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Fake and real news: Links between GHG reduction and alternative fuels

FT-emissions-graphicTurn on your local news every night and you’ll need a sleeping pill to get some rest. The format and content is the same around the country: a lot of tragic crime — ranging from sexual harassment, robbery and shootings — for about ten minutes; local sports for about 5 minutes; what seems like ten minutes of intermittent advertising; silly banter between two or more anchors for two minutes; and a human-interest story to supposedly lighten up your day at the very end of the show — likely about a dog and cat who have learned to dance together or a two-year-old child who already knows how to play Mozart. You get the picture!

Local news, as presently structured, is not about to send you to sleep feeling good about humanity, never mind your community or nation. National news is really only marginally better. Again, the first ten minutes, more often than not, are about environmental disasters in the nation or the world — hurricanes, volcanoes, cyclones and tornadoes. The second ten minutes includes maybe one or two tragically laced stories, more often than not, about fleeing refugees, suicide bombings, dope and dopes and conflict. Finally, at the end of the program, for less than a minute or two, there is generally a positive portrayal of a 95-year-old marathon runner or a self-made millionaire who is now single-handedly funding vaccinations for kids in Transylvania after inventing a three-wheeled car that will never need refueling and can seat twenty-five people.

Maybe this is how the world is! We certainly need to think about the problems and dangers faced by our communities, the nation and its citizens. Every now and then, Americans complain about the media’s emphasis on bad news. But their complaints are rarely recorded precisely in surveys of viewership. We criticize the primary emphasis on bad news, but seem to watch it more than good news. Somewhat like football, we know it causes emotional and physical injuries to players, but support it with the highest TV ratings and attendance numbers.

Jimmy Fallon, responding to the visible (but likely surface) cry for more good news, has added a section to The Tonight Show. He delivers fake, humorous news, which is, at times, an antidote to typical TV or cable news shows. Perhaps John Oliver, a rising comedian on HBO, does it even better. He takes real, serious news about human and institutional behavior that hurts the commonweal and makes us laugh. In the process, we gain insight.

This week’s news about carbon dioxide emissions “stalling” in 2014 for the first time in 40 years appeared in most newspapers (I am a newspaper junkie) led by The New York Times and the Financial Times. It seemed like good news! Heck, while the numbers don’t reflect a decline in carbon emissions, neither do they illustrate an increase. Let’s be thankful for what we got over a two-year period (in the words of scientists — stability, or 32.3bn tons a year).

But don’t submit the carbon stability numbers to Jimmy Fallon just yet. It’s much too early for a proposed new segment on The Tonight Show called “Real as Opposed to Fake, Good News.” Too much hype could convince supporters of efforts to slow down climate change that real progress is being made. We don’t know yet. Recent numbers only reflect no carbon growth from the previous year over a 12-month period. The numbers might be only temporary. They shouldnt lessen the pressure to define a meaningful fair and efficient strategy to lower GHG. If this occurs, yesterday’s good news will become a real policy and environmental problem for the U.S. and the world for many, many tomorrows.

I am concerned that the stability shown in the carbon figures may be related to factors that might be short lived. Economists and the media have attributed the 2014 plateau to decreases in the rate of growth of China’s energy consumption and new government policies, as well as regulations on economic growth in many nations (e.g., requirements for more energy-efficient buildings and the production of more fuel-efficient vehicles), the growth of the renewable energy sector and a shift to natural gas by utilities.

Truth be told, no one appears to have completed a solid factor analysis just yet. We don’t really know whether what occurred is the beginning of a continuous GHG emission slowdown and a possible important annual decrease.

Many expert commentators hailed the IEA’s finding, including its soon-to-be new director, Dr. Fatih Birol. He indicated that this is “a very welcome surprise…for the first time, greenhouse gas emissions are decoupling from economic growth.”

Yet, most expert commentators suggest we should be careful. They noted that the data, while positive, is insufficient to put all our money on a bet concerning future trends. For example, Hal Harvey, head of Energy Innovation, indicated, “one year does not a trend make.”

Many articles responding to the publication of the “carbon stall” story, either implicitly or explicitly, suggested that to sustain stability and move toward a significant downward trend requires a national, comprehensive strategy that includes the transportation sector. It accounts for approximately 17 percent of all emissions, probably higher, since other categories such as energy use, agriculture and land use have murky boundaries with respect to content. Indeed, a growing number of respected environmental leaders and policy analysts now include vehicle emissions as well as emissions from gasoline production and distribution as a “must lower” part of a needed comprehensive national, state and local set of emission reduction initiatives, particularly,if the nation is to meet temperature targets. Further, there is an admission that is becoming almost pervasive: that renewable fuels and renewable fuel powered vehicles, while supported by most of us, are not yet ready for prime time.

While ethanol, methanol and biofuels are not without criticism as fuels, they and other alternative fuels are better than gasoline with respect to emissions. For example, the GREET Model used by the federal government indicates that ethanol (E85) emits 22.4 percent less GHG emissions (grams per mile) when compared to gasoline (E10). The calculation is based on life-cycle data. Other independent studies show similar results, some a higher, others a lower percent in reductions. But the important point is that there is increased awareness that alternative fuels can play a role in the effort to tamp down GHG.

So why, at times, are some environmentalists and advocates of alternative fuels at loggerheads. I suspect that it relates to the difference between perfectibility and perfection. Apart from those in the oil industry who have a profit at stake in oil and welcome their almost-monopoly status concerning retail sales of gasoline, those who fear alternatives fuels point to the fact that they still generate GHG emissions and the assumption, that, if they become competitive, there will be less investment in research and development of renewables. Yes! Alternative fuels are not 100 percent free of emissions. No! Investment in renewables will remain significant, assuming that the American history of innovation and investment in transportation is a precursor of the future.

Putting America on the path to significant emission reduction demands a strong coalition between environmentalists and alternative fuel advocates. Commitments need to be made by public, private and nonprofit sectors to work together to implement a realistic comprehensive fuel policy; one that views alternative fuels as a transitional and replacement fuel for vehicles and that encompasses both alternative fuels and renewables. Two side of the same policy and behavior coin. President Franklin Roosevelt, speaking about the travails of the depression, once said, “All we have to fear is fear itself.” His words fit supporters of both alternative fuels and renewables. Let’s make love, not war!

