The Week in Energy – September 1, 2007

As I mentioned in the previous post, I plan to start posting on a more infrequent basis. Every 5-10 days, I will post some short excerpts/links to energy stories I found interesting, odd, or comical. I will keep my own comments to a minimum. And while I plan to leave the comments section open, I don’t plan to spend time there as it is too easy to get sucked into endless debate.

Anyway, I was targeting this weekend for this essay, but I have slowly chipped away at it each morning this week, and I think there is enough there to post. Let me know whether you find this format useful. I am open to changing, as long as I can keep my time investment low as previously discussed.

Spreading Coal-to-Liquids Myths

General Motors: Ethanol Mythbusting by Spreading Ethanol Myths

Texas Surpasses California’s Installed Wind Power

The Children of the Corn are Getting Upset

TWIP: Lowest Ever Gasoline Inventories

Spreading Coal-to-Liquids Myths

The first entry comes from Malcolm Berko, who apparently writes a financial column out of Boca Raton. In answering a question from a reader, Mr. Berko helps to further confuse the public about energy issues as he paints coal-to-liquids (CTL) as the solution to our dependence on oil:

Taking Stock: Something not natural about synthetic oil firm

Some excerpts:

Dear Mr. Berko: Please tell me about Sasol, which is a synthetic oil and gas producer in South Africa.

J.W.

Detroit

Dear J.W.:

Since the oil crisis of 1973, many people are astonished that Congress and the White House have done nothing to ameliorate the problem. However, there is a super solution called “coal hydrogenation,” developed by Standard Oil of New Jersey (now Exxon Mobil Corp.) in 1930. It’s a simple process, and the resulting fuels cost much less than the fuels produced by Big Oil. In fact, those fuels are not an atomic particle less efficient than the same product produced from a barrel of oil.

But Exxon, Shell and the other Big Oils have billions of dollars of vested interests in oil properties, infrastructure equipment, etc., and “hydrogenation” would give Big Oil lethal gas pains. So to protect their interests, the oils covertly purchased influence from Congress (which is easy) to keep “coal hydrogenation” as far from the U.S. as possible.

Recently, a Congressional representative whose vote is not for sale told me that “active support for coal hydrogenation could cause me personal and political damage. Those oil companies are seriously nasty.”

In 1934, about 85 percent of Germany’s oil was imported, and the German Reich needed oil independence to fuel its factories and war machinery. The Nazis’ solution was a process developed in the U.S. by Standard Oil of New Jersey. It is called “coal hydrogenation, ” and because Germany had immense coal deposits, its supply of fuel and lubricants was almost unlimited. Between 1934 and 1942, Standard Oil financed and guided Germany’s hydrogenation process, producing the synthetic fuels that powered Germany’s formidable war machines across Europe, Africa and Russia. Undeniably, without the hydrogenation process, Germany could not have commenced World War II.

Back then, Standard Oil of New Jersey had enough congressmen on its private payroll to do anything it wanted to do. As a result, the actions of its officers and its board of directors nearly caused the Allies to lose World War II while their avarice and venality cost thousands of American lives. It is clearly documented that in the hubris of their success, Standard Oil made substantial contributions to German SS chief Heinrich Himmler ’s personal fund and as late as 1944, was an active member of Himmlers “Circle of Friends.” So don’t for a nanosecond believe that gas prices at today’s pump are due to the high cost of a barrel of oil.

I won’t deconstruct the response, but I would like to ask Mr. Berko a couple of questions. Given that a number of countries other than the U.S. (Russia, China, India, Australia, and Germany) have larger coal reserves than South Africa, do you think it’s possible that there is a reason other than the “Big Oil boogeyman” that CTL hasn’t taken off? Can you think of a reason why South Africa might have (historically) had an added incentive to produce liquid fuels from a CTL process? Finally, given that Germany had developed a coal-to-liquids industry, and has large coal reserves, why do you suppose they abandoned their efforts after the war, instead of maintaining the industry?

For the record, the Energy Information Administration has estimated capital costs for CTL at $60,000 per daily barrel of production. This is around triple the cost of a conventional refinery, or an ethanol plant. Oil companies have looked at CTL numerous times, and have not pursued it on the basis of high costs. After all, don’t you think they would rather buy coal and turn it into diesel if you could really do so at a comparable cost? Their raw material supply would be much more secure.

General Motors: Ethanol Mythbusting by Spreading Ethanol Myths

General Motors has apparently decided that the best way to fight ethanol myths is to repeat some of the more common ones:

E85 “Mythbusting”

Certainly nobody can question their sources. After all, the Renewable Fuels Association, USDA, and National Corn Grower’s Association wouldn’t steer you wrong. I won’t go through the entire list, but they did hit some of my favorites:

Here are a few of myths out there on E85, and truth provided by experts.

Current research prepared by Argonne National Laboratory (a U.S. Department of Energy Laboratory), indicates a 34% gain in the overall energy input/output equation for the corn-to-ethanol process. That is, if 100 BTUs of energy is used to plant corn, harvest the crop, transport it, etc., 138 BTUs of energy is available in the fuel ethanol.

Of course we know that’s false. According to the USDA’s own numbers (the same source as that Argonne number), spending 100 BTUs of energy into ethanol production results in 106 BTUs of ethanol, and about 20 BTUs of animal feed.

It is worth noting that in fact, gasoline has a negative net energy of .87, meaning it takes 13 percent more energy to produce than it delivers.

I read a keen observation by someone recently on this account: How could an energy sink have transformed the globe in the 20th century?

Studies, including two by the DOE and USDA, have proven we can produce 60-90 billion gallons, on an energy equivalent basis, and potentially offset fossil fuel use by 30% or more by 2030.

The studies proved it, did they? Thank goodness. Just curious, though. How much has our fossil fuel consumption dropped over the past 5 years, as ethanol has exponentially ramped up?

The relatively small increases in food prices in 2007 have been attributed to increased energy costs (oil cost). (source: USDA and National Corn Grower’s Association (NCGA))

And rest assured that it has nothing to do with the ethanol-fueled doubling of corn prices in the past couple of years. Just ask the National Corn Grower’s Association.

It’s good to know that the future of GM is in such capable hands.

(Thanks to Gary Dikkers for sending that link).

Texas Surpasses California’s Installed Wind Power

Texas, long associated with oil and gas, is now the wind capital of the United States:

Texas blows past California in energy

Aug. 25–Recent Texas developments suggest that California’s lead in one alternative-energy area may be gone with the wind — the wind turbine, that is.

Last year, for the first time ever, an industry association reported that Texas surpassed California as the country’s No. 1 generator of wind energy. Not only did the Lone Star State blow past the Golden State again in this year’s report, but Texas regulators in July voted to designate eight zones for production of about 20,000 megawatts of wind energy.

The development is a bit of a twist given that California, with its Million Solar Roofs plan and other programs, is a national leader in conservation efforts, whereas Texas has long been associated with old-school energy sources, such as oil and natural gas.

Texas’ lead is increasing. In 2005, Texas led California by 47 megawatts in installed wind energy, and in 2006, it led by 407 megawatts, according to the annual U.S. wind power rankings of the American Wind Energy Association.

