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By Elias Hinckley on Jan 20, 2015 with 29 responses

Everything Has Changed: Oil And The End Of OPEC

Tags: Oil Prices, OPEC

Saudi Arabia’s decision not to cut oil production, despite crashing prices, marks the beginning of an incredibly important change. There are near-term and obvious implications for oil markets and global economies. More important is the acknowledgement, demonstrated by the action of world’s most important oil producer, of the beginning of the end of the most prosperous period in human history – the age of oil.

In 2000, Sheikh Yamani, former oil minister of Saudi Arabia, gave an interview in which he said:

“Thirty years from now there will be a huge amount of oil – and no buyers. Oil will be left in the ground. The Stone Age came to an end, not because we had a lack of stones, and the oil age will come to an end not because we have a lack of oil.”

Fourteen years later, while Americans were eating or sleeping off their Thanksgiving meals, the twelve members of the Organization of Oil Producing Countries (OPEC) failed to reach an agreement to cut production below the 30 million barrel per day target that was set in 2011. This followed strenuous lobbying efforts by some of largest oil producing non-OPEC nations in the weeks leading up to the meeting. This group even went so far as to make the highly unusual offer of agreeing to their own production cuts.

The ramifications of this decision across the globe, not just in energy markets, but politically, are already having consequences for the global landscape. Lost in the effort to understand the vast implications is an even more important signal sent by Saudi Arabia, the owner of more than 16% of the world’s proved oil reserves, about its view of the future of fossil fuels.

Since its formal creation in 1960 the members of OPEC, and specifically Saudi Arabia (and in reality the Kingdom’s control over global oil markets is much larger than that 16% of reserves implies as its more than 260 billion barrels are among the easiest and cheapest to extract and before enhanced recovery techniques accounted for a much larger share of global reserves) have used excess oil production capacity to influence crude prices. The primary role of OPEC has been to support price stability. There are notable exceptions – like the 1973-1974 oil embargo and a period of excess supply that undermined prices and crippled the Soviet Union in the 1980s (though whether this was a defined strategy or serendipity remains in some question), but at its core the role of OPEC has been to control oil prices. As recent events show, OPEC’s role as the controller of crude oil pricing is coming to an abrupt end.

In acting as global swing producer, OPEC relied has heavily on Saudi Arabia, which can influence global prices by increasing or decreasing production to expand or reduce available global supply. Saudi Arabia can do this not only because it controls an enormous portion of global reserves and production capacity, but does so with crude oil that is stunningly inexpensive to produce compared to the current global market. A change, however, has occurred in Saudi Arabia’s fundamental strategic approach to the global oil market. And this new approach – to refuse to curtail production to support global prices – not only undermines OPECs pricing power, but also removes a vital subsidy for global oil producers provided by the Saudi’s longtime commitment to price support.

Understanding Why

The widely held conventional theory is that the Saudis want to shake the weak production out of the market. This strategy would undermine the economic viability of a meaningful amount of global production. The theory assumes that this can be done in some kind of orderly bring-down of prices where the Saudis can find an ideal price below the production cost of this marginal oil production but still high enough to maintain significant profits for the Kingdom while this market correction plays out. The assumption is that following the correction there will be a return to business as usual along with higher prices, but with Saudi Arabia commanding a relatively larger share of that market. An alternative rationale is that Saudi Arabia is fighting an economic war with oil; a strategy designed to economically and in turn politically cripple rival producers Iran and Russia because the governments of these countries that depend on oil exports cannot withstand sustained low prices and will be significantly weakened.

While there may be some truth to both of these theories, the real motivation lies somewhere closer to Sheikh Yamani’s 2000 prediction. Saudi Arabia has embarked on an absolute quest for dominant market share in the global oil market. The near-term cost of grabbing that market share is immense, with the Saudis sacrificing potentially hundreds of billions of dollars if low prices persist. In a world of endless consumption, this risk would be hard to justify merely in exchange for a temporary expansion of global market share – the current lost revenue would take years to recover with a marginally higher share of global supply.

