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By Robert Rapier on May 16, 2011 with 40 responses

Analysis Requested by Senate Democrats Highlights the Risks of Their Energy Proposals

This essay highlights the reason I loathe politics. Here I present a case in which politicians present a partial story and withhold key findings in order to push a specific agenda. But their trump card is that if things don’t go as planned they can assign blame elsewhere. The media is complicit because they have simply lapped up the claims uncritically without having a look at the original source material.

Before I get into that, I want to make one thing crystal clear. I want to see oil consumption in the U.S. drop significantly. But to the extent that we require oil, I would like to see that oil produced domestically. I have offered very specific proposals on how to achieve these goals here and here. So those who suggest that I am simply defending oil companies are way off the mark. These people are intellectually lazy (for example), and fail to see the distinction between a blanket defense of oil companies and arguments against politically driven agendas that will have ultimately undesirable consequences for U.S. energy policy. What I want to avoid is policies in place that discourage domestic production, do nothing to address overall consumption, and result in higher imports. These are the risks I see in the current Democratic proposals being floated, and as I show here once you get past their spin their own analysis warns of that risk.

Lies and No-Brainers

In order to combat the idea that they are going to raise your gas prices, Senate Democrats asked the Congressional Research Service to look into the elimination of specific tax deductions for oil companies. The results, unsurprisingly, are being used very selectively:

Senate Dems say ending Big Oil tax breaks will not affect fuel prices

The staff of the Joint Economic Committee, chaired by Sen. Bob Casey (D-Pa.), conducted the analysis.

“By taking this action, by eliminating the tax breaks, we can actually have substantial deficit reduction over the next 10 years, $21 billion in deficit reduction, if we do this,” Casey said during a conference call with reporters Friday morning.

“This report makes it very clear that any actions taken as a result of the reduction of subsidies to big oil companies is not going to in any way affect our investment decisions,” he added.

Let’s just say that Senator Casey is being very creative with the truth here. That is not what the report said at all. In fact, it said just the opposite, as I show below.

“I think Republicans are just trying to justify their opposition to ending these subsidies, they’re giving the same excuse,” said Sen. Charles Schumer (N.Y.), chairman of the Democratic Policy Committee and a member of the Finance panel. “The verdict is in on the argument that getting rid of these subsidies would raise prices at the pump.”

“Getting rid of these outrageous subsidies is a no-brainer,” Schumer added.

Yes, as Senator Schumer indicates, for someone with no brain — someone unable to dig a little deeper and think critically — it does seem quite obvious that their proposals should be adopted. But because I am not very trusting of politicians given their inclination to spin, I went to the actual CRS memorandum. So let’s cut through the spin and see what it actually said by examining bits that Senator Schumer and his colleagues are conveniently omitting from their grandstanding press releases.

Cliff Notes

If you don’t want to wade through this entire essay, here are the Cliff Notes of what this memo actually said:

1.     Taxes already make up the 2nd largest component of gasoline prices, well ahead of profit margins for oil companies.

2.     In the short-term, passing these proposals is unlikely to impact gasoline prices, but it certainly won’t lower them.

3.     In the longer term, the report warns of “lowering the return of marginal projects, and reducing over-all domestic exploration and development activity by U.S. firms” – especially if oil prices fall below $100.

4.     So if Democrats get their wish and bring oil prices down, we will see the most significant negative effects on the U.S. oil industry.

5.     The proposals selectively hit small producers the hardest, yet they are responsible for over half of the oil produced in the U.S.

6.     Natural gas projects will be the most severely impacted.

7.     If these proposals do reduce domestic production, that “does not necessarily imply that less oil would be available in the U.S. market.” Why? Because we can simply import more oil, continuing our policies going back to Nixon of increasing dependence on foreign oil. The impact on tax revenues and domestic jobs in this case? Those would naturally be exported.

8.     Of major significance to the politicians, if the consequences are negative, they can dodge blame by pointing out that the oil markets are complex, and you simply can’t blame them if these proposals ultimately result in higher imports and loss of U.S. jobs.

Dissecting the Memo in Detail

Below are excerpts from the memo, with commentary by me.

Who Bears the Burden? Not the Fat Cats in the Smoke-Filled Rooms

The economic theory of taxation takes the point of view that corporations do not have an independent capability to pay taxes, only people can pay taxes. The implication of this viewpoint is that corporate income tax payments will ultimately be shifted to shareholders, owners of the factors of production, or consumers. Using this framework, the question of whether the tax provisions identified in your request will affect gasoline prices is one of whether the nature of the tax provision is such that forward shifting of the burden of the tax to consumers is likely, or whether the tax burden will fall on the shareholders in the form of reduced profit.

So up front, the question is whether this is going to come out of the pocket of Joe the gasoline consumer, or Joe the guy who owns shares of ExxonMobil through his retirement plan. (A 2007 study showed that the ownership of “Big Oil” is 43% mutual funds and asset management companies, 27% institutional investors like pension funds, and 14% IRA and other retirement accounts).

Government Gougers

The price of gasoline is composed of four components. The largest component of the price is crude oil, 67%, followed by federal, state, and local excise and sales taxes on gasoline sales, 13%, refining expenses, 11%, and distribution and marketing expenses, 9%.

Important to note here is that governments already make up the second largest component of gasoline prices — well ahead of gasoline profit margins for oil companies. So if the oil companies are greedy gougers, what does that make the government? I guess it is fortunate for the governments that they don’t have to issue quarterly ‘earning statements’ on what they ‘earn’ from higher gasoline prices, because we would see them already earning more on gasoline than the oil companies, and yet demanding more.

The Impact of Removing Section 199

Because Section 199 provides an incentive for domestic production compared to foreign production, some have claimed that the result of repeal would be greater dependence on foreign sourced oil and natural gas. In the short-run it is unlikely that this would occur due to the nature of oil and natural gas production. Once a well is in the producing phase, production tends to be maximized, within the limits of sound oil field management techniques. With current oil prices at, or near, $100 per barrel in the United States, it is unlikely that firms will slow production, or close wells as the result of the loss of the Section 199 deduction.

So in the short-run, it is unlikely to shift dependence to foreign oil. What about the longer term? The reason they give for their “short-run” answer is that the investment decisions on producing wells were made long ago, and that at current oil prices the change won’t be large enough to impact production. So then what happens for future investment decisions? Oil companies of course don’t base their investment decisions on a long-term oil price of $100 per barrel. They are basing them on expectations of maybe $60-$70 per barrel. So then the question becomes, in the long-term, will the proposed changes impact domestic production and increase dependence on foreign oil and gas? The report leaves that question hanging, but I think the answer is pretty obvious. Marginal investment decisions will be pushed toward the “No” category.

Intangible Drilling Costs – No Impact on CURRENT Production or Prices

Repeal of the immediate expensing of intangible drilling costs provision and replacement with a form of cost amortization more consistent with depreciation methods common in other industries likely will have no effect on current U.S. oil production, and hence no effect on current gasoline prices.

