A Heat-Seeking Energy Investment

What is it about an energy source that makes it useful, let alone valuable? One way to answer that question is to think in terms of thermodynamics and to look at how the potential energy of any substance is converted to heat energy. Ask yourself, for example, what is coal? First and foremost, coal is the carbonized remnants of ancient plant matter, stored up in the geologic column. Why is coal useful? It is, as the old saying goes, “the rock that burns.” One coal miner of my acquaintance calls coal a “portable climate.” Among other things, it offers the user the ability to release stored-up heat energy and thus to bring rapid warmth into a cold world. Yes, and so much more.

Or consider what happens when you are driving a car and burning up gasoline. What is it that you really want from your fuel supply? Do you care that gasoline comes from refined crude oil? Or are you more concerned with the fact that the gasoline combusts in the cylinders of your engine, via rapid, explosive release of heat when the gasoline is sparked? You probably learned in drivers’ education class that the basic, four-stroke internal combustion engine follows a cycle of intake, compression, power stroke and exhaust. When the gasoline combusts and explodes, it releases heat energy, which causes combustion gases to expand and push the power stroke. The power stroke, in connection with the well-timed power strokes of the other cylinders, turns the crankshaft. This is what allows you and your vehicle to move along. So gasoline is also, in essence, a form of stored heat.

Or consider nuclear power. What is the basic principle behind this particular energy source? Radioactive rods in a nuclear pile decay and give off heat, which in turn is used to raise the temperature of water or some other substance in a liquid phase. When the liquid phase gets hot enough, it vaporizes and its expansion turns a turbine. The turbine generates electricity. This is the case for almost all nuclear power plants in the world, whether on land or inside the confined hull of a submarine.

So the bottom line is that when we are looking for energy sources, we are basically looking for ways of obtaining heat energy in some form or another. In our Outstanding Investments portfolio, we hold shares in companies that drill and extract oil and natural gas, coal, uranium and even a company that manufactures windmill components. (Wind is just a manifestation of the differential thermal heating of air masses by the sun.)

Geothermal Energy

In this edition of Whiskey & Gunpowder, we are taking a look at another way to invest in heat. That is, we are looking at a company that is part of the industry that extracts stored heat energy from the crust of the Earth — namely, geothermal energy. Geothermal energy is heat (the “thermal” part of the word) derived from the Earth (the “geo” part). Geothermal energy is the energy contained in the hot rocks, and the hot fluids that fill the fractures and pores within the rocks, of the Earth’s crust. Under the right conditions, geothermal energy can be utilized to generate electricity, and this is why we are interested.

According to thermodynamic calculations performed by many a bleary-eyed graduate student over the decades, if the Earth had simply “cooled” from a molten state, it would have become a completely solid mass of iron and rock within a few hundred million years of its formation. But the Earth has been an active, dynamic planet for near 4.5 billion years, so something must be going on deep inside to keep the planet hot. The current belief is that the source of heat energy within the Earth is long-term radioactive decay occurring within the crust and mantle.

It gets so hot down within the Earth that much so-called “rock” is in a molten state, which we observe directly when some of that molten material erupts and forms volcanoes or mid-ocean ridges. In most other areas of the Earth, this heat reaches the surface in a very diffuse state. That is, you must use sensitive instruments to measure the heat flow from most parts of the Earth’s crust. But it is there. And due to a variety of geological processes, some areas of the Earth, including substantial portions of many western U.S. states, are underlain by relatively shallow geothermal resources with much energy potential. Here is a depiction, called the U.S. geothermal resource map, prepared by the U.S. Department of Energy:

The geothermal resource map of the U.S. shows the estimated subterranean temperatures at a depth of 6 kilometers (or just under 20,000 feet), which is considered relatively near the surface. This map is a synthesis of several types of data sets, including thermal conductivity, thickness of sedimentary rock, geothermal gradient, heat flow and surface temperature. These geothermal resources can be classified as low temperature (less than 150 degrees Celsius), moderate temperature (150-200 degrees Celsius) and high temperature (greater than 200 degrees Celsius). As the map makes clear, essentially all of the U.S. has some form of available, near-surface geothermal potential.

The uses to which these geothermal resources can be put are controlled by temperature. The highest temperature resources are generally used only for electric power generation. Current U.S. geothermal electric power generation totals approximately 2,800 megawatts (MW), or about the same as five large nuclear power plants. Uses for low and moderate temperature resources can be divided into two categories: direct use and ground-source heat pumps. I am not going to say that geothermal energy is infinite in scale, but the heat sources within the Earth are immense, and a well-managed program has the potential to be operational for many decades, if not centuries.

Geothermal Power Plants

There are two basic types of geothermal power plants used today: steam plants and binary plants.

Steam plants use very hot (greater than 200 degrees Celsius) steam and hot water resources, such as are found at The Geysers complex of plants in Northern California, which is the largest geothermal electricity producer in the world and has been going strong for about 40 years with no sign of letup. Either the steam comes directly from the underground geothermal resource or the very hot, high-pressure water is depressurized (or “flashed”) to produce steam. The steam then turns turbines, which drive generators that generate electricity. The only significant emission from these plants is water vapor, in the form of steam. But there are very minute amounts of carbon dioxide (CO2 ), nitric oxide (NO) and sulfur emitted as well, which are natural products from the underground fluids, usually less than about one-fiftieth as much as come from a traditional, fossil-fuel power plant. Currently, electric power produced this way costs about 4-6 cents per kilowatt-hour (kWh).

Here is a pair of schematics that illustrate the process:

Binary plants, on the other hand, use lower-temperature, but much more common, hot water resources (100-200 degrees Celsius). And because these lower-temperature reservoirs are far more common, binary plants are the more prevalent. The hot water is passed through a heat exchanger in conjunction with a secondary fluid (hence, “binary plant”) with a lower boiling point, such as isobutane or isopentane. The secondary fluid vaporizes, which turns the turbines, which drive the generators. The remaining secondary fluid is simply recycled through the heat exchanger. The geothermal fluid is condensed and returned to the reservoir. Because binary plants use a self-contained cycle, there are essentially no emissions. Currently, electric power produced by binary plants costs about 5-8 cents per kWh. Here is a schematic to illustrate this process:

More on Geothermal Power

Now that we have looked at the basic geology and engineering of geothermal power, let’s look at the business and policy sides of things. First, you should understand that extracting the Earth’s heat and selling geothermal power is subject to the same regulatory structures as are almost all other energy generation and transmission entities in the country. So the 50 state-level public utility commissions (PUCs), or whatever else they call them in any given state, control much of the destinies for geothermal producers.

