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Arctic Leaf

CNG moves ahead on all fronts

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The effort to substitute compressed natural gas for foreign oil in our gas tanks is moving ahead on all fronts across the country, in scores of municipal departments that are converting their fleets, in new gas stations that are opening and with entrepreneurs who are looking for ways to speed up the conversion.

Leading the pack is Clean Energy Fuels, T. Boone Pickens’ effort to put the nation’s natural gas resources to work in the transport sector. Clean Energy Fuels has targeted long-distance, heavy-duty trucks, which tend to stay on the Interstate Highway System and can be services at massive truck stops. In Pennsylvania, for instance, Clean Energy Fuels is building stations in Pittston and Pottsville that will serve trucks on heavily the traveled I-81 and I-476. They are scheduled to open later this year.

But much of Clean Energy Fuels’ real success is coming from the fleet conversion for major shipping firms that rely heavily on truck transportation. The company has had particular success with UPS. Fueling depots were recently opened in Oklahoma City and Amarillo, Texas. The carrier E.J. Madison, LLC has deployed a fleet of 20 long-haul LNG trucks that will utilize a CEF network of stations that stretches from Los Angeles to Jacksonville, Florida. Jacksonville is emerging as a hub of CEF activity as the company has opened a liquid natural gas (LNG) terminal there as well. LNG is more difficult to handle than compressed natural gas but has much greater energy density.

Rapidly expanding in Florida, CEF has just announced a grand opening of a CNG filling station that will service the Hillsborough Area Regional Transit Authority (HART), which provides public transportation throughout the Tampa metropolitan area. The opening kicks off a plan to convert HART’s entire fleet of public services buses and vans to compressed gas.

Just last week Clean Energy Fuels CEO Andrew Littlefair was in the news telling The Motley Fool that Tesla’s electric cars will not be in competition with CEF’s efforts. “Tesla and electric vehicles are really great for certain applications,” he told interviewer Josh Hall. “But hauling 80,000 pounds of cargo, natural gas is really well suited for that.”

However, even if Clean Energy Fuels doesn’t think CNG can compete with electric at the passenger-car level, others do. Last week the Wawa convenience store chain announced it will partner with South Jersey Gas to open CNG fueling stations in southern New Jersey. “Compressed natural gas gives us an opportunity to increase the convenience we offer our customers and positions us for the future as well,” Brian Schaller, vice president of fuel for Wawa told the press. “We’re excited about the growth potential.” With 600 stores on the East Coast from New Jersey to Florida, Wawa has plenty of room to grow.

Pennsylvania is becoming a hotbed of compressed gas progress as the state seeks to take advantage of the Marcellus Shale. The state has adopted a funding program to help businesses convert. One of the first to take advantage is Houston-based Waste Management, which received an $806,000 grant from the State Department of Community & Economic Development to switch 25 of its waste and recycling collection vehicles to CNG. Pennsylvania-American Water Company has also announced plans to convert its fleet with a $315,000 state grant. American Water, the largest water utility in the state, operates out of Scranton.

Nebraska is a long way from any natural gas drilling but the Uribe Refuse Services company of Lincoln has announced it will convert its entire fleet of 17 trucks to natural gas over the next few years. The first trucks were displayed in the city last week on Earth Day.

Oklahoma is a big oil-and-gas producing state and is making a major effort to convert state vehicles to natural gas. In 2011 Gov. Mary Fallin joined 15 other states in a multi-state memorandum of understanding committing them to purchase NGVs for the state fleet. The state now has 400 CNG vehicles and is pushing the federal government to convert its fleet in the state as well. Oklahoma is building CNG gas stations to match and now stands third in the nation behind California and New York.

The natural gas industry is putting its shoulder to the wheel on this effort. The American Gas Association and America’s Natural Gas Alliance (ANGA) have teamed up to sponsor “Add Natural Gas (+NG),” an effort that is encouraging entrepreneurs and mechanics to convert ordinary passenger cars already on the road to CNG. “Fleets across the country are already using natural gas vehicles to save money and reduce emissions,” says the group’s website. “However, natural gas can be used to fuel any vehicle. To demonstrate this, we worked with automotive engineers to add natural gas as a fueling option for some of the most popular vehicles on the market today.”

Performance CNG LLC is a Michigan startup that has been inspired to take up the initiative. The company recently had a hybridized 2012 Ford Mustang GT demonstrated as part of +NG’s campaign and is currently trying to raise $55,000 in capital on Indiegogo, an international crowd funding site. More than half the money would go to EPA emissions testing.

Not everyone is convinced that CNG is the way to go. Clean Energy Fuel’s stock has done poorly since January, based on investor skepticism that its market is not that big and that some liquid natural-gas based fuel – methanol of butanol – will prove easier to handl

Arctic Leaf

Rin Tin Tin, RINs and the price of ethanol

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Is the son or daughter of Rin Tin Tin alive and well? For a while I thought he or she was, while catching up on my reading over the weekend. I kept reading articles about RINs (Renewable Identification Numbers), their possible impact on the ethanol market and relatively high ethanol prices, despite the apparent weakening of the ethanol market. There seemed to be RINs and more RINs on every page I turned! Because I hadn’t slept for two nights, I couldn’t really focus on the contents of the articles, but only on the dog Rin Tin Tin and his offspring. How many of you have done that? Come on, be honest. Don’t make me feel bad!

I felt guilty after it became obvious that my focus on Rin Tin Tin resulted from a tired brain and eyes. I am back to the complex world of RINs today. (I had a bit of sleep).