One megawatt is enough electricity to power 750 California homes during peak demand. The association reported that Texas had a capacity of 2,768 megawatts as of Dec. 31. California had a capacity of 2,361 megawatts.

“Texas is wowing everyone with those numbers,” said Christine Real de Azua, a spokeswoman for the association.

Wind power is growing at an incredible pace. You can see a map showing a state-by-state comparison of installed wind power here:

Wind Power America

The growth in installed capacity is also shown. Interestingly, Iowa is in 3rd place behind Texas and California. Now if they can only use that wind power to distill off ethanol…..

The Children of the Corn are Getting Upset

Of course I say that with great affection, as we always raised a fair amount of corn, and I have spent many a summer’s day shucking corn. But some corn growers don’t think ethanol is getting a fair shake:

Rolling Stone Gathers Dross

So much of the article is blah, blah, blah - we have heard all this before and there is no way to argue with these people because they believe what they want to believe.

Incidentally, Renewable Fuels Association president Bob Dinneen did take the time and effort to respond to the Stone article with a letter to the editor, which was subsequently lambasted by the article’s author. In the middle of it all is a blogger by the name of Robert Rapier - a UK oil-industry engineer and contributor to “The Oil Drum” blog - whom Rolling Stone author Jeff Goodell used as a source for many of his claims about ethanol. Dinneen challenged the “energy blogger’s” figures and in turn has been challenged to a debate by Mr. Rapier. To my knowledge, Mr. Dinneen has yet to take up the offer, but I think he should - somebody should. We can’t sit back and be weenies and keep taking this lying down.

Indeed. Don’t be weenies.

TWIP: Lowest Ever Gasoline Inventories

Recall throughout the spring when I was warning about plunging gasoline inventories, which ultimately drove gasoline prices to record highs? Well, we never quite recovered, and the scenario I described in this post back in June:

If we have no disruptions from hurricanes, imports stay strong, and we have no major refinery outages, we are likely to slowly climb out of this hole. But recent history suggests that we are likely to see more draws over the summer, exacerbating an already tight inventory picture.

is now upon us. From This Week in Petroleum for the week ending August 29, 2007:

As the chart below indicates, not only is the absolute level of inventories low (see Figure 4 in the Weekly Petroleum Status Report), but in terms of days of supply, it is the lowest ever recorded (the days of supply data goes back to March 1991), reaching just 20 days. This is even fewer days than seen following the hurricanes in 2005. While the absolute level of total gasoline inventories has been slightly lower a few times in recent years, when the level of demand is taken into account, it has not been this low before.

Lowest gasoline inventories on record. Gasoline inventories were not this low following Hurricane Katrina, and yet we have had an uneventful summer. It is very possible that we will not dig ourselves out of this hole for a long time. In the short term, an upturn in gasoline prices is inevitable.

R-Squared Lite

After hearing numerous suggestions and kicking around the options, I have decided not to completely close shop. However, I will do things a bit differently from here on. I don’t plan to spend more than about 2 hours a week on the blog, and I am taking the following steps in order to more effectively manage my time.

I will only write and post essays when I have time that is truly “free.” That is limited for the most part to Saturday and Sunday morning, when I usually wake up at 5 or 6 and have a couple of hours before anyone else wakes up. I will either post a substanive essay, or do a quick review of the week’s interesting energy developments. Once the rest of the family starts to wake up, I will stop what I am doing. My intent is for my activities to be completely invisible to my family and my employer, and to take no time away from either.

I am going to leave comments on. Enough people have told me that they can ignore the trolls, and I want this to be a forum where people can discuss energy issues. I have also learned a lot from comments, and there needs to be a forum for people to challenge points or offer corrections. However, I don’t generally plan to respond to comments. On my Saturday/Sunday morning “check-ins” I will skim comments and see if one really requires a response.

Once a week I will come through and do maintenance, getting rid of trash. What is trash? Comments that are designed to be inflammatory; comments that are unproductive (e.g., links to off-topic information), and any comment that attempts to identify my employer. I can’t make it clear enough: What I am doing here has nothing to do with my employer, and I have been asked by them to make that clear. I do not speak for them, even when my position is consistent with the official company position. That should be clear enough, so don’t complain if you violate those guidelines and your comment is deleted.

I am leaving my e-mail address offline, but if you really need to get in touch (and don’t already have my e-mail address), then post something in the comments and I should eventually see it.

I will post substantive essays on perhaps a monthly basis. It just depends on how long it takes me to work one up. I have a number of excerpts that I can pull out from the ethanol FAQ (still a work in progress), and I have a lot of material from the renewable diesel essay that I recently worked on.

If I stick to this regimen, I think I can manage the rest of the things in my life. If not, then I will have to quit this. But I spent the past week away from the blog, rarely checking in and making no comments, just to see if I could do it. And it really wasn’t all that hard.

Reflections at the Crossroads

I spent this weekend on a couple of offshore production platforms. The isolation provided a very reflective atmosphere for me, and some things came into focus. I have been trying to juggle a lot lately. It has come to the point that I effectively have 2 full-time jobs. I spend 45-50 hours a week at work, and another 40-60 hours doing work related to this blog. That work involves writing essays for this blog and for other websites, answering e-mails, and doing technical evaluations on various ideas that people send me.

The writing is the easy part. I can knock out an essay very quickly. But let’s face it: I have a combative personality. I feel like I need to address every criticism from every critic (even the obvious nut jobs). I know I shouldn’t, but that’s the way my brain is wired. And that takes an incredible amount of time. For a while I have been wondering how long I can keep this up, but this weekend proved to me that I have reached the end of the line. The status quo must change.

Here are the issues that have come into focus for me, followed by the options I have identified for moving forward (or not). Suggestions are appreciated.

Family Issues

Because of my juggling act, I don’t always pay as much attention to those around me that I should. This past week, my 11-year-old son watched a movie that he really liked. I told him, “Yeah, I have been meaning to watch that with you.” He then looked at me, and asked “But why didn’t you?” Do you know why I didn’t? Because I was on the Internet, “in combat mode”, as my wife likes to call it, addressing critics. But it was really one of those sobering moments where you think “What am I doing?” You know that song, “Cat’s in the Cradle?” I could hear that playing in my head when my son asked me that question. And even though I love talking and debating about energy, I don’t want my kids to grow up with memories of me glued to the computer.

I could juggle all of this when I was here in Scotland by myself, because the discussions kept my mind occupied and off of the fact that I was going to be a long time away from my family. But now that we are all back together again, I find that it is very easy to get sucked right back into things. I think “I will just post a short essay”, and before long I find that I spend 10 times that effort responding to comments. And that’s when family time suffers.

Work Issues

Walking around those platforms this weekend, it became clear how much I do not know. For those who don’t know, my assignment in Scotland is quite different than my past experience, which has been primarily in downstream production and R&D. So, I am in a position where I am on a very steep learning curve, and this weekend it came into sharp focus just how high that mountain is that I have to climb. Yet I have been heading down parallel paths – the outside interests and work – both of which are demanding more of my time. This is keeping me from climbing that mountain as quickly as I should.