Also, geothermal energy is capital intensive; hence, it takes time to pay off any major investment. At the same time, geothermal power competes against the rest of the electrical grid, within the PUC-dictated regimes of rate setting and tariffs for transmission. This means that the cost basis for a geothermal power plant has to be competitive against plants that produce electricity by burning coal, natural gas or even oil (such as in Hawaii), as well as the recently growing solar-thermal energy industry.

Still, there is plenty of good news for geothermal energy. Once a plant is up and running, geothermal power is quite reliable. Geothermal plants offer a continuously available (24/7) base-load power source, with historic reliabilities in excess of 90%, which is comparable to the reliability of many nuclear plants. Compare this with wind-generated power with 25-40% reliability (the wind does not always blow when you need it), or solar-generated power with 22-35% reliability (the sun sets each night, among other drawbacks). And reliability is a critical issue in terms of operations, because plant owners usually bear the risk of getting charged back by utility customers for what is called shortfall energy, meaning the power that a utility has to go out and purchase on spot market if the designated source is not operating on schedule or up to capacity or promised load.

There is more good news for geothermal, in the form of what the regulators call policy support. That is, there are certain things called pivot points within government policy, which tend to swing investment trends in a positive or negative manner. Of late, geothermal has been on the receiving end of many very positive government actions and pivots.

Geothermal energy does not deplete like an oil or natural gas deposit. Many hot springs of the world have been bubbling warm water or steam since prehistoric times. So geothermal power is considered a renewable form of energy production, and in our own era, it benefits from the renewable energy “production tax credit.” This tax credit has been extended by the U.S. Congress through 2008, and is expected to receive further extensions in the future. The production tax credit, plus five-year depreciation schedules, mean that there is an effective U.S. government subsidy of over 63% of the capital cost of renewable energy projects. (Think of it as spending dollars that cost only 37 cents.) So right away, renewable energy projects, and geothermal projects in particular, are beneficiaries of significant investment tax breaks that would make any oilman jealous.

In addition, many states (22 plus the District of Columbia as of this writing) have adopted renewable portfolio standards. These are legislative mandates for utilities to meet specific numerical targets for renewable energy or other environmental criteria by certain dates. My home state of Pennsylvania, for example, has a target that mandates 18% renewable, non-polluting electricity generation by 2020. And last fall, California Gov. Arnold Schwarzenegger signed into law a bill that, as of the beginning of 2007, all but prohibits utilities in the state from signing long-term contracts for power unless the sources emit less than 1,000 pounds of CO2 per megawatt-hour (MWh) of electricity produced. While the law does not specifically ban coal-fired electric power (also called “brown power”) from sale or use in California, it sets a CO2 limit that is so low as to effectively rule out coal plants as a future source for electricity sales into the West Coast market. Take another look at that U.S. geothermal resource map, and then think about what this means for geothermal power sales to the California marketplace. The Terminator has all but terminated brown power in the Golden State.

So the policy tide of recent years is shifting in favor of geothermal, and in the future, things might be even better for the industry. In particular, any future carbon tax, or so-called “cap and trade” regime for CO2 , will doubtless benefit the geothermal industry, what with its miniscule CO2 footprint.

And there is one more bit of background that you ought to understand about geothermal power. The last major geothermal “exploration” effort was about 30 years ago, during the energy price spikes of the 1970s. There has been next to no significant geothermal exploration program in three decades. So much of the knowledge of the resource base is grounded on older data, gathered with older instrumentation. Future efforts in the field of exploration and development will undoubtedly refine the older knowledge base and expand the resource base.

Until we meet again…
Byron W. King

July 3, 2007

Enough to Make an Oilman Jealous was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

What Do You Need?

Corrosion and abrasion control? 76 exhibitors. Wellbore equipment? 36 exhibitors. Laboratory equipment? 14 exhibitors. Offshore platforms? 68 exhibitors. Decommissioning services? 33 exhibitors. Mooring and positioning systems? 60 exhibitors. Pumps and compressors? Another 60 exhibitors. Artificial lift? 25 exhibitors. And it goes on. Just the OTC program alone is the size of a small-town telephone directory. Welcome to the world of the offshore, and to the OTC.

From Where Does It All Come?

In other articles, I have asked the question, how far upstream do you think? When you fill the gas tank of your car, do you ever wonder about the fuel-holding systems under the parking lot of the gas station? Do you think about the tanker truck that hauled the fuel from a terminal to the gas station? Do you think about the terminal tanks? How about the interstate pipeline or barge that carried the fuel from the distant refinery to the nearby terminal? Or the pipelines that brought the oil to the refinery? Right about at this point is where the purpose of the OTC begins.

What Is the OTC?

The OTC includes the geophysical services that help the geologists pick a spot in the middle of the ocean, so they can tell management where to spend a billion dollars or more. The OTC includes the drill ships, the jack-up rigs, and the semi-submersibles that will drill the wells. The OTC includes the drill bits, the pipe systems, and casing plans. The OTC includes the down-hole equipment that penetrates six or seven miles into the crust of the Earth. The OTC includes the massive equipment that powers and runs the rigs, the cables, the wires, the electric transmission, the safety systems, and pollution control devices. The OTC includes the transport vessels that haul stuff out to the rig, and other vessels that haul the oil ashore, or the subsea systems that pipe it there. The OTC includes the communications equipment, the training for the workers, the logistics that puts it all together, the insurance, the inspections and quality assurance, the banking, and even the good-old government regulation. The OTC is a reflection of a complex, world-spanning industry.

Rocket Science, Without the Rockets

So the OTC highlights the offshore oil industry, but with an emphasis on things about which you do not usually ponder unless you have been there. Take all of the complexity of drilling for oil and gas onshore. Take all of the geological risk, the political risk, the high costs and financial risk, the environmental risk. Take it all and then put it out in the ocean, up to hundreds of miles from shore, in water (almost always cold water, by the way) up to two miles deep, and constant corrosion and occasional hurricanes, typhoons, or icebergs coming your way. And the dictates of the modern global economy are that whatever you do, you have to do it quickly, efficiently, and safely. It is rocket science, but without the rockets.

History and Trends

The offshore industry has been around for about 60 years or so, ever since people started siting drilling rigs out over the shallow waters of the coastlines of several continents. Quite a bit of what goes on offshore is an evolutionary development of technology, with people identifying challenges and meeting them progressively.

In today’s world, as you can imagine, there are many dedicated programs to provide a boost to that evolutionary process, if not to “force” the process along. These range from government-funded research to university-level programs, and many private industrial and consultative efforts, with all sorts of combinations of the foregoing. It is all about moving farther out from shore, to more prospective areas, to deeper waters, to more extreme climates. It is all about looking for oil and gas, finding it, and bringing it to landfall.

