Stocks and News
Home | Week in Review Process | Terms of Use | About UsContact Us
   Articles Go Fund Me All-Species List Hot Spots Go Fund Me
Week in Review   |  Bar Chat    |  Hot Spots    |   Dr. Bortrum    |   Wall St. History
Stock and News: Hot Spots
  Search Our Archives: 
 

 

Wall Street History

http://www.gofundme.com/s3h2w8

AddThis Feed Button

   

02/17/2006

Ethanol, Part II

Last week I reviewed the ethanol debate in America, in broad
terms, courtesy of commentator Ken Root. This week I want to
attempt to add more specifics.

Globally, it’s Brazil that was the real pioneer in ethanol-based
fuel. Back in 1975, the government launched an ethanol
initiative in a forced attempt to diversify from gasoline, as well
as support the sugar industry (the key ingredient there corn is
for the U.S.), but until recently many have called it pure folly.
Remember that for long stretches, gasoline has been so low that
it was virtually impossible to make ethanol price competitive.
But all the while the government mandated filling stations offer
ethanol and it had to be cheaper. Of course this meant the
industry was heavily subsidized and it cost the government
dearly. Only now is the investment paying off.

[As an aside, Brazil is the world’s largest sugar exporter and in
addition to being the biggest producer of ethanol, soaring
production had held down prices until very recently when sugar
futures spiked to the highest levels in a quarter century. In the
U.S., though, corn prices have been relatively stable and ethanol
is the 3rd-largest use for corn behind livestock feed and exports.]

In the United States, ethanol didn’t become a target for
production until the Energy Policy Act of 1992, which addressed
energy issues such as coal, nuclear power and more “alternative”
methods, including ethanol.

“Specifically, the act pinpointed a handful of energy systems that
could ‘help reduce our dependence on imported oil.’” [High
Plains Journal] But it stopped short of requiring E85, 85-percent
ethanol use. Over time, however, ethanol has taken on a life of
its own thanks in no small part to heavy subsidies. And more
recently, the 2005 energy bill mandates that ethanol comprise 5%
of all gasoline consumption in America by 2012, up from the
current 3% level. Of course the President further shined the light
on this and other alternative fuels in his State of the Union
address last month.

Logistics, though, remain a huge issue when it comes to ethanol
and on a number of different fronts. Start off with the reluctance
of Detroit to build hybrid vehicles that could run on an ethanol-
blended fuel. But while Toyota and Honda have been beating
GM and Ford, the latter two have finally stepped up promotion
of their so-called “dual fuel” technology, which would accept
E85; the mix of 85% ethanol and 15% gasoline.

Of course the consumer, once they buy such a vehicle, needs a
place to fuel up and only 500 gas stations, nationwide, currently
carry ethanol. The automakers complain that if the government
wants to see more E85 use, it’s going to have to subsidize the gas
stations to get them to offer it. And here you run up against
simple supply / demand issues.

For example, the Feb. 15 edition of USA Today talked about the
fact that as gasoline prices have been falling recently, at some
service stations E85 sells for $2.20 a gallon while more
conventional gasoline (even that which contains 10% ethanol, a
common substitute for unleaded regular in the Midwest) is $2.05.
One fuel company manager offered, “Our customers are saying,
‘I’m not going to buy E85, which is better for the environment
and the economy, unless it’s cheaper.’ We’re seeing E85 just
sit.” Needless to say, if the recent slide in oil and gasoline prices
continues, the only way to make up for the difference is for the
government to subsidize the industry even more heavily.

Part of the price spike for ethanol also has to do with major oil
refiners buying the ingredient in bulk; but this is due in part to
the majors replacing MTBE, the controversial ingredient that is
suspected of causing cancer, with ethanol. As James Healey of
USA Today noted, “MTBE isn’t officially banned, but oil
companies are switching to avoid lawsuits.” An analyst with the
Oil Price Information Service added, “Gasoline with MTBE in it
will become like gasoline with anthrax in it within the next 90
days.”

Separately, on the refinery front there are 95 ethanol plants in the
U.S., with another 41 under construction, including expansions
of existing ones.

But I want to take some time on E85 and the automobile. Ford
Motor CEO Bill Ford:

“We already have more than a million FFVs (flexible-fuel
vehicles) on the road (and) Ford is working to expand retail
ethanol pumps in gas stations around the country. But, we can’t
meet the infrastructure needs by ourselves.”