The focus on “current gasoline prices” is interesting, because it lets them dodge the question about future prices and supplies. I would submit that if you raised ExxonMobil’s tax rate to 90% tomorrow, it wouldn’t affect current gasoline prices. But it wouldn’t be long before you would start to see a big impact. So whether a proposal impacts current gasoline prices is rather irrelevant. There are very few proposals that could impact upon today’s gasoline prices, outside of the government suddenly suspending sales tax on fuel (something I would definitely not support). What matters is the future, and a critical reading of this memo clearly hints at the possibility that future oil supplies will be impacted. For example…

The Future? That’s a Different Story (but we will worry about that when it gets here)

Wood MacKenzie, a consultancy, determined that the sum effect of eliminating the Section 199 deduction and the repeal of the expensing of intangible drilling expenses would have an effect on the rate of return to exploration, lowering the return of marginal projects, and reducing over-all domestic exploration and development activity by U.S. firms.

Now there is an interesting bit that you don’t see in the Democrats’ press releases. While the CRS notes that these conclusions are sensitive to oil and gas prices — and that high gas prices would mean that companies would invest anyway — once more this displays a real level of ignorance of how the oil and gas industry executes projects. If oil prices race to $200 a barrel, oil companies can’t run out and turn on the taps. Projects take many years to complete, and therefore oil companies use projections of future prices. Taxes that impact these projections will mean that some projects are not done, which will lower domestic supplies. End of story.

However, it is also true that if the oil company projections are too low, the projects that they did decide to drill would be far more profitable. That brings to mind some alternative ways of taxation that wouldn’t limit their current investment decisions, but could mean more government revenue when those investment decisions pay out. Of course that is actually sort of the system that is in place now. When their projections are low, oil companies make more money, and the government gets more in the form of income taxes. But if we collectively felt that the government isn’t getting their fair share, that could be structured differently without negatively impacting current investment decisions.

Punishing Cleaner Burning Natural Gas

Natural gas projects are more likely than oil projects to be affected by the tax changes because they are experiencing low market prices due to the volume of non-conventional gas production that has entered the market in the past several years.

So the memo suggests that because of high oil prices, current oil projects may be unaffected, but it’s a different story for current (and future) natural gas projects. This is what the politicians don’t seem to get when they start making their deficit reduction projections. They simply see that if they take $21 billion from the oil companies over the next decade, they will have $21 billion for deficit reduction. In fact, another outcome may be that they take $21 billion from domestic oil companies and it merely ends up in the hands of foreign oil companies. In that case the politicians lose that revenue because they don’t understand how their decisions impact the industry. In fact, the memo alludes to that, which I will get into below.

Increasing Taxes Will Spur Domestic Production?

The oil industry has benefited from the ability to deduct very broadly defined foreign income tax payments from their U.S. tax liability since the 1950s. If the definition of what constituted an actual income tax payment were tightened and foreign governments did not reduce their charges correspondingly, the industries’ domestic, as well as total income tax burden would likely increase. However, this provision again is a tax on profit, and in line with the economic theory of taxation, should have no effect on the firms output or pricing decisions, and therefore no effect on the price of gasoline. The incidence of the tax would appear to be on shareholders.

In that case, Joe the Pensioner.

The change in the dual capacity tax payer rules might make overseas investment that leads to foreign profits less attractive to the companies than investment in the United States. This could lead the firms to enhance domestic capital spending leading to increased domestic production and reduced oil dependency.

That is an interesting angle that I hadn’t thought about. But it is also an incentive for firms to simply relocate overseas, such that they aren’t subject to dual-taxation.

Percentage Depletion Allowance? Will Only Impact Smaller Producers

The percentage depletion allowance was repealed for the major oil companies by the Tax Reduction Act of 1975 (Pub.L. No. 94-12). Percentage depletion remains generally in effect only for the independent oil companies. As a result the percentage depletion allowance should no longer be a factor in investment, output and pricing decisions by the five major oil companies

So, this isn’t even a tax break for big oil, yet one they are still considering repealing. People may not realize it, but small producers already produce the majority of the oil in the U.S. While the EIA apparently no longer publishes it, up to 2006 they published the U.S. Crude Oil, Natural Gas, and Natural Gas Liquids Reserves Annual Report. In that report was an appendix called Operator Level Data, which a reader graciously sent me. I have hosted that appendix here. What that document shows was that as of 2006, the largest oil producer in the U.S. was BP, the 10 largest producers made up less than 50% of U.S. oil production (Table A4) — and that percentage had been in decline for several years.

So the proposal here would not impact big oil at all, but would impact the smaller producers that supply the majority of the country’s oil.

It is “Likely” that the following would yield “Only” a “Small” impact on gas prices and domestic production, “Unless” oil prices fall

Costs associated with the use of tertiary injectants are currently treated as deductible expenses. Expensing of these costs encourages their use and enhances oil production levels. For smaller, independent exploration and development firms the cost incentive could be important. However, the five major oil companies, to which repeal would apply, earned over $32 billion in net income in the first quarter of 2011. Repeal of the deduction for the industry is estimated by the Obama administration to yield only $6 million in revenue in 2012. Only a part of the $6 million revenue estimate would be paid by the five major oil companies. As a result, it is likely that repeal of the deduction, with a change to capitalization, or amortization, of these costs, would have only a small effect on oil production or pricing, especially in a market where oil returns over $100 per barrel. In periods of low oil prices the repeal of the deduction could have a larger effect. The effect on domestic gasoline prices is likely to be small.

Once again, here is an issue that is going to hit small producers that hardest, will generate a tiny amount of revenue next year, but risks reducing oil production in the longer term. Further, they admit there is likely to be some impact on gasoline prices, especially if oil prices fall, because that would make some marginal production uneconomical. The last line projecting a likely small impact on domestic gasoline prices is only in the very short term, and only if oil prices remain above $100 per barrel.

The magnitude of the revenue effects of these tax changes might be important in evaluating their effects on the oil industry. The five provisions, taken together, are expected to raise approximately $1.2 billion in 2012. For the calendar year 2010, the revenues of the five largest oil companies were approximately $1.5 trillion with additional revenues accruing to the non-majors. The net incomes, after tax, of these five companies totaled over $76 billion with additional earnings accruing to the non-majors. The total expected tax revenues are only 5% of the earnings of the five largest firms in the industry and a smaller percentage of the total industry.

But those are global earnings. They are looking at earnings that have absolutely nothing to do with the U.S., and coming up with a relatively small percentage. If you look at only U.S. earnings, it is going to be a lot larger percentage than 5%, and it is silly to think that won’t impact on investment, production, and ultimately pricing here. But the most astonishing part of the report attempts to address that concern:

If We Are Wrong, We Can Just Import More Oil and Shift Blame Elsewhere

Even if the changes in taxes did impact domestic, or overseas exploration and development activity, that does not necessarily imply that less oil would be available in the U.S. market. More might be imported, with little or no effect on gasoline prices.

Let that sink in for a moment. Yes, these policies might impact U.S. producers in a negative way. But no big deal, because we can just import more oil – sending even more money to the Middle East. Oh, and those jobs that are associated with that domestic oil production that was lost? The tax revenue associated with that lost production? Funny you asked. Those would be exported, along with the revenue the governments were counting on from enacting these changes.

The concluding paragraph is also remarkable:

Political unrest, expectations effects on financial markets, macroeconomic growth trends, the value of the dollar and a host other factors have contributed to fluctuations in the price of oil and gasoline. Any effect due to changes in the tax treatment of the oil industry would be hard to separate from the changes due to other factors, given the size of the relative magnitudes.