Alternative Energy Sources From Offshore

Well, it was all about looking for oil and gas and bringing it home. This year’s OTC program actually devotes quite a bit of time and effort to offshore wind power development, as well as to capturing energy supply from tidal and wave action. It makes sense. The same people who have been designing structures and bending metal for the offshore hydrocarbon extraction industry for the past six decades are the ones whom you would expect to have the technical expertise to bend metal for energy capture systems in wind and wave.

Matthew Simmons: Energy From the Ocean

Energy derived from the ocean will be a key source of future energy supplies for the United States, said Matthew Simmons, the chairman of Simmons & Co. Intl. and author of the highly regarded book Twilight in the Desert. According to Simmons, who presented his talk to an eager and enthusiastic crowd of OTC attendees, the U.S. industry and government need to begin “now” to conduct aggressive levels of research to develop oceanic energy resources.

“This is the issue we should have paid attention to for the last 15 years,” said Simmons. Simmons noted that offshore oil production has already begun to decline, using as examples the depletion profiles of areas in the Middle East, Mexico, and the North Sea. In January 2007, noted Simmons, global offshore oil production was down 1 million barrels per day (b/d) from May 2005.

Meanwhile, according to Simmons, the offshore rig fleet is becoming “long in the tooth” as rigs age without adequate levels of new construction. Due to skyrocketing construction costs and shortages of yard space and personnel, offshore vessels and rigs are not being replaced as quickly as they should be to maintain the future pace of offshore drilling. Many vessels will also “become obsolete” in the next five-10 years, Simmons said, explaining that contractors have done an “excellent job of refurbishing rigs,” but “rust never stops.”

One key point that Simmons made in his talk was that “To slow the decline in oil and gas production, we must drill faster.” But he warned, “We may be faced with a declining rig fleet.”

Thus, according to Simmons, energy capture from the ocean offers a number of opportunities to develop future energy supplies. These include waves, currents, tides, aqua biofuels, ocean geothermal, and vent and seep energy. In a comment that had many in the room nodding their heads, as if complimenting a great idea, Simmons said, “Algae is the single most interesting biofuel. There is plant life in the oceans far below where light ever strikes.”

Simons also noted that gas hydrates are another potential energy source that remains untapped. “We have never tried to capture them, so we don’t know if it would be successful, but at least we have not tried and failed.”

And on that hopeful note, I will end this update from the OTC.

Until we meet again…
Byron W. King

May 3, 2007

Offshore Technology Conference Update was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Shell’s Mr. Hofmeister is talking about oil and natural gas, of course, which is what you would expect from the man who runs Shell. But he is also talking about other energy resources such as coal, tar sands, oil shale, heavy oils, biomass, fuel cells, solar power, wind power, and even plain-old energy conservation. It is quite a comprehensive overview, and the theme of the presentation reflects the energy investments and technological pathways that Shell is pursuing. When asked why he is not discussing nuclear power, Mr. Hofmeister states that Shell does not have corporate expertise in that field and thus he is willing to leave that radioactive energy source for others to review. Fair enough.

It Sounds Like the Peak Oil Issue

What is that old expression about, “If it walks like a duck and looks like a duck and quacks like a duck”? Here we have the president of one of the world’s largest publicly traded oil companies, in business for well over a century, traveling back and forth across the land to hold a national energy discussion. The man from Shell states in no uncertain terms that conventional crude oil is getting harder to find and extract. He begins his talks by offering a definition of “energy security” from the perspective of Shell Oil. That is, energy security means ensuring an available, affordable supply of energy for the present, the foreseeable future, and generations to come. The implication is that Shell is on the cutting edge of a strategic vision for delivering energy supply to the nation’s and world’s consumers within a market system, and working to be part of any transition or transformation from where we are now to where we will be many decades from now.

In his speeches across the U.S., Mr. Hofmeister has clearly described how the search for oil and natural gas reserves is moving into distant, dangerous expensive places to operate. Of course, he promotes opening up remote and expensive places for drilling, such as the U.S. Outer Continental Shelf (OCS). This OCS issue is, if you do not know, part of the DNA of every true oilman, certainly including this correspondent. And Mr. Hofmeister is discussing the massive, long-term, and very costly investments that his company is making in alternative energy sources, from tar sands of Canada to oil shale in Colorado. He describes other exotic and expensive energy investments that Shell is making in coal gasification and coal-to-liquid (CTL) technology, as well as in fuel cells, solar cells, and wind power. It all sounds, to the informed listener, like Mr. Hofmeister is discussing the Peak Oil issue.

The Peak Oil Paradigm

All of what Mr. Hofmeister is saying certainly fits in to the standard Peak Oil paradigm, which is that mankind has generally located, if not discovered, most of the conventional crude oil that there is to find in the crust of the Earth, and has produced and consumed something near half of it. That is, out of a conventional, worldwide resource base of conventional oil that is estimated by some knowledgeable commentators at about 2.2 trillion barrels, about 90% has been discovered and about 1 trillion barrels have been extracted and consumed over the past 150 years or so. At the present time the global oil industry is pumping the world’s known oil reserves at a rate of about 1,000 barrels per second, or 85 million barrels per day (mbd), or about 31 billion barrels per year. And the global economy is, as frequent readers of this column know, consuming or otherwise burning up almost every drop of that oil. And not to get too preachy, but watch what happens if just a couple of hundred thousand barrels per day of production (near a rounding error from a production base of 85 mbd) go off line, such as occurred last August when BP closed the Alaska pipeline.

So do the math, dear readers. Follow the facts. Watch the trends. Mankind is at the top (or “peak”) of the conventional oil production curve. The world’s major oil provinces and largest oil fields are barely holding steady in production (Saudi’s Ghawar Field, for example), or are in irreversible decline (U.S. Lower 48 and Alaska, North Sea, Mexico’s Cantarell, Kuwait’s Burgan, China’s Daqing, Russia’s Samotlor and Romashkino, and many others). The world is pumping and burning oil that was discovered decades ago. And despite massive and costly efforts at exploration, overall, the global oil industry is pumping conventional oil reserves out of the ground at a far faster rate than it is discovering new reserves. So in the past few years, “new” oil production has barely kept up with depletion and decline in volumes produced from older areas.