Ich bin ein Norwegian and Swedish — expanding open fuel markets

artI have been intensely involved in urban policy issues since the early sixties — that’s the 1960s, for those who are young. Once, I was at a conference with the late and wonderful mayor of Minneapolis, Art Naftalin. He was a dear and valued friend and colleague. I asked him why the Minneapolis St. Paul Metropolitan Metro area had given rise to more urban policy innovations than most other areas of the nation (including metropolitan delivery of services, tax-base sharing, etc.).

I expected the mayor to respond with something like, “Well we have good leaders,” or, “Our citizens care,” or, “We really do have a solid institutional structure,” or “The politics are ripe.” Without batting an eye, however, Mayor Naftalin— “Art” — looked at me and indicated, “It’s because we have more Scandinavians here.”

What an interesting answer! I queried the mayor on his response. He said, “It’s because folks who emigrated from Norway and Sweden came to the area with a strong sense of community and social conscience.” He added, laughingly, that the weather often “was so cold, and the environment in Scandinavia so tough, that [they] began life at an early age, assuming shared responsibility for taking in someone else’s wash, children, and caring for the community’s public good.”

I think that Mayor Naftalin’s comments about the impact of demography and community consciousness were interesting and, for Minneapolis St. Paul in the sixties, probably reasonable. Jumping to 2015, and the present political polarization of Washington and many states and communities, I have some “fabulistic” ideas. First, why not create an innovative Avis-Rent-a-Scandinavian program to encourage Scandinavian emigration. Involved immigrants would receive fast pathways to citizenship as long as they show strong involvement in community life and leadership. Second, why not organize Scandinavian leaders in communities in the U.S. that illustrate a vibrant, strong Swedish or Norwegian demographic? They could make wonderful facilitators and spread the word about community building. Third, why not grant subsidies to surrogate mothers who agree to bear a Scandinavian child for parents desiring Norwegian or Swedish children? All right, this one is only presented to wake you up! It will take too long a time to make a difference in population numbers. No genetic engineering here. (As an aside, the idea is akin to relying only or even primarily on renewable fuels at the present time to significantly reduce GHG and other pollutants, given the number of existing internal combustion vehicles.)

Again, this discourse seems to be right out of Peter Pan’s Neverland. But, bottom line, there is wisdom in Mayor Naftalin’s comments, particularly with respect to developing strong concepts of the public good to secure support for polices to increase use of alternative fuels, FFVs and open fuel markets.

Because of the media’s wall-to-wall coverage of what was, until two weeks ago, focused on declining prices of gasoline and often real-dollar savings to low- and moderate-income households, an opportunity to create a nonpartisan constituency for sustained lower-fuel costs probably now exists among America’s population, particularly among less-than-affluent folks and their advocates. So, let’s make everyone a bit Swedish or Norwegian.

But human memories are often short lived and if gasoline continues to rise over the next few months, our memory of nearly $2 dollar a gallon gasoline will likely be lost. How many remember when gas was only twenty-five cents a gallon? I do. Only because I ran out of money when I was 16 several times and had to cash in bottles to secure gasoline.

Seriously, a brief window exists to create a broad community or public interest coalition (e.g., government, business, environmental groups, national, state and community groups interested in helping low- and moderate-income people, etc.) to sustain lower fuel prices. The coalition’s agenda, if successful, would open up gas markets to competition from safe, lower-priced, environmentally better alternative fuels — natural gas, ethanol, methanol, electricity and other renewables. They are not perfect fuels, but they are better than gasoline. Let gasoline compete on an even playing field instead of being protected by franchise agreements between stations and oil producers as well as the present absence of equitable and efficient public policies. I bet by trolling computerized Yellow Pages, the coalition could find Swedes and Norwegians — or their counterparts throughout the population — to provide strategic local, state and, indeed, national leadership and support for alternative fuels. Or, better yet, we all could become, in Mayor Naftalin’s terms, Scandinavian. Paraphrasing President Kennedy, “Ich bin ein Norwegian, Swedish.” Yes, we can! Instead of “drill baby drill”, let’s substitute “alternative fuels grownups alternative fuels!”

Should we use ethical thinking to respond to harm caused by oil’s boom and bust periods?

Many years ago, I wrote a piece for the Denver Post. At the time, I was the dean of the Graduate School of Public Affairs at the University of Colorado. The column appeared just after the earthquake that devastated part of the Marina in San Francisco and was preceded, I believe, by a series of tornadoes in Tornado Alley in the Midwest. At the time, I expressed my concern that Congress was rushing to approve legislation that would aid individuals and communities that were negatively affected by both traumas. While I was in favor of helping them, I wondered out loud in the piece, “Why is it so easy for our leaders to immediately respond to people and communities where there is a reasonable probability that terrible events like earthquakes, tornadoes, hurricanes, flooding will occur relatively frequently or with some certainty over time?” Put another way, community development and home buying or renting are most often conscious choices by individuals, groups and institutions. If they can choose where to live and/or develop, and if they know in advance that their choice is risky because of geology or climate, except for emergency support, should extensive public assistance be provided without too much discussion or analysis in the form of subsidies, insurance, tax breaks (an imputed subsidy) — particularly when it’s so hard to maintain social welfare and education initiatives for the poor who have few choices?

texas2Policy polarization is as bad as political or ideological polarization and complex questions of policy deserve more than an either/or dialogue, particularly when the pool of funds, public, nonprofit or private resources is limited, and should require efficient and equitable choices. It may well be that living in risky areas is the only choice of some households, given income or job constraints. But clearly, many of the folks living in hurricane-prone areas along the East Coast (e.g., Hilton Head) or in earthquake-susceptible areas like the Marina in San Francisco, are not among the poor or very poor. Developers, who read relevant government maps and study models, also know that higher tides and flooding, likely related to climate change, are increasingly possible along America’s coast lines. Yet development still goes on and builders make profits, and in the end the public often pays when calamities happen.