But in a world where a producer sees the end of its market on the horizon, then every barrel sold at a profit is more valuable than a barrel that will never be sold. Current Saudi oil minister Ali al-Naimi had this to say about production cuts in late December: “it is not in the interest of OPEC to cut their production whatever the price is,” adding that even if prices fell to $20 “it is irrelevant.” Implied, if not explicitly stated, is that Saudi Arabia wants its oil out of the ground, regardless of how thin its profit margin per barrel becomes.

Saudi Arabia is seeing a new and massively changing energy landscape. The U.S. and China have agreed to bilateral carbon reduction targets. 2014 is now officially the hottest year recorded in human history, a record set almost impossibly without the presence of El Nino. And on January 7 a report released in Nature lays bare the fossil fuel climate change equation by concluding that to achieve anything better than a 50/50 shot at keeping global warming under 2 degrees centigrade (the most widely accepted threshold for avoiding catastrophic climate change) 82% of fossil reserves must remain in the ground. That report puts hard numbers on the percentages of fossil fuels that must “stay in the ground” and calls for 38% of proven Mideast oil reserves to never to be pumped from the ground. That 38% represents some 260 billion barrels of oil – worth tens of trillions of dollars – much of that not held in Saudi reserves.

All of these threats to oil use are occurring against a backdrop where the acceleration of costs-effective alternative technologies expands the potential of viable alternatives to our current fossil fuel-based energy economy. Yamani’s prediction no longer seems a fantasy where no one outside of science fiction writers could envision an alternative to the age of oil, but rather a stunningly prescient analysis of the future risk to the value the largest oil reserve on the planet by a man who once managed that reserve.

Saudi Arabia no longer needs OPEC. Global action on carbon dioxide emissions is gaining global acceptance and technological advances are creating foreseeable and viable alternatives to the world’s oil dependence. Saudi Arabia has come to the stark realization, as Yamani foretold, that it is a race to produce, regardless of price, so that it will not be leaving its oil in the ground. The Kingdom has effectively open the valve on the carbon asset bubble and jumped to be the first to start the race to the end of the age of hydrocarbons by playing its one great advantage – a cost of production so low that it can sell its crude faster and hoping not to find itself at the end of the age of oil holding vast worthless unburnable reserves.

The end of the age of oil, of course, remains many years off (and almost certainly well beyond Yamani’s timeline of 2030), but to Saudi Arabia, that end is clearly not so far away that the owner of the largest, most accessible crude resource is willing to continue to subsidize higher prices for other producers at the risk of leaving its own oil untapped one day in the future.

Collateral Fallout

Much has been made of the catastrophic economic consequences to Russia, Iran, Venezuela and other oil exporting nations caused by these low oil prices, as well as, the profound damage to their economies and impending political turmoil. Meanwhile in the U.S., there has been endless analysis of the impact (or lack of impact) on the nation’s resurgent oil production and speculation about the price at which U.S. production will begin to decline.

Less well documented is the impact on access to capital for drilling operations (and given the disastrous economics of North American coal, perhaps fossil fuel extraction broadly). Drilling for oil requires huge amounts of capital with a significant appetite for risk, as both production uncertainty and market volatility can undermine the value of investments. In the current production boom, market volatility was wildly underpriced. When combined with pent up appetite for yield due to persistently low interest rates, capital, including tremendous amounts of high-yield debt, has flooded into oil companies. As low crude prices persist there will be substantial losses by investors. This will cause volatility in crude oil markets to be re-priced, and access to low cost capital will disappear for all but a select group of oil production investments.

OPEC will continue to meet and hold itself out as a cartel that can control the oil markets, but that time has passed. The cartel was dependent upon Saudi Arabia to use its outsized swing position to control spare capacity in the market. With the Saudis no longer interested in that role, the influence of the cartel is gone. It would be no surprise at all to see Saudi Arabia actually increase production (though how much additional output is readily available is unclear) as prices stabilize and begin to climb later this year because excess capacity will be shed from the market and global economic growth will accelerate.

