The Principal Impediment to Alternative Fuels Is – Government Regulation?

In their path-breaking study, “Fuel Choice for American Prosperity,” the Energy Security Council carefully outlines the dilemma that our complete dependence on oil for transportation has created.

“It’s not the oil we import, it’s the price,” was the way they summarized it. As I outlined in a previous post the authors show how OPEC still controls the bulk of the world’s oil reserves and has not increased its output since the 1970s. As a result, even though we have increased domestic production dramatically and cut down on consumption, we are actually paying more for our oil imports than we were ten years ago. Why?  Because, OPEC is still able to manipulate the price to keep it at $100 a barrel. It’s not the black stuff we import that crimps our economy, it’s the price of oil we must accept from a monopolistic cartel.

So what to do?  Do we set up protests outside OPEC’s corporate offices in Vienna?  Do we bring an anti-trust suit in some world forum? People have actually tried such things and gotten nowhere. No, the only way to extricate ourselves from this market is to break the monopoly that oil has on our transportation system. If oil had competitors, it will start acting like any other commodity and respond to supply and demand. The key to breaking the OPEC monopoly, says USESC, is to develop alternative fuels.

When it comes to asking why we have not made more progress in developing alternative fuels, however, USESC has a surprising answer: government regulation. Government regulation? How can that be? I thought the government was doing everything it could to foster alternatives and try to lower our oil imports. Well, as usually happens when the government gets involved in manipulating a market, things quickly get complicated and murky. Here’s what has happened:

CAFE standards. When Congress first started setting corporate fleet average standards, responsibility was given to the Environmental Protection Agency. In retrospect, this was an odd choice, since EPA is more concerned with air pollution than reducing oil consumption. The Department of Energy would have been a more logical choice. This didn’t become visible in the 1980s when pollution concerns centered on the combustion products of sulfur and nitrogen. But now that carbon dioxide and global warming have become the principal concerns, the EPA has subtly changed its emphasis. As USESC points out; “CAFE’s initial energy security centric vision has been blurred by the desire to use the law to promote greenhouse gas emission reduction goals.”

In its latest regulatory effort, for example, the EPA will reward auto companies for introducing alternative fuels by applying a “multiplier” to their corporate fleet average beginning in 2017. Every electric and hydrogen fuel cell vehicles will count as two vehicles in the denominator of the corporate average, phasing down to 1.5 by 2021. For plug-in hybrid electric vehicles (PHEVs) and compressed natural gas vehicles (CNG), the multiplier will be 1.6, phasing down to 1.3.

All this seems fair enough. EVs and FCVs use no gasoline and plug-in hybrids are only partially dependent on oil. The real problem, however, is that flexible-fuel vehicles – cars that are designed to burn ethanol, methanol or gasoline – have only been given credit based on how much E-85 they burn in real-world driving. The auto manufacturers have used this to avoid making improvements in car efficiency. This is regrettable because flexible fuel engines burning either ethanol from homegrown corn or methanol derived from natural gas would be the best say to cut down on imported oil. Both methanol and ethanol are liquids and fit right into our current gas station delivery system. Compressed natural gas and electricity, on the other hand, require a whole new replenishing system. Yet the EPA remains wary of both ethanol and methanol because they produce carbon exhausts. CNG also produces carbon exhausts, of course, and EVs drawing power from coal or natural gas will produce exhausts at the power plant. The EPA has tried to compensate for this by adding upstream carbon releases for EVs and other alternative fuels but it does not do the same for gasoline!  In short, the whole multiplier system is a mess. The EPA would do much better just trying to reduce oil dependence rather than bringing carbon emissions into the equation.

Costs of converting to alternative fuels: One of the most important steps in developing alternative fuels is converting existing gasoline vehicles to run on other fuels.

In general, there are three types of conversions – switching a gasoline or diesel car to run solely on another fuel (dedicated), changing a vehicles to run on higher alcohol blends (flex fuel), or installing an additional fuel tank so that the vehicles can burn the competing fuel as well (bi-fuel). In American, however, onerous regulations and staggering costs of conversion has deterred consumers.