Now, what does all this have to do with ethics, gasoline and alternative replacement fuels? I have been intrigued with the recent spate of articles concerning the fact that the decline of gas prices (increasing over the past two weeks, at least) has benefited certain vulnerable, low-income people and has harmed others. As important, perhaps, the decline has made community leaders and residents in areas subject to the recent oil boom worried about the impact of price reductions on the tax base, new development and maintaining services. Most are clearly more sensitive than they have been to the effect of oil boom and bust periods.

Clearly, the least advantaged among us have secured what amounts to a personal income and household budget boost from the lower costs of gasoline. It is likely that their jobs and quality of life prospects have increased simultaneously. They can search for a job farther from their home, they can visit relatives who do not live in their community more easily and affordably, they might even be able to take a vacation using their car. But other low- and, indeed, moderate-income folks have suffered either because current or anticipated cutbacks in oil production, for example, in the Texas shale area will cost or will soon cost many of them their jobs and because their communities have had to cut back on needed often promised services. An oil producer, local to the Texas shale area, recently told Financial Times: “We are stacking rigs and laying people off every day. Everyone is.”

Questions whether the current increase in oil prices is a preface to the future or are just a part of resource instability are now being argued in the media by would-be experts. But the ethical questions concerning winners and losers, as well as possible public support options and company behavior, are and will remain pervasive. They are just as difficult to answer now as they were years ago and will likely still be difficult to answer years from now.

“While the town’s oil workers [and their communities (my addition)] count themselves as victims of the slump in crude prices, they in part contributed to their own downfall,” the author of the Financial Times piece wrote. Visions of permanent, high-paying jobs drew many employees to oil-boom areas and visions of higher taxes and sustained economic growth converted town leaders to boosters for speculative spending and oil-related development — often without attention to reserves and debt.

Estimates of profits, technological inventions, such as fracking, and the high price of oil and gas just a few years ago generated producer behavior in seeking leases and installing drilling rigs.

Sorry to drop a name, but if you buy into Rawlsian ethics (and if you don’t, let’s discuss), a country’s real greatness is defined by how it treats the least among us. In this context, the oil companies deserve little sympathy. They are long-time recipients of significant direct and indirect or imputed public subsidies. Production is still rising, and their bottom line, in light of the choices they have to cut back spending, will likely remain strong.

The ethical issues, as noted earlier, are trickier for employees and towns. To some extent, employees were captured by iterative boom town publicity, employments ads, “drill, baby, drill” talk out of Washington, and reports of comparatively high income levels in oil production areas. Over America’s history, household mobility has probably raised more incomes and provided more quality of life choices to those involved than any existing public policy.

Clearly, many people who had choices because of income and family structure to begin with were motivated to move to the oil shale areas. If they chose to move and their decisions were wrong, to what extent is the larger community or the nation responsible to provide support, apart from advice? It’s a tough question, given budgetary constraints and the increased numbers of low-income folks in the nation, some of whom had no choice concerning jobs but to move to boom communities or to stay in place. Similarly, if the cities and towns involved saw oil production as their ticket to a glorious future, and if they were wrong or they didn’t hedge the bet, does management weaknesses and local boosterism merit more than sympathy for the human condition and the lack of perfection in our leaders? Again, these are tough questions because real people are involved. Many Midwestern, Southwestern, and Western areas have become ghost towns or towns that once dreamed and are now more off-the-road tourist attractions of what used to be viable communities.

Let’s go back to the future. Maybe just maybe some of these global ethical issues could be reduced if the oil industry itself assumed some responsibility for social and community problems during “bust” times. Not just a reserve fund or diverse investments and products to help the company ride out long busts, but a fund to help communities they have “rigged (excuse the play on words)” and their residents ride out the down economic tide, and for employees to relocate if they want to. Probably a bad idea, but think about it! Companies get federal help, even in boom times, even when most analysts of right and left say it’s unnecessary. What’s wrong with a relatively small payback? Values based capitalism!

Perhaps ethical issues could be lessened if the federal government and oil companies could be convinced to move toward open fuel markets. Gas prices seem to be on the rise. One way to hold them down and provide low- and moderate-income workers a break is to convert gasoline stations to fuel stations. Given the lower prices of alternative fuels, competition, in this instance, would sustain at least part of the income benefits that consumers, including low- and moderate-income consumers, have had when gas was priced at low levels. Competition might also help maintain the economy of some shale areas that, for example, produce natural gas and have, or can have, site blenders for ethanol.

As I said earlier, basic ethical problems related to resource distribution, whether related to hurricanes, tornadoes, earthquakes or oil economic boom and bust cycles are difficult to resolve easily. Assigning fault between public, private sectors and individuals is a complicated task, made more complicated because of numerous exogenous variables that are not readily influenced in the short term (e.g., climate change or tension in the Middle East) at least by institutional, group or human actions, as well as a lack of data concerning cause and effect relationships and the power of special interest groups. We probably are condemned to the noted political scientist Charles Lindblom’s description of policymaking as muddling through to decisions. After consulting many companies and working with citizen groups and individuals over the years, I would add that the muddling process applies in varying degrees to them also. It’s the American way and has its advantages, particularly when we are uncertain about alternative strategies. Indeed, often it has better outcomes than decisions by fiat. Many times, it helps generate consensus during decision making processes and about decisions. Importantly, it also many times increases involvement of disenfranchised constituencies. But we can try to do better muddles!

What does loving America have to do with the whims and opportunity costing of the oil industry?

The Greeks are going broke…slowly! The Russians are bipolar with respect to Ukraine! Rudy Giuliani has asked the columnist Ann Landers (she was once a distant relative of the author) about the meaning of love! President Obama, understandably, finds more pleasure in the holes on a golf course than the deep political holes he must jump over in governing, given the absence of bipartisanship.

2012-2015_Avg-Gas-Prices1-1024x665But there is good news! Many ethanol producers and advocacy groups, with enough love for America to encompass this past Valentine’s Day and the next (and of course, with concern for profits), have acknowledged that a vibrant, vigorous, loving market for E85 is possible, if E85 costs are at least 20 percent below E10 (regular gasoline) — a percentage necessary to accommodate the fact that E10 gas gets more mileage per gallon than E85. Consumers may soon have a choice at more than a few pumps.