The direct oil markets impact and the geopolitical fallout will likely be the defining headlines of 2015, but there is a much much bigger story unfolding: the carbon asset bubble is deflating. The value of effectively every asset class on Earth is influenced by the assumption that a fossil fuel-based economy will persist for so long that any potential for future change to asset values can be ignored. That assumption is wrong. The global industrial economy operates on an assumption of available and relatively inexpensive energy, either in the form of electricity or liquid fuels. If the form, availability of, or cost of, those energy sources changes it will fundamentally change the cost to use and produce virtually every other asset on Earth. And that will necessarily change the value of every one of those assets. There will be both positive and negative impacts, and understanding this change, in both scope and speed, will provide insight on one of the largest wealth shifts ever experienced.

The owner of the most valuable fossil fuel reserve on Earth just started discounting for a future without fossil fuels. While they would never state this reasoning publicly, their actions speak on their behalf. And that changes everything.

This article was originally published at The Energy Collective on January 9, 2015.

  1. By Edward Kerr on January 21, 2015 at 6:47 am

    Once again short sightedness rules the day. If the Saudis are not engaged in economic warfare and seek only to sell as much oil as possible in expectation of “the end of oil”, they expose themselves to be stupid and greedy at the same time.

    Oil has a multitude of other uses than simply being a fuel. A plan that looks to the future with that in mind would serve, not only their interests, but the worlds interest as well.

  2. By Forrest on January 21, 2015 at 2:53 pm

    My thoughts for U.S. oil production similar, wherein it would be best to sell the commodity during this peak demand season that was projected per growing economies of China and India. Now, with low prices, best to cap off oil wells and wait for better days. Highly leveraged companies will be forced to sell assets. I was listening to economist of alternative energy future. Come to find out China is planning on converting auto fleet to all electric. The air pollution problem would be solved. Also, they are planning on building a ton of nuclear power plants. That region already in build up of massive biofuel production.
    I was listening to a Saudi Arabia oil sheikh that claimed S.A. got tired of everyone cheating within Cartel. They can’t trust anyone and decided to pump per maximized revenue. This may be nothing more than discipline to make all suppliers suffer. Most businesses small and large that I’ve worked in, do not want to upset the profit cart. No business wins in price war. So, they compete in quality, styling, marketing, but never price. Price is established by market leader who signals to competitors, per media the going retail price. In oil it is probably production output. When a truly innovative disruptive company enters into market all established business and investors will be gunning for them and running to government for regulations. This is why we have orneriness regulations for some business….to put small business competitors at disadvantage. Same with U.S. liability, safety standards, etc.. More of it has to do with crony capitalism, for instance consolidation of cable companies, airlines, cell phones, and IRS maze. Now days, best to be an international corporation to shift capital and production around to avoid i.e. populous money grab. Conversely, government of the people would work overtime to instill max market competition and small business primacy. Problem is these entities don’t pay to play within D.C. political machinery. BTW, this always happens when government and politics gets to big. They’re parasites after all.

    • By Optimist on January 28, 2015 at 7:00 pm

      Crud, here we go again in the one-eyed forest, where the is a simple explanation for everything and liberals are to blame for everything that is wrong in the world. Doesn’t it get old after, I dunno, the first 500 posts or so?

      Obviously there is some truth in what you say: many large businesses will use regulations of every kind to keep new competition out. Even better if you can keep the little guy tied up in court until the legal fees drown him. You and your lawyer get rich! Everybody wins! Ain’t capitalism great?

      But it’s quite absurd to argue that the solution is to government completely out of the marketplace. The big guys will stop the bullying when there is no government rules and regulations? Give me a break already, Ayn Rand!

      It’s time for a reality break: Without government to play referee, there is no Free Market. Of course, no market is ever completely free – it is an ideal that cannot be achieved. But to keep things as close to free as possible, you need a referee. And a rule book. Ask any sports fan. Unfortunately, the guys who are supposed to be updating the rule book (Congress) are having a hissy fit. I guess if you’re one of the 1% you can afford it. Government is, alas, not perfect, and never will be. But neither is it Public Enemy #1 as you crazy forest-dwellers would have us believe.