The study points out that installing a CNG tank in an American car costs $10,000 while the same tank in Europe can be installed for $3,800. The difference is the strength of the tank as dictated by the EPA. Of course we don’t want to be in a situation such as Pakistan where CNG cars are exploding due to poor tank quality.  But even in comparison to other developed countries, U.S. regulatory requirements are excessive. 

Taxing by volume instead of by energy content: The federal and state governments places taxes on gasoline and any other product used to propel trucks and automobiles. The logic here is that the money goes into special highway trusts that maintain the roads. But the tax is imposed by the gallon rather than by energy content. USESC maintains that this is discriminatory because methanol, ethanol and other non-gasoline products have less energy density and therefore require more volume for the same amount of energy. This is a fine point and might be disputed by the oil industry, which would say if ethanol and methanol have less energy content, that is simply their tough luck. Ethanol, on the other hand, has been exempted from the federal highway tax and most state gas taxes, which is what makes it economical to add to gasoline.

The ban on methanol: Finally, although the USESC report does not even mention it, the biggest regulatory impediment to alternative fuels is the EPA’s failure to authorize the use of methanol in gas tanks. Putting anything in your gas tank requires permission from the EPA because of air pollution considerations. Although methanol actually produces less nitrous oxides and less particulate matter than gasoline, the EPA has never given it an OK. Although methanol made from natural gas might be the best alternative for replacing gasoline, it is does not yet have EPA approval.

Changing any and all of these regulations would require a huge concerted effort by some constituency that had a strong material interest in pushing it through Congress. Unfortunately, there is no such group. The natural gas industry is not yet organized around the issue and is more concerned about defending fracking and opening up natural gas exports. T. Boone Pickens is pushing CNG for trucks through his Clean Energy Fuels but there is no similar effort to promote the use of natural gas in cars. The entire farm bloc is behind corn ethanol, of course, which is why it has been so successful. But there is no similar interest promoting methanol, which may be just as good an alternative or better.

Under these circumstances, the best alternative is to persuade the auto manufacturers to produce flex-fuel vehicles that can run on any fuel – natural gas, hydrogen, biodiesel, E85 (85% ethanol) or M85 (85% methanol). The adjustment would not add significantly to the price of a new car and would open up the field to all the competitors attempting to replace gasoline.

Let the best fuel win.

Fuels For Sustainable Development In Sub-Saharan Africa

This paper examines the correlation between energy consumption and economic development in sub-Saharan Africa. This region uses only 2 percent of the world’s energy, yet its reliance on petroleum — for transportation, cooking, heating, agriculture and other uses — makes citizens extremely vulnerable to oil price spikes.

Ford Leads the Way

The Ford Motor Company stepped front-and-center in the effort to fine alternatives to high-priced imported oil last week with the announcement that it will offer compressed natural gas (CNG) tank as an option in the F-150 pickup truck, its most popular brand that currently sells 700,000 models a year.

Now it won’t come cheap. There’s a $250-$350 charge for the vehicle to come “prepped” from the factory. That means putting hardened valves, valve seats, piston and rings into the V6 engine. But after that, there’s a $7-9000 charge for installing the CNG tank in the cargo bay – made considerably more expensive than in Europe because safety standards are interpreted in a way that makes them much more expensive. This lifts the showroom price from $24,000 to around $32,000. That’s a big chunk but Ford swears you’ll make it back in three years by substituting fuels.

With the price of gas at around $3.80 per gallon and the oil-equivalent of natural gas at around $1.20, those savings should add up fast.  Of course all this assumes that the price differential won’t narrow to its traditional level, but that doesn’t seem very likely now. Electrical plants have shown a tendency to move quickly back to cheaper coal if the price of gas rises, but the difference between the crack spread and the spark spread seems to have separated permanently, much to natural gas’s advantage.

