December 2014 - Page 2 of 5 - Fuel Freedom Foundation

Can ethanol benefit from a drop in oil prices?

December 23, 2014/in Economy, Over a Barrel Blog, Uncategorized wtucker, newleaf /by Arctic Leaf

A new school of thought has emerged that ethanol may actually benefit from the recent fall in oil prices, to nearly half their level of a few months ago.

The main exponent of this theory is Andrew Topf, writing on OilPrice.com. His logic is sound, and there are a few recent developments to back him up. It isn’t a sure thing, but there is a strong possibility that ethanol could emerge from the current oil price plunge as a winner.

Here’s the argument Topf makes: He acknowledges that ethanol prices have fallen along with gas prices, so the market doesn’t look very promising. Also bedeviling the industry is the foot-dragging by the Environmental Protection Agency, which has not yet set a renewable goal for ethanol for 2014. The EPA is supposed to set a number every year that specifies how much corn ethanol will be consumed. This is supposed to be enough to meet the 10 percent standard that ethanol is supposed to meet in replacing gasoline every year.

Buffeted by this uncertainty, however, the industry has taken its own initiative and started exporting ethanol. To its surprise, the market has proved very favorable. Canada, the Philippines and Japan have all proved to be receptive to the idea of stretching their gasoline supplies with ethanol. Green Plains, Inc., one of the major U.S. producers, is going to export 15 percent of its product in the fourth quarter of 2014. “We are booking export sales into 2015, extending into the third quarter of next year,” Green Plains president and CEO Todd Becker told investors in a conference call in October. “We typically have not seen export interest that far out in the future.”

The U.S. has pursued contradictory policy on ethanol from the beginning, giving the encouragement of the 10 percent mandate, coupled with subsidies and tax breaks going back to the 1990s. Then became President Bush’s mandates, which guaranteed a market for ethanol through 2023 and also specified a market for cellulosic ethanol, which has never materialized — even though the EPA has charged refiners for a product that didn’t exist.

So what will happen with ethanol amid falling oil prices? One straw in the wind came in South Bend, Indiana, where a corn ethanol plant that had been closed for several years finally reopened. The chances for the plant to succeed are much greater now that corn prices are at their lowest in five years, Purdue University agricultural economics professor Christopher A. Hurt told The Times of Northwest Indiana. “I think the prospects appear to be quite favorable for that plant if they can get it up and running as quickly as possible,” he said. And that doesn’t take into account the possibilities for export to countries that are dependent on imported oil.

The ethanol effort is often criticized as one that wouldn’t even exist were it not for government support that has boosted it all the way. The entire farm bloc are now supporters of ethanol. However, to everyone’s surprise, when the subsidies ended, ethanol production kept increasing!

Now that ethanol has found a market abroad, it is possible that even amidst falling oil prices, the industry will be able to even keep growing. Ethanol still has a high octane level and substitutes for much more noxious chemicals by blending with gasoline. Its role as at least a 10 percent additive seems secure. Now let’s find out if ethanol can find a place in the world market as well.

The military pays an astonishing amount of money for gas

December 22, 2014/in National Security, What's The Buzz /by Fuel Freedom Staff

At the base rate, the U.S. military pays about the same as the rest of us for gasoline, under $3 a gallon. But the costs quickly escalate when you factor in the expenses related to getting fuel where it needs to go, and the often rugged, isolated places American forces need to use their vehicles.

According to an illuminating story by Eric Chemi on CNBC.com, the U.S. is:

… paying 100 times the price the rest of us are. The total cost of getting fuel where it needs to be is skyrocketing the cost for military gas. At a burn rate of 300,000 barrels of oil per day, the Department of Defense consumes 1.5 percent of total national consumption, and is the largest user of energy in America. As a result, it is the biggest proponent of clean energy. Even a total cost of $100 per gallon would be a steal for the military. That’s because its calculations on energy costs are very different than for a regular consumer.

It makes sense, therefore, that the U.S. Defense Department is far ahead the game when it comes to pursuing alternative fuel sources:

Some current projects include a way to produce localized energy on site, creating a mobile energy system and better integrating generators and batteries. There are dozens of projects already underway at military bases globally and multi-decade, long-term plans to find efficiency. Some of the projects include focusing on green power, renewable jet fuels and changing the culture around energy awareness in day-to-day operations.