Okay, you ask, “What the hell are RINs?” They are sort of a pass at reflecting company fulfillment of government mandates concerning biofuels. For this article, think ethanol! They are issued at the point of ethanol production or the purchase of the fuel by companies. They are approved by the EPA. They reflect a credit that verifies that the required amount of ethanol has actually been blended into gasoline. Succinctly, the Renewable Fuel Legislation, now the law of the land, mandates that a Renewable Identification Number (RIN) must be attached to every produced or imported gallon of renewable fuel in the U.S. One more thing, RINs are separated from the batch of renewable fuel when it is blended with gasoline. This fact indicates compliance with the law and Renewable Volume Obligations (RVOs). Credits, at this juncture, can be used for trading purposes.

In 2012, before the EPA’s Nov. 2013 proposal to change RIN quotas and lower requirements for ethanol, the price of RINs was very volatile. Initially, they ranged around 1 to 10 cents a gallon. By spring of 2013, however, they were around $1.

Why the price increase and what does it bode for the price of ethanol in the future? Initially, the RINs were thought of as a way to encourage refiners to produce renewable fuels, like ethanol, and to “pay” for credits if they don’t “play” by  meeting fuel targets.

Part of the volatility and increase in costs of RINs, probably, has to do with speculation by banks and other financial institutions. Thomas D. O’Malley, chairman of PBF Energy, indicated in a recent New York Times article that financial institutions “helped transform an environmental program into a profit machine…These things were designed to monitor the inclusion of ethanol in the gasoline pool…They weren’t designed to become a speculative item. For the life of me, I can’t see the justification for it.” Interviews with members of the financial community, conducted by the New York Times, seem to suggest agreement with O’Malley.

According to the Times, speculation in RINs “could have consequences for consumers. In the end, energy analysts say, the outcome will be felt at the gas pumps — as the higher cost of the ethanol credits get tacked onto the price of a gallon of gasoline.” The Times reports that the “credits, which cost 7 cents each in January [2013], peaked at $1.43 in July, and [were] trading for 60 cents” in September. Jordan Godwin in the Barrel Blog indicated that like RINs in 2013, ethanol prices in 2014 are downright wacky. “In a matter of less than two months, ethanol prices went from six-month lows to eight-year highs.” Godwin and others blame delayed returning train cars during the winter and constraints on supply and production. I would add speculation by Wall Street and uncertainty as to the impact and longevity of EPA’s new regulations concerning the reduced mandates for ethanol and other biofuels. It’s a dilemma for proponents of alternative fuels. Less speculation regarding trading, sustained predictable production and refinement of the distribution system, (along with avoidance by some retailers and blenders to price ethanol well over costs) would facilitate more competition with gasoline at the pump. More predictable competition and larger sales at the pump of E15 and E85 would generate more private-sector fixes to the ethanol supply chain as well as likely stabilize prices and, over time, lower them. In light of ethanol’s benefits to the nation, wise folks might be asked to find policies and stimulate market behavior that permit the American people to have it both ways.

Arctic Leaf

Is butanol the next big thing in biofuels?

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Fuel Freedom recently learned about a man named David Ramey who drove his 1992 Buick Park Avenue from Blacklick, Ohio to San Diego using 100 percent butanol, without making any adjustments to his engine.

Ordinarily this wouldn’t be big news. But with the EPA now considering cutbacks in the 2014 biofuels mandate, some producers of ethanol are starting to turn to butanol as a way of getting around the limitations of the 10 percent “blend wall” that is threatening to limit ethanol consumption. This could be another breakthrough in our efforts to limit foreign oil.

Butanol is the alcohol form of butane gas, which has four carbons. Because it has a longer hydrocarbon chain, butane is fairly non-polar and more similar to gasoline than either methanol or ethanol. The fuel has been demonstrated to work in gasoline engines without any modification to the fuel chain or software.

Since the 1950s, most butanol in the United States has been manufactured from fossil fuels. But butanol can also be produced by fermentation, and that’s where another opportunity for reducing our dependence on fossil fuels exists.

The key is a bacterial strain called Clostridium acetobutylicum, also named the Weizmann organism for pioneering biological researcher Chaim Weizmann, who first used it to produce acetone from starch in 1916. The main use for the acetone was producing Cordite for gunpowder, but the butanol, a byproduct, eventually became more important.

Once set loose on almost any substratum, Clostridium acetobutylicum will produce significant amounts of butanol. Anything used to produce ethanol — sugar beets, sugar cane, corn grain, wheat and cassava, plus non-food crops such as switchgrass and guayule and even agricultural byproducts such as bagasse, straw and corn stalks — can all be turned into butanol. (Of course, not all of these are economical yet.)

Given the modern-day techniques of genetic engineering, researchers are now hard at work trying to improve the biological process. In 2011, scientists at Tulane University announced they had discovered a new strain of Clostridium that can convert almost any form of cellulose into butanol and is the only known bacterium that can do it in the presence of oxygen. They discovered this new bacterium in, of all places, the fecal matter of the plains zebra in the New Orleans Zoo.

DuPont and BP are planning to make butanol the first product of their joint effort to develop next-generation biofuels. In Europe, the Swiss company Butalco is developing genetically modified yeasts from the production of biobutanol from cellulosic material. Gourmet Butanol, a U.S. company, is developing a process that utilizes fungi for the same purpose. Almost every month, plans for a new butanol production plant are announced somewhere in the world. Many refineries that formerly produced bioethanol are now being retrofitted to produce biobutanol instead. DuPont says the conversion is very easy.

What are the possible drawbacks? Well, to match the combustion characteristics of gasoline, butanol will require slight fuel-flow increases, although not as great as those required for ethanol and methanol. Butanol also may not be compatible with some fuel system components. It can also create slight gas-gauge misreadings.