“Call It a Banana”

Yes, do the math. These facts are the heart and soul of the Peak Oil discussion, dear readers. There is a lot of conventional oil in the crust of the Earth, and obviously, there is enough to support current daily global oil production of around 85 mbd, at least for a while. But only for a while. (How long? Good question.) What happens when conventional oil volumes begin to decline in an appreciable manner? This is exactly why big oil companies like Shell, and most government-owned oil companies, and many other large and small firms from around the world, are investing feverishly to develop alternative sources of hydrocarbon production, other energy sources, and advanced energy conservation concepts.

Thus, the future of conventional oil production bodes ill. The most likely forecast is that the rate of oil extraction will hold more or less steady and bounce along, at a maximum production plateau of about 85 mbd for some relatively short-term period of years, and then eventually follow a downward trending and irreversible curve of decline. Call it “Hubbert’s Peak” if you wish, after the title of the fine book by Princeton geology professor Kenneth Deffeyes. But Hubbert’s Peak is only a label. Call it something else, if you wish. You might even want to quote the late, great Groucho Marx and “Call it a “banana.”

Plenty of Uncertainty

So yes, the Peak Oil scenario rests on the assumption that the world’s largest oil provinces, in both area and volume, have been located from Texas and Mexico to Saudi Arabia and Iran, from the North Sea to West Africa, from Western Siberia to Northern China, from many spots here to many other spots there. But no, for all the purists out there, this does not mean that we know where every deposit of conventional oil is located, to a precise grid description on the face of the planet. There is plenty of uncertainty about the future of exploration and production. There are, to be sure, many dry holes yet to be drilled.

Rest assured that the world’s oil industry will be exploring for oil and drilling wells far into the future, to recover the valuable hydrocarbon product from the rock beds of the Earth. And it means that the future of conventional oil exploration will be one in which those geologists and drillers look for smaller and smaller oil fields, in more and more remote locales. There will, of course, in that oil-searching future be plenty of good jobs and good wages for geologists, geophysicists, and engineers of every ilk and stripe, and drillers and logisticians and the myriad of oil service personnel who make it all happen. And again, to his credit, Shell’s Answer Man Mr. Hofmeister has given more than a few speeches addressing the industry-wide chronic shortage of personnel with critical skills that is currently hamstringing many exploration and production efforts.

The Peak Oil Question

As I mentioned in Part I of this article, Mr. Hofmeister takes questions as well as gives speeches. And so I asked him straight up about Peak Oil: “Mr. Hofmeister, does Shell Oil have a corporate policy or position on the concept of Peak Oil, which you know was pioneered by former Shell geologist M. King Hubbert?”

And here is exactly what Mr. Hofmeister said: “Among informed Shell executives, there is a rejection of the Peak Oil theory.” Peak Oil is, he stated, “based on flawed assumptions.”

Mr. Hofmeister listed three reasons why Shell executives reject Peak Oil theory:

1. Peak Oil deals with conventional oil and does not take into account sources of unconventional oil, such as tar sand, oil shale, and heavy oil.
2. Peak Oil assumes that technology is static, when, in reality, there have been “huge strides” in the ability to enhance oil recovery from older oil fields.
3. By diversifying energy resources, “People will switch demand to other energy sources” long before conventional oil runs out.

Amplifying this last point, Mr. Hofmeister mentioned an old saying that has been, I believe, first attributed to former Saudi Oil Minister Sheikh Zaki Yamani, that “The Stone Age did not end for lack of stones, and the Oil Age will not end for lack of oil.”

And finally, Mr. Hofmeister made another comment along these lines: “We will reach Peak Oil, but not for lack of oil.”

Not for Lack of Oil?

Earlier in this article, I mentioned the old expression that “If it walks like a duck and looks like a duck and quacks like a duck…” Well, there are more ducks here than on Old McDonald’s Farm. I honestly admire and commend Shell Oil Co. and Shell’s Mr. Hofmeister for going around to discuss the energy predicament of the U.S. and the world. Mr. Hofmeister is saying many of the right things, in my view, and he is in a position to know what he is talking about. But what is going on? What is with the Peak Oil denial by Shell?

According to the president of Shell, Peak Oil is “based on flawed assumptions”? I just do not get that. Actually, the mathematical support of the Peak Oil argument is based largely upon industry-supplied data sets. That is, Peak Oil is based on historical and current production data for conventional oil, and the only place to get that kind of data is from industrial summaries such as the BP Statistical Review or Oil & Gas Journal or by summarizing collections of government-mandated data. So not to overstate the issue, but it is the camp that diminishes or denies Peak Oil that is using the flawed assumptions.

Conventional Oil

The critics focus on the point that the Peak Oil concept focuses on conventional oil, and does not take into account other hydrocarbon alternatives. Well, yes, after a fashion. Peak Oil is, and always has been, about “conventional oil” recovery. The discovery and recovery of conventional oil has been occurring for about 150 years, since 1859, when Col. Edwin Drake pounded down his famous well at Titusville. When former Shell geologist M. King Hubbert first articulated the Peak Oil concept in the 1950s, conventional oil was the whole ballgame. And the world is now at the point at which conventional oil extraction is a more or less flat, at a production rate of something over 80 million barrels per day (mbd), with the balance in natural gas liquids and other energy fluids.

And this “conventional” oil distinction of the Peak Oil argument is not some sort of “flaw” in the assumption; it is critical to understanding the point. With the exception of just a few million barrels per day of heavy oil, very sour crude, oil from tar, and a few other exotic forms of hydrocarbon, the entire world’s industrial liquid fuel infrastructure is wired and plumbed for conventional crude oil. This is the 150-year legacy of past investment at work. For example, the plastic and rubber gaskets in the engines of almost all of the world’s 500 million or so motorized vehicles are designed for use with oil-based gasoline, and rapidly corrode if ethanol is used for fuel.

Look at it from the other perspective. The world simply does not have the industrial infrastructure to produce 85 mbd of “alternative” forms of hydrocarbon fuel and there is no program in place to construct it, certainly not over the next few decades. After 20-plus more years of investment in the tar sands of Alberta, for example, the government of Canada is forecasting at most about 3 mbd of synthetic crude oil production by 2025. And this will require immense amounts of fresh water and natural gas, the supplies of which are entirely problematic.

And for all intents and purposes, there is simply no oil shale industry (let alone a world-scale oil shale industry), despite over a century of periodic hype to include the research performed by Shell in Colorado. Coal-to-liquid (CTL) efforts are embryonic, and it is a fair statement to say that no one really knows what a large-scale CTL industry will look like, what the technology will entail, what the environmental impact will be, and what the energy return on energy investment (EROEI) will be.

Technology

The critics also often argue that the Peak Oil thesis does not take into account new forms of technology that expands the reach for oil to deeper and more remote locales, or new equipment and processes that improve oil recovery from rock formations.