In recent years, the E85 supply chain has been able to come close, in many states, to a competitive cost differential with respect to E10. Indeed, in some states, particularly states with an abundance of corn (for now, ethanol’s principal feedstock), have come close to or exceeded market-based required price differentials. Current low gas prices resulting from the decline of oil costs per barrel have thrown price comparisons between E85 and E10 through a bit of a loop. But the likelihood is that oil and gasoline prices will rise over the next year or two because of cutbacks in the rate of growth of production, tension in the Middle East, growth of consumer demand and changes in currency value. Assuming supply and demand factors follow historical patterns and government policies concerning, the use of RNS credits and blending requirements regarding ethanol are not changed significantly, E85 should become more competitive on paper at least pricewise with gasoline.

Ah! But life is not always easy for diverse ethanol fuel providers — particularly those who yearn to increase production so E85 can go head-to-head with E10 gasoline. Maybe we can help them.

Psychiatrists, sociologists and poll purveyors have not yet subjected us to their profound articles concerning the possible effect of low gas prices on consumers, particularly low-income consumers. Maybe, just maybe, a first-time, large grass-roots consumer-based group composed of citizens who love America will arise from the good vibes and better household budgets caused by lower gas prices. Maybe, just maybe, they will ask continuous questions of their congresspersons, who also love America, querying why fuel prices have to return to the old gasoline-based normal. Similarly, aided by their friendly and smart economists, maybe, just maybe, they will be able to provide data and analysis to show that if alternative lower-cost based fuels compete on an even playing field with gasoline and substitute for gasoline in increasing amounts, fuel prices at the pump will likely reflect a new lower-cost based normal favorable to consumers. It’s time to recognize that weakening the oil industry’s monopolistic conditions now governing the fuel market would go a long way toward facilitating competition and lowering prices for both gasoline and alternative fuels. It, along with some certainty concerning the future of the renewable fuels program, would also stimulate investor interest in sorely needed new fuel stations that would facilitate easier consumer access to ethanol.

Who is for an effective Open Fuel Standard Program? People who love America! It’s the American way! Competition, not greed, is good! Given the oil industry’s ability to significantly influence, if not dominate, the fuel market, it isn’t fair (and maybe even legal) for oil companies to legally require franchisees to sell only their brand of gasoline at the pump or to put onerous requirements on the franchisees should they want to add an E85 pump or even an electric charger. It is also not right (or likely legal) for an oil company and or franchisee to put an arbitrarily high price on E85 in order to drive (excuse the pun) consumers to lower priced gasoline?

Although price is the key barrier, now affecting the competition between E85 and E10, it is not the only one. In this context, ethanol’s supply chain participants, including corn growers, and (hopefully soon) natural gas providers, need to review alternate, efficient and cost-effective ways to produce, blend, distribute and sell their product. More integration, cognizant of competitive price points and consistent with present laws and regulations, including environmental laws and regulations, is important.

The ethanol industry and its supporters have done only a fair to middling job of responding to the oil folks and their supporters who claim that E15 will hurt automobile engines and E85 may negatively affect newer FFVs and older internal combustion engines converted to FFVs. Further, their marketing programs and the marketing programs of flex-fuel advocates have not focused clearly on the benefits of ethanol beyond price. Ethanol is not a perfect fuel but, on most public policy scales, it is better than gasoline. It reflects environmental, economic and security benefits, such as reduced pollutants and GHG emissions, reduced dependency on foreign oil and increased job potential. They are worth touting in a well-thought-out, comprehensive marketing initiative, without the need to use hyperbole.

America and Americans have done well when monopolistic conditions in industrial sectors have lessened or have been ended by law or practice (e.g., food, airlines, communication, etc.). If you love America, don’t leave the transportation and fuel sector to the whims and opportunity costing of the oil industry.

Porgy and Bess, Marxian dialectic, oil and alternative fuels

Porgy and Bess poster“We got plenty of oil and big oil’s got plenty for me” (sung to the tune of “I Got Plenty of Nutting” from Porgy and Bess). “I got me a car…got cheap(er) gas. I got no misery.”

This is the embedded promise for most Americans in the recent article by David Gross, “Oil is Cratering. American Oil Production Isn’t.” His optimism concerning at least the near future of oil — while a bit stretched at times, and economically and environmentally as well as socially somewhat misplaced — serves at least as a temporary antidote to individuals and firms with strong links to the oil industry and some in the media who have played chicken with oil (or is it oy little?). But in a Marxian sense (bad economist, but useful quotes), Gross does not provide a worthy synthesis of what is now happening in the oil market place. Indeed, his was a thesis in search of an antithesis rather than synthesis. Finding a synthesis now is like Diogenes searching for truth in light of almost daily changes in data, analyses and predictions concerning the decline in oil and gas prices by so-called experts.

Gross’s gist is that “Signs of the oil bust abound….The price of West Texas Intermediate crude has fallen in half in the past six months. The search for oil, which fueled a gold-rush mentality in North Dakota and Texas, is abating.” Rigs have closed down, employment is down and oil drilling areas face economic uncertainty, but, despite signs of malaise, “a funny thing has happened during the bust. Oil production in America has been rising…In November, the U.S. produced 9.02 million barrels of oil per day, up by 14.5 percent from November 2013… Production in January 2015 rose to 9.2 million barrels per day. And even with WTI crude settling at a forecasted price of about $55 per barrel for the year, production for all of 2015 should come in at 9.3 million barrels per day — up 7.8 percent from 8.63 million barrels per day in 2014…The U.S., which accounts for just 10 percent of global production, is expected to supply 670,000 new barrels — 82 percent of the globe’s total growth.”