      It is time to kick Atlas in the shorts, and put the myth to bed. Capitalism is per definition crony, and you need the government to force open the markets.

  3. By TimC on January 22, 2015 at 10:43 am

    “… technological advances are creating foreseeable and viable alternatives to the world’s oil dependence.”

    Really? That’s news to me. If these new forms of alternative energy are viable, then why is global oil consumption growing at a rate of over a million barrels per day every year?

    Could you please give some examples of these viable alternatives that have been created by technological advances? I’m excited to hear about them. All I read about are a lot of solar, wind, and biofuel boondoggles that are neither economically competitive with fossil energy nor technically feasible without huge fossil energy inputs.

  4. By Robert Rapier on January 22, 2015 at 12:40 pm

    When oil demand actually declines — and it is up 5 years in a row, 19 of the past 21 years, and is projected to grow again in 2015 — then I will say that we can see the end of the oil out on the horizon. Right now I think people are developing false impressions based on the constant (false) media bombardment that oil demand is declining.

    • By JonathanMaddox on January 22, 2015 at 9:46 pm

      And surely the lower price will also stimulate some extra demand. After all we’ve spent the last six years proving that demand is more price-elastic than anyone thought possible in 2005.

    • By Forrest on January 25, 2015 at 8:26 am

      But, you have to realize petrol has lost some ability to control price of it’s goods. SA may inflict some discipline upon the supply chain to follow their lead, but we have burgeoning competition that they can not control. The technology to develop more cost efficient biofuel, batteries, and high mpg vehicles will grow. Every day a new higher benchmark. Meaning their is no way to put the genie back in the bottle. Every new ethanol plant probably here to stay. Science of battery and fuel cell only improves. Ethanol within gasoline fuel will increase per need of high octane, carbon efficiency, engine efficiency, and need for low toxic emissions within cities. To ignore or greatly discount the future with such positive trends may be o.k. for here and now investments, but one can easily foretell the diminishing ability of petrol’s stranglehold on consumers. My guess the new technology is just starting to undermine oil’s long history of strangle hold upon consumer’s pocket books.

    • By Optimist on January 29, 2015 at 6:25 pm

      Seems much more likely that SA is doing this to slow down Iran’s move to nuclear capability and that they are egged on, behind the scenes, by Obama/Kerry as a way to keep quiet Vlad the Shirtless. Venezuela is just collateral damage.

  5. By ben on January 28, 2015 at 11:45 am

    Hinckley’s thoughtful piece makes some good points and gives some credit to Saudi’s that they actually have a strategic plan that reflects a dynamic understanding of global economics. Where I might take issue with some of the underlying assumptions in his piece, is the belief that the House of Saud simply views supply/demand dynamics through the lens of narrow, national self-interests rather than from a more sophisticated understanding of how global economic performance ultimately impacts their interests while effecting the welfare of most other nations.

    I take issue with EH’s notional timeline for the demise of oil and how the advent of alternatives might be seen as more of a threat than a potential benefit. The Saudis have a commitment to the domestic use of alternatives, even as they’ve made significant investments in emerging technologies that aim to diversify world energy supplies. Don’t misunderstand my perspective here, as no one is offering laurels
    to the House of Saud. What I am offering is a willingness to assess their actions in the context of multi-layered intentions where the long-term implication of their plans are less myopic (or venal) than many in the US/EU might otherwise characterize in order to reinforce their own predispositions.

    Thanks for the analysis on a subject deserving our close attention.

    Ben G

  6. By Optimist on January 28, 2015 at 7:18 pm

    “Saudi Arabia has embarked on an absolute quest for dominant market share in the global oil market.”
    I don’t know what this crazy statement is based on, but it does great damage to an otherwise thoughtful analysis.

    The way you describe it the Saudis simply want to convert as much of their oil stockpile into cash ASAP, prices and market share be damned.

    BTW, not sure I buy that argument either. As RR has pointed out repeatedly oil demand keeps growing. If the Saudis are suddenly afraid that the greens are going to convince people to stop using fossil fuels they are certainly gullible. And detached from the facts.

