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Arctic Leaf

Pete Seeger And Building Consensus For Transitional Fuels

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I have a love for folk music. I recently heard the cantor sing “Where have all the Flowers Gone?” at a service for the Jewish High Holidays. It brought back a lot of memories concerning the ‘60s: a period of hope, achievement and tragedy in America.

Excuse me if I take one line from the song by Pete Seeger, perhaps out of context, to explore the current intellectual and real politic difficulties we have in weaning the nation off of oil. Remember the continuous refrain in every stanza concerning the human costs of war, “Oh, when will [we] ever learn?”

I think we should ask the Seeger question now, in addition to thinking about war, about the issues involved in America’s transportation sector’s continued dependence on oil and the nation’s inability to come up with a coherent transition to a renewable fuel.

Look, I hope that we can make the switch from fossil fuels to renewable fuels as soon as federal policy, technology, design and costs make the renewables and cars competitive for most folks. The sooner the better! But even when the market penetration of non-fossil-fuel powered vehicles is double, triple or quadruple what it is now, the percentage of such cars on the road will be infinitesimal compared to the cars fueled by gasoline — a derivative of oil. Think about it! 254 million vehicles exist in America. Fewer than 100,000 renewable fuel powered cars, primarily electric and electric hybrids, were sold in 2013. Given the average life span of cars, it will take a long, long time before the fleet is predominantly gasoline free. Given these facts, establishing a national strategy that, through research and development, makes renewable fuel-powered vehicles cost efficient and marketable to most Americans as soon as possible, and that, simultaneously, encourages the use of transitional fuels in flex-fuel vehicles, while far from perfect, makes common sense. The dual-linked approach is better for the economy, the environment, the consumer and the country’s security. (Ain’t going to have go to war no more…or at least less war based on oil needs.)

What is it that makes many America’s leaders in the public, nonprofit and private sector unable to act even semi-rationally concerning alternative fuels? Sure, Washington is dysfunctional and partisanship as well as special interests have prevented the development of consensus around fuel policy, but to some extent, we as citizens have not become “energized” to advocate for change. Push alternative fuels, including those derived from renewables, and the oil industry demurs with shrill “earth is flat” type lobbyists; advocate for flex-fuel automobiles, and you get both the oil industry and some in the auto industry leveraging their often negative weight in Congress and in state capitals. Try building strong bipartisan coalitions around development of choice at the pump and you are seen as a dreamer, and subject to the often challengeable absolute wisdoms shouted by different interest groups and their leaders.

Sit back and take it all in! The dialogue, or what purports to be the dialogue, concerning fuel choice often reminds me, at least, of the religious arguments about whose God is better. I don’t think anyone has recently had a direct line to God! The tolls are too expensive. Federal regulations in light of separation of church and state prevent it. Similarly, I do not know any respected analyst who finds complete truth in his or her numbers supporting one fuel over another. We hope for perfectibility, not perfection, in analytical theology.

But repeating the dysfunctional “woe is us” analysis over and over again becomes boring and seems to be an excuse for political inertia or failed leadership in all sectors — public, private and nonprofit. Paraphrasing the Pogo comic strip, we have met the enemy and he is us.

So, “when will we ever learn?” that making love is better than making war with respect to building an agreement on alternative fuel strategies? The oil industry, according to recent analyses, has reason to want to think about the future before it continuously tries to restrain our choices at the pump. Prices per barrel may soon reach the level where drilling for tight oil may be too expensive and alternative fuels may be worthy of investment. (Nothing like the profit motive to bring folks to the table!) The auto industry recently has been increasing production of flex-fuel vehicles and CAFE standards, combined with a successful push for open fuel standards and lower cost fuels, could induce even higher production levels of flex-fuel vehicles. Many environmental groups, some of whom already support a dual strategy leading to expanded transitional fuel choices and support for a faster path to renewables, seem willing to discuss a road less traveled, that is, continued use of fossil-based transitional fuels until renewables are ready for prime time. Maybe all we need now is a leader or leaders supported by informed constituencies who will bring relevant groups and individuals together around a consensus building learning table.

Thank you, Pete Seeger!

