Share your story of gas-price outrage

In the 1976 movie “Network,” the news anchor Howard Beale, sopping wet and on the edge, invited viewers to stick their heads out their windows and yell that they were mad as hell, and they weren’t going to take it anymore.

To listen to our audience, all Fuel Freedom has to do is poke our heads into the modern window to the world, Facebook, and hear people venting about what they’re mad about. Lately, that’s the price of gas.

When we posted yet another rising-gas-prices story to our Facebook page last week, we asked our followers to tell us what gas prices were where they lived. More than 70 people chimed in, from all over the country, to let us know. ($3.87 in Pasadena, really?) They also shared their unvarnished feelings about the impact that the recent price spike has had on their family budgets.

I followed up with one of the mad-as-hellers, Ann Kooi of Pahrump, Nevada. Her husband Larry drives 150 miles round-trip, east to North Las Vegas and back, for his job as a heavy-equipment mechanic. He has to fill up his Kia Soul every other day, bringing his total gasoline bill to almost what it was last year before prices plummeted, roughly $75 a week.

“When the price of gas goes up, it hurts us bad, big time,” said Ann, 59. “We rob Peter to pay Paul.”

She and Larry, 60, know it would be easier to move to Las Vegas, but they feel they’re priced out of the market. They had rented an apartment in the city for $500 a month, but Ann says their rent went up and they couldn’t afford to stay.

The price of gas in Nevada averaged $2.826 a gallon Tuesday, up from $2.219 a month earlier, according to Nationally, it was $2.453, compared with $2.060 a month earlier. It has to be said that prices were much higher one year ago: $3.45 in Nevada and $3.463 nationally.

But the average national price for E85 ethanol blend, we should point out, was just $1.96 on Tuesday, according to

It’s the volatility, the unexpected price shock, that makes it impossible to predict how much cash you’ll need to get to payday. And consumers everywhere are frustrated by the multiple factors, and lack of warning, that went into the latest spike.

“They find every excuse in the book to raise the prices. And they keep us in limbo, and we can’t get ahead, no matter how hard we try,” Ann said.

Tell us your story about what the rising price of gas has cost you, and tell us what you’re prepared to do about it.

If you want to be profiled in a “Share Our Story” post, send your contact info to [email protected]

Alternative and renewable fuels: There is life after cheap gas!

usatoday_gaspricesSome environmentalists believe that if you invest in and develop alternative replacement fuels (e.g., ethanol, methanol, natural gas, etc.) innovation and investment with respect to the development of fuel from renewables will diminish significantly. They believe it will take much longer to secure a sustainable environment for America.

Some of my best friends are environmentalists. Most times, I share their views. I clearly share their views about the negative impact of gasoline on the environment and GHG emissions.

I am proud of my environmental credentials and my best friends. But fair is fair — there is historical and current evidence that environmental critics are often using hyperbole and exaggeration inimical to the public interest. At this juncture in the nation’s history, the development of a comprehensive strategy linking increased use of alternative replacement fuels to the development and increased use of renewables is feasible and of critical importance to the quality of the environment, the incomes of the consumer, the economy of the nation, and reduced dependence on imported oil.

There you go again say the critics. Where’s the beef? And is it kosher?

Gasoline prices are at their lowest in years. Today’s prices convert gasoline — based on prices six months ago, a year ago, two years ago — into, in effect, what many call a new product. But is it akin to the results of a disruptive technology? Gas at $3 to near $5 a gallon is different, particularly for those who live at the margin in society. Yet, while there are anecdotes suggesting that low gas prices have muted incentives and desire for alternative fuels, the phenomena will likely be temporary. Evidence indicates that new ethanol producers (e.g., corn growers who have begun to blend their products or ethanol producers who sell directly to retailers) have entered the market, hoping to keep ethanol costs visibly below gasoline. Other blenders appear to be using a new concoction of gasoline — assumedly free of chemical supplements and cheaper than conventional gasoline — to lower the cost of ethanol blends like E85.

Perhaps as important, apparently many ethanol producers, blenders and suppliers view the decline in gas prices as temporary. Getting used to low prices at the gas pump, some surmise, will drive the popularity of alternative replacement fuels as soon as gasoline, as is likely, begins the return to higher prices. Smart investors (who have some staying power), using a version of Pascal’s religious bet, will consider sticking with replacement fuels and will push to open up local, gas-only markets. The odds seem reasonable.

Now amidst the falling price of gasoline, General Motors did something many experts would not have predicted recently. Despite gas being at under $2 in many areas of the nation and still continuing to decrease, GM, with a flourish, announced plans, according to EPIC (Energy Policy Information Agency), to “release its first mass-market battery electric vehicle. The Chevy Bolt…will have a reported 200 mile range and a purchase price that is over $10,000 below the current asking price of the Volt.It will be about $30,000 after federal EV tax incentives. Historically, although they were often startups, the recent behavior of General Motor concerning electric vehicles was reflected in the early pharmaceutical industry, in the medical device industry, and yes, even in the automobile industry etc.

GM’s Bolt is the company’s biggest bet on electric innovation to date. To get to the Bolt, GM researched Tesla and made a $240 million investment in one of its transmissions plan.

Maybe not as media visible as GM’s announcement, Blume Distillation LLC just doubled its Series B capitalization with a million-dollar capital infusion from a clean tech seed and venture capital fund. Tom Harvey, its vice president, indicated Blume’s Distillation system can be flexibly designed and sized to feedstock availability, anywhere from 250,000 gallons per year to 5 MMgy. According to Harvey, the system is focused on carbohydrate and sugar waste streams from bottling plants, food processors and organic streams from landfill operations, as well as purpose-grown crops.

