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

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

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

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

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

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

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

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

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

CNG, Natural Gas sign, LNG

CNG moves ahead on all fronts

The effort to substitute compressed natural gas for foreign oil in our gas tanks is moving ahead on all fronts across the country, in scores of municipal departments that are converting their fleets, in new gas stations that are opening and with entrepreneurs who are looking for ways to speed up the conversion.

Leading the pack is Clean Energy Fuels, T. Boone Pickens’ effort to put the nation’s natural gas resources to work in the transport sector. Clean Energy Fuels has targeted long-distance, heavy-duty trucks, which tend to stay on the Interstate Highway System and can be services at massive truck stops. In Pennsylvania, for instance, Clean Energy Fuels is building stations in Pittston and Pottsville that will serve trucks on heavily the traveled I-81 and I-476. They are scheduled to open later this year.

But much of Clean Energy Fuels’ real success is coming from the fleet conversion for major shipping firms that rely heavily on truck transportation. The company has had particular success with UPS. Fueling depots were recently opened in Oklahoma City and Amarillo, Texas. The carrier E.J. Madison, LLC has deployed a fleet of 20 long-haul LNG trucks that will utilize a CEF network of stations that stretches from Los Angeles to Jacksonville, Florida. Jacksonville is emerging as a hub of CEF activity as the company has opened a liquid natural gas (LNG) terminal there as well. LNG is more difficult to handle than compressed natural gas but has much greater energy density.

Rapidly expanding in Florida, CEF has just announced a grand opening of a CNG filling station that will service the Hillsborough Area Regional Transit Authority (HART), which provides public transportation throughout the Tampa metropolitan area. The opening kicks off a plan to convert HART’s entire fleet of public services buses and vans to compressed gas.

Just last week Clean Energy Fuels CEO Andrew Littlefair was in the news telling The Motley Fool that Tesla’s electric cars will not be in competition with CEF’s efforts. “Tesla and electric vehicles are really great for certain applications,” he told interviewer Josh Hall. “But hauling 80,000 pounds of cargo, natural gas is really well suited for that.”

However, even if Clean Energy Fuels doesn’t think CNG can compete with electric at the passenger-car level, others do. Last week the Wawa convenience store chain announced it will partner with South Jersey Gas to open CNG fueling stations in southern New Jersey. “Compressed natural gas gives us an opportunity to increase the convenience we offer our customers and positions us for the future as well,” Brian Schaller, vice president of fuel for Wawa told the press. “We’re excited about the growth potential.” With 600 stores on the East Coast from New Jersey to Florida, Wawa has plenty of room to grow.

Pennsylvania is becoming a hotbed of compressed gas progress as the state seeks to take advantage of the Marcellus Shale. The state has adopted a funding program to help businesses convert. One of the first to take advantage is Houston-based Waste Management, which received an $806,000 grant from the State Department of Community & Economic Development to switch 25 of its waste and recycling collection vehicles to CNG. Pennsylvania-American Water Company has also announced plans to convert its fleet with a $315,000 state grant. American Water, the largest water utility in the state, operates out of Scranton.

Nebraska is a long way from any natural gas drilling but the Uribe Refuse Services company of Lincoln has announced it will convert its entire fleet of 17 trucks to natural gas over the next few years. The first trucks were displayed in the city last week on Earth Day.

Oklahoma is a big oil-and-gas producing state and is making a major effort to convert state vehicles to natural gas. In 2011 Gov. Mary Fallin joined 15 other states in a multi-state memorandum of understanding committing them to purchase NGVs for the state fleet. The state now has 400 CNG vehicles and is pushing the federal government to convert its fleet in the state as well. Oklahoma is building CNG gas stations to match and now stands third in the nation behind California and New York.

The natural gas industry is putting its shoulder to the wheel on this effort. The American Gas Association and America’s Natural Gas Alliance (ANGA) have teamed up to sponsor “Add Natural Gas (+NG),” an effort that is encouraging entrepreneurs and mechanics to convert ordinary passenger cars already on the road to CNG. “Fleets across the country are already using natural gas vehicles to save money and reduce emissions,” says the group’s website. “However, natural gas can be used to fuel any vehicle. To demonstrate this, we worked with automotive engineers to add natural gas as a fueling option for some of the most popular vehicles on the market today.”