I always performed at a very high level as an engineer. I have always had a knack for finding creative solutions to problems. And I have been able to advance on the basis of intelligence and creativity. Presently, I am responsible for a team of 13. Within my group, there is an incredible amount of information that I need to manage. And I just can’t get by solely on the basis of intelligence and creativity. I can’t handicap myself by staying up until midnight debating energy, and then go to work tired and with bloodshot eyes, and still excel at my job. If I don’t make a change, I am going to go from excelling as an engineer to mediocrity as a manager. And not only do I not like the idea of mediocrity, but mediocrity in this business can get people hurt.

Legal Issues

Another factor in my thinking concerns advice I received recently from two different attorneys. As many of you know, I have provided free technical evaluations for numerous projects/ideas. The number of times I have done this from e-mails alone is certainly over a hundred. Other people write to tell me they are acting on the basis of something I have written. And while I am eager to help people out, one of the lawyers advised me that I am exposing myself to liability. If I provide useful advice to 50 people, then I will probably never hear anything else about it. But if the 51st person feels like they got bad advice because they made a bad investment as a result, they may decide they should sue (even though the advice was free).

This was really news to me, but I was assured that it happens. I was told that I definitely need to put up disclaimers to the effect that if you decide to act on any of the opinions expressed in this blog, that you are on your own. But it has also made me decide to permanently take my e-mail address offline. I don’t have time for it, but throw in the possibility of a lawsuit, and it becomes a no-brainer.

Outside Projects

I have picked up an outside project that has a lot of promise. But it is clearly going to take some of my time. And there is just no way that I can juggle my family, my job, my outside project, and this blog. I am reasonably confident I can juggle the first three.

Options

I have been kicking around the options. I am getting reasonable traffic, and a good number of consistent, reasonable posters regularly comment. I don’t want to just close the doors, so here are some things I have been kicking around.

1. Simply cease writing essays. Of course this option would mean that the reasonable posters would eventually drift away, and I think we have some good discussions here. The blog would remain as a source of information for people doing Google searches, which account for a fair fraction of the traffic.

2. Post one or two brief energy blurbs a couple of times a week as the basis for discussion. I wouldn’t necessarily participate much, as that’s a quick way for me to get right back to where I am now.

3. Invite a few of those consistent, reasonable posters to join the blog and post their own stuff. There are a lot of group blogs out there. With multiple people contributing, it takes a lot of pressure off of me. Right now, I am a one-man show, trying to manage an operation that is beginning to consume me. GraphOilogy, with 4 contributors, is a good example of an energy blog based on this concept. So if anyone is interested, let me know. I even make that offer to critics, and those with very different opinions, as long as energy is the topic. You would be free to post essays, and could also help police the nutters.

That’s about what I have come up with. If anyone has other suggestions, let me know. It has become crystal clear over the past weeks and months that I was coming to a crossroads: I had to either devote more time to the blog (and less to family and work) if I want to maintain it at a high level and grow, or I have to greatly cut down on the blog and rededicate myself to more important pursuits. But the status quo was clearly reaching a breaking point.

Ethanol/Alternative Fuel FAQ

Of course you are against ethanol. You work for Big Oil.

Is ethanol reducing dependence on foreign oil?

What’s this EROI/EROEI/Energy Return Business?

Is EROEI the Same Thing as the Process Efficiency?

Isn’t the Energy Balance for Corn Ethanol Better than for Gasoline?

Does the Energy Balance/EROEI Matter?

Doesn’t the Ethanol Subsidy Actually Benefit Oil Companies?

Doesn’t Ethanol Usage Create Jobs and Provide Cash for Midwestern Communities?

Do We Have Enough Land to Grow Our Way to Energy Indendence?

If Brazil can do it, why can’t the U.S.?

Can’t Brazil and other tropical countries provide biofuels for the world?

What about the environmental benefits of using ethanol as fuel?

Isn’t ethanol useful as an oxygenate replacement for MTBE?

8/26/07 - Added section on environmental benefits.

8/5/07 - Added to section on the petroleum displacement claims. Building the section on Brazil.

8/4/07 - Updated section on the ethanol subsidy, and who it benefits. Also updated section on ethanol and job creation. Updated section on land requirements.

8/3/07 - Updated section on energy balance, and whether it matters.

I am starting to get a lot of traffic and e-mails off of this Rolling Stone article. A lot of the same questions/criticisms come up again and again, so I am finally being prompted to do something I have been meaning to do for a long time: Write a FAQ, where my position is summed up concisely, and is understandable by anyone. This is a work in progress, so if you can think of something that should be addressed, please speak up. I am going to throw them out there as I do them, and I will clean them up later. I hope to put up one or two new items a day, and if you find errors, I will certainly correct them. This will not be an opinion piece. It is going to be based on facts and numbers.

Of course you are against ethanol. You work for Big Oil.

This one is where opponents tend to go when they are lazy, or have no better arguments to offer. But not only is it an ad hominem argument, it is wrong on 2 counts. First, I have a long track record of being supportive of alternative fuels, I did my graduate school thesis on the subject, and in fact I have done a lot of work in this field. Many people who read this blog can attest to the fact that I have done a lot of pro bono work, on a lot of projects: From biodiesel to biobutanol, right through cellulosic ethanol and yes, even corn ethanol. Furthermore, I am currently involved in a cellulosic ethanol project.

But the second reason that this argument is invalid is that the corn ethanol industry is heavily dependent upon fossil fuels for the entire production process. These fossil fuels include gasoline and diesel, but are primarily natural gas embedded in the fertilizer for the corn, and for the distillation energy. Guess who produces this natural gas? Big Oil, and my company in particular, produces a tremendous amount of it. The tripling of natural gas prices since 2002 happened just as we had a dramatic increase in ethanol production. Coincidence? No. And this has been a windfall for Big Oil.

Don’t take my word for it. Here’s the view from Ethanol Producer Magazine:

Diversifying Energy Options

One source tells EPM that when ethanol production reaches 7.5 billion gallons (assuming all of that capacity was fueled by natural gas) demand from the industry could represent a 1.2 percent increase in total U.S. demand for natural gas. That’s a significant rise when you consider that the total increase in natural gas consumption from 2004 to 2005 was only about 1.4 percent. What happens if the ethanol industry goes to the apparent next production plateau at 12 billion gallons per year? Ultimately, increased natural gas use resulting from the ethanol industry’s expansion affects total U.S. demand of fossil energy, helping to keep supplies tight and prices elevated.

That’s right: Corn ethanol is a boon to Big Oil, because it has helped tighten up fossil fuel supplies, which has helped with the price increases - while displacing little to no fossil fuel itself. And I can tell you that a lot of people in the oil industry recognize the irony. A number of oil companies, including my own, have come out and endorsed ethanol. So my arguments against corn ethanol are actually contrary to the official position of my company.

Is ethanol reducing dependence on foreign oil?

There are many claims around these theme. From the Renewable Fuels Association’s (RFA) “Energy Facts”:

FACT: In 2006, the production and use of ethanol in the U.S. reduced oil imports by 170 million barrels, saving $11 billion from being sent to foreign and often hostile countries.

The RFA’s page on industry statistics shows that ethanol production in 2006 was 4.86 billion gallons. This is 116 million barrels. Oil has a BTU value of 138,000 BTUs/gal, versus 76,000 BTUs/gal for ethanol; therefore 116 million barrels of ethanol contain the BTU equivalent of 64 million barrels of oil. (Source: ORNL). The claim then is that 64 million barrels of oil equivalent (BOE) displaced 170 million barrels of oil.