All this is good news for those looking to substitute some of our abundant natural gas for foreign oil in our transport sector.  In fact, there’s a lot of progress being made right now:

Clean Energy Fuels of Newport Beach, CA already has a network of 360 natural gas fueling stations at truck stops along Interstate highways and is trying to build a complete national infrastructure.  NGV stations cost $750,000 a pop but Clean Energy is looking at the long term.  The ready availability of filling stations will help spur the conversion of giant 18-wheel diesel haulers, which most people see as the ripest target for conversion.

Heavy-duty fleet vehicles are making rapid progress.  Buses and garbage trucks are in the forefront. Eight out of ten new vehicles bought in 2012 by Waste Management, the leader in the field, were powered by natural gas.

There are now 120,000 gas vehicles on the road in the United States, according to Natural Gas Vehicles of America, the trade group.  Unfortunately, this constitutes only a tiny fraction of the 15.2 million NGVs worldwide. Iran, Pakistan and Argentina, improbably, are the leaders. We’re behind in making the transition, but there’s plenty of room to catch up.

In a report issued in June, Citi Research estimated that one-quarter of the world’s present consumption of oil could be replaced by natural gas under present conditions. More than 9 million barrels per day could be replaced in truck transport, 2 million of these in the US. Another 3 million b/d could be opted out in marine transport and 200,000 b/d in railroad locomotives.

All this would be fairly easy to transact since it involves large commercial organizations with centralized decision-making.  Sooner or later, however, this approach is likely to run up against limits.  The stumbling block will be the vastly more decentralized system of private automobiles, which still consumes 60 percent of our oil and involves a car in every garage and a gas station on every other corner. Here the problem of building an infrastructure and achieving widespread distribution is much more difficult.

The problem comes because reformers are viewing natural gas as a fuel instead of a feedstock. Compressed natural gas (CNG) and liquefied natural gas (LNG) are the most readily available options – and both are legal – but in the end they are going to have their limits. It will make much more sense to use methane as a feedstock for the manufacture of liquids, methanol in particular.  These will be much easier to transport and will substitute for gasoline in current car engines with only minimum adjustment – nothing like the $8000 required for the F-150. Valero has just opted to build a $700 million methanol manufacturing plant in St. Charles, Louisiana in anticipation of this demand. All depends on whether the Environmental Protection Agency decides to give a go-ahead to use methanol in car engines. The matter is pending.

So the effort to use our abundant natural gas resources to reduce our dependence on expensive, unpredictable and unreliable foreign sources of oil is making headway. Ford’s decision to equip the F-150 with CNG is a beginning. But there’s more to come.

What Happened to Saudization? Bipolar Fuel Projections!

Just a few short months ago, newspapers, led by the WSJ, trumpeted, many on their front pages, the Saudization of America and the end of America’s and OECD’s reliance on Middle East oil. Do you remember?   Well maybe you don’t have to– at least after 2025. The IEA’s World Energy Outlook for 2013, published Nov 12, indicates that the “Middle East, the only large source of low-cost oil, remains at the center of the longer-term oil outlook.” Within about 10 years or so, it will provide the largest share of the world’s expanded oil supply.

I realize the fragility of projections and have in the past criticized the IEA and the EIA and other makers of global energy projections. At times, projection makers are more artists than scientists. The good artists, sometimes, come close to what actually happens. The not so good ones either get lucky or appear to mute their “over or under” reality numbers. They either provide ranges, permitting them to say they were right in the future, or they complain, perhaps over a good bottle of wine, about the complexity of the variables.

I believe it is important to read the IEA report because it lends a bit of skepticism to the idea that America and its friends are entering the golden era of energy abundance. Indeed, The New York Times on Nov 13 ran the IEA story under the headline, “Shale’s Effect on Oil Supply Is Forecast to Be Brief.”