Translation: Even if these policy changes do negatively impact the domestic oil industry, reduce domestic supplies, increase our imports, and result in loss of jobs — have no fear. This is a complex issue, and you can easily dodge the blame by pointing at all of these other factors. So the Democratic proposals are really a win-win for them. Stir up more anger at the oil companies, and get your political opponents to oppose the legislation — so you can then paint them as friends of the evil oil industry. Or, pass the legislation, and you can avoid blame if things don’t work out as you think (and their own memo that I have dissected here clearly paints the risks that they won’t). The losers will be the American people as they watch jobs and money flow out of the country.

Conclusions

Here I have summarized Senator Schumer’s “no-brainer”, and the reason why Chuck should be kept as far away from energy policy decisions as possible. Decisions like this are one reason our dependence on foreign oil has increased from one presidential administration after another since the 1970′s.

With all of the political double-speak and grandstanding around issues like this, is it any wonder why we don’t have a consistent, coherent energy policy in this country?

  1. By Rufus on May 16, 2011 at 7:35 am

    My take on this whole thing is that it is a “tit-for-tat” response to Inhofe, and the anti-ethanol brigade’s continued assault on biofuels.

    Grassley “foreshadowed” this a couple of months ago, when, in response to Inhofe, he said, “maybe they want us to start looking at the oil companies’ subsidies?”

    It’s all for “show,” anyway. There’s no chance of getting the “anti-oil” bill through the House of Representatives, and ditto for the anti-biofuels bill through Obama, and the Senate.

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  2. By Douglas Hvistendahl on May 16, 2011 at 7:51 am

    Way back when, we hired people, called state legislatures, to select and oversee the federal senators. Direct election of senators reduces the average ability level, because spin becomes more important when the states don’t oversee them.

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  3. By Walt on May 16, 2011 at 7:54 am

    Robert Rapier said:

    Dissecting the Memo in Detail

    Below are excerpts from the memo, with commentary by me.

    Government Gougers
     

    The price of gasoline is composed of four components. The largest component of the price is crude oil, 67%, followed by federal, state, and local excise and sales taxes on gasoline sales, 13%, refining expenses, 11%, and distribution and marketing expenses, 9%.

    Important to note here is that governments already make up the second largest component of gasoline prices — well ahead of gasoline profit margins for oil companies. So if the oil companies are greedy gougers, what does that make the government? I guess it is fortunate for the governments that they don’t have to issue quarterly ‘earning statements’ on what they ‘earn’ from higher gasoline prices, because we would see them already earning more on gasoline than the oil companies, and yet demanding more.


     

    This is the main point for people to consider.  The government is filled with hypocrites.  I just have no earthly idea how they sleep at night and look at people with a straight face.  They are numb to the lies they say so often it makes me want to scream “foul ball” on every swing they take…even if they don’t hit the ball whatsoever.  To have them sit back and take more and more money, complaining that they need more money to keep the government running, and need to raise taxes to cover all the entitlement programs is getting so old…but the average American falls over themselves looking for a handshake every time these people enter a public room.

     

    When are people going to start to recognize our politicians just LOVE LOVE LOVE to spend money.  They love to spend it and they love to take it, and the way they do it is to bad mouth everyone who makes it that is not going to just hand it over to them.  Raise taxes more and more and more to insure they will “save” the government from failure is the old argument time and time again.

     

    I say shut the government down, and rebuild it without politicians who have been in office longer than 6 months! :)

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  4. By Walt on May 16, 2011 at 7:58 am

     

    I would love to know why Rentech chose Canada rather than America…as it seems we could use alternative synthetic jet fuel.

     

    ———————————————

    Mayor Angelo Bazzoni of White River commented, “I am very pleased to
    bring Rentech’s new technology to the Superior East Region of Northern
    Ontario. More specifically, I am excited to welcome Rentech to White
    River, Ontario, and Canada. This project will put the region’s wood
    fibre to work. This will create much needed employment and be an
    excellent opportunity for our Community and First Nation neighbours and
    Rentech. Our commitment is to continue to work with our provincial and
    federal governments and Rentech to introduce this technology to White
    River and the province to produce renewable jet fuel.”

    Renewable RenJet and naphtha to be produced at the Olympiad Project are
    estimated to reduce approximately 600,000 metric tonnes per year of
    CO2-equivalent from the atmosphere compared to the same products
    produced from petroleum. This equates to removing more than 100,000
    passenger cars from the road. Production of RenJet from forest waste and
    unmerchantable species at the Olympiad Project has the dual benefit of
    reducing greenhouse gas emissions and providing Canada with a domestic
    supply of certified low-carbon jet fuel.

    RenJet is virtually free of sulfur and aromatics. When compared to
    traditional jet fuel, tailpipe emissions from RenJet generate lower
    amounts of particulate matter, nitrogen oxides (NOX), and sulfur oxides
    (SOX). Life-cycle emissions of carbon dioxide are significantly below
    those of petroleum-based jet fuel. The lower density of RenJet fuel
    could enable aircraft to have a lower take-off weight, which conserves
    fuel and lowers operating costs.

    Rentech operates a demonstration facility in Commerce City, Colorado,
    deploying its synthetic fuels technology that has produced over 150,000
    litres (40,000 gallons) of certified synthetic fuels. In 2010, a
    commercial flight flew on a blend of Rentech’s synthetic jet fuel and
    conventional Jet-A with no difference in performance when compared to
    conventional jet fuel.

    Read more: http://www.globalenergywatch.c…..z1MW2jrXSM
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  5. By Ben Discoe on May 16, 2011 at 12:29 pm

    Robert,
    I turn to your blog as a voice of reason, and nearly always agree on both the objective and subjective view of the situation. In this case, I’m delighted to see you dissect the political stance vs. reality, and agree completely on your assessment.
    However, the opinion you stated today:

    But to the extent that we require oil, I would like to see that oil produced domestically. [..] What I want to avoid is policies in place that discourage domestic production, do nothing to address overall consumption, and result in higher imports.

    This is the first time you have written something that makes me wonder “Why?” Sure, in the short term, reducing domestic production shifts some of the inevitable economic pain from the future (when our oil depletes) to the present. But this is only a time-shift. Looking at the larger picture, reducing domestic production today means the USA has more oil in the ground, down the road when things get nastier. It could raise oil/gas prices, which is arguably a good thing because it helps reduce demand and “right-size” the economy. It’s not nearly as a good an approach (economically, in the short term) as raising energy taxes (which we both support). But, couldn’t it in fact be even better than energy taxes at preserving the USA’s crucial fossil resources for a “long tail” on the down side of the curve?
    Of course, this is not the point that politicians are making, because preparing for the future flies against all the short-term human nature that gets them elected, but those of us are educated as to the larger picture, can see it, right?

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  6. By Benny BND Cole on May 16, 2011 at 12:39 pm

    Let’s see…can’t vote for the GOP…and can’t vote for the D-Party either.

    RR for President!

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  7. By Rufus on May 16, 2011 at 2:38 pm

    There is One strong argument to be made for drilling Alaska, now. That is, the TransAlaska Pipeline will be nearing MOL (minimum operating level) in just a couple of years. It would be very painful watching that turn into the world’s biggest chapstck.

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  8. By doggydogworld on May 16, 2011 at 2:41 pm

    The price of gasoline is composed of four
    components. The largest component of the price is crude oil, 67%,
    followed by federal, state, and local excise and sales taxes on gasoline
    sales, 13%, refining expenses, 11%, and distribution and marketing
    expenses, 9%.

     

    Important to note here is that governments already make up the second
    largest component of gasoline prices — well ahead of gasoline profit
    margins for oil companies. So if the oil companies are greedy gougers,
    what does that make the government?

