Arctic Leaf

Winston, what would you do concerning natural gas?

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Where is Churchill when we need him? How many psychobabble articles and cable commentary about Putin and Russia could we have done without by just remembering good old Winnie’s marvelous, insightful quote in 1939? It’s as near perfection as we are going to get in trying to understand Mr. Putin and Russia. Both are “riddle[s] wrapped in a mystery, inside an enigma; but perhaps there is a key. That key is Russian [and Putin’s] national interest.” (The word Putin is my addition — I am sure Churchill would not have minded.) What does Putin want? Apparently not only full control of Crimea, but also instability in Eastern Ukraine.

Okay, now some of you readers are saying the same about the U.S. We seem to accept Russia’s takeover of Crimea…ah, Russia had it once anyway and it has a big naval base there. Sounds vaguely historically familiar. What about the other place, they say. What was its name? Guantanamo and Cuba! Oh, no?! Please let’s focus on Eastern Ukraine.

Forget consistency and remember Ralph Waldo Emerson. “Consistency [in foreign policy] is the hobgoblin of little minds” (Again, pardon the added-on term, foreign policy.)

Now how does oil come into all of this? None of us, not just President Obama, want to fight a war over the Ukraine, Eastern Ukraine or Crimea. If he were running again, Obama would probably borrow from Woodrow Wilson’s campaign slogan, “He kept us out of war,” at least big wars, particularly with corrupt nations some of which have a history of fascism..

Alright, let’s use tough energy sanctions — oil and natural gas. if the regulations concerning sanctions were tough, they might really hurt Russia’s economy and its ability to move out of the economic doldrums. Let’s hit them where it hurts! No, apparently, we will not, at least for now. Why? Well, Western Europe and our new ally, the Ukraine, depend on natural gas. Without it, both would be in for cold winters and probably a severe industrial recession. So what did our leaders do? They excluded natural gas from the list of recent sanctions. I suspect they, also, will allow Russia and the West to continue to trade in oil not involving new technology from the West.

Absence of natural gas in Europe and the Ukraine (and probably other Eastern Europe nations) is a plus for the U.S. We can make it up by selling natural gas. Isn’t what’s good for the U.S. bad for Russia and Mr. Putin?

Maybe, maybe not…or maybe the view that the U.S can be savior of Western Europe is a myth. Or maybe it’s just too complex for political leaders to grab hold of instantly.

Some verities to deal with:

1. Even with the current rush to permit the export of natural gas, before terminals get built and tankers are ready and environmental issues are disposed of, the first large volume of natural gas would not reach Ukraine or Western Europe until 2016 or later.

2. The U.S., despite the increase in shale development and natural gas production, still imports natural gas to meet domestic supplies — about 12.5% in total. Like big oil, exports of natural gas are to a large degree being sought to secure a higher prices overseas than in the U.S. Hurting Russia for U.S producers is a side show.

3. Russia, ostensibly, can produce natural gas and ship it by pipeline, rail or boat cheaper than we can. According to experts, the cost of U.S.-produced, transported and sold natural gas in Europe and the Ukraine is and will be much higher than Russian-produced and transported natural gas sold globally. Note in this context that Russia just cemented a $4 billion deal for Russia to sell oil to China. Will the Europeans and Ukrainians want higher-priced natural gas from the U.S.?

4. Oh, I almost forgot. Just last winter, U.S. residents in many states, particularly eastern states, nearly froze because of shortages of natural gas resulting from lack of adequate pipeline capacity and pipeline congestion. Consequently, the gas they secured came at very high prices. If ports can be built, pipeline amendments for the east coast cannot be far behind and probably should come first, if money is tight. Can we afford both, given uncertainties concerning price of natural gas and cost of drilling in tight areas? Sure. But the tradeoffs need to be carefully balanced by policymakers and the long term for investors must look bright.

It’s a puzzlement. Our policy seen by many nonpartisan observers as a “riddle wrapped in a mystery…” I will know sanctions are real when gas is included. What I won’t know is whether it will make a difference to Russia, given the fungibility of import-needy nations like China. Sanctions may bring both China and Russia something that communism has failed to do — build back a broken alliance. What I also don’t know is whether the growth of exports will significantly raise natural gas prices over time in the U.S. and lower the price differential with oil, and its derivative gasoline. If it does, producers and distributors may get rich, but opportunities for something I do care about — the development and widespread use of natural gas-based ethanol as a replacement fuel — may be impeded significantly. If this occurs, the environment, our economy and low- and moderate-income Americans may be worse off for it. Policymaking in today’s world is difficult and is something you often cannot fully learn in school.