Performance CNG LLC is a Michigan startup that has been inspired to take up the initiative. The company recently had a hybridized 2012 Ford Mustang GT demonstrated as part of +NG’s campaign and is currently trying to raise $55,000 in capital on Indiegogo, an international crowd funding site. More than half the money would go to EPA emissions testing.

Not everyone is convinced that CNG is the way to go. Clean Energy Fuel’s stock has done poorly since January, based on investor skepticism that its market is not that big and that some liquid natural-gas based fuel – methanol of butanol – will prove easier to handl

JP Morgan

Rin Tin Tin, RINs and the price of ethanol

Is the son or daughter of Rin Tin Tin alive and well? For a while I thought he or she was, while catching up on my reading over the weekend. I kept reading articles about RINs (Renewable Identification Numbers), their possible impact on the ethanol market and relatively high ethanol prices, despite the apparent weakening of the ethanol market. There seemed to be RINs and more RINs on every page I turned! Because I hadn’t slept for two nights, I couldn’t really focus on the contents of the articles, but only on the dog Rin Tin Tin and his offspring. How many of you have done that? Come on, be honest. Don’t make me feel bad!

I felt guilty after it became obvious that my focus on Rin Tin Tin resulted from a tired brain and eyes. I am back to the complex world of RINs today. (I had a bit of sleep).

Okay, you ask, “What the hell are RINs?” They are sort of a pass at reflecting company fulfillment of government mandates concerning biofuels. For this article, think ethanol! They are issued at the point of ethanol production or the purchase of the fuel by companies. They are approved by the EPA. They reflect a credit that verifies that the required amount of ethanol has actually been blended into gasoline. Succinctly, the Renewable Fuel Legislation, now the law of the land, mandates that a Renewable Identification Number (RIN) must be attached to every produced or imported gallon of renewable fuel in the U.S. One more thing, RINs are separated from the batch of renewable fuel when it is blended with gasoline. This fact indicates compliance with the law and Renewable Volume Obligations (RVOs). Credits, at this juncture, can be used for trading purposes.

In 2012, before the EPA’s Nov. 2013 proposal to change RIN quotas and lower requirements for ethanol, the price of RINs was very volatile. Initially, they ranged around 1 to 10 cents a gallon. By spring of 2013, however, they were around $1.

Why the price increase and what does it bode for the price of ethanol in the future? Initially, the RINs were thought of as a way to encourage refiners to produce renewable fuels, like ethanol, and to “pay” for credits if they don’t “play” by  meeting fuel targets.

Part of the volatility and increase in costs of RINs, probably, has to do with speculation by banks and other financial institutions. Thomas D. O’Malley, chairman of PBF Energy, indicated in a recent New York Times article that financial institutions “helped transform an environmental program into a profit machine…These things were designed to monitor the inclusion of ethanol in the gasoline pool…They weren’t designed to become a speculative item. For the life of me, I can’t see the justification for it.” Interviews with members of the financial community, conducted by the New York Times, seem to suggest agreement with O’Malley.

According to the Times, speculation in RINs “could have consequences for consumers. In the end, energy analysts say, the outcome will be felt at the gas pumps — as the higher cost of the ethanol credits get tacked onto the price of a gallon of gasoline.” The Times reports that the “credits, which cost 7 cents each in January [2013], peaked at $1.43 in July, and [were] trading for 60 cents” in September. Jordan Godwin in the Barrel Blog indicated that like RINs in 2013, ethanol prices in 2014 are downright wacky. “In a matter of less than two months, ethanol prices went from six-month lows to eight-year highs.” Godwin and others blame delayed returning train cars during the winter and constraints on supply and production. I would add speculation by Wall Street and uncertainty as to the impact and longevity of EPA’s new regulations concerning the reduced mandates for ethanol and other biofuels. It’s a dilemma for proponents of alternative fuels. Less speculation regarding trading, sustained predictable production and refinement of the distribution system, (along with avoidance by some retailers and blenders to price ethanol well over costs) would facilitate more competition with gasoline at the pump. More predictable competition and larger sales at the pump of E15 and E85 would generate more private-sector fixes to the ethanol supply chain as well as likely stabilize prices and, over time, lower them. In light of ethanol’s benefits to the nation, wise folks might be asked to find policies and stimulate market behavior that permit the American people to have it both ways.