The RFA’s source on that was the consulting firm LECG, where director John M. Urbanchuk has also been quoted:

The production of nearly five billion gallons of ethanol means that the U.S. needed to import 206 million fewer barrels of oil in 2006, valued at $11.2 billion. This is money that stayed in the American economy.

Source: Contribution of the Ethanol Industry to the Economy of the United States in 2006 (PDF download)

While you might expect to find such claims from the ethanol industry, even grander claims are being made by the U.S. Government. From DOE Assistant Secretary Alexander Karsner’s keynote address to the RFA’s National Ethanol Conference in Tucson, Arizona:

Last year, we contributed something on the order of a displacing 500 million barrels of oil, oil that we didn’t have to import from regimes that are hostile to our interest or might leverage energy economics over our future.

Here’s the same claim by Paul Dickerson, Chief Operating Officer at the DOE’s Office of Energy Efficiency and Renewable Energy:

Over 6 billion gallons of ethanol were produced in the United States last year, and we have an additional 5 billion gallons of refining capacity under construction.

That effort means 500 million fewer barrels of oil that we have to import from the Middle East.

That’s from the U.S. Department of Energy. That is the department of the U.S. government that is charged with formulating and carrying out U.S. energy policy. How on earth are people coming up with these numbers? Can 64 million barrels of oil equivalent displace 170 million, 206 million, or even 500 million barrels of oil? And recognize that we haven’t even touched upon the fact that the 64 million barrels is the gross output, and not the net. To get a true displacement number (for just petroleum), we have to subtract out all of the petroleum inputs that went into making those barrels of ethanol.

The way they are coming up with such unreasonable numbers is because they are making some invalid assumptions. They are assuming that since only 1/6th or so of the BTUs embedded in a BTU of ethanol come from oil (the rest are from natural gas or coal), that a barrel of ethanol can actually displace more than 1 barrel of oil.

But consider this for a moment. Consider if only 1/100th of the inputs into ethanol were from oil. In this case your multiplier is 100 (instead of 6). Do you believe that a barrel of ethanol then displaces 100 barrels of oil?

So how much oil can ethanol really displace? No more than the BTUs that are contained in the ethanol. A 1 to 1 BTU replacement is is the best you could get even if the ethanol was free of any energy inputs, and just available for pumping out of a well. That is the maximum theoretical displacement.

Since ethanol is a gasoline replacement, the displacement should be most pronounced if we look at the gasoline demand curve. As ethanol has ramped up exponentially since 2000, one might expect to see this in the gasoline demand curve. Yet there is no obvious inflection on the gasoline demand curve. As shown in the link, as ethanol has ramped up since 2000, not only has gasoline demand increased by 10 billion barrels per year, but there isn’t even any obvious effect from ethanol on the gasoline growth curve. Even as ethanol has ramped up, the data indicate that we have become more dependent upon petroleum.

U.S. dependence on foreign oil is a demand-side problem. It is not going to be fixed by producing more ethanol - false claims about the amount of displacement notwithstanding. And it is not going to be fixed unless we confront the reality of the situation instead of the political spin.

What’s this EROI/EROEI/Energy Return Business?

The EROEI, (Energy Returned on Energy Invested), EROI, and energy return all refer to the same idea. It is the ratio of usable energy returned from a process divided by the energy expended (consumed) in the production process. Or, simply put, if I expend a total of 1 BTU of energy in a process that yields 5 BTUs of energy, the EROEI is 5/1.

This is an area rife with misunderstand and garbled definitions. Depending on where the system boundaries are drawn, one can come up with very different definitions.

Is EROEI the Same Thing as the Process Efficiency?

No, and this is a big source of confusion. The process efficiency refers to the percentage of net energy yielded in the process. In the above example, 1 BTU was expended to produce 5 BTUs. The net energy is then 4 BTUs, and the efficiency of the process is (4/5), which is 0.8 or 80%. An EROEI can be greater than or less than 1. A process efficiency is always going to be less than 1 (i.e., you are always going to use up some of the energy value in the process).

Isn’t the Energy Balance for Corn Ethanol Better than for Gasoline?

I think most people are starting to accept this as a debunked myth. But let’s review the history, because I do still hear this claim occasionally. A few years ago, Michael Wang from Argonne National Labs invented a metric, which was fossil fuel inputs into both the ethanol and gasoline production processes. This metric was neither an EROEI nor an efficiency, it was a hybrid, and has led to a lot of apples and oranges comparisons between gasoline and ethanol.

I have dealt with this claim several times in this blog. I addressed it here in response to a claim from the Minnesota Department of Agriculture (which they seem to have since removed):

In summary, the finished liquid fuel energy yield for fossil fuel dedicated to the production of ethanol is 1.34 but only 0.74 for gasoline. In other words the energy yield of ethanol is (1.34/0.74) or 81 percent greater than the comparable yield for gasoline.

I addressed it here, in response to a letter from a reader in which Michael Wang and Vinod Khosla were both copied, and both got involved in the debate:

If your assessment of the ethanol fuel cycle energy balance (and its comparison with the petroleum fuel cycle energy balance) is right, then not only is Vinod Khosla wrong, but many others of us in the energy community — including the U.S. Department of Energy and Argonne National Laboratory (see attached summary) must also be wrong.

Now I will address it here for the last time. What’s the issue? For Wang’s metric, the inputs aren’t considered in a consistent manner. For instance, the fossil fuel inputs into the ethanol process are burned. Gone. The fossil fuel inputs he is considering for gasoline production includes the barrel of oil that gets turned into liquid fuels. So, he is including only expended fossil fuels in the ethanol case (which is what you want to do for an EROEI) but in the case of gasoline he is also including fossil fuels that were not consumed and are still available as fuel. What Wang has done, by defining his metric as he has, is to measure the EROEI of ethanol - at 1.3, versus the efficiency of gasoline, which according to Wang’s most recent modeling, is 0.8 (from crude in the ground to gasoline in your gas tank). And I can tell you that this is reasonably accurate. But to compare the two different metrics causes the kind of confusion that you might expect.

So, let’s compare EROEI to EROEI and efficiency to efficiency. At an ethanol EROEI of 1.3, that means that burning 1 BTU to produce 1.3 BTUs only results in a net of 0.3. Therefore, the efficiency is 0.3/1.3, or 23%, versus Wang’s estimate of 80% for gasoline. Comparing EROEIs, an 80% efficiency for gasoline means that to produce 1 BTU consumed 0.2 BTUs, for a net of 0.8. The EROEI for gasoline then - the energy return over energy invested - is 1 BTU/0.2 BTUs, or 5/1. This was the source of the claim to that effect in the Rolling Stone article.

In summary:

EROEI of producing ethanol - 1.3/1
EROEI of producing gasoline - 5/1

Efficiency of producing ethanol - 23%
Efficiency of producing gasoline - 80%

Does the Energy Balance/EROEI Matter?