Arctic Leaf

What the world needs now is land (and honesty) to get to replacement fuels

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I had the good fortune to meet and work a bit with Dr. Edwin Land, the inventor of the Polaroid camera. We were both on an informal poverty task force created by President Kennedy. I always admired Land. Throughout his life, his comments were always thought-provoking. His suggestion that “politeness is the poison of collaboration” really challenged, and continues to challenge, many of the facilitation and leadership gurus and practitioners who sometimes seem to have invented linguistic anti-depressants. Translated: don’t get angry, hold your tongue, mind your manners, mute some of your views or make them sound less critical, try to be nice and likeable, move toward a win-win situation, compromise and, if you get intense, take a break and go out for a while. Have a beer?

Times have changed, but only a bit, since Land died in the early nineties. Many participants still go into a collaborative and/or facilitative policy process with squeamishness about being direct and honest about their concerns. Because of this fact, it takes many sessions, rather than a few, to get real, difficult issues on the table and achieve a real meaningful and honest dialogue. Bonding and game playing (real and surreal) are often seen as more important than advocacy as well as early substantive dialogue. There is often little chance to compromise because the people at the table compromise their own views before they speak. They want to be polite. We don’t really know what they really think. Building collaboration in the hands of a facilitherapist (my own word), is regrettably, at times, using everyone’s favorite term, an existential threat. It makes collaborative victories, frequently short-term ones, in light of the fact that underlying disputes and tension were not given an airing.

With this as context, let’s look at key policy and behavioral issues now confronting the nation, concerning the harmful link between gasoline, the economy and social welfare, and the environment, particularly greenhouse gas (GHG) emissions and other pollutants. As relevant, let’s also think about why it’s been so tough to move toward replacement fuels for gasoline, even though such options would benefit consumers and the nation.

Gasoline now fuels approximately 250,000,000 vehicles in the U.S. While GHG emissions from gasoline are down because of improved technology in vehicles, gas still generally spews more GHG than alternative fuels such as ethanol, methanol, electricity or fuel cells. Gasoline also fails health and well- being tests when measured against a range of other pollutants, including NOx and VOCs (volatile organic compounds). Gasoline prices, while seemingly low (only) compared to the recent past, in some cases remain higher than alternative fuels, by a significant amount, whether based on renewables or fossil fuel. In this context, most of you reading this column are neither poor nor near poor. Imagine though, that you are, and in order to work, you need find housing at a reasonable cost relatively close to your job, see a doctor or take your family to see an aunt or uncle. But if you secure these and other basics, you have fewer choices since you have to spend from between 10-15 percent of your meager income on fuel. This is a verity now for most low- and moderate-income households. Indeed, based on EIA projections of gas prices and conservative as well as liberal economists conclusions concerning job growth and income, the percentages, likely, will increase in the future. If you were a person of very limited means, what would you limit first: travel to and from work, decent housing, health care or food, etc.?

Now, none of the replacement fuels are perfect. Most, including those based on or derived from fossil fuels such as natural gas, do emit some measurable GHG and other pollutants. This includes electric cars, particularly those that do secure their power from coal-fired electric utilities. But all are better than gasoline on environmental, economic and social welfare indices.

Why then is there not a clear movement toward transitional replacement fuels? Sure, electric car sales and CNG sales are up and hydro fuels will soon be on the market. Hopefully, they all will succeed in attracting consumers. But right now, all three together constitute from 1.5 to 3 percent of sales of new cars.

Why? Well, electric cars, CNG and hydrogen fuel cars are expensive and out of reach for many American households. For some, particularly those who purchase lower-end electric cars, the miles per charge often create road fear on the part of drivers. “What if I get stuck on the L.A. freeway?” Fuel stations are few and often far between for both electric, CNG and hydrogen fuel.

New electric, CNG or hydrogen fueled cars, at least for the near future, will illustrate for us all the comparative purchasing power of the haves, the have nots and the almost haves. Hopefully someday soon, most Americans will be able to compete — price, technology and design wise — for larger shares of the automobile market. But even if they become competitive, they will not be able to generate a major dent in the number of existing vehicles that rely on the internal combustion engine for a long time. Look at the data yourselves! Given their predicted annual sales, how many years would it take before the fleet of privately owned vehicles contained a very large percentage of electric, CNG, or hydrogen fueled vehicles (perhaps as much as 50 to 75 percent or more)? I have seen figures ranging up to almost several decades from respected analysts . Clearly, if sales of hybrid and plug-in vehicles are counted in the totals, the amount of time, it takes will be lower. However, achievement of a proportionately large share of the total number of cars will still extend out a many many years.