Overall, there are five times the number of vehicles capable of
handling alcohol/gasoline combinations as there are gas/electric
hybrids. This figure could rise even more so at a cost of just a
few hundred dollars more per vehicle (compared to $thousands
for hybrids).

But I found the following of interest in an article for The
American Enterprise (March 2006) by Dr. Robert Zubin. In
addressing the non-availability of high-alcohol fuel mixes at the
pump and the fact gas stations don’t want to dedicate space to a
fuel mix used only by 1 percent of all cars:

“This chicken-and-egg problem can be readily resolved by
legislation. One major country has already done so. In 2003,
Brazilian lawmakers mandated a transition to FFVs, with some
tax incentives included to move things along. As a result, the
Brazilian divisions of Fiat, Volkswagen, Ford, Renault, and GM
all came out with ethanol FFV models in 2004, which took 60
percent of the country’s new vehicle sales that year. By 2007, 80
percent of all new vehicles sold in Brazil are expected to be
FFVs, producing significant fuel savings to consumers, a boost to
local agriculture, and a massive benefit to the country’s foreign
trade balance.

“To date, all FFVs have been either methanol/gasoline designs or
ethanol/gasoline designs. Combined methanol/ethanol/gasoline
FFVs have not yet been produced. Their development poses
only modest challenges, however. The question is, which
alcohol would be the best one upon which to base our future
alcohol-fuel economy?

“Methanol is cheaper than ethanol. It can also be made from a
broader variety of biomass material, as well as from coal and
natural gas. And methanol is the safest motor fuel, because it is
much less flammable than gasoline (a fact that has led to its
adoption by car racing leagues).

“On the other hand, ethanol is less chemically toxic than
methanol, and it carries more energy per gallon. Ethanol contains
about 75 percent of the energy of gasoline per gallon, compared
to 67 percent for methanol. Both thus achieve fewer miles per
gallon than gasoline, but about as many miles per dollar at
current prices, and probably many more miles per dollar at future
prices.

“Methanol is more corrosive than ethanol. This can be dealt with
by using appropriate materials in the automobile fuel system. A
fuel system made acceptable for methanol use will also be fine
for ethanol or pure gasoline.

“Both ethanol and methanol are water soluble and biodegradable
in the environment. The consequences of a spill of either would
be much less than that of petroleum products. If the Exxon
Valdez had been carrying either of these fuels instead of oil, the
environmental impact caused by its demise would have been
negligible.”

But there are other issues to consider. Dr. Zubin continues:

“The United States uses 380 million gallons of gasoline a day. If
we were to replace that entirely with ethanol we would have to
harvest approximately four times as much agricultural output as
we currently grow for food production. Now it is true that we
don’t need to replace all of our gasoline, at least not in the short
term. Replacing half would make us substantially energy
independent. Furthermore, future processes might eventually
wring out higher ethanol yields per acre. Surplus ethanol from
Brazil or other tropical nations could also be imported.
Nonetheless, relying on ethanol alone would require putting
under fresh cultivation an amount of land greater than what we
now use for food production. This would cause many strains.”

So the solution is a broader use of methanol. And for this coal is
particularly important. Zubin notes:

“The United States could power its entire economy on coal for
centuries, and large reserves also exist in allied countries.
Current coal prices stand in the range of three cents a kilogram,
much cheaper than agricultural products, so methanol can be
made from coal at low cost.”

And there is this added geopolitical benefit. Dr. Zubin:

“Even with methanol in the mix, the shifting of the world from a
petroleum to an alcohol standard would remain a great boon to
farmers. Third World farmers as much as American growers
would enjoy the benefits – not only from a vastly increased
market for their products, but also from the collapse of petroleum
prices (which currently threaten crushing fertilizer and tractor
fuel prices). This adds a strong humanitarian case for the
transition to flexible fuels.”

It’s all kind of exciting, I think you’d agree, but it takes real
political leadership. Dr. Zubin concludes:

“Our nation’s founders stipulated that the purpose of our
government is to provide for our defense, promote our welfare,
and secure the blessings of liberty to ourselves and our posterity.
In our current economic and military dilemma, decisive action
for energy independence is one of the most dramatic steps we
could take to achieve those ends. Congress should immediately
require that all future vehicles sold in the U.S.A. be flexible-
fueled, thereby launching us into an alcohol-energy future that
holds promise like few other options within our grasp.”

Sources:

David Luhnow and Patrick Barta / Wall Street Journal
Andrew Johnson Jr. / Barron’s
Jeff Caldwell / High Plains Journal
Dr. Robert Zubin / The American Enterprise
James R. Healey / USA Today

Wall Street History returns next week.