    While there may well be a large group of people out there who would like to reduce their carbon footprint, I don’t see anybody make large sacrifices to achieve that goal. Quite the opposite. Especially now that fuel prices are a bit lower.

    To argue, as you do, that concerns about global warming will cause people to quit using fossil fuels en masse stretches the logic, to put it kindly. You may be aware, for example, that a certain political group, who happens to control both houses of congress in the US, still denies the very existence of global warming.

    The other thing that needs to happen is alternatives to fossil fuels. And this is even more complicated than what most appreciate. In spite of the drunk old Uncle Sam’s binge consumption and massive “investment” (read credit card spending) alternative fuels are still a drop in the bucket, and little more than a clever under-the-table subsidy for a politically favored group.

    • By disposableidentity on January 30, 2015 at 12:50 pm

      “If the Saudis are suddenly afraid that the greens are going to convince people to stop using fossil fuels they are certainly gullible. And detached from the facts.”

      I don’t think this theory requires environmentalists to have magic powers of persuasion. To extend the analogy: the bronze age didn’t arrive because the anti-stone community became more persuasive, the bronze age arrived when the technology became known and viable.

      If this ‘Saudi strategy” is as sophisticated as it’s being painted here, it doesn’t have to “know” what will replace oil in that timeframe (we know that today’s alternatives simply can’t do the job). The strategy could simply be based on the (reasonable) prediction that some technology will be developed that replaces hydrocarbons as a primary source of energy by the end of this century.

      • By Optimist on January 30, 2015 at 7:29 pm

        Our friend, Elias, is arguing that oil is on the way out due to global warming. I see no such risk.
        Let’s hope there is some better energy source in our future. I just don’t see it yet. Again, if the Saudis are basing current decisions on some unknown future technology making oil irrelevant that would make them gullible. And lead to unwise decisions.
        The sophistication of their strategy is a separate topic, and not relevant to my statement.

    • By ben on January 30, 2015 at 6:23 pm

      Agree that alternatives are, and will largely remain a “drop in the bucket” for the next decade, I see little that is “under-the-table” about the subsidies for the politically favored; the subsidies are very much on-the-table and readily available courtesy of the administration’s annual OMB budget submission that gains, in turn, bipartisan support in the authorization/appropriation process (of which I am all too familiar).

      You are quite right to emphasize that consumer behavior responds principally to price and much less to moral suasion. To the extent that temporary price relief–and it will be temporary absent any significant decline in global economic activity–introduces a bit of a cold shower to development of alternatives, there is obviously less momentum to the long-sought transition out to fossil fuels. In the interim, the Saudis will be attempting to strike a sustainable balance in the speed in which they allow their significant reserves to flow out as export earnings.

      I speak with the benefit of some experience, that the Saudis leading players are highly sophisticated in their analysis, and they aim to preserve their swing-producer role for as long as it serves their domestic/international interests. In short, they are acting as we might reasonably be expected to under similar circumstances. Such an admission does tend to cut across the grain of our high-mindedness, but it happens to be an admission that we would do well to not only acknowledge, but to plan for in the days ahead. Our national and economic security depends on such foresight.

      Ben G

  7. By Forrest on January 31, 2015 at 5:05 am

    In 2000, Sheikh Yamani, former oil minister of Saudi Arabia, gave an interview in which he said: “Thirty years from now there will be a huge amount of oil – and no buyers. Oil will be left in the ground”.

    Fifteen years from now, not hard to envision oil diminished need and value, global warming or not. If one is keeping up on the massive R&D efforts and incremental improvements to battery capability. The plethora of news on fuel cell problem solving. International biofuel production and improvements with said. The consuming public will fall in love with electric car durability, quiet, low maintenance, acceleration, and durability. They will love fueling up car at home and quite easily evaluate used car value per dependable analysis and dependably of the car. Used BEV will be extremely cost efficient and this zero emission vehicle should be required in inner city transportation, diesels excluded. The cars will work well in autonomous mode, replacing public transportation with personal transport. The recharge does fit nice with off peak power generation and may be utilized in clipping peak power demand. Where the BEV falls short, fuel cell will take the remaining sector per scaling of HP and long distant transport. Large trucks, ships, locomotives, and over the road vehicles as well as at home CHP needs are areas BEV is incapable, yet fuel cell provides huge benefit. Military needs of durability, economy, low maintenance, long range, versatility, all fit within the fuel cell venue. Even hydrogen per turbine engine power is very capable. Liquid fuel is heavy and high pressure tank construction is light nowadays. Small tank modules could improve robust plane construction as well as integrating the strength within wing needs. Keeping military equipment quieter is another advantage as well as every piece of equipment capable of power generation needs. .