What can we do to achieve legitimate important national objectives concerning the environment, the economy and consumer costs for vehicles and fuel almost immediately? We can move to expand the number of FFVs (flex-fuel vehicles) in the country, first, by encouraging Detroit to build more each year and second, by asking public, nonprofit and private sectors to work together with the EPA to certify more conversion kits as well as existing in-use cars for conversion to FFV status. The net results would be vehicles able to use much higher percentages of ethanol (E85) derived from natural gas or from corn cobs, husks and stalks as well as other biofuels.

The proposed strategy is a transitional one. Clearly, electric, CNG and hydro fueled cars, when able to meet market tests concerning consumer needs, should join the mix of choices at the pump. I am optimistic. For example, twenty two states led by Colorado and Oklahoma have agreed to use CNG fueled cars to replace older cars retired from their state’s fleets. Detroit with the pool of CNG cars purchased by the states has agreed make best efforts to develop a lower cost CNG vehicle. Electric cars are coming down in costs. Hydro fueled cars will likely be produced in larger numbers soon and technology over time will reduce vehicle prices.

Now back to Edwin Land. I believe his comments about politeness, perhaps a bit too absolute, reflect his and my own views that the ground rules for collaborative efforts and consensus building may impede honesty concerning discussions of difficult topics. Being polite sometimes circumscribes and weakens important strategic dialogue. Involved participants fear being direct and sometimes avoid linking their intense feelings to their commentary. They try to avoid criticism or be seen as breaking the mythology of togetherness concerning long-term objectives and initiatives. Indeed, both objectives and initiatives are often so long term, that they are vague and don’t really matter to folks at the table. So why not go along? Individuals either avoid saying things that might lead to even temporary policy, program or behavior conflict and debate.

Politeness, certainly, is generally a virtue in most circumstances. Perhaps Land went too far in his choice of words. But the term, if used to guide collaborative efforts, often serves to mask real disagreements and necessarily blunt conversation. I have done lots of facilitative sessions on policy issues between senior officials of different nations and the U.S., as well as between community leaders on education, growth, environmental, race and poverty issues. Maybe the difference is miniscule, but I like the term being “civil” rather than being “polite;” the former presumes disagreement and allows for willingness to entertain tough dialogue and the possibility that the dialogue might step, at times, on intellectual toes; the latter, when translated into behavior, often suggests a willingness to skirt conflicts regarding ideas, if it temporarily reduces the ambience at the table.

Leaders from all sectors need to help build a collaborative “coalition of the willing” among environmental, public interest, government, private sector, nonprofit and academic leaders to push for flex fuel cars and replacement fuels. The criteria for coalition selection should be relevance to the policy and political issues related to gaining the public’s access to multiple fuel choices at the pump and to secure a much larger number of new FFVs as well as existing vehicles converted to FFV status. Identification and selection should not be limited to leaders who think exactly like us. But both should be limited to individuals who care about the environment, the economic and job growth of this nation, the well-being of consumers, particularly low- and moderate-income consumers and, although not discussed above, the security of this nation and the world. Claims of absolute wisdom should be a non starter for membership.

I suspect if the leadership group is diverse enough and if reasonable ground rules concerning structure and processes are set at the outset (ones that encourage substantive dialogue and debate ), disagreements can be bridged based on the data and agreements reached on transitional replacement fuel strategies that would influence public and private sector decision makers. A good facilitator would be needed, one weaned on policy and strategy more than psychology. A nationally respected foundation, or possibly even EPA, could either support or indeed facilitate the proposed serious exercise in collaboration and democracy. Civility, not politeness, should be a principle governing the dialogue.

Arctic Leaf

The best and worst of times for ethanol

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For ethanol it is the best and worst of times. Silos are bursting with a bumper crop and the price of corn has fallen by half, from $7 to $3.50 a bushel over the past year. Refiners are buying feedstock at rock-bottom prices.

“This is the most profitable time I can remember,” Dan Syekh, plant manager at Southwest Iowa Renewable Energy of Council Bluffs, told the Lexington Clipper-Herald of Nebraska. “People are beginning to pay off debt and invest in ever more advanced technologies.”

Yet hanging over all this is the question of what the U.S. Environmental Protection Agency will do about the Renewable Fuel Standard, which specifies how much ethanol the refining industry must buy next year.

