Re: [hreg] Please Comment on this Ethanol Article
- Eco and Steve
Thanks for the comments.
Eco - what type of biodiesel car do you run? Where do you fill up on biodiesel in Houston? I've read a lot about the homebrew folks, the french fry oil guys, Bio-Willie and "The Veggie Van." All good stories. Biodiesel, unlike ethanol, is non-toxic and releases very little harmful emissions.
Steve - thanks for the Smithsonian article - not much mention of ethanol there, though. About ethanol feedstock - most of the feedstock in the U.S. comes from corn, in Brazil its from sugar cane, in Europe it is from sugar beets or from corn. Cellulosic from grass and weeds is the next big thing, since it has a higher energy content for feedstock, and takes less energy to grow. About the toxicity - it is a choice between buying foreign oil or using U.S. resources, and therefore a security issue (just like global warming). Which choice will consumers accept without the government making us pay $8 a gallon?
If anybody is interested in the Biodiesel study, or is interested in contributing, you can find a prospectus here: http://www.emerging-markets.com Im working on this one 24/7until September, when the PhD kicks in and starts kickin my butt.
On 7/5/06, Steve Stelzer <stelman@...> wrote:
Another item I've missed is the amount of oil used to grow biodiesel feedstocks. Anyone have a handle on that?
Sent: Wednesday, July 05, 2006 2:08 PM
To: email@example.com; firstname.lastname@example.org
Subject: RE: [hreg] Please Comment on this Ethanol Article
Regarding "Ethanol use in gasoline, as a replacement for the toxic gasoline additive MTBE, has been mandated by the government"
MTBE became a problem due to its affinity for water, meaning it is absorbed into water table after leaking from leaking underground gas tanks and has been linked to cancer. Guess what else has been linked to cancer and also has a much stronger affinity for water than MTBE? If you guessed ethanol you are ahead of the future press reports you will be reading when this fact comes into the light of public awareness.
With the exception of abstinence (just bought a used late year model 5-speed manual 23/29 mph small SUV 'rocket' for cheap) for liquid 'bio' fuels, I prefer biodiesel. A single biodiesel refinery can accept multiple feed stocks from soybeans, sun flower seed, rapseed, palm oil, offal, sorgum, used cooking oil, and with small front end modification accept any seed or oily rosin producing weed (grass clippings?) that can be grown. A city switching by mandate to an 80/20 biodiesel blend in city buses, school buses, garbage collection, internal trucking, and marine fuel will both extended engine life on existing city owned (and taxpayer purchased) diesel vehicles due to fuel lubricity while it immediately reduces the smog/soot level in that city.
---- Original Message ----
From: "Steve Stelzer" <stelman@...>
Date: Wed, 5 Jul 2006 13:19:37 -0500
Subject: RE: [hreg] Please Comment on this Ethanol Article
Will, one item I've missed with ethanol is how much oil we use to produce
the ethanol. See this interesting article on corn production from the
From: email@example.com [mailto: firstname.lastname@example.org]On Behalf Of will
Sent: Tuesday, July 04, 2006 10:38 PM
Subject: [hreg] (hreg) Please Comment on this Ethanol Article
I'm working a Biodiesel study, and thinking about launching another on
Ethanol. There have been many mixed messages by the press and analysts for
and against Ethanol in the last few weeks. The following article is a
critique of some of the "upsides" of the market.
I would like to ask HREG members for their commentary on this article, and
Ethanol in general. If the Ethanol market does not progress, I may scrap my
plans for a study.
Your comments and expert opinions on this article, and viewpoints on the
future of Ethanol in the U.S. (not Brazil or Europe) would be much
Emerging Markets Online
p.s. Please comment on this article - thanks
"Ethanol Investment: Golden Opportunity or Fool's Gold?"
By Russell Hasan, Alt Energy News Altenews.com
Introduction: The Ethanol Boom
We are strong advocates of alternative energy, and we are
happy to see the American ethanol industry growing. But we are also
advocates of informed investments and not "irrational exuberance"
manufactured by hyperactive investment bankers and a media that goes with
the flow. This report is a cautionary note for investors interested in
American companies producing ethanol from corn, pointing out various factors
and data to consider before risking losses in ethanol investments.
The investment banks who led us to the golden pastures of
dotcom before 2000 and the subsequent burst bubble are the same that are now
leading the charge for corn ethanol. Corn ethanol is projected to be a sure
bet for investors, just as dotcom was at one time. We believe that a
near-term boom and bust in corn ethanol is possible if the individual
investors are not careful. In this report we examine eight points of caution
for ethanol investors, after which is a conclusion focusing on the long-term
potential of ethanol.
1. Supply and Demand: Ethanol use in gasoline, as a
replacement for the toxic gasoline additive MTBE, has been mandated by the
government. Several states have also passed ethanol mandates or are
considering mandates. Ethanol producers are blessed with extremely generous
financial incentives, including a $0.51 of tax exemption on federal excise
tax per gallon of ethanol blended with gasoline, a $.10/gal tax credit for
"small" producers making less than 60 million gallons, and a $0.54/gal
import tariff on ethanol. We have the capacity to produce 4.7 billion
gallons annually, with capacity of 2 billion additional gallons under
construction, according to the Renewable Fuels Association. By 2012,
mandatory ethanol consumption will rise to 7.5 billion gallons per year,
required by President Bush's Energy Policy Act of 2005. If U.S. corn ethanol
capacity exceeds 7.5 billion gallons in 2012, prices may decline sharply. If
corn ethanol capacity in the near future exceeds the mandatory ethanol
consumption levels for the near future, then there will be pressure on
ethanol prices much sooner. If the current rate of capacity increase
continues, then this scenario will definitely take place.
2. Government Support: The use of ethanol for powering
vehicles is not new. Henry Ford designed and built ethanol-powered vehicles
almost a hundred years ago. But it did not catch on, and there was little
attention paid to ethanol in the middle of the 20th century, when gasoline
prices were acceptable. Following the OPEC oil crisis of the 1970s,
President Carter offered a $0.40 per gallon tax incentive and engineered the
first ethanol boom. The ethanol industry unfortunately fell apart with the
collapse of crude oil prices in 1986. It can be argued that high oil prices
are driving the recent interest in ethanol, and if oil prices go down
significantly, due to factors involving oil producers and beyond the control
of the ethanol industry, political support for mandates, tax cuts and
tariffs may dissipate. If this government support were removed it would put
a major damper on ethanol profit margins. Much of Carter's rhetoric about
the need for energy independence is similar to recent speeches by President
Bush. If the political concern for alternative energy of the Carter era
could fade away, it is conceivable for current political interest to fade as
3. Competition from Gasoline: Ethanol offers the promise of domestic
energy independence, but it must be able to compete with gasoline to have
long-term profitability. It must also be mentioned that ethanol is at a
disadvantage compared to gasoline in mile-per-gallon fuel efficiency.
According to fueleconomy.gov, a car that gets 16 miles-per-gallon on gas
will get only 12 miles on E85. It was also recently reported that the
wholesale price of ethanol "was around $3 per gallon compared with about
$2.28 for gasoline (before being mixed with ethanol)." Even with GM and Ford
having made announcements about producing more flex-fuel cars capable of
running on E85, and with more gas stations offering E85, it is questionable
whether motorists will find E85 economically justifiable.
4. South American Imports: Brazil, a major player in ethanol,
now accounts for more than 50% of the 20,000 barrels/day of U.S. ethanol
imports. Brazilian production costs have been 40-50% lower than the U.S.,
according to a Congressional Research Service Report for Congress of 2005.
It may be as low as 20% now. Even with the supposedly prohibitive tariff,
which violates WTO rules, Brazilian sugarcane ethanol is competitive with
domestic corn ethanol. Brazilian exports to the U.S. are limited only by its
capacity constraints. Japan plans to invest $1.29 billion in Brazil towards
the production of sugarcane ethanol and biodiesel, which will increase
Brazilian ethanol capacity significantly before the end of the decade.
Caribbean and CAFTA countries, because of the duty free access provided by
the Caribbean Basin Initiative and CAFTA, have been long time exporters of
ethanol to the U.S. CBI and CAFTA allow Caribbean and Central American
countries to purchase ethanol from other countries such as Brazil, reprocess
it, and export to the U.S. without paying the import tariff.
It is questionable whether America can champion globalization and keep the
ethanol import tariff indefinitely. It is also a matter of time before
Brazilian ethanol finds its way to the U.S. via the Caribbean. Brazilian
sugarcane ethanol is more energy efficient than American corn ethanol and
cheaper than gasoline. By 2010, Brazil will export 2.5 billion gallons of
ethanol, which is likely to put enormous pressure on domestic ethanol. Thus,
competition from Brazil and the Caribbean may lower the price of ethanol in
America in five years.
5. Corn Supply: Corn, a perennial surplus commodity, is now in
tight supply because of ethanol. As with all agricultural commodities, corn
prices are affected by weather conditions. Ten years ago, for example, corn
prices had reached $4.70/bushel, approximately twice the price today. That
year had seen a 25% drop in the production of ethanol.
The secular long-term tightness of corn is expected to
continue for some time. China, a traditional exporter of corn, has now
become a net importer. No one knows how severely China will impact corn
prices. Of the 11.1 billion bushels produced in the U.S., the ethanol
industry consumed an estimated 1.6 billion bushels or 14% in 2005. Corn
production is estimated to be 10.5 billion bushels this year with ethanol
industry usage projected to rise above 20%. Export markets, poultry and
livestock industries will be adversely affected. Poultry prices may rise
sharply. The corn ethanol industry will be vulnerable to long-term supply of
its raw material, corn.
The near term outlook of corn supply does not appear to be
assured. USDA reported corn stocks of 3.8 billion bushels as of March 1st.
During the Dec-Feb quarter, consumption of corn did not go down as much as
was expected due to the higher prices. Worldwatch Institute cautions that
"if U.S. corn use and exports were to continue at the same rate in the
months ahead as during the December-February period, U.S. corn stocks would
be totally depleted by July 28th – roughly 2 months before the next harvest
begins." The demand for corn ethanol is inelastic at present and hence the
ethanol industry will be able to cope with likely higher prices. However,
lower margins and complaints about possible higher poultry and livestock
prices may bring the corn ethanol enthusiasts down to Earth before fall this
year. Alan Greenspan recently testified before Congress saying that he has
doubts about corn supplies being sufficient for corn ethanol to replace
gasoline. If he is right, and the above factors affect corn supplies, then
there will not be enough corn to make large-scale ethanol production viable.
Ethanol cannot be shipped by pipeline. It has to be barged and
trucked. As such, bigger producers may not have an inherent advantage over
smaller ones. Many small producers are owned by corn producers' co-ops.
During periods of tight corn supply, small co-ops may do better than larger
companies without captive corn supply. There is also a tax break that
benefits only small ethanol producers, further making smaller producers
preferable to larger ones.
6. Cellulosic Ethanol: Cellulosic ethanol, whose large-scale
commercial production is probably at least five years away, will dominate
ethanol in the future. There is a Canadian company already producing 260,000
gallons per year of cellulosic ethanol. Several companies working to perfect
enzymes for cellulosic ethanol production claim to be close to perfection.
Cellulosic ethanol can be produced from straw, switch-grass, short maturity
super trees, and biowaste. Curiously, cellulosic ethanol has been unfairly
criticized recently as requiring more energy to produce than it yields. Only
one process, acid hydrolysis, requires more energy. Current research is
concentrated on several other processes which are expected to be the least
energy consuming of all kinds of ethanol production. (Corn ethanol has also
been criticized as requiring more energy than it yields, but a majority of
studies dispute this claim.)
The Department of Energy's Energy Efficiency and Renewable Energy (EERE)
office claims that "in terms of key energy and environmental benefits, …
cornstarch ethanol clearly outpaces petroleum-based fuels, and that
tomorrow's cellulose-based ethanol would do even better." They also say that
while "corn ethanol reduces (greenhouse gas) emissions by 18% to 29%;
cellulosic ethanol offers an even greater benefit, with an 85% reduction in
GHG emissions." A Natural Resources Defense Council-commissioned paper in
"Environmental Science and Technology" claims that 1 unit of fossil fuel
energy produces 1.3 units of ethanol energy, while 1 unit of fossil fuel may
create 6 units of cellulosic ethanol energy, meaning that cellulosic ethanol
might be almost six times more efficient. Nathan Glasgow and Lena Hansen of
Rocky Mountain Institute report that "while corn-based ethanol reduces
carbon emissions by about 20 percent below gasoline, cellulosic ethanol is
predicted to be carbon-neutral, or possibly even net-carbon-negative." In
his Congressional testimony Greenspan claimed that cellulosic ethanol held
more promise than corn ethanol. It has also been claimed that the byproducts
of the process of creating cellulosic ethanol can be burned to power the
process, making it more oil-independent than corn ethanol. The previously
mentioned Canadian company is seeking loan guarantees from the Department of
Energy to help build a cellulosic ethanol production facility in the United
States, specifically in Idaho. Still, for the time being the vast majority
of American ethanol producers are making corn-based ethanol, which will not
compete favorably with cellulosic ethanol in the long term. The ability of
U.S. producers to make the switch from corn to cellulose in the future is
hard to predict.
7. The Price of Oil: The world is running out of crude oil and
this is shaping up to be the decade for alternative energy initiatives. The
transfer from MTBE made corn ethanol the first to come out of the gate.
There is enormous short-term upside – driven by the same people who brought
us the dotcom boom and bust.
Ethanol stocks now follow the daily ups and downs of oil
prices. Crude oil, volatile as it is, has been nonetheless trading within a
narrow range. Ethanol stocks following crude oil has been a zero sum game.
It is questionable whether there is gain from this.
It is also possible that at the first sign of crude oil price
softening, "big money" will get out of ethanol investments. This in turn
could reduce political support for ethanol, in which case the farm state
Senators may not be sufficient to maintain the ethanol tariffs and tax
breaks. We have taken the political stand of advocating the continuation of
the ethanol incentives, both for the sake of investors and because domestic
ethanol promotes American energy independence and reduces polluting
emissions. However, if the incentives are removed, which some politicians
want, American ethanol companies will face shrinking profit margins.
8. Celebrity Endorsements: Ethanol has almost reached tabloid
stardom. We are inundated with stories about celebrity endorsements of
ethanol. For example, many of us have read about Richard Branson's dinner
with Ted Turner at which ethanol was discussed. It is worth noting that
cellulosic ethanol was discussed at that dinner. Ethanol stocks got a boost
when Bill Gates invested $84 million in an ethanol company. What is little
discussed is that he purchased preference shares at roughly half the price
of common stock, making this a smart investment regardless of the price of
ethanol. As his preferred stock converts at one share to two shares of
common stock, it can be said that Gates paid roughly one fourth the price
that the average investor paid to invest in that company on the same day of
that transaction. The terms of Gates' investment also gives him considerable
control over the company. The average investor will not receive the same
terms as celebrity investors. Big names involved in ethanol may distract
investors from the hard data of the ethanol industry.
Conclusion: Cautious Optimism
It is our firmly held belief that the next great fortunes are
going to be made in the alternative energy industry. Unfortunately, corn
ethanol is not a simple opportunity of this kind, for the reasons described
above. Although this industry may be profitable for the next five years, it
is highly probable that the American corn ethanol industry, except possibly
for small co-ops, will face strong pressure from corn supply concerns,
sugarcane ethanol imports from Brazil, and new cellulosic ethanol technology
in five to ten years. Competition from gasoline will be brutal if oil prices
fall, and profit margins will suffer fatal blows if government incentives
like the tariff are removed. Companies overwhelmed by these factors will
probably cause the ethanol bubble to burst by the end of the decade.
Hopefully, the major American ethanol producers will find ways to weather
this storm, particularly by exploiting new cellulosic technologies or
securing cheap corn supplies, in order to achieve long-term profitability.
We are pro-ethanol and we believe that investment in the
ethanol industry is necessary to grow capacity to promote the environment
and to secure our energy independence. Clean energy is necessary to prevent
global warming, and energy independence will free us from reliance upon
politically unstable foreign oil. As such, ethanol has a value that cannot
be defined in dollars and cents, and it deserves our support. It is also
clear that certain factors, such as government initiatives and high oil
prices, make ethanol an attractive investment in an industry with strong
growth potential. However, investments in ethanol should be based upon
statistical data from specific companies, including stability of raw
material supply, manufacturing cost, competition, and other market
conditions, as well as each company's long-term plans, rather than investing
in ethanol because of its surge in media popularity. In other words,
investors should seek good long-term investment opportunities in ethanol
rather than short-term investments which may lose money if the factors
mentioned above cause the short-term ethanol bubble to burst, but leave
ethanol producers' long-term prospects optimistic.
There are opportunities for companies able to secure corn supply and
exploit government incentives to remain competitive, particularly if demand
is strong and oil prices remain high. However, the major long-term
opportunities are with cellulosic ethanol. We hope that American ethanol
companies can find a way to be on the cutting edge of ethanol technology in
order to achieve strong long-term stability. Going back to the analogy of
the dotcom bubble, many dotcom companies that were overpriced collapsed when
the bubble burst, but the better companies survived and are still
interesting for investors to this day. The ethanol industry may follow a
similar path, meaning that the investors who buy fool's gold will suffer
losses, but there are still golden opportunities for smart investors.
Are these valid statements, or just more conjecture and "political
opinion" on the alt-energy market? Thanks!
Emerging Markets Online
Phone 713 429 4905 (Houston, TX)
Mobile 281 825 1968
Fax: 202 742 2813
Yahoo! Groups Links
Emerging Markets Online
Phone 713 429 4905 (Houston, TX)
Mobile 281 825 1968
Fax: 202 742 2813
- Will,Here is another interesting insight on ethanol. I got this data from a variety of USDA and Ethanol WEB sites. The data may be outdated and I recommend that you do the research to get the most recent numbers before publishing anything.DOE estimated that 500 to 600 million tons of plant matter could be grown and harvested annually in addition to our food and feed needs. Plant matter has an energy content of about 13 million Btu/ton. The potential energy content amounts to 6.5 Quadrillion Btu (42 billion gal oil equivalent), but only a fraction of that can be converted to ethanol. This includes waste streams like corn stover and soy oil as well as dedicated energy crops like willow coppice or miscanthus.Corn yields on good land are about, 120 bushels/acre/yr (4.2 tons per acre); at 100 gallons of ethanol per ton of biomass, each acre can produce 10 barrels of ethanol per year. Improvements may raise the number to 20 barrels per acre per year as genetic changes improve crop yields and enzymes improve the conversion of cellulose and hemi cellulose into convertible sugars so that more of the plant is fermented. The residence time for hydrolysis and fermentation is 1 to 2 days. A proposed policy of 5 vol% ethanol in gasoline would require production rates of 6.5 billion gallons per year. Ethanol production is supposed to reach 5 billion gallons in 2006 (Up from 1.7 billion gallons in 2001).Point #1 - How profit intensive ($/acre) is ethanol farming?I think that in order to make ethanol competitive with other farming options, ethanol must be about $4/gal.Point #2 - How much ethanol can we make in the USA?My calculations show if ALL available farmland not currently used for feed and food were used to grow ethanol, then we could match 20% of the gasoline consumption (match, but not replace - see point #3).Point #3 - How much energy independence does Ethanol give the US?Since ethanol has a negative or slightly positive net energy production, and since the C5s have to be removed from the gasoline pool to meet RVP regulations, and since lower gas mileage has been observed since the addition of ethanol to gasoline, NO gasoline is replaced by using ethanol. Both the large farm corporations and the oil companies profit more by requiring ethanol in the gasoline pool.In my opinion, there are more efficient ways of converting biomass to useable energy. The most efficient being to burn it like coal to generate electricity.Regards,Chris
- Steve,There is good information about biodiesel presented in Josh Tickell's book, "From the Fryer to the Fuel Tank".Here is some other information from a variety of sources:Ethanol: It takes 8 gallons of ethanol to make 10 gallons of ethanol. Each acre of good farm land can produce about 500 gallons of ethanol (100 net gallons/acre, this may improve with a future technology) .(This includes farming, fertilizing, and fermenting). (USDA)Biodiesel: It takes 1 gallon of biodiesel to make 10 gallons of biodiesel. Each acre of good farm land can produce about 80 gallons of biodiesel (72 net gallons/acre).(This includes farming and processing.) (Tickell)US Gasoline (1970's): It took 0.1 gallon of gas to make 10 gallons of gas.US Gasoline (2000's): It takes 1 gallon of gas to make 10 gallons of gas.Tar Sands/ Oil shale: It takes 2-5 gallons of gas to make 10 gallons of gas.(This includes drilling, extraction and refining. Usage is on a energy content basis).The best way to convert biomass into useful energy is to harvest a low water. low fertilizer copice crop (like switch grass or willow) and burn it in a combined cycle electric power plant (like coal). This technology is available, has the highest energy yield per acre, the highest efficiency, and is the most sustainable. Biomass electric power plants would also be flexible - crop residue, municipal waste, etc.Fermentation of cellulose and hemicellulose is something that may come in the future, but when you look at the complexity and the capital cost involved, the cost of a gallon of ethanol will have to be much higher than the cost of a electricity on the same useful energy basis..
Actually there is much better information available on the internet at either www.journeytoforever.org or several of the yahoo groups on biodiesel. The problem with Josh is that he does not recommend washing the fuel and more than one engine has been ruined. My Volkswagon Gold gets better gas miliage on biodiesel than it does on dino diesel, making it that much better a solution.
At 02:40 PM 7/16/2006, you wrote:
There is good information about biodiesel presented in Josh Tickell's book, "From the Fryer to the Fuel Tank".
Here is some other information from a variety of sources:
Ethanol: It takes 8 gallons of ethanol to make 10 gallons of ethanol. Each acre of good farm land can produce about 500 gallons of ethanol (100 net gallons/acre, this may improve with a future technology) .
(This includes farming, fertilizing, and fermenting). (USDA)
Biodiesel: It takes 1 gallon of biodiesel to make 10 gallons of biodiesel. Each acre of good farm land can produce about 80 gallons of biodiesel (72 net gallons/acre).
(This includes farming and processing.) (Tickell)
US Gasoline (1970's): It took 0.1 gallon of gas to make 10 gallons of gas.
US Gasoline (2000's): It takes 1 gallon of gas to make 10 gallons of gas.
Tar Sands/ Oil shale: It takes 2-5 gallons of gas to make 10 gallons of gas.
(This includes drilling, extraction and refining. Usage is on a energy content basis).
The best way to convert biomass into useful energy is to harvest a low water. low fertilizer copice crop (like switch grass or willow) and burn it in a combined cycle electric power plant (like coal). This technology is available, has the highest energy yield per acre, the highest efficiency, and is the most sustainable. Biomass electric power plants would also be flexible - crop residue, municipal waste, etc.
Fermentation of cellulose and hemicellulose is something that may come in the future, but when you look at the complexity and the capital cost involved, the cost of a gallon of ethanol will have to be much higher than the cost of a electricity on the same useful energy basis.