study, “Fuel Choice for American Prosperity,” was published this month.

The report wades right in, pointing out that even though our domestic production has increased and imports are declining, we are still paying as much or more for imported oil than we did in the past. The report states, “Since 2003 United States domestic oil production has risen sharply to the point the International Energy Agency projects that the United States is well on the way to surpassing Saudi Arabia and Russia as the world’s top oil producer by 2017. Additionally fuel efficiency of cars and truck is at an all-time high. As a result of these efforts, U.S. imports of petroleum and its products declined to under 36% of America’s consumption down from some 60% in 2005.”

Good news, right? Well, unfortunately not so fast. The report adds, “None of this has had any noticeable downward pressure on global oil prices. Over the past decade the price of crude quadrupled; the value of America’s foreign oil expenditures doubled and the share of oil imports in the overall trade deficit grew from one third to about 5%. Most importantly, the price of a gallon of regular gasoline has doubled. Despite the slowdown in demand, in 2012 American motorists paid more for fuel than in any other year before.”

How can it be that all this wonderful effort at improving production still has not made a dent in what Americans pay to fill up their cars? The problem, the study says, is that OPEC still has enough monopolistic market leverage to keep the price of oil where it wants. “While non-OPEC supply has been increasing and while the world economy is growing by leaps and bounds, OPEC, which holds some three quarters of the world’s economically recoverable oil reserves and has the lowest per barrel discovery and lifting costs in the world, has failed to increase its production capacity on par with the rise in global demand. Over the past four decades, world GDP grew fourteen-fold; the number of cars quadrupled,; global crude consumption doubled. Yet OPEC today produces about 30 million barrels of oil a day (MBD) – the same as it produced forty years ago.”

This means that even though we’re doing very well in ramping up supply and reducing demand, the overall distribution of reserves around the world still weighs so heavily against us that we’re basically spinning our wheels as far as what we pay for oil is concerned. The Council sums it up succinctly: “What the U.S. imports from the Persian Gulf is the price of oil much more so than the black liquid itself.”

So, what can we do? The Council says we have to change our thinking and come up with an altogether new approach: “If we are to achieve true energy security and insulate ourselves from countries that whether by design or by inertia effectively use oil as a economic weapon against us and our allies, America must adopt a new paradigm – one that places oil in competition with other energy commodities in the sector from which its strategic importance stems: the transportation fuel market.”

In other words, quite simply, we have to find something else to run our cars. “Although this may appear to be a daunting task, our country — and the globe — is abundant in energy resources that are cost-competitive with petroleum.”

In fact, there are numerous alternatives available. We have natural gas that can be used in a variety of ways, we have biofuels and we have electricity; all of which exist in abundant supply. What prevents us from using many of these alternatives is a regulatory regime and political inertia that prevents them from being employed. “Cutting into oil’s transportation fuel dominance has only been a peripheral political objective over the past forty years with inconsistent support or anemic funding from one Administration to the next. Competing technologies and fuels to the internal combustion engine and to gasoline and diesel have often been viewed as political pet projects by the opposing party. . . . What we must do is relatively simple: level the playing field and end the decades-old regulatory advantage that petroleum fuels have enjoyed in the transportation fuel market. By pursuing a free market-oriented policy that has as its primary objective a competitive market in which fuels made from various energy commodities can be arbitraged against petroleum fuels, the United States can lead the world in placing the best price damper of them all – competition – on oil.”

The Council is particularly critical of the “multiplier” system that has allowed the Environmental Protection Agency to become the arbiter of which alternative vehicles win favorable regulatory approval. The Corporate Average Fuel Efficiency (CAFE) standards have now been set so high — 54.5 mpg by 2025 — that no one realistically expects them to be achieved. But automakers can win “multipliers” by manufacturing alternative-fuel vehicles that are counted as more than one car, thus lowering the fleet average. The value of this multiplier, however, is determined solely by the EPA.

But as the study points out, the EPA has a conflicting mandate. On the one hand, it is supposed to be cutting gasoline consumption but on the other it is concerned with cutting pollution and carbon emissions. (Just why the EPA and not the Department of Energy is administering the CAFE program is a question worth asking.) So the EPA tends to favor cars that do not necessarily improve energy consumption, but cut emissions. Thus, it awards a two times multiplier to electric vehicles and fuel cell cars by only 1.3 times for plug-in hybrids and compressed natural gas. Meanwhile, flex-fuel vehicles, which could do most for reducing oil consumption, get no multiplier at all.

The Energy Security Council has many other good recommendations to make as well. I’ll deal with them at length in a later column. But for now, the takeaway is this: Greater production and improved efficiency will only get us so far. The real key to lowering gas prices and freeing ourselves from foreign dependence is to develop alternatives to the gasoline-powered engine.