“I feel like [the EPA is] playing politics instead of doing what’s right for America,” Iowa Gov. Terry Bradshaw told a Farm Progress Show in Boone last week. “Farmers aren’t buying equipment and John Deere is laying people off. What EPA has done is not only damage farm income but cost us jobs in farm machinery and manufacturing.”

At issue is the EPA’s announcement last spring that it would cut the mandate from the 14.4 billion gallons, originally required by the law, to 13.01 billion gallons, in order to deal with overproduction. With gasoline consumption having fallen since 2007, although numbers are now starting to rise again, the federal requirement had pushed ethanol additives past the 1 percent “blend wall,” where auto and oil companies claim it will damage engines. Many people dispute this but the auto companies are refusing to honor warranties in cars that use blends higher than 10 percent without authorization. Others say the solution is E85 — a blend of 85 percent ethanol and 15 percent gasoline — is the answer but it is not yet widely available outside the Midwest.

The EPA was supposed to make a decision on the mandate last November but has delayed after the furor over its initial proposal. Only last week it sent a final proposal to the White House for review. Rumors are that the EPA has settled on a figure somewhere between the original mandate and its April number, but there is nothing definite. In any case, the Obama administration could take several weeks to approve, even pushing its verdict past the November elections. This is the longest delay in the program’s history.

For several years now the ethanol industry has seen its influence waning in Congress. In 2011, Congress repealed the tariff on foreign biofuels, opening the door to cheaper sugar ethanol. Then it allowed a production tax credit to expire. Perhaps most significant has been the loss of support from large portions of the environmental community. Last year the Associated Press ran a story documenting how the mandate has led to over intensive cropping and the removal of land from conservation soil banks. “Corn ethanol’s brand has been seriously dented in the last 18 months,” Craig Cox, director of the Environmental Working Group in Ames, Iowa, told Politico. “The industry is still politically very well connected but it doesn’t occupy the same pedestal it did two years ago.”

Yet oddly enough, all this is happening at the moment when the industry may be on the verge of a huge breakthrough. On September 3, POET, the South Dakota refiner of ethanol, and Royal DSM, a Dutch maker of enzymes, will hold opening day ceremonies in Emmetsburg, Iowa for the inauguration of what could be the country’s first cellulosic ethanol plant — long considered the holy grail of biofuels. King William-Alexander of the Netherlands is scheduled to be in attendance.

Cellulosic ethanol uses the non-grain parts of the corn plant — the shucks and stalks that cannot be eaten. By cultivating certain enzymes and bacteria from the stomach of cows and other ruminants, several companies now believe they are able to break down the starches in these plant “wastes” and turn them into fuel. Various inventors have made the same claim over the years but have never been able to achieve cellulosic digestion at a commercial level. Now it appears POET may be about to break the barrier.

They aren’t the only ones. In fact, there is now $1 billion worth of cellulosic ethanol investments in the Midwest about to bear fruit:

  • In Nevada, Iowa, DuPont is investing $200 million in a cellulosic plant that will have a capacity of 30 million gallons annually. Operations are slated to begin before the end of 2014.
  • In Hugoton, Kansas, Spain-based Abengoa Bioenergy is spending $500 million on a plant to make ethanol from corn leftovers, wheat straw, milo stubble and prairie grasses. It will produce 21 million gallons of ethanol plus 21 megawatts of electricity.

Should any of these plants succeed, it would change the face of the industry.

So ethanol finds itself in a very strange position. Just as it may be on the verge of a huge breakthrough in production, it finds its markets drying up. Several Midwestern agricultural professors have suggested that the real solution is E85, which readily substitutes for gasoline and would create an almost unlimited demand. There are 15.5 million flex-fuel vehicles on the road — 6 percent of the entire fleet — all of which accept E85. There are also 3,200 gas stations that dispense it. But there is a huge mismatch between them. Most of the stations are in the Midwest where support for ethanol is strong while the flex-fuel vehicles are concentrated in cities on the East and West Coasts. So far no one has come up with a solution for making a better match.

There remains one potential market, however, that could tide over the ethanol industry until better auto markets develop. This is the U.S. Navy. The Department of Defense burns 300,000 barrels of oil a day, 2 percent of national consumption. For some time the Navy has been trying to find “drop-in” biofuels that would substitute for imported oil in jets and other vehicles. This year, for the first time, the Navy will include biofuels in its annual procurements. It is trying to get 50 percent of its fuels from renewable resources by 2020. “Up in the air you don’t have any other choice but liquid fuels,” said Tyler Wallace, professor of agricultural economics at Purdue. “The U.S. uses 21 billion gallons of aviation fuel annually and cellulosic ethanol would make a perfect drop-in.”