Actually, the improvement in technology is one of the things that demonstrate the point of Peak Oil. The “easy” oil has been found, and Shell states as much in its corporate advertising, along with Chevron, BP, and most other oil companies that pay good money to advertise their efforts. A deepwater oil well in the Gulf of Mexico, for example, costs in the neighborhood of $125 million, as was the case with Chevron’s 28,000-foot Jack-2 well that drew so much attention in September 2006. Would Chevron, or any other oil company, drill 28,000-foot wells that cost $125 million if there were cheaper alternatives? Deep, remote, expensive exploration and production wells make the case for Peak Oil, not diminish it.

As for enhanced oil recovery (EOR) methods, again these technological advancements make the case for Peak Oil. On the one hand, EOR is a market response to the rising price of conventional oil, so EOR merely illustrates that oil is becoming scarce and worth more investment to recover from the ground.

At the same time, EOR merely allows the oil producer to recover a higher percentage of the oil in place. EOR does not “make” any new oil in the rock formations. What is down there is down there, and EOR is just a way of leveraging your investment in a hole in the ground to get more oil out, and often as not to get it out more quickly. Whether your methodology is to drill horizontal wells or to perform multilateral completions or to inject water or gas to keep up the reservoir pressures or pump surfactants or other chemicals into the oil-bearing formation, what you are doing is mobilizing the oil and accelerating oil extraction from the future into the present.

The Peak Oil problem with EOR comes when the distant future shows up and becomes the present. Then, your extraction drops precipitously and your irreversible decline curve kicks in with a vengeance. Oil-producing regions such as Mexico’s Cantarell, the North Sea, or even parts of Saudi Ghawar illustrate the point. These great oil-producing regions have been the subject of EOR since the 1980s, and now their annual production decline rates are in the range of 12% and more. And compounding the problem, the decline in production leaves a major gap in the supply curve going forward, particularly since no one is “discovering” any other new oil provinces like Ghawar, Cantarell, or the North Sea.

So EOR is a technological means of pulling more oil out of the same holes, but it is not a contradiction to the argument embodied by the term “Peak Oil.”

Consumer Behavior

As for the argument that people will change demand and consumption habits long before we “run out of oil,” this is actually part and parcel of the basic Peak Oil thesis as well. Peak Oil is real, as are markets and market behaviors. Prices rise, and people react.

And of course, people will change their habits as conventional oil becomes more and more scarce, and expensive, going forward. They will have to, just as the world changed its consumption habits in 1978 and 1979 when the Iranian Revolution took almost the entire petroleum output of that nation offline within a matter of months. When the oil was not there, it was not there. Prices rose. People changed behavior. Economies crashed. And so it will be in the future. We can prepare or not, with a sense of urgency or not.

Moving the Goal Posts

So to my way of seeing things, it is the critics of the Peak Oil concept who keep attempting to redefine the terms. In one intellectual form or another, they keep trying to move the goal posts whenever some new evidence comes along that makes a new point within the discussion.

But this two-part article concerns Shell Oil Co., its president, John Hofmeister, and his traveling speaking tour. Shell and its president are attempting to hold a national energy discussion and to get people at the grass roots thinking about whence will come the nation’s energy supply in the future and the need for a true long-term national energy strategy. The Shell Answer Man is putting quite a bit of valid, accurate information about energy out on the table for all to see, from the depleting oil situation to the need for significant energy conservation efforts. Bravo.

We can disagree about this feature or that of what Mr. Hofmeister is saying, and even differ about the name on the label. Is it “Peak Oil” or no? I happen to believe that it clarifies the thinking process to call things by their correct name. But then again, it all may be of little consequence in the long term. We shall see. As our Arab friends say, “The dogs bark. The caravan moves on.”

Until we meet again…
Byron W. King

February 23, 2007

The Shell Answer Man, Part II was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

From Ethan, Location Unknown, about farmers growing more corn to meet demand for ethanol: “They will not use more fuel. All of the land that a farmer has is being used already to grow other crops. Farmers don’t just leave land sitting idle waiting to plant more corn. No farmer can afford to do that. Yes, corn prices will go up, but corn will be grown at the expense of other crops, not in addition to them. And I’m sorry, but if land is marginal and not currently being used, it’s not going to be used for corn, either. Marginal land grows marginal crops. It would hardly be worth the expense.”

Byron’s Comment: The individual U.S. farmer is quite a different thing than aggregate U.S. agricultural production. Large-scale agriculture in the U.S. is in many respects an industrial process that distinctly favors certain types of technology, terrain, and soil conditions. As a rule, the more crops that are grown, the more energy inputs are required. As no less an authority on the subject than the U.S. Department of Agriculture (USDA) has noted:

“The rapid adoption of new technology, improved crop varieties, improved insect and disease control, and other changes have boosted agricultural productivity [in the U.S.] so that more production can be obtained from the same cropland base. Agricultural productivity has more than doubled over the past 50 years.

“Larger farm equipment and increased use of irrigation has favored regions with large, level fields.”

Also, according to the USDA, “at its peak in 1992-95, the Conservation Reserve Program took about 36 million acres of land out of crop production.” This was out of about 440 million acres available, or about 8% of arable U.S. land.” So while one farmer might be plowing right up to the property line, there are other tracts of U.S. farmland that are sitting idle.

From Sterling, Who Knows Where He Is, Even if We Don’t: “When you read Byron King’s article, it leaves you feeling like nothing should be done to extend our energy resources. That is akin to not taking the five hours available to you on Saturday morning [to do something useful]…It does not make any sense doing that. Growing corn on otherwise unused real estate would be a sure way to get something out of it. If you have either lived through it, or have a parent that did, they used to extend gasoline even then by adding alcohol. Back during World War II, when everyone used gas-rationing coupons, I can remember an old gas pump at a filling station in a nearby town that had the word ‘ethyl’ displayed on it. That is what it was for then. Of course, there are other variations of alcohol that are more efficient, but you get the idea…And with the old-style methanol, which is the one I insist on using still as also my grandfather had from the 1920s until he died in 1966, it does very nice things for octane. The local race car gangs use it in their gas to boost the octane even further. And it does melt an ice chunk in the fuel line in the winter. It would be absolutely asinine not to use it to make gasoline go further. As far as using it in diesel fuel and a building heating plant, I don’t know if you can or not. Phooey. Wouldn’t affect the food supply for squat. Might even make the small farm closer to being economically feasible once more. Don’t need anymore of that valuable soil paved over.”

