CNG in Your Beer

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Cheap Natural Gas Drives Truck Alternatives

NEW YORK (Dow Jones) – If you order a beer in New York, the odds are growing that it was delivered by a truck running on natural gas.

Beer distributors are among a growing vanguard of private trucking fleets encouraged by cheap natural gas and new government funding to adopt compressed natural gas, known as CNG, as a cleaner alternative to diesel.

As I have argued before, I think it makes a lot of sense for fleet vehicles to migrate to compressed natural gas (CNG). Natural gas is historically a lot cheaper fuel than liquid fuels such as diesel or gasoline. A quick check of prices today shows natural gas for October delivery at $3.78 per million BTUs (MMBTU). By contrast, gasoline is currently trading at $1.62/gallon (spot market, no taxes included) which works out to be $14 per MMBTU. Ethanol is trading on the CBOT at $1.66/gal for October delivery, which works out to be $21.84 per MMBTU. (In 2006, Popular Mechanics put together a graphic comparing different fuel options. See The Great Alt-Fuel Rally).

But more importantly than where prices are today is where prices are going. Natural gas will have a lot of resistance trying to sustainbly break through the $7-$8/MMBTU range because shale gas starts to become economical in that range – and we have a lot of shale gas resources. So if you are planning for the future, the odds are with you over the next few years if you are betting on moderate natural gas prices. Oil prices, on the other hand, are far more uncertain in my opinion.

The caveat of course is that the conversion can be quite expensive (the reasons for that were explained in a previous essay). The article explains that lawmakers are tackling that issue as well:

Paying for CNG conversions is still a problem. Federal funds are available to cover up to $32,000, or roughly two-thirds, of the additional costs associated with purchasing a CNG truck as opposed to a diesel one.

A company that gets the full $32,000 in federal funds should be able to make back its investment in less than three years, according to Natural Gas Vehicles for America.

Lawmakers in Congress are trying to shorten the time it takes to recoup costs on a CNG vehicle. Senate Majority Leader Harry Reid, D-Nev., is among legislators backing a bill, dubbed the NAT GAS Act, that would cover 80% of the incremental cost of a natural gas vehicle and give a $100,000 property tax credit to any company that builds a CNG fueling station. The bill has yet to come up for a vote.

The price differential between CNG and diesel/gasoline/ethanol-powered vehicles is quite large (around $10K for an individual vehicle), which is why natural gas may not make sense for individuals unless they drive a great number of miles. But that’s what fleets do, so it may make more sense to convert fleets over (and the localized nature of fleets also improves the economics of putting in CNG refueling stations). It all boils down to how many miles a year you drive and your expectation for the price differential between natural gas and gasoline/diesel/ethanol over the time you will drive the vehicle.

Finally, in the spirit of my previous post, fleet conversions are one more way to reduce our dependence on imported petroleum.

75 thoughts on “CNG in Your Beer”

  1. Finally, in the spirit of my previous post, fleet conversions are one more way to reduce our dependence on imported petroleum.

    Roger that!

    One would think that large trucking companies such as Schneider and Yellow Freight would be thinking about CNG. Since they almost always refuel at trucks stops, there would be an incentive for the large truck stops to start putting in CNG refueling points.

    With just a bit of push from government in the form of tax credits and subsidies to build a CNG refueling infrastructure, our long-haul trucking fleet could fairly quickly make the transition.

    We'd get a much better return on that investment than what we've gotten back from the money we've put into corn ethanol.

  2. $32,000.00?

    How many miles do you suppose a "Delivery" truck puts on in a day? 100? 5 days/wk? 260 days/yr?

    How far would a truck go on 1 million btus compared to, say, 1 million btus of diesel?

  3. “one more way to reduce our dependence on imported petroleum.”

    Like ethanol, the un-Texas solution. The non-Pickens scam.

    “We'd get a much better return on that investment than what we've gotten back from the money we've put into corn ethanol.”

    Really!

    I do not have a problem with CNG. It is the folks who are against incentives for ethanol and for subsidies for CNG. It is the folks that are against ethanol because fossil fuel is used to produce it while ignoring that CNG is 110% fossil fuel.

    Obviously the best environmental choice for NYC is drinking tap water and not delivering beer at all. Again do not have a problem with beer. Just finished a cold one. It is silly arguments. I have been lectured about the environmental impact of producing energy by people consuming excessive amounts of ethanol and smoking.

  4. It is the folks that are against ethanol because fossil fuel is used to produce it while ignoring that CNG is 110% fossil fuel.

    Kit, you really should stick to electricity because every time you try to talk about ethanol you really show your ignorance. People who are generally against ethanol are concerned not that fossil fuels are used to produce it, but the level of fossil fuels. (That's why we don't worry so much about sugarcane ethanol). Ethanol is mostly recycled natural gas, and we use up good topsoil because corn is one of the most erosive crops, tolerate heavier runoff from fertilizers and pesticides, and pay subsidies for the privilege – all in the name of a solution that is highly dependent on fossil fuels. So understand that ethanol subsidies ARE natural gas subsidies because lots of natural gas is used to make ethanol.