Bloomberg: Can Brazil get its ethanol mojo back?

December 22, 2014/in What's The Buzz, World /by Fuel Freedom Staff

Mac Margolis at BloombergView has a good analysis of Brazil’s ethanol industry, which details how “clever sugar and ethanol makers” have been hamstrung by the country’s bureaucracy.

Some 60 ethanol plants have shuttered this year alone and “blue slips,” Brazil’s unemployment notices, are multiplying: Nearly half of the more than 36,000 industrial jobs erased last month were in the sugar and alcohol industry, reports Valor Economico.

What’s worse, they are victims of the wonks and activist bureaucrats whose good intentions to goose growth and contain inflation have only compounded their troubles. The road to ruin was paved by the government of President Dilma Rousseff, a micro-manager who converted state-run companies into the useful idiots of misguided economics.

The piece notes that ethanol took a back seat to oil after the discovery of a huge cache of oil was found under four miles of sea, sediment and salt in 2007.

To restore the balance, and guard against the volatility of oil prices, Brazil might increase the proportion of ethanol blended into gasoline, as well as increase a gasoline tax.

That won’t make Brazilians happy: They already pay one of every three reais they earn to government. But with pressure on emerging market nations to fight climate change by slashing greenhouse gas emissions, a levy on dirty fuels in favor of cleaner-burning ethanol might draw more sympathy.

Saudis might actually increase oil output

December 22, 2014/in Economy, What's The Buzz /by Fuel Freedom Staff

Saudi Arabia isn’t cutting production anytime soon, despite lobbying from some of the 12-nation cartel’s members to try to stem falling oil prices. In fact, the Saudis might actually boost output to gain new customers.

Reuters reported that Saudi Arabia’s oil minister, Ali al-Naimi, said it’s not in OPEC’s interest to cut production quotas no matter how far prices fall:

After a weekend of comments from several Gulf OPEC members reiterating their intent not to intervene in oil markets, despite oil prices that have halved since June, Ali al-Naimi told the Middle East Economic Survey it was “not in the interest of OPEC producers to cut their production, whatever the price is” — his starkest comments yet.

Naimi also said the Saudis might boost output instead to grow their market share and that oil “may not” trade at $100 again. “The best thing for everybody is to let the most efficient producers produce,” he told a conference in Abu Dhabi at the weekend.

Olivier Jakob, an oil analyst at Petromatrix OIl in Switzerland, commented in an earlier version of the Reuters story:

“We are going down because you have some OPEC ministers who come every day making statements trying to drive the market down. … They come every day to convey the message that they are not doing anything to restrict supplies and that they basically want oil prices to move lower to reduce production in the U.S.”

Brent crude dropped $1.33, to $60.05.

Ben Casselman: The conventional wisdom on oil is always wrong

December 19, 2014/in Economy, What's The Buzz /by Fuel Freedom Staff

This is something we knew already: Oil prices fluctuate. Like all commodities, prices go up, and then they go down, and few experts know exactly why, or how far, or for how long trends will endure.

But FiveThirtyEight.com’s Ben Casselman, who used to cover the oil patch for The Wall Street Journal, outlines (in typical well-executed FiveThirtyEight style), all the ways that people have gotten oil predictions so horribly wrong this year.

Here’s one of the many instructive passages from his piece:

It isn’t just that experts didn’t see the shale boom coming. It’s that they underestimated its impact at virtually every turn. First, they didn’t think natural gas could be produced from shale (it could). Then they thought production would fall quickly if natural gas prices dropped (they did, and it didn’t). They thought the techniques that worked for gas couldn’t be applied to oil (they could). They thought shale couldn’t reverse the overall decline in U.S. oil production (it did). And they thought rising U.S. oil production wouldn’t be enough to affect global oil prices (it was).

Now, oil prices are cratering, falling below $55 a barrel from more than $100 earlier this year. And so, the usual lineup of experts — the same ones, in many cases, who’ve been wrong so many times in the past — are offering predictions for what plunging prices will mean for the U.S. oil boom. Here’s my prediction: They’ll be wrong this time, too.

Among the many reasons why pundits’ crystal balls are so often murky: various factors go into the makeup of prices; and the economics of oil-field drilling are complicated, which is why even “break-even” declarations about when oil-shale drilling in Texas or North Dakota might become unprofitable can be off base as well.