The relatively rapid fall in gas prices does not mean the end of efforts to increase use of alternative replacement fuels or renewables. Price declines are not to be confused with disruptive technology. Despite perceptions, no real changes in product occurred. Gas is still basically gas. The change in prices relates to the increased production capacity generated by fracking, falling global and U.S. demand, the increasing value of the dollar, the desire of the Saudis to secure increased market share and the assumed unwillingness of U.S. producers to give up market share.

Investment and innovation will continue with respect to alcohol-based alternative replacement and renewable fuels. Increasing research in and development of both should be part of an energetic public and private sector’s response to the need for a new coordinated fuel strategy. Making them compete in a win-lose situation is unnecessary. Indeed, the recent expanded realization by environmentalists critical of alternative replacement fuels that the choices are not “either/or” but are “when/how much/by whom,” suggesting the creation of a broad coalition of environmental, business and public sector leaders concerned with improving the environment, America’s security and the economy. The new coalition would be buttressed by the fact that Americans, now getting used to low gas prices, will, when prices rise (as they will), look at cheaper alternative replacement fuels more favorably than in the past, and may provide increasing political support for an even playing field in the marketplace and within Congress. It would also be buttressed by the fact that increasing numbers of Americans understand that waiting for renewable fuels able to meet broad market appeal and an array of household incomes could be a long wait and could negatively affect national objectives concerning the health and well-being of all Americans. Even if renewable fuels significantly expand their market penetration, their impact will be marginal, in light of the numbers of older internal combustion cars now in existence. Let’s move beyond a win-lose “muddling through” set of inconsistent policies and behavior concerning alternative replacement fuels and renewables and develop an overall coordinated approach linking the two. Isaiah was not an environmentalist, a businessman nor an academic. But his admonition to us all to come and reason together stands tall today.

Hot Rod explains why race-car drivers love methanol

Methanol has been a preferred fuel for race-car drivers and teams for decades, for various reasons.

In the movie PUMP, racing teams explain that the lower cost, compared with gasoline, is a big selling point. The footage, which depicts the 91st running of the Race to the Clouds on Pikes Peak, in Colorado, in 2013, includes an interview with one mechanic who says his crew has been running on methanol for 19 years. “It’s just a much better fuel for racing,” he says.

We could go on about the safety of methanol — it burns cleaner than gasoline, is less flammable and burns “cooler” — but come on. What really gets the gearheads salivating is the pure power of methanol.

Methanol has less energy content than regular gasoline, so vehicles get about half the mpg out of the fuel. But it has a higher octane.

As the smart people at Hot Rod magazine explain, race-car engines are built to squeeze more power out of that less-energy-dense methanol, by adjusting the air-to-fuel ratio.

While it’s true that gasoline has a higher energy density (about 18,400 BTU/pound) than methanol (9,500 BTU/pound), if you can burn three times more methanol than gasoline per power stroke, you can make more power. An engine that flows 1,000 cfm of air (about 70 pounds worth) means that on gasoline, the engine will consume about 5.6 pounds of fuel based upon its 12.5:1 max power ratio, giving a total energy output of (5.6 pounds x 18,400 BTU) or 103,040 BTUs of energy. If we do the same calculation on methanol, we get 17.5 pounds of fuel burned, and (17.5 pounds x 9,500 BTU) or 166,250 BTUs of energy—that’s a 60 percent greater energy output.

These folks have forgotten more about engines than most people will ever know, so here’s some more knowledge: Methanol is the better fuel at conserving heat inside an engine. With gasoline, more of that heat is wasted.

Gasoline, when it undergoes a phase change can suck out about 150 BTUs of heat energy per pound of fuel, which results in a temperature drop. Methanol, on the other hand, takes 506 BTUs per pound of fuel of heat energy to make the phase change. When we look at our above example of an engine flowing 1,000 cfm of air, the 5.6 pounds of gasoline will take about 840 BTUs of energy, versus 8,855 BTUs for methanol—more than 10 times as much. This is what makes methanol such an effective fuel in forced-induction applications like turbocharging and supercharging, and it absorbs so much heat that an intercooler often isn’t even needed.

NYT columnist: Gas really isn’t all that cheap

It’s about time somebody pointed out that gas, while cheaper than it’s been in the past few years, isn’t all that cheap, really. If you look at history.

New York Times business columnist David Leonhardt did just that, pointing out that the national average for regular unleaded — $2.03 per gallon — is “still more expensive than nearly anytime in the 1990s, after adjusting for general inflation. Over a 17-year stretch from the start of 1986 to the end of 2002, the real price of gas averaged just $1.87.”

Leonhardt notes that the era of cheap gas coincides with the “great wage slowdown.”

One of the surest ways to end the great wage slowdown would be for the United States to make sure it’s entering a new era of cheap energy. “It’s the proverbial tax cut,” says Daniel Yergin, vice chairman of the research firm IHS and author of a Pulitzer Prize-winning history of oil. If energy costs remain at current levels, it would put $180 billion into Americans’ pockets this year, according to Moody’s Analytics, equal to 1.2 percent of income and a higher share for lower-income households.

That’s why taking virtually every step to push oil costs even lower — “drill, baby, drill,” as the phrase goes — would make a lot of sense, so long as oil use did not have harmful side effects.

Ah, but it does have side effects. Leonhardt adds:

It leads to carbon emissions, which are altering the world’s climate. Last year was probably the planet’s hottest since modern records began in 1880, and the 15 hottest have all occurred since 1998. Oceans are rising, species are at risk and some types of severe storms, including blizzards, seem to be more common.