     

    Here you engage in the type of political distortions you earlier decry. A meaningful chunk of that “price of crude oil – 67%” is oil company profits. Just do the math. ExxonMobil profits this year will exceed 40b. Industry-wide it’s around $150b. Fed/state/local gasoline sales and excise taxes come in at less than half that, about $65-70b.

     

     

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  9. By Addoeh on May 16, 2011 at 3:30 pm

    Here you engage in the type of political distortions you earlier decry. A meaningful chunk of that “price of crude oil – 67%” is oil company profits. Just do the math. ExxonMobil profits this year will exceed 40b. Industry-wide it’s around $150b. Fed/state/local gasoline sales and excise taxes come in at less than half that, about $65-70b.

    Most oil companies profits are worldwide, not just the United States. And, they make money not just in gasoline, but other things, like diesel, natural gas, airplane fuel, and chemicals. In fact, about 20% of Exxon’s profits are from it’s Chemical division. If you’re going to compare what the government takes in taxes on gasoline in the US, you’d need to compare it what profit Big Oil takes on gasoline sold in the US.

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  10. By rrapier on May 16, 2011 at 4:03 pm

    Ben Discoe said:

    But, couldn’t it in fact be even better than energy taxes at preserving the USA’s crucial fossil resources for a “long tail” on the down side of the curve?
     


     

    Wow, just had a very long reply to you wiped out when my computer blinked. How are you Ben? I was talking to some of the guys in the office about you a couple of weeks ago, wondering how your biochar work is going.

    The reason I make the argument is that even though oil is correcting right now, I believe the long-term trend is ever higher oil prices. But projects are becoming ever more costly to execute. So my fear is that we disadvantage our oil companies to the point that foreign competitors extract that oil, and this weakens the U.S. economy. We may end up in a situation where BP is the number 1 producer (as they were in that report I linked), but Saudi Aramco and Petrobras join them near the top.

    I would like to see us leave our oil in the ground because demand fell. But this was the basis for my comment “to the extent that we need it.” In other words, “if that oil has to be produced, I want to see U.S. companies produce it.”

    RR

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  11. By rrapier on May 16, 2011 at 4:10 pm

    doggydogworld said:

    Here you engage in the type of political distortions you earlier decry. A meaningful chunk of that “price of crude oil – 67%” is oil company profits. Just do the math. ExxonMobil profits this year will exceed 40b. Industry-wide it’s around $150b. Fed/state/local gasoline sales and excise taxes come in at less than half that, about $65-70b.


     

    DDW, you are doing the same thing you accuse me of. You needn’t be so suspicious of my motives, but nevertheless I will explain why I presented it that way. Mainly, it was because I knew those numbers. The report stated how much of the government “profit” from a gallon of gasoline came in the form of gasoline taxes. We have some pretty good ideas of the profit from a gallon of gasoline for oil companies. Hence, I was quite careful to caveat that article by putting “gasoline” in there several times.

    If you move on to profit from a barrel of oil, it gets much more complicated and would have involved a long digression. I don’t know what ExxonMobil earns off of oil, nor do I know what the U.S. government taxes from that are. But the factors that you now have to consider are income taxes, how much of that oil was produced in the U.S., and how much the government earned off the extraction of that oil. Much more complex analysis.

    What you posted above is an apples and oranges comparison, because you are comparing overall profits to only one form of taxation. But I wanted to point out the hypocrisy (as Walt noted above) that governments also profit handsomely off of oil, yet they vilify the oil companies for the same thing.

    RR

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  12. By rrapier on May 16, 2011 at 4:20 pm

    Just to add to the above response to DDW, this is what I was also referring to when I said it brings to mind some other forms of taxation that wouldn’t hinder investment decisions, but would let the government capture a higher percentage of revenue if high oil prices give the oil companies a windfall. Simply escalate the taxatation schedule as oil price climb. I have no idea what the real numbers are, but let’s say governments get 10% when oil is $50 a barrel, but 30% if oil is $200 a barrel. (Again, don’t know what those real percentages are; just saying the relative numbers would increase).

    RR

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  13. By armchair261 on May 16, 2011 at 4:33 pm

    let the government capture a higher percentage of revenue if high oil prices give the oil companies a windfall.

    This is of course already happening now in the form of royalty payments and bonus bids.

    but let’s say governments get 10% when oil is $50 a barrel, but 30% if oil is $200 a barrel.

    Would other commodity industries be subjected to this form of sliding scale taxation? And what about companies operating on the margin, drilling for that incremental oil at $200 that wouldn’t be economic at say $175? Seems like a fair enough idea, but it could have some unintended consequences.

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  14. By paul-n on May 17, 2011 at 2:24 am

    but let’s say governments get 10% when oil is $50 a barrel, but 30% if oil is $200 a barrel.

    But if the idea is to increase domestic production, and reduce imports, won’t this will have the reverse effect?

    Now change one word to make this a tariff on imports, and it will have a positive effect.

    I also agree with Rufus about pincushioning Alaska – if any more oil is going to be produced form there, it needs to be soon.

    Estimates range from 5 to 10yrs to get any ANWR oil into the pipeline, and the estimates for the shutdown of the pipeline are less than that, so no time to lose.  I think they need to let them explore in the ANWR just to settle the question, otherwise people will be arguing about it for decades.

     

     

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  15. By rrapier on May 17, 2011 at 3:03 am

    Paul N said:

    but let’s say governments get 10% when oil is $50 a barrel, but 30% if oil is $200 a barrel.

    But if the idea is to increase domestic production, and reduce imports, won’t this will have the reverse effect?


     

    Paul, the reason I don’t think this would have much impact is that oil companies don’t do projects based on $200 oil forecasts. So for them, $200 would be a huge, unexpected windfall. This should not hinder their investment decisions.

    RR

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  16. By paul-n on May 17, 2011 at 3:29 am

    Fair enough.  If oil does hit $200, there will be lots more going on than talking about the royalty %!

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  17. By armchair261 on May 17, 2011 at 1:43 pm

    oil companies don’t do projects based on $200 oil forecasts. So for them, $200 would be a huge, unexpected windfall. This should not hinder their investment decisions.

    This is true for large, long term projects. But if we do actually get to $200, then small companies (and primarily those operating onshore) WILL be making decisions based on shorter term high prices. There are very likely to be a lot of small companies drilling wells that would have breakeven prices of, for example, $175. The economics of the typical small operator, who deals in relatively low capital projects with relatively quick payouts on a well by well basis, are very different from those of a very large company considering a high volume deep water platform and 10 year payouts.

    A sliding scale tax would I think have to affect the decisions these little guys make on whether to commit to projects. So I think it would be a tax structure that is likely to hurt smaller operators more than the larger ones.

    [link]      
  18. By Rufus on May 17, 2011 at 4:13 pm

    It doesn’t look like we’re even going to get to One and a Quarter this time. We appear to be going into recession, now, as we type.