    If not for the cumbersome regulations that drive up the cost of CNG conversions, there would be no subsidies at all necessary to drive CNG. After all, CNG has been widely adopted in countries that are very poor relative to the U.S., and they didn't require subsidies to get it done.

    So for the last time, you need to stop comparing apples and oranges. These cases are highly different. It has nothing to do with Texas versus Iowa. It has to do with efficiency of utilizing the resource.

  5. Would I be correct in assuming nat gas gives about half the mileage of diesel on a BTU to BTU basis?

    Why would you think that? The Popular Mechanics graphic compares a natural gas vehicle to a diesel. The CNG came in at 34 mpg and the diesel came in at 44 mpg. Of course the octane for CNG is even higher than for ethanol, and you of course know what that means.

    RR

  6. "fleet conversions are one more way to reduce our dependence on imported petroleum"

    What is so special about reducing our dependence on imported petroleum? Why not be concerned about reducing our dependence on imported vehicles that use the petroleum? Why not be concerned about reducing our dependence on imported anything?

    Here are some 2008 figures, from http://www.census.gov/foreign-trade, on the trade balance in goods.

    Yes, the US runs a trade deficit with some countries from which it imports petroleum.
    Saudi Arabia $42 Billion deficit
    Venezuela $39 Billion deficit.

    But compare those deficits with the goods trade deficits that the US runs with countries that don't export petroleum.
    China $268 Billion deficit
    Japan $74 Billion deficit
    Germany $43 Billion deficit

    Hell, the US even runs a $24 Billion goods trade deficit with Ireland!

    Remember, this was in 2008, when oil prices briefly touched $147/Bbl. Even then, the US dependence on imported manufactures far outweighed the dependence on imported petroleum. And remember, ever dollar spent on imported manufactures represented jobs exported from the US.

    These huge US trade deficits are clearly unsustainable, as are the budget deficits that go along with them — which under current Administration plans will rocket out of sight in the next few years.

    The US will run out of the ability to trade pieces of paper for material goods long before the world runs out of oil. That is the real import dependence problem. And that is the problem which the Political Class is studiously avoiding.

  7. What is so special about reducing our dependence on imported petroleum? Why not be concerned about reducing our dependence on imported vehicles that use the petroleum? Why not be concerned about reducing our dependence on imported anything?

    The answer is the same as the last time you asked this. First, this is an energy blog. Second, I am concerned about the overall trade deficit, but see the previous point. Third, imported vehicles aren't subject to a tripling in price over the course of a year. Fourth, even if they were, it is a lot easier for me not to buy an imported vehicle than to not buy imported oil. Demand for the latter is much less elastic. Over the long range, people can make arrangements to reduce consumption, but not everyone can do that over the short term.

    RR

  8. Well, I'm not too crazy about replacing one fossil fuel with another, but, inasmuch as we might be in a real pickle in the near future I guess I'll wish'em well.

    I did post an article in the previous thread about Poet now getting 65% of their process energy at their Chancellors plant from wood chips, and landfill gas. That would bring the btus of nat gas per gallon of ethanol from the Chancellors plant down to around 10,000, or 12,000. Add in another 5,000 for fertilizer, and you're looking at less than 20,000 btus of nat gas in a gallon of ethanol.

    Corn Plus is realizing about the same numbers using their syrup. Other Ethanol refineries are going down the same path.

    Obviously, you would get many more miles per btu of nat gas this way than burning it directly. Right?

  9. "If you order a beer in New York, the odds are growing that it was delivered by a truck running on natural gas."

    Back about 15 years ago (time flies!) when I was involved in a Compressed Natural Gas vehicle venture, our guys accumulated a huge stack of those kinds of announcements. We thought we had hit the mother-lode! And here it is, 15 years later, and CNG is still a footnote.

    The technology has been known for about a century. Natural gas has been cheaper than gasoline for forever. And yet, CNG is still the bridesmaid, never the bride. Even countries that used CNG out of necessity switched to gasoline when they could — switched to more expensive gasoline!

    Of course, in those halcyon days 15 years ago, no one worried about the unscientific ramblings of global warming alarmists. Today, there is yet another barrier for CNG — minor emissions during refueling are inevitable, and natural gas is a much more potent (Junk Science Alert!) "global warming gas" than evil CO2. Oh, the injustice of it all!

    The failure of CNG to make massive inroads is worth serious study. After all, it is one of very few "alternate" fuels which at least meets the Cheaper element of the Better Faster Cheaper trinity.

    There was historically a problem with the limited range of dual-fueled (gas/gasoline) CNG vehicles. 15 years ago, that problem had been solved with the dedicated CNG vehicle.

