Posts tagged “ethanol”
US Ethanol Policy Should Reflect Circumstances and Consequences
This April, two separate bills were introduced in the US House of Representatives to reform, or repeal, the federal Renewable Fuel Standard (RFS) that mandates how much ethanol and other biofuels must be blended into gasoline.
To understand why reform or repeal makes sense now, we should recall the factors that led Congress to enact this standard six years ago and consider how many of the basic assumptions underlying its design have changed since then. That requires a review of US fuel consumption and import trends, commodity prices, and the impact of the RFS on food prices. After summarizing the other points I want to focus on the last one, based on an interview I conducted with Dr. Yaneer Bar-Yam, an expert on complex systems who has developed a model that explains the behavior of food prices since the introduction of the first, less ambitious RFS in 2005.
Chemicals and Fertilizer Industries
In last week’s post Who Wins from Rising Natural Gas Prices?, I discussed the sectors that would benefit from rising natural gas prices. This week, let’s talk about the potential losers.
Natural gas is an important feedstock for the chemicals and fertilizer industries, so higher prices could pressure those sectors. Oil companies with significant chemical operations could also see this business segment take a hit, but based on ExxonMobil’s (NYSE: XOM) advocacy of liquified natural gas (LNG) exports, it clearly believes the net effect of rising natural gas prices on the company would be positive.
Dow Chemical (NYSE: DOW), on the other hand, has come out strongly against LNG exports because of the potential cost to its own business and that of other heavy users of natural gas. Ironically, last week the Department of Energy granted a permit to a facility called Freeport LNG — in which Dow owns a 15% stake. Dow’s answer to that is that they invested in the facility when it was supposed to be an LNG import facility.
But the risks to the chemicals and fertilizer industries are well-known. What isn’t as well-known is the risk from higher natural gas prices to the biofuels sector. This may be counterintuitive, since renewables like wind and solar power become more competitive as natural gas prices increase. CONTINUE»
First Qualifying Cellulosic Ethanol
Last year, to much fanfare, the first batch of qualifying cellulosic ethanol was produced (i.e., it qualified for credits under the EPA program for certifying ethanol for sales). I reported on the development at that time.
Western Biomass Energy LLC, a subsidiary of Blue Sugars Corporation (previously KL Energy) reported the major milestone of claiming the first cellulosic ethanol tax credits under the RFS2 for a 20,069 gallon batch of cellulosic ethanol produced from bagasse (sugar cane waste) in April 2012.
However, regular readers are aware that for years I have been deeply skeptical that cellulosic ethanol as envisioned by — and ultimately mandated by — the US government will be an economic and scalable fuel option. The obstacles to success are significant, and I have described them in detail on many occasions.
Should the cost of maintaining a military presence in the Middle East be viewed as a subsidy to oil companies? This idea has been repeated often enough to become unchallenged conventional wisdom codified by the “NO WAR FOR OIL” bumper sticker.
It has been argued that the Gulf and Iraq wars were not necessary to keep the global price of oil stable and neither is our continued military presence in the Middle East. There is no way to rerun the experiment to see what the world would look like had we not had the Gulf and Iraq wars. My guess is that the Gulf war was probably a smart move, the Iraq war, maybe not so smart.
In this week’s episode of R-Squared Energy TV, I answer two gasoline-related questions. One is on how ethanol is impacting current gasoline prices, and whether that increases the chances of a waiver for this year’s Renewable Fuel Standard. The other is on the impact of the Chevron refinery fire in California.
In last week’s Energy Trends Insider our featured stories were How to Make Money in Solar as Every Solar Manufacturer Goes Bankrupt, Analyzing Coskata’s Major Strategy Shift, and Rough Road For Biobutanol. As we have done previously, we would like to share one of those stories with regular readers of this column. Interested readers can find more information on the newsletter and subscribe at Energy Trends Insider.
Analyzing Coskata’s Major Strategy Shift
Last week Coskata announced that they were abandoning their planned $100 million IPO along with a fundamental shift in company strategy. No longer will their immediate plans involve the conversion of wood into ethanol, but instead they will focus on natural gas to ethanol. CONTINUE»
In the paper, we conclude that evaluated at the average ethanol production level of 01/1995-03/2008, the wholesale gasoline prices is $0.14/gallon lower. The change of retail gasoline prices varies across refinery markets from $0.29-$0.40/gallon.
Our brand new weekly newsletter — Energy Trends Insider — debuted this week. We had stories on the implications of the U.S. corn crop, the state of Cleantech investing, Patriot Coal’s bankruptcy, and the potential of pyrolysis oil.
Interested readers can find more information on the newsletter and subscribe at Energy Trends Insider. To give a flavor for the kind of content, I want to share the story on the situation with the U.S. corn crop and how that can potentially impact upon the domestic ethanol sector. This has been a story that we have been on top of for two weeks; had ETI debuted a week earlier this would have been our lead story which was well before the story received much mainstream attention. In fact, I have not seen any detailed analysis yet on the potential implications of this story — but ethanol futures have moved sharply higher in the past two weeks.
Potential Impacts of Poor Corn Crop on Ethanol Market
By: Robert Rapier
I have long felt that one of the biggest threats to the U.S. ethanol industry is a major drought/crop failure in the heart of corn country. This year we may be experiencing such an event. Recent reports indicate that what had been expected to be a record crop of corn has been downgraded such that only 40% of the corn crop is being classified as in good or excellent condition. This is down 48% versus last week and 69% versus a year ago.
Corn prices are naturally surging in response; current corn prices are 21% higher than they were a year ago. Because so much of the corn crop is devoted to meeting ethanol mandates, there is a potential supply conflict being set up between food producers and ethanol producers.
A Moderate Willing to Work With Both Sides
I just wanted to take a quick moment to lament the loss of Senator Lugar to the Senate. He lost his Republican Primary election for the Indiana Senate seat last night by an astonishing 21 points. The issues of energy and environmental security, especially in how they affect America’s foreign policy, were central to his 36 years in the Senate. There were many other factors that helped bring him down — his age, the fact that he no longer lived in Indiana, and his votes on TARP and President Obama’s Supreme Court nominees.
Senator Lugar played a unique role in American energy and environmental policy because his position has really marked the center of American politics on these issues. That means that he’s been willing to work with both sides to get things done, and it also means that his views have shifted as the country’s views have shifted.
When I worked in the Senate, I had the opportunity to work with his staff on the Foreign Relations Committee, and there were few people anywhere on the Hill who were more professional. They simply were interested in seeking the best solutions on important issues, regardless of whether that solution came from the right of the left. One of my proudest moments was working to introduce and pass legislation for a clean-energy bank — now operated through the World Bank — that helps to fund clean energy development around the world. This truly was bipartisan, introduced by Senators Lugar, Biden, Menendez, and Hagel (my boss at the time). I am afraid, however, that this election marks the end of such solution-oriented legislating for a long time.