Byron’s Comment: “It leaves you feeling like nothing should be done to extend our energy resources”? Sterling, I know that you are a frequent reader, so you know that I am always writing about ideas for what to do about the future of energy supply and energy policy in the U.S., and the world at large. Let’s see…What have I discussed in some of my Whiskey & Gunpowder articles over the past two years or so? Drilling for oil, maybe? Secondary and tertiary recovery methods? Of course. But drilling alone is just not enough. How about conservation and efficiency? That is the fastest, cheapest, most readily available source of “new energy” available to everyone, everywhere.

I have discussed coal and methanol, particularly the Chinese approach to developing a vast methanol industry based on their own domestic coal reserves. I have discussed windmills and solar. I have written at length on the very fundamental idea of “strategy,” because without it, every plan is destined to fail. But this is a letters column, not a soapbox. So onto other letters.

From Jim, Location Unknown: “I teach a continuing education class for teacher certification about geology and ore deposits. Environmental questions often arise…The cost in loss to arable farmland topsoil to the Mississippi Delta from corn cultivation is as follows: The annual yield of one bushel of corn is at the sacrifice of 1,800 pounds of topsoil down the wind and the river due to erosion.”

Byron’s Comment: Interesting point, Jim. Agriculture is just one aspect of the extremely complex dynamic of the hydrologic cycle. The topsoil that erodes away from the upper Midwest is, for the most part, an ancient relic of the retreat of Pleistocene glaciers. Yes, topsoil can renew itself, but only over a period of many centuries, if not thousands of years. So by accelerating erosion of topsoil anywhere, mankind is foreclosing its agricultural future. This modern phenomenon of soil erosion simply adds to the resonance of the old saying about the Mississippi River, that it is “too thin to plow, too thick to drink.”

Another aspect of modern agriculture is chemical runoff. Fertilizers and pesticides drain from the land into the river system, and eventually make their way to the sea. Just south of the Mississippi Delta is a vast dead zone of water, where agricultural chemicals have congregated due to limited circulation in that part of the Gulf of Mexico. (Not even Hurricane Katrina, back in 2005, could stir it up all that much.) The fertilizers in the water cause algae to bloom. These bugs use up almost all of the dissolved oxygen in the water, so the fish cannot survive. This has wreaked havoc with the Louisiana fishing industry. Things are all interconnected.

From Another Jim, Location Unknown: “Byron is right on the cob, with his corny comments, but one point he made requires qualification. He said that there is ‘no free lunch.’ [But] when a lobbyist takes a politician to lunch, it is usually free for both of them. When [someone] closes out a big deal that saw him make a lot of money for simply making a few bets, then you can more or less assume that his next lunch won’t cost him anything.”

Byron’s Comment: Jim, I understand what you are saying about the power of the lobbyist crowd to extract special favors from the politicians. But this is also part and parcel of the U.S. political system. Lobbying, arm-twisting, and other forms of political and economic persuasion have been going on since time immemorial. In a way, this is another angle on the “free market,” at least the market in ideas. That is, there is a system by which private entities use their influence to, as the saying goes, “educate” the policymakers. But not all education is created equal.

My view of how things get done in the U.S. is that the more important the decision, the more you can expect to see “rational actors” do the right thing. For example, if the stakes of any given decision are relatively small or low-level, then raw politics and backdoor intrigue takes over. For an example close to my home at least, just about anything having to do with the Pennsylvania State Legislature can be viewed in terms of backroom deals, political patronage, and what people call “grease.”

But in contrast, during the Cuban Missile Crisis of 1962, the U.S. risked taking a nuclear strike from Soviet missiles in Cuba and delivering a nuclear response in kind on Russia. The stakes were, I think you will all agree, pretty high. So President Kennedy and his advisers managed to do most of the right and rational things, and worked out a deal with Soviet Premier Khrushchev and comrades to de-escalate the situation.

Wouldn’t it be nice if we could do the right and rational thing in terms of a U.S. national energy policy absent some massive, 1970s-style energy crisis slamming home again? That is, quite frankly, one of our themes in Whiskey & Gunpowder . We are looking for the right answers, or at least the right investments that will lead to the right answers.

From Donald in Texas: “Brazil is reportedly an effective user of ethanol as a vehicle fuel, but it makes it from sugar cane especially grown for the purpose.”

From “Jungle Jim,” Location Unknown: “Brazil has proven that ethanol can be used economically; it’s broken its oil dependency. If we are to remain a nation of any account, we must break ours. Yet every time that the subject is raised, ‘experts’ come forward to denigrate the idea. They are glib and clever, but their answer is always, ‘No.’ They very seldom have any positive alternative to offer, but they sure know what won’t work. The result is that our country increasingly looks like a bad remake of Waiting for Godot. We stand around hoping against hope for something good to happen, but all we hear is, ‘Nothing to be done!’ The irony is that this nation used to be famed for never taking no for answer. Now it’s all we get.”

From Yet Another Guy Named Jim, Location Unknown: “I agree with Byron…If we planted more corn on acreage equal to several times the area of Illinois, it still would supply less than half of our liquid fuel consumption. It’s not a total loss: The byproduct of an ethanol plant can be fed to cattle and swine. But diverting corn to ethanol production will have an impact on food production. Those who say, ‘If Brazil can do it, why can’t we?’ should realize corn is mostly starch that has to be converted to sugar by a malt enzyme. Brazil starts out with cane juice ready for fermentation and produces several cane crops per year. Subsidized ethanol is just another way to buy the farm vote.”

Byron’s Comment: I received quite a few e-mails referring to the Brazilian program for producing ethanol from sugar cane. I did not discuss the Brazilian program in the recent Whiskey & Gunpowder article on ethanol because I was focusing on the construction of ethanol plants in the U.S. But let’s discuss Brazil, while we are on the subject.

Brazil really does have quite a robust ethanol program going on, the product of 30 years and more of consistent national policy and massive investment. That alone should offer a sobering contrast to the on-again, off-again approach to a national energy policy in the U.S. But pointing out the flaws of the U.S. approach to producing ethanol from corn is not the same thing as saying “no.” And there is no harm in making an honest assessment of the U.S. approach, to include pointing out the contrasts with the Brazilian program.

Brazil is located, for the most part, in a tropical climate and, as some of the letters note, cultivates up to several crops per year of sugar cane that is specially bred for the purpose. Sugar cane is cultivated on a six-seven-year cycle, and its growth and cultivation requires far fewer inputs of manufactured nutrients than corn. (For example, sugar cane fixes nitrogen from the air through Gluconacetobacter diazotrophicus, and hence does not require nitrate fertilizer.) Sugar cane cultivation uses up about 1% of Brazil’s arable land, and tends not to be a significant cause of soil erosion, because the soil remains covered most of the year, or all year round. Most sugar cane fields in Brazil are not irrigated, and the sugar cane is watered solely via rainfall. Almost all of the sugar cane waste from making ethanol is fed to animals, mulched, and/or otherwise returned to the soil.