If Mother Jones and the Wall Street Journal can agree on this

When Nobel Laureate George Olshutterstock_155499944ah wrote his Wall Street Journal op ed recently announcing a new process that can turn coal exhausts into methanol, it reverberated all the way across the political spectrum and into Mother Jones.

          “Can Methanol Save Us All?” says the headline of a story on MJ, written by political blogger Kevin Drum. Although loath to admit he had    been reading the pages of capitalism’s largest broadsheet (he blamed the government shutdown), Drum admitted that he was intrigued. “George Olah and Chris Cox suggest that instead of venting carbon dioxide into the atmosphere, where it causes global warming, we should use it to create methanol,” he wrote.

Olah has been writing about a “methanol economy” for a long time, and he skips over a few issues in this op-ed.  One in particular is cost: it takes electricity to catalyze CO2 and hydrogen into methanol, and it’s not clear how cheap it is to manufacture methanol in places that don’t have abundant, cheap geothermal energy – in other words, most places that aren’t Iceland. There are also some practical issues related to energy density and corrosiveness in existing engines and pipelines. Still, it’s long been an intriguing idea, since in theory it would allow you to use renewable energy like wind or solar to power a facility that creates a liquid fuel that can be used for transportation. You still produce CO2 when you eventually burn that methanol in your car, of course, but the lifecycle production of CO2 would probably b less than it is with conventional fuels.

There are a few things we can cite here to set Drum’s mind at ease. First, methanol made from natural gas is already cost competitive. We don’t have to speculate. There is a sizable industry manufacturing methanol for industrial use from natural gas where it has sold for years at under $1.50 a gallon. That’s a $2.40-per-gallon mileage equivalent for gasoline (before further gains from methanol’s higher octane), making it at least 30 percent cheaper from what you’re now buying at the pump.

Of course Drum is referring here to Olah’s proposal to manufacture methanol by synthesizing hydrogen and carbon exhausts. This would be a more expensive process. But if it ever happened, the utilities would undoubtedly pay the processors to take the carbon dioxide off their hands, since it would allow them to go on operating their coal plants and using all that cheap black stuff coming out of Wyoming and West Virginia. It’s hard right now to factor up the costs but suffice to say, you would not be limited to geothermal from Iceland to make it happen.

As far as the corrosion issues are concerned, Drum can rest assured as well. It is true that methanol corrodes certain elastomers in current engines. They will have to be replaced with o-rings that can be bought at Office Depot for 50 cents. Any mechanic can perform the procedure for less than $200. Modifying current gasoline engines at the factory to burn methanol is also a surpassingly simple procedure – as opposed to altering an engine to burn liquid natural gas, compressed natural gas or hydrogen, which all require an entirely different assembly costing up to an additional $10,000.

The real rub mentioned by Drum, however, is the implication that if methanol can’t be shown to reduce carbon dioxide emissions in the atmosphere, then there isn’t any sense in doing it. There’s a slight divergence of purpose here that isn’t always clear to people who can agree we ought to be looking for alternative fuels to replace gasoline.

For some people the issue is energy dependence and reducing the unconscionable $400 billion we spend every year on imports. As the United States Energy Security Council pointed out in a recent paper, even though we have reduced imports to only 36 percent of consumption, we are still paying the same amount for oil because OPEC functions as an oligopoly and can limit supplies. As the report concluded, “It’s not the black stuff that we import from the Persian Gulf, it’s the price.”

For other people, however, the amount of money we’re spending on foreign oil – and the international vulnerabilities it creates – is not the issue. The only thing that matters to them is how much carbon dioxide we’re putting into the atmosphere. Global warming is such an overriding concern that it supersedes everything else.

This was made clear in a recent article in Yale Environment 360 by John DeCicco, professor at the University of Michigan’s School of Natural Resources and Environment and former senior fellow for automotive strategies at the Environmental Defense Fund, entitled “Why Pushing Alternative Fuels Makes for Bad Public Policy.”

The article argued against all forms of alternatives – ethanol, compressed natural gas, hydrogen and electric vehicles – on the grounds that none of them will do anything to reduce carbon emissions. “In the case of electric vehicles, an upstream focus means cutting CO2 emissions from power plants,” wrote DeCicco.

Without low-carbon power generation, EVs will have little lasting value. Similarly, for biofuels such as ethanol, any potential climate benefit is entirely upstream on land where feedstocks are grown. Biofuels have no benefit downstream, where used as motor fuels, because their tailpipe CO2 emissions differ only trivially from those of gasoline.

Instead, DeCicco argued that environmentally conscious individuals should concentrate on cleaning up power plants while support for alternative fuels should be limited to research and development.