Arctic Leaf

Innovation in oil & gas — it ain’t over yet

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To read the newspapers these days, you’d think that all the innovation in energy is involved in bringing down the cost of solar panels or building even bigger blades for windmills. But innovation still continues apace in oil and gas, both in pulling them out of the ground and in finding new ways to use them.

“We haven’t been giving the big oil companies enough credit,” said Dominic Basulto in The Washington Post. “ Sure, we may see their print ads or watch as they tout their accomplishments on TV, but deep down, many of us believe that the brightest minds have moved on to something new in energy innovation. But that’s not true.”

That’s important because if we’re going to use our abundant natural gas supplies to wean ourselves off of foreign oil, we’re going to have to be sure the current superabundance of natural gas isn’t just a flash in the pan. Moreover, we’re going to need innovation in making the transition to methane-based liquid alcohol fuels easier as well.

As most people have heard by now, even our best technologies can’t extract more than about 10-20% out of an oil or gas reservoir from the earth. Simply doubling that rate would give us access to huge, new quantities of domestic fuels.

There’s also a concern that fracking wells will have a much shorter lifespan than traditional gas and oil wells. Then there’s all that natural gas being flared off in the Bakken. Ending that conspicuous form of waste will require some new technology.

All these problems are being tackled through innovation, however, and that’s what Basulto is talking about.

Although everybody knows about fracking — the technology of forcing sand and water into the rock to break it up — few realize that the real novelty that makes up the current upturn in production possible is horizontal drilling, which allows access to entire geological strata without making the territory look like a pincushion.

“Today, drilling rigs are so good that they can punch holes in the earth that are two miles deep, turn the drill bit 90 degrees, drill another two miles horizontally, and arrive within a few inches of the target,” said Robert Bryce, author of “Smaller, Faster, Lighter, Denser, Cheaper,” a book about innovation in the energy industry. But horizontal drilling hasn’t stood still. ExxonMobil has developed an “extended reach” technology that can push outward several miles further deep in the earth. “Extended reach reduces our environmental footprint and in offshore applications will limit our presence in the marine environment,” says the company’s website. It may have been developments like this that prompted President Obama to give a green light to exploration off the Atlantic Coast from Delaware to Florida last month.

The same innovations are occurring with natural gas fracking. Innovators have made an improvement called “sleeve technology” that surrounds the drill bit and allows highly accurate placement of stimulation treatments. The result is that wells can be drilled twice as fast as a few years ago, at a lower cost. With increased precision in both drilling and fracturing, wells are being made more productive as well. Erika Johnsen on Hot Air said, “Data from the Energy Information Administration’s Drilling and Production Report shows that a Marcellus Shale well completed by a rig in April 2014 can be expected to yield over 6 million cubic feet of natural gas per day (Mcf/d) more than a well completed by that rig in that formation in 2007.” That’s a huge improvement in the space of seven short years.

All this is good news for the effort of substituting natural gas-based ethanol or methanol for foreign oil in our cars. After all, one of the fundamental considerations is that there will be enough natural gas around to keep the price reasonable. With so many competing proposals for employing natural gas — electrical generation, the industrial revival, LNG exports, etc. — it’s crucial that we keep expanding production.

So it’s encouraging to hear the news from Clean Energy Fuels, T. Boone Pickens’ baby, which has been building a “CNG Highway” across the country to service long-haul tractor-trailers. CEF has just completed the first leg of this nationwide network, connecting Los Angeles and Houston.

But much of the nation still lies outside the reach of natural gas pipelines and CEF is figuring out a way to serve them, as well. Last month the company opened a filling station in Pembroke, New Hampshire that will be served by a “virtual pipeline” of high-tech tractor-trailers making round-the-clock deliveries. This will allow the station to pump 10 million gasoline-gallon-equivalents (GGE), twice the volume of CEF’s largest existing station. More important, it will open up large areas of the country that have not had access to CNG. This natural gas-based substitute will sell for 30% less than gasoline.

Technology never stands still. Sometimes it forces us to give up things that have become familiar or even seemingly permanent. But as Robert Bryce said, the new technology is usually “faster, smaller, lighter, denser and cheaper.” And in the case of methane-based liquid fuels, it will mean freeing ourselves from foreign oil as well.