It depends. A society that operates with a high average EROEI is going to look quite a bit different from a society that doesn’t. In the former, a relatively small proportion of the overall economy can be involved in the production of energy which drives the rest of society. But as the EROEI of a society decreases, the energy production of the society must increase. Society becomes more dependent upon energy production. For instance, the world uses 85 million barrels of oil a day. If the EROEI of society is 10/1, then 8.5 million of those barrel equivalents were used to produce the oil. For the sake of this exercise, let’s assume that oil was used to make oil. That leaves us with a net of 76.5 million barrels. Now, drop the EROEI of that same society to 1.3 to 1. Now, in order to net 76.5 million barrels of oil, we have to consume 76.5/1.3, or 59 million barrels per day. In the high EROEI society, it takes 85 million barrels of total production to sustain it. In the low EROEI society, it takes 76.5 + 59, or 135.5 million barrels per day to sustain it.

But what if, in the second case, we could use biomass as our energy source (but not for the first case)? Or what if, in the first case there are lots of other negative externalities that go along with the energy source? Or what if the second case utilizes a very cheap energy source to make a fuel that sells for a much higher value? In reality, EROEI is a part of the overall evaluation, but by itself does not tell you much.

Consider that your goal is merely to make money. You may be able to make lots of money with a process having an EROEI of less than 1. You can take a pound of BTU of coal and use it in an ethanol process to make less than a BTU of ethanol. Considering only your energy inputs, you have increased the value of your BTUs by a factor of 10. So, even if you take 1 BTU of coal and convert that into 0.7 BTUs of ethanol, there may be plenty of economic incentive to do it, despite the energy returns.

EROEI matters. Sometimes. And as a part of the overall context.

Doesn’t the Ethanol Subsidy Actually Benefit Oil Companies?

Here’s Vinod Khosla from a story in Wired, Six Ethanol Myths:

Yes, ethanol producers and blenders share in a 51-cent-a-gallon federal credit that costs taxpayers about $2 billion a year. The majority of that accrues to oil companies, not farmers.

Before pondering this too much, consider for a moment just who has lobbied to keep the credit intact. Has it been oil companies? No. Has it been politicians from oil states like Texas and Alaska? No. The groups always arguing in favor of the ethanol tax credit have historically been farm state politicians, ethanol lobbying groups, and corn lobbying groups.

Last year I documented the reaction of Brian Jennings, the executive vice president of the American Coalition for Ethanol, when ExxonMobil (XOM) CEO Rex Tillerson called for an end to the subsidies. Jennings said “it is outrageous for an executive for big oil to actually suggest getting rid of the tax credit for ethanol.” That’s very odd behavior if Big Oil is actually the beneficiary.

But of course as you might guess, Jennings isn’t making the case for Big Oil, because Big Oil isn’t the actual beneficiary. Here’s what’s going on. The blender’s credit does in fact accrue to the purchaser of the ethanol. That’s because the wholesale price of ethanol, at only 67% the energy content of gasoline, historically has been more higher than that of gasoline. (At times ethanol has traded cheaper than gasoline, but never on an average annual basis in the past 27 years. See the chart in this essay). So, without the incentive, it would not be economical for oil companies to purchase ethanol for blending. The blender’s credit has resulted in an artificial inflation of the price that ethanol producers can get for their product, which is why they are defensive about keeping it.

However, I have noted a change in attitude from oil companies lately with respect to this credit. Whereas they were once strongly against it, I think the fact that ethanol is now mandated has some of them changing their tune.Even the American Petroleum Institute has changed their tune. I recently posed the question to API president Red Cavaney on the API’s stance on the subsidy, and he stated that they are agnostic on the issue.

Why the change? Because now, with ethanol mandated, eliminating the credit would mean that oil companies would be forced to pay the true price for ethanol without getting a credit, meaning they will have to pass these costs on. This would result in an increase in the cost of gasoline (consider that this would cause the price of E85, for instance, to rise by 85% of the value of the subsidy - $0.43/gal). This would likely reduce overall product demand. So oil companies may be realizing that with mandated ethanol, they are better off with the credit in place - even if the primary beneficiaries are ethanol interests.

Doesn’t Ethanol Usage Create Jobs and Provide Cash for Midwestern Communities?

Of course it does. But how are jobs created? If we mandated that everyone had to consume a pound of potatoes or a pineapple each week, it would also create jobs and revitalize communities. So why don’t we do this?

We don’t do this because the jobs are created by flowing money out of one region of the country into another. If job creation had no impact on jobs in other regions, we could just enact one mandate after another, forcing us to buy various products until everyone was happily employed. But the economy doesn’t work that way. The jobs that are created in Iowa are a result of money flowing out of the rest of the country.

Paul Rogers, a reporter for the San Jose Mercury News, gives the following account in which he asked Iowa governor Tom Vilsack why the rest of the country should be forced to use ethanol:

“Because it helps farmers from my state expand their markets, Vilsack explained. ‘So I guess you’d support a new federal law to require everybody in Des Moines to buy a computer, to help people in Silicon Valley expand their markets?’ I asked. He didn’t concur.”

That’s a pretty good example of why job creation isn’t free. Forcing people in Iowa to buy computers would result in less money to spend on other things. It is just less obvious with ethanol, because the money is extracted in smaller increments.

Do We Have Enough Land to Grow Our Way to Energy Indendence?

Again, Vinod Khosla from Wired, Six Ethanol Myths, addressing the “myth” that the U.S. doesn’t have the available land:

Former secretary of state George Schultz and ex-CIA director R. James Woolsey estimate that 30 million acres can replace half our gasoline. I estimate that 40 million to 60 million acres can replace our gasoline needs. By taking land now used to grow export crops and instead planting energy crops, it’s feasible to eliminate our need to import oil for gasoline.

Let’s think about that for a minute. Presume that gasoline demand doesn’t grow at all from today’s 140 billion gallons. Now consider that, because ethanol only contains 67% of the energy of gasoline, it’s going to take 210 billion gallons of ethanol. In Khosla’s “worst case”, he would have 210 billion gallons of ethanol being produced on 60 million acres. This would require an ethanol yield of 3500 gallons per acre, around 10 times the current per acre ethanol yields. While you will sometimes hear of ethanol yields of 500 gallons per acre of corn, the nationwide average yield is around 350 gallons per acre.

So, we require an improvement in yields by a factor of 10 if we use corn, or we need something that has a better ethanol yield per acre than corn. But let’s assume for a second that it can be done. Now, here is where the EROEI issue becomes important. That 210 billion gallons of ethanol is the gross amount of ethanol required. But, how much energy is required to produce that much ethanol? At the current EROEI of 1.3 (with animal feed byproducts included), it would take the BTU equivalent of 210 billion/1.3, or 162 billion gallons worth of ethanol just to drive the process. In reality, we are treating animal feed by-products as BTUs that can be burned for transportation. If we were only considering fossil fuel inputs in and ethanol BTUs out, it would take pretty close to 200 billion gallons of ethanol equivalent to drive the process.

So with the generous assumption on by-products, the actual energy production required in this scenario is 210 billion gallons of ethanol, plus 162 billion gallons worth of BTUs to drive the process for a total of 372 billion gallons. Furthermore, you would end up with more animal feed by-product than you know what to do with.