Here is what the IEA said in their Executive Summary:

“The role of OPEC countries in quenching the world’s thirst for oil is reduced temporarily over the next 10 years by rising output from the U.S., from oil sands in Canada, from deep water production in Brazil and from natural gas liquids from all around the world.  However, by mid-2020, non-OPEC production starts to fall back and countries in the Middle East provide most of the increase in global supply. Overall national oil companies and their host governments control some 80 percent of the world’s proven-plus-probable oil reserves.”

America’s likely surplus combined with a slowdown in the increase of demand will not affect costs of oil and gasoline in a major way.  Escalating demand for both will be reflected in Asia and will place a floor under prices. America’s oil companies function in a global market and are not governed to a great extent by the laws of supply and demand in this country.  They will sell to the highest bidder worldwide.

IEA indicates that “the need to compensate for declining output from existing oil fields is the major driver for upstream oil investment to 2035…conventional crude output from existing fields is set to fall by more than 40 mb/d by 2035.Of the 790 billion barrels of total production required to meet our projections for demand to 2035, more than half is needed just to offset declining production. According to the NY Times, IEA conclusions are generally shared by the EIA; that is, today’s rapid oil production from shale will continue for a relatively short time and then slow rapidly. IEA indicated the slowdown will occur in the mid-twenties, EIA by the late teens.

IEA’s and EIA’s analysis should not generate a bipolar response or create a need for a regimen of pills to cure projection related manic depression. It’s only a projection. Take a deep breath and count to ten.  Next year it will likely change because of “complex variables ” including but not limited to changing world demand, Middle East tension, new technology and the use of alternative fuels.

Until we get better at projection, let’s applaud IEA and EIA’s professionals.  At a minimum, they are honestly and artistically responding to lots of unknowns.  Paraphrasing the comedian Ilka Chase (and changing a word or two) projectionist’s minds are cleaner because they change them so often…

Just kidding!

Their efforts should at least reinforce the need to think through transportation fuel strategies and act with all reasonable speed on what I would consider, at least, low hanging fruit. For example, a coordinated campaign by the public, nonprofit and private sector to encourage the federal government to approve methanol as a fuel would be a good first step.  Federal acquiescence, if combined with simultaneous certification of low cost kits to convert existing vehicles to flex fuel cars could provide the framework for an effective transitional fuel strategy.

It, likely, will take from five to ten years before electric and or hydrogen powered vehicles will be able to reach the budgets and driving needs of most low, and moderate income Americans.  Even when renewable fuel powered new vehicles reach a mass market, the technology will not be able to change the gasoline dependent older vehicles. In this context, alternative transitional fuels could, with the addition of an increased number of conveniently located fuel stations and stimulated by new demand, offer competition to oil company restricted gas-only stations and consumers a choice of fuels.  America would be better off economically and environmentally.  Consumers would secure a more predictable, probably lower price for fuel at competitive pumps and charging stations.  The nation would be less dependent on imported oil.

Building the Natural Gas Highway: The Journey of Thousands of Miles Begins in Newport Beach