Arctic Leaf

Optimist and pessimist, the Oil & Gas Journal and replacement fuels

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“The optimist proclaims that we live in the best of all possible worlds and the pessimist fears this is true” — James Branch Cabell. Or, as I once said in a presentation in China after Tiananmen Square, “a strategic optimist is a realist with brains.”

I live with the hope we can do better as nation with respect to the environment, our economy and the quality of life choices open to Americans, particularly low- and moderate-income Americans. But I worry that given the ideological and related political divisiveness among us, we may not.

In this context, after reading the recent article, “SAFE: Report’s ‘flash points’ emphasize US transportation fuel problem” in the Oil & Gas Journal, often seen by some as a mouthpiece for the oil industry, my thoughts reflected both optimism and pessimism. I concluded that I was a realist tempered by experience (and hopefully with a brain). Okay, what did the piece suggest that stimulated my mental and emotional adrenaline? Two or three quotes used by the author Nick Snow, respected Washington editor of OGJ, taken from a national conference convened by Securing America’s Future Energy (SAFE):

“A proliferation of global oil geopolitical ‘flash points’ (e.g., conflicts in countries or within countries that limit or could limit the supply of oil) makes it even more urgent for the U.S. to aggressively reduce its dependence on crude oil for transportation fuels…If we could be only 65% dependent on oil for our transportation fuels by 2025 instead of 90%, it would make a tremendous difference…We also need better politics developed by people who can find win-win situations so we can move forward…We all agree that we need to diversify our transportation sources away from oil.”

Nick Snow is no blazing liberal. According to his resume, Mr. Snow has spent 30 years or so as a journalist covering oil issues, many of those for media outlets friendly to oil interests (e.g., Oil Daily).

Have we reached nirvana? Did the article in the OGJ signal that big or small oil companies will soon announce their commitment to replacement fuels, like natural gas-based ethanol and methanol? Their support, given the fact that some oil companies already own significant natural gas fields, could be important from a public policy and an “on the ground production and distribution” perspective.

When I was a kid, older members of my family, if they wanted something but knew it was impossible to secure, would say, “I should live so long.” In some respects, while I’m surprised by the selected quotes used in the article by Mr. Snow, I doubt it heralds an epiphany by leaders of the oil industry or their companies.

Why am I a wannabe optimist but a realistic pessimist? Oil companies’ primary behavior over the past decade or more has been to oppose the development of most replacement fuels, FFVs and open fuel markets. Sometimes they have done this through other organizations that they influence or control, and sometimes directly. Clearly, gas station franchises granted by oil companies remain tied to a “just say no” position on replacement fuels, or a back- or side-of-the-station mandate concerning location of replacement-fuel pumps. For the most part, their reaction to “flash points” has been “drill, baby, drill,” and their battle cry has been that only more drilling will make the nation oil independent. This is a curious stance, since companies are simultaneously seeking to increase their ability to export globally. America still imports about a third of its oil, while retail prices for gasoline at most stations remain high.

I’m afraid that the OGJ piece by Snow is not a harbinger of good tidings concerning oil company endorsement of replacement fuels — at least any time soon. Rather, the article reflects a willingness of the author to honestly describe a major issue facing the nation, that is, the disproportionate share of oil in transportation fuels. Regrettably, excluded from the piece is a narrative about the fact that oil converted to gasoline has a significant negative effect on the environment, and that oil imports still take a toll on the economy. Replacement fuels would address security, environmental and economic issues, and related national objectives in a much more positive way.

I have a vested interest in remembering the famous Andrews Sisters. How many of you remember them? They played in my uncle’s band for a short time. So let me end, somewhat inappropriately, using the last stanza of one of their hit tunes “I Can Dream, Can’t I?” by composer Sammy Fain. I am sure neither the sisters nor Sammy would mind. With respect to the oil companies, “I am aware. My heart is a sad affair. There is much disillusion there. But I can dream, can’t I?”

Dreaming is about all you can do now, with respect to getting oil companies to develop, or support the development of, flexible replacement fuels. Maybe someday!

Arctic Leaf

The journey of a thousand miles, replacement fuels and FFVs

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The headlines recently have been terrible — a commercial plane was shot down over the Ukraine, there’s war in the Middle East and more. It makes you wonder, over and over again, about man and woman’s inhumanity to his or her fellow men and women.

