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Hybrid Vehicles Hybrid Vehicles - Archived Discussions Will ethanol E85 catch on in the US? Will we Live Green and Go Yellow? 
2104 messages, Last post on Oct 27, 2006 at 5:34 AM
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Replying to: socala4 (Jul 02, 2006 7:48 am) Similarly, there are emerging into the mainstream, articles suggesting a possible "oil glut" (even if it is only a steep decline in per bbl costs and NOT really an endless supply.) If all of the points of view (with their explanations intact) that supported E85 actually costing less than petroleum based fuel were to be proven accurate, none of them (that I can find) suggest price decreases for E85 that WITHOUT subsidy or even WITH the continuation of a $.51 "hidden tax" will make E85 cost less than using gasoline. I have read a report that suggests that it MAY be possible, if we figure out a way to produce enough E85 to cut the price of a gallon of E85 to "about" a dollar less than regular petrol based gas, IF we continue the $.51 subsidy. These viewpoints assume no oil glut and also assume that somehow the factors that effect gasoline's prices will somehow be suspended with respect to ethanol. OK, leap of faith hat chin strap in place: If gasoline would "settle" at about $3.25 per gallon and if E85 could somehow be made to be $2.25 per gallon (with the subsidy in place), what would be the motivation to use ethanol? A tankful of gas (20 gallons) would cost a bit more than $60 and in a fuel efficient V6 engined car (an FFV) it could be capable of going about 600 miles. A tankful of E85 in the same vehicle would cost a bit more than $40 and in the V6 FFV would go about 400+ miles. If you tracked the cost to go 1,200 miles the cost would be the same but you would have had to stop twice for gas and three times for E85. If the subsidy went away, IF the cost of E85 could actually be driven down another $.51 (to about $1.75 per gallon), the miles per tankful would NOT change but the cost per tankful would drop about $10.00. So, then at $60 per tankful and a cost of $120 to go 1,200 miles (with two stops to refuel) vs $30 per tankful and a cost of $90 to go 1,200 miles (with three stops) there WOULD be some motivation to "fill 'er up" with E85. No model from any camp of any repute (and I exclude "us" here on Edumnds since we are mostly writing with only the benefit of published (and summarized) reports) suggests any kind of price divergence -- with or without the end of the subsidy -- that could support such a scenario. Many reports, however, suggest that other approaches appear to have more merit: a) "breakthrough" internal combustion engine improvements -- possible; "incremental but evolutionary" internal combustion engine improvements -- not only possible but actually happening (at the retail level) about every other year; b) improvements in hybrids -- notably marrying electric motors with diesel engines; c) diesel adoption, on a relatively rapid (percentage wise) pace over decades; d) renewable fuel manufacturing technology improvements and engines that are optimized to use ONLY ethanol based or bio-something based fuels (i.e., not FFV's which seem to offer the worst of both worlds and what many of us here rail on against;) e) advanced technologies (some known, some dreamed of and some neither known nor dreamed of yet.) Perhaps we "shouldn't" use today's pump prices as the main determinant of what could happen in the future. But we do, we are and for the near to mid term, I am convinced, we will. The prices posted several blogs back tell today's stories -- and I'll so stipulate things will change one way or the other "the next day." "E" faces challenges that, with history as our guide, we cannot legislate away. Remember prohibition? The somewhat confusing and contradictory thing I find (this is not an argument, it's contradiction) is that there are those who are willing to forecast diesel's future based on that technology as it was "then." I.E., a technology that has been proven by time to be "temporary" (e.g., dirty, smelly, noisy, sluggish diesel "Olds and Cadillacs from 20+ years ago.") I wouldn't bet on diesel's failure based on a forecast using the old diesel anymore than I would jump to base ethanol's future on what may be proven to be today's temporary disparity. 
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Replying to: socala4 (Jul 02, 2006 7:48 am) But we can't presume the margin will change by any great amount either. We have to follow historical trends unless we see something that will say differently. I cannot see the price of ethanol coming down anytime soon save for wasting more taxpayers hard earned money. However, if the basic laws of economics apply here, then we could expect that ethanol prices will fall when production levels have increased. Two issues with this. First the capacity to produce that much ethanol does not exist and would have to be created which means the price will not go down soon. Secondly Ethanol is made from something else. Increasing the amount of ethanol being produced means using that raw material (mostly corn right now) that means the demand curve for that raw material will shift and the price will increase. As the cost of the raw material increases so will the price of ethanol. If there are going to be cost reductions, I see two basic possible sources for savings: (a) scale economies and (b) cheaper biomasses. Scales of economy only reduce the cost of a product significantly when increasing productions from a low level. There is something called diminishing rate of return. Increasing production 10% would mean a per piece reduction in cost of X, increasing by another 10% only reduces the price per piece by X-Y. Biomass will not produce enough ethanol to make a significant dent, It might reduce the cost somewhat but not enough to make it viable against gas. Bottom line is that we can't use today's pump prices as the main determinant of what could happen in the future. Again without anything in the future that will significantly reduce cost we have to follow todays pump price. I seriously doubt that within the next 10 years you will see much difference between the two.