    • By Optimist on February 2, 2015 at 7:05 pm

      So much horse manure in such a short post! Vintage Forrest biomass.

      Sheikh Yamani said it, so it must be true? Quick, did he say anything about where the NYSE will be 15 years hence? More likely the good sheikh was just downplaying SA’s huge power over the oil market. Trying to sooth some of his restless customers. It clearly worked.

      On the topic of electric cars the jury remains out. As CNN recently reminded us, things aren’t exactly going to plan: So About That Goal of 1 Million Electric Cars by 2015 …: “In the 2011 State of the Union, President Obama called for 1 million electric plug-in cars to be on American roads by 2015. Well, it’s 2015, and we’re less than one-third of the way there. What happened?”

      “The report estimated that starting in 2012, GM would be selling 120,000 Chevy Volts annually, and that by 2014, Nissan would be churning out 100,000 plug-in Leafs per year. Even though 2014 was seen as a decent year for the EV market, and quite a good year for the category-leading Leaf, only about 30,000 Leafs sold last year. That was an all-time high, but far short of the goal set a few years beforehand. Meanwhile, consumers bought only 1,490 gas-electric Chevy Volts in December 2014, and fewer than 20,000 in the year as a whole.” Cheap gasoline won’t help, either.

      Hydrogen fuel cells is a nice thought, but completely impractical. Much too inclined to go BOOM!

      Hint: when evaluating fuels, high density is an advantage (unless you are talking about space travel). That’s because you pay per volume moved and stored, not by weight. Hence hydrogen is used to fuel space travel, but not airplanes. And since hydrogen has failed to penetrate the air travel market, where lighter fuel would imply more payload, it has no change of penetrating the surface travel market (where weight of fuel is of almost no concern) any time soon.

      • By Forrest on February 3, 2015 at 7:40 am

        The 2015 auto show at Detroit didn’t display your judgement. Automakers are heavily invested in developing BEV and rolled out new and improved models across all manufacture lines. They are doing the same with fuel cell albeit within early stages as compared. Toyota has done a hard turn away from BEV as they are convinced fuel cell the winner. BTW high pressure tanks for compressed gas fuel have a better safety record that gasoline sloshing around with oxygen in fuel tanks. I was reading a report on California attempts for ultra low carbon fuel depicting scenario’s to do so. The top performer was higher utilization of tradition ethanol and cellulose ethanol.

        • By Optimist on February 3, 2015 at 1:49 pm

          Auto shows are for floating all sorts of crazy ideas. 90+% of what you see at the auto show as the future never gets built.

          Of course, auto makers are free to waste their money on anything they wish, and as some of them have done to great affect until recently.

          CNG has all the benefits of hydrogen and much fewer downsides. Unfortunately this is hard for politicians to understand.

  8. By Forrest on February 3, 2015 at 7:30 am

    The oil Sheikhs say the $100/barrel price of crude are long gone. Why? First the market collapsed per huge increase in oversupply. Crude oil production has increased dramatically as need decreases. OPEC is not able to control and manipulate market to artificially suspend price per cheaters. They are unwilling to inflict the cost to do so and let the cheater gain even more wealth. U.S. shale oil is set to increase 70% even in these tough economic times. Their is a paradigm shift going on to establish new price of oil. Alternative fuels make steady inroads to supplant fossil fuel and steady increase in efficiency decreasing demand of crude oil the new reality.