While certainly not equal in impact on the world at the present time, I happened to run across one point of light concerning a set of innovations which, in the long run, could positively impact climate change, security and consumer choice issues. It was reflected in a couple of articles describing the partnership between the state of California’s Energy Commission and Cummins Engines to develop an E85-fueled engine that apparently cuts Co2 by up to 80 percent (read it in Fleets and Fuels) in medium-duty trucks.

According to Cummins Engines and the Commission, a relatively small 4-cylinder, 2.8-liter engine has been successfully subjected to 1,000 miles and 1,500 hours of testing. It is now going through validation tests in Sacramento.

The story is a welcome one. Cummins indicates that the engine can generate 250 horsepower and 450 pound-foot of torque using E85. “Using lignocellulosic-derived E85, the powertrain’s efficiency features 75 to 80 percent lower well-to-wheels carbon emissions than gas engines; depending on the drive cycle…Cellulosic E85 is not derived from tilling, fertilizing and harvesting corn…Using corn-derived E85, the high thermal efficiency and power-to-weight ratio of this engine results in 50 to 80 percent lower well-to-wheels carbon emissions compared with the gasoline engine.”

Based on the Cummins documentation, California’s Energy Commission indicates “that successful completion of the project may result in a new market for E85 fuel now dominated by gasoline and diesel in the 19,500 lb. step-van fleet market.” The agency estimates greenhouse-gas savings as great as 69 percent, or 10 to 20 percent using corn based ethanol.

Fortunately, the general principles guiding development of Cummins’ engine may help improve flex-fuel automobiles and grant Americans more confidence in the environmental, price and economic benefits associated with extended use of E85.

Lessons learned may increase the nation’s ability to reduce GHG emissions. Based on what Cummins has done, using smaller engines extends the benefit of E85. Diesel-like cylinder pressures are important. Ethanol’s high-octane rating generates more engine efficiency. Use of state-of-the art sensors for spark ignition and coordination of stop-and-start functions enhances efficiency and reduces emissions. E85 is clearly a safe fuel.

The knowledge gained from the Cummins effort could lead to better flex-fuel vehicles and could support the effort to use increased technology fixes for older, non-flex-fuel cars and FFV twins. Perhaps the biggest benefit from the partnership between California and Cummings relates to the boost it could give to the search for replacement fuels, as well as the myth-busting understanding it could provide consumers about the safety of E85. It is a safe fuel, assuming engine adaptation and software amendment.

Elon Musk’s proposal to share Tesla’s electric-car patents and ideas might at least encourage increased collaboration among FFV makers in Detroit and the potential players in the conversion industry that likely would emerge, subsequent to EPA testing and approval of older vehicles for conversion. Even improved cooperation at the margin would could expand production of new FFV vehicles and expand conversion of older vehicles. For automakers and makers of conversion kits, as well as developers of FFV software technology, successful collaboration would generate larger markets.

Increased use of E85 through conversion of existing cars and the increased production of new FFV vehicles would help meet national and local environmental objectives, reduce gasoline prices and provide consumers with lower fuel costs, apart from gasoline. Both would also reduce dependency on foreign oil. Paraphrasing the poet Robert Frost, while FFVs — new or converted — are on a road less traveled now, as John F. Kennedy indicated, the journey of a thousand miles must begin with one step. The road less traveled now has more replacement-fuel drivers and FFVs than ever. Because of this fact, the journey of a thousand miles toward alternative fuel choices has made progress and, hopefully soon, will move at a faster speed. Success will mean a better quality of life for us all. It’s good news!

Image credit: Wikimedia commons

Arctic Leaf

Garage filling stations — are we getting close?

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One of the greatest appeals of switching to an alternative-fuel vehicle — electric, compressed natural gas or hydrogen — is saving money and freeing yourself from the clutches of foreign oil. But another is being able to supply your own fuel from a garage filling station where you may even be able to generate some of it yourself.

All this takes on a certain air of necessity when you realize that most of the infrastructure for recharging or refilling is not yet in place. In many cases, the garage may be the best option right now. So let’s run down some of the different options available and see how they stack up as being economical and practical.