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Replying to: snakeweasel (Jul 02, 2006 9:47 am) Political issues aside, the biofuels issue will be driven by a change in historical trends, so we can't look just at the history without noting how the situation has changed. Except during the seventies OPEC cartel crisis, oil has been a fairly cheap fuel for much of the 20th century, which did not make ethanol price competitive. Now that the fundamentals of demand are changing, the prices are increasing. [T]he capacity to produce that much ethanol does not exist and would have to be created which means the price will not go down soon. It is reasonable to expect that increased production capacity will lower prices, as the supply catches up with a level of demand that spiked by a large amount due to regulatory changes. You are correct that it doesn't exist at this moment, but capacity is being built and planned, so this is a matter of time. All infrastructure takes time and money to build, so we can't consider the potential or lack thereof until we consider the supply side of the equation. As the cost of the raw material increases so will the price of ethanol. As I pointed out above, that may or may not prove to be true. The final retail price of commodities is largely driven by processing and transport costs, not by the commodity prices themselves, and the increased cost of the crop may be more than offset by a reduction in potential transport costs created by the ability to reduce petroleum consumption. Biomass will not produce enough ethanol to make a significant dent That is what I would agree seems to be the most likely stumbling block. If we ultimately can only reduce oil consumption by a few percentage points, then it will have proven to be a rather costly waste. That's why I'd be inclined to increase the likelihood of success by plowing in significant resources to expedite the R&D effort. The current biomasses of choice (corn-based ethanol and soy-based biodiesel) are fairly inefficient, and alternatives need to be developed that make production rampups more scalable. We are early stages here for all of these things, and there is not much incentive at this stage for the free market to push it along on its own.
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Do any of us believe the assertions that diesel engined cars purchased in %'s similar to the EU's would NOT reduce our oil consumption by 1.4 million bbls per day? Do any of us believe this (1.4MM bbl) is an insignificant dent if these numbers are "real calculations" rather than fuzzy, "hopeful-guess" statements made by our own government? The tax incentives are in place NOW, to stimulate the continued and increased sales of fuel efficient vehicles (diesels, too, are included in the group with tax incentives.) My personal wishes for incentives are no longer up for discussion -- the incentives are now the law of the land. I say let's consider availing ourselves of them if we're in the market. Of course, what still galls me is that FFV vehicles actually seem to increase CAFE numbers when they do no such thing. Then it galls me even more to see virtually no "widespread" (or, perhaps, better said "mainstream") advertisements or news stories that explain the sharp decrease in MPG's one "enjoys" when using E85. It is not even an open secret -- for few seem to want to look into the consequences (or one consequence, economic) of using an FFV with gasoline vs E85. The thing missing in action -- and soon to be rectified -- is a variety of vehicles to buy that are FFV's (also missing are diesels -- but Audis, BMW's, Honda's Mercedes and VW's will be a good start.) Both of these MIA's should be addressed by the end of the decade -- but since everything has a lead time of 2 years at least, it would seem that it will be possible to actually buy a car you would enjoy driving (financially and performance wise) that uses a clean compression based power plant sooner than you can buy an FFV and keep it economically filled up with ethanol. Bluetech and version 5 diesels can be here over the next MY or two without too much trouble. An oil glut could make them unpopular -- but that would seem to be the case with FFV's too. Much as I want an oil glut and the price decrease that is suggested will accompany it, I'm not holding by breath.
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Replying to: markcincinnati (Jul 02, 2006 10:42 am) I'm not sure about this, actually. Diesel made from oil is being made from oil (yes, I'm stating the obvious), so the argument seems to be that using diesel simply allows us to get more out of a given barrel of oil because we are using that barrel to provide us with both gasoline and diesel, rather than just gasoline. But let's remember that it's not as if that diesel is being thrown away, it's being used by somebody, somewhere on the planet. Perhaps Americans may not be the one using that specific quantity of diesel, but that doesn't mean that the diesel never enters the supply chain. I may be misunderstanding it, but this argument strikes me as more of a national diversification argument, not one that reduces our global dependence on oil. It's an argument which may hold true when we look at just one group of users (in this case, Americans), but not when we view the global picture. If all things were held equal except that we started shifting toward diesel, rather than gasoline, I would expect that this would simply free up more gasoline for someone else to burn, while reducing their available diesel supplies. That might specifically help the US, but it wouldn't necessarily solve the big-picture political problem of our dependency on these dictatorships to fuel the entire world, and what that does to create resource constraints and competition among the rest of us. |
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Replying to: socala4 (Jul 02, 2006 10:08 am) That is unless the increased production drives up the cost of the raw material by bidding up that product. Increasing production can reduce the price, or it can be the same or it could increase costs. It all depends on things other that making supply meet demand. I just don't see increasing production of ethanol getting high enough without forcing a bidding war on the raw materials to make it to make a real difference.