While ethanol and methanol have lower energy density than butanol, both have a higher octane rating. This means butanol would not be able to function as an octane-boosting additive, as ethanol and methanol are now doing. There have been proposals; however, the proposals are for a fuel that is 85 percent ethanol and 15 percent butanol (E85B), which eliminate the fossil fuels from ethanol mixes altogether.

The only other objection that has been raised is that consumers may object to butanol’s banana-like smell. Other than that, the only problem is cost. Production of butanol from a given substratum of organic material is slightly lower than ethanol, although the increased energy content more than makes up for the difference.

Ironically, the EPA’s decision to cut back on the biofuels mandate for 2014 is now driving some refiners to convert to butanol, since its greater energy density will help it overcome the 10 percent “blend wall.”

“Michael McAdams, president of the Advanced Biofuels Association, an industry group, said butanol was a ‘drop-in’ fuel, able to be used with existing gasoline pipelines and other equipment because it does not have a tendency to take up water, as ethanol does,” The New York Times reported last October. “‘It’s more fungible in the existing infrastructure,’ he said. ‘You could blend it with gasoline and put it in a pipeline — no problem.’

“Butanol would also help producers get around the so-called blend wall, Mr. McAdams said…With the 10 percent limitation, ‘you don’t have enough gasoline to put the ethanol in,’ he said. ‘You don’t have that problem with butanol.’”

So here’s to butanol. It will be yet another big step in reducing our dependence in foreign fuels.

Arctic Leaf

Of myths, oil companies and a competitive fuel market

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I do not wish to join the intense dialogue concerning whether or not the government should allow exports of crude oil. Others are already doing a good job of confusing and obscuring the pros and cons of selling increased amounts of America’s growing oil resources overseas.

What I do want to do is just focus on the logic of one of the oil industry’s major arguments for extending the permitting of exports — again, not on the wisdom of exporting policy. Permit me to do so in the context of the industry’s long-standing argument concerning the pricing of gasoline to U.S. consumers. The argument is that more oil drilling in the U.S. will lower the price of gas and put America on the path to oil “independence.”

In somewhat of circuitous manner, oil companies are using the opposite of their domestic advocacy for “drill, baby, drill” policy as a way to keep prices lower at the pump. Their yin is that producing more oil in the U.S. and sending significant amounts overseas, combined with declining vehicular fuel demand, will lower gas prices. Economist Adam Smith would applaud the simplicity if he were alive and well. Their yang presents a bit more complicated set of “ifs.” That is, the industry presumes that fulfillment of the yen (excuse another pun) to export will result in more U.S. oil being drilled because of increased world demand generated by the assumed ability of the U.S. to produce oil at less costs than the world price for oil. It will also help foster infrastructure development in the U.S. to break up current log jams concerning oil transportation. Finally, it will facilitate more efficient refineries, allowing them to specialize in different types of oil. The yin and yang will result in (marginally) lower prices of gasoline — so goes the rhetoric and oil-industry-paid-for studies.

Paraphrasing Dr. Pangloss in “Candide,” the oil companies hope for the “best of all possible worlds.” But, before Americans run out and buy stock, note the price of gasoline does not directly reflect oil production volume. Indeed, gas prices, despite increased supplies, have gyrated significantly and now hover nationally over $4 a gallon. Generally, oil and gas prices relate to international prices, tension in the Middle East and investor and banker speculation — not always or directly domestic costs. Stockholders and executives of oil companies function not on patriotism but on profit and to the extent that the law permits, they will sell overseas to get the best price — in effect, the best dollar over payment for a barrel of oil. Consumers, I suspect, are rarely a significant part of their opportunity costing.

Unfortunately, lack of strong empirical evidence tempers the company’s argument that increased world demand will stimulate good things like refinery efficiency and log-jam-ending infrastructure. Maybe if the price per barrel is right (clearly, higher than it is now) and seems predictable for more than a small period of time, refinery and infrastructure developments will be positive. But, the costs to the consumer, in this context, will be higher. It will also be higher because shale oil is tight oil and more risky and costly to drill.

Oil independence is a myth suggested by oil industry and a non-analytical media. Certainly, the oil boom and less vehicular demand have generated less imports and less dependency. But we still buy nearly 300 billion dollars’ worth of oil every year to respond to need and we still produce far less than demand.

Somewhere in the dark labyrinth of each major oil company is a pumped-up (another pun), never-used, secret justification for franchise agreements impeding the sale of alternative fuels in their retail outlets. To alleviate guilt, it may go something like this: “Monopolies at the pump will allow us to make larger profits. You know we will someday soon want to give back some of the profits to consumers by lowering the price of gasoline.” If you believe this still-secret beneficence, let me sell you the Brooklyn Bridge.

There is another way to steady the gasoline market and lower consumer costs. Inexpensive conversions to allow older vehicles to use safe, cheaper and environmentally better alternative fuels (as opposed to gasoline), combined with expanded use by flex-fuel owners of alternative fuels, would add competition to the fuel market and likely reduce prices for consumers. Natural-gas-based ethanol is on the horizon and methanol, once the EPA approves, will follow, hopefully shortly thereafter. Electric cars, once costs are lower and distance on single charges is higher, will be a welcome addition to the competitive mix.

Arctic Leaf

Is Elon Musk the next Henry Ford?

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Elon Musk doesn’t mind making comparisons between himself and Henry Ford. Others are doing it as well.

In announcing his plans for a “Gigafactory” to manufacture batteries for a fleet of 500,000 Teslas, Musk said it would be like Ford opening his famous River Rouge plant, the move that signaled the birth of mass production.