More oil production, then, involves enormous trade-offs: a healthier economy, at least in the short term, but a less healthy planet, with all of the political, ecological, health and economic downsides that come with it.

Leonhardt writes that it’s possible, in part, to retain the benefits of increased oil output without the drawbacks. Hydraulic fracturing is less carbon intensive than conventional oil drilling, although fracking comes with other issues. “Clean energy” offers a good solution, he says, “if it could become even cheaper.”

“Natural Gas: The Fracking Fallacy” — a debate over the recent article in Nature

Nature ChartT’was the week before Christmas, a night during Chanukah and a couple of weeks before Kwanzaa, when, all through the nation, many readers more interested in America’s energy supply than in the fate of Sony’s “The Interview,” were stirring before their non-polluting fireplaces (I wish). They were trying to grasp and relish the unique rhetorical battle between The University of Texas (UT), the EIA and the recent December article in Nature, titled “Natural Gas: The Fracking Fallacy,” by Mason Inman.

Let me summarize the written charges and counter charges between a respected journal, university and government agency concerning the article. It was unusual, at times personal and often seemingly impolite.

Unusual, since a high-ranking federal official in the EIA responded directly to the article in Nature, a well-thought of journal with an important audience, but relatively minimal circulation. His response was, assumedly, based on a still-unfinished study by a group of UT scholars going through an academic peer review process. The response was not genteel; indeed, it was quite rough and tough.

Clearly, the stakes were high, both in terms of ego and substance. As described in Nature, the emerging study was very critical of EIA forecasts of natural gas reserves. Assumedly EIA officials were afraid the article, which they believed contained multiple errors and could sully the agency’s reputation. On the other hand, if it was correct, the UT authors would be converted into courageous, 21st century versions of Diogenes, searching for energy truths. The article would win something like The Pulitzer, EIA would be reprimanded by Congress and the UT folks would secure a raise and become big money consultants to a scared oil and gas industry.

Just what did the Nature article say? Succinctly: The EIA has screwed up. Its forecasts over-estimate America’s natural gas reserves by a significant amount. It granted too much weight to the impact of fracking and not enough precision to its analysis of shale play areas as well as provide in-depth resolution and examination of the sub areas in major shale plays. Further, in a coup de grace, the author of the Nature piece apparently, based on his read of the UT study, faults the EIA for “requiring” or generally placing more wells in non-sweet-spot areas, therefore calculating more wells than will be developed by producers in light of high costs and relatively low yields. Succinctly, the EIA is much too optimistic about natural gas production through 2040. UT, according to Nature, suggests that growth will rise slowly until early in the next decade and then begin to decline afterwards through at least 2030 and probably beyond.

Neither Wall Street nor producers have reacted in a major way to the Nature article and the still (apparently) incomplete UT analysis. No jumping out of windows! No pulling out hairs! Whatever contraction is now being considered by the industry results from consideration of natural gas prices, the value of the dollar, consumer demand, the slow growth of the economy and surpluses.

Several so-called experts have responded to the study in the Journal piece. Tad Patzek, head of the UT Austin department of petroleum and geosystems, engineers and “a member of the team,” according to the Journal, indicated that the results are “bad news.” The push to extract shale gas quickly and export, given UT’s numbers, suggests that “we are setting ourselves up for a major fiasco.” Economist and Professor Paul Stevens from Chatham House, an international think tank, opines “if it begins to look as if it’s going to end in tears in the U.S., that would certainly have an impact on the enthusiasm (for exports) in different parts of the word.”

Now, generally, a bit over the top, provocative article in a journal like Nature commending someone else’s work would have the author of the article and UT principal investigators jumping with joy. The UT researchers would have visions of more grants and, if relevant, tenure at the University. The author would ask for possible long-term or permanent employment at Nature or, gosh, maybe even the NY Times. Alas, not to happen! The UT investigators joined with the EIA in rather angry, institutional and personal responses to the Journal. Both the EIA and UT accused Nature of intentionally “misconstruing data and “inaccurate…distorted reporting.”

Clearly, from the non-scholarly language, both institutions and their very senior involved personnel didn’t like the article or accompanying editorial in Nature. EIA’s Deputy Administrator said that the battle of forecasts between the EIA and UT, pictured in the Journal, was imagined and took both EIA’s and UT’s initiatives out of context. He went on to indicate that both EIA’s and UT efforts are complementary, and faulted Nature for not realizing that EIA’s work reflected national projections and UT’s only four plays. Importantly, the Deputy suggested that beyond area size and method of counting productivity, lots of other factors like well spacing, drilling costs, prices and shared infrastructure effect production. They were not mentioned as context or variables in the article.

The principal investigators from UT indicated that positing a conflict between the EIA and themselves was just wrong. “The EIA result is, in fact, one possible outcome of our model,” they said. The Journal author “misleads readers by suggesting faults in the EIA results without providing discussion on the importance of input assumptions and output scenarios. “Further, the EIA results were not forecasts but reference case projections. The author used the Texas study, knowing it was not yet finished, both as to design and peer review. Adding assumed insult to injury, it quoted a person from UT, Professor Patzek, more times than any other. Yet, he was only involved minimally in the study and he, according to the EIA, has been and is a supporter of peak oil concepts, thus subject to intellectual conflict of interests.

Nature, after receiving the criticism from UT and EIA, stood its ground. It asserted that it combined data and commentary from the study with interviews of UT personal associated with the study. It asked for but only received one scenario on gas plays by EIA — the reference case. It was not the sinner but the sinned against.