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  19. By mac on May 17, 2011 at 5:31 pm

    OT – Breaking news:

    Ethanol industry may soon lose subsidy

    by Jonas Dalidd (RSS feed) on May 17th, 2011 at 5:03PM

    A couple of days ago, U.S. Senators Dianne Feinstein of California and Tom Coburn of Oklahoma introduced the Ethanol Subsidy and Tariff Repeal Act. The bill, amendment #309 to a small business bill, will do away with the Volumetric Ethanol Excise Tax Credit (VEETC) and the tariff on imported ethanol if passed. According to Senator Feinstein:

    “Ethanol is the only industry that benefits from a triple crown of government intervention: its use is mandated by law, it is protected by tariffs, and companies are paid by the federal government to use it. Ethanol subsidies and tariffs sap our budget, they’re bad for the environment, and they increase our dependence on foreign oil. It’s time we end subsidies that we cannot afford and tariffs that increase gas prices.”

    “The VEETC is a subsidy that gives refiners $0.45 for every gallon of ethanol blended with gasoline, adding up to about six billion in taxpayer dollars every year. $3 billion will be saved this year alone if the bill passes by July 1. Eliminating the tariff will lower the cost of imported ethanol. Support for ethanol subsidies has been waning lately. Even Al Gore, who helped pass subsidies for corn based ethanol during his vice presidency, recently changed his stance. Close to 40 organizations have asked to stop the subsidy, including some refiners who receive VEETC cash.”

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  20. By navin-r-johnson on May 17, 2011 at 11:27 pm

    Robert, any comment on this from Celanese?  Syn gas to methanol to acetic acid to ethanol? A path from syn gas to selecticvely make ethanol seems important to me.

     http://www.greencarcongress.co…..10513.html

     

    Sorry for the off topic

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  21. By Walt on May 18, 2011 at 7:40 am

    Navin R Johnson said:

    Robert, any comment on this from Celanese?  Syn gas to methanol to acetic acid to ethanol? A path from syn gas to selecticvely make ethanol seems important to me.

     http://www.greencarcongress.co…..10513.html

     

    Sorry for the off topic


     

    The process is expensive.  I’ve learned a “single step” means a lot of different things to a lot of different people.  I heard the CEO speak on TV recently and he is absolutely convinced this new ethanol process is the “single step” holy grail to the ethanol world. He said that they are basically flooded with requests from all over the world for this technology.  It almost sounded if people are falling over themselves to get ethanol using a “single step”.  Of course, I cannot blame them, but what does a single step process mean.

     

    The article says:

    ———————–

    In January of this year, Celanese was awarded a US patent (#7,863,489)
    on the direct and selective production of ethanol from acetic acid
    utilizing a platinum/tin catalyst. The patent covers a process for the
    selective production of ethanol by vapor phase reaction of acetic acid
    over a hydrogenating catalyst composition to form ethanol. In one
    embodiment of this invention, the reaction of acetic acid and hydrogen
    over a platinum/tin catalyst supported on silica, graphite, calcium
    silicate or silica-alumina selectively produces ethanol in a vapor phase
    at a temperature of about 250 °C.

    ———————-

    This is different than the “single step” process I heard discussed before from natural gas or coal.

     

    We are going to be filing soon a patent application that will make ethylene glycol in two steps from natural gas, or biomethane.

     

    Making acetic acid from methanol is easy process technology, but it is not a “single step” process from natural gas or coal.

     

    I’m happy the word “direct and selective production” is being used rather than single step.  Their email inbox might slow down after they see the CAPEX to make ethanol from methanol/acetic acid…unless it is at a massive scale.

     

    The main point I see is that again we see methanol as an intermediate chemical to make the highly coveted “ethanol”, and while people bad mouth methanol in the media, at least it is useful to make large volumes of ethanol for Asia…if that is the market Celanese claims will use the process and take their stock through the roof.  I’m skeptical.

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  22. By Wendell Mercantile on May 18, 2011 at 9:40 am

    The main point I see is that again we see methanol as an intermediate chemical to make the highly coveted “ethanol”

     

    It is difficult to understand the bias against using methanol directly or converting it to dimethyl ether(DME)  for use in compression ignition engines. The only explanation I can think of is Big Ag and Corn Belt politicians feeding us ethanol pablum for three deacades.

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  23. By Walt on May 18, 2011 at 10:21 am

    Wendell Mercantile said:

    The main point I see is that again we see methanol as an intermediate chemical to make the highly coveted “ethanol”

     

    It is difficult to understand the bias against using methanol directly or converting it to dimethyl ether(DME)  for use in compression ignition engines. The only explanation I can think of is Big Ag and Corn Belt politicians feeding us ethanol pablum for three deacades.


     

    The article says:

     

    ——————————

    In the presentation to investors, Celanese executives said that TCX
    enables the company to produce ethanol at the equivalent of gasoline
    produced with $60 per barrel crude oil (around $1.50/gallon).
    Additionally, the company has progressed in its exploration of
    opportunities to apply TCX technology in fuel ethanol applications
    through substantive discussions with potential customers.

    ——————————

     

    Methanol is selling for $1.25/gallon wholesale.  There are multiple steps in their process to convert $1.25/gallon methanol into $1.50/gallon ethanol.  Of course, they willl need cheap methanol to make $1.50/ethanol with the multiple process steps they have planned.  The patent says they will take their ethanol to make ethylene…which is good since ethylene costs $1,400/ton.  If they bought ethylene it would never work.

     

    Again, what is the scale of these plants?  We get criticism because we cannot make money at a scale of 300,000 scfd feed rates on a trailer that can move from site to site.  The operators want $4.00/mcf for the gas that is flared or stranded, and then you have to compete with $1.25/methanol prices as imports.

     

    I would love to see the scale and the cost of syngas or natural gas that Celanese is going to pay for the feedstocks.  My guess is there scale will require 100 to 300 million cubic feet per day, and not 300,000 cubic feet per day.  At 30 million cubic feet per day the Nexant study we had completed showed we are 70% cheaper in CAPEX than traditional syngas based methanol production, but again, Celanese has the holy grail because it is producing ethanol.  It just makes no sense beyond hype and getting investors to put money in Celanese stock.

     

    It reminds me of the silicon valley stories rolling into the market weekly about the next holy grail…short on costs of feedstock, scale definition and real value beyond rising stock prices to attract investors.  Reminds me of Washington politicians that can make money with anyting as long as you give them the money.

    [link]      
  24. By rrapier on May 18, 2011 at 12:53 pm

    Navin R Johnson said:

    Robert, any comment on this from Celanese?  Syn gas to methanol to acetic acid to ethanol? A path from syn gas to selecticvely make ethanol seems important to me.

     http://www.greencarcongress.co…..10513.html

     

    Sorry for the off topic


     

    Hi Navin,

    I used to work for Celanese, and they were always heavily involved in ethanol research. I am not surprised at the news, but like Walt I have to wonder why we are driven to ethanol given that it is much cheaper to make methanol and it works just fine as fuel.

    The other thing is that the Celanese process won’t qualify for any of the ethanol tax breaks; they are written specifically for the corn guys. Rufus didn’t believe me on that once until I pulled it out of the tax code. So they will be operating at a disadvantage to corn ethanol because of the government’s penchant for attempting to choose technology winners.