    There are still technical challenges with refueling — complexity, and relatively slow compared to pumping a liquid. There is the "chicken & egg" commercial issue of building an adequate refueling network before there are sufficient CNG vehicles (or vice versa). And there is the huge wet blanket (in the US, at least) of ambulance-chasing trial lawyers and greenie Luddites who have such a grip on the Political Class.

    Personal opinion — the way to make CNG happen would be to dismantle the regulatory thickets that prevent innovation.

    Early adopters could take training classes in CNG refueling to get the benefit of the lower price. Some CNG stations might even reintroduce the gas station attendant to handle the refueling. As the market grew, innovative individuals would make a fortune developing Better Faster Cheaper ways to do the refueling, and the network of CNG stations would expand.

    But the technical/commercial challenges will not be solved until someone cuts the Gordian knot of Red Tape. Which brings us back to the Political Class, who created the Red Tape in the first place — and are quite proud of it.

  10. Looks like Manhattan Beer Distributors converted 15 trucks to CNG around 2001, another 15 trucks around 2005 and now another 15 trucks in the past year. Each time they did it with subsidies. They've got about 300 trucks total, about 85% of them run on diesel, but they aren't planning on converting those, at least not without more subsidies. Curiously, they say "the fuel costs are similar".

    http://www.allbusiness.com/energy-utilities/oil-gas-industry-oil-processing-products/12267905-1.html

    I wonder just how wide of a spread between diesel prices and NG prices have to be before they'll want to switch over a majority of the fleet without subsidies. Odds still are your beer in NYC was delivered by truck running on diesel.

  11. The Popular Mechanics graphic compares a natural gas vehicle to a diesel. The CNG came in at 34 mpg and the diesel came in at 44 mpg. Of course the octane for CNG is even higher than for ethanol

    Too bad that isn't really comparing apples to apples. Even more annoyingly, comparing a Honda CIvic gasoline car to a Honda CIvic CNG is not comparing apples to apples either.

  12. "Also, the last I looked Toyota wasn't funding suicide bombers."

    You need to read the Annual Report, Rufus!

    To be be serious, in 2008 during a period of historically high oil prices, the US paid about as much to China ($338 Billion) for manufactured junk as it paid to all the oil exporters in the world for oil.

    China — in recent years, has knocked a US plane out of the skies; has rammed a US submarine in international waters; has built destabilizing anti-satellite weapons; is improving its ballistic nuclear missiles; is building a blue-water navy; and continues to threaten US ally Taiwan. And you (along with the rest of us) paid for all that. As well as the suicide bombers.

    The important thing is to decide what our real objective is. I share our host's concern about dependence on imports. Every country should have a plan on how it is going to survive if key imports — food, energy, certain minerals — get interrupted.

    If the US Adminstration really wanted to deal with that quickly, we would be talking today about a huge expansion in the Strategic Petroleum Reserve. Anything else takes too long. And when the price of oil is declining, that would be an ideal time to move quickly and fill an expanded SPR. It would be a good idea to build enough refinery capacity to process all that oil too.

    But we know we can't move quickly to expand the SPR — years worth of litigation with grasping lawyers, greenie extremists, and a Political Class which has other priorities.

    It is too comforting for well-meaning people to strike a pose, instead of grappling with the real issues. And the real issues are not technical — unfortunately.

  13. The thing is, K: as RR said, the junk from china is optional. Energy isn't.

    Look at the amount of oil the world was using before it started into recession (2007.) Try to come up with a scenario where global oil production can even get us back to That level, much less advance. Trust me, you can't do it.

    2011 is going to be pretty rotten. 2012 is going to "flat-out suck."

  14. Great post, but two caveats:
    1. Shale gas may become cheaper and cheaper, as better drilling techniques are perfected. This is "first-gen" shale gas. There are examples of technical innovations reducing the cost.
    2. There is a guy in Oklahoma selling used cars converted to CNG, see cngvehicles.net. Many of these cars/trucks are under $10k. I would say that shoots to hell the argument that is costs too much to convert. You can buy a used car/truck converted for under $10k. (Right now, there is a 2002 Ford Cargo van, only 23k miles, for sale under $9k. I have no affiliation with this car dealer, never met him).
    So, we have epic supplies of shale gas, and, if need be, there are car dealer selling used cars off the lot for under $10k.
    This is doom? Sounds to me like a better future to me. CNG burns more cleanly, is produced in North America, I would much rather give my money to some gas boys in Penn. or LA than the usual thug state/OPEC baboons.
    This will be a huge boon to the US economy.
    Again, I wonder what the Bush/Obama people are thinking. So far, from ethanol to demonizing the oil industry, we seem to have an anti-energy policy.

    Kinu: On dependence on foreign oil, RR forgot to include the possibility of blackmail. Hey, it happened once before, remember the OPEC oil-cutoff of the late 1970s?
    We are extremely vulnerable to an oil cutoff, or price theatrics, and it effects our ability to make a foreign policy in our interests. Some contend the $1 trillion+ war we are fighting in Iraqistan is really about oil. If that is true I want to totally eliminate imported oil, and bring our boys home, and save a few trillion dollars along the way.