Wow! The public dialogue between UT, the EIA and Nature related to the article was intense and, as noted earlier, unusual in the rarefied academically and politically correct atmosphere of a university, a federal agency and a “scientific” journal. But, to the participants’ credit, their willingness to tough it out served to highlight the difficulty in making forecasts of shale gas reserves, in light of the multitude of land use, geotechnical, economic, environmental, community and market variables involved. While it is not necessary or easy to choose winners or losers in the dialogue, because of its “mince no words” character, it, hopefully, will permit the country, as a whole, to ultimately win and develop a methodology to estimate reserves in a strategic manner. This would be in the public interest as the nation and its private sector considers expanding the use of natural gas in transportation, converting remaining coal-fired utilities to environmentally more friendly gas-powered ones and relaxing rules regulating natural gas exports. We remain relying on guesstimates concerning both supply and demand projections. Not a good place to be in when the stakes are relatively high with respect to the health and well-being of the nation.

On a personal note, the author of the article in Nature blamed, in part, the EIA’s inadequate budget for what he suggested were the inadequacies of the EIA’s analysis. Surprise, given what the media has often reported as the budget imperialism of senior federal officials, the Deputy Administrator of EIA, in effect, said hell no, we had and have the funds needed to produce a solid set of analyses and numbers, and we did. Whether we agree with his judgments or not, I found his stance on his budget refreshing and counterintuitive.

Four new anticipated novels about the decline of oil and gas prices

Harlequin novel cover“We are drowning in information but starved for knowledge,” said John Naisbitt, American author and public speaker. Because of this fact, intuition and instinct, rather than rational thinking, often guides leadership behavior. Guess right, based on what your intuitive self or instinct tells you concerning your iterative policy decisions — particularly the big ones — and the payoff for you and the nation may well be significant. Guess wrong, and the nation could be hurt in various ways and you might not be around for a long time, or get buried in an office close to a windowless washroom. Charles Lindblom, noted political scientist, probably said it correctly when he noted that in complex environments we often make policy by “muddling through.”

Confusion reigns and analyses are opaque and subject to quick amendment concerning the current, relatively rapid decline in oil and gasoline prices. Indeed, key government institutions such as the EIA (Energy Information Administration) and the IEA (International Energy Agency) appear to change their predictions of prices of both, almost on a daily basis. Oil and gas production, as well as price evaluations and predictions resulting from today’s imprecise methodologies and our inability to track cause-and-effect relationships, convert into intriguing fodder for novels. They do not often lend themselves to strategic policy direction on the part of both public and private sector. Sometimes, they do seem like the stuff of future novels, part fiction, and, perhaps, part facts.

Ah … the best potential novels on the decline of oil and gas, particularly ones based on foreign intrigue, will likely provide wonderful bedtime reading, even without the imputed sex and content of the old Harlequin book covers and story lines. Sometimes their plots will differ, allowing many hours of inspirational reading.

Here are some proposed titles and briefs on the general theme lines for four future novels:

An Unholy Alliance: The Saudis and Qatar have joined together in a new alliance of the willing, after secret conversations (likely in a room under a sand dune with air conditioning built by Halliburton, in an excavated shale play in the U.S., a secret U.S. spaceship, or Prince Bandar’s new jet). They have agreed to resist pressure from their colleagues in OPEC and keep both oil production and prices low. By doing so, they and their OPEC friends would negatively affect the Russian and Iranian economy and limit ISIS’s ability to convert oil into dollars. Why not? The Russians and the Shiite-dominated Iranians have supported Syria’s Assad and threated the stability of Iraq. Qatar and the Saudis support the moderate Syrian rebels (if we can find them) but not ISIS, and are afraid that Iran wants to develop hegemony over Iraq and the region, if they end up with the bomb. Further, ISIS, even though it’s against Assad, is not composed of the good kind of Sunnis, and has learned a bit from the Saudis about evil doings. If ISIS succeeds in enlarging the caliphate, it will threaten their kingdoms and the Middle East. According to a mole in the conversations, Russia was really thrown into the mix because, sometimes, it doesn’t hurt to show that you might be helping the West while paying attention to market share.

OPEC in Fantasy Land: Most OPEC members see U.S. oil under their bed at night and have recurring nightmares. “Why,” they asked, “can’t we go back to the future; the good old days when OPEC controlled or significantly influenced oil production and prices in the world?” Several members argued for a counter intuitive agreement.

Let’s surprise the world and go against our historical behavior. Let’s keep prices low, even drive them lower. It will be tough on some of us, whose budgets and economy depend on high oil prices per barrel, but perhaps our “partner” nations who have significant cash reserves, like my brothers (the hero of this novel started to say sisters, but just couldn’t do it) in the Kingdom, can help out.

Driving prices lower, agreed the Saudis, will increase our collective market share (really referring to Saudi Arabia), and may permanently mute any significant competition from countries such as Russia, Mexico, Iraq, Venezuela, and others. But, most importantly, it will probably undercut U.S. producers and lead to a cutback in U.S. production. After all, U.S. production costs are generally higher than ours. Although some delegates questioned comparative production cost numbers and the assumption that the U.S. and its consumer-driven politics will fold, the passion of the Saudis will win the day. OPEC will decide to continue at present production levels and become the Johnny Manziels of oil. Money, money, money? Conspiracy, conspiracy, conspiracy!

Blame it on the Big Guys: The U.S. will not escape from being labeled as the prime culprit in some upcoming novels on oil. The intuitive judgments will go something like this: Don’t believe what you hear! U.S. producers, particularly the big guys, while worried about the fall in oil and gas prices, on balance, believe both will have intermediate and long-term benefits. They have had it their way for a long time and intuitively see a rainbow around every tax subsidy corner.