    RR

    [link]      
  25. By Wendell Mercantile on May 18, 2011 at 3:17 pm

    The other thing is that the Celanese process won’t qualify for any of
    the ethanol tax breaks; they are written specifically for the corn guys

    It’s those Corn Belt politicians. Wink 

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  26. By navin-r-johnson on May 18, 2011 at 11:32 pm

    Don’t get me wrong, I like Methanol as a fuel, and if we had truly flex fuel vehicles (that could burn any fuel) and if Methanol were the cheapest per BTU ( or per mile) I’m all for it.  But in reality we have our current infrastructure and and other factors to deal with.  Whenever someone starts putting down Ethanol and comparing it to gasoline, everything they list is as bad as or worse for methanol.  Lower energy density, corrosive, affinity for water, etc.  In addition there is the toxicity of MeOH.  I know that this is a point that is almost always abused by MeOH opponents and I would normally vigorously defend MeOH when someone screams TOXIC!  But the reality is that EtOH is much less toxic than MeOH.  In addition I think ethanol might be a better bridge to a more diverse fuel paradigm.

     

    Wendell mentioned DME.  The reason that you would convert MeOH to DME would be because it also has some potential to be a superior fuel to MeOH, but again infrastucture makes the transition hard.  Likewise EtOH can be superior to MeOH if the price is right.

     

    So MeOH can be a good fuel, but EtOH is better in almost every way, most importantly in energy density.  So if they can selectively turn syn gas into EtOH and IF the price is competitive with MeOH (per BTU or Mile) and EtOH can more easily transition us away from gasoline, then it seems like it should be considered.

     

    Walt, give me a hint as to what you do.  From your posts I gather you are in a MeOH business and have a technology that you have a vested interest in.  I am just some guy on the Internet (with a chemistry background) who is curious about alt fuels, but I don’t work in fuels at all, for me MeOH is a mobile phase for my HPLC. But Acetonitrile is usually a vastly superior mobile phase.

    [link]      
  27. By moiety on May 19, 2011 at 3:04 am

    The main issue with the Celanese process is what amount of water can the acetic acid to ethanol conversion step handle. Typically acetic acid and water are separated by extractive distillation* so contamination will always be an issue. It is a relatively energy intensive step to get pure acetic acid. However is a less pure stream can be fed, there may be some possibility. However the water that is fed will probably still have to be removed in the ethanol dehydration.

     

    * http://www.qvf.com/en/processs…..acid.shtml

    [link]      
  28. By navin-r-johnson on May 19, 2011 at 8:27 am

    Thanks for that Moiety.  I don’t know if water separation is a problem in a gasification process, I don’t think it would be.  the link you provided seems to be talking about recovery of acetic acid after some initial use, not manufacture via gasification.

    I found the paper linked to the GCC story interesting.

    http://www.fischer-tropsch.org….._rpt27.pdf

    In addition to MeOH to EtOH it covers MeOH and DME production from IGCC.  Although, the paper is from 1995, so there must be good reasons that these ideas have not been put into practice yet.  My initial thought was that 1995 was just a few years ago, but then I looked in the mirror and remembered that it was longer than that.

    [link]      
  29. By paul-n on May 19, 2011 at 10:32 am

    Whenever someone starts putting down Ethanol and comparing it to gasoline, everything they list is as bad as or worse for methanol.  Lower energy density, corrosive, affinity for water, etc.

    Well, not quite worse in every way – there are some aspects where methanol is better than both ethanol and gasoline.

    • Making methanol from current sources (NG and coal) does not use any food or farmland, so it’s better on that scale, and of course, it can be made from almost any carbonaceous material
    • As an engine fuel methanol can achieve higher thermal efficiency than gasoline, ethanol or even diesel {source}  
    • Methanol is the only liquid fuel where a fire can be put out with water
    • if released to the environment, methanol biodegrades faster than ethanol, and much faster than gasoline.  In fact, it can be used as a soil amendment to improve plant growth!

    As for other properties, yes it is more corrosive than ethanol, and much more so than gasoline.  But it is no more trouble or expensive to make a fuel system methanol capable than it is for E85.

    Methanol has a higher toxicity than ethanol or gasoline, but they are still all toxic – so don’t drink any of them!

    The energy density is really not important, except for aircraft fuel.  For vehicle fuel, methanol is dense enough, and in properly st up engines gets more miles per btu than the alternatives.

    I agree that the infrastructure issues with DME make adopting this fuel; hard – so we should just leave it as methanol, which can be used in any engine as is. 

    So overall  I disagree that ethanol is better in every way – it is harder to make from non sugar feedstocks, and gives less miles/btu.  On a whole process energy analysis, it takes more energy to make ethanol (from non sugar feedstocks) and you get less work from it – how is that a better fuel?

    The real point is – both are suitable as alternative fuels, and can even be mixed together.  We should not do things that exclude methanol, as we are then reducing our alternative fuel options for the future, and I think we will need all the alternatives we can get.

     

     

    [link]      
  30. By moiety on May 19, 2011 at 10:47 am

    Navin R Johnson said:

    Thanks for that Moiety.  I don’t know if water separation is a problem in a gasification process, I don’t think it would be. 


     

    Actually you are right. I was thinking of a fermentative pathway and not gasification.

    [link]      
  31. By Walt on May 19, 2011 at 11:32 am

    Navin R Johnson said:

    Walt, give me a hint as to what you do.  From your posts I gather you are in a MeOH business and have a technology that you have a vested interest in.  I am just some guy on the Internet (with a chemistry background) who is curious about alt fuels, but I don’t work in fuels at all, for me MeOH is a mobile phase for my HPLC. But Acetonitrile is usually a vastly superior mobile phase.


     

    Navin, I would ditto what Paul said.  Much of the methanol research I’ve found is on my website here:  http://www.gastechno.com  See “Methanol Uses” section.  I was also recently made aware of a powerpoint and article by Lotus on blending methanol, ethanol and gasoline.  Here is a link:

     

    http://viewer.zmags.com/public…..c2e4862/24

     

    My point in being critical of the Celanese is not because they are producing ethanol.  The issue in listening to the CEO speak made it sound like it was the world’s holy grail technology to make ethanol, and all their stockholders are going to sing to the bank over ethanol technologies.  Granted, it is a fantastic achievement and I am most certainly not going to discount the potential at very large scales.  I personally think Shell Pearl is one of the 7 or 8 wonders of the world, but the reason it will pay back ~$14 billion in CAPEX over 24 months at $80/bbl oil is because the project is completely integrated from upstream to midstream to downstream to retail sales.  This structure makes total sense to me, but to have the CEO of Celanese claim they can make $1.50 per gallon ethanol, and they are going to “buy” syngas or natural gas or coal from a supplier makes me nervous about these claims.  Feedstock price increases closed over 10 methanol plants in America when gas prices increased, and methanol got hammered over the MTBE controversy.  Nobody is going to given Celanese free natural gas or syngas in China, and to hedge all those prices will not be very easy unless they lock in very large volumes.

     

    Let me stress I’m not opposed to ethanol.  I’m a alcohols advocate that believes methanol has lots of merit.  I can say I did not believe this when I first started developing the technology.  In fact, I had no idea what it could be used for at the time, and my focus was ONLY to convert stranded natural gas hydrates to a liquid which could be shipped onshore in a pipeline.  It was later that I learned that methanol could be shipped in a gas pipeline and could be used to release methane from hydrates.  It was at that point I was interested more in methanol than in gas conversion.  It took me a few years learning that not only was methanol generally hated in America, but it was being attacked every corner I popped up to discuss the alcohol.  3-4 years of that and I had to really dig to see why it was so evil.  Fortunately, my digging took me to the politics and money of ADM that was at the core, and much of the methanol industries investment in fuels, chemicals, etc. just grew silent to let ADM and the ethanol lobby continue to buy there way through Washington.  From there I learned about how the ethanol lobby was going to discredit methanol come hell or high water in public.  Thus, best to let it go and focus overseas where methanol was not attacked by the ethanol crowd.