Brian Trumbore



AddThis Feed Button

 

-02/17/2006-      
Web Epoch NJ Web Design  |  (c) Copyright 2016 StocksandNews.com, LLC.

Wall Street History

02/17/2006

Ethanol, Part II

Last week I reviewed the ethanol debate in America, in broad
terms, courtesy of commentator Ken Root. This week I want to
attempt to add more specifics.

Globally, it’s Brazil that was the real pioneer in ethanol-based
fuel. Back in 1975, the government launched an ethanol
initiative in a forced attempt to diversify from gasoline, as well
as support the sugar industry (the key ingredient there corn is
for the U.S.), but until recently many have called it pure folly.
Remember that for long stretches, gasoline has been so low that
it was virtually impossible to make ethanol price competitive.
But all the while the government mandated filling stations offer
ethanol and it had to be cheaper. Of course this meant the
industry was heavily subsidized and it cost the government
dearly. Only now is the investment paying off.

[As an aside, Brazil is the world’s largest sugar exporter and in
addition to being the biggest producer of ethanol, soaring
production had held down prices until very recently when sugar
futures spiked to the highest levels in a quarter century. In the
U.S., though, corn prices have been relatively stable and ethanol
is the 3rd-largest use for corn behind livestock feed and exports.]

In the United States, ethanol didn’t become a target for
production until the Energy Policy Act of 1992, which addressed
energy issues such as coal, nuclear power and more “alternative”
methods, including ethanol.

“Specifically, the act pinpointed a handful of energy systems that
could ‘help reduce our dependence on imported oil.’” [High
Plains Journal] But it stopped short of requiring E85, 85-percent
ethanol use. Over time, however, ethanol has taken on a life of
its own thanks in no small part to heavy subsidies. And more
recently, the 2005 energy bill mandates that ethanol comprise 5%
of all gasoline consumption in America by 2012, up from the
current 3% level. Of course the President further shined the light
on this and other alternative fuels in his State of the Union
address last month.

Logistics, though, remain a huge issue when it comes to ethanol
and on a number of different fronts. Start off with the reluctance
of Detroit to build hybrid vehicles that could run on an ethanol-
blended fuel. But while Toyota and Honda have been beating
GM and Ford, the latter two have finally stepped up promotion
of their so-called “dual fuel” technology, which would accept
E85; the mix of 85% ethanol and 15% gasoline.

Of course the consumer, once they buy such a vehicle, needs a
place to fuel up and only 500 gas stations, nationwide, currently
carry ethanol. The automakers complain that if the government
wants to see more E85 use, it’s going to have to subsidize the gas
stations to get them to offer it. And here you run up against
simple supply / demand issues.

For example, the Feb. 15 edition of USA Today talked about the
fact that as gasoline prices have been falling recently, at some
service stations E85 sells for $2.20 a gallon while more
conventional gasoline (even that which contains 10% ethanol, a
common substitute for unleaded regular in the Midwest) is $2.05.
One fuel company manager offered, “Our customers are saying,
‘I’m not going to buy E85, which is better for the environment
and the economy, unless it’s cheaper.’ We’re seeing E85 just
sit.” Needless to say, if the recent slide in oil and gasoline prices
continues, the only way to make up for the difference is for the
government to subsidize the industry even more heavily.

Part of the price spike for ethanol also has to do with major oil
refiners buying the ingredient in bulk; but this is due in part to
the majors replacing MTBE, the controversial ingredient that is
suspected of causing cancer, with ethanol. As James Healey of
USA Today noted, “MTBE isn’t officially banned, but oil
companies are switching to avoid lawsuits.” An analyst with the
Oil Price Information Service added, “Gasoline with MTBE in it
will become like gasoline with anthrax in it within the next 90
days.”

Separately, on the refinery front there are 95 ethanol plants in the
U.S., with another 41 under construction, including expansions
of existing ones.

But I want to take some time on E85 and the automobile. Ford
Motor CEO Bill Ford:

“We already have more than a million FFVs (flexible-fuel
vehicles) on the road (and) Ford is working to expand retail
ethanol pumps in gas stations around the country. But, we can’t
meet the infrastructure needs by ourselves.”

Overall, there are five times the number of vehicles capable of
handling alcohol/gasoline combinations as there are gas/electric
hybrids. This figure could rise even more so at a cost of just a
few hundred dollars more per vehicle (compared to $thousands
for hybrids).