Somewhat contrary to his facts about rigs closing down, Gross indicates that America’s oil largesse results from “American exceptionalism.” Shout out loud! Amen! American oil companies are able to produce larger amounts, even when oil numbers suggest a market glut, because they play by new rules. They are nimble, they are quick, they jump easily over the oil candlestick. They rely on new technology (e.g., fracking), innovation and experimentation. They don’t have to worry about environmental or social costs. The result? They bring down the cost of production and operations, renegotiate contracts and lay off workers. “The efforts at continuous improvement combined with evasive action mean a lot more profitable activity can take place at these prices than previously thought.” The industry appears like a virtual manufacturing and distribution version of Walmart. It, according to Gross, apparently can turn a positive cash flow even if the price per barrel stays around where it has been….from close to $50 to $70 a barrel. Holy Rockefeller, Palin and Obama! Drill, baby, drill! Just, according to the President, be circumspect about where and how.

Not so fast, according to both Euan Mearns, writing for the Oil Drum, and A. Gary Shilling, writing for Bloomberg Oil, both on the same day as Gross.

Mearns’ and Shilling’s perspectives are darker, indeed, gloomy as to the short term future of the oil market. The titles of their pieces suggest the antithesis to Gross article: Oil Price Crash Update (Mearns) and Get Ready for $10 Oil (Shilling). “The collapse in U.S. shale oil drilling, that looks set to continue, must lead to U.S. oil production decline in the months ahead…It looks as though the U.S. shale oil industry is falling on its face. This will inevitably lead to a fall in U.S. production” Mearns evidently places much less value on the industry’s capacity to literally and strategically turn on the present oil market dime.

Shilling asks us to wait for his next article in Bloomberg for his synthesis of what’s likely to happen- sort of like the trailers in Fifty Shades of Grey, except his data is not enticing. His voice through words is just short of Paul Revere’s: price declines are coming! The economy is at risk! Men and women to the battlefields! “At about $50 a barrel, crude oil prices are down by more than half from their June 2014 peak at $107. They may fall more, perhaps even as low as $10 to $20.” Slow growth in the U.S., China and the euro zone, and negative growth in Japan, combined with conservation and an increase in vehicle gas mileage, places a limit on an increase in global demand. Simultaneously, output is climbing, thanks mostly to U.S. production and the Saudis’ refusal to lower production. Shilling’s scenario factors in the prediction from Daniel Yergin, a premier and expensive oil consultant, that the average cost of 80% of new U.S. shale oil production will be $50 to $69 a barrel. He notes, interestingly, that out of 2,222 oil fields surveyed worldwide, only 1.6% would have a negative cash flow at $40 per barrel. Further, and perhaps more significant, the “marginal cost of efficient U.S. shale oil producers is about $10 to $20 dollars a barrel in the Permian Basin in Texas and about the same for oil produced in the Persian Gulf. Like Gross, Shilling pays heed to American efficiency but suggests its part of a conundrum. “Sure, the drilling rig count is falling, but it’s the inefficient rigs that are being idled, not the [more efficient], horizontal rigs that are the backbone of the fracking industry.” Oil production will continue to go up, but at a slower rate. This fact, juxtaposed with continuing, relatively weak growth of global and U.S. demand, will continue to generate downward pressures on oil prices and gasoline.

Even a Marxist, who is a respected dialectician, would find it tough to make sense out of the current data, analyses and predictions. More important, if you wait just a bit, the numbers and analyses will change. Those whose intellectual courage fails them and who generally put their “expert” analyses out well after facts are created by the behavior of the stock market, oil companies, consumers and investors deserve short shrift. They are more recorders of events than honest analysts of possible futures — even though they get big bucks for often posturing and/or shouting on cable.
So what is the synthesis of the confused, if there is one? Oil could go down but it could also stabilize in price and start going up in fits and starts. Production is likely to continue growing but at a slower rate. Demand sufficient to move oil prices depends upon renewed and more vigorous GDP growth in Asia, the U.S. and Europe. Realize that very few analysts are willing to bet their paychecks on definitive economic predictions.

Saudi reserves will likely provide sufficient budget revenues to support its decision to avoid slowing down production and raising prices at least for a year or so (notice the “or so”). Market share has supplanted revenue as (at least today’s) Saudi and OPEC objectives. But how long Saudi beneficence lasts is anyone’s guess and, indeed, everyone is guessing. Deadbeat nations like Venezuela and Russia are in trouble. Their break-even point on costs of oil is high, given their reliance on oil revenues to balance domestic budgets and their use more often than not of aging technology and drilling equipment.

As the baffled King from “Anna and the King of Siam” said, concerning some very human policy-like issues, “It’s a puzzlement.” There are lots of theses and some antitheses, but no ready consensus synthesis. Many Talmudic what ifs? What is clear is that the dialectic is not really controlled or even very strongly influenced by the consumer. Put another way, the absence of alternative fuels at your friendly “gas” station grants participation in the dialectic primarily to monopolistic acting oil and their oil related industry and government colleagues. Try to get E85 or your battery charged at most gas stations. Answers to most of the “what ifs” around oil pricing and production, particularly for transportation, would be shaped more by you and I — consumers — if we could break the oil monopoly at the pump and select fuels of personal choice including an array of alternates now available. Liberty, equality and fraternity! Oh, those French.

Alternative and renewable fuels: There is life after cheap gas!

usatoday_gaspricesSome environmentalists believe that if you invest in and develop alternative replacement fuels (e.g., ethanol, methanol, natural gas, etc.) innovation and investment with respect to the development of fuel from renewables will diminish significantly. They believe it will take much longer to secure a sustainable environment for America.

Some of my best friends are environmentalists. Most times, I share their views. I clearly share their views about the negative impact of gasoline on the environment and GHG emissions.

I am proud of my environmental credentials and my best friends. But fair is fair — there is historical and current evidence that environmental critics are often using hyperbole and exaggeration inimical to the public interest. At this juncture in the nation’s history, the development of a comprehensive strategy linking increased use of alternative replacement fuels to the development and increased use of renewables is feasible and of critical importance to the quality of the environment, the incomes of the consumer, the economy of the nation, and reduced dependence on imported oil.

There you go again say the critics. Where’s the beef? And is it kosher?