As to the first point — all the factors that comprise the fluctuating price of oil — Cassleman writes:

In July 2008, my Journal colleague Neil King asked a wide range of energy journalists, economists and other experts to anonymously predict what the price of oil would be at the end of the year. The nearly two dozen responses ranged from $70 a barrel at the low end to $167.50 at the high end. The actual answer: $44.60.

It isn’t surprising that experts aren’t good at predicting prices. Global oil markets are a function of countless variables — geopolitics, economics, technology, geology — each with its own inherent uncertainty. And even if you get those estimates right, you never know when a war in the Middle East or an oil boom in North Dakota will suddenly turn the whole formula on its head.

But none of that stops television pundits from making confident predictions about where oil prices will head in the coming months, and then using those predictions as the basis for production forecasts. Based on their track record, you should ignore them.

Oil prices surge after taking a hit this week

December 19, 2014/in Economy, What's The Buzz /by Fuel Freedom Staff

We’ve heard a lot about psychology in oil prices lately.

Some stories mention the “psychological” threshold of $60 a barrel. Well, many psyches were put on edge this week, as Brent crude closed below that mark on Tuesday and Thursday, territory it hadn’t seen since May 2009. But it surged $2.11 to $61.38 Friday, a gain of 3.4 percent.

U.S. crude (WTI, or West Texas Intermediate) rose $2.41, to $56.52, up 4.5 percent.

Has oil started to climb back up again after hitting the ceiling? According to Reuters:

While some traders may be betting that $60 a barrel Brent represents a likely floor for the market, others remain unconvinced. With uncertainty high, demand for options has surged this week, with the CBOE crude oil volatility index soaring to its highest since 2011.

“This is a surprisingly forceful run up as fundamentally nothing’s changed in this market in terms of supply-demand,” said Gene McGillian, senior analyst at Tradition Energy in Stamford, Connecticut.

“I think the switch in WTI’s front-month and the second short-covering act for the week kind of got overblown.”

Meet the PUMP players: John Brackett, on a mission to convert gas-guzzling cars

December 19, 2014/1 Comment/in Over a Barrel Blog, Updates from Fuel Freedom, World /by Landon Hall

John Brackett is one of the stars of the Fuel Freedom-produced documentary PUMP, but he’s more than just a pretty mutton-chopped face.

Brackett, an automotive engineer in Colorado who goes by the Twitter handle @Fuelverine, has spent a great deal of time promoting the film, which is now available for pre-order on iTunes.

Brackett specializes in tinkering with gasoline-powered engines — any kind, including vehicles and generators — to make them run on multiple types of fuel. But he’s also on a mission to educate the general public, as well as regulators. Converting one’s car to run on alternative fuels is technically not legal, as is using any fuel not specifically listed in the owner’s manual.

But once the public finds out that replacement fuels like ethanol, methanol and natural gas are not only cheaper but burn cleaner than gasoline, they’ll demand them in the marketplace. And they’ll want to learn how to convert their own cars. As Fuelverine says in PUMP: “That’s the best part about being an American: We don’t like it, we’ll change it.”

Fuel Freedom: Why aren’t all the vehicles rolling off the assembly lines labeled as flex-fuel?

John Brackett: The only reason they were ever flex-fuel in the first place was CAFÉ standards (Corporate Average Fleet Economy). And basically what they said is that, ‘Hey, your 6 miles per gallon Tahoe, since it only burns 15 percent gasoline [running on E85], is a 66 mpg vehicle!’ So your overall average for your fleet went up, and that’s why we only have flex-fuel in the giant V-8s and the V-6s. They very rarely went into the four-cylinders, and when they did, they canceled the model within 1-2 years, or even worse, they made it so you could only buy it if you were a commercial or rental fleet company. The [Chevy] Malibu is my favorite example: They made flex-fuel in 2010 for ’em, but it was only for the commercial or the rental fleets, and you couldn’t buy that four-cylinder from your local dealer. So there was never any incentive for them to actually make it mass-produced, they’re just doing it to hit the CAFÉ credits.

FF: Is it a case of companies only doing something because they have a financial incentive to?

JB: Exactly. I’m not usually a mandate-type person, but the Open Fuel Standard is the right type of mandate to allow competition right now. We just don’t have any options.

FF: What are you most interested in right now?