But I found the following of interest in an article for The
American Enterprise (March 2006) by Dr. Robert Zubin. In
addressing the non-availability of high-alcohol fuel mixes at the
pump and the fact gas stations don’t want to dedicate space to a
fuel mix used only by 1 percent of all cars:

“This chicken-and-egg problem can be readily resolved by
legislation. One major country has already done so. In 2003,
Brazilian lawmakers mandated a transition to FFVs, with some
tax incentives included to move things along. As a result, the
Brazilian divisions of Fiat, Volkswagen, Ford, Renault, and GM
all came out with ethanol FFV models in 2004, which took 60
percent of the country’s new vehicle sales that year. By 2007, 80
percent of all new vehicles sold in Brazil are expected to be
FFVs, producing significant fuel savings to consumers, a boost to
local agriculture, and a massive benefit to the country’s foreign
trade balance.

“To date, all FFVs have been either methanol/gasoline designs or
ethanol/gasoline designs. Combined methanol/ethanol/gasoline
FFVs have not yet been produced. Their development poses
only modest challenges, however. The question is, which
alcohol would be the best one upon which to base our future
alcohol-fuel economy?

“Methanol is cheaper than ethanol. It can also be made from a
broader variety of biomass material, as well as from coal and
natural gas. And methanol is the safest motor fuel, because it is
much less flammable than gasoline (a fact that has led to its
adoption by car racing leagues).

“On the other hand, ethanol is less chemically toxic than
methanol, and it carries more energy per gallon. Ethanol contains
about 75 percent of the energy of gasoline per gallon, compared
to 67 percent for methanol. Both thus achieve fewer miles per
gallon than gasoline, but about as many miles per dollar at
current prices, and probably many more miles per dollar at future
prices.

“Methanol is more corrosive than ethanol. This can be dealt with
by using appropriate materials in the automobile fuel system. A
fuel system made acceptable for methanol use will also be fine
for ethanol or pure gasoline.

“Both ethanol and methanol are water soluble and biodegradable
in the environment. The consequences of a spill of either would
be much less than that of petroleum products. If the Exxon
Valdez had been carrying either of these fuels instead of oil, the
environmental impact caused by its demise would have been
negligible.”

But there are other issues to consider. Dr. Zubin continues:

“The United States uses 380 million gallons of gasoline a day. If
we were to replace that entirely with ethanol we would have to
harvest approximately four times as much agricultural output as
we currently grow for food production. Now it is true that we
don’t need to replace all of our gasoline, at least not in the short
term. Replacing half would make us substantially energy
independent. Furthermore, future processes might eventually
wring out higher ethanol yields per acre. Surplus ethanol from
Brazil or other tropical nations could also be imported.
Nonetheless, relying on ethanol alone would require putting
under fresh cultivation an amount of land greater than what we
now use for food production. This would cause many strains.”

So the solution is a broader use of methanol. And for this coal is
particularly important. Zubin notes:

“The United States could power its entire economy on coal for
centuries, and large reserves also exist in allied countries.
Current coal prices stand in the range of three cents a kilogram,
much cheaper than agricultural products, so methanol can be
made from coal at low cost.”

And there is this added geopolitical benefit. Dr. Zubin:

“Even with methanol in the mix, the shifting of the world from a
petroleum to an alcohol standard would remain a great boon to
farmers. Third World farmers as much as American growers
would enjoy the benefits – not only from a vastly increased
market for their products, but also from the collapse of petroleum
prices (which currently threaten crushing fertilizer and tractor
fuel prices). This adds a strong humanitarian case for the
transition to flexible fuels.”

It’s all kind of exciting, I think you’d agree, but it takes real
political leadership. Dr. Zubin concludes:

“Our nation’s founders stipulated that the purpose of our
government is to provide for our defense, promote our welfare,
and secure the blessings of liberty to ourselves and our posterity.
In our current economic and military dilemma, decisive action
for energy independence is one of the most dramatic steps we
could take to achieve those ends. Congress should immediately
require that all future vehicles sold in the U.S.A. be flexible-
fueled, thereby launching us into an alcohol-energy future that
holds promise like few other options within our grasp.”

Sources:

David Luhnow and Patrick Barta / Wall Street Journal
Andrew Johnson Jr. / Barron’s
Jeff Caldwell / High Plains Journal
Dr. Robert Zubin / The American Enterprise
James R. Healey / USA Today

Wall Street History returns next week.

Brian Trumbore