Gasoline prices are at their lowest in years. Today’s prices convert gasoline — based on prices six months ago, a year ago, two years ago — into, in effect, what many call a new product. But is it akin to the results of a disruptive technology? Gas at $3 to near $5 a gallon is different, particularly for those who live at the margin in society. Yet, while there are anecdotes suggesting that low gas prices have muted incentives and desire for alternative fuels, the phenomena will likely be temporary. Evidence indicates that new ethanol producers (e.g., corn growers who have begun to blend their products or ethanol producers who sell directly to retailers) have entered the market, hoping to keep ethanol costs visibly below gasoline. Other blenders appear to be using a new concoction of gasoline — assumedly free of chemical supplements and cheaper than conventional gasoline — to lower the cost of ethanol blends like E85.

Perhaps as important, apparently many ethanol producers, blenders and suppliers view the decline in gas prices as temporary. Getting used to low prices at the gas pump, some surmise, will drive the popularity of alternative replacement fuels as soon as gasoline, as is likely, begins the return to higher prices. Smart investors (who have some staying power), using a version of Pascal’s religious bet, will consider sticking with replacement fuels and will push to open up local, gas-only markets. The odds seem reasonable.

Now amidst the falling price of gasoline, General Motors did something many experts would not have predicted recently. Despite gas being at under $2 in many areas of the nation and still continuing to decrease, GM, with a flourish, announced plans, according to EPIC (Energy Policy Information Agency), to “release its first mass-market battery electric vehicle. The Chevy Bolt…will have a reported 200 mile range and a purchase price that is over $10,000 below the current asking price of the Volt.It will be about $30,000 after federal EV tax incentives. Historically, although they were often startups, the recent behavior of General Motor concerning electric vehicles was reflected in the early pharmaceutical industry, in the medical device industry, and yes, even in the automobile industry etc.

GM’s Bolt is the company’s biggest bet on electric innovation to date. To get to the Bolt, GM researched Tesla and made a $240 million investment in one of its transmissions plan.

Maybe not as media visible as GM’s announcement, Blume Distillation LLC just doubled its Series B capitalization with a million-dollar capital infusion from a clean tech seed and venture capital fund. Tom Harvey, its vice president, indicated Blume’s Distillation system can be flexibly designed and sized to feedstock availability, anywhere from 250,000 gallons per year to 5 MMgy. According to Harvey, the system is focused on carbohydrate and sugar waste streams from bottling plants, food processors and organic streams from landfill operations, as well as purpose-grown crops.

The relatively rapid fall in gas prices does not mean the end of efforts to increase use of alternative replacement fuels or renewables. Price declines are not to be confused with disruptive technology. Despite perceptions, no real changes in product occurred. Gas is still basically gas. The change in prices relates to the increased production capacity generated by fracking, falling global and U.S. demand, the increasing value of the dollar, the desire of the Saudis to secure increased market share and the assumed unwillingness of U.S. producers to give up market share.

Investment and innovation will continue with respect to alcohol-based alternative replacement and renewable fuels. Increasing research in and development of both should be part of an energetic public and private sector’s response to the need for a new coordinated fuel strategy. Making them compete in a win-lose situation is unnecessary. Indeed, the recent expanded realization by environmentalists critical of alternative replacement fuels that the choices are not “either/or” but are “when/how much/by whom,” suggesting the creation of a broad coalition of environmental, business and public sector leaders concerned with improving the environment, America’s security and the economy. The new coalition would be buttressed by the fact that Americans, now getting used to low gas prices, will, when prices rise (as they will), look at cheaper alternative replacement fuels more favorably than in the past, and may provide increasing political support for an even playing field in the marketplace and within Congress. It would also be buttressed by the fact that increasing numbers of Americans understand that waiting for renewable fuels able to meet broad market appeal and an array of household incomes could be a long wait and could negatively affect national objectives concerning the health and well-being of all Americans. Even if renewable fuels significantly expand their market penetration, their impact will be marginal, in light of the numbers of older internal combustion cars now in existence. Let’s move beyond a win-lose “muddling through” set of inconsistent policies and behavior concerning alternative replacement fuels and renewables and develop an overall coordinated approach linking the two. Isaiah was not an environmentalist, a businessman nor an academic. But his admonition to us all to come and reason together stands tall today.

The laws of gravity, gasoline and alternative replacement fuels

Newton-AppleWhat goes up in the physical environment, generally (at least until recently), must come down, according to Newton’s law of universal gravitation and Einstein’s theory of relativity. But does what goes down often keep going down? No, not when it’s primary a financial market measurement and the indices reflect a company or companies with a reasonable profile and future.

What goes down in the marketplace often comes up again — not always, but maybe, sometimes — and with varying degrees of predictability? Don’t be confused! The variables often aren’t subject to the laws of physics. The phrase, “it depends,” is often used by purported financial analysts to explain stock, hedge fund and bond trends and their predictions. Indeed, a whole new industry of cable economic shouters has grown up to supposedly help us understand uncertainty. Generally, their misinterpreted brilliance shows after the fact (the markets close) and their weaknesses reflected in their attempts to predict and project trends accurately in the future.

Happily, the ongoing decline of oil and gas prices has been seen as generally good for the overall economy, stimulating consumer purchasing and investing. Regrettably, the decline is becoming a lodestone tied to the necks of an increasing numbers of workers and communities affected by layoffs in some shale oil areas where production has started to slow down and where some small drilling, as well as service firms, have either gone out of business or have pulled back significantly. Texas is suffering the most. The state is down 211 rigs, about 23 percent of its 906 total rigs. The decline in production is not uniform because newer wells drill far more efficiently than older ones. Overall, however, several major petroleum and oil field service companies in Texas have cut budgets and employees.

I surmise that the number of psychotherapists in the nation has increased in areas where investors in energy, particularly oil and gasoline stocks, hedge funds and derivatives ply their trade, hopes and dreams. Little wonder, after often intense coverage by some of the decline, the media’s coverage, by many newspapers and TV outlets, of the modest increase in the price per barrel of oil and the minuscule increase in the price of gasoline per gallon reads like a secular holiday greeting. Happy days are here again, at least for the oil industry and their colleagues!

But the skeptics have not been silent. This week’s headlines based on stories from many analysts read like a real downer, particularly if you were in the market. Listen, my children, and you shall hear little cheer to sustain yesterday’s investment optimism. For example, as one journalist put it, “Sorry, but the oil rout isn’t over yet,” or another, “Report: U.S. production growth could stop this year,” or a third, “Careful what you wish for: Oil-price recovery may sting.” It’s a puzzlement that only a Freudian therapist can address if you have enough money to pay him or her.