Clearly, it is a stretch to presume we could supply U.S. demand by using corn, which means another biomass source will be required. That technology is not presently commercially available. Furthermore, if/when such a technology does become available, unless the EROEI is much improved we will find ourselves in the position of having to produce almost twice as much energy as we do now, just to have the same amount of net energy at the end of the process.

If Brazil can do it, why can’t the U.S.?

First off, let me state that I think sugarcane ethanol is a good solution for Brazil. Brazil is located in the tropics, and receives far more solar insolation than temperate locations like the U.S. Furthermore, a study commissioned by The Netherlands Agency for Sustainable Development and Innovation concluded that sugarcane ethanol production in Brazil is sustainable. I wrote an essay addressing that situation:

Report: Brazilian Ethanol is Sustainable

So, if Brazil can do it, why can’t the U.S.? I have heard the claim many times that Brazil has shown us the way to a bio-fueled future. I have also addressed the fallacy of these arguments in the following essays:

Lessons from Brazil

Daschle and Khosla Ethanol Propaganda

Letter to CNN on Inaccuracies

For the purpose of this FAQ, I will briefly summarize the issues. First, Brazil still relies on oil for 90% of their transportation needs. Ethanol in fact only serves 10% of the market there. Their “energy independence miracle”, as Mr. Khosla has referred to it, actually happened as a result of a major oil find by Petrobras. The following short report shows the stark contrast between the amount of oil Brazil produces, and the amount of ethanol Brazil produces:

Brazil Achieves Energy Independence Through Increased Domestic Crude Oil Production

So that’s the first issue: The contribution of ethanol has been exaggerated. The second issue is that the per capita oil consumption in Brazil is about 4 barrels per person per year. In the U.S., per capita consumption is about 27 barrels per person per year. Given that Brazil produces a little over 3 barrels per person per year, they have a very small gap to close, and sugarcane ethanol helps close that gap. In the U.S., we produce a lot more oil than does Brazil - around 11 barrels per person per year - but we then have a gap of 16 barrels per person per year to close. In other words, we would need to close a gap of more than 16 times that of Brazil, and do so in a temperate climate.

So, the answer to the question of why the U.S. can’t do “it” just depends on the definition of “it.” If “it” means cutting our oil consumption down to the level of Brazil’s, or for that matter even just cutting it in half (which would still be triple that of Brazil’s), then the U.S. could do “it.” But if “it” simply refers to growing our way to energy independence - as many biofuels proponents have suggested, then Brazil can’t serve as the model for what we wish to do in the U.S. If a dramatic cut in oil consumption is not part of the equation, then the U.S. and Brazil are apples and oranges.

Can’t Brazil and other tropical countries provide biofuels for the world?

What works well for Brazil does not necessarily scale to the rest of the world. As shown in the previous section, Brazil has much lower per capita energy consumption than the U.S. (and the European Union). Scaling up to supply the world with biofuels is already having some undesirable consequences:

Losing Forests to Fuel Cars

The issue is not, as some have suggested, that Brazil is cutting down rain forest to make way for sugarcane plantations. It is a bit more complicated than that.

In the past four decades, more than half of the Cerrado has been transformed by the encroachment of cattle ranchers and soybean farmers. And now another demand is quickly eating into the landscape: sugarcane, the raw material for Brazilian ethanol.

The roots of this transformation lie in the worldwide demand for ethanol, recently boosted by a U.S. Senate bill that would mandate the use of 36 billion gallons of ethanol by 2022, more than six times the capacity of the United States’ 115 ethanol refineries.

In addition, as use of corn-based ethanol grows in the United States, rising prices are influencing American soybean farmers to switch to corn. And as the United States, the world’s largest soybean producer, cuts soybean plantings, buyers are looking to Brazil, the No. 2 soy producer, to expand its production. Brazilian soybean production is already at record levels and is predicted to increase another 4.5 percent this year, according to Abiove, an industry association.

To summarize, the issue is that land in the Cerrado, a tropical savanna with a great deal of biodiversity, is being deforested at a much faster rate than is the Amazon. The expansion of ethanol into the Cerrado is pushing cattle ranchers and soy farmers into unspoiled regions of the Cerrado, and in the case of soy it is pushing soy farmers into the Amazon:

An interview with tropical biologist William F. Laurance

Soy farming is having a huge impact in the Amazon right now, for three reasons. First, industrial soy farmers are themselves clearing a lot of forest. Second, soy farmers are buying up large expanses of cleared land from slash-and-burn farmers and cattle ranchers, and the displaced farmers and ranchers often just move further out into the forest, maintaining a lot of pressure on frontier areas. Finally, the soy farmers are a very powerful political lobby that is pushing for major expansion of roads, highways, river-channelization projects, and other transportation that will criss-cross large expanses of the Amazon. This infrastructure is acting like Pandora’s box–it is opening up the frontier to spontaneous, unplanned colonization and exploitation by ranchers, farmers, hunters, and illegal gold miners.

Brazil already exports ethanol to other parts of the world. In the case of the U.S., this comes despite a $0.54/gallon tariff in place to protect U.S. corn ethanol producers. So, whether or not Brazil can supply more biofuels to the rest of the world is not the key question. In my mind, the key question is “Given the potential for deforestation, do we want them to?”

What about the environmental benefits of using ethanol as fuel?

There are environmental benefits, but also negative environmental consequences from using ethanol as fuel. If the ethanol is produced from industrial corn farms, more negative environmental consequences can be added.

Because of ethanol’s marginal energy balance, there is a marginal reduction in greenhouse gas emissions per distance driven. Researchers have also found that ethanol produces less carbon monoxide when it is burned in an internal combustion engine.

On the other hand, ethanol raises the vapor pressure when blended with gasoline, which causes an increase in smog. In an August 1, 2007 article in the Houston Chronicle (now archived, but available at the following link):

Five questions with Cal Hodge

Q: We’re already using more ethanol in our fuel now, because of the outcry over the fuel component methyl tertiary butyl ether or MTBE and its propensity to foul groundwater. You had warned that replacing MTBE with ethanol could hamper efforts in cities like Houston to improve air quality because of these problems with volatile organic compounds and nitrogen oxides. So has that actually happened?

A: Yes, it has happened. Los Angeles is the cleanest example. They began switching from MTBE to ethanol in 2001. But when they made their major switch in 2003, there was a significant decrease in air quality. They basically stopped making progress toward attainment on EPA’s ozone standards when they switched to ethanol. When using MTBE, with the cars getting cleaner each year, coupled with a very clean fuel, Los Angeles was on a straight-line path toward attaining EPA’s air standards by about 2002 or 2003. Now that they have switched to ethanol, the trend line indicates nonattainment for many years to come.

A 2007 research paper by Stanford University professor Mark Jacobson echoes that claim:

Effects of Ethanol (E85) Versus Gasoline Vehicles on Cancer and Mortality in the United States

In this paper, Professor Jacobson studied the potential impact to air quality as more E85 vehicles hit the roads, and he concluded:

“In sum, due to its similar cancer risk but enhanced ozone health risk in the base emission case, a future fleet of E85 may cause a greater health risk than gasoline. However, because of the uncertainty in future emission regulations, E85 can only be concluded with confidence to cause at least as much damage as future gasoline vehicles.