The founder of PayPal and current titular leader of Silicon Valley (now that Steve Jobs is gone), Musk is not one for small measures. The factory he is now dangling before four western states would produce more lithium-ion batteries than are now being produced in the entire world. And that’s not all. He’s designing his new operation to mesh with another cutting-edge, non-fossil-fuel energy technology – solar storage. His partner will be SolarCity (where Musk sits on the board), run by his cousin Lyndon Rive. Together they are looking beyond mere automobile propulsion and are envisioning a world where all this solar and wind energy stuff comes true.

So, is Musk a modern-day Prometheus, bringing the fire to propel an entirely new transportation system? Or, as many critics charge, is he just conning investors onto a leaky vessel that is eventually going to crash upon the shores of reality? As the saying goes, we report, you decide.

One investor that is already showing some qualms is Panasonic, which already supplies Tesla with all its batteries and would presumably help the company fill the gap between the $2 billion it just raised from a convertible-bond offering and the $5 billion needed to build the plant. “Our approach is to make investments step by step,” Panasonic President Kazuhiro Tsuga told reporters at a briefing in Tokyo last week. “Elon plans to produce more affordable models besides [the] Model S, and I understand his thinking and would like to cooperate as much as we can. But the investment risk is definitely larger.” Of course, this is Japan, where “the nail that sticks out gets hammered down.” Corporate executives are not known for sticking their necks out.

Another possible investor is Apple, which has mountains of cash and, at least under Steve Jobs, was always willing to jump into some new field – music, cell phones – to try to set it straight. This is a little more ambitious than the Lisa or the iPod and Jobs is no longer around to steer the ship, but Apple and Musk officials held a meeting last spring that stirred a lot of talk about a possible merger. A much more likely scenario, according to several commentators, is that Apple would become a major player in the Gigafactory.

And a Gigafactory it will be. Consider this. The three largest battery factories in the country right now are:

1)    The LG Chem factory in Holland, Mich. is 600,000 square feet, employs 125 people and produces 1 gigawatt hour (GWH) of battery output per year.

2)    The Nissan factory in Smyrna, Tenn. is a 475,000 square-foot facility with 300 employees puts out 4.8 GWH per year.

3)    A123 Systems’ battery factory in Livonia, Mich. is 291,000 square feet, employs 400 people and produces 0.6 GWH per year.

Both LG and Nissan received stimulus grants from the Department of Energy, built to overcapacity and are now operating part-time.

Now here’s what Musk is proposing. His Gigafactory would cover 10 million square feet, employ 6,500 people and produce 35 GWH per year of battery power. Basically, Musk’s operation is going to be ten times better anything ever built before, at a time that most of what exists isn’t even running fulltime. Does that sound like something of Henry-Ford proportions? Similar to Ford’s $5 a day wages, perhaps?

There are, of course, people who think all of this is crazy. In the Wall Street Journal blog, “Will Tesla’s $5 Billion Gigafactory Make a Battery Nobody Else Wants?,” columnist Mike Ramsey expresses skepticism over whether Tesla’s strategy of using larger numbers of smaller lithium-ion is the right approach. “Every other carmaker is using far fewer, much larger batteries,” he wrote. “Tesla’s methodology – incorrectly derided in its early days as simply using laptop batteries — has allowed it to get consumer electronics prices for batteries while companies like General Motors Co. and Nissan Motor Co. work to drive down costs without the full benefits of scale. Despite this ability to lower costs, no other company is following Tesla’s lead. Indeed, in speaking with numerous battery experts at the International Battery Seminar and Exhibit in Ft. Lauderdale a few weeks ago, they said that the larger cells would eventually prove to be as cost effective, and have better safety and durability. This offers a reason why other automakers haven’t gone down the same path.

But Musk has managed to produce a car that has a range of 200 miles, while the Leaf has a range of 85 miles and the Chevy Spark barely makes 82. Musk must be doing something right. And with Texas, Arizona, Nevada and New Mexico all vying to be the site of the Gigafactory, it’s more than likely that the winning state will be kicking in something as well. So, the factory seems likely to get built, even on the scheduled 2017 rollout that Tesla has projected.

At that point, Musk will have the capacity to produce batteries to go in 500,000 editions of the Tesla Model E, which he says will sell for $35,000. Sales of the $100,000 Model S were 22,000 last year. Does this guy think big or what?

To date, Silicon Valley doesn’t have a terribly good record on energy projects. Since Kleiner Perkins Caufield & Byers fell under Al Gore’s spell in 2006, its earnings have been virtually flat and the firm is now edging away from solar and wind investments. Venture capitalist Vinod Khosla’s spotty record in renewables was also the subject of a recent 60 Minutes segment. But, as venture capitalists say, it only takes one big success to make up for all the failures.

Will Tesla’s Model E be the revolutionary technology that, at last, starts making a dent in oil’s grip on the transportation sector? At least one investor has faith. “I’d rather leave all my money to Elon Musk that give it to charity,” was the recent evaluation of multi-billionaire Google founder Larry Page.

Arctic Leaf

Hawks Are Out Again: Mistakenly Casting Doubt on Ethanol

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The Hawks are out again.  One of my favorite service organizations, the American Automobile Association (AAA), in conjunction with media outlets, has again attacked the use of ethanol in cars.  It’s quite sad.

I will still keep my membership card. The AAA is the Walmart, Costco or Nordstrom of the automobile industry when it comes to service at relatively low costs to its members.  If you get a flat tire on a sparsely traveled road when it’s raining or snowing, the AAA, following the Postal Service norm, “come rain or snow,” will get there reasonably quickly to help you.  Get stuck in your four story garage with a dead battery! Don’t fret or fear, your neighborhood AAA repair truck will be at your side within a relatively short time. It,generally, will “get you to your work on time.” Do I sound like Julie Andrews or the cast in “My Fair Lady?”