     

    I’ve had 4 engineers send me the press releases on the Celanese process during the past 4 weeks, and they generally are head over heals in love with it because it makes ethanol without subsidy.  Fantastic, and great for Celanese.  I expect their shareholders will make a bundle as it sounds like everyone in Asia is after the technology due to the benefits of ethanol (as you have explained above).  But, these plants are not going to be cheap, nor will the feedstock be free guaranteeing a production cost of $1.50 ethanol.  I have neard nothing but great things about Celanese as a company, so I do not expect they will fail at their claims, but I’m not convinced ethanol should be the preferred feedstock for fuels or chemical intermediaries as some suggest.  Ethanol is good, but methanol is better.

     

    Yes, I’m biased as you can see from my website.  However, I think the evidence supports it.

     

    [link]      
  32. By Walt on May 19, 2011 at 12:03 pm

    Paul N said:

    Whenever someone starts putting down Ethanol and comparing it to gasoline, everything they list is as bad as or worse for methanol.  Lower energy density, corrosive, affinity for water, etc.

    Well, not quite worse in every way – there are some aspects where methanol is better than both ethaonl and gasoline.

    • Making methanol from current sources (NG and coal) does not use any food or farmland, so it’s better on that scale, and of course, it can be made from almost any carbonaceous material
    • As an engine fuel methanol can achieve higher thermal efficiency than gasoline, ethanol or even diesel {source}  
    • Methanol is the only liquid fuel where a fire can be put out with water
    • if released to the environment, methanol biodegrades faster than ethanol, and much faster than gasoline.  In fact, it can be used as a soil amendment to improve plant growth!

    As for other properties, yes it is more corrosive than ethanol, and much more so than gasoline.  But it is no more trouble or expensive to make a fuel system methanol capable than it is for E85.

    Methanol has a higher toxicity than ethanol or gasoline, but they are still all toxic – so don’t drink any of them!

    The energy density is really not important, except for aircraft fuel.  For vehicle fuel, methanol is dense enough, and in properly st up engines gets more miles per btu than the alternatives.

    I agree that the infrastructure issues with DME make adopting this fuel; hard – so we should just leave it as methanol, which cna be used in any engine as is. 

    So overall  I disagree that ethanol is better in every way – it is harder to make from non sugar feedstocks, and gives less miles/btu.  On a whole process energy analysis, it takes more energy to make ethanol (from non sugar feedstocks) and you get less work from it – how is that a better fuel?

    The real point is – both are suitable as alternative fuels, and can even be mixed together.  We should not do things that exclude methanol, as we are then reducing our alternative fuel options for the future, and I think we will need all the alternatives we can get

     

     


     

    Paul, if you get a chance, please read the Lotus article.  It is fascinating and is about the best explanation of how methanol could make itself into the fuel system without freaking out the ethanol lobby.  It would be “invisible”!  If that word does not appeal to the ethanol lobby, what would?  I would be happy to let methanol in the gasoline pool and give ethanol all the credit.

     

    Here is an interesting (non-technical) quote from the article:

     

    “Hence, it would theoretically be possible to introduce such GEM9.7
    ternary blends into the E85 fuel pool and not impact the performance of vehicles already sold and in the field. Importantly, the near-identical
    volumetric energy content means that there should be no taxation issues
    for this blend in the field either.  While some materials compatibility
    assessment and testing would need to be conducted, it is unlikely that
    this will be an issue since ethanol is itself almost as corrosive as
    methanol, and some of the ethanol is being removed and replaced with
    gasoline.

    Encouraged by the above, Lotus Engineering is forming a partnership to
    conduct more in-depth testing on GEM9.7 blends in a production vehicle to demonstrate that no engine fault codes are activated due to operation
    on the ternary blends.  It is hoped that a fuel company will join this more extensive investigation so that complete fuel blend characteristics
    can be obtained as well.

    It is important to stress that, being a liquid, any such GEM9.7 blend
    would be easily transportable within the existing E85 infrastructure and
    hence there will be no requirement to completely redesign the transport
    energy supply system (as is the case with hydrogen and, to a lesser
    extent, electricity).”

    [link]      
  33. By rrapier on May 19, 2011 at 12:29 pm

    Navin R Johnson said:

    Don’t get me wrong, I like Methanol as a fuel, and if we had truly flex fuel vehicles (that could burn any fuel) and if Methanol were the cheapest per BTU ( or per mile) I’m all for it. 


     

    I haven’t checked recent pricing, but when I wrote this article unsubsidized methanol was selling for 20% less per BTU than heavily subsidized and mandated ethanol.

    RR

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  34. By rrapier on May 19, 2011 at 12:34 pm

    Walt said:

    I’ve had 4 engineers send me the press releases on the Celanese process during the past 4 weeks, and they generally are head over heals in love with it because it makes ethanol without subsidy.  Fantastic, and great for Celanese.  I expect their shareholders will make a bundle as it sounds like everyone in Asia is after the technology due to the benefits of ethanol (as you have explained above). 


     

    Of course in the U.S., they will not be able to penetrate the market very much because gasoline blenders are bribed to use ethanol from biomass (and that capacity is overbuilt as is based on current demand). So U.S. blenders won’t buy Celanese’s ethanol; they will be willing to pay more for POET’s because they get money back (presently $0.45 per gallon).

    RR

    [link]      
  35. By Walt on May 19, 2011 at 1:46 pm

    Robert Rapier said:

    Walt said:

    I’ve had 4 engineers send me the press releases on the Celanese process during the past 4 weeks, and they generally are head over heals in love with it because it makes ethanol without subsidy.  Fantastic, and great for Celanese.  I expect their shareholders will make a bundle as it sounds like everyone in Asia is after the technology due to the benefits of ethanol (as you have explained above). 


     

    Of course in the U.S., they will not be able to penetrate the market very much because gasoline blenders are bribed to use ethanol from biomass (and that capacity is overbuilt as is based on current demand). So U.S. blenders won’t buy Celanese’s ethanol; they will be willing to pay more for POET’s because they get money back (presently $0.45 per gallon).

    RR


     

    Robert,

     

    If you get the chance to study the concept by Lotus on the methanol, ethanol and gasoline blends, I would like to know if it is something you would fine practical and viable as a lower cost fuel solution in America.  The article is really fascinating both from a technical and lower cost perspective.  I understand it is likely impractical to ever be implemented in America due to the point you are making above and the power that POET has over Washington and fuel blenders, but the Lotus GEM9.7 ternary blends would “not impact the performance of vehicles already sold and in the field” and “its cost per unit energy is the same as gasoline, and increased vehicle efficiency due to fuel characteristics can make it cheaper for the customer to use the fuel on a cost-per-mile basis.”

     

    If there ever was a “combined” alcohols fuel that could make sense, it might be this type of blend.  While China is implementing exclusively methanol into its gasoline pool at various percentages, and America is doing the same with ethanol, perhaps the “ideal” fuel is what Lotus has developed combining methanol, ethanol and gasoline.