Why? Are they mad? No? Their gut, again, tells them that what goes down must come up, and they are betting for a slow upward trend next on the following year. Meanwhile, technology has constrained drilling costs. Most feel they can weather the reduced prices per barrel and per gallon. But unlike the Saudis and other OPEC members, they are not under the literal gun to meet national budget estimates concerning revenue. Like the Saudis, however, with export flexibility in sight from Congress, many producers see future market share as a major benefit.

Split Dr. Jekyll and Mr. Hyde personalities exist among the U.S. producers. Jekyll, reflecting the dominant, intuitive feeling, supports low prices. The Saudis and OPEC can be beaten at their own game. We have more staying power and can, once and for all time, reduce the historic power of both concerning oil. While we are at it, big oil can help the government put economic and political pressure on Russia, Iran and ISIS, simultaneously. Wow, we may be able to get a grant, change our image, a Medal of Freedom and be included in sermons on weekends!

Hyde, who rarely shows up at the oil company table until duty calls, now joins the group. He offers what he believes is sage, intuitive advice. He is the oldest among the group and plays the “you’re too young to know card” a bit, much to the chagrin of his younger colleagues. He expresses some rosy instincts about the oil market but acknowledges the likelihood that the future is uncertain and, no matter what, price cycles will continue. He acknowledges that there might be a temporary reduction of the political pressure to open up the fuel markets and to develop alternative fuels because of present relatively low prices. However, based on talking to his muses — both liberals and free market conservatives — and reading the New York Times, he suggests that it might not be a bad idea to explore joining with the alternative fuel folks. Indeed, Hyde indicates that he favors adding alternative fuel production to the production menu of many oil companies. If this occurred, oil companies could hedge bets against future price gyrations and maybe even win back some public support in the process. The industry also might be able to articulate their overblown claim that the “drill, baby, drill” mantra will make the U.S. oil independent. (At this point, the background music in the room becomes quite romantic, and angelic figures appear!) Hyde doubt that going after global market share would bring significant or major early rewards because of current regulations concerning exports and may interfere with the health of the industry in the future as well as get in the way of the country’s still-evolving foreign policy objectives.

Tough sell, however! Contrary to Hyde’s desires, Jekyll carries the day and “kill the bastards” (assumedly the Saudis) becomes the marching orders or mantra. Let’s go get ‘em. Market share belongs to America. Let’s go see our favorite congressperson. We helped him or her get elected; now is the time for him or her to help us eliminate export barriers. A U.S. flag emerges in the future novel. Everyone stands. The oil groupies are in tears. Everybody is emotional. Even Hyde breaks down and, unabashedly, cries.

David and Goliath: Israel has also become a lead or almost lead character in many potential novels on oil. According to its story line, because of Israel’s need for certainty concerning U.S. defense commitments, it has convinced the “best in the west” to avoid a significant reduction in drilling for and the production of oil. Israel advises the U.S. to extend its security-related oil reserves! Glut and surplus are undefined terms. Compete with the Saudis. Drive the price of oil lower and weaken your and our enemies, particularly Iran and Russia. The U.S. should play a new and more intense oil market role. For some, an alliance among U.S.-Israel and other western nations to keep oil and gas prices low is not unimaginable and, indeed, seems quite possible. What better way to anesthetize Iran and Russia? Better than war! An Iran and a Russia unable to unload their oil at what it believes are prices sufficient to support their national budgets would be weakened nations, unable to sustain themselves and meet assumed dual objectives: defense and butter. Finally, what more “peaceful” way to deal with Hezbollah and Hamas, to some extent, than to cut off Iran’s ability to lend them support?

Each of the future novels summarized above clearly suggests some reality driven by what we know. But overall, each one has a multitude of equally intuitive critics with different facts, hypotheses, intuition and instincts. As indicated earlier, it is too bad we cannot generate better more stable analyses and predictions. For now, however, just realize how complex it is to rest policy as well as behavior on, many times, faulty projections and intuition or instinct. Borrowing a quote by the noted comic and philosopher, George Carlin, “tell people there’s an invisible man in the sky who created the universe, and the vast majority will believe you. Tell them the paint is wet, and they have to touch it to be sure.” Similarly, restating but changing and adding words, a quote from the Leonard Bernstein of science, Carl Sagan, that the nuclear arms race (if it does occurs in the Middle East) will be like many “sworn enemies waist-deep in gasoline,” the majority with many matches and one or two with only a few matches.

Novels and Alternative Fuels:

Where does this all leave us with respect to alternative fuels and open fuel markets? Too many producers and their think tank friends believe that low oil and gas prices will reduce the likelihood that alternative fuels will become a real challenge to them in the near future. They, instinctively, opine that investors, without patient money, will not risk funding the development of alternative fuels because prices of oil and gas are so low. Further, their “house” economists argue that consumers will be less prone to switch from gasoline to alternative replacement fuels in light of small or non-existent price differentials between the two.

The truth is that we just don’t know yet how the market for alternative fuels and its potential investors will respond in the short term to the oil and gas price crash. Similarly, we don’t know how long relatively low prices at the pump will last. We do know that necessity has been and, indeed, is now the mother (or father) of some very important U.S. innovations and investor cash. In this context, it is conceivable that some among the oil industry may well add alternative fuels to their portfolio to mute boom, almost boom and almost bust or bust periods that have affected the industry from time immemorial. Put another way, protecting the bottom line and sustaining predictable growth may well, in the future, mean investing in alternative fuels.