Can graphene, the wonder material, build better batteries?

In 1962, German researcher Hanns-Peter Boehm suggested the versatile carbon atom, which can form long chains, might be configured into a chicken-wire pattern to create a stable molecule one atom thick.

The idea remained a theoretical construct without even a name until 1987, when researchers started calling it “graphene.” Basically, graphene is two-dimensional graphite, the pure carbon material that makes up “lead” pencils. The term was also used to describe the carbon nanotubes that were beginning to attract attention for their ultra-solid properties. For a while there was talk of elevators reaching up into space until it became clear that creating nanotubes without impurities that degrade their properties was currently out of the reach of mass production.

Then in 2004, Andre Geim and Kostya Novoselov, two researchers at The University of Manchester, came up with something a little more prosaic. They applied Scotch tape – yes, ordinary Scotch tape – to pure graphite and found they could peel off the single layer of carbon in the chicken-wire pattern that Boehm had described. They called this substance “graphene” and were awarded the Nobel Prize in 2010.

The discovery of single-layer graphene has set off a stampede into research of its properties. Carbon is, after all, a versatile element, the basic building block of life that can also be packed into a material as hard as a diamond, which is also pure carbon. When stretched out into lattices a million times thinner than a human hair, however, it has the following remarkable properties:

  • It is the strongest material ever discovered, 300 times stronger than steel.
  • It is the most electrically conductive material ever discovered, 1,000 times more conductive than silicon.
  • It is the most thermally conductive material ever discovered.
  • It is bendable, shapeable and foldable.
  • It is completely transparent, although it does filter some light.

In short, graphene is now being touted as “material of the 21st century,” the substance that could bring us into an entirely new world of consumer products, such as cell phones that could be sewn into our clothes.

All this still remained somewhat theoretical, since no one had been able to produce graphene in dimensions larger than single tiny crystals. When these crystals were joined together, they lost most of their properties. Two weeks ago, however, Samsung announced that it has been able to grow a graphene crystal to the size of a wafer, somewhat on the same dimensions as the silicon wafers that produce computer chips. Thus, the first step toward a new world of electronics may be upon us. Graphene cannot be used as a semiconductor, since it is always “on” in conducing electricity, but combined with other substances it may be able to replace silicon, which is many researches believe is currently reaching its physical limits.

So what does this mean for the world of transportation, where we are always looking for new ways to construct automobiles and find alternative power sources to substitute for our gas tanks? Well, plenty.

Most obvious is the possibility of making cars out of much lighter-weight materials to reduce the power burden on engines. Chinese researchers recently came up with a graphene aerogel that is seven times lighter than air. A layer spread across 28 football fields would weigh only one ounce and a cubic inch of the material would balance on a blade of grass. All this would occur while it still retained its 300-times-stronger-than-steel properties. Graphene itself would not be used to construct cars, but it could be layered with other materials.

But the most promising aspect of graphene may be in the improvement of batteries. Lithium-ion batteries achieve an energy density of 200 Watt-hours-per-kilogram, which is five times the 40-Wh/k density of traditionally lead-acid batteries. That has won it the prime role in consumer electronics. But Li-ion batteries degrade over time, which is not a problem for a cell phone, but becomes prohibitive when the battery must undergo more than 1,000 charge cycles and is half the price of the car.

Lithium-sulfur batteries have long been thought to hold promise but they, too, deteriorate quickly, sometimes after only a few dozen charges. But recently, researchers at Lawrence Berkeley Labs in California modified a lithium sulfur battery by adding sandwiched layers of a graphene. The result is a battery that achieves 400 Wh/k – double the density of plain lithium-ion – and has gone through 1,500 charging cycles without deterioration. This would give an electric car a range of more than 300 miles, which is in the lower range of what can be achieved with the internal combustion engine.

And so the effort to improve electric vehicles is moving forward, sometimes on things coming out of left field. If graphene really proves to be a miracle substance, look for Elon Musk to be discussing its wonders as he prepares to build that “megafactory” that is supposed to produce lithium-ion batteries capable of powering an affordable new version of the Tesla.


Is butanol the next big thing in biofuels?

Fuel Freedom recently learned about a man named David Ramey who drove his 1992 Buick Park Avenue from Blacklick, Ohio to San Diego using 100 percent butanol, without making any adjustments to his engine.