So would a huge order from the Navy be able to galvanize an infant cellulosic industry? Or will ethanol have to continue to holds its breath waiting for a decision on the Renewable Fuel Mandate from the White House and the EPA? For the industry, it remains the best and worst of times.

Arctic Leaf

The journey of a thousand miles, replacement fuels and FFVs

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The headlines recently have been terrible — a commercial plane was shot down over the Ukraine, there’s war in the Middle East and more. It makes you wonder, over and over again, about man and woman’s inhumanity to his or her fellow men and women.

While certainly not equal in impact on the world at the present time, I happened to run across one point of light concerning a set of innovations which, in the long run, could positively impact climate change, security and consumer choice issues. It was reflected in a couple of articles describing the partnership between the state of California’s Energy Commission and Cummins Engines to develop an E85-fueled engine that apparently cuts Co2 by up to 80 percent (read it in Fleets and Fuels) in medium-duty trucks.

According to Cummins Engines and the Commission, a relatively small 4-cylinder, 2.8-liter engine has been successfully subjected to 1,000 miles and 1,500 hours of testing. It is now going through validation tests in Sacramento.

The story is a welcome one. Cummins indicates that the engine can generate 250 horsepower and 450 pound-foot of torque using E85. “Using lignocellulosic-derived E85, the powertrain’s efficiency features 75 to 80 percent lower well-to-wheels carbon emissions than gas engines; depending on the drive cycle…Cellulosic E85 is not derived from tilling, fertilizing and harvesting corn…Using corn-derived E85, the high thermal efficiency and power-to-weight ratio of this engine results in 50 to 80 percent lower well-to-wheels carbon emissions compared with the gasoline engine.”

Based on the Cummins documentation, California’s Energy Commission indicates “that successful completion of the project may result in a new market for E85 fuel now dominated by gasoline and diesel in the 19,500 lb. step-van fleet market.” The agency estimates greenhouse-gas savings as great as 69 percent, or 10 to 20 percent using corn based ethanol.

Fortunately, the general principles guiding development of Cummins’ engine may help improve flex-fuel automobiles and grant Americans more confidence in the environmental, price and economic benefits associated with extended use of E85.

Lessons learned may increase the nation’s ability to reduce GHG emissions. Based on what Cummins has done, using smaller engines extends the benefit of E85. Diesel-like cylinder pressures are important. Ethanol’s high-octane rating generates more engine efficiency. Use of state-of-the art sensors for spark ignition and coordination of stop-and-start functions enhances efficiency and reduces emissions. E85 is clearly a safe fuel.

The knowledge gained from the Cummins effort could lead to better flex-fuel vehicles and could support the effort to use increased technology fixes for older, non-flex-fuel cars and FFV twins. Perhaps the biggest benefit from the partnership between California and Cummings relates to the boost it could give to the search for replacement fuels, as well as the myth-busting understanding it could provide consumers about the safety of E85. It is a safe fuel, assuming engine adaptation and software amendment.

Elon Musk’s proposal to share Tesla’s electric-car patents and ideas might at least encourage increased collaboration among FFV makers in Detroit and the potential players in the conversion industry that likely would emerge, subsequent to EPA testing and approval of older vehicles for conversion. Even improved cooperation at the margin would could expand production of new FFV vehicles and expand conversion of older vehicles. For automakers and makers of conversion kits, as well as developers of FFV software technology, successful collaboration would generate larger markets.

Increased use of E85 through conversion of existing cars and the increased production of new FFV vehicles would help meet national and local environmental objectives, reduce gasoline prices and provide consumers with lower fuel costs, apart from gasoline. Both would also reduce dependency on foreign oil. Paraphrasing the poet Robert Frost, while FFVs — new or converted — are on a road less traveled now, as John F. Kennedy indicated, the journey of a thousand miles must begin with one step. The road less traveled now has more replacement-fuel drivers and FFVs than ever. Because of this fact, the journey of a thousand miles toward alternative fuel choices has made progress and, hopefully soon, will move at a faster speed. Success will mean a better quality of life for us all. It’s good news!