Low gas prices presently will likely be followed by higher prices. This is not a projection. History tells us this: importantly, lower gas prices now may well build a passionate coalition of consumers ready to, figuratively, march, if gas prices begin to significantly trend upward. The extra money available to consumers because “filling ‘er up” costs much less now, could well become part of household, political DNA. Keeping fuel prices in line for most consumers, long term, will require competition from alternative fuels — electricity, natural gas, natural gas-based ethanol, methanol, bio fuels, etc. Finally, while our better community-based selves may be dulled now by lower gas prices, most Americans will probably accept a better fuel mousetrap than gasoline because of their commitment to the long-term health and welfare of the nation. But the costs must be competitive with gasoline, and the benefits must be real concerning GHG reduction, an enhanced environment and less oil imports. My intuition and instincts (combined with numerous studies) tell me they will be! Happy Holidays!

By health check or economic necessity: A tale of two oil industries and their response to illness

By John Hofmeister and Marshall Kaplan

shutterstock_118647259A bad cold starts with a tickle in the throat and a languid day. It grows to painful swallows, stuffed sinuses and likely a fever. Does the patient treat the symptoms? Does he or she transform to avoid illness in the future?

Few oil company players will admit to it yet, but the future threatens a very bad cold for the current industry, or worse. Very few feel it coming because current business plans are robust and the workload is on overload. When they are recognized, the threats to the current business model are going to take more than treating the symptoms; there are transformative requirements to avoid getting permanently sick, including, for many, a difficult transition to alternative fuels. The industry’s investors are not likely to remain committed to oil. Neither are the politicians, the Wall Street analysts and the public who, for different reasons, some economic and some with concerns for the environment, are already shaky with respect to the future of oil. Unenthused investors actions, however, will speak much louder than concerned words.

Everyone agrees that conventional oil has peaked. Unconventional oil may be abundant, but it’s expensive. It’s so expensive that industry valuation is already being impacted by worried investors who don’t like companies borrowing cash to pay dividends. Shale formation decline rates demand evermore drilling. Drilling costs increase as more wells per amount of production are completed, raising per barrel costs. Sweet spots are finite as the majors have learned the hard way. They bought into many plays too late. The Middle East is, well, the Middle East. Don’t look for reduced tension in the near future. Do look for OPEC nations to increasingly shift oil for export into oil for local consumption — a residual of the Arab Spring. Business as usual is history. Brazilian, East African, Russian and Arctic production opportunities abound, except that the degrees of difficulty are unclear and uncertain, but are sure to be costly. The high costs and regulatory uncertainties of oil limit global growth and nourish alternative fuel prospects. Oil investors don’t like sore throats emerging from hard to swallow realities. They will want to create a new reality to protect their financial wellbeing.

The costs of carbon have yet to be added onto oil and we know they’re coming. There’s debate over the form of payment, not the reality. Take a look not only at the number of governments backing carbon constraints coming out of this year’s climate meeting at the UN, but, more importantly, count the companies! Count the crowd recently claiming the high ground from Central Park to Midtown in New York and other cities around the world. The oil industry’s low favorability gives it limited public influence. While special-interest money may run out the clock on near-term legislation in the next Congress, for the industry, it not a long term solution. Civil society and political trends are inevitably contrary to the industry’s status quo interests. The rhetoric alone will tax the bronchial capacity of oil and gas leaders; investors will cease shaking hands with infected stocks.

Cash is to oil what gasoline is to the internal combustion engine. Higher upstream costs and more expensive fuels reduce consumer demand and, inevitably, cash flow. Downstream cash can’t make up the difference for higher upstream capital (cash) outlays when consumers drive less or take advantage of increasing availability of lower-cost alternative fuels, despite the BTU and/or mileage disadvantages of alcohol fuels versus oil products.

Finally, when divestment trends start to impact the industry, perhaps initially not directly through actual shifting of resources, but because of the growing perceptions of the risk of stranded assets, opportunity costing equations will begin to hit hard. The value associated with increasing capital costs for oil development will be muted. With ever higher costs, more difficult unconventional production, more challenging resource basins and tighter regulatory scrutiny, along with environmental constraints, existing assets may never get produced. The probable reserve that never makes it to proven becomes ever less valuable with time, perhaps even worthless. Investors don’t like that. Oil price to support such production is unsustainable; the price rises until it crashes; production cannot recover from the collapse because sustainable alternative fuels will have taken increasing market share. To remain competitive, oil may not be able to climb above the $55 – 75 range. This prospect will cause full blown pneumonia for oil companies. Most still do not see it coming. For OPEC countries who are under inconsistent pressures — first to increase exports for needed revenues at home to fund services for an often restive population; second, to reduce exports to provide energy and gasoline products to larger population numbers, it could present real challenges affecting political stability.

Some companies that sense it coming will not wait for the cold symptoms to lodge in their respiratory systems. They will get out in front with natural gas, using an entirely different cost/price structure to displace high cost oil by producing natural gas for fuels, including ethanol, methanol, CNG and LNG. They’ll also embrace biofuels as a sustainable and carbon-reducing alternative to oil products only. In both cases, their cash flows and capital outlays will fund reasonable and rational alternative investments in downstream and midstream infrastructure to produce, distribute and sell alternative fuels, extending their business models and capabilities rather than risking everything on their past model. They’ll choose investor and their own health and economic necessity as the basis of a new business model transforming the mobility industry with fuels competition.