Ordinarily this wouldn’t be big news. But with the EPA now considering cutbacks in the 2014 biofuels mandate, some producers of ethanol are starting to turn to butanol as a way of getting around the limitations of the 10 percent “blend wall” that is threatening to limit ethanol consumption. This could be another breakthrough in our efforts to limit foreign oil.

Butanol is the alcohol form of butane gas, which has four carbons. Because it has a longer hydrocarbon chain, butane is fairly non-polar and more similar to gasoline than either methanol or ethanol. The fuel has been demonstrated to work in gasoline engines without any modification to the fuel chain or software.

Since the 1950s, most butanol in the United States has been manufactured from fossil fuels. But butanol can also be produced by fermentation, and that’s where another opportunity for reducing our dependence on fossil fuels exists.

The key is a bacterial strain called Clostridium acetobutylicum, also named the Weizmann organism for pioneering biological researcher Chaim Weizmann, who first used it to produce acetone from starch in 1916. The main use for the acetone was producing Cordite for gunpowder, but the butanol, a byproduct, eventually became more important.

Once set loose on almost any substratum, Clostridium acetobutylicum will produce significant amounts of butanol. Anything used to produce ethanol — sugar beets, sugar cane, corn grain, wheat and cassava, plus non-food crops such as switchgrass and guayule and even agricultural byproducts such as bagasse, straw and corn stalks — can all be turned into butanol. (Of course, not all of these are economical yet.)

Given the modern-day techniques of genetic engineering, researchers are now hard at work trying to improve the biological process. In 2011, scientists at Tulane University announced they had discovered a new strain of Clostridium that can convert almost any form of cellulose into butanol and is the only known bacterium that can do it in the presence of oxygen. They discovered this new bacterium in, of all places, the fecal matter of the plains zebra in the New Orleans Zoo.

DuPont and BP are planning to make butanol the first product of their joint effort to develop next-generation biofuels. In Europe, the Swiss company Butalco is developing genetically modified yeasts from the production of biobutanol from cellulosic material. Gourmet Butanol, a U.S. company, is developing a process that utilizes fungi for the same purpose. Almost every month, plans for a new butanol production plant are announced somewhere in the world. Many refineries that formerly produced bioethanol are now being retrofitted to produce biobutanol instead. DuPont says the conversion is very easy.

What are the possible drawbacks? Well, to match the combustion characteristics of gasoline, butanol will require slight fuel-flow increases, although not as great as those required for ethanol and methanol. Butanol also may not be compatible with some fuel system components. It can also create slight gas-gauge misreadings.

While ethanol and methanol have lower energy density than butanol, both have a higher octane rating. This means butanol would not be able to function as an octane-boosting additive, as ethanol and methanol are now doing. There have been proposals; however, the proposals are for a fuel that is 85 percent ethanol and 15 percent butanol (E85B), which eliminate the fossil fuels from ethanol mixes altogether.

The only other objection that has been raised is that consumers may object to butanol’s banana-like smell. Other than that, the only problem is cost. Production of butanol from a given substratum of organic material is slightly lower than ethanol, although the increased energy content more than makes up for the difference.

Ironically, the EPA’s decision to cut back on the biofuels mandate for 2014 is now driving some refiners to convert to butanol, since its greater energy density will help it overcome the 10 percent “blend wall.”

“Michael McAdams, president of the Advanced Biofuels Association, an industry group, said butanol was a ‘drop-in’ fuel, able to be used with existing gasoline pipelines and other equipment because it does not have a tendency to take up water, as ethanol does,” The New York Times reported last October. “‘It’s more fungible in the existing infrastructure,’ he said. ‘You could blend it with gasoline and put it in a pipeline — no problem.’

“Butanol would also help producers get around the so-called blend wall, Mr. McAdams said…With the 10 percent limitation, ‘you don’t have enough gasoline to put the ethanol in,’ he said. ‘You don’t have that problem with butanol.’”

So here’s to butanol. It will be yet another big step in reducing our dependence in foreign fuels.