 

While I don’t lose sleep over the question (I only get two hours of sleep even without thinking about the AAA), I often wonder why the AAA appears to join with those, particularly in the oil industry, who seem to want to confuse flex fuel vehicle owners and owners of older cars able to convert their engines easily and cheaply, about the wisdom of using ethanol.

Conversion of older cars and extended use of already approved flex fuel cars as well as increased use of ethanol by both sets of vehicles  will result in many benefits, particularly when compared to gasoline.  For example, ethanol according to many, many independent studies by qualified researchers is a safer, cheaper, and more environmentally friendly fuel than gasoline.  While what is and what is not a fact often becomes a metaphysical question and 100% certainty becomes a question often for philosophers more than scientists, trust me — ethanol is a good but is not a perfect alternative fuel. It is better than gasoline.  Right now a perfect fuel does not exist! Remember that the enemy of the present good is often the distant perfect.

Despite AAA’s press releases, EPA studies involving more rigorous methodology, including strategic sampling of a range of cars, indicate that engine damage is almost a nonoccurrence when using E15.  E10 has been around for a long time with no discernable engine impact and E85, after extensive testing, has been approved for flex fuel cars.

Understandably, ethanol, given improvements in new car engines and tighter fuel standards, reflects fewer benefits than   shown in relatively recent studies concerning ghg emissions, and pollutants like SOx and NOx.  But ethanol still provides significantly more environmental benefits and less costs to the consumer now than gasoline.

The differences between ethanol and gasoline will become even more apparent if you assume that Americans use their God-given noggin and opt to convert their older cars to accept alternative fuels.  It’s cheap and safe and can be done with a kit, or with quick software or tuning fix for some cars.  Similarly, there are nearly 15,000,000 flex fuel cars in the U.S. Most owners do not know they have such a car. Look at the sticker in the back of the car or fuel cap.  You probably are the proud owner of a flex fuel vehicle and, once you recognize this fact, you can use ethanol without risk.  Using ethanol, both for flex fuel cars and converted older vehicles will likely lower your gasoline costs and will contribute to a healthier environment.  Tell your neighbors!  Tell your friends! Tell your significant other!  Tell your spouse!

Clearly, you will see the environmental benefits to your community, state and nation, if you abandon the conventional way of measuring emissions and pollutant reductions and use tons. The new graphic will portray a visible and important increase in the actual emissions and pollutants eliminated from the atmosphere.  It also will emphasize the importance of extending the number of vehicles that can use ethanol through conversion of older cars to flex fuel vehicles and the production of increased numbers of flex fuel vehicles.  If the owners of both sets of cars increasingly fuel their vehicles with mostly ethanol (an objective of a number of demonstrations and pilot programs in several states), the President’s desire to wean the nation off of gasoline will come closer to fruition.  The scale up will provide a transition approach to open fuel markets until competitive renewable fuels become ready for prime market time.

 

Arctic Leaf

Khrushchev, Gorbachev, Putin , Ukraine and Oil

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How many of you have ever been to Russia? It is a fascinating place filled with fascinating people. While in Russia facilitating an Aspen Global Forum of U.S. and Russian leaders,  I visited Nikita Khrushchev’s grave. He lies under six feet of earth — probably  banging his shoe and confessing that he still wishes he could have incrementally changed Russia.  He was not Gorbachev, but neither was he Rasputin.

On top of his grave was a very attractive gravestone. One half was white, the other half black. I asked the workmen what it meant.They explained the contrast by indicating that Khrushchev was part evil doer of black deeds, but also in part a good man who wanted to change Russia.

The gravestone seems to fit the current situation in Russia. It is a place of great thinkers, great writers, great dancers, great scientists and decent people, but it is also the land of Putin whose modus operandi is often dark and destructive. Putin is no Gorbachev!

In the present Ukrainian situation, the dark and dangerous side of Russian leadership is visible. Currently proposed Western sanctions are not persuasive. Paraphrasing, we won’t come to the G8 meeting in Sochi  and we won’t have any more relationships with your military are not earth shattering.Trade limits or sanctions, if announced, may hurt, but Russia’s ability to cut off natural gas to Europe and the Ukraine as a counter measure will marginalize any effort to develop meaningful  responses. Obama and his colleagues do not want to engage in military sanctions in order to counter Putin’s new version of our own Monroe Doctrine.

Speaking of energy, oil, and natural gas, most energy related U.S and Russian executives have not been told to slow down or avoid searching for new businesses in Russia. As a recent CNBC report indicated, “ the U.S. produces more natural gas than any other nation and Russia is now the biggest oil producer.” U.S. firms are seeking an increased stake in  Russian oil, which is light and good for gasoline.  U.S. companies are even building the rigs for Russian drillers. While the U.S. imports relatively little oil from Russia, this could change depending on price. Russia is still among the top five importers of oil to the U.S.  In light of the Russian actions in Crimea, the price of gas at the pump is expected to head up again. The stakes are high, and at the present time, no government leader in either nation has seriously suggested interfering with the export and import trade network between U.S. and Russia.

I suspect that the U.S. and Russia will eventually agree to a deal on some sort of a pullback in Crimea and the possibility of a monitored arrangement concerning Russians living in both Crimea and the eastern part of Ukraine. I could be wrong. Russia could insist on remaining in or even annexing the Crimea and it could invade part of Eastern Ukraine.  I pray neither happens!