A handful of smart companies will astutely come to grips with their industry’s endemic inability to change their historic focus on oil as their base business. They’ll see diversity as an opportunity to run the race with competitive fuels, and they’ll recognize that oil and gasoline will only be able to sustain their monopoly status at the pump for a relatively short period of time. They will trade one form of steel in the ground for another, bringing the competencies of size, scale and execution to an ever-growing, oil-displacing, alternative fuels industry. In the process, they will simultaneously reduce the size of the oil upstream capital, cash, environmental and stranded asset problems that alienated investors, and, at times, the public, particularly related to emissions and other pollutants.

With a proper health check, after scanning the industry’s economic and environmental horizons, they acknowledge the inevitability of the changing critical role of investors. Their own financial health and economic necessity will redefine the role of oil and change the competitive landscape.


John Hofmeister, Former President Shell Oil Company (retired), Founder and CEO Citizens for Affordable Energy, Author of Why We Hate the Oil Companies: Straight Talk from an Energy Insider (Palgrave Macmillan 2010)

Marshall Kaplan, Advisor Fuel Freedom and Merage Foundations, Senior Official in Kennedy and Carter Administrations, Author

Religion, structural changes in the oil Industry and the price of oil and gasoline

Oil barrelAmericans — in light of the decline in oil and gas prices — don’t take happy selfies just yet! Clearly, the recent movement of oil prices per barrel below $80 and the cost of gasoline at the pump below $3 a gallon lend cause for, at least strategically, repressed joy among particularly low-income consumers, many of whose budgets for holiday shopping have been expanded near 10 percent. Retail stores are expressing their commitment to the holiday by beginning Christmas sales pre-Thanksgiving. Sure, sales profits were involved in their decisions, once it appeared to them that lower gas prices were here to stay, at least for a while. But don’t be cynical; I am sure the spirit moved them to play carols as background music and to see if in-store decorations made it easier for shoppers to get by headlines of war, climate change and other negative stuff and into, well yes, a buying mood. If retail sales exceed last year’s and GNP is positively affected, it will provide testimony and reaffirm belief that God is on America and the free market’s side, or at least the side of shopping malls and maybe even downtowns. Religious conversions might be up this year…all because of lower costs of gasoline at the pump. The power of the pump!

But, holy Moses (I am ecumenical), we really haven’t been taken across the newly replenished figurative Red Sea yet. There are road signs suggesting we won’t get there, partly because of the historical and current behavior of the oil industry. Why do I say this?

If history is prologue, EIA’s recent projections related to the continued decline of oil and gasoline prices will undergo revisions relatively soon, maybe in 6 months to a year or so. I suspect they will reflect the agency’s long-held view that prices will escalate higher during this and the next decade. Tension in the Middle East, a Saudi/OPEC change of heart on keeping oil prices low, a healthier U.S. economy, continued demand from Asia (particularly China), slower U.S. oil shale well development as well as higher drilling costs and the relatively short productive life span of tight oil wells, and more rigorous state environmental as well as fracking policies, will likely generate a hike in oil and gasoline prices. Owners, who were recently motivated to buy gas-guzzling vehicles because of low gas prices, once again, may soon find it increasingly expensive to travel on highways built by earthlings.

Forget the alternative; that is, like Moses, going to the Promised Land on a highway created by a power greater than your friendly contractor and with access to cheap gas to boot. Moses was lucky he got through in time and his costs were marginal. He was probably pushed by favorable tides and friendly winds. The wonderful Godly thing! He and his colleagues secured low costs and quick trips through the parting waters.

Added to the by-now conventional litany concerning variables affecting the short- and long-term cost and price of gasoline and oil (described in the preceding paragraph), will likely be the possible structural changes that might take place in the oil industry. If they occur, it will lead to higher costs and prices. Indeed, some are already occurring. Halliburton, one of the sinners in Iraq concerning overpricing services and other borderline practices (motivated by the fear of lower gas prices), has succeeded in taking over Baker Hughes for near $35 billion. If approved by U.S. regulators, the combined company will control approximately 30 percent of the oil and gas services market. According to experts, the new entity could capture near 40 percent relatively quickly. Sounds like a perfect case for anti-trust folks or, if not, higher oil and gas costs for consumers.

Several experts believe that if low gas prices continue, oil companies will examine other profit-making, competition-limiting and price-raising activities, including further mergers and acquisitions. Some bright iconoclasts among them even suggest that companies may try to develop and produce alternative fuels.

Amen! Nirvana! Perhaps someday oil companies will push for an Open Fuels Law, conversion of cars to flex-fuel vehicles and competition at the pump…if they can make a buck or two. Maybe they will repent for past monopolistic practices. But don’t hold your breath! Opportunity costing for oil companies is complex and unlikely to quickly breed such public-interest related decisions. Happy Thanksgiving!

From Philosophy About Truth To The Wisdom Of EPA Models About Emissions

Rereading Alfred North Whitehead, one of my favorite philosophers, provides the context for the current debate over the wisdom of using the EPA’s amended transportation emissions model (Motor Vehicle Emission Simulator, or MOVES) for state-by-state analysis. He once indicated that, “There are no whole truths; all truths are half-truths. It is trying to treat them as whole truths that plays the devil.”

I am uncertain about Whitehead’s skepticism, if treated as an absolute. However, it does give pause when judging the use of an amended MOVES model, based mostly on advocacy research by the nonprofit group, the Coordinating Research Council (CRC). The CRC is funded by the oil industry, through the American Petroleum Institute (API), and auto manufacturers.

CRC was tasked by the EPA with amending MOVES and applying it to measure and determine the impact of vehicular emissions. The model and related CRC analysis was subject to comments in the Federal Register but the structure of the Register mutes easy dialogue over tough, but important, methodological disagreements among experts. Apparently, no refereed panel subjected the CRC’s process or product to critique before the EPA granted both its imperator and sent it out to the states for their use.