    • By Optimist on February 4, 2015 at 7:46 pm

      According to BP’s statistical review, out of a total energy consumption of 12,483 million barrels of oil equivalent, about 241 (<2%) was from renewables, excluding hydro-electric.

      2% and growing fast, eh? That will show those sheikhs!

  9. By Forrest on February 10, 2015 at 9:06 am

    University of Illinois, sure has interesting results. Field trials of Miscanthus very positive. In reference to the RFS reg to offset 20% fuel supply with ethanol, it could be accomplished with less than 10% of our crop land and do so on the poorest soils if using this grass. Also, one needs to factor in future improvements of Miscanthus such as the corn experience of tripling production within 50 years. If this grass is processed within our most capable ethanol plants the CI of this cellulosic fuel as opposed to fossil fuel, drops by -160%. This grass plant is 1% efficient in converting sunshine to biomass (for comparison PV is 14% ). Hopefully, research of spinach plant per its 30% efficiency and learning secrets of such high efficiency will improve the situation.
    Also, a sugar cane GMO that is re-labeled oil cane has a trait to produce oil within leaves. Sugar cane has robust abilities within plant kingdom for efficient conversion of solar. The plant currently produces 2% oil within leaves in addition to sugar within the stalk. This is about 3x per acre increase as compared to oil produced by soybean. The plant is expected to have ability to achieve increase oil production up to 20% or 30x as compared to soybean. Bio fuel solutions headed in the direction of oil cane for tropic zone and Miscantus for northern. I’m sure all the landmass around planet able to produce biofuel never brought up within OPEC meetings.
    Also, per GW concerns, the trend line of actual CI of fossil fuel vs biofuel production. The mix of ethanol fuel supply year by year enjoys downward trend line as opposed to fossil fuel steady up trend. Also, the hypothetical penalty of ILUC evaluations are gradually tested as invalid.

    • By Forrest on February 11, 2015 at 7:08 am

      The best scenario of high wind and solar BEV CI probably could not catch benefit of high mileage of a mild hybrid vehicle powered by Miscanthus as this plant actively sequester’s carbon in soil. But, I do predict the BEV will become standard fare for commuters in congested cities. The car will be small, very reliable, and totally computerized. Ethanol will be popular for versatile all around vehicle including towing, long distance, short trips, etc. Ethanol may become the fuel of choice for truckers that need high torque and long distance. Waste ethanol will continue to develop. Universal agreement in the value of this as well as the digester solution often utilizes as companion process producing methane. Warmer grow zones will continue to develop sugar cane technology and the off season sorghum crop. Some grow zones and weather condition better suited to sorghum that supports the ethanol process well. The grain has more protein than corn, grows with less water demand and survives more drought. Varieties of the plant can be utilizes for biomass production. The plant has unique ability to be engineered for grain, sugar, biomass or combination. Sugar production is potent, but the timing and short harvest is problematic.

  10. By Forrest on March 2, 2015 at 9:53 am

    This new biomass pretreatment process could mean less sleep for OPEC economy. Biomass energy is equivalent to $20 crude barrel energy. Keep that factoid in mind with the news of U.C. Riverside selling technology to MG Fuels to commercialize a co-solvent pretreatment process to ethanol producers. Dilute sulfuric and THF acid utilized together to greatly reduce enzyme cost and increase ethanol yield. Enzyme use decrease by 90% or from the current buck to ten cents. Sulfuric acid concentration can be reduced as well. New pretreatment process pushes yield to 95% of theoretical. However, the processor could chose to drop yield to 90% and add more enzymes to decrease the typical 14 day treatment to 2 days. Wow, if market is attractive the ethanol plant could increase production 7x. THF solvent is reprocessed as well as the typicical sulfuric acid. This probably would do away with the steam explosion process utilized by POET. It’s akin to popping the lignan like popping corn kernel. Makes it easier for enzymes to break down. Lignan within the above CELF pretreatment process, that is left over, is of superior quality for chemical production use. The CELF pretreatment process is expected to foment new technology for production and cost concerns. It is amazing to witness such technology improvements within a few years and how powerful a competitor ethanol has become. Considering the long time span to get to present day crude oil market economics. Also, another company has technology and business plans to allow ethanol plants to process the fuel to direct replacement of gasoline, jet fuel, diesel fuel, or just maintain ethanol production per market dictates.

