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Landon Hall

Gal Luft: Oil’s monopoly a more important issue than prices

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Gal Luft, an advisor to Fuel Freedom’s board, doesn’t know if or when oil prices might start rising again. For all the predictions out there lately, few experts can say for certain what the market will do in 2015.

“I started working on this when oil was $20 a barrel,” he says, referring to an era roughly between the mid-1980s and late ’90s when oil was at that threshold or even below it.

Gal-Luft“I don’t think that we should aim to bring the price of oil to any specific place, because sometimes the price will be high, and sometimes the price will be low,” he adds. “That’s what commodities do: They fluctuate. It’s true for oil, it’s true for cocoa, it’s true for soybeans.

“And I think the question is not, ‘How high is oil or how low it is.’ The question is, ‘Why is oil the only commodity in the transportation sector?’ … The issue should not be to look for a sweet spot for oil or a certain target price for it, but to talk about the lack of competition and the lack of choices and the need to diversify our sources of supply in the currently monopolized market.”

Luft is an expert on international energy issues. He’s co-director of the Institute for the Analysis of Global Security and senior adviser to the United States Energy Security Council, and he writes frequently about such issues.

His latest opinion piece, published this week on the Journal of Energy Security website, is titled “Don’t Get Used to Cheap Oil.” He expresses concern that the “growing exuberance” brought about by plunging oil prices could “diminish public appetite” for energy policies that would reduce the nation’s dependence on oil as a transportation fuel.

There are so many potential factors in oil’s sudden drop — 45 percent over the last six months — that it could easily rise again.

Luft writes:

Just like a combination of circumstances – a stronger dollar, increased supply from the U.S. and Libya, and tapering demand in the developed world – have brought to the recent price drop, a different set of drivers can lead to the exact opposite outcome. A cut in OPEC production, trouble in one or more major oil exporting countries, or a slowdown in North American production due to lower prices could reverse the recent trend, sending oil prices back to the three digit level. Predicting future prices is a loser’s game but even optimists would concur that any one of these three scenarios has a good chance of materializing in the foreseeable future.

To protect ourselves against wild price swings, consumers need alternatives to gasoline as a transportation fuel.

This way, if oil returns to unfriendly territory consumers will be able to shift to cheaper fuels and hence drag the price back to equilibrium. … The abundance of choice enabling vehicles would give rise to choice in fuels and this would be the only possible insurance policy Washington can provide the American people for the next time the oil market flips.

Fuel Freedom Staff

Gal Luft: Key to energy security is fuel competition

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Gal Luft, an advisor for the U.S. Energy Security Council, and a member of Fuel Freedom’s board, explains a great deal about energy security in this interview with China Dialogue.

Energy security requires two things, essentially: availability and affordability.

In order for energy to be affordable, there must be competition, so that one form of energy — say, power generated by oil — doesn’t have a monopoly. Here’s an excerpt:

The key for energy security is to have fuels that can compete against each other. In 2008, for the first time in Brazil, less gasoline was sold than ethanol (many cars used in Brazil are multi fuel efficient). The economy is then much more resilient. With competition over price, the pricing will then eventually reach equilibrium. There are many other options to create competition for the running of transportation, such as electric vehicles, bio fuels, CNG. Both China and the US are able to reduce their reliance on oil. China is the largest producer of methanol, while the US is the largest producer of ethanol – this would however, require flexible fuel vehicles.

 

Arctic Leaf

Outnumbered 100-to-1, Methanol Is Upbeat

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“Why is it that we hear every day some new story about Elon Musk’s electric car, about Clean Energy Fuel’s efforts to build a CNG highway, or about some laboratory breakthrough that is at last going to bring us cellulosic ethanol, yet with methanol now cheaper than gasoline, you still never hear anything about it?”

That’s the question I posed to the three-member panel while serving as moderator for the wrap-up session at the 2014 Methanol Policy Forum in Washington last week.  The sponsors were the Methanol Institute, the Institute for the Analysis of Global Security (IAGS) and the Energy Security Council.