Chemical inputs to sugar cane cultivation in Brazil are so low, in most instances, that most Brazilian sugar cane farms would meet or exceed the standard U.S. definitions for “organic” agriculture. Many Brazilian sugar cane farms have entire ecosystems of flora and fauna that have evolved, literally, in the shade of the cane crops. Numerous almost-extinct species have come to thrive in and around sugar cane plantations. Compare this with the so-called “monoculture” agriculture model that dominates in many parts of the U.S., or the almost sterile soil in many agricultural areas of the U.S. that can only support crop growth via liberal application of natural gas-derived or oil-based fertilizers.

But manufacturing ethanol to use as automotive fuel is more than just an agricultural process. There are demographic and cultural variables, as well. Brazil has a population of about 184 million, or about 61% of the U.S. population. Yet Brazil has a fleet of vehicles that is only 12% of the total American fleet (28 million vehicles in Brazil, versus over 230 million vehicles in the U.S.) There is almost nothing comparable to “suburban commuting” in Brazil. Urban development in Brazil never led to affluent classes of people living in distant suburbia and commuting to work and shop. Most affluent and middle-class people in Brazil live near their workplaces and schools, or commute by train, bus, or subway to their workplaces and other destinations. In fact, in Brazil, the suburbs are pretty much synonymous with squalor and poverty. (On that subject, as applied to the evolution of U.S. suburbia, see James Kunstler’s arresting and remarkable book The Long Emergency .)

The net energy result is that Brazil’s gasoline consumption is only 4 billion gallons per year, which is supplemented by ethanol consumption of an equal amount. So 50% of what would otherwise be total gasoline demand is replaced by ethanol in Brazil. Compare Brazilian gasoline consumption of 4 billion gallons per year with a total of over 140 billion gallons per year of gasoline consumption in the U.S. In other words, Brazil’s gasoline consumption is about 2.9% (yes, you are reading it right, less than 3%) of U.S. gasoline consumption. No wonder that Brazil can meet its needs with ethanol.

So when I point out all of these facts, I am not trying to be “Dr. No” to peoples’ illusions of the future energy supply for the U.S. My view is that the “sugar cane” ethanol model of Brazil is simply not a realistic comparison to the U.S. effort to pretend to obtain its transportation fuel needs from corn-derived ethanol. In many respects, the U.S. is fooling only itself.

It is not industrially, socially, or politically difficult for Brazil to replace 50% of its gasoline requirement when that nation consumes only 8 billion gallons of transportation fuel per year. And it is helpful that Brazil has a tropical climate, in which a unique plant thrives, growing in the rain and under tropical conditions, and utilizing less than 1% of Brazil’s arable land. Good for Brazil! It is just that you cannot extrapolate Brazil’s program and scale it up to the massive and voluminous U.S. requirement for transportation fuel, certainly not by using corn.

The U.S. can do no such thing that Brazil is accomplishing. Circumstances are just plain different. So the U.S. is wasting its resources and time in a boondoggle effort to make significant amounts of transportation fuel from corn that will eventually prove to be futile. The American political class needs to stop viewing Peak Oil, and the ominous future energy situation of the world, as just another political issue. It is long past time to get rational and serious about developing a long-term energy policy for the country.

I hope that these comments have provided you with some food for thought, if not a desire for a stiff shot of Old Overholt Pennsylvania Rye Whiskey. Thank you for reading Whiskey & Gunpowder .

Until we meet again…

Byron W. King

January 17, 2007

Letters to the Editor: Ethanol, Part II was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Huh? OK, let me see if I follow the logic. The background issue is that the world needs to find substitutes for depleting supplies of oil and natural gas. We know that, and you may well have heard it here first if you are a longtime reader of Whiskey & Gunpowder. We also know that ethanol is one of those potential oil substitutes. People have been running vehicles on ethanol for well over a century. But oil has been so cheap for so long that there was never any need or economic scale in using the hooch for internal combustion. (I mean, the kind of internal combustion within a vehicle engine.)

And we know that a lot of corn is presently being diverted to manufacture ethanol. This is a fast-growing industry, and we will discuss that below. But have we really reached the point where the headline writers are so value neutral on the issue of food versus fuel that they shamelessly imply that there is some sort of economic or moral equivalency between using corn to manufacture ethanol and refer to “concerns about corn as a food”? Give me a break.

Ethanol Plants and Half the Corn Crop

In true journalistic fashion, the Old Gray Lady framed the food-versus-fuel issue in the first paragraph of the story:

“Renewing concerns about whether there will be enough corn to support the demand for both fuel and food, a new study has found that ethanol plants could use as much as half of America’s corn crop next year.”

What? The U.S. will use half its corn crop next year to manufacture ethanol? This raises a kernel of concern with me.

As I am sure you all understand, corn that is used to manufacture ethanol will not be available for other things, like eating. Nor will this ethanol-destined corn be used to feed other animals, or turned into other foodstuffs, let alone exported to raise foreign exchange for the U.S. And of course, the price of corn will rise.

So corn-based food, and products derived from corn, will become more expensive. And I know, so you don’t have to remind me, that farmers will respond to the price signals and grow more corn. But I hope you also realize that the farmers will do this by using more tractor fuel, fertilizer, pesticide, herbicide, and myriad of other substances derived from oil and natural gas. And the farmers will put into production the more marginal agricultural lands, with the less productive soils, which will then become depleted of soil moisture and nutrients. There is no free lunch.

Ethanol Plants Under Construction

According to a recent study by the environmental group Earth Policy Institute, the number of new ethanol plants being constructed nationwide has been underreported by more than 25%. According to EPI, there are 79 ethanol plants currently under construction in the U.S. When completed, by 2008, these new plants will more than double the annual U.S. ethanol production capacity, to 11 billion gallons.

This EPI estimate is a remarkable difference from the number of ethanol plants listed as being under construction by both the U.S. Department of Agriculture and an organization calling itself the Renewable Fuels Association, the main lobbying group for the ethanol industry. The Renewable Fuels Association has listed 62 plants as being under construction. The lower estimate of 62 plants has led forecasters to underestimate the amount of grain that will be needed for ethanol production. But even this does not begin to tell the entire tale.