Because both gasoline and E85 emission controls are likely to improve, it is unclear whether one could provide significantly more emission reduction than the other. In the case of E85, unburned ethanol emissions may provide a regional and global source of acetaldehyde larger than that of direct emissions.”

In addition to the mixed environmental impact of directly burning ethanol as fuel, industrial corn farming has significant negative environmental impacts. From a 2006 paper that evaluated ethanol and biodiesel:

Environmental, economic, and energetic costs and benefits of biodiesel and ethanol biofuels

Both corn and soybean production have negative environmental impacts through movement of agrichemicals, especially nitrogen (N), phosphorus (P), and pesticides from farms to other habitats and aquifers (9). Agricultural N and P are transported by leaching and surface flow to surface, ground, and coastal waters causing eutrophication, loss of biodiversity, and elevated nitrate and nitrite in drinking-water wells. Pesticides can move by similar processes.

The markedly greater releases of N, P, and pesticides from corn, per unit of energy gain, have substantial environmental consequences, including being a major source of the N inputs leading to the ‘‘dead zone’’ in the Gulf of Mexico (11) and to nitrate, nitrite, and pesticide residues in well water. Moreover, pesticides used in corn production tend to be more environmentally harmful and persistent than those used to grow soybeans.

Two additional factors not discussed in the article are 1). Industrial corn farming depletes the topsoil, putting future generations at risk:

Peak Soil: Why cellulosic ethanol, biofuels are unsustainable and a threat to America

Row crops such as corn and soy cause 50 times more soil erosion than sod crops [e.g., hay] or more, because the soil between the rows can wash or blow away. If corn is planted with last year’s corn stalks left on the ground (no-till), erosion is less of a problem, but only about 20% of corn is grown no-till. Soy is usually grown no-till, but insignificant residues to harvest for fuel.

2). Corn farming and subsequent conversion to ethanol consume enormous amounts of fresh water:

Experts Differ About Ethanol-Water Usage

In this article, David Pimentel is the pessimistic expert who claims that when you add in the water required to grow the corn, it takes 1,700 gallons of water per gallon of ethanol produced. The “optimist” in the article, Derrel Martin, an irrigation and water resources engineer, said:

Martin said the question of whether increased corn production and the irrigation it requires will overburden the state’s water supply is an important one that does not yet have a clear answer.

Additional research has been reported by two Colorado researchers:

Biofuels: The Water Problem

In late June, two Colorado scientists, Jan F. Kreider, an engineering professor at the University of Colorado, and Peter S. Curtiss, a Boulder-based engineering consultant, presented their peer-reviewed report, “Comprehensive Evaluation of Impacts from Potential, Future Automotive Fuel Replacements” at a conference sponsored by the American Society of Mechanical Engineers. The two found that producing one gallon of corn ethanol requires the consumption of 170 gallons of water. That figure includes the amount needed for all irrigation and distillation. For comparison, the two scientists estimated that each gallon of gasoline requires just 5 gallons of water. If Kreider and Curtiss are right, the 5 billion gallons of corn ethanol produced in America in 2006 required more water than production of the 140 billion gallons of gasoline the U.S. consumed that year.

Ethanol proponents have largely downplayed the negative environmental impacts of increased ethanol production, while emphasizing the positive impacts. But by ignoring the negatives, all of us, and future generations, are being put at risk.

Isn’t ethanol useful as an oxygenate replacement for MTBE?

Big Oil and Iraq

I am about to be traveling, but I wanted to throw this out for discussion. Over the past few years, I have heard various claims that oil companies were complicit/ultimately responsible over the Iraqi invasion. People have suggested that Big Oil was behind it, or supported it, and that they should be billed for the invasion. Or, that the military expenditure there is really a hidden subsidy for oil companies. This all seems to be widely-accepted “fact.”

I have stated on many occasions that the military expenditures may indeed be a hidden subsidy, but it is a subsidy for consumers. It is an attempt by politicians to keep energy prices down. If oil prices go up because of instability in Iraq and the Middle East, oil companies still make money. But if oil prices go up and the economy stumbles, politicians risk losing their jobs.

This discussion just came up in a thread at The Oil Drum, when someone claimed:

I do apologize for observing that your friendly neighborhood oil company (XOM, etc.) certainly had a massive role in the march to invade and occupy a foreign country.

I asked for evidence of this (surely there must be evidence of such a massive role?), and when none was forthcoming (”I could only hint at critiques, and speculation”) I wrote:

Think about it. What do you think was the goal of the administration in invading Iraq? Do you think they intended to make oil more expensive? That’s what has happened, but of course that wasn’t the intent. The intent was stability, more supplies, and ultimately lower prices for consumers.

Do you think lower prices for consumers is XOM’s business model?

Someone else posted the following in response to my request for evidence:

Since it was brought up in these comments, I wish to address the question of whether Cheney and the oil companies had a complicity in the invasion of Iraq. Please refer to these documents produced under the Freedom of Information Act.

http://www.judicialwatch.org/iraqi-oil-maps.shtml

Why in the world would they be divying Iraq up unless they planned to gain control of the country — i.e. invasion and occupation?

So, I thought “Here it is. Someone has found a smoking gun.” What I found was nothing of the sort, so I responded:

Unless my eyes deceive me, I don’t seen any American oil companies on either list. What I do see are companies that were doing business in Iraq prior to the invasion. So let me make sure I understand this. A list of non-American oil companies that were doing business in Iraq prior to the invasion somehow implicates Big Oil in the invasion?

I also note that they had maps of Saudi Arabian and United Arab Emirates (UAE) oil fields. Does this mean we are getting ready to invade them as well?

You guys are really reaching here. I thought someone was going to show me where Rex Tillerson made a speech denouncing Hussein and arguing for an invasion.

Now, I am open to evidence. What I say is that I have never seen anything that would lead me to believe that Big Oil wanted Iraq invaded. But I am persuaded by evidence. Does anyone have any to support this idea? I don’t claim that oil companies do no wrong, but I just don’t believe this charge sticks. Convince me.

I know better than to post something controversial like this on my way out of town, as it is sure to bring the trolls out. But I ask that people please stick to discussing this topic: What, if any, role did oil companies have in invading Iraq? What would be their motive? What is the evidence?

Probably offline now for a few days, although I will try to check in at some point and deal with trolls as needed. In the mean time, the trolls are in your hands. I do want to note that I have received some recent legal counsel over the blog, and will be putting up some disclaimers soon. One of them revolves around the fact that I am only speaking on behalf of myself. I do not identify myself as an employee of a specific company, as that might imply that I am authorized to speak on their behalf. I am not. However, at times people have attempted to “out me.” From now on, any comment that identifies me as an employee of a specific company will be automatically deleted in order to avoid any appearance of official sanction.

National Geographic Story

Update: This was a story originally posted in August of 2006 (Wow, that’s been the fastest year of my life), but E3 Biofuels has come up in discussion quite a few times lately. I am going to be traveling over the next 5 days with intermittent Internet access, so I thought I would bump this up top. Note that this story was prior to their plant startup.

Ah, and that solves a long-term mystery for me. I wondered why some people refer to me as an “oil industry analyst.” This must have been where that originated.

————————-

Last night I noticed some traffic being directed here from National Geographic. Being a curious sort, of course I followed the link back and found this story:

New Ethanol Plants to Be Fueled by Cow Manure

The story talks about the E3 Biofuels process that I blogged on previously.

This blog is mentioned in the article, and is listed under “SOURCES AND RELATED WEB SITES”. The Oil Drum is also mentioned in the article, as well as Vinod Khosla. Some relevant quotes from the article:

…With gas prices high and the future of world oil production uncertain, interest in alternative fuels is surging.

But ethanol, a fuel now widely used in Brazil, has been the subject of an often polarized debate in the U.S.

The controversy has been playing out recently both in science journals and on energy blog sites such as The Oil Drum.

Proponents like Silicon Valley venture capitalist Vinod Khosla argue that ethanol can replace gasoline, while opponents counter that not enough agricultural land exists to meet more than a fraction of the country’s energy needs.

…But another outspoken ethanol critic, oil industry analyst and blogger Robert Rapier, has endorsed the E3 Biofuels approach, calling it “responsible ethanol.”

National Geographic. How flippin’ sweet is that? Maybe CNN will come calling next.

Xethanol: Another Multimillion Dollar Loss

Xethanol continues to demonstrate that even with generous subsidies, they can’t make any money:

Xethanol Announces Second Quarter 2007 Financial Results

For the second quarter of 2007, the company reported a net loss of $6.6 million, or ($0.23) per share, as compared to a $5.9 million net loss, or ($0.24) per share, for the same period of the prior year. The increase in the net loss was primarily related to $4.5 million in non-cash charges including a $2.8 million impairment charge on property held for development.

The company reported net sales of $3.3 million for the second quarter of 2007 compared to $3.2 million in net sales in the second quarter of 2006. Cost of goods sold was $3.4 million in the quarter as compared to $2.4 million in the comparable period in the prior year. The increase was attributable to the higher cost of corn compared to the same period in the prior year.

General and administrative (G&A) costs were $2.2 million in second quarter 2007 as compared to $1.3 million for the comparable period in the prior year. The increase in G&A was primarily due to an increase in legal, accounting and professional fees.

As of June 30, 2007, the company had cash, cash equivalents and marketable securities of $18.1 million and $437,000 of long-term debt.

So, a $6.6 million loss on sales of $3.3 million. Regarding their cash on hand, it is down from $21 million at the end of the last quarter. XNL continue their march toward bankruptcy, which is one of the predictions I have made. Given their inability to profit during good times for ethanol producers, how will they fare when margins are squeezed?

Biodiesel’s Green Diesel Nightmare

I have been saying this for months, and others are starting to realize the same thing:

Renewable Diesel: Biodiesel’ s Nightmare

I first heard of this process last October at an NREL presentation (they called it “Green diesel” and could not identify COP as the oil company they were dealing with,) but details remain sketchy. The fact that it refers to the process as a “proprietary thermal depolymerization production technology” and the fact that it is using existing refinery infrastructure should cause alarm to biodiesel firms, and investors.

Why should this cause alarm? Because COP claims its “renewable diesel” is chemically equivalent to conventional diesel. If this is true, it’s quite possible that it has a lower cloud point than biodiesel, and so could be used at a broader range of temperatures. In addition, since COP is using conventional refining equipment, they may also be achieving higher energy yields.

According to NREL’s Overview of Petroleum and Biodiesel Lifecycles, Biodiesel conversion requires 80 kJ of energy for every 1000 kJ of energy in the biodiesel, while petro-diesel requires only 64 kJ to produce an equivalent amount of fuel.

With the exception of small biodiesel producers using local and distributed biodiesel feedstocks such as waste vegetable oil from restaurants, I expect that petroleum refineries will end up having an economic advantage making renewable diesel in comparison to conventional biodiesel producers. This means that commodity oils, and fats available in large enough quantities to interest refineries will be bid up in price to a point where less efficient biodiesel producers will be unable to operate profitably.

I have said it before, and I reiterate: Biodiesel’s days are numbered.

Disclosure: I do own ConocoPhillips stock. As does Warren Buffet. And Jim Cramer. Must not forget about Mad Jim Cramer.

Biodiesel’s Green Diesel Nightmare

I have been saying this for months, and others are starting to realize the same thing:

Renewable Diesel: Biodiesel’ s Nightmare

I first heard of this process last October at an NREL presentation (they called it “Green diesel” and could not identify COP as the oil company they were dealing with,) but details remain sketchy. The fact that it refers to the process as a “proprietary thermal depolymerization production technology” and the fact that it is using existing refinery infrastructure should cause alarm to biodiesel firms, and investors.

Why should this cause alarm? Because COP claims its “renewable diesel” is chemically equivalent to conventional diesel. If this is true, it’s quite possible that it has a lower cloud point than biodiesel, and so could be used at a broader range of temperatures. In addition, since COP is using conventional refining equipment, they may also be achieving higher energy yields.

According to NREL’s Overview of Petroleum and Biodiesel Lifecycles, Biodiesel conversion requires 80 kJ of energy for every 1000 kJ of energy in the biodiesel, while petro-diesel requires only 64 kJ to produce an equivalent amount of fuel.

With the exception of small biodiesel producers using local and distributed biodiesel feedstocks such as waste vegetable oil from restaurants, I expect that petroleum refineries will end up having an economic advantage making renewable diesel in comparison to conventional biodiesel producers. This means that commodity oils, and fats available in large enough quantities to interest refineries will be bid up in price to a point where less efficient biodiesel producers will be unable to operate profitably.

I have said it before, and I reiterate: Biodiesel’s days are numbered.

Disclosure: I do own ConocoPhillips stock. As does Warren Buffet. And Jim Cramer. Must not forget about Mad Jim Cramer.

Biodiesel’s Green Diesel Nightmare

I have been saying this for months, and others are starting to realize the same thing:

Renewable Diesel: Biodiesel’ s Nightmare

I first heard of this process last October at an NREL presentation (they called it “Green diesel” and could not identify COP as the oil company they were dealing with,) but details remain sketchy. The fact that it refers to the process as a “proprietary thermal depolymerization production technology” and the fact that it is using existing refinery infrastructure should cause alarm to biodiesel firms, and investors.

Why should this cause alarm? Because COP claims its “renewable diesel” is chemically equivalent to conventional diesel. If this is true, it’s quite possible that it has a lower cloud point than biodiesel, and so could be used at a broader range of temperatures. In addition, since COP is using conventional refining equipment, they may also be achieving higher energy yields.

According to NREL’s Overview of Petroleum and Biodiesel Lifecycles, Biodiesel conversion requires 80 kJ of energy for every 1000 kJ of energy in the biodiesel, while petro-diesel requires only 64 kJ to produce an equivalent amount of fuel.

With the exception of small biodiesel producers using local and distributed biodiesel feedstocks such as waste vegetable oil from restaurants, I expect that petroleum refineries will end up having an economic advantage making renewable diesel in comparison to conventional biodiesel producers. This means that commodity oils, and fats available in large enough quantities to interest refineries will be bid up in price to a point where less efficient biodiesel producers will be unable to operate profitably.

I have said it before, and I reiterate: Biodiesel’s days are numbered.

Disclosure: I do own ConocoPhillips stock. As does Warren Buffet. And Jim Cramer. Must not forget about Mad Jim Cramer.