Let’s start with the easiest one — electric cars. There are three types of chargers available to owners of a Prius, Leaf or Chevy Volt. The first is a Level 1 “trickle” charger, which is just a basic 120-volt line that plugs into any three-pronged outlet. This is the standard plug-in for all EVs. The problem is the amount of time it takes for a complete charge. For the Leaf, it takes close to 21 hours, which means that you can’t even do it overnight. For hybrids there’s some leeway since you can always revert to the gas motor and do some brake recharging as well. But if you’re planning to rely completely on a home outlet, you’d better have a second car.

More favorable is a Level 2 240-volt circuit. If you have an electric clothes dryer in your house, you’re already equipped. If you don’t have a 240-volt system at home, installation is easy enough. It will require a 40-amp circuit breaker, which may need a permit from the local building department, but the job is simple enough. Recharging time will be cut to less than eight hours, enough for an overnight. Plugincars.com puts the price at $600 -$700, although vendors such as ClipperCreek lists some for less.

If you really want to go really high-tech, you can move up to a Level 3 480-volt power supply that can give you an 80 percent charge in half an hour. The whole package costs $30,000, but with federal tax breaks and some help from the car companies, you can get it down to $10,000. Nissan offers a unit for $9,900. You could probably recoup some of the costs by recharging EVs for your neighbors, but you might need a zoning variance.

So how about compressed natural gas? What are the options there?

The Honda Civic is the only CNG passenger vehicle being sold in the United States. (Most of the progress has been with delivery trucks and long-haul trailers.) There are currently 1,000 CNG filling stations across the country, but half of them belong to companies that are using them for their fleets. Only about 500 are available to the public. So, unless you’re traveling along an Interstate and can make it to one of Clean Energy Fuels’ new truck stops, you’re going to have a hard time.

Refilling at home, however, isn’t all that impractical. More than half the residences in the country are equipped with natural gas for home heating, cooking or hot water. The trick is to get a device that can compress this household gas to be used in your car.

Honda originally offered a home refueling kit, the Phill, which costs $4,500 and could do a refill overnight. Honda stopped making the offer after 2012; however, due to concerns about the widely varying quality of non-commercial gas and the possibility of home devices allowing moisture to collect in the fuel system. For those willing to take the chance, the Phill is still available from its manufacturer, BRC FuelMaker. The question is, “Why is it so expensive when the same pump would cost 10% if it filled air bottles?” There is a regulatory review needed to reduce the cost.

Seeking to promote the technology, the Department of Energy (DoE) handed out grants a few years ago to encourage companies to develop affordable home systems. Now one of them may have come through. The Eaton Corporation of Cleveland, already prominent in the field of electrical charging stations, announced in 2012 that it plans to market a CNG home refueling device by 2015. “The system will use liquid to act as a piston in compressing the gas,” says Chris Roche, vice president at Eaton’s Innovation Center. “We have also developed an innovative heat exchange technology that will improve efficiency and cut costs dramatically.” Eaton is aiming at production costs of $500, which means the device could sell for less than $1,000. GoNatural, a Salt Lake City company, has also promised to have a product available by 2015. “It could be a game changer,” said New York Times reporter Paul Stenquist, in profiling CNG home compressors last October.

So, what about hydrogen? Is there anything available there? Hydrogen is very difficult to deal with. It is the smallest atom and will leak through just about anything. It’s hard to store and transport and must be kept under high pressure.

The upside, however, is the possibility of generating your own hydrogen, particularly from renewable resources. This can be done with simple electrolysis of water, which only requires an electric current. If you can generate that current with wind or solar energy, then you are essentially powering your car for free.

Making it happen is probably a long way off, although people are working on it. HyperSolar, Inc., a Santa Barbara company, has announced “proof of concept” of a method for generating solar hydrogen. “Using our self-contained particle in a low cost plastic bag, we have successfully demonstrated our ability to mimic photosynthesis to produce renewable hydrogen from virtually any source of water using the power of the Sun,” said CEO Tim Young while making the announcement. Horizon Fuel Cells, a Singapore company, released a “desktop” hydrogen generator in 2010 that generates hydrogen through electrolysis from any power source. It sells for $250 on Amazon. Although the company is targeting much smaller fuel-cell devices, it could eventually scale up to handle quantities needed to run a hydrogen fuel cell car

Altogether for cutting loose from the local gas station, electric vehicles are the best bet for now. But natural gas in its many forms — including methanol — are moving up and renewable hydrogen may be on the horizon. With home-generating devices proliferating, it is not hard to see all this eventually making a dent in our consumption of fossil fuels.