Anne Korin, co-director of IAGS, who earlier had moderated an even bigger panel that included former U.S. Senator J. Bennett Johnston, former National Security Advisor Robert McFarlane and former Ambassador to the European Union Boyden Gray, had a very unusual answer.  “If I may be permitted to be a bit cynical here,” she said, “I think the reason may be because methanol doesn’t require any subsidies.”  The implication, of course, is that those who come to Washington begging for money receive a lot more attention from Senators and Congressmen than those who don’t.

The question of politics versus economics had been raised at the outset of the daylong conference by Korin’s co-director at IAGS, Gal Luft, in his opening remarks.  “We’ve all heard this business about the circular firing squad and how the various alternatives to foreign oil shouldn’t be fighting each other,” he told the audience of about 400.  “But you have to acknowledge the importance of what goes on in Washington.  You can’t just talk about production ― you need money.  If you’re not at the table, that means you’re probably on the menu.

Luft showed a chart illustrating that while corn ethanol production exceeds methanol production by a factor of only 5-to-1 (14 billion gallons/year as compared with 2 bg/yr), the amount of money spent lobbying for ethanol is 50-to-1 (less than $100,000 vs. $5 million).  “When you add in the politics of the farm belt, it’s probably closer to 100-to-1,” he added.

So was anyone discouraged?  Not at all.  The news from industry executives is that methanol production is ramping up everywhere due to the bonanza of the fracking revolution.  It seems like only a matter of time before the idea of replacing large portions of our fuel imports with domestically produced methanol begins to command attention.

“In the past decade we closed down five methanol plants in the U.S. and moved them all to China,” John Floren, CEO of Methenex told the gathering of 400 at the Capital Hilton.  “The price of gas had become just too high.  Now we’ve moved two plants back from Chile and are looking at a third relocation.  We’ve got 1000 people working on our Louisiana site.  The chemical industry is starting to build as well.”

Tim Vail, the CEO of G2X, another methanol producer, had a similar take.  “The U.S. is a great place to invest right now,” he told the audience.  “The argument was always that you had to go to the ends of the earth to build methanol plants because that gas wasn’t available here.  Now all that has changed.  Our big worry is labor shortages but the construction industry is responding to our needs.  It takes away a lot of anxiety about having your assets appropriated by other countries.  China may seem like a good place to invest, but can you really trust the rule of law?”

Philip Lewis, chief technology officer of Zero Emission Energy Plants (ZEEP) was equally upbeat.  “I think the whole shale thing is being underestimated,” he said at the close of the morning session.  “It’s another industrial revolution.  And it won’t happen anywhere else because we have the thing that makes it work – private ownership of the resource.  In France, the government owns all the mineral rights and no one wants drilling on their land.”

But governments do have control over other things in this country and there was some questioning of whether federal agencies will be receptive to methanol as a fuel substitute or additive.  Matt Brusstar, deputy director of the EPA’s National Vehicle and Fuel Emissions Laboratory, claimed that his agency had been in the lead of methanol development for 30 years.  “Charlie Grady, who was in our department, was a big supporter of methanol,” said Brusstar.  “He even wrote a book about it.”  (Unfortunately, a Google search for Charlie Grady and methanol turns up no mention of Grady or his book.)  Patrick Davis, the director of the Fuel Cell Technologies Office in the Department of Energy, was even less encouraging.  “The Office of Science does not currently have any projects to create methanol as an end fuel,” he said.  “It could take a decade to sell enough methanol-compatible vehicles before a widespread distribution network would be feasible.”

When I queried Brusstar about Robert Zubrin’s documentation of the multi-thousand-dollar fines that the EPA is imposing for unauthorized conversions of engines to methanol, [See “Making the Case for Mars and Methanol,” Feb. 11] several government officials, plus Fuel Freedom Foundation director of research Mike Jackson, argued that faulty conversions can increase air pollution.

Despite the notable lack of enthusiasm from government agencies, however, there was a strong sense among the rank-and-file that methanol may be about to find a place in the sun.  “This is a much bigger crowd than we’ve ever had,” said one veteran of previous conferences.  “It’s a very exciting time for methanol.”