Would we react militarily in some form or manner, as we have at times in the Middle East in order to secure oil and gas supplies for the Ukraine and other needy western nations? I think not!  Such a provocation would lead to war and is  beyond the pale  for even ardent proponents of “getting tough” with Russia.  Indeed, because Russia’s military is strong, the U.S. and the West will most likely avoid any significant direct military response to possible Russian occupation/annexation of of the Crimea and even eastern Ukraine.

Possible high impact economic sanctions — different from the ‘I won’t come to your meetings and you cannot come to ours’ brand — would not be favored by most Western European countries or even the Ukraine, as they are dependent on Russia’s natural gas.  At the present time, the real options we have to counter Russia’s nefarious activities are not the best ones. While we could fulfill some of our allies’needs by exporting natural gas and oil, the decision to do so deserves (and I suspect is getting) hard analysis, especially in light of domestic U.S economic, political and security concerns about supply as well as demand and a fear of environmental problems, as well as increased consumer costs at the pump here at home. If shipping overseas passes muster, moving natural gas to our European allies and Ukraine could work both in providing needed gas and in possibly negatively affecting the price of Russian gas. Despite acknowledging the theoretical goal of oil independence, the world, including the U.S., is oil and gas dependent. We are lucky to have natural gas in ample supply, and if sane environmental regulations are applied, we can limit related methane and GHG emissions as well as other pollutants. Finally, we have an evolving and growing alternative fuel sector testing and developing renewable fuels.  Opening up U.S. fuel markets and fuel stations to increasingly available flex fuel vehicles and alternative fuels for consumers, including natural gas based ethanol and methanol, as well as electricity, can make us less dependent.

Arctic Leaf

Can Sochi Lead To A New Alternative Energy Coalition?

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During the late 1980s, I had the good fortune, thanks to the Rockefeller Foundation, to lead and facilitate an Aspen Global Forum between Russian and U.S. leaders in Sochi; the site of the present Olympics. The subject was economic development in the then already fragmenting, Soviet Union.

Sochi was beautiful but back then was a relatively small resort city for vacationing Russian nomenklatura. I have three memorable funny stories (at least for me) related to Sochi. I will try linking them, for better or worse, with the need for alternative fuels.

Getting to Sochi at the time provided a unique experience. The U.S. delegation which included a former U.S. Senator, several Wall Street titans, the editor of a major national newspaper, leading members of the Denver business community and myself (I was a Dean at the University of Colorado at the time) were told when we arrived at the Moscow airport in a snowstorm, we had to fly out of Moscow’s second smaller airport. We all dutifully were taken by shuttle, very slowly given the snow, to what seemed like an old, a very old facility. We quickly boarded what appeared to be a jet plane on its last legs. It was late at night and the snow was still blowing strong. The plane’s seats were broken and the bathrooms didn’t work. The cabin crew was nice but spoke only in difficult to understand broken English. Not an auspicious start to the trip. Two members of our delegation asked the pilot for 10 minutes to go into the terminal (an exaggeration of the term) to buy two or three bottles of vodka to give us courage and calm our nerves. They did get permission. It turned into a fun flight.

After we checked into the Intourist Hotel in Sochi, we all went to bed. One of the members of our delegation was a smart, tough, but very funny reporter and op-ed writer for the Rocky Mountain News. She came down the next morning and indicated most of her winter clothes were stolen from the room, while she was sleeping. I went up to the Manager of the hotel and told him what had happened. He was dutifully contrite. Every day while we were there, the reporter received a nice gift of new winter clothing to wear in the snow. At the end of the week, I thanked him and said, next time, have them take my clothes!  He laughed. I was serious!

The Russian delegation hosted us in the summer home of an apparently famous Russian oligarch, whose name I forget, about 100 or so miles from Sochi. They took us there in big Army helicopters. We flew over and between the mountains and valleys of the Caucasus. The mountains were covered with much snow and looked gorgeous. One of the Russian guides opened the door so we could get a closer view. A big mistake! A member of the U.S. delegation, a well-known war experienced woman journalist, based I believe at the time in D.C, shouted close the f….n door. “I have covered many wars and been shot at. I survived. I don’t want to go down in a helicopter. We can look at the snow through a window.” She was right. At that point the helicopter seemed tilted at a significant angle to please us. We all were a bit scared but didn’t want to hurt our Russian hosts. She had no such fear. The door was closed.

If anything, except fuzzy memories, ties these stories together, it’s the snow and the mountains and a thought about building a coalition around alternative and renewable fuels to save the beauty of both and to the jobs they provide both up and down stream.

Based on the over 50 degree temperatures in Sochi during the current Olympics and the lack of abundant snow, The New York Times indicated that Daniel Scott, a professor of global change and tourism at the University of Waterloo in Ontario, was stimulated to project the future of winter sports. He noted that with a rise of global temperature possible by 2100 of 7 degrees Fahrenheit, there might not be many snowy regions left to hold the Winter Olympics.  He concluded “that of the 19 cities that have hosted the Winter Olympics, as few as 10 might be cold enough by midcentury to host them again. By 2100 the number will shrink to six.”

Of the 960,000 winter sports industry jobs are supported by winter sports in the U.S. 27,000 have already been lost because of lack of snow, according to a recent NRDC report. More will be gone next season if snow fall totals continue to decline.

If we can easily check the box on one or more of the following: concern for the health of the economy, concern for the environment, concern for the quality of our water supply and the availability of water, concern for the future of the ski industry and winter sports off and on mountains, then even if we don’t ski, and even if greenhouse gas is not a top priority for some , we should be able to foster a strong coalition between environmentalists, business, nonprofits,  natural gas and renewable fuel  advocates. Its mandate would be to work on speeding up use of alternative natural gas based transitional fuels  and helping place electric cars on a faster and cleaner track to market acceptance. The strategy is not perfect by any stretch of the imagination but it will at least get the country started on a path that will reduce harmful environmental impacts of gasoline including significant GHG emissions and other pollutants. It may also help slow down the browning of our mountain areas and the closure of winter resorts and the manufacturing and retail sectors that serve them.

