Resources for the future and an alternative vehicle and fuel pathway

I have been a fan of Resources for the Future (RFF) since my early days in Washington many years ago. While the organization’s reports won’t keep you awake at night nor can they easily convert into a Bollywood movie, they generally provide sound nonpartisan analyses of resource and environmental issues. In this context, the Fuel Freedom Foundation (FFF) retained RFF to independently study the potential economic, environmental and national security gains from replacing a portion of domestic gasoline use in the light-duty fleet with various natural gas-based fuels such as ethanol or methanol.

The request reflected the relatively large price differential between the growing supply of natural gas and gasoline and FFF’s assumption that natural gas-based fuels (ethanol and methanol) could not only offer the U.S. security benefits, they would be cheaper and cleaner than gasoline. If FFF’s assumption was right, public and private sector strategies to encourage the conversion of older vehicles to FFVs and to increase the production of new FFV vehicles in Detroit would seemingly be in order. Similarly, finding financially feasible ways to produce, develop, distribute and successfully market natural gas-based alcohol fuels would appear quite sound.

RFF’s study was completed last September and is available online.

I have read the document many times. It is compelling because it honestly portrays gaps in information and uncertainties concerning public policy and regulation, technology, geography, price trends, competition, and availability as well as access to natural gas-based fuel. Indeed, embedded in the report is the fact that policymaking in public, nonprofit or private sectors or predictions concerning consumer behavior is never perfect. As complexity increases, decisions often require reliance on perfectibility over time, rather than perfection in the present time.

Apart from RFF’s marshalling of available, relevant data and its related analysis, the study’s conclusions are supportive of leadership groups and leaders who seek an “alternative path” in support of the use of natural gas-based fuels and the conversion of older cars to flex-fuel vehicles.

What RFF concluded is that the only replacement fuel currently available to the more than ten million FFV E85-capable vehicles “does not have a cost advantage at the pump over conventional gasoline.” But assuming companies like Coskata, Inc. and Celanese are able to deliver on their financial modeling, live tests and price predictions concerning the production and distribution of natural gas-based ethanol, owners of FFVs, including owners of new and older converted vehicles could see cost benefits near $1 per GGE (gasoline gallon equivalent) in the very near future.

This is no small benefit. It will be particularly important to low and moderate-income folks, permitting them more choices when it comes to jobs, housing and other basic needs. It will also reduce the strain caused by reduced economic and income growth on middle class households. RFF also indicates, with somewhat less certainty as to how much, that there will likely be environmental benefits.

Making this new replacement fuel path viable will require the EPA to lower the costs of certification of kits that help convert older cars to FFVs, and to sanction relatively simple software adjustments, particularly for newer FFVs and their twins (not the human kind but automobiles whose engines reflect FFF characteristics. This path will also need the EPA and advocates of natural gas-based ethanol to work together to develop a vehicle-testing procedure for older cars that is both cost efficient, sound and hopefully, relatively quickly. Finally, it will necessitate a fuel market that reduces, if not eliminates, the almost monopolistic conditions generally imposed by oil companies and often supported, at least implicitly, by government policies and regulations.

Consumers, clearly, would benefit from more competition at the pump and from more pumps devoted to replacement fuels. Auguste Comte, the great 19th century philosopher and founder of positivism, never saw a gasoline station, but his simple motto, “Love as a principle [need for increased natural gas-based flex fuels and need for flex-fuel cars], the order as a foundation [development of policies and infrastructure for natural gas-based fuels and increased FFVs] and progress as a goal [extend consumer choice]” nicely frames RFF’s narrative. In turn, RFF’s study, while recognizing the value of renewable fuels, supports an alternative, natural gas-based replacement fuel as well as a vehicular pathway to help achieve national, regional and local economic, social welfare and environmental benefits. It’s near July Fourth. Let’s move toward freer increased choices among fuels and increased vehicular capacity to use them.

An oil-drilling sing along, to the tune of “Politics and Polka”

Correlation or causation, correlation or causation
Misleading numbers, mistaken assumptions. Who will be the joker?

Okay, I am neither poet nor composer. I can’t even sing. But Fiorello Laguardia was an early hero from the time I met him in my sixth grade history books, and the musical Fiorello! was good fun.

Mayor Laguardia would be amused and bemused by recent articles suggesting that the Monterey Shale isn’t what it was cracked up to be a year or two ago. The story lends itself to his famous encounters with comic books. Despite earlier media hype, its development will not lead to economic nirvana for California and could well lead to real environmental problems.

Why were the numbers that were put out by the oil industry just a couple of years ago wrong? Maybe because of a bit of politics and polka! The articulated slogan concerning oil independence from foreign countries mesmerized many who should have known better.

Similarly, why, while once accepted by relevant federal agencies, have the production numbers concerning the Monterey Shale been recently discounted by the same agencies (EIA) and independent non-partisan analysts? Quite simply, they now know more. Succinctly, it’s too expensive to get the oil out and the oil wells, once completed, will have a comparatively short production life.