California still is seen as the state that exports innovation, despite the fact that it has seen some tough economic times of late. In this context, I was pleased to see the recognition granted by the Orange County Register (Nov 6) to the Clean Energy Fuel Corporation, and its efforts to build the Natural Gas Highway. I was even more surprised to find out that the corporate offices were located near my own office. Clearly, the popularity of natural gas and its derivatives, ethanol and methanol, are on the uptake since the President’s State of the Union address indicating the nation’s economy and environment  would benefit if it weaned itself off oil and by implication gasoline. Even before Obama’s speech, there was a growing recognition among many Americans– including environmental and business leaders– that natural gas could become the core of a strategy aimed at reducing greenhouse gas (GHG) and other pollutants, lowering the costs of vehicular fuel, and reducing dependency on oil imports, thus providing funds for investment in the U.S. Clean Energy Fuels Corporation, located in Newport Beach, is making it easier for consumers to access natural gas for their vehicles. According to the story in the Register, it has invested more than $300 million in the last two years on natural gas fuel stations across the nation. Most of the more than 400 stations that they have developed and  offer only compressed natural gas (CNG), a fuel that works better for comparatively short trips ( e.g. buses, taxis, garbage trucks, short hall trucks, local consumers ). Current and future placement of stations will increasingly offer liquid natural gas (LNG). LNG works better than CNG for long distance trips. Are the leaders of the Clean Energy Fuel Corporation nuts?  Maybe they are…but I don’t believe so.  While, the Corporation has yet to turn a profit (apparently after 15 or 16 years), since going public in 2007, their market value is now more than 1 billion dollars. Their phones are ringing. Large retailing companies relying on trucks, long distance trucking companies, bus manufacturers, taxis and bus companies seem to be gravitating toward use of cheaper natural gas as a fuel. But these users and potential users need assurances that natural gas fuel stations will be reasonably accessible. Clean Energy Fuel aims to provide such assurances. Many respected financial analysts believe that the Clean Energy Fuel Corporation is on the cusp of and will benefit financially from the increased acceptance and growth of alternative transportation fuels, particularly natural gas. Assuming both the sizable price gap between oil and natural gas remains and the corresponding price gap between natural gas fuel and gasoline as well as between natural gas and diesel fuel stays relatively large; Clean Energy Fuel Corporation’s future looks bright. Yes, it will have rivals. Shell Oil, according to the Register article, apparently is going to start selling LNG at existing truck stops. Soundings that I have picked up from natural gas leaders, CEOS of businesses dependent on trucking and diverse investors suggest an evolving interest in developing both CNG and LNG fuel stations and the Natural Gas Highway. In this context, 22 states, under the bipartisan leadership of Governor John Hickenlooper (D) of Colorado and Governor Mary Fallin (R) of Oklahoma, have initiated a collaborative project to buy CNG outfitted cars from Detroit to replace old state vehicles, when their time passes. Detroit in turn has promised to develop a less expensive CNG vehicle for the participating states which could ultimately benefit consumers. Given recent projections of the market for natural gas fuel by government and reputable private and nonprofit groups and increased advocacy for alternative fuels by a coalition of environmental, nonprofit and business groups, I wouldn’t bet against Clean Energy Fuel’s future health. My hope, however, is that it and, indeed, its competitors add room for natural gas derivatives such as ethanol and methanol in their planned natural gas stations.  Apart from generating use by owners of flex fuel cars now in existence, their agreement to do so would encourage (the relatively inexpensive and easy) conversion of existing vehicles to flex fuel vehicles. Significantly, EPA has certified the use of E10 in all vehicles, E15 in vehicles after 2001 and E85 in approved flex fuel vehicles. Hopefully, EPA will soon certify methanol as well as approve an expanded list of conversion kits for existing older vehicles. These approvals are possible, if not probable, given the environmental, economic and consumer benefits of alternative fuels and the evolving politics of fuel. Allowing oil companies to sustain the very restrictive rules now governing the vehicular fuel market will continue to prop up America’s dependency on imported oil as well as support relatively high fuel costs and increased environmental degradation.   President and CEO Andrew Littlefair of Clean Energy Fuel indicated, “With cheaper, abundant fuel, a network of stations, [and] redesigned engines …the time for natural gas transportation has arrived.” I would add, the time for natural gas based ethanol and methanol has also arrived. I commend Clean Energy Fuel for its initiative in developing the Natural Gas Highway. The Company, borrowing from President John Kennedy, has begun an important journey of thousands of miles in Newport Beach. Contrary to (and paraphrasing) the poet Robert Frost, hopefully the road they are building will be very well travelled.  Maybe a couple of leisurely  lunches near the ocean in beautiful Newport Beach could convince my colleagues at Clean Energy Fuel  to consider working with producers of natural gas based ethanol and methanol as well as interested states and localities to  extend  the Natural Gas Highway to ethanol and methanol. It would be good for traffic and their bottom line, good for development of related commercial activities and, most important, good for America

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

When Nobel Laureate George Olah 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.