    We can live w/o Chinese gee-gaw, we cannot live w/o imported oil.

  15. “you really show your ignorance”

    I suppose this is what RR means by have a civil discussion.

    “we use up good topsoil”

    Really, now RR is an agronomist.

    “cumbersome regulations”

    Now RR is an environmental engineer. Yes, regulation are cumbersome, get over it. Protecting the public, workers, the the environment are part of doing business. RR is completely ignoring the environmental impact of producing NG.

    “It has to do with efficiency of utilizing the resource.”

    Once again, that might be important if you are trying to win a debate but it does not have anything to do with producing energy.

  16. “dismantle the regulatory thickets that prevent innovation.”

    Regulations do not inhibit innovation. However, many innovators think that they are exempt from regulations and lawsuits just because they they label what they are doing as better.

    Personally I am not in favor of finding innovative ways to kill people. Energy is dangerous enough without cooking biodiesel on the kitchen stove.

  17. I suppose this is what RR means by have a civil discussion.

    Kit, calling someone ignorant about a specific topic is not being uncivil. We are all ignorant about certain topics. If someone said to me "You are ignorant of 16th century Spanish literature", that would be a factual statement. But that is quite different than calling someone just generally ignorant.

    Really, now RR is an agronomist.

    You believe that someone has to be an agronomist to know anything about topsoil? That would make you a real hypocrite, wouldn't it? How often have you pontificated about subjects for which you have no academic qualifications? Are you a chemical engineer? No? Then why do you keep weighing in on ethanol? I think this is a slippery slope you really don't want to be on. But yeah, I do know a thing or two about topsoil.

    Now RR is an environmental engineer.

    See above.

    RR is completely ignoring the environmental impact of producing NG.

    Yet that same environmental impact goes for the NG that went into ethanol. Get it? If you have complaints about natural gas, then you should have the same complaints about corn ethanol which is – with few exceptions – heavily dependent on natural gas. Add up the environmental impact of the corn farming, and you have double the impact embedded in the ethanol.

    Once again, that might be important if you are trying to win a debate but it does not have anything to do with producing energy.

    It has everything to do with producing energy. Consider this example and I think you might get it. Let's say you needed a BTU of gasoline to produce a BTU of ethanol. In an unsubsidized market, you would never do such a thing because the two fuels are quite fungible. In a market where there is a taxpayer-subsidized premium on the ethanol, you might be driven to do such a thing. But it would make little sense from the point of real energy security. On the other hand if you needed a tenth of BTU of fungible fuel to produce ethanol, this might make perfect sense for the long-range plan (depending on whatever other externalities are present). That all boils down to the efficiency of utilizing the resource. (There are examples were you would trade a BTU for a BTU; such as trading coal for ethanol).

    RR

  18. What about a plant like Poet Chancellors where only 35% of the process energy is coming from nat gas? Does That make sense?

    What about when it gets to 10%?

  19. What about a plant like Poet Chancellors where only 35% of the process energy is coming from nat gas? Does That make sense?

    I have a long history of being supportive of those kinds of efforts. I supported E3 Biofuels from early on when they were trying to get the fossil fuels out of the loop. To me, this would be one advantage of increasing fossil fuel taxes. It would encourage ethanol (and any renewable energy firms) to get the fossil fuels out.

    RR

  20. @ Wendell,
    To increase the range, LNG would be considered. It provides six times the range of CNG (say, 600 miles instead of 100 miles). Whether it makes sense practically, is another discussion. It substitutes the storage of a high-pressure gas for a cryogenic liquid at atmospheric pressure. While CNG has been used for a while and I'm not aware of accidents made more horrific by the presence of CNG, I wonder what happens if CNG starts showing up in OTR trucks in volumes sufficient to provide a range comparable to LNG. Robert's concern about fugitive emissions would still apply and might be worse, given that some of the LNG boils off in storage.

  21. “How often have you pontificated about subjects for which you have no academic qualifications?”

    Again, RR I do not think this is an example of civil discourse. To answer you question, I do have the academic qualification to discuss these topics that I discuss. Not only that, I have 20 years more experience than RR. My original major was chemical engineering. After a couple of years in the navy , I switched mechanical engineering. RR is not the only one who posts here that masters project involved bacteria to produce energy.

    I have sat with farmers and their agronomist along with the agronomist from my company to discuss how we could produce renewable energy and protect the environment. Sorry I can not provide links to my 40 years of experience and all the journal articles I have read. Linking Popular Mechanics does not impress me.

    “I do know a thing or two about topsoil.”

    There you go again, equating knowledge limited with improper methodology.

    “Add up the environmental impact of the corn farming, and you have double the impact embedded in the ethanol.”