Image credit: Wikimedia commons

Arctic Leaf

Attention Investors: Opportunity for an oil change

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What would you say about an investment opportunity where your product is four times cheaper than the commodity it is trying to replace and there are 77 million potential customers waiting to use it?

Does that sound like something that you would like to put your money into? Well that’s the opportunity that awaits anyone willing to invest in the infrastructure and technical changes needed to substitute natural-gas-based ethanol for foreign-fuel-based gasoline in our cars.

A full-fledged prospectus was presented this month by Miles Light, professor at the Leeds School of Business at the University of Colorado Boulder, in a report called “Natural Gas Based Liquid Fuels: Potential Investment Opportunities in the United States,” written for the recent Goldman Sachs Energy Summit.

Professor Light lays out the situation in very clear terms: “Low natural gas prices and new technology present an opportunity to market and sell liquid fuels in the form of ethanol and methanol to U.S. consumers. Per unit of energy, oil is almost four times more expensive than natural gas. This implies a potential arbitrage opportunity to convert natural gas and natural gas liquids into a liquid fuel. In the U.S., 14.5 million vehicles can currently utilize ethanol fuels. These are the so-called ‘Flex Fuel’ vehicles. Another 16.1 million FFV ‘Twins’ can utilize ethanol with a software upgrade, and 46.9 million conventional fuel vehicles can potentially be converted for $150-$250 each. In all, this presents 77.75 million light duty vehicles, or 31.8% of the national light duty fleet, that would potentially purchase natural gas liquid fuel, if prices were attractive.”

You’ve undoubtedly heard the phrase, “If we can capture just 2 percent of this market…” Well, this is it. There are opportunities up and down the line, from auto mechanics performing flex-fuel conversions on conventional engines to major corporations building plants to convert natural gas to ethanol.

What Light is talking about here is the wholesale substitution of a portion of our natural gas resources for the oil we import in order to run our transportation sector. True, we’ve cut down on imports so they now make up less than half of our consumption for the first time since the early 1990s. But what people are missing is that we still pay the same amount for that oil because the price keeps rising. This continues to put a $380 billion dent in our trade balance every year — not to mention that much of this money goes to countries that actively support hostile actions against America and its friends and allies around the world.

So what would it take to make this transition? There’s certainly been a lot of activity to date. However, most of it has concentrated on utilizing compressed natural gas (CNG) and liquid natural gas (LNG). T. Boone Pickens’ Clean Energy Fuels is in the process of building a “CNG Highway” to service long-haul trucks from coast to coast. He’s already completed the first leg from Los Angeles to Houston. Those big 18-wheelers have room for the larger gas tanks and travel fixed routes along the Interstate Highway System that can be serviced by relatively few filling stations.

But passenger vehicles are a completely different matter. They travel everywhere and would require a whole new national infrastructure to fill their tanks. The auto companies have already offered a few CNG models but they haven’t sold well. It’s the chicken-and-egg problem — people won’t buy cars before the stations become common and the stations won’t be built until there are enough cars on the road.

With ethanol, however, there is already an infrastructure in place. The country is presently outfitted with 2,394 gas pumps dispensing E85, a mixture of 85% ethanol and 15% gasoline. (The gasoline is there just to start on cold mornings.) Most of these are concentrated in the farm belt but they’re starting to make their way into major cities on the East and West Coasts as well.

The point is this: these stations have been set up to handle corn ethanol. This is the result of the 35-year government effort to promote biofuels. But Light suggests that these stations could just as easily dispense ethanol made from natural gas. No new technology would be necessary, nor would it require any special permission from the government. (Methanol, which is a little easier to synthesize than ethanol, has a greater toxicity and would require some additional approval from the Environmental Protection Agency.)

So according to Light, this is where the investment opportunities lie. The conversion of natural gas to ethanol is the first and most important step, but Coskata, Inc. already has a working facility and Celanese Corporation is converting coal to ethanol in Indonesia. Light estimates that, at current and foreseeable prices, the return on investment could be as high as 46 percent.

Then there are all the intervening steps. “Alongside the core ethanol production opportunity, there are several related supply-chain developments projects, such as production facility development, ethanol fuel marketing, fueling station upgrades, blending facility expansions, and vehicle update kits,” he writes. All are well within the range of private investment. No government subsidies or mandates would be required.

In other words, the conversion of significant portions of our auto fleet to natural gas presents a whole world of opportunity just waiting for imaginative, ambitious investors to take advantage.