 

Natural Gas Demand Causes the EU to Invite Russia to Join…

Hold the presses, stop the cable and network news shows, break away from Twitter, and forget for a moment about Facebook… Why? Read the latest wire from The Associated Press! Many European nations, including Great Britain, have signed a multibillion dollar long term contract for Russian natural gas. The signing was accompanied by a decision by the European Community to integrate Russia into the community’s governance– NATO officials expressed anger and disappointment. Great Britain’s ambassador to America gently, but affirmatively, responded to the New York Time’s question concerning “what does this do to America and Great Britain’s special relationship? Well, it isn’t so special anymore.” She went on, “the world is evolving and Europe, as well as Great Britain, is evolving also. . . The alliance, and indeed NATO, is a relic of the past. I am sorry but that’s just how it is!”

Please don’t respond like many in America did to the late 1930s broadcast of H.G. Well’s War of the Worlds, narrated by Orson Wells. Don’t fear! don’t run out to the street! No deal with Russia for natural gas has yet been signed, NATO is still intact. The European Commission and European Union are still alive, if not well, given the economic problems plaguing many of its members and the continent as well as Great Britain.

While not factual, my flight into hyperbole and negative fantasy could become a reality sometime in the future. What got me thinking about the possibilities was an interesting article in the Oct. 31 Financial Times (coincidentally, on Halloween) by Paolo Scaroni, Chief Executive of Eni, Europe’s largest natural gas dealer.

Scaroni’s thoughts were not offered to trick or treat us. They were meant to make us think seriously about opportunity costing and risk analysis sure to be undertaken by European countries because of their increased need for natural gas and other energy sources.

Scaroni suggests that Europe’s present energy policies and related energy costs impede economic growth, and do not reduce Greenhouse Gas (GHG) emissions. Of note, he indicates that “the problem is that we have so far failed to grasp the implications of the U.S. shale revolution for Europe. Thanks to the rapid increase in efficient non-conventional gas production, U.S. companies pay about $3.50 per million British Thermal Units (BTUs) for their natural gas…That is about a third of what Europeans pay. “

Apart from high gas feedstock costs, Europeans also pay a hefty set of charges to sustain incentives to invest in renewables. As a result, Europe’s electricity is “twice as expensive as America’s” and gives the U.S. a clear competitive advantage with investors around the world, including investors from Europe. Why invest, build or expand in Europe if your company is energy intensive?  The U.S. has the Red Sox, Lady Gaga, Madonna and, most importantly, relatively cheap natural gas fuel.

Because natural gas in the U.S. now crowds out coal, Europe gets a lot of its surplus coal for power plants. So while natural gas use has declined, it is increasingly hostage to dirty U.S. coal- sort of a negative equilibrium for our friends on the other side of the Atlantic. Rising carbon emissions from coal have come close to netting out the carbon benefits from investment in renewables, natural gas and the economic downturn.

What are Europe’s generally intelligent public and private sector leaders to do?  Sounds obvious!  Increase imports of shale gas from the U.S.!  No, says Scaroni. By the time transport costs are added and subject to liquefaction in the U.S. for shipping and regasification for use in Europe, shale gas exported from the U.S. is twice as expensive as gas in the U.S. While likely a bit exaggerated, the author indicates that buying U.S. natural gas would be economically disastrous.

It is also not a good political move. Besides the costs for U.S. natural gas, many Europeans still view the U.S. as “that” upstart nation, once defined by old Europe as the “colonies.” Heck, it was only near 325 years ago; it’s too early to pay reparations.

Scaroni thinks the answer is to explore home grown shale oil assets and nuclear energy, as well as increasing the efficiency of conventional fuels. To secure the first two, however, will be tough given the opposition of environmentalists and people who would like to keep Europe just as it is. Further, high density wall to wall development throughout Europe and Great Britain creates even more fear concerning despoiling the remaining open space and breeds an intense “not in my neighborhood” attitude in many areas. Efficiency is praised by most, because it is often used devoid of real meaning in political rhetoric. Who can be against it, until specifics and likely mandates, costs, and its impact are put on the table?

