Can exports rescue ethanol?

As the Renewable Fuels Association’s National Ethanol Conference convened in Dallas last month, the outlook for ethanol appeared grim. The Environmental Protection Agency still hasn’t issued set the Renewable Fuel Standard for 2014, and ethanol manufacturers have been left in limbo.

On top of that, ethanol producers still are dealing with the months-long drop in oil prices. Even though Brent crude has been rising again of late, hovering around $60, it’s a far cry from the $115 it traded at last June. The overall price swoon has driven down ethanol stocks, along with those of oil companies. Warren Buffett has unloaded his ExxonMobil stock, which seemed to have been a bellwether for the market in general. Yet if the oil-price drop increases the consumption of gasoline and the 10 percent ethanol requirement holds, ethanol sales could actually go up while the price remains the same.

No one really knows what’s going to happen as long as the EPA keeps delaying new guidelines for the RFS, which will mandate the total amount of ethanol that should be sold in the coming year. The problem has been that, as demand for gasoline slackened, and the required amount of ethanol blended into the nation’s gas supply steadily rose, the ethanol threshold approached the 10 percent “blend wall.” Government testing has shown that virtually all vehicles model year 2001 and newer can run safely on ethanol blends up to E15, but the impact on older engines is still unclear. Christopher Grundler, director of the EPA’s Office of Air Quality and Transportation, apologized for the delay and said the EPA might be issuing its decision on the RFS in the next couple of months.

Yet no one at NEC seemed terribly bothered by the delay. Why? Because the ethanol industry is starting to boom with demand from abroad. “Who needs the RFS? Who needs the EPA?” Tim Worledge wrote on The Barrel, a blog of the Platts energy-news service. “We’ve already proven we can make the stuff … now it’s time to take it global.”

Ethanol exports are not limited the way oil exports are, so there’s no restriction on what can be sold abroad. Many countries don’t limit ethanol additives to 10 percent of gasoline, so there’s plenty of room for opportunity. “There are some persuasive arguments around this [the export] solution,” Worledge writes. “Bob Dinneen, the near-legendary head of the RFA [Renewable Fuels Association], cited 61 countries globally that have biofuel mandates in place. Target them. Grow the economy at home and target the locations in the world where opportunities remain — the “explosive growth” of China and India is an opportunity, says Dinneen, while Pedro Paranhos, vice president of Eco-Energy, pointed out that the US has already supplanted many of Brazil’s traditional export markets, with the only markets proving immune are those where quality and feedstock issues give Brazilian outflows an advantage.”

The international market is indeed just beginning to show signs of a demand for American ethanol. “The burgeoning firepower that the US ethanol industry can bring to the global market could yet see further pressure heaped upon the rest of the world’s ethanol products,” Worledge continued. The industry, he said, should be “looking to the world’s markets to insulate yourself from these political uncertainties,” i.e. the EPA’s delays on the RFS.

One potential problem is that the U.S. is trying to crack the European market just as the European Union is beginning to worry about whether biofuel production is really all that good for the environment. The debate is raging right now in the European Parliament. But even if Europe decides to set aside some land as off-limits for growing plants to process into biofuels, such restrictions could actually clear the way for the import of American-made ethanol. That would create a huge market opportunity for the U.S. industry.

One way or another, it seems too early to write off the possibility that ethanol will be able to reduce what the countries of the world must buy from oil-producing nations in order to power their transportation.

Oil makes biggest monthly jump since 2009

Reuters reports that crude oil rose sharply on the last trading session of February, posting its first monthly gain since June.

Brent crude LCOc1 rose $2.53 to $62.58 a barrel. February’s 18 percent gain was the biggest monthly percentage rise since May 2009.

The Wall Street Journal reports that the oil-field services company Baker Hughes saw its rig count fall by 33 this week, to 986, dropping below 1,000 for the first time since 2011. The count is off 31 percent from the same time a year ago.