     

    Although I believe the EPA approval to modify vehicals to run on any fuel source was a major “game changer”, I recognize if users are still blocked from accessing methanol or methanol based blends in the gasoline pool, it will not help to reduce the cost of gasoline fuels in the future.  Ethanol subsidies could be pulled (with some political move) and ethanol will be another industry focused on exports or some other sort of method to create profits.  I think if gasoline prices continue to increase due to crude oil prices rising, the chance to use unsubsidized methanol in the gasoline pool may be the only way to keep the industry going until cheaper ethanol technologies are developed.  Obviously, cheaper ethanol technologies are only going to come from Silicon Valley as we have been told over and over…so we will just have to wait and see.  I’m not convinced cheap ethanol is just around the corner unless we import it from Brazil.

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  36. By navin-r-johnson on May 19, 2011 at 11:33 pm

    Paul N said:

    Well, not quite worse in every way – there are some aspects where methanol is better than both ethanol and gasoline.

    • Making methanol from current sources (NG and coal) does not use any food or farmland, so it’s better on that scale, and of course, it can be made from almost any carbonaceous material
    • As an engine fuel methanol can achieve higher thermal efficiency than gasoline, ethanol or even diesel {source}  
    • Methanol is the only liquid fuel where a fire can be put out with water
    • if released to the environment, methanol biodegrades faster than ethanol, and much faster than gasoline.  In fact, it can be used as a soil amendment to improve plant growth!

     

    With the Celanese process now ethanol can be made from NG and coal and biomass thru gasification

    I think that if i had an ethanol fire, I would put it out with water.

     

    This guy could have used some water

     

    http://www.youtube.com/watch?v…..ulmLVLd48A

    [link]      
  37. By navin-r-johnson on May 19, 2011 at 11:46 pm

    Walt I checked out some of your info and youtube videos.  I like what you are doing and wish you the best of luck with it.  IMHO we should be transitioning to fuels and chemical feedstocks based on methanol.  I view the Celanese process as one more way to use methanol and as was pointed out in one of your videos, many “green” fuels can be made from methanol, now you can add ethanol to the list.

    I also like the Lotus idea of blending methanol with ethanol and gasoline.  I saw the CEO of Methanex fire up that car on a Wall Street Journal video.

    This was a good discussion, thanks.

    [link]      
  38. By paul-n on May 20, 2011 at 1:10 am

    Navin,

    While Celanese can be happy that they have found a way to make ethanol from methanol, why bother?  With methanol you have a fuel that has very similar properties, but works more efficiently.

    By going to ethanol you have more process steps, and cost, and energy loss, to make a fuel that is (slightly) less energy efficient.  Celanese did not give their process efficiency, but lets assume you get 90% out, and combine this with a 5% reduction in engine performance and you get 85% of the work out of ethanol, for more cost.  What is being achieved?

    You might be interested to know that not only can an E85 fire not be put out with water, standard foams for gasoline fires don’t work either!

    Here’s how you handle a methanol fire – you just have a waterfight;

    http://www.youtube.com/watch?v…..nDX4FpDAzQ

    If that fuel line had been gasoline, or even E85, there would have been an inferno there.

    [link]      
  39. By Walt on May 20, 2011 at 5:47 am

    Paul N said:

    Navin,

    While Celanese can be happy that they have found a way to make ethanol from methanol, why bother?  With methanol you have a fuel that has very similar properties, but works more efficiently.

    By going to ethanol you have more process steps, and cost, and energy loss, to make a fuel that is (slightly) less energy efficient.  Celanese did not give their process efficiency, but lets assume you get 90% out, and combine this with a 5% reduction in engine performance and you get 85% of the work out of ethanol, for more cost.  What is being achieved?

    You might be interested to know that not only can an E85 fire not be put out with water, standard foams for gasoline fires don’t work either!

    Here’s how you handle a methanol fire – you just have a waterfight;

    http://www.youtube.com/watch?v…..nDX4FpDAzQ

    If that fuel line had been gasoline, or even E85, there would have been an inferno there.


    Paul,

    When I burned our methanol during the day I could not see it like in the video.  There was not even any smoke.  Fortunately, when we finally got the reactor correctly operating in the field it was like 2:30am and very dark because it was snowing.  I remember being so frustrated for so long as we could not get any of the liquids to burn, and then whalla, one batch just started burning blue at night.  We knew we had it working correctly and there was the secret sauce we knew was the right conditions for that terrible quality gas.  It was easy in the garage with pure methane, but totally a different deal in the field with lots of other hydrocarbons to convert.

     

    I suspect if we would have tried to burn it during the day we would never have seen the flames and the frustration would have continued.  It was so amazing to have it take off when the blue flame could be taken on my camera phone and saw with our own eyes what later the labs showed were exactly what we hoped.  Video evidence where nobody has gone before…but still not good enough for those billionaires in the valley.

     

    Did you see this yesterday?  Tell me the system is not broken…look who are the winners:

     

    http://blogs.wsj.com/deals/201…..ires-club/

     

    Here we have solutions for energy and fuel that can positively impact entire nations, people and those suffering the most, and yet a handful a bankers and brokers claim another “big day” on Wall Street.  Yet, watch our video and our excitement was just as real as we absolutely know that what we did has never been done before with poor quality gas.

     

    Not even the coveted and multi-billion dollar valued “Bloom Box” can say the same thing…although you would never know it by their valuation.  In time it will be another $100 billion dollar IPO on Wall Street…and yet converting pure methane into electricity can be done by many.

    [link]      
  40. By Walt on May 20, 2011 at 6:02 am

    Navin R Johnson said:

    Walt I checked out some of your info and youtube videos.  I like what you are doing and wish you the best of luck with it.  IMHO we should be transitioning to fuels and chemical feedstocks based on methanol.  I view the Celanese process as one more way to use methanol and as was pointed out in one of your videos, many “green” fuels can be made from methanol, now you can add ethanol to the list.

    I also like the Lotus idea of blending methanol with ethanol and gasoline.  I saw the CEO of Methanex fire up that car on a Wall Street Journal video.

    This was a good discussion, thanks.


     

    Navin,

    Thanks for the feedback.  Let’s keep pushing for the small guys out here who ARE MAKING PROGRESS in the field.  It is not all happening in China, India and Wall Street as some might argue.  I found this company here in Michigan and although it is not new, it is a practical solution:

     

    http://www.hescoenergy.com

    “HESCO Sustainable Energy’s patented IBES process is a completely
    integrated process that combines well known and trusted technologies in a
    symbiotic manner to achieve efficiencies in biosolids processing and
    energy production which far exceed any competitive process.

    At
    its heart, the IBES incorporates a unique Two-phased Anaerobic Digestion
    process, which is designed to enhance the anaerobic digestion process
    and satisfy the EPA 40 CFR Part 503 requirements for Class A biosolids.
    In addition to anaerobic destruction of biosolids, the IBES
    incorporates Combined Heat and Power systems (CHP) in order to offset
    the energy requirements that are necessary to process the solids to
    Class A levels.”

     

    The company has an interesting story of a guy who came up with the solution from being a manufacturer’s rep.  I’m almost certain they have no VC investors and yet they generally have a very smartly integrated system that works beyond their competition.

     

    The more I see Celanese, Bloom Energy and almost all the Silicon Valley funded companies, it seems that there is a lot more financial engineering of these deals for the benefit of a few bankers, politicians and money managers than there is ever for the US or world population.

     

    I personally think the company to watch closely is here:

    http://www.accelergy.com/

     

    Their board and advisors is the obvious dream team and with Exxon patents behind the group there is no doubt they will be coming to light in the future with something to watch.  When you have Goldman Sachs and Lux Capital involved together…watch out!

    [link]      
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