Anybody interested?

Arctic Leaf

A return to making love, not war – Iraq and replacement fuels

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Early on I wrote a column about an unanticipated Thanksgiving dinner conversation with a special operations soldier who had served in Iraq. His comment, in response to a question I asked about whether he and his buddies knew why they were sent to Iraq, was brief and blunt: “oil and U.S. security.” He would have none of what he thought was b.s. about “freedom and democracy” or “weapons of mass destruction.” Before I asked the question I actually already knew what his answer would be, but a glass of wine, a wonderful piece of turkey and good company suggested that my inquiry would lead to an opening for a longer repartee on the Middle East and U.S. policy. It did, and again oil and oil politics were the dominant theme.

I suspect that many of the writers of today’s headlines and op-ed articles anticipated Republican Eric Cantor would win. They are now arguing, in sometimes misleading reference terms concerning democracy, inter-sectarian harmony and morality, for a more aggressive U.S. policy toward the invasion by Sunni radicals of parts of what once on a map called the nation of Iraq.

But the real issue for many “experts,” I again suspect, is oil — a fear, whether factual or not, that if Iraq collapses, the world oil supply (already close to equilibrium concerning demand and supply) will relatively quickly reflect shortages and much higher prices per barrel of oil ($150 a barrel) and oil’s product, gasoline ($5 and more).

Should we be sending kids to fight for our apparent God-given right to Middle Eastern oil? Although I think a lot about the ethics of public decision making, I am not an ethicist. But as long as there are alternatives to supply, my hard-nosed policy advice would be against war or the steps that might lead to war. Iraq has not been the noble state that welcomed America in to rescue it ostensibly from Saddam Hussein. Its form of democracy has been limited, corrupt and sectarian.

What should our calculations be, concerning alternative supplies of oil? First, we ought to really think through whether a full or partial shutdown of Iraqi oil wells will mean a damn. Iraq alone supplies a small share of U.S. oil imports. Most of the often-shrill economic coverage of the radical Sunni invasion and its potential impact on U.S. oil seems to relate more to perceptions, not empirical evidence, about shortages and prices. Commentators “perceive” what the oil markets might or will do — really what oil speculators and investors will or will not do — based on what is currently happening in Iraq, not on facts on the ground. Neil Cavuto of Fox Business said, “Oil is a commodity, a global commodity, and like any stock in almost any market, it often trades on issues having little to do with basic fundamentals, and more to do with simple fear.”

Assuming, however, there is a real worldwide shortage of oil as a result of a closure of Iraqi wells, or that fear drives the prices up so much that there is a strain to the economy, the Saudis, probably, among all the OPEC nations, are the only ones with sufficient oil in the ground to make an immediate difference concerning supply. But will they? They have shown some flexibility in the past to U.S. petitioning. They have also, at times, despite their security relationship to the U.S., turned us down. This time around the Saudis could well be more than a bit sensitive, particularly if it looks like the radical Sunnis might win. The Kingdom is vulnerable with respect to a radical brand of Sunniism. I bet they also fear a potential Shiite effort to push the radicals back, particularly one led by Iran. Life is never simple for the House of Saud.

Okay, where are we? Oil is sold in an international marketplace. No matter which side you are on regarding the Keystone XL pipeline, if approved and completed, it will not have a major impact on U.S. gas supply or prices. Ask your friendly oil refinery or oil company executive where he or she believes Keystone-supplied oil will be going. Most of the assumed supply will be traded internationally for the highest global price. The predicted increased supply of U.S.-produced gasoline will probably help diminish price increases slightly, but don’t make a bet on how much. Today, a price of a gallon of regular unleaded gasoline is well over $4 in California and U.S. production is at a very high level.

What would likely help keep gasoline prices from spiking significantly and, at the same time, lessen the amplitude of the cycles is a commitment to competition in the fuel marketplace. Let Adam Smith reign! Allow safe, cheaper, environmentally better replacement fuels, particularly natural gas-based ethanol (and someday soon, methanol) to compete with gasoline. Encourage the conversion of older vehicles to flex-fuel vehicles! Push for renewable fuels and related vehicles that appeal to a larger market than at present, given costs and design constraints! Reduce our dependence on imported oil! Make love, not war! Drive (excuse the pun) for strategic solutions!

Arctic Leaf

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

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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.

Arctic Leaf

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

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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.