Arctic Leaf

USA, USA, USA…The search for competitive fuel choices

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“USA, USA, USA, USA.” No, I didn’t just come from watching the U.S. playing in the 2014 FIFA World Cup. But after reading the glowing, cheerleading, overly enthusiastic, often-nationalistic media accounts of the U.S. overtaking the Saudis in oil production, the win-lose aspects of the soccer chant somehow became embedded in my persona (like counting sheep or gas pumps at night when I can’t sleep). We beat the Saudis at their own game — oil. We’re number one…wow! Next, will we emulate the Saudis and place onerous and discriminatory restrictions on women drivers and, unlike the Saudis, argue that it’s a conservation measure? Of course not! We don’t have to be number one in everything. But oil does make strange bedfellows, and equally strange behavior, as well as policies.

Unfortunately, most of the media stories avoid analysis of what the new oil prominence of the U.S. means to the nation and world. Yes, increased production likely means less dependence on the Middle East, particularly Saudi oil. Indeed, we now import about 33% of oil needs, the lowest percentage in years.

But oil independence remains a myth. Oil interests are pushing for a reduction of regulations concerning exports of U.S. crude oil and have always exported considerable refined oil products allowed by the law. Their motives, despite frequent public comments to the contrary, are generally to sell to the price, which means to the buyer who offers the most return. He, she or it frequently is a global purchaser. Independence is a slogan that often blurs motive and reflects good politics but bad substance and contrary to reality.

The U.S., as the most powerful western nation, irrespective of any mathematical domestic surplus, will continue to extend its role as defender of the global supply chain from the Middle East or elsewhere. While we may be less dependent on foreign oil, U.S. leaders have, in the past, and likely will in the future, use a combination of diplomacy and military threats and action to defend and sustain the flow of foreign oil to allies or assumed allies. In this context, the role we play in the world extends our dependency. Unfortunately, wars will be fought and U.S. soldiers will die because of this felt dependency.

Most of the “USA, USA, USA” chants in the media coverage of our new oil prowess, implicitly neglects the difficult juxtaposition between increased oil production and supplies and higher gas prices. Less dependence hasn’t brought the reduction, or even stabilization, of gas prices promised by the oil industry. Gasoline in California is now generally well over $4 a gallon for regular, and averages over $3.60 a gallon across the nation. Why? We have a surplus, don’t we? Oil companies want to export more, and it appears that they will be able to do just that, soon. As Dr. Pangloss asked in “Candide,” is this the “best of all possible worlds” (let me add, for the U.S.)?

Clearly, the cost of oil at the pump is not strongly linked (at the present time) to the amount of U.S. oil that shows up on EIA calculations and projections. Both price and supply are going up simultaneously. Yes, there is uncertainty, given events in the Middle East and yes, uneven growth around the world has increased demand in some areas and suppressed it in others. The link between high prices and the Middle East is difficult to measure precisely. Consumer costs per gallon are likely affected more by investors, as well as speculation on Wall Street, than the actual numbers concerning increased production of U.S. oil.

So, apart from prayer and penitence, what can we do to get a better deal for consumers, and to prevent gasoline from becoming a negative factor concerning U.S. GDP growth and the environment? How can we help assure that being number one means robust economic growth, more income in the wallets of Americans (particularly low-income Americans), increased security and fewer dirty emissions?

These are not easy questions, and they do not lend themselves to simple ideological responses. Clearly, as renewable fuels and vehicles that meet the incomes and desires of most Americans become available, both will play a vital role in America’s future. But reliance on coal-fired utilities for power in some areas of the nation, battery costs, mileage limitations from single battery charges, and lack of infrastructure impede their ability to have a significant positive impact at the present. The market for renewable fuels and vehicles is relatively small and will remain so until technological advances catch up with potential demand.

Where is the Greek philosopher Diogenes when we need him? We have a path in front of us that would buy time toward a better American future, one that could offer competition to gasoline — competition that would be good for the economy, the consumer and the environment. Increased availability of replacement fuels, particularly natural gas-based ethanol, combined with large-scale conversion of older cars to flex-fuel vehicles (FFVs) and increased production of new FFVs by Detroit, would give gasoline a run for the money, if gas-only stations become fuel stations and provide consumers with a choice. According to the Renewable Fuels Association, less than one percent of all gas stations in the U.S. that are branded by the big oil companies offer E15 or E85.