Fact: Very few analysts, even the best, can now honestly claim with certainty that they know where the price of oil and gas will be a year from now and beyond. And they are probably overwhelmed daily by their egos, by their practice of magic and by (a few in the groups) their seemingly habitual exaggeration and what feels at times like prevarication.

There likely will be frequent, short-term blips in the economics of oil and gas until non-market behavioral variables concerning what the Saudis will do or what the American oil companies will do about production to secure market share and other objectives are settled. Further, tension in the Middle East, if it escalates, may well disrupt oil supply while other global, as well as internal U.S. factors, could well affect the value of the dollar and convert it into significant price changes. America’s oil and gas investors, big or small, should probably learn to count to ten and take a month or two off in Sedona, Ariz. It’s really nice there.

Current uncertainty concerning the economics of oil and gas should not make consumers or policymakers lethargic. It’s not time to take Ambien. While I am not certain when or by how much, what has gone down will likely begin to go up, relatively soon.

Regrettably, the world is still dependent on fossil fuels and market, as well as broad economic, social and political conditions, should relatively soon, begin to boost prices. If we are serious about providing consumers with a better long-term deal regarding gas prices, reducing monopoly conditions created by government policies and oil companies should be granted priority. Ending government subsidies for oil in an era of budget deficits would be a good start.

Low gas prices have diminished investor and provider interest in developing alternative replacement fuels. But this is short term. Fuels, like E85, once gas prices begin to rise, will once again become very competitive and consumer friendly. Because the extended use of renewable fuels that satisfy broad market needs — from low-income to high-income households and from short to long trips — is still probably at least 5-10 years way, a national and local leadership commitment to alternative fuels is important if the nation and the communities in it are to meet environmental, economic and social welfare goals.

The policy and behavior issues relate to perfectibility, not perfection. Ethanol is not a perfect fuel. But it is better than gasoline — much better. Arguing for reliance now on electric cars or hydro fuels makes for easy rhetoric and receipt of awards at dinners, but the impact on the environment, for example, and GHG emissions will be long in coming in light of the small share electric vehicles will have for some time among older cars. Let’s push for renewables and facilitate an early choice for alternative replacement fuels including ethanol.

 

Image from jimdakers.com/2013/10/15/are-you-in-motion/

What good are economists, including oil and fuel economists?

RobertShillerNobel-Prize winning economist, Dr. Robert Shiller, is one of the top economists in the nation, actually, let’s make him an imperialist, in the world. He is best known, perhaps, as the co-creator of the S&P/Case Shiller Home Price Indices. His books on economic theory and issues populate many college classrooms and personal libraries, including mine. He is an impressive, smart and accomplished intellectual giant.

It’s tough, given Dr. Shiller’s pedigree, to even suggest a bit of criticism. But because I think it’s important to current policy debates concerning economic, energy and transportation fuel policies, I do want to take issue with his recent short piece in Project Syndicate (What Good Are Economists?). In it, he defends economists and their mistakes concerning economic forecasts.

Shiller seems oversensitive to the pervasive criticism of economists in the media and literature. Because of the esteem with which he deservedly is held, his somewhat-thin response may mute a needed dialogue concerning the weaknesses attributed by respected critics of the work of economists. Shiller admits they failed to warn the nation in advance of economic downturns as far back as 1920-1921. By implication, he also suggests that because of this fact economists did not have a major impact or may have even had a negative impact at the policy table and often gave up their places to business and political leaders. Certainly Dr. Lawrence Summers and Alan Greenspan have not escaped criticism for failing to predict both the recent recession and for instituting policies that may have exacerbated the recession itself.

Over the past several years, many Americans have been frustrated by the errors of omission and commission made by respected economists from America’s think tanks and its government institutions, like the EIA, concerning analyses, forecasts and predications of the price of oil and gas as well as, demand for and supply of fuel and the role alternative fuels have and will play in America’s future economy. Their numbers and analyses often seem like the “once a day” or maybe “once a month” variety. Many of you don’t remember the famous (now clearly seen as a sexist) joke by I believe Ilka Chase in the old Reader’s Digest that a “woman’s mind is cleaner than a man’s because she changes it so often.” The comment now fits many energy-related economists. Their minds may be cleaner than those of normal folks because, as seen in many of their energy and fuel forecasts, they change it so often. But by doing so, they present obstacles to government, congressional leaders, industry, academic and environmental officials anxious to develop sound energy and fuel policies and program initiatives.

Can you name — on more than one hand — the economists who predicted the recent significant decline of oil and gasoline prices? Can you find consensus among economists concerning oil and fuel prices in the future? Can you identify economists willing to go out on a limb and describe, other than in generalities, the causes of the current decline in prices? Put two economists in a room and you will get three or more different reasons, most resting on opinion and not on hard data. Paraphrasing, oh, yes, the reason(s) are (or is): the Saudi Kingdom and its unwillingness to limit production and desires to gain market share; another favorite: the American producer’s recent oil shale largess is too good to pass up by slowing down drilling significantly; and don’t forget: the rise of the value of the dollar and the fall off in travel mileages resulting from the global recession. For the politically susceptible and sometimes cynical economists, throw in the genius of American and Saudi foreign policy as a factor. They fail to sleep at night, believing the decline is the purposeful result of the State Department and/or their counterparts in the Kingdom. If you keep prices low, who does it hurt most…Russia, Iran and Venezuela, of course!

There are many theories concerning recent price declines but no real hard answers based on empirical evidence and factor analysis.

Energy and transportation fuel economists, at times, seem to practice art rather than science. Diverse methodologies used to forecast oil and gasoline prices; demand and supply are unable to easily manage or accommodate the likely involved complex economic, technical, geopolitical and behavioral factors. As a result, specific cause and effect relationships among and between independent and dependent variables concerning oil and gas trends are difficult to discern by expert and lay folks alike.