And yet:

… analysts caution a reduction in the number of U.S. oil rigs in use doesn’t immediately translate to a fall in output, which is currently running at a multiyear high of 9.3 million barrels a day.

Big difference between crude, ethanol train crashes

Something amazing happened in the aftermath of the ethanol train derailment in Iowa.

No fish died.

At least none that we know of. Environmental officials in the state probably feared the worst after eight cars spilled ethanol following the Feb. 4 derailment north of Dubuque.

The Associated Press quoted state Department of Natural Resources spokesman Kevin Baskins this week:

Efforts to monitor water quality and aquatic life in the river are ongoing, Baskins said, but past results shows that the majority of ethanol in the water dissipated downstream, and no fish kills have been reported.

Not long after the crash, Fuel Freedom published a blog post outlining the differences between how ethanol and crude oil behave during an accident, although both are flammable. Relying on research at the Renewable Fuels Association, we noted that ethanol — even the denatured, toxic variety in the train cars that derailed — is water-soluble.

Sure enough, AP reported Feb. 10:

Results from several monitoring stations along the Mississippi River show much of the ethanol that leaked into the water after several train cars derailed has dissolved, the Iowa Department of Natural Resources said Monday. … Baskins said the ethanol dissipated fairly quickly in the first mile downstream, with fuel levels virtually undetectable 10 miles from the site.

It’s a stark contrast to the growing number of horrific accidents involving trains carrying oil. A runaway train in Quebec crashed in 2013, with the resulting inferno killing 47 people in the town of Lac-Megantic. There have been numerous incidents since then, and two of them right around the Iowa ethanol-train derailment shows how spectacularly different the fuels behave when there’s leakage and a fire.

Joan Lowy, an AP reporter in Washington, D.C., wrote a story this week about the efforts to improve the safety on railroads and in the tank cars that transport oil:

On Feb. 5, the Transportation Department sent the White House draft rules that would require oil trains to use stronger tank cars and make other safety improvements.

Nine days later a 100-car train hauling crude oil and petroleum distillates derailed and caught fire in a remote part of Ontario, Canada. Less than 48 hours later, a 109-car oil train derailed and caught fire in West Virginia, leaking oil into a Kanawha River tributary and burning a house to its foundation. As the fire spread across 19 of the cars, a nearby resident said the explosions sounded like an “atomic bomb.” Both fires burned for nearly a week.

Much of the attention lately has been focused on the aging DOT-111 tanker cars that have been in use since the 1960s. But the Ontario and West Virginia accidents involved newer tank cars known as 1232s. Both trains also were traveling under 40 mph, Lowy reported. “Those folks who were arguing that the 1232s may in fact be puncture-proof really can’t make that argument anymore,” said Sen. Heidi Heitkamp, Democrat of North Dakota.

Railroads contend that implementing new safety measures, such as thicker tank walls and installing electronic brakes that slow trains quickly rather than in succession, would cost them billions of dollars and slow down an already crowded schedule, owing to the increased use of oil by rail.

Lowy cited a Department of Transportation analysis, which predicts:

… that trains hauling crude oil or ethanol will derail an average of 10 times a year over the next two decades, causing more than $4 billion in damage and possibly killing hundreds of people if an accident happens in a densely populated part of the U.S.

Based on recent history, and simple science, safety officials might be looking more closely at the risks of one particular fuel over others.

(Photo: Disaster in Lac-Megantic, Quebec, in 2013. Credit: TSB Canada)

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

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

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

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

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

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

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

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

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

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

Evolution of Alcohol Fuel Blends Towards a Sustainable Transport Energy Economy

by J.W.G. Turner and R.J. Pearson et al, Lotus Engineering

The authors of this research argue that since there isn’t enough E85 to power all the flex-fuel vehicles on the road, “the introduction of methanol (which can be made extremely simply and cheaply from natural gas) into gasoline-ethanol mixtures, can be used to create drop-in fuels equivalent to E85 and can bring the price of an alcohol-based fuel for spark-ignition engines down to less than that of gasoline.”