JB: My main thrust is actually making any engine run off of any fuel. I’ve built generators, I’ve gotten cars running on fuels, I’ve done hydrogen, ethane, methane, propane, butane, ethanol, methanol and gasoline. So my personal interest is being able to tell the computer what to change to run off those other fuels. What blew my mind was that the GM cars, and from what we’re told from several tuners, all the Ford cars since 2005, already have the algorithm in there. They literally turned it off. It’s in there.

FF: Is it possible for a car running on ethanol to get better mileage than gasoline?

JB: Basically, E85 has about 25 to 27 percent less energy in the same volume. So when you drive on the fuel, you would expect to lose that much gas mileage. What we found was that if you were driving on the stock flex-fuel from GM, you lost 25 to 30 percent, exactly what you would expect. When I started doing my tuning, and I would change the spark timing just a little bit – I varied it very small, and I did a lot of runs –and when I treated the fuel as gasoline or with slight advancement in timing, we only lost 5 to 15 percent of our fuel mileage.

Let’s go to what GM has already done: GM has a 2.0-liter, 4-cylinder, turbocharged engine out for the Buick Regal. That engine makes 5 to 15 percent more power on E85 than regular gasoline, while still getting the same fuel mileage. They have obviously tuned that car, so they have no problems doing it. Now, if we go to what is called direct-injection engines, which are definitely in the future … you can get even more efficiency out of it. You get another 15 to 20 percent efficiency increase by going to direct injection.

FF: If you look at prices of E85 around the country, there’s a big disparity [for example, it’s $2.09 in Iowa and $2.59 in Arizona, according to E85prices.com]. What will it take to get more consistency?

JB: If you have a bad original flex-fuel tune from a factory, you’re going to lose 30-40 percent [in mileage compared with gasoline]. Nobody wants to do that when it’s only 10 to 20 percent cheaper fuel. That’s one of the big reasons we try to use methanol as a big one, because it is so much cheaper, especially on a dollar-per-mile basis. But the ethanol fight, we just need more cars that have it as an option. Until we have that, you’re not going to have that market saturation. So if you think about where the cars are vs. the market, the numbers don’t add up. And that’s why we need every car to have the option to run a flex-fuel — on gasoline or ethanol or methanol, or any combination of them in the same tank.

FF: A constant refrain among the anti-ethanol crowd is that it damages engines.

JB: The biggest thing I like to tell people is, if you start with the first cars: They were all flex-fuel. They stopped being flex-fuel because of Prohibition. We have the materials, we know how to do this, we’ve been doing this for 30 years. Every car made since 2001 or ’02 has E10-compliant components. All the fuel lines, everything. And if you look at the corrosive nature of ethanol, it happens most between E10 and E30, so it’s actually very small blends of ethanol that cause the worst corrosion. But all the cars should already come to the factory with parts that work for it. There shouldn’t be any problem with it.

FF: Tell me about this conversion kit you’re using, by Flex Fuel U.S.

JB: They have the only E85-approved conversion system right now in the United States. What is different about their unit is it plugs into the oxygen sensor, so it reads the exact feedback from the oxygen system. So if it is lean [too much oxygen and not enough fuel], it should adjust. It plugs in line with the injectors as well, the difference being it doesn’t increase the injector pulse for the stock injectors; they add a whole new injector somewhere in the intake system, and flood the system that way. So they’re actually adding additional injectors to it. I’ve talked to the guy several times. Basically, he has to sell the kits for $1,100 to $1,500 right now, because it cost him $4 million to go through the EPA certification process. And that was only for 8 to 10 models. It’s absolutely ridiculous, the hindrance to competition. But he could easily, at mass scale, sell these for $300 to $500.

… We are now at the point where EPA is stopping us from getting clean air. They’re just making things more expensive.

(Photo: John Brackett dropping some knowledge to the assembled in Times Square, September 2014.)

Here’s why air fares aren’t going down, despite cheap fuel

December 18, 2014/in Economy, What's The Buzz /by Fuel Freedom Staff

Drivers are loving life whenever they fill up at the gas station. According to AAA’s Daily Fuel Gauge Report, the national average Thursday was $2.477 for regular 87-octane gas. That’s down 23 percent from the same time last year, when the average was $3.216.

So why haven’t air travelers seen similar savings on airline tickets? After all, fuel accounts for between one-third and one-half of the entire cost of running an airline, and the jet-fuel prices have fallen at the same pace as automotive gasoline, down 32 percent over the last year.