America needs a good dose of pragmatism and probability curves to guide its fuel policies. Advocates of natural gas based fuels and renewables should be able to coalesce around the President’s agenda with respect to weaning the nation off gasoline (one of the biggest carbon emitters) and gasoline only vehicles.

Assuming electric utilities continue to switch from coal to cleaner natural gas; scholars suggest that electric cars will be of help in reducing total carbon emissions. But EV’s are not yet ready for prime time for most low, moderate and middle class households, in light of the relatively low mileage secured on a single battery charge, the absence of retail distributers, the small vehicle size and price. When they are, let the competition begin, remembering all the while that real change in emissions and reduction of pollutants, will come after the conversion of large numbers of existing cars to flex fuel vehicles and their ability to use natural gas based fuels. Back to Sochi and indeed to the mountains throughout America, when we are asked every Christmas whether there is a Santa Claus, lets us be able to look up at magnificent snow-capped mountains and collectively say, yes there is a Santa Claus and then sing loudly, Let it snow, Let it snow, Let it snow.

 

Arctic Leaf

Altruism Aside, Is Ethanol A Competitive Alternative Fuel?

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I was a bit under the weather this past weekend. I thought it would be a good time to catch up on some reading; something assumedly simple- the relatively recent literature concerning the ability of ethanol, particularly E85, to compete with gasoline and the capacity of consumers to make rational decisions in their choice of alternative fuels.

By Sunday night, apart from watching the Denver Broncos happily beat New England on TV, and the amusing dialogue and extensive media time generated by Seattle’s cornerback, Richard Sherman, concerning his athletic and his academic prowess; I spent about 10 hours reviewing several well cited pieces concerning the price relationship between ethanol and gasoline. I also read the intense, often seemingly less than civil debate in papers authored by two professors at Iowa State (Dermot Hayes and Xiadong Du)  and two at MIT (Christopher Knittel and Aaron Smith) concerning methodology associated with defining the relationship between ethanol and gasoline prices. (The Iowa and MIT faculty vigorously attacked each other, sometimes personally, over mistaken attribution of research funding sources. More important, the Iowa folks generally argued that their data suggested a link between ethanol production and the price of gasoline. They indicated that, as ethanol production increased the price of gasoline decreased relative to the price of crude oil.

The MIT folks poo poo’d their distant colleagues’ findings. They indicated that their empirically based models illustrate only a statistically insignificant set of relationships concerning ethanol, gasoline and crude oil prices. They also opined that the Iowa writers misapplied the crack ratio –the relationship of gasoline to crude oil prices- and did not use or mistakenly used the crack spread ratio (the weighted average of the gasoline and distillate products produced by a barrel of crude oil minus the cost of crude). Put in another way, what the Iowa writers recorded was correlation not causation. (I know the etymology but we need to help the economists among us find a better set of terms than crack spread and crack ratio. For a minute, I thought that the texts described a line up at a police station or FBI statistics about drug use.)

What can we learn from recent literature about the effect of ethanol production and gasoline prices at the pump?

1. Most independent experts, not affiliated with advocacy groups, seem willing to support as fact that increased ethanol use, at times, will lower the price of gasoline or slow the increase in the price of gasoline. But the caveat is “somewhat.” They disagree on how much on either side of zero. The recent conventional wisdom, stimulated by the Iowa study that ethanol has and likely will reduce the wholesale price by $.89 cents to $1.09 per gallon seems wrong. It appears to reflect an overstatement based on analyses and models that do not accommodate the many complex variables affecting price and costs (e.g. costs of refining, rapid changes in the costs of corn, the costs of distribution, the lack of infrastructure, the unanticipated increases or decreases in costs of crude oil based on investor speculation, escalation or de-escalation of tension in Middle East, uncertain federal policy, etc.). If I were a betting person, I would place my bet on Knittel and Smith’s conclusions that, over time, the price impact of ethanol at the pump on gasoline prices is likely marginal at best.

2. However, to be fair, some scholars and practitioners in the energy business believe that if gasoline is blended with a larger proportion of ethanol (e.g. E85), the price of a gallon of fuel could well drop, given the idiosyncrasies of the present market.  If this occurs and the reduction appears to consumers as beneficial, a number of observers think that owners of flex fuel vehicles (new or converted) could be enticed to switch to E85. What they generally don’t know, is the cross over point where alternative fuels like E85 become a viable option to drivers because the prices seem to be a good deal. A smart and astute participant in a recent forum on alternative fuels indicated that “people drive to COSTCO or Wal-Mart to save 5-8 cents a gallon on gasoline. Why wouldn’t they switch to E85 blends, if they reflected similar or indeed larger savings and fuel stations were accessible?”

Maybe they would, maybe they wouldn’t! If the price is low enough, many drivers will likely engage in personal opportunity costing. But what is low enough? Getting gas at Wal-Mart and Costco is different from getting E85. Gas is a familiar product to most drivers. Consumers of E85 will have to surmount doubts over product safety, stimulated, I believe erroneously, by groups such as the AAA. Further, because E85 will get fewer miles per gallon, drivers will probably think about perceived price savings in the context of miles per gallon and extra trips to the fuel station (If they forget to do the personal math, they will be reminded to do so by oil companies).

3. Uncertainty exists concerning how much consumers will pay for ethanol based on personal preferences or commitments to societal well-being, what I call the altruism thing.