I remain an optimist that more freedom will reign soon at the pump. The noted people’s philosopher, Charles M. Schulz, creator of “Peanuts” comic strips, lessened my fears about the future when he said, “Stop worrying about the world ending today. It’s already tomorrow in Australia.” USA, USA, USA. Fuel choice, fuel choice, fuel choice!

Arctic Leaf

Attention Investors: Opportunity for an oil change

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What would you say about an investment opportunity where your product is four times cheaper than the commodity it is trying to replace and there are 77 million potential customers waiting to use it?

Does that sound like something that you would like to put your money into? Well that’s the opportunity that awaits anyone willing to invest in the infrastructure and technical changes needed to substitute natural-gas-based ethanol for foreign-fuel-based gasoline in our cars.

A full-fledged prospectus was presented this month by Miles Light, professor at the Leeds School of Business at the University of Colorado Boulder, in a report called “Natural Gas Based Liquid Fuels: Potential Investment Opportunities in the United States,” written for the recent Goldman Sachs Energy Summit.

Professor Light lays out the situation in very clear terms: “Low natural gas prices and new technology present an opportunity to market and sell liquid fuels in the form of ethanol and methanol to U.S. consumers. Per unit of energy, oil is almost four times more expensive than natural gas. This implies a potential arbitrage opportunity to convert natural gas and natural gas liquids into a liquid fuel. In the U.S., 14.5 million vehicles can currently utilize ethanol fuels. These are the so-called ‘Flex Fuel’ vehicles. Another 16.1 million FFV ‘Twins’ can utilize ethanol with a software upgrade, and 46.9 million conventional fuel vehicles can potentially be converted for $150-$250 each. In all, this presents 77.75 million light duty vehicles, or 31.8% of the national light duty fleet, that would potentially purchase natural gas liquid fuel, if prices were attractive.”

You’ve undoubtedly heard the phrase, “If we can capture just 2 percent of this market…” Well, this is it. There are opportunities up and down the line, from auto mechanics performing flex-fuel conversions on conventional engines to major corporations building plants to convert natural gas to ethanol.

What Light is talking about here is the wholesale substitution of a portion of our natural gas resources for the oil we import in order to run our transportation sector. True, we’ve cut down on imports so they now make up less than half of our consumption for the first time since the early 1990s. But what people are missing is that we still pay the same amount for that oil because the price keeps rising. This continues to put a $380 billion dent in our trade balance every year — not to mention that much of this money goes to countries that actively support hostile actions against America and its friends and allies around the world.

So what would it take to make this transition? There’s certainly been a lot of activity to date. However, most of it has concentrated on utilizing compressed natural gas (CNG) and liquid natural gas (LNG). T. Boone Pickens’ Clean Energy Fuels is in the process of building a “CNG Highway” to service long-haul trucks from coast to coast. He’s already completed the first leg from Los Angeles to Houston. Those big 18-wheelers have room for the larger gas tanks and travel fixed routes along the Interstate Highway System that can be serviced by relatively few filling stations.

But passenger vehicles are a completely different matter. They travel everywhere and would require a whole new national infrastructure to fill their tanks. The auto companies have already offered a few CNG models but they haven’t sold well. It’s the chicken-and-egg problem — people won’t buy cars before the stations become common and the stations won’t be built until there are enough cars on the road.

With ethanol, however, there is already an infrastructure in place. The country is presently outfitted with 2,394 gas pumps dispensing E85, a mixture of 85% ethanol and 15% gasoline. (The gasoline is there just to start on cold mornings.) Most of these are concentrated in the farm belt but they’re starting to make their way into major cities on the East and West Coasts as well.

The point is this: these stations have been set up to handle corn ethanol. This is the result of the 35-year government effort to promote biofuels. But Light suggests that these stations could just as easily dispense ethanol made from natural gas. No new technology would be necessary, nor would it require any special permission from the government. (Methanol, which is a little easier to synthesize than ethanol, has a greater toxicity and would require some additional approval from the Environmental Protection Agency.)

So according to Light, this is where the investment opportunities lie. The conversion of natural gas to ethanol is the first and most important step, but Coskata, Inc. already has a working facility and Celanese Corporation is converting coal to ethanol in Indonesia. Light estimates that, at current and foreseeable prices, the return on investment could be as high as 46 percent.