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Something that has not been hashed out here is an obvious problem of converting to non-sugar sources for ethanol. It is an entirely different process involved making ethanol from a biomass such as wheat straw, wood chips or switchgrass. Iogen has the only working plant to do just that. They have not gotten funding to build a 350 Million plant in Idaho. Will we ever build those plants? From all I have read current corn stills are not usable for other types of ethanol production. Will anyone want to spend millions and probably billions to ramp up this use of other materials to make ethanol. It is not in the interest of companies like ADM. They want to make all the ethanol they can from corn. Would you invest big bucks in a venture that could be worthless if oil prices drop as they will. It is not too far off. Nobody would believe when I said gas would get below $2.50 per gallon by fall. It has hit $2.12 in KY already. OPEC is not going to let some upstart companies squeeze their money supply.
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Replying to: snakeweasel (Jul 02, 2006 12:45 pm) That may be, it's a fair guess. (Which is one of my points -- at this juncture, all of us are speculating, and none of us really know what will happen.) Personally, I don't see the likelihood of a commodity pricing problem -- individual ag producers have virtually no power to set prices -- but I do question the ability for the fuel itself to become so abundant that it will do much to impact the price of oil.
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Replying to: socala4 (Jul 02, 2006 1:57 pm) I don't think the actual production of ethanol will have any real affect on our purchasing of oil. It is still very possible that it takes more oil to make ethanol than you get back. So it is a win for OPEC. They just have a history of dropping prices with the least little drop in oil movement. As some of the countries having internal problems come up to normal production levels. They will probably be over producing the demand, and the price will come down.
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Replying to: gagrice (Jul 02, 2006 3:59 pm) They are NOT being subsidized (or at least they were not last year at this time) to do this in the same way ethanol is being subsidized ($.51 per gallon.) Were they to build the infrastructure to actually do this on a large scale and produce gasoline and simultaneously reduce our dependency on Middle Eastern oil, there would probably be little more than a "thanks for playing" mention on the evening news (after the initial cheap oil hit the market and we got back to the lower prices we were enjoying a few short years ago.) Were there to be tax credits, rebates, subsidies, subventing and subterfuge for all I care, Shell seems to think that we could use ONLY American crude for 100 years and not import another drop. Conversely, Rand says, "well, the more practical way to use this oil is to increase our use of our own natural resources to 25% of our demand, which would essentially give us the ability to use our oil for about another 400 years" [sic] (but at THAT level.) The theory continues and perhaps even foreshadows a possible oil glut (theory since it has only been put into small use, rather than big, full - scale pedal to the metal production that Shell (and others) probably would do were they given half the economic incentive to do that ADM (et al) presumably has been given.) The data suggests that once we got fully into cooking our shale to create our own crude, the overall cost of a bbl of oil would drop from today's $72+ per bbl by perhaps $15 to $30+ less. The cooked oil, to underscore, from June, 2005, was able to be made viable at a rate about $20/bbl (Rand Report link in previous blogs.) Factor in start up costs and other infrastructure build up costs and throw in a couple of 500 million dollar retirement packages and perhaps the cost of a bbl of our own goo would be $40. Keep in mind the KNOWN reserves we have identified from this one source are triple the reserves of Saudi Arabia. It will take years (more than 10) to do much of anything that will slow down our need for dino fuel. Why not "encourage" Shell and others to see what a little help from their friends might do toward answering the question "what's cookin' underground in Colorado?" This, in response to my Congresswoman who claims she'd rather send our money to Iowa than Iran. I don't want to send our money either place. Well, in some free market way, it almost would seem that folks will involuntarily send their money to Iowa (so they have to be "mandated" to do so), yet they [we] have proven time and again to be quite eager to send our money to the middle east, Mexico, Canada, South America and so on. My Congresswoman's email to me detailed all the ramp up (and $ encouragement) we are providing companies to build CORN refineries. From what I have read, if we build corn into ethanol refineries they are not "automatically" able to use other biomass for the same purpose. Further, if what is being written about the impact upon our ability to export corn (as in sharply reduce or eliminate it altogether) -- and how much of our farmland we would have to devote to the production of food crops that will be instead turned into ethanol (71%) if we choose this route -- is true, won't there be global consequences? Is it really "OK" with the rest of the world to no longer get any (or at least a lot less) corn from us? The economic and practical evidence continues to mount, seemingly against, this course of action. We have the resources and we have the technology to extract a lot of "time" from the oil we have right here, right now. It seems like much of what we discuss, argue, debate and contradict here is mainly about buying time without bankrupting ourselves. Shell must feel like a screaming voice in the wilderness from what I can gather. Meanwhile, King Corn, not Big oil (this time) dips into the public pocket for help. Don't cry for me Argentina -- whatever.
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