By the time the power sector is clean enough and battery costs fall enough for EVs to cut carbon at a significant scale, self-driving cars and wireless charging will probably render today’s electric vehicle technologies obsolete. Accelerating power sector cleanup is far more important than plugging in the car fleet

All this short-changes the clear advantages that can come from reducing our huge trade deficit and replacing oil with homegrown natural gas. The less money we spend on imports, the more we will have for making environmental improvements and investing in complex technology such as carbon capture that can reduce carbon emissions.

In addition, DeCicco may be being too pessimistic about alternative fuels’ potential for reducing carbon emissions. As The New York Times reported in a recent story about natural gas cars, “According to the Energy Department’s website, natural gas vehicles have smaller carbon footprints than gasoline or diesel automobiles, even when taking into account the natural gas production process, which releases carbon-rich methane into the atmosphere. Mercedes-Benz says its E200, which can run on either gasoline or natural gas, emits 20 percent less carbon on compressed natural gas than it does on gasoline.” Besides, if the source of emissions can be switched from a million tailpipes to one power plant, it’s a lot easier to apply new technology.

Mother Jones and The Wall Street Journal have much more in common than they may realize. One way or another, it would benefit everyone if we could reduce our dependency on foreign oil.

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A big flaring opportunity in North Dakota

Recently I wrote about how oil companies are flaring off $100 million worth of gas a month in the Bakken formation and what a huge waste or resources that represents.

Well, it didn’t take long for something to happen. A group of five law firms representing Bakken property owners sued 10 oil companies to end the practice. Their logic? It doesn’t involve environmental pollution or global warming. Instead, they’re arguing that the oil companies are depriving them of hundreds of millions in royalties by flaring off all that gas.

The case makes perfect sense. Gas is a valuable resource and the property owners are being deprived of huge amounts of money by wasting it. The case also avoids the complications that would come if the suit had been brought by the Sierra Club or Natural Resources Defense Council on environmental grounds. That would have involved all kinds of testimony about whether the flaring is really having an impact on the weather and what the level of damages might be. Instead, this is a straightforward case of dollars and cents. The property owners are being deprived of huge royalties. The oil companies have to compensate.

But beyond that, the lawsuit also offers a glittering opportunity to put methanol and its potential role in the transportation economy in the spotlight. So far, nobody’s talking about it much, but the conversion of natural gas into methanol could play a huge part in resolving this case.

The Bakken has developed so fast that the producers have not even been able to build oil pipelines into the area yet. Instead, the oil is being shipped by truck and rail. Burlington Northern has extended its lines into the region and most of the oil is now finding its way into major pipelines. As a result, Bakken production has leaped to 850,000 barrels a day, catapulting North Dakota into the number two position as an oil-producing state, behind Texas.

But the gas is a different thing. It can’t be stored in large quantities and pipelines are a long way from being extended and probably not worth it. Oil is now give times more valuable than gas at the wellhead, which gives drillers an enormous incentive to go after the oil and forget about the gas, hence the flaring. Thanks largely to North Dakota, we have moved into fifth place for flaring, behind Russia, Nigeria, Iran and Iraq, and ahead of Algeria, Saudi Arabia and Venezuela. The amount of gas flared around the world equals 20% of U.S. consumption. When we’ve moved ahead of Hugo Chavez, it’s time to do something about it.

So far, the proposed solutions have involved compressing natural gas or synthesizing it into more complex liquids. “The industry is considering and adopting various plans to flare less gas, including using the gas as fuel for their rigs and compressing gas into tanks that can be transported by truck,” reports The New York Times. “A longer-range possibility would be the development of projects that could produce diesel out of gas at or near well sites.” Hess, which already has a network of pipelines in the area, is rushing to complete a processing plant at Tioga that will turn gas into diesel and other more complex fluids.

But a better solution would be portable, on-site processing plants that can convert methane to liquid methanol, a far simpler process. Gas Technologies, a Michigan company, has just developed a conversion device that sits on the back of a trailer and can be hauled from well to well. “We have a patented process that reduces capital costs up to 70%,” said CEO Walter Breidenstein. “If we’re using free flare gas, we can reduce the cost of producing methanol another 40-5%.” Other companies are working on similar technologies for converting natural gas to methanol on-site.

All this would help bring attention to the role that methanol could play in replacing oil in our transportation economy. California had 15,000 methanol cars on the road in 2000 and found drivers were extremely happy with them. Methanol also fits easily into our current infrastructure for gasoline. But California gave up on the project because gas supplies seemed to be dwindling and the price was too high. Now we are flaring off 25% of the nation’s consumption in one state and methanol could easily be produced for $1.50 a gallon. It’s time to re-evaluate.

Of course, Walter Breidenstein will probably find that flared gas will not be offered for free. Those Bakken property owners still want their royalties. But the North Dakota lawsuit proves a spur for on-site methanol conversion and great opportunity to highlight the role methanol could play in our transportation economy.