Then there are all the intervening steps. “Alongside the core ethanol production opportunity, there are several related supply-chain developments projects, such as production facility development, ethanol fuel marketing, fueling station upgrades, blending facility expansions, and vehicle update kits,” he writes. All are well within the range of private investment. No government subsidies or mandates would be required.

In other words, the conversion of significant portions of our auto fleet to natural gas presents a whole world of opportunity just waiting for imaginative, ambitious investors to take advantage.

Anybody interested?

Arctic Leaf

Resources for the future and an alternative vehicle and fuel pathway

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I have been a fan of Resources for the Future (RFF) since my early days in Washington many years ago. While the organization’s reports won’t keep you awake at night nor can they easily convert into a Bollywood movie, they generally provide sound nonpartisan analyses of resource and environmental issues. In this context, the Fuel Freedom Foundation (FFF) retained RFF to independently study the potential economic, environmental and national security gains from replacing a portion of domestic gasoline use in the light-duty fleet with various natural gas-based fuels such as ethanol or methanol.

The request reflected the relatively large price differential between the growing supply of natural gas and gasoline and FFF’s assumption that natural gas-based fuels (ethanol and methanol) could not only offer the U.S. security benefits, they would be cheaper and cleaner than gasoline. If FFF’s assumption was right, public and private sector strategies to encourage the conversion of older vehicles to FFVs and to increase the production of new FFV vehicles in Detroit would seemingly be in order. Similarly, finding financially feasible ways to produce, develop, distribute and successfully market natural gas-based alcohol fuels would appear quite sound.

RFF’s study was completed last September and is available online.

I have read the document many times. It is compelling because it honestly portrays gaps in information and uncertainties concerning public policy and regulation, technology, geography, price trends, competition, and availability as well as access to natural gas-based fuel. Indeed, embedded in the report is the fact that policymaking in public, nonprofit or private sectors or predictions concerning consumer behavior is never perfect. As complexity increases, decisions often require reliance on perfectibility over time, rather than perfection in the present time.

Apart from RFF’s marshalling of available, relevant data and its related analysis, the study’s conclusions are supportive of leadership groups and leaders who seek an “alternative path” in support of the use of natural gas-based fuels and the conversion of older cars to flex-fuel vehicles.

What RFF concluded is that the only replacement fuel currently available to the more than ten million FFV E85-capable vehicles “does not have a cost advantage at the pump over conventional gasoline.” But assuming companies like Coskata, Inc. and Celanese are able to deliver on their financial modeling, live tests and price predictions concerning the production and distribution of natural gas-based ethanol, owners of FFVs, including owners of new and older converted vehicles could see cost benefits near $1 per GGE (gasoline gallon equivalent) in the very near future.

This is no small benefit. It will be particularly important to low and moderate-income folks, permitting them more choices when it comes to jobs, housing and other basic needs. It will also reduce the strain caused by reduced economic and income growth on middle class households. RFF also indicates, with somewhat less certainty as to how much, that there will likely be environmental benefits.

Making this new replacement fuel path viable will require the EPA to lower the costs of certification of kits that help convert older cars to FFVs, and to sanction relatively simple software adjustments, particularly for newer FFVs and their twins (not the human kind but automobiles whose engines reflect FFF characteristics. This path will also need the EPA and advocates of natural gas-based ethanol to work together to develop a vehicle-testing procedure for older cars that is both cost efficient, sound and hopefully, relatively quickly. Finally, it will necessitate a fuel market that reduces, if not eliminates, the almost monopolistic conditions generally imposed by oil companies and often supported, at least implicitly, by government policies and regulations.

Consumers, clearly, would benefit from more competition at the pump and from more pumps devoted to replacement fuels. Auguste Comte, the great 19th century philosopher and founder of positivism, never saw a gasoline station, but his simple motto, “Love as a principle [need for increased natural gas-based flex fuels and need for flex-fuel cars], the order as a foundation [development of policies and infrastructure for natural gas-based fuels and increased FFVs] and progress as a goal [extend consumer choice]” nicely frames RFF’s narrative. In turn, RFF’s study, while recognizing the value of renewable fuels, supports an alternative, natural gas-based replacement fuel as well as a vehicular pathway to help achieve national, regional and local economic, social welfare and environmental benefits. It’s near July Fourth. Let’s move toward freer increased choices among fuels and increased vehicular capacity to use them.