And yet not only are airlines not discounting fares, they’re counting their winnings after years of economic struggles: Slate’s Josh Vorhees reports that airlines in North America expect their profits to grow from $11.9 billion in 2014 to $13.2 billion in 2015. The trade group Airlines for America said in a statement that its members are re-investing in 317 new planes, better amenities for passengers, dividends for shareholders and employee benefits. The group added that:

Air travel remains one of the best consumer bargains, given its superior speed and price compared with other modes of transportation. From 2000-2013, U.S. Consumer Price Index rose 35 percent, whereas average domestic airfare rose 15 percent. Thus, adjusted for inflation, the average round-trip domestic fare fell 15 percent.

When the airline industry is financially healthy, everyone wins. Airlines should be treated like every other business. When the price of coffee beans falls, no one asks Starbucks why his or her latte does not cost less. …

Here are three big reasons why airline customers aren’t seeing cheaper fares:

Many airlines buy fuel ahead of time, locking in a fixed price for six months or longer. It’s called “hedging,” and although not every airline does it (American doesn’t, and it’s reaping a windfall), it explains why some travelers are still being hit with fuel surcharges. Sen. Chuck Schumer wants the federal government to investigate the industry: “Ticket prices should not shoot up like a rocket and come down like a feather,” he said.
Supply and demand. Where’s the incentive for airlines to reduce fares when their North American planes are filled to 85.1 percent capacity? As The New York Times notes in an editorial, “a series of megamergers has significantly reduced competition in the industry. The four biggest airlines in the United States — Delta, Southwest, United and American — control about 80 percent of airline capacity, down from 11 companies as recently as 2005. For most travelers, that has meant higher prices and jam-packed planes.”

It’s impossible to predict where fuel prices will be in the new year, and airline executives might be reluctant to reduce fares now, only to have to hike them again in a few months. Alexandre de Juniac, head of Air France-KLM, told The New York Times that oil might be between $70 and $80 a barrel next year (it’s below $60 now). But he added: “Obviously, no one really knows.”

New York state bans fracking, citing health concerns

December 17, 2014/in Environment, What's The Buzz /by Fuel Freedom Staff

New York state has banned hydraulic fracturing, the drilling technique known as fracking, citing risks to the state’s air and water, as well as other potential harmful effects on people’s health.

The decision was announced by the administration of Gov. Andrew Cuomo, who had sent mixed signals previously about his intentions.

The New York Times reported:

The question of whether to allow fracking has been one of the most divisive public policy debates in New York in years, pitting environmentalists against others who saw it as a critical way to bring jobs to economically stagnant portions of upstate.

Mr. Cuomo, a Democrat who has prided himself on taking swift and decisive action on other contentious issues like gun control, took the opposite approach on fracking. He repeatedly put off making a decision on how to proceed, most recently citing a continuing — and seemingly never-ending — study by state health officials.

On Wednesday, six weeks after Mr. Cuomo won re-election to a second term, the long-awaited health study finally materialized.

According to ThinkProgress:

… state Department of Environmental Conservation commissioner Joseph Marten said he would issue a “legally binding findings statement” seeking prohibition of the controversial process.

Fracking involves injecting water and chemicals into shale rock to free trapped oil and natural gas. The practice has been in limbo in the state for the past five years, but in June a state appeals court ruled in favor of local governments seeking to ban fracking on their own. In light of that decision, along with proposed bans on fracking near aquifers and in state parks, according to ThinkProgress:

… Marten said that 7.5 million acres, or 63 percent of Marcellus shale [a formation that lies beneath large sections of New York, Pennsylvania and other states], would already be off limits to fracking. Activists say that 170 towns and cities in New York have already passed fracking bans or moratoria.

The acting state health commissioner, Dr. Howard A. Zucker, said the state’s investigation had found “significant public health risks” associated with fracking. The NYT goes on:

Holding up scientific studies to animate his arguments, Dr. Zucker listed concerns about water contamination and air pollution, and said there was insufficient scientific evidence to affirm the long-term safety of fracking.

Dr. Zucker said his review boiled down to a simple question: Would he want to live in a community that allowed fracking?

He said the answer was no.

“We cannot afford to make a mistake,” he said. “The potential risks are too great. In fact, they are not even fully known.”