As one author put it, “ …the demand for ethanol (E85) as a substitute (E10) is sensitive to relative fuel prices: a  $.10 per gallon increase in ethanol’s price relative to gasoline leads to a 12-16% decrease in quantity of ethanol demanded. Price responses are considerably smaller, however, than they would be if households had identical willingness to pay for ethanol as a gasoline substitute and… results imply that some households are willing to pay a premium for ethanol.”

Why? Maybe to improve the environment, provide support for farmers, to express concern over national security, etc. A recent report from Brazil indicates that some Brazilians are willing to pay more for alternative fuels because of what seem to be altruistic reasons. Before we say hallelujah, I should note that we don’t really know the numbers seeking salvation. They are not your average household but rather as one economist notes they are likely “marginal” households in terms of numbers. Further, several respected survey firms in the U.S. doubt that goals related to the larger community or nation, even if consumers articulate them in their living rooms, will overcome large differences between the price of E85 and gasoline, if they occur.

Similarly, altruism or civic values will not overcome fear of engine damage or the need for relatively long trips to fuel stations to secure alternative fuels. The pews, at least until we know more, probably will remain filled with a proportionately large share of guilty drivers on Saturday or Sunday.

The Fuel Freedom Foundation is involved in three state pilot projects aimed at converting existing cars to flex fuel cars; cars that will permit their owners to use natural gas based fuel such as ethanol and, when it is legal, methanol. Hopefully the pilot projects, combined with strategic federal, state, foundation and private sector supported research, will expand knowledge concerning consumer decisions and variables such as the importance of price differentials, altruism, distance, access, etc.

A study supported by Fuel Freedom Foundation recently completed by the respected independent Resources for the Future optimistically noted that “…we see alternative pathways for bring a lower-cost E85 to the pump. If and when ethanol produced by the newly patented, NG-driven Celanese process becomes available, owners of FFVs could realize substantial cost savings, up to $0.83/gge in 2015. If and when cellulosic ethanol becomes available at projected cost for full-scale productions, owners of FFFs could realize similar cost savings.”

Sleep easy! Good Times are coming for the nation and the consumer.

Arctic Leaf

Can Ethylene Replace Gasoline?

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The effort to replace oil-based gasoline in our cars with similar fuels derived from natural gas took a big step forward last week with the announcement that Siluria, a promising start-up, will build a $15-million demonstration plant in Texas

The plant will produce ethylene, the most commonly produced industrial chemical in the world and the feedstock for a whole raft of products in the chemicals and plastics industry. But Siluria, which is not yet a public company, is also planning demonstration plants that will produce gasoline. Initial estimates are that the product could sell at half the price of gasoline derived from oil. If these projections prove to be anywhere close to reality, we could be on a path to a fuel economy that is finally able to cut its dependence on oil.

The idea of producing ethylene from natural gas has been around since the 1980s but achieved little success. Several major oil companies invested millions of dollars in the process but finally gave up on it. Jay Labinger, a Caltech chemist who did much of the initial research, finally wrote a paper in the 1980s warning other researchers that it was a waste of time. He may have given up too soon.

Siluria is a California-based startup that has received much of its funding from Silicon Valley investors who tried to move from computers and the Internet into the energy space over the last decade. So far their success hasn’t been great. In fact Vinod Khosla and other Silicon Valley energy entrepreneurs were the subject of an embarrassing critique on “60 Minutes” only two weeks ago. The Siluria venture, however, may be the gusher that makes up for all the other dry holes.

The 1980s efforts concentrated on heat-activated processes whereby methane is split into carbon and hydrogen and then recombined into the more complex ethylene, which has two double-bonded carbons and four hydrogens. All these efforts proved far too energy-intensive, however, and never became economical.

Siluria has been trying a different approach, seeking catalysts that would facilitate the process at much lower energy levels. Moreover, the company has spurned the more recent approach of trying to design molecules that fit the chemicals just right and gone back to the old shotgun approach where thousands of candidates are tried on a catch-as-catch-can basis.

Defying all expectations, the process seems to have worked. Siluria has come up with a catalyst that it says promotes the breakdown and subsequent reassembly of methane at very low energy levels. It has built pilot plants in San Francisco, Menlo Park and Hayward, California and last week announced plans for building a full-scale demonstration plant in La Porte, Texas in conjunction with Braskem, the largest petrochemical manufacturer in South America. If that isn’t proof that Siluria is on to something, what is

The implications of this development are enormous. Natural gas is two to six times more abundant than oil in the world and is now selling at 1/5th the price for an equivalent amount of energy. The traditional tandem pricing of oil and natural gas prices has now been broken and gas is functioning as a completely different commodity, much cheaper.

The difficulty all along has been that natural gas is hard to put into your gas tank. So far efforts have involved compressing natural gas, which means storing it at 3600 pounds per square inch, or liquefying it, which requires temperatures to be lowered to – 260 degrees F. Neither is very practical and would require a whole new auto engine and delivery infrastructure.

Efforts to convert gas into a liquid have concentrated around methanol, which is the simplest alcohol and has been used to power the Indianapolis 500 racing cars since the 1960s. But methanol is the deadly “wood alcohol” of the Prohibition Era and raises fears about poisoning – although gasoline is poisonous, too. The Environmental Protection Agency has never certified methanol for use in auto engines, although an M85 standard has been permitted in California.

Synthesizing gasoline through Siluria’s ethylene-based pathway could solve all these problems. Ed Dineen, CEO of Siluria, says that the gasoline product could sell at half the price of today’s gasoline. With more natural gas being found all the time – and with $1 billion being flared off uselessly around the world each year – any success in turning natural gas into a readily accessible automobile fuel could have a revolutionary impact on our entire economy.