GoodFuels

The Politics of Ethanol

(This was published Friday, August 31, 2008 in The Ethanol Monitor)

As I reviewed the volumes of information we have gathered over the past 18 months, I couldn’t help but wonder how the ethanol industry survived the massive campaign against it and I can only conclude that strong political support has managed to beat back challenge after challenge designed to undermine and slow its evolution.

Now it comes down to two candidates and two parties, a decision which could bolster or weaken the industry for years to come. No matter how you slice it, this election is pivotal for the future of ethanol in the U.S.—and that includes corn-based and next generation fuels.

This is not about endorsing one candidate or another, but rather pointing out the differences between the two, how their visions contrast with respect to energy and America’s future, both from the standpoint of our addiction to oil and how the U.S., the leading polluter on the planet, should be taking the lead in reducing the potential impact of global warming.

In several instances over the past four years I have had the privilege to meet many in the ethanol industry, and when asked why I ever got involved in this field, my answer is always the same. I have been writing about energy of all types for longer than I care to remember. The oil and gas industries fascinated me simply because I quickly recognized the importance these commodities had to the well being and advancement of civilization, but how politically fractious they were and how nations would take up arms to protect their share of these precious resources.

Russia’s sudden invasion into Georgia recently, the latest in the Soviet Union and now Russia’s desire to control the resources of its presumed empire, is just the most recent reminder of how oil and gas power corrupts.

But my answer as to why I ever got involved with ethanol at all goes back to September 11, 2001. That changed everything and brought to the forefront that we could no longer depend on oil to fuel growth.

The single belief should be that the national security threat to dependable oil resources is not acceptable. From corruption in Nigeria to a semi-dictatorship in Venezuela, to Russian resource expansionist policies represent just a few of the challenges the oil dependent world faces in the years ahead. To the U.S., the threat of Islamic extremism centered in the oil capitols of the world may be more publicized, but no more dangerous than the many geopolitical issues that surround what is the thread that holds together the world’s economies.

More than any other reason, ethanol became a necessity, but it wasn’t always that way.

(more…)

If EPA Grants Waivers, Repercussions Would be Swift and Painful

As the Environmental Protection Agency reviews congressional requests to relax rules mandating the use of ethanol, something the politicians haven’t thought about is what will happen if the rules are relaxed.

What mainstream media doesn’t get, from the Los Angeles Times to TIME magazine, is that it will guarantee that $5.00 gasoline occurs within a month of an announcement to grant Governor Perry’s request that the Federal ethanol mandate be cut in half. Crude oil prices would race toward $175 per barrel as the world’s largest petroleum consumer ramps up its appetite for oil.

Chinese demand growth? That’s nothing compared to how much more oil the U.S. will be consuming this year. Our analysis shows that $5.00 gasoline will just be the beginning. Prices in California, within one month would reach $5.75 per gallon and heading to $6.00 per gallon by summer’s end. The rest of the country will follow. We would see gasoline prices at about $6.00 nationwide by September 30.

U.S. refiners would suddenly be faced with finding roughly 320,000  and 350,000 (see update below) barrels or 13.8 million gallons of gasoline per day immediately. These events are definite if the EPA acts. In addition, it logically follows that Congress would lower or remove the tariff on Brazilian ethanol.

Big Oil will be on the road to eliminating a competitor, and Congress will be feeling the pressure to drill everywhere.

UPDATE: My apologies for the typos in the original post; here’s what we published in our newsletter this week. The mistake was found internally early this week and corrected. However, the error was not corrected in the word file that was used to create this entry. The sentence has been updated to reflect the proper numbers.

It obviously does not change the analysis about where retail prices would move, as the numbers above are what we used to estimate supply pressures on U.S. refiners. If anyone would like to see a copy of the newsletter,  just drop me a line at  tom [at] oilintel [dot] com.

(more…)