I am concerned that if the critics are correct, premature statewide use of the amended MOVES model will mistakenly impede development and use of alternative transitional fuels to replace gasoline, particularly ethanol, and negatively influence related federal, state and local policies and programs concerning the same. If this occurs, because of apparent mistakes in the model (and the data plugged into it), the road to significant use of renewable fuels in the future will be paved with higher costs for consumers, higher levels of pollutants and higher GHG emissions.

With some exceptions, the EPA has been a strong supporter of unbiased, nonpartisan research. Gina McCarthy, its present leader, is an outstanding administrator, like many of her predecessors, like Douglas Costle (I am proud to say that Doug worked with me on urban policy, way, way back in the sixties), Russell Train, Carol Browner, William Reilly, Christine Todd Whitman, Bill Ruckelshaus and Lee Thomas. No axes to grind; no ideological or client bias…only a commitment to help improve the environment for the American people. I feel comfortable that she will listen to the critics of MOVES.

The amended MOVES may well be the best thing since the invention of Swiss cheese. It could well help the nation, its states and its citizens determine the truths or even half-truths (that acknowledge uncertainties) related to gasoline use and alternative replacement fuels. But why the hurry in making it the gold standard for emission and pollutant analysis at the state or, indeed, the federal level, in light of some of the perceived methodological and participatory problems?

Some history! Relatively recently, the EPA correctly criticized CRC because of its uneven (at best) analytical approach to reviewing the effect of E15 on car engines. Paraphrasing the EPA’s conclusions, the published CRC study reflected a bad sample as well as too small a sample. Its findings, indicating that E15 had an almost uniform negative impact on internal combustion engines didn’t comport with facts.

The CRC’s study of E15 was, pure and simple, advocacy research. CRC reports generally reflect the views of its oil and auto industry funders and results can be predicted early on before their analytical efforts are completed. Some of its reports are better than others. But overall, it is not known for independent unbiased research.

The EPA’s desire for stakeholder involvement in up grading and use of MOVES to measure emissions is laudable. However it seems that the CRC was the primary stakeholder involved on a sustained basis in the effort. No representatives of the replacement fuel industry, no nonpartisan independent nonprofit think tanks, no government-sponsored research groups and no business or environmental advocacy groups were apparently included in the effort. Given the cast of characters (or the lack thereof) in the MOVES’ update, there’s little wonder that the CRC’s approach and subsequently the EPA’s efforts to encourage states to use the amended model have been and, I bet, will be heavily criticized in the months ahead.

Two major, well-respected national energy and environmental organizations, Energy Future Coalition (EFC) and Urban Air Initiative, have asked the EPA to immediately suspend the use of the MOVES with respect to ethanol blends. Both want the CRC/MOVES study and model to be peer reviewed by experts at Oak Ridge National Lab (ORNL), and the National Renewable Energy Lab (NREL). I would add the Argonne National Laboratory because of its role in administering GREET, The Greenhouse Gases, Regulated Emissions, and Energy Use in Transportation Model. Further, both implicitly argue that Congress should not use the CRC study and MOVES until the data and methodological issues are fixed. Indeed, before policy concerning the use of alternative replacement fuels is debated by the administration, Congress and the states both appear to want to be certain that MOVES is able to provide reasonably accurate estimates of emissions and market-related measurements, particularly with respect to ethanol and, as Whitehead would probably say, at least provide half-truths, or, as Dragnet’s Detective Jack Webb often said, “Just the facts, ma’am,” or at least just the half-truths, nothing but at least the half-truths.

What are the key issues upsetting the critics like the EFC and the Urban Air Initiative? Apart from the pedigree of the CRC and the de minimis roles granted other stakeholders than the oil industry, the CRC/MOVES model, reflects match blending instead of splash blending to develop ethanol/gasoline blends. Sounds like two different recipes with different products — and it is. Splash blending is used in most vehicles in the U.S. and generally is perceived as producing less pollution.

Let’s skip the precise formula. It’s complicated and more than you want to know. Just know that according to the letter sent to the EPA by the EFC and Urban Air Quality on Oct. 20th, the use of match blending requires higher boiling points for distillation, and these points, in turn are generally the worst polluting aromatic parts of gasoline. It noted that match blending, as prescribed by the MOVES, results in blaming ethanol for increased emissions rather than the base fuel. There is no regulatory, mechanical or health justification for adding high boiling point hydrocarbons to test fuels for purposes of measuring changes in vehicle tailpipe emissions, when ethanol is part of the fuel mixture. Independent investigations by automakers and other fuel experts confirm that the use of match blending in the study mistakenly attributed increased emission levels to ethanol rather than to the addition of aromatics and other high boiling hydrocarbons, thereby significantly distorting the model’s emission results. A peer-reviewed analysis, which will be published shortly, found that the degradation of emissions which can result is primarily due to the added hydrocarbons, but has often been incorrectly attributed to the ethanol.

The policy issues involved due to the methodological errors are significant. If states and other government entities, as well as fuel supply chain participants, use the model in its present form, they will mistakenly believe that ethanol’s emissions and pollutants are higher than reported in study after study over the past decade. The reported results will be just plain wrong. They will not even be half-truths, but zero truths. Distortions in decision making concerning the wisdom of alternative transitional replacement fuels, particularly ethanol, will occur and generate weaker ethanol markets and opportunities to build a strategic path to renewables. The EPA, rather than encourage use of the study and the model, should pull both back and suggest waiting until refereed review panels finish their work.