    • By Optimist on March 4, 2015 at 11:10 am

      That’s all great Forrest.

      But you are starting from such a crappy base that I don’t think a seven-fold increase would disturb the sleep in Riyadh or Texas. Wake me up when ethanol can compete without subsidies…

      • By Forrest on March 4, 2015 at 5:12 pm

        The post is about the future and energy suppliers emerging as competition to crude oil. Those invested within cellulosic ethanol expect the cost of their fuel production to be on parity of gasoline within some short years. The above technology just whacked a buck off their production cost. Current technology and cost of corn ethanol would position the fuel as best value fuel on market, when the local separate distribution supply chain invoked. Also, nothing beats the fuel for oxygenate and octane booster for gasoline upon the planet. Ethanol fuel is not revolutionary cheap fuel, but the trend line is in their favor for liquid fuel.

        • By Optimist on March 4, 2015 at 5:18 pm

          Ah, yes, the usual forrest of manure.

          Those invested in cellulosic would obviously have you believe they are the future of liquid fuel, or they’d be risking their money. As Vinod Khosla has shown, wishing so, doesn’t make it so.

          Independent third party sources, such as AAA, does NOT support the wild claim that corn ethanol is the best value on the market. Not even when crude was at $100/bbl.

          And if the trend is in favor of ethanol, I hope to see their lobbyists give up on the RFS.

          • By Forrest on March 5, 2015 at 7:02 am

            Well, since the RFS saves consumers money within the blends of grain ethanol, hard to see the value to public to stop the practice. The regulation does cut into gasoline sales, so easy to explain the millions of dollars spent on advertising by API to influence politics. Problem or danger from pretrol industry is the recent successful production of cellulosic and potential flight path per RFS to greatly offset gasoline sales in future. They realize a critical time needed for cellulosic support to attract much needed financial investment. So, if they hope to stop or slow progression of ethanol they need to act quick. If as you say ethanol is a joke, why so much effort of petrol to dis the fuel?

            AAA claims they were exploited by API advertisement in that they support alternative fuels and ethanol, (threatened lawsuit). AAA appears to be a bit skizo as it depends on executive officer speaking. “AAA is specifically mentioning ads and rhetoric that are part of the API’s latest campaign to reduce the role of ethanol as an available alternative fuel, and is calling for API to have ads and articles mentioning the AAA in an anti-ethanol context taken down immediately.”

            • By Optimist on March 5, 2015 at 4:10 pm

              Ah yes, the alternate reality of the ethanol supporter, where all criticism of the wonder fuel are made by dark agents of Big Oil, funded in secret by the excess profits stolen from hardworking, rugged individualists.

              The beleaguered ethanol industry threatened AAA with a lawsuit, eh? Since when is that proof of integrity? I would argue that it proves the exact opposite, considering how many frivolous lawsuits are out there. Stop wasting my tax $$ on such stupidity, ethanol industry!

              Oh, and let’s not get into a mud fight about who spends what on lobbying…

              RR: “As has been pointed out, you can buy methanol today for around $1.00 per gallon. This is a big, well-established business that does not receive heavy subsidies and government support as ethanol does. On a per BTU basis, subsidized methanol costs $17.61 per million BTUs. You can buy ethanol today – ethanol that has received billions in taxpayer subsidies – for $1.60 per gallon. On a per BTU basis, heavily subsidized and mandated ethanol sells for $21.03 per million BTUs. (See the energy tables here).” –

  11. By RobertMStahl on January 22, 2016 at 3:22 pm

    $555 trillion in derivative debt, thus, a very “bad” distribution facility in place (i.e. liquidity is completely shifted away from the populace…, think of if it were water…). Plus, physics does have a textbook, effectively censored, called “The Grand Unified Theory of Classical Physics and, there is a surprise.

  12. By Norbert on March 4, 2016 at 3:47 pm

    Somebody’s cooking the books – and doing a real good job.

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