Drilling an oil field that is located under flat land is easier than drilling for very tight oil — oil that lies underwater or under a combination of flat as well as hilly, rolling, developed, partially developed or undeveloped areas known for their pervasive, pristine, beautiful environment. Further, the geological formations in the Monterey Shale area are a victim of their youth. They are older than Mel Brooks, but at 6-16 million years, the Monterey Shale is significantly younger than The Bakken. Shale deposits, as a result, are much thicker and “more complex.” According to David Hughes (Post Carbon Institute, 2013), existing Monterey Shale fields are restricted to relatively small geographic areas. “The widespread regions of mature Monterey Shale source rock amendable to high tight oil production from dense drilling…likely do not exist…” “… While many oil and gas operators and energy analysts suggest that it is only a matter of time and technology before ‘the code is cracked’ and the Monterey produces at rates comparable to Bakken and Eagle Ford,” this result is likely is not in cards…the joker is not wild. “Owing to the fundamental geological differences between the Monterey and other tight oil plays and in light of actual Monterey oil production data,” valid comparisons with other tight oil areas are…wishful thinking. Apart from environmental opposition and the costs of related delays, the oil underwater or underground in the Monterey Shale is just not amenable to the opportunity costing dreams of oil company CEOs, unless the price of oil exceeds $150 a barrel. According to new studies from the EIA, the recoverable reserves, instead of being as it projected earlier from 13.7 to 15.4 barrels, will be closer to 0.6 barrels.

If you believe in “drill, baby, drill” as a policy and practice, the cost/price conundrums are real. Low costs per barrel for oil appear at least marginally helpful to consumers and increases in oil costs seem correlated with recessions. Increased production of tight oil depends on much higher per barrel prices and, in many instances, increased debt., Neither in the long term is s good for the economic health of the nation or its residents.

Breaking the strong link between transportation and oil (and its derivative, gasoline) would make it easier to weave wise policy and private-sector behavior through the perils of extended periods of high gasoline prices and oil-related debt. Expanding the number of flex-fuel vehicles (FFVs) through inexpensive conversion of older cars and extended production of flex-fuel vehicles by Detroit would provide a strong market for alternative transition fuels and put pressure on oil companies to open up their franchises and contracts with stations to a supposedly key element of the American creed-competition and free markets. The result, while we encourage and wait for renewable fuels to reach prime time status, would be good for America, good for the environment and good for consumers.

Let freedom ring: Oil companies, capitalism and fuel choice

It’s a free county, ain’t it? Americans have many choices that are denied to citizens of other less-fortunate nations. But we forget how many decisions are made for us, sometimes out of necessity, such as paying taxes; sometimes out of greed, such as the monopolistic actions of oil companies in denying many Americans the ability to purchase alcohol-based fuels at their corner gas station. Try it someday! On your way home from work, on your shopping trip to your friendly supermarket or on your way to see a movie at your favorite theater, make a stop for fuel at a gas station. Make sure to have some gasoline in your tank, because it likely will take you a lot of time to find a gas station that sells E85 or even E15.

Now, I went to Harvard Law School for four days, before I decided that there were too many lawyers around and memorizing case studies was not my forte. But Harvard provides significant value added, apart from being near Harvard Square and Boston. I was exposed to terms and content related to antitrust, restraint of trade, collusion and monopolies. Now, I didn’t stay long enough to know whether those concepts applied to oil companies that restrict consumer choices of alternative fuel. Probably not, because I am sure, by now, one of my Harvard colleagues would have filed a well-reimbursed case to break open the fuel market to options like ethanol, methanol and more. But whether legal or not, oil companies deserve their comeuppance for limiting many of us who, too often, are required to use more expensive, environmentally harmful gasoline, instead of existing, safe, alternative fuels.

How do they do this? Well, if you are a gas station owned or franchised by an oil company, your contract and rules related to behavior often prevent you from adding a pump or adding to an existing pump to sell E15 or E85. As relevant, since oil companies generally require the stations they own to buy fuel from them, and since they don’t sell E15 or E85, adding a pump would be akin to waiting for the hereafter (and acting on faith that you will get there).

Wait, there is more! Every now and then an oil company wants to publicly show it is a bit beneficent (for image purposes), but don’t hold your breath with respect to proof that image and reality are the same. Sure, you might find an alternative-fuel pump near the rear side of the garage proximate to the men’s room, or, if you are lucky, on the side of the station near the air pump. Most oil-company-owned stations and franchisees are generally precluded from putting an alternative-fuel pump under the covered island or space out front. They also face restrictions on advertising alternative fuels as an available product and oil-company pricing limits competition from alternative fuels.

Congress has refused to enact open fuels legislation, which would require oil companies to open up their gas stations to other fuels. Ongoing efforts by public and private sector advocates, as well as nonprofit groups, to encourage policies that would convert older cars to flex-fuel vehicles and to encourage Detroit to build more FFVs could well lead to a large consumer market for alternative fuels and generate a positive market reaction among independent gas companies and, perhaps, even some smart oil companies. While I have been wading through the pros and cons of allowing oil companies to increase exports to other nations, I do believe that if increased exports are in the nation’s future, they should be approved only if the oil companies agree to require their stations and franchises to offer alternative fuels in a primary space alongside gasoline. A bit of tat for tat is in the public interest. Let freedom ring for consumer! Let capitalism mean competition for gasoline and alternative fuels at your nearby gas station! Oh, I forgot, alternative fuel station!