    Back before RR was a concept in his parents mind, Indiana farmers were growing corn to feed animals. Growing and storing corn for animal feed. There is environmental impact for growing corn. Does chemical processing to separate the energy from the protein reduce the environmental impact significantly. Yes ,it does. Links to numerous papers have been posted at this web site. RR choses to ignore them and live in the past.

    “It has everything to do with producing energy.”

    But animal feed is being produced. Energy is a byproduct.

    Adding an anaerobic digester to a dairy farm reduces the environmental impact of producing milk . Any energy produced is a byproduct. The bacteria produced make an excellent organic fertilizer and reduces soil erosion and reduces the amount of methane needed to make fertilzer.

    Comparing CNG to imported oil is a valid comparison. RR chose to 'pontificate' on the evils of ethanol demonstrating his ignorance on analytical methods.

  22. Well, you both got me out-edumacated by a country mile. However, I have noticed this in my stuporific wandering around the countryside: Every oil, and Gas, well ever drilled became less, and less productive as time went on.

    East Texas used to produce a humongous amount of oil, and gas. Now, it produces a small amount of oil, and gas. These new "frac'ed" well start off pretty strong, then weaken rapidly.

    However, good farmland just gets better. Iowa used to produce a lot of corn. Now, it produces an "UnGodly" amount of corn.

    To encapsulate: Gas wells become Less Productive. Corn Fields become More Productive.

    Let's Vote.

  23. To answer you question, I do have the academic qualification to discuss these topics that I discuss.

    There is zero evidence of that. Around the web, I have seen you claim to be a great many things. You have talked about a great many topics. Around here, we don't argue from authority. Asking someone if they are an agronomist is an example of arguing from authority. Claiming X years of experience that thus supports your point is arguing from authority. Here you are an anonymous poster. We don't know you to be an authority on anything. In fact, your posts undermine your claims of authority except within a very narrow area.

    You must support your points. Whether your original major was chemical engineering – or whether you have spent X years sitting with farmers – is irrelevant. I spent the first 18 years of my life on a farm. I don't tell you to shut up because I know more about farming than you – as evidenced by the time I spent actually working on one. That would be arguing from authority.

    RR is not the only one who posts here that masters project involved bacteria to produce energy.

    Yet mine is well-documented. Is yours? Can you prove it? I call BS. I think you just made that up, in another attempt to argue from authority. I also think it is BS that you are actually a degreed engineer at all. I think you have some training in engineering from the navy, but never got a degree and spent the rest of your life trying to overcompensate for something you are sensitive about. This is why you post as you do.

    Linking Popular Mechanics does not impress me.

    A lot less impressive is an anonymous poster making all sorts of unsubstantiated claims. A link is about an order of magnitude greater than most of what you post on here. That link contained quite relevant information. Your posts are mostly vacuous.

    Back before RR was a concept in his parents mind, Indiana farmers were growing corn to feed animals.

    And most of those farms no longer exist, for reasons that led directly to today's ethanol policies.

    RR choses to ignore them and live in the past.

    Kit chooses to ignore history and refuse to learn from it.

    But animal feed is being produced. Energy is a byproduct.

    There you go again flaunting your ignorance like a badge of honor. It wasn't animal feed that has driven an enormous increase in corn acreage. I suppose this is why you have people proposing things like DDGS boilers. No Kit, they propose things like DDGS boilers – and people work on enzymes to convert DDGS to ethanol – because that is the byproduct.

    You bring a great deal of discredit upon yourself by claiming to have 20 more years of experience than me – and then posting tripe like this. As it is clear that you are outside of your area of experience, your experience is quite irrelevant here. I have 20 more years of experience than a newly graduated MD. But I don't presume to tell him how to treat patients.

    RR chose to 'pontificate' on the evils of ethanol demonstrating his ignorance on analytical methods.

    I don't pontificate on the evils of ethanol. I make arguments and support them with facts. What you do is pontificate from an anonymous perch by tossing rocks at those you disagree with. You are very lucky that I am a patient person.

    RR

  24. To encapsulate: Gas wells become Less Productive. Corn Fields become More Productive.

    Rufus, that is a silly argument. The reason corn fields become more productive is that there is more natural-gas based fertilizer being put on them. Take away the natural gas and those massive yields will plunge. Fertilizer recommendations are made on the basis of bushels produced. More bushels = more fertilizer = more natural gas.

    RR

  25. Robert,you use this natural gas input argument against ethanol frequently. We know we'd need more imported oil without ethanol,but you never tell us how much natural gas would be saved if we quit making ethanol.

    I think we'd use just as much fertilizers. Grow just as much corn. If not corn,then farmers would use the fertilizers on another crop. And any money that was saved not paying ethanol subsidies would now go to farmers in the way of crop supports. The government would buy those crops and give more food to poor people overseas….and put more farmers in poor countries out of business.

    Going on against the evils of ethanol doesn't solve a thing. Killing ethanol won't save a thing. I think it would make our energy problem dramatically worse,in fact. Kill ethanol today,and oil will be $150 a barrel tomorrow. Thanks,but no thanks.