Scaroni, realizing the obstacles to lowering the costs of gas to U.S. benchmark prices, suggests strengthening commercial and political ties with Russia and perhaps other traditional non U.S. energy partners.  Reading between the lines of the author’s words, he seems to be saying, “let’s milk Russia for all the comparably inexpensive gas we can get.”  WOW!  Communist! Reprobate!  Misanthrope!  No.  Probably just a good analyst and business person.

Without access to NSA data or James Bond, I still almost can hear the buzz at the Pentagon and State Department.  I can see the dour faces at NATO offices in Brussels. I can visualize the depression in the EC and EU. Sure, Russia may soon find a welcome mat in Europe. Its entrance price will be relatively cheap natural gas. New alliances, new travel patterns for diplomats, better food in Russia in the future, new political fun and games as well as new problems for the U.S.

Russia’s natural gas exports to Europe are likely to increase, but Russia’s natural gas dominance is probably not around the corner. The West can take a deep breath.  Use of fracking, governed by strong environmental regulations, likely will increase and result in expanded natural gas supplies in Europe and Great Britain.  While exports from Russia will increase, they will reflect a measured increase at least in the short term.

Russian exports to Europe and Great Britain will not have a major impact on the U.S. We can manage any uncertain political changes and the European price of natural gas will not have a major effect on the U.S. price of the same.

What’s the U.S. going to do with its natural gas? While LNG exports from the U.S. may increase to Great Britain and Europe (as well as Asia), the increase will be moderate, given the continued absence of sufficient port capacity, the cost and the slow pace of government approvals. Pressure, in light of predicted surpluses and the advocacy of alternative fuel supporters, may help open up the almost monopolistic U.S. vehicular fuel markets and increase natural gas demand.

Natural gas prices in the U.S. will remain subject by and large to U.S. production and related costs, as well as regional market behavior and investor speculation. Contrary to oil, natural gas produced in the U.S. likely will not play a major role for at least the next several years in global markets

Is this good for U.S. and U.S. consumers?  On balance, yes. The gap between demand and production as well as production potential will remain visible. ROI in natural gas wells and rigs will probably be sufficient to secure modest production increases. Natural gas prices will likely go up over time but remain well under the price of oil when both are converted to vehicular fuels. Assuming positive government rule-making and the increased use of natural gas derivatives, ethanol and methanol as alternative transitional vehicular fuels, consumers at the pump will benefit from the continued differential and the U.S. will benefit security-wise as well as environmentally and economically.

The New York Times and Natural Gas- Is it the Moment?

The venerable Gray Lady, the NY Times, has in the recent past treated the possible use of natural gas and its derivatives (methanol and ethanol) as transportation fuels warily. Their primary focus has seemed to be on the environmental problems and economic opportunities related to fracking and the increased production of natural gas. Rarely did the Times cover or note in its editorials the increasing acceptance of natural gas, methanol and ethanol as a fuel to power vehicles. The importance of alternative fuels as part of national energy and environmental policies has not been granted significant visibility in the Times. The Times is still my favorite read over a cup of coffee.

But, surprise! Borrowing and taking liberty to amend the lyrics from the musical Jekyll and Hyde,   “this may almost be the moment…when The New York Times begins to send many of its doubts and demons concerning alternative transportation fuels on their way… this could be the beginning. The momentum and the moment may be coming together soon in rhyme.”

Paul Stenquist, a respected, frequent writer for the Times automobile section, wrote an Oct. 29 article titled, Natural Gas Waits for its Moment. The content of the piece was, in reality, not as ambiguous or speculative. Read it!  According to Stenquist, natural gas has arrived and this is its moment, or at least its soon-to-be moment. Sure there are problems to overcome, but to Stenquist, they seem relatively puny given where he thinks we are, and where he suggests we can be soon.

Stenquist opens his upbeat piece by indicating that “cars and trucks powered by natural gas make up a significant portion of the vehicle fleet in many parts of the world (Iran, Argentina, Italy, Brazil, and Germany).”  After noting the almost 2,000 natural gas stations in Argentina, he asks, “Is America next?”

Based on Department of Energy (DOE) information, Steinquist indicates that natural gas is about $1.50 cheaper than gasoline and diesel fuels for the same mileage, and that because natural gas burns clean, it requires less oil changes, and vehicle exhaust systems last longer.

Sure, the author notes that the initial cost of natural gas vehicles are significantly higher now than gasoline vehicles. But based on an apparent positive interview with a fleet manager from Ford, he indicates that increased sales or leasing volume could bring the vehicle price comparable to today’s conventional vehicles. The key issue Stenquist does not address, is when this will happen, and how long will it take?  But still he and his Ford colleague seem optimistic– perhaps a bit too optimistic, unless Detroit pulls a Steve Jobs; that is, just as Jobs did with the  iPhone, convince the public through marketing and technological innovation that cheaper cleaner natural gas vehicles are a “must” for consumers.

But wait, there’s more!  Stenquist, quoting from the Energy Department’s website, suggests that the environmental benefits of natural gas as a fuel appear to be immediate and important. Succinctly, natural gas vehicles have a much smaller carbon footprint than gasoline or diesel.

What remains, then, for the nation to benefit in a major way from use of natural gas as an alternative fuel?  Well for one, reducing carbon leakage during natural gas production and distribution. Progress is being made. Stopping or cutting back leakage has become a priority for both involved companies, and federal as well as state regulatory authorities.

Second, both car companies and the government acknowledge that using compressed natural gas in a conventional engine would result in degrading engine performance. However, retrofitting engines to use natural gas would increase the octane advantage of natural gas and lessen the density advantage of gasoline-reducing performance issues. Fully designed natural gas cars are still relatively rare and are, at this moment, significantly more costly than conventional cars. But with increased demand, as noted earlier, the costs would likely come down and make household purchase decisions easier. Interestingly, Governor Hickenlooper of Colorado(D) and Governor Fallin of Oklahoma(R) have put together a 22 state coalition. The group has committed to purchasing new natural gas cars to replace old cars in their respective fleets. Detroit has committed in turn to work on developing a less expensive natural gas car, given the market pool or demand created by the states. This effort deserves watching and will, if successful, hopefully, provide a path to cheaper natural gas vehicles for consumers.

Stenquist, correctly, points to the lack of natural gas fuel stations as a key obstacle to increased popularity of natural gas. But he is optimistic that technology now in place (or soon to be in place) will be able to link available natural gas pipelines to in home fuel machines. I, also, would hope that these fuel stations would be placed in parking garages and that they would be much cheaper than currently existing home refueling equipment.

I suspect that the natural gas movement will require more than a few moments; that is, it may take a bit longer to gain traction than implicit in Stenquist’s piece. But it’s nice to see a journalist link natural gas to transportation fuel in such an aggressive way as Stenquist. Now if the Times could only follow in the content of its editorial and op-ed pages.

It is hard to be critical of Stenquist’s piece since it’s almost a first for the NY Times. However, I am puzzled by the absence of any discussion of natural gas based ethanol and methanol as alternative fuels in his article. Both, likely, would be cheaper per gallon and per miles traveled than gasoline. Both would record more environmental benefits than gasoline, and both, if they are accepted in the market, would reduce dependency on imported oil. Perhaps most significantly, both, assuming appropriate government approvals, could be used almost immediately to fuel existing vehicles with relatively simple and cheap engine conversion kits. Think of it!  If we could add the trifecta: natural gas, ethanol and methanol –to fuel stations throughout America, it would provide needed competition to gasoline. Consumers would benefit by having access to lower cost fuel. The nation would benefit from improved environmental and Greenhouse Gas (GHG) conditions. America’s security and economy would be enhanced significantly. It would be a major win for the public interest and for America and Americans.

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.