Understandably, American leaders often appear to value what they feel are the good artists among economists, particularly if they lend credence in their speeches and reports to their own views or ideological predilections. Shiller’s question about economists in his piece is not a difficult one to answer. He asks, “If they were unable to foresee something (the 2007-2009 financial crisis and recession) so important to people’s wellbeing, what good are they?”

The best in the profession have provided insights into the economy and what makes it tick or not tick. They, at times, have increased public understanding of corrective public and private-sector actions to right a weak economy. They, again at times, have helped lead to at least temporary consensus concerning options related to fiscal and monetary policy changes and the need for regulations of private sector activities. But Dr. Shiller goes too far when he offers a mea culpa for the profession by comparing its failure to predict economic trends to doctors who fail to predict disease. Doctors probably do suffer more than economists for their mistakes, particularly when their analyses result in increased rates of morbidity and mortality. At least economists can bury their errors in next week’s or next month’s studies or reports; many times doctors can escape their errors only by burying their patients. The article could have been a provocative and an important one, given Dr. Shiller’s justifiable stature. It might have stimulated self examination among some of the best and brightest if it had linked weaknesses in economic forecasts to proposals to strengthen the rigor of methodological approaches. Presently, the brief article regrettably reads as an excuse for professional deficiencies. Res ipsa loquitur.

corn-ethanol

Does ethanol have to be hurt by falling gas prices?

Jim Lane, editor and publisher of Biofuels Digest, is one person who thinks alternative fuels aren’t necessarily going to be hurt by the huge drop in the price of crude oil.

In a post on the Digest Jan. 6, Lane lays out the rather complicated case of why it doesn’t pay right now to be dumping your alternate-energy stocks. That’s been the reaction so far to anything related to the price of oil. But Lane says there are special aspects of alternatives like ethanol that will be affected in a different way.

In the first place, Lane notes that while crude oil prices have been falling, ethanol prices have been falling, too. Since last June, crude oil has fallen from $115 a barrel to under $50, a remarkable 60 percent drop. Yet ethanol has fallen as well, from $2.13 a gallon to $1.55 a gallon, a formidable 27 percent drop. This is due mainly to the falling price of corn, which has been at its lowest level in recent years. A bushel of corn fell over the same period from $4.19 a bushel to $3.78, a 10 percent drop. In this way, ethanol is only marginally dependent on the price of oil and can show its own price pattern.

One thing worth noting is that there is a certain amount of elasticity in American driving. People tend to increase their driving range when the price of gasoline goes down. This is particularly true when it comes to taking vacations, which tend to be a long-term planning effort. If the price of gasoline stays down through next summer, people are more likely to increase gas consumption. The fact is that gasoline demand has actually reached its highest point in the last few months since the price of oil began to fall, as the following graph indicates:

graphic

Now drivers are required to include 10 percent ethanol in each gallon of gas. Therefore, ethanol has a fixed market. Driving has been declining in recent years, which is one reason that the Renewable Fuel Standard has been under fire – because the absolute amount of ethanol required has exceeded the 10 percent requirement in relation to the amount of gasoline consumed. Refiners and oil companies must buy this amount of ethanol. This is the reason the Environmental Protection Agency has been holding back on setting an RFS for 2014 — because the original amount prescribed was going to exceed the 10 percent figure. If people start taking advantage of lower gas prices and start consuming more gasoline, the amount of ethanol required will grow. “(W)e should be seeing a 2+% increase in gasoline demand, and that will take some pressure off the ethanol blend wall,” Lane writes. It might make EPA’s decision easier, if it ever gets around to setting a number.

Just to emphasize this point, an RIN — Renewable Index Number — is required by the EPA to prove that a refinery has been adding ethanol up to the 10 percent mark. The price of RINs has actually been rising as gas prices have fallen. As Lane writes: “Part of the reason that the ethanol market is holding up relatively well in tough times is the impact of the Renewable Fuel Standard, and its traded RIN system. RIN prices have jumped as oil prices have slumped — and a $0.76 increase in the RIN value of a gallon of fuel is a striking increase in value.”

So all is not dark for the future of alternatives. Ethanol’s place is secure, despite the fall in gasoline prices. Remember, it’s not that demand for gas is falling, but people are spending less for what they get. If methanol is given a chance, it might turn out to be more invulnerable, since it’s not tied to corn prices but to natural gas, which we seem to have in even greater abundance than oil. Electric cars also don’t lose their appeal, since much of their appeal is getting off gas entirely and unbuckling from the oil companies. It may not be time to abandon your stock in alternative energies quite yet.

PUMP-Poster

Press release: PUMP coming to iTunes on Tuesday, Jan. 13

LOS ANGELES, CA, January 8, 2015 – After a successful limited theatrical release this fall, PUMP will be available January 13, 2015 to a wider audience. Submarine Deluxe, in association with Fuel Freedom Foundation and iDeal Film Partners, are digitally releasing the film exclusively through iTunes.

Watch the trailer on YouTube

Download the film on iTunes

The inspiring and eye-opening documentary conveys the story of America’s addiction to oil, from its corporate conspiracy beginnings to its current monopoly today, and explains clearly and simply how we can end it – and finally win choice at the pump. Directed by Josh Tickell and Rebecca Harrell Tickell, with narration by Jason Bateman, PUMP is an important film for anyone who drives or owns a car.

Today, oil is our only option of transportation fuel at the pump. Our exclusive use of it has drained our wallets, increased air pollution and sent our sons and daughters to war in faraway lands. PUMP shows us how, through the use of a variety of replacement fuels, we can fill up our cars with cheaper, cleaner, American made fuels – and in the process, create more jobs for a stronger, healthier economy.

Notable experts such as John Hofmeister, former President of Shell Oil US; Elon Musk, CEO of Tesla Motors; Peter Goldmark, former president of the Rockefeller Foundation; and other noteworthy figures are also featured in the film, and all share their passionate views and knowledge.

PUMP will inform the audience how to change their lives for the better: convert cars to run on multiple fuels, save money, create jobs and improve the environment.

For additional information please contact one of the following representatives:

BIG TIME PR

Sylvia Desrochers – Sylvia@bigtime-pr.com- 424.208.3496

Jasmine Davis – [email protected] – 424.208.3496