  26. Actually, Robert, the stock prices of Potash, and Mosaic have plunged for a reason. Farmers used LESS fertilizer This year, than Last.

    It USED to be All about the "Fertilizer," (and, still is to some extent) but, more, and more, it's "Now" about the SEEDS.

  27. Actually, Robert, the stock prices of Potash, and Mosaic have plunged for a reason. Farmers used LESS fertilizer This year, than Last.

    This has been documented before, and it is due to overfertilizing in some years. But you can't increase yields year after year without increasing fertilizer requirements – even if you have the odd year in which less is put on.

    And prices have plunged because fossil fuel prices plunged.

    RR

  28. Yes, Maury, we raised just as many acres of corn 5 years, ago, as we do today. And, I'm not sure, but we might have used More fertilizer.

    What we did was we "supported" the price to the tune of anywhere between $7, and $10 Billion/Yr, or thereabouts. The supports were paid to the farmers, and the corn was sold, "Cheaply" to the livestock producers (Most were Here, but about 20% were abroad.)

    Once this simple fact is taken into consideration, the "Taxpayer" actually came out ahead when ethanol started getting subsidized.

    The Tax Credit was about $4.5B last year, and the "support Payments" (thanks to Clee's research) were down about $8 Billion, I think it was, from their highs.

  29. We know we'd need more imported oil without ethanol, but you never tell us how much natural gas would be saved if we quit making ethanol.

    Depends on who you believe. Per the most recent USDA survey, you would save about as much fossil fuel BTUs as are contained in the ethanol. I have a link somewhere from when natural gas prices were high, and ethanol producers were complaining that it was killing them. This is my primarily complaint: We are subsidizing something that is mostly just converting fossil fuels into ethanol. We are borrowing from our kids to do this, and it isn't accomplishing much. That's why we have been subsidizing ethanol for 30 years, and we will be doing so for the next 30 years. When you use fossil fuels to make ethanol, you are always going to need subsidies to compete with fossil fuels (unless you can minimize the inputs).

    I think we'd use just as much fertilizers. Grow just as much corn. If not corn,then farmers would use the fertilizers on another crop.

    No, we wouldn't. We had an overabundance of corn from previous ag policies. This led to a search for outlets for the corn, and we got high fructose corn syrup – and later ethanol. This led to an expansion of corn production and ultimately put a lot of small farms out of business as you had to get bigger to survive. So now we produce more corn than ever, and corn's fertilizer requirements are very high.

    I think it would make our energy problem dramatically worse, in fact. Kill ethanol today,and oil will be $150 a barrel tomorrow.

    It wouldn't. I have written posts here before showing our gasoline usage before and after ethanol ramped up. You can't see any impact from ethanol. Our oil imports up until the financial crisis hit were as high as they ever were. Show me where ethanol has reduced our oil imports.

    RR

  30. Lower input costs should be Good for a Company's "Stock" price. I think a major reason for their Stock Prices falling is poor sales.

    A lot of farmers have found that with Low-Till Cultivation, Proper Crop Rotation, Cover Crops, and High-Tech Seeds they can get by with Less fertilizer (esp. Nitrogen.)

  31. The Tax Credit was about $4.5B last year, and the "support Payments" (thanks to Clee's research) were down about $8 Billion, I think it was, from their highs.

    And your history of cherry-picking those numbers has been previously noted. The support payments are highly volatile, and have been as low as they are now in times past when we made very little ethanol. So it is a bit disingenuous to credit ethanol for that. In fact, corn subsidies were a lot lower in 2002 than in 2006, so maybe I should blame ethanol for increasing the subsidies over 2002 levels? I mean, we made a twice as much ethanol in 2005 as in 2002 – and yet corn subsidies were still over $9 billion. They were only $1.9 billion in 2002. Cause and effect? Or maybe a more complicated relationship than you allude to with your "more ethanol = lower corn subsidy" position.

    RR

  32. Are you telling me that 11,532,000,000 gallons of ethanol doesn't replace ANY Oil?

    I think I smell an essay coming on here. If the ethanol proponents were correct, then it sure should (especially those that assert that a gallon of ethanol displaces 11 gallons of oil). But our oil imports have gone up with our ethanol production. I will have to dig a bit to see how much domestic oil production fell during that period, but what I am telling you is that despite all of this money and attention being thrown at ethanol, the contribution is so small as to not be apparent from looking at imports and gasoline consumption.

    RR

  33. I think YOU cherry-picked 2002.

    I was making a point.

    Can you give us another year, since, that the corn subsidy was that low?

    Do we have 2007 numbers in? I see that 2006 was higher than 2002 despite all that ethanol production. And no, I can't see that any other year was as low as 2002 – and yet ethanol production was much higher in all of those years.

    But the point is that those subsidy payments are highly volatile. You aren't being honest if you compare one year to the next and imply that this is due to ethanol.

