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Bioethanol, Gasoline Prices, the U.S. Senate and the Law of Unintended Consequences
The Senate is debating an energy bill this week that among other things would mandate that the U.S. use 36 billion gallons of ethanol as transport fuel by 2022. This proposal is already having an interesting effect on future oil refinery capacity. The AP reports:
With President Bush calling for a 20 percent drop in gasoline use and the Senate now debating legislation for huge increases in ethanol production, oil companies see growing uncertainty about future gasoline demand and little need to expand refineries or build new ones.
Oil industry executives no longer believe there will be the demand for gasoline over the next decade to warrant the billions of dollars in refinery expansions - as much as 10 percent increase in new refining capacity - they anticipated as recently as a year ago....
With the anticipated growth in biofuels, "you're getting down to needing little or no additional gasoline production" above what is being made today, said Joanne Shore, an analyst for the government's Energy Information Administration.
In 2006, motorists used 143 billion gallons of gasoline, of which 136 billion was produced by U.S. refineries, and the rest imported.
Drevna, the industry lobbyist, said annual demand had been expected to grow to about 161 billion gallons by 2017. But Bush's call to cut gasoline demand by 20 percent - through a combination of fuel efficiency improvements and ethanol - would reduce that demand below what U.S. refineries make today, he said.
"We will end up exporting gasoline," said Drevna.
Asked recently whether Chevron Corp. might build a new refinery, vice chairman Peter Robertson replied, "Why would I invest in a refinery when you're trying to make 20 percent of the gasoline supply ethanol?"
Again, if bioethanol is such a good idea for fueling cars, why does it need to be mandated and/or subsidized? Whole AP story here. Read it and weep.
|6.18.07 @ 2:20PM|#
That's cute, because every time there is a price spike at the pumps, Chevron claims that it doesn't have enough refining capacity to meet current demands, because of the all-powerful environmentalists.
|6.18.07 @ 2:34PM|#
Consequences abound! Don't forget what ethanol is doing to our National Tequila Reserve!
Ayn_Randian|6.18.07 @ 2:34PM|#
joe -- try RTF post again. Rises and falls in price over the
short term are (partly) a function of refinery capacity, or lack
thereof, hence why oil producers look to increase it in the
long-term. Refineries don't pop up overnight.
Now, with a (mandated, artificial) drop in demand, there's no
reason to plan ahead for increased demand. True environmentalists
such as yourself would want free markets to test a variety of
products. Government is endorsing one (ethanol) that doesn't have
much going for it in terms of efficiency or price.
But I shouldn't have to explain all that to a smart guy like
you.
|6.18.07 @ 2:36PM|#
I hear a saw hauled out every once in a while about how no one's
built a new refinery in umpty-ump years, and it's usually trotted
to out to suggest some kind of price manipulation.
My understanding is that refinery capacity is like the capacity of
a server room. If you needed 1,000 square feet for a server room
back in the seventies and your server requirements now are 1,000
times what they were then, that does not mean you now need
100,000 square feet for your server room. Technology has made it so
we can do an awful lot more with a lot less room. ...and while
refining technology hasn't scaled quite like processing power, my
understanding is that no one has opened a new refinery in umpty-ump
years because new refineries just aren't required. ...because
technology let's us get a lot more out of a barrel of crude with a
lot less than we used to.
...but if someone can enlighten me otherwise, I'd appreciate
it.
Here in California, I remember, not so long ago, I think it was
Shell, was trying to sell their refinery because the capacity just
wasn't needed. ...and they couldn't find anyone to buy it. At one
point, and this was years ago now, regulators were going to
sanction Shell if they closed the refinery down. Last I heard, even
now, no one knew what to do with all the extra capacity.
TallDave|6.18.07 @ 2:47PM|#
If we're going to use ethanol, we should lift the import
restrictions on much cheaper ethanol from Brazil, which has a real
ethanol industry based on sugar cane (a far better source) that
actually powers most of their autos.