Take me shopping for eggs, copper and corn starch

Good news for a world often filled with bad news has recently been generated by two major U.S. universities, both in regards to the efficacy of alternative fuels. Maybe the announcements will lend confidence that America can find a way to balance economic growth with environmental concerns. Increasing success over time will mean that (paraphrasing in part, the late Sen. Robert Kennedy) the nation will not have to accept “what is” with respect to the dominance of gasoline as a fuel, but can consider “what could be” concerning the use of alternative, cleaner, safer, environmental-better and cheaper fuels.

Stanford University professors, in a paper co-authored by Dr. Matthew Kanan, assistant professor of chemistry, announced that they have developed a copper catalyst that can efficiently convert carbon monoxide and water into ethanol. Quoting from a recent MIT Technology Review (April 2014), “while the work is still experimental, it’s significant because the group was able to synthesize ethanol and other desired products with so little energy input.” The Stanford researchers envision a “two-step process in which carbon dioxide is first converted into carbon monoxide using either existing processes or more energy-efficient ones that are currently under development. Then, the carbon monoxide would be converted to ethanol or other carbon-based compounds electrochemically. The key to the new catalyst is preparing the copper in a novel way that changes its molecular structure.”

How long will it take to get from idea to market? If the copper-based process survives further lab tests and evaluations, and if it is then converted into a prototype that is able to produce ethanol fuel, a big push to convert the prototype to real-world status from both the private sector and government would be warranted.

Stanford’s “breakthrough” — if the process becomes marketable and can generate lower-priced, environmentally-safe ethanol that is capable of fueling flex-fuel vehicles (FFVs) and older, converted FFVs — will be significant, even perhaps a disruptive technology. With the proper support, hopefully in the not-too-distant future, increased use of the copper catalyst will minimize and maybe even end the food vs. fuel and land-use allocation fights, as well as help resolve GHG emissions and other pollutant issues that have sometimes frustrated the use of corn-based ethanol and muted receptivity to natural-gas-based ethanol. Technological improvements concerning production reflected in recent life-cycle analysis of corn-based ethanol and reasonable assumptions concerning the cost and environmental benefits of natural-gas-based ethanol, combined with the success of Stanford’s copper catalyst approach, could offer owners of FFVs (both converted and new vehicles) a wider variety of alternatives to secure ethanol that, clearly, will be cheaper, safer and better for the environment.

Stanford’s good news was matched by Cornell’s. Dr. Yingchao You and Dr. Hao Chen announced that they had discovered that a component of corn starch and the yolk shell structure of eggs improve the durability and performance of lithium batteries. In this context, they note that lithium-sulfur batteries are a very solid alternative to lithium-ion batteries. Stabilization problems related to its capacity can be resolved by using amylopectin, a polysaccharide (mainly good old corn starch).

Enveloping the battery’s lithium sulfur cathodes, with an encasing resembling the shell of an egg yolk (sulfur coated with an inexpensive polymer) also apparently improves the battery’s durability and performance.

Cornell has initiated a startup company to take the new and improved starch, egg-yolk shell battery to market. Maybe sometime soon, moderate and middle-income owners of electric cars that are less expensive than what is now available will be able to reduce their fear of driving long distances and feel confident about the life and efficiency of the batteries in their vehicles.

I avoided chemistry, physics and engineering in college. I knew I was not destined to become neither city planner nor designer at MIT when my first student-planned bridge went under water instead of over it. While my efforts were applauded by the Malthusians among my colleagues, they were not regarded highly by professors. Since graduation, unless supported by respected colleagues with a background in relevant sciences and engineering, I have been hesitant to suggest approval of science-driven energy innovations. I am a policy and program person. However, after review and discussions with trusted experts, I believe the Stanford and Cornell initiatives have a good chance to see the light of day, or, more appropriate, see the light in the market place. If one or both do, we will all be better off and the number of feasible alternative transportation fuels available to the consumer will grow. Hooray for copper, starch and eggs.


Of myths, oil companies and a competitive fuel market

I do not wish to join the intense dialogue concerning whether or not the government should allow exports of crude oil. Others are already doing a good job of confusing and obscuring the pros and cons of selling increased amounts of America’s growing oil resources overseas.

What I do want to do is just focus on the logic of one of the oil industry’s major arguments for extending the permitting of exports — again, not on the wisdom of exporting policy. Permit me to do so in the context of the industry’s long-standing argument concerning the pricing of gasoline to U.S. consumers. The argument is that more oil drilling in the U.S. will lower the price of gas and put America on the path to oil “independence.”

In somewhat of circuitous manner, oil companies are using the opposite of their domestic advocacy for “drill, baby, drill” policy as a way to keep prices lower at the pump. Their yin is that producing more oil in the U.S. and sending significant amounts overseas, combined with declining vehicular fuel demand, will lower gas prices. Economist Adam Smith would applaud the simplicity if he were alive and well. Their yang presents a bit more complicated set of “ifs.” That is, the industry presumes that fulfillment of the yen (excuse another pun) to export will result in more U.S. oil being drilled because of increased world demand generated by the assumed ability of the U.S. to produce oil at less costs than the world price for oil. It will also help foster infrastructure development in the U.S. to break up current log jams concerning oil transportation. Finally, it will facilitate more efficient refineries, allowing them to specialize in different types of oil. The yin and yang will result in (marginally) lower prices of gasoline — so goes the rhetoric and oil-industry-paid-for studies.

Paraphrasing Dr. Pangloss in “Candide,” the oil companies hope for the “best of all possible worlds.” But, before Americans run out and buy stock, note the price of gasoline does not directly reflect oil production volume. Indeed, gas prices, despite increased supplies, have gyrated significantly and now hover nationally over $4 a gallon. Generally, oil and gas prices relate to international prices, tension in the Middle East and investor and banker speculation — not always or directly domestic costs. Stockholders and executives of oil companies function not on patriotism but on profit and to the extent that the law permits, they will sell overseas to get the best price — in effect, the best dollar over payment for a barrel of oil. Consumers, I suspect, are rarely a significant part of their opportunity costing.

Unfortunately, lack of strong empirical evidence tempers the company’s argument that increased world demand will stimulate good things like refinery efficiency and log-jam-ending infrastructure. Maybe if the price per barrel is right (clearly, higher than it is now) and seems predictable for more than a small period of time, refinery and infrastructure developments will be positive. But, the costs to the consumer, in this context, will be higher. It will also be higher because shale oil is tight oil and more risky and costly to drill.

Oil independence is a myth suggested by oil industry and a non-analytical media. Certainly, the oil boom and less vehicular demand have generated less imports and less dependency. But we still buy nearly 300 billion dollars’ worth of oil every year to respond to need and we still produce far less than demand.

Somewhere in the dark labyrinth of each major oil company is a pumped-up (another pun), never-used, secret justification for franchise agreements impeding the sale of alternative fuels in their retail outlets. To alleviate guilt, it may go something like this: “Monopolies at the pump will allow us to make larger profits. You know we will someday soon want to give back some of the profits to consumers by lowering the price of gasoline.” If you believe this still-secret beneficence, let me sell you the Brooklyn Bridge.

There is another way to steady the gasoline market and lower consumer costs. Inexpensive conversions to allow older vehicles to use safe, cheaper and environmentally better alternative fuels (as opposed to gasoline), combined with expanded use by flex-fuel owners of alternative fuels, would add competition to the fuel market and likely reduce prices for consumers. Natural-gas-based ethanol is on the horizon and methanol, once the EPA approves, will follow, hopefully shortly thereafter. Electric cars, once costs are lower and distance on single charges is higher, will be a welcome addition to the competitive mix.


Is Elon Musk the next Henry Ford?

Elon Musk doesn’t mind making comparisons between himself and Henry Ford. Others are doing it as well.

In announcing his plans for a “Gigafactory” to manufacture batteries for a fleet of 500,000 Teslas, Musk said it would be like Ford opening his famous River Rouge plant, the move that signaled the birth of mass production.

The founder of PayPal and current titular leader of Silicon Valley (now that Steve Jobs is gone), Musk is not one for small measures. The factory he is now dangling before four western states would produce more lithium-ion batteries than are now being produced in the entire world. And that’s not all. He’s designing his new operation to mesh with another cutting-edge, non-fossil-fuel energy technology – solar storage. His partner will be SolarCity (where Musk sits on the board), run by his cousin Lyndon Rive. Together they are looking beyond mere automobile propulsion and are envisioning a world where all this solar and wind energy stuff comes true.

So, is Musk a modern-day Prometheus, bringing the fire to propel an entirely new transportation system? Or, as many critics charge, is he just conning investors onto a leaky vessel that is eventually going to crash upon the shores of reality? As the saying goes, we report, you decide.

One investor that is already showing some qualms is Panasonic, which already supplies Tesla with all its batteries and would presumably help the company fill the gap between the $2 billion it just raised from a convertible-bond offering and the $5 billion needed to build the plant. “Our approach is to make investments step by step,” Panasonic President Kazuhiro Tsuga told reporters at a briefing in Tokyo last week. “Elon plans to produce more affordable models besides [the] Model S, and I understand his thinking and would like to cooperate as much as we can. But the investment risk is definitely larger.” Of course, this is Japan, where “the nail that sticks out gets hammered down.” Corporate executives are not known for sticking their necks out.

Another possible investor is Apple, which has mountains of cash and, at least under Steve Jobs, was always willing to jump into some new field – music, cell phones – to try to set it straight. This is a little more ambitious than the Lisa or the iPod and Jobs is no longer around to steer the ship, but Apple and Musk officials held a meeting last spring that stirred a lot of talk about a possible merger. A much more likely scenario, according to several commentators, is that Apple would become a major player in the Gigafactory.

And a Gigafactory it will be. Consider this. The three largest battery factories in the country right now are:

1)    The LG Chem factory in Holland, Mich. is 600,000 square feet, employs 125 people and produces 1 gigawatt hour (GWH) of battery output per year.

2)    The Nissan factory in Smyrna, Tenn. is a 475,000 square-foot facility with 300 employees puts out 4.8 GWH per year.

3)    A123 Systems’ battery factory in Livonia, Mich. is 291,000 square feet, employs 400 people and produces 0.6 GWH per year.

Both LG and Nissan received stimulus grants from the Department of Energy, built to overcapacity and are now operating part-time.

Now here’s what Musk is proposing. His Gigafactory would cover 10 million square feet, employ 6,500 people and produce 35 GWH per year of battery power. Basically, Musk’s operation is going to be ten times better anything ever built before, at a time that most of what exists isn’t even running fulltime. Does that sound like something of Henry-Ford proportions? Similar to Ford’s $5 a day wages, perhaps?

There are, of course, people who think all of this is crazy. In the Wall Street Journal blog, “Will Tesla’s $5 Billion Gigafactory Make a Battery Nobody Else Wants?,” columnist Mike Ramsey expresses skepticism over whether Tesla’s strategy of using larger numbers of smaller lithium-ion is the right approach. “Every other carmaker is using far fewer, much larger batteries,” he wrote. “Tesla’s methodology – incorrectly derided in its early days as simply using laptop batteries — has allowed it to get consumer electronics prices for batteries while companies like General Motors Co. and Nissan Motor Co. work to drive down costs without the full benefits of scale. Despite this ability to lower costs, no other company is following Tesla’s lead. Indeed, in speaking with numerous battery experts at the International Battery Seminar and Exhibit in Ft. Lauderdale a few weeks ago, they said that the larger cells would eventually prove to be as cost effective, and have better safety and durability. This offers a reason why other automakers haven’t gone down the same path.

But Musk has managed to produce a car that has a range of 200 miles, while the Leaf has a range of 85 miles and the Chevy Spark barely makes 82. Musk must be doing something right. And with Texas, Arizona, Nevada and New Mexico all vying to be the site of the Gigafactory, it’s more than likely that the winning state will be kicking in something as well. So, the factory seems likely to get built, even on the scheduled 2017 rollout that Tesla has projected.

At that point, Musk will have the capacity to produce batteries to go in 500,000 editions of the Tesla Model E, which he says will sell for $35,000. Sales of the $100,000 Model S were 22,000 last year. Does this guy think big or what?

To date, Silicon Valley doesn’t have a terribly good record on energy projects. Since Kleiner Perkins Caufield & Byers fell under Al Gore’s spell in 2006, its earnings have been virtually flat and the firm is now edging away from solar and wind investments. Venture capitalist Vinod Khosla’s spotty record in renewables was also the subject of a recent 60 Minutes segment. But, as venture capitalists say, it only takes one big success to make up for all the failures.

Will Tesla’s Model E be the revolutionary technology that, at last, starts making a dent in oil’s grip on the transportation sector? At least one investor has faith. “I’d rather leave all my money to Elon Musk that give it to charity,” was the recent evaluation of multi-billionaire Google founder Larry Page.