    RR

  34. Ah, we both know that we're replacing maybe a bit less than 9,000,000,000 gal/yr of oil at present. Obviously, it has to come out of Imports.

    It uses some nat gas, and if we're still importing nat gas then I stipulate that the nat gas used comes out of imports, also.

    Of course, I thought that the Nat gas argument was that we had nat gas coming out of our ears, and didn't have to import NG anymore.

  35. But the point is that those subsidy payments are highly volatile. You aren't being honest if you compare one year to the next and imply that this is due to ethanol.

    But, but, . . . . Wait!

    Those subsidies are dependent on "Price." Part of your opposition has always been that ethanol ran up the price of corn.

    Now you're telling me that maybe ethanol hasn't run up the price of corn?

  36. Ah, we both know that we're replacing maybe a bit less than 9,000,000,000 gal/yr of oil at present. Obviously, it has to come out of Imports.

    Uh, no. A barrel of ethanol contains even fewer BTUs relative to the barrel of oil than it does to gasoline. Further, if your liquid petroleum inputs on average a bit higher than you think they are, it is easy to see that the displaced oil could be illusory, or at best so small that it is lost in the noise. I am looking at the import numbers now, and there is no drop off in oil imports until the recession began, and even then not until pretty deep into the recession.

    Of course, I thought that the Nat gas argument was that we had nat gas coming out of our ears, and didn't have to import NG anymore.

    A large portion of the natural gas imports into ethanol production are via imported fertilizer.

    RR

  37. Those subsidies are dependent on "Price."

    So then the lower subsidies in recent years are due to the price spikes? Are you then blaming the price spikes on ethanol (and thereby crediting ethanol with lowering the subsidies)?

    Part of your opposition has always been that ethanol ran up the price of corn.

    No, food prices are not a key part of my argument because I realize that it is hard to separate out the overall impact of energy prices in general. But what it does do is greatly increase the risk of a spike due to a crop failure.

    Now you're telling me that maybe ethanol hasn't run up the price of corn?

    I think what I just heard you say was that ethanol gets credit for dropping the subsidies, which fell because prices spiked?

    RR

  38. You're right. I should have said "Gasoline" (which we, also, import.)

    The Recession began in 2007. Ethanol didn't really start to "ramp up" until 2007. Also, up until then we were growing GDP pretty rapidly. And, again, don't overlook gasoline imports.

    You're looking at maybe 5,000 btus (at the most) of fertilizer imbedded NG in a gallon of ethanol. Hardly a show-stopper, I would think.

  39. Absolutely, corn prices were in the range of $2.20/bu to $3.20/bu before ethanol. Probably a lot closer, more often, to $2.20 (dipping even down into the $1.70 range, sometimes, I think.)

    Ethanol Absolutely raised corn prices.

    From about $0.04/lb to $0.06/lb.

    If you noticed your box of corn flakes went up $0.02 it wuz the ethanol. Ditto for that 2 liter Coke. Your hamburger went up about $0.01. I Never Denied it.

  40. The only Real difference, of course, is that Penny is being paid by the guy eating the hamburger, not the taxpayer.

    It's really, pretty small stuff, ain't it?

    Now, granted, if you're a hog-farmer, or a cattle rancher it's not so small. But, the best thing for the cattle rancher, right now, would be to get out of this recession; because, as you well know, "Beef" always takes a hit when the economy slows down.

  41. The Recession began in 2007. Ethanol didn't really start to "ramp up" until 2007.

    Two things wrong with that. First, the recession began at the end of 2007, and second ethanol production went from under 2 billion barrels in 2001 to almost 5 billion barrels in 2006. Add in 2007 and we are at 7 billion barrels. I would think that would show an inflection on oil imports if there was really much of an impact there.

    You should be all over this as much as you talk about how your ethanol usage reduces oil imports.

    And, again, don't overlook gasoline imports.

    I'm not. I am looking at all petroleum imports. Total petroleum imports grew every year from 2002 through 2007 (although 2006 and 2007 were pretty flat year over year). I don't see an ethanol effect.

    RR

  42. Our petroleum usage went from, what, 21 Million Barrels/Day to 18, and change?

    How would anyone ever know if they were seeing an "effect" of 3, or 400,000 barrels of ethanol?

    But, common sense tells you it has to be there. BTW, I think VMT started declining Before the last of 07'. I know Tax Revenues did, because I called the coming recession in June of 07 based on that, and a 0.5 increase in the unemployment rate.

  43. Odd. One moment, we were discussing CNG, imported oil, trade deficits, budget deficits, import price volatility. The next moment, we were discussing ethanol — Again!

    But maybe it all ties together. A government which can't balance its budget is not going to be able to afford to subsidize anything. (Bye bye, ethanol!) And a government which runs huge trade deficits year after year will some day not be able to pay for any imports at all.

    So we should be looking for energy sources that will work in a society with no subsidies, no imports, and a lot of overhead.