The problem we have now is something almost no one has mentioned:
higher corn prices mean farmers are going to plant a LOT more corn
in 2007 - 2008. When the economically ridiculous corn ethanol
subsidy finally dies, they are going be hit hard.
|6.18.07 @ 2:49PM|#
When the economically ridiculous corn ethanol subsidy
finally dies
What makes you think farm subsidies are going to die?
|6.18.07 @ 2:49PM|#
"When the economically ridiculous corn ethanol subsidy finally
dies. . . ."
That will never happen. The subsidy is forever.
|6.18.07 @ 2:52PM|#
Tom,
I think that may be part of it. But also, although no new
refineries have been built, existing ones have been added onto. I
believe that this is a result of environmental regs that are more
permissive when expanding an existing refinery than when building
completely new ones.
TallDave|6.18.07 @ 2:52PM|#
Sorry, I was presuming common sense would eventually prevail.
Silly of me, I know.
I guess my point is more that once we encourage farmers to start
growing these massive ethanol corn crops, it is going to be even
harder to end the subsidy. Right now, the main complaint is higher
food prices, but people need to think about the market effects of
those prices.
|6.18.07 @ 2:54PM|#
Republican Energy Policy - Massive corrupt government give-away
to oil companies
Democrat Energy Policy - Massive corrupt government give-away to
corporate farms.
|6.18.07 @ 2:55PM|#
Here's a bit about the Shell Plant...
http://feinstein.senate.gov/04Releases/shell-refinery.htm
...they were gonna close it rather than sell it. ('cause they
couldn't find a buyer.)
They were actually able to sell it...
http://www.bizjournals.com/eastbay/stories/2005/01/10/daily5.html
|6.18.07 @ 3:02PM|#
In the 1980s, Blumenthal said at a recent hearing, refiners
were producing at 77.6 percent of their capacity, "which allowed
for easy increases in production to address shortages. In the
1990s, as the industry closed refineries, ... (that figure) rose to
91.4 percent, leaving little room for expansion to cover supply
shortfalls."
Does anyone have time to drive to Greenwich and give Dick a quick
kick in the balls? It's the biggest thing I regret not doing while
I lived there.
Dick, you f*cking idiot, increasing refinery capacity usage is a
GOOD thing. Economies of scale, you meathead.
Jay Wollmann|6.18.07 @ 3:15PM|#
I got no problem with them not making more refineries, I just want a way to make transportation to and from work cheaper. It's just a little ridiculous that I'm spending over ten percent of my take home pay on gas!
|6.18.07 @ 3:26PM|#
It's just a little ridiculous that I'm spending over ten
percent of my take home pay on gas!
Ridiculous to me is when you want to buy gas and there isn't any.
Ridiculous to me is when people talk about shortages, but there's
enough for everyone who wants to buy.
...High prices to me are merely "annoying."
zorn|6.18.07 @ 3:34PM|#
imo Peak Oil is behind all this.
the US oil production peaked in the 70s, and has fallen every year
since - oil is not limitless, and does anyone think we would import
more and more oil every year if we had a choice? nope. many experts
feel we have already hit the top of the bell curve with oil, and
the only place to go is down. Enter.. ethanol and a host of other
'energy saving' articles, ideas, etc.
look it up. it explains why suddenly all politicians are pushing
ethanol from both sides. its not all about subsidies, its about the
world running out of oil...
|6.18.07 @ 3:41PM|#
Ken Shultz,
Well, all we have to do is convince congress to pass a law that
locks in the price of gas at say, $1.50 a gallon. It will both
eliminate your "annoying" problem and give you a "ridiculous" one
in it's place. Everybody looses!!
|6.18.07 @ 3:51PM|#
It's just a little ridiculous that I'm spending over ten
percent of my take home pay on gas!
No, what's "ridiculous" is that you're perfectly willing to spend
10% of your income on petroleum, while you sit there and complain
about how "ridiculous" it is. I live 4 minutes from my office. A
tank of gas ($37) lasts me 3 weeks or so. That's my choice.
As long as people are willing to spend 10% of their income on
gasoline, the market would be stupid not to charge that much for
it. This is a market, not a bloody charity event.
|6.18.07 @ 3:54PM|#
"Again, if bioethanol is such a good idea for fueling cars, why does it need to be mandated and/or subsidized?"
Not that I think bioethanol is a good idea for auto fuel, but that
statement is easily answered anyway: externalities.
Joe Stalin aka Barbara Boxer|6.18.07 @ 3:56PM|#
I have full confidence in a centrally planned economy.
|6.18.07 @ 4:00PM|#
"Again, if bioethanol is such a good idea for fueling cars, why
does it need to be mandated and/or subsidized?"
Not that I think bioethanol is a good idea for auto fuel, but that
statement is easily answered anyway: externalities.
Not to mention the massive subsidies (direct and indirect) given to
its prime competitor, oil.
|6.18.07 @ 4:07PM|#
I don't see it as any one company's problem that refining
capacity. The problem is building a new refinery is almost as
complicated as building a nuclear plant, so why go through the
hassle if the long term profitability is not there.
People think gasoline is a right that must sold as cheaply as
possible. covering the bare minimums of actual cost and nothing
else. I tell you, thats bullshit and people should get off their
fat asses and come up with better
solutions rather than whine to government.
(Note: People refers to actual fat ass dumbshits that either don't
want to understand basic economics or think they're in some way
special that they can defy the invisible hand)
|6.18.07 @ 4:18PM|#
Ethanol needs subsidies to better disguise the still-obvious
fact that it could never compete in a free marketplace with hemp
derived fuels. Since hemp can be farmed on marginal land and corn
requires good soil, I suppose this causes distortions besides the
obvious tax and spend drugwar distortions...
JMR
|6.18.07 @ 4:21PM|#
""you're getting down to needing little or no additional
gasoline production" above what is being made today, said Joanne
Shore, an analyst for the government's Energy Information
Administration."
Methinks that Joanne is going to look a tad bit silly in about ten
years or so.
|6.18.07 @ 4:24PM|#
"imo Peak Oil is behind all this.
the US oil production peaked in the 70s, and has fallen every year
since - oil is not limitless, and does anyone think we would import
more and more oil every year if we had a choice? ... look it up. it
explains why suddenly all politicians are pushing ethanol from both
sides. its not all about subsidies, its about the world running out
of oil..."
No, Peak Oil is the sort of claptrap that statist
environmentalists trot out to further their agenda. There's a huge
supply of fossil fuels out there -- as the supply of cheap, readily
extracted oil dwindles, the prices have risen and we've started
extracting the next tier of available energy. There's tar sands in
Canada, deep sea reserves, the ANWR reserves, and massive U.S.
reserves of coal which can be turned into electricity to power
electric cars, among other sources of energy.
The prices for gas reflect a combination of environmentalist/NIMBY
interference with refinery building, the slow transition to more
expensive means of oil extraction, the brain-dead tariffs on
imported ethanol, etc.
The sky isn't effing falling. If supplies temporarily fall short,
rising prices cause conservation and exploitation of new resources.
Politicians are pushing ethanol to pander to various statist
special interests. Trust the Law of Supply and Demand rather than
politicians if you want solutions.
|6.18.07 @ 4:33PM|#
The massive environmental destruction caused by these biofuel
alternatives to "dirty" petroleum is a wonder to behold.
What about the land?
The hype over biofuels in the U.S. and Europe has had wide-ranging effects perhaps not envisioned by the environmental advocates who promote their use. Throughout tropical countries like Indonesia, Malaysia, Brazil, and Colombia, rainforests and grasslands are being cleared ... to make biodiesel, a product that is then marketed halfway across the world as a "green" fuel.
|6.18.07 @ 4:50PM|#
People like to mention externalities when discussing petroleum
consumption.
They generally ignore two things when they do this.
1. The enormous improvements in quality of life,
standard of living, and overall wellbeing petroleum energy has
provided.
If the impact of petroleum is to be fairly evaluated one must look
at the many, many benefits petroleum provides to humanity.
2. They ignore the externalities of the "clean energy
technolgy" the government is pushing.
To date the technology the government has pushed / mandated has
consisted primarily of:
A. Environmentally destructive and ineffective programs like
ethanol and other biofuels
B. Potentially environmentally destructive, definitely view shed
wrecking, and ineffective programs like windpower.
The vaunted "clean" technology people want to use to
replace petroleum is for the most part not clean and not
environmentally friendly.
|6.18.07 @ 4:51PM|#
Well, the good news is that with all the corn harvested in the US being used to make ethanol, there won't be any left over to make the devil's own sweetener.
|6.18.07 @ 5:03PM|#
Again, if bioethanol is such a good idea for fueling cars,
why does it need to be mandated and/or subsidized?
"If ______ is such a good idea for _______, why does it need to be
mandated or subsidized?" is a good summation of my feelings on the
government.
Harry J Anslinger|6.18.07 @ 5:24PM|#
"Ethanol needs subsidies to better disguise the still-obvious
fact that it could never compete in a free marketplace with hemp
derived fuels. Since hemp can be farmed on marginal land and corn
requires good soil, I suppose this causes distortions besides the
obvious tax and spend drugwar distortions...
JMR"
Fuckin' Hippie
|6.18.07 @ 5:28PM|#
"Not to mention the massive subsidies (direct and indirect)
given to its prime competitor, oil."
Bingo!
It's hard enough to compete with something that comes out of the
ground in the form something you have to grow has to be processed
into. ...much worse when what comes out of the ground is
subsidized.
...I'm not a fan of the idea that Iraq was all about oil, but I
doubt bio-diesel from algae would require much in the way of
foreign troop deployments.
|6.18.07 @ 6:07PM|#
I'm not a fan of the idea that Iraq was all about oil, but I
doubt bio-diesel from algae would require much in the way of
foreign troop deployments.
Please replace 'require' with 'rationalize' or 'excuse' or the
like.
Nothing about the oil trade requires US military
involvement. In fact, US military involvement almost certainly
raises the price of oil to US consumers while making its supply
less certain.
Alan Augustson|6.18.07 @ 9:08PM|#
First, ethanol burns so much less efficiently than gasoline,
that we wind up burning more oil in its production, than the
equivalent mileage we get out of the finished product.
Secondly, there's no way we can grow enough fuel crops to meet our
unlimited-driving standard, unless we grow less food.
Thirdly, you're burning food! No, No, *NO!*
The answer to oil-dependency is not to find a substitute for
gasoline. We simply have to phase out the internal-combustion
engine. The car must cease to be the American birthright.
Alan Augustson|6.18.07 @ 9:10PM|#
PS: Interestingly, that's also the answer to global
heating.
So there.
|6.18.07 @ 9:12PM|#
The answer to oil-dependency is not to find a substitute for
gasoline. We simply have to phase out the internal-combustion
engine. The car must cease to be the American
birthright.
Good luck. You're right on everything but the last sentence.
Clean-burning coal, plus nuclear power, plus as-yet undeveloped
battery technology for electric cars is a better bet.
Plus, electric cars will most likely always have the advantage of
being safer, considering top-speed limitations.
Allen|6.18.07 @ 9:33PM|#
36 billion gallons of ethanol? How will we get there? Devoting all the US corn crop to ethanol production? Cutting down the rest of the Amazon rainforest?
Alan Augustson|6.18.07 @ 9:45PM|#
Hi jf:
I'll allow for that possibility, but I respectfully maintain that
it's a slim one. Here's why:
. Replacing coal for oil, as Obama's currently proposing (surprise,
surprise; he's from a coal state) just substitutes one finite,
exhaustible fossil-fuel for another, and at best it only postpones
the same crisis. Do we really wanna pass *another* looming
catastrophe to the kids?
. Coal-to-liquids technology yields a fuel that pumps *twice* as
much carbon into the atmosphere as gasoline!
I'd like to know, why nobody's getting hot on human-powered
technologies? Why not?
. A crank generator can recharge your cell phone, or a portable
radio, in a couple of minutes.
. A foot-pedaled crank can deliver household wattage enough to
power all the elective appliances, leaving a household solar or
wind-gen to just do the life support (like refrigeration and
AC).
. Human-powered vehicles can now do 25-30 mph on the flat, with
minimal strain on a novice rider. Why the heck can't we get
American car manufacturers in on this?
The point is, I'm not advocating we all go Amish; far from it. I
think life post-oil could be productive and even fun. Certainly
healthier.
|6.18.07 @ 9:53PM|#
Alan,
I'm just saying that electricity is going to be the gasoline of the
second half of the 21st century. Although, it might not be a bad
idea to create "Flintstone" cars that allow for human power to
augment/replace electric power.
The one inescapable fact, that I think we will both agree on, is
that the future of the car is going to be very expensive.
Now, I must go back to the zen of watching the video from the ISS.
I never knew of this tonight, but watching the world revolve
beneath the ISS (or watching the ISS orbit the world, take your
pick), is somewhat relaxing.
And the shots of Atlantis docked with the ISS are pretty cool.
SIV|6.18.07 @ 10:24PM|#
Alan,
When I bought my last new car gas was 89 cents a gallon for
premium- that was 8 years ago.
It wouldn't take much for the price to drop down close to that
again- just a fall in demand.
Jimmy Carter thought we would run out in the 80s.
Coal and oil are "finite" but for that matter so is our sun.
PL,
"When the economically ridiculous corn ethanol subsidy finally
dies. . . ."
Well Fred Thompson has a history of opposition to ethanol
subsidies.
|6.18.07 @ 11:13PM|#
A crank generator can recharge your cell phone, or a
portable radio, in a couple of minutes.
The next time my cell phone starts running down I am going to CALL
YOU Alan, because you will be my savior. And I will make you
healthier, and allow you to have more fun, all in one move.
A foot-pedaled crank can deliver household wattage enough to
power all the elective appliances, leaving a household solar or
wind-gen to just do the life support (like refrigeration and
AC).
Yes, and scientists have almost figured out perpetual
motion. In fact, they'll probably have it figured out before you
can finish pedaling the battery in my cell back up to full
charge.
Alan Augustson|6.18.07 @ 11:19PM|#
Well, it's not as if the alleged fattest-nation-on-earth can't
use a workout. :)
And how were you planning on calling me with a dead cell?
|6.18.07 @ 11:21PM|#
I'm gonna call you when I see that the battery is low. See, I
have a firm grasp of the obvious.
You, on the other hand, are simply going to end up fat.
|6.19.07 @ 12:09AM|#
jf,
What do you mean that "electricity is the gasoline ofthe future." I
don't understand you.
|6.19.07 @ 12:53AM|#
Saudi Arabia has been demanding for more than ten years that we build more refineries. We haven't, nor will we, but will expand the current ones. We are importing gas as it is. Not gonna build one anywhere in NC. Where are they going to one?
db|6.19.07 @ 8:21AM|#
Re: The idea that a refinery scales like a computer server
room:
As a chemical engineer (although not in the petrochemical industry)
I can tell you this is quite incorrect. While there are some
efficiencies that can be gained by increasing equipment
availability and reliability, chemical processing equipment is
designed for very specific flow rate ranges and reaction
rates.
While it might be physically possible to push a higher flow rate
through a production train, the reactors and separators are
designed for optimum operation at certain flow ranges. Increasing
the flow is not a simple matter of installing a bigger pump. The
time an average given molecule spends inside a reactor is called
the mean residence time. This residence time is very important in
determining the extent of the chemical reaction, so one cannot
simply force more material through the same reactor.
Additionally, energy input and cooling requirements need to be
considered. If additional energy input is required to make more of
a particular chemical, say gasoline, one might have to build a
whole new steam plant. If cooling is the problem, new chillers
and/or cooling towers would be needed to handle the increased waste
heat loads associated with increased production.
Increases in production come with advances in catalysts and
separation technologies, with larger vessels and/or more production
trains, and with new processes, all of which require extensive
capital investments to implement.
|6.19.07 @ 1:04PM|#
Weren't the events of Children of the Corn precipitated by the use of corn for ethanol rather than feed and fodder as He Who Walks Behind the Rows intended?
Alan Augustson|6.19.07 @ 1:04PM|#
> Genghis: "See, I have a firm grasp of the obvious."
But not humor, evidently. How sad. :/
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