The U.S. currently has 116 ethanol plants in production. The 79 more that are under construction will come online within about two years, allowing for some construction delays due to worldwide shortages of critical inputs and components. (The usual suspects…cement, galvanized steel, copper tubing, etc., thanks to the ongoing construction boom in China.) In addition, there are at least 200 other ethanol plants in the planning stages in the U.S., with a capacity estimated at an additional 3 billion gallons per year.

Gallons and Barrels and Energy Production

There are, according to convention dating back to the Pennsylvania oil boom of the 1860s, 42 gallons in a barrel. So the forecast annual U.S. production of 11 billion gallons of ethanol translates into about 262 million barrels of that type of fuel produced over the course of a year. And I am not even adjusting for the energy density of ethanol, which is far lower, only 59.5%, than an equivalent barrel of petroleum. The standard, accepted measurement of energy density for ethanol is 26.8 megajoules per kilogram. This clearly compares unfavorably with the energy density of gasoline at 45 megajoules per kilogram.

That is, 262 million barrels of ethanol will yield less energy when burned, less than 60%, than an equivalent volume of gasoline derived from oil. We won’t go into a long discussion of that just now. Nor will we get into the energy return on energy investment (EROEI) of ethanol, which is about break-even at best. No, we won’t go there. Let’s keep on looking at comparisons.

Sure, 262 million is a lot of barrels of ethanol, and any way you look at it, the ethanol industry is putting big numbers into the energy equation. But let’s look at some other big numbers. 262 million barrels of ethanol per year translates into about 718,000 barrels per day. (Divide by 365 days in the year.) In terms of volume, this is the energy equivalent of replacing about two supertankers full of imported oil every day. OK, not bad, and this looks like a lot of fuel if you are standing next to one of the two supertankers, but how much is it really? This is less than 6% of U.S. daily oil imports.

Let’s look some more at the number, 718,000 barrels of ethanol. This number of barrels, coming out of 195 ethanol plants (116 existing plants, plus 79 under construction), averages about 3,680 barrels of ethanol per plant, per day. (More division. And yes, some plants will produce more than others.) The number 3,680 may be a lot of barrels if you happen to own the average ethanol plant, but it is a drop in the bucket of U.S. national aggregate demand for liquid fuel.

Many Plants, Relatively Low Production

Another way to look at it is that each ethanol plant, on average producing 3,680 barrels of product, will yield the ethanol equivalent of what is commonly considered to be a small onshore oil field. But consider EROEI as well. On an ongoing basis, the oil field is producing oil with only the “energy input” of the pumps that lift the oil out of the ground. The ethanol plant requires far more energy to operate, on an ongoing basis, than does the oil field. Or for another type of comparison, few deepwater oil platforms are economic to operate if the initial production is under, say, 5,000 barrels per day. Something has to pay for those expensive day-rates for the rigs, not to mention all the labor, steel, and high-tech equipment that makes those holes in the bottom of the sea. And really, when you do the math, 718,000 barrels of ethanol translates into less than 3.5% of U.S. daily oil consumption of about 21 million barrels.

Here is another comparison. 718,000 barrels of ethanol per day is somewhat less than the amount of oil that the U.S. produces daily from its vast array of humble, old stripper oil wells, about 900,000 barrels per day. According to the U.S. Department of Energy, the U.S. has 393,000 oil stripper wells in service. And there are about 260,000 natural gas stripper wells in service. These wells are typically operated by small, independent companies and pull product out of older fields that are long past their peaks. The definition of a stripper well applies to oil wells delivering no more than 10 barrels per day and gas wells delivering no more than 60,000 cubic feet per day.

Although the stripper well industry is extensive, it is not a part of what people call “Big Oil.” Yes, the stripper well industry provides a good deal of employment at, literally, the ground level of many rural areas. And it is honorable work, performed by many fine individuals, a fact to which I can attest from personal experience in the oil patch over many years. But the stripper well industry is not in any way capable of supplying the U.S. with anything approaching its cumulative daily energy demand for liquid fuel. And the corn-based ethanol industry is still quite a bit smaller than the stripper well industry.

Back to Ethanol

So let’s get back to that forecast of 718,000 barrels of daily ethanol production. What appears at first to be an impressive number in terms of energy supply (11 billion gallons per year) is actually relatively small. In fact, it is almost in the “rounding error” of the nation’s daily liquid fuel consumption of about 21 million barrels of oil per day. Quite frankly, the U.S. could “save” more than 3.5% of its daily oil use if the nation’s carmakers built, marketed, and sold smaller cars, and if the nation’s drivers collectively bought them. Or we could see much the same result if drivers collectively slowed down and drove their big vehicles at 60 miles per hour, or if more freight went via railroad, instead of truck over the highways. And would it be too much to ask the soccer moms and hockey dads of the country to consolidate their trips so as not to waste gas? Or what if more people decided to take a bus or light rail to work every now and then? And wrap your brain around this, for comparison: The amount of grain that is required to fill a 25-gallon tank with ethanol, one time, could otherwise feed one person for a year.

So will the U.S. really wind up running its motorized culture on corn-based ethanol? According to Cornell researcher David Pimental, if the entire U.S. grain crop were converted to ethanol, it would satisfy about 15% of U.S. automotive fuel needs. The answer is no.

No Energy Salvation

The take-away point here is that the full-court press now ongoing in the U.S. to build plants and manufacture ethanol from agricultural corn will not provide any sort of long-term energy salvation for the nation. This major industrial and agricultural effort will yield ethanol product equivalent to about 3.5% of daily U.S. oil consumption. According to the statistics, as published in The New York Times, no less, ethanol production from existing plants and plants under construction is on track to consume about half of the U.S. corn crop. In some localities of the U.S. Midwest, almost all corn is already under agreement to be sold for ethanol production, essentially leaving no corn for other local farming needs. This will certainly cause a ripple effect throughout many farming communities, all the way to the shelves of the grocery stores.

From a national security standpoint, large-scale ethanol production from corn will not make the nation more secure in any measurable way. It will certainly destabilize the nation’s food supply and disrupt traditional export patterns.

Maybe there is a better idea out there for making ethanol from cellulose waste products. And it is not as if a diversity of energy resources is ever a bad idea. So some production of ethanol from corn makes sense. But sometimes, just because something is a good idea, it does not necessarily follow that more of it is a better idea. It is the same thing with corn-based ethanol. Pro-ethanol agricultural, industrial, transportation, and tax policies will not provide the country with anything like the volumes of motor fuel that it needs to run the existing transportation grid. And manufacturing ethanol from corn will dramatically disrupt the U.S. food supply. Eventually, the nation will reap what it sows.

Until we meet again….
Byron W. King

January 11, 2007

Reaping What You Sow was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.