  44. Our petroleum usage went from, what, 21 Million Barrels/Day to 18, and change?

    Only after the recession started. Separate out the recession, and show me the ethanol impact. I am not much for "Well, it must have had an impact." Show me.

    RR

  45. Yeah, K, it's a silly argument. The wheels are set in motion. All will be made known in a year, and a half. Nothing Anybody (outside the President of the United States) anywhere can say that will change anything the slightest bit.

    Oil will go Sky-High, or it won't. If it does, I'll probably look like a Genius. If it doesn't I lose a little face, but we can all afford Fuel (without having to blend it ourselves.)

    Heck, I hope I'm wrong.

  46. rufus wrote: Look at the amount of oil the world was using before it started into recession (2007.) Try to come up with a scenario where global oil production can even get us back to That level, much less advance. Trust me, you can't do it.

    I'll give it try. (Not that I disagree that 2011 could be pretty rotten, but your dead certainty is annoying.) According the the IEA, global oil demand peaked at 87.2 million barrels per day 4Q07
    http://omrpublic.iea.org/omrarchive/11dec08dem.pdf
    Global oil supply in August 2009 was 84.9 mb/d and OPEC spare capacity was 6.56 mb/d
    http://omrpublic.iea.org/omrarchive/10sep09sup.pdf
    That means there was enough capacity to produce 91.4 mb/d which is more than was consumed in 2007. So it can be done. There's even 4mb/d extra in case thug oil state issues get in the way.

  47. RR wrote: Let's say you needed a BTU of gasoline to produce a BTU of ethanol. In an unsubsidized market, you would never do such a thing because the two fuels are quite fungible…. There are examples were you would trade a BTU for a BTU; such as trading coal for ethanol

    When you use fossil fuels to make ethanol, you are always going to need subsidies to compete with fossil fuels (unless you can minimize the inputs).

    … Natural gas .. $3.78 per million BTUs… gasoline is currently trading at… $14 per MMBTU… Ethanol … $21.84 per MMBTU…

    Trying to wrap my head around this. Coal is not fungible with gasoline, but then natural gas, while it can be used as a transportation fuel (coal used to be too), is not totally fungible with gasoline either. Could it be worth it to spend $3.78/MMBTUs of natural gas per MMBTU of ethanol produced to replace $14 worth of gasoline? Looking at the numbers it would seem most of the cost of ethanol comes from stuff other than natural gas. Maybe those other things are as big a concern.

  48. Iowa State did an Academic Study on this…

    Hmmmm. Iowa State. The state in which I don't think it possible (except in urban areas) to drive more than half a mile without passing a corn field.

  49. Of course, I thought that the Nat gas argument was that we had nat gas coming out of our ears, and didn't have to import NG anymore.

    But we are still importing natural gas in the form of synthetic nitrogen fertilizer. Over 50% of the nitrogen is now imported after being made with foreign natural gas feedstock. Fill up with E85, and there is a better than even chance the ethyl alcohol in that tank was made with foreign NG.

    Not far from me is one of the largest natural gas to nitrogen plants that once supplied Iowa corn farmers. It shut down about five years ago — and is still closed.

  50. We had an overabundance of corn from previous ag policies. This led to a search for outlets for the corn, and we got high fructose corn syrup – and later ethanol.

    That is an important point Robert. The real reason we have corn ethanol is because it was a domestic policy decision to provide a stable market for corn. Despite the constant mantra from Big Corn and the ethanol lobbyists, corn ethanol has never been about energy policy.

  51. OPEC has 6.56 million bpd in reserve? All Right, Then! No Problemo. Never Mind.

    Of course, that means they had 3 Million barrels in reserve in July 08 when the price of crude got to $147.00/barrel. Hmm, I wonder what they were waiting on? Whatever it was I'd assume they'll wait for it when crude gets to 147 the next time. That seems logical, right?

    Most folks agree with the EIA, that OPEC has, maybe, 3 million bpd spare capacity, and I'll bet you couldn't find too many that would bet "Real" money that it's much more than 2 million barrels. Anyhoo,

    We topped out at a pinch less that 75 million bpd, and now we're at 72 million bpd. BUT, according to oilwatch monthly the OECD nations have to have another 5 Millin bpd just to get back to where they were. Chindia, plus Saudi Arabia is going to use another million bpd next year so that puts us 6 Mbpd into that 3 Million barrel Reserve.

    Then figure in a 6.7% decline from existing wells and we've got to find another 4.8 million bpd.

    So we're upside/down 3.0 plus we're looking at a 4.8 bpd decline from existing wells, and we've got to come up with 7.8 mbpd to get back to even "next year." And, Russia's done pulled all of her stuff forward to this year.

    Good Luck, but it ain't gonna hoppen, GI.

  52. Clee, the major expense of corn ethanol is corn. You'll come reasonably close to the cost of the corn if you just divide the cost of the bushel by 3. Today, you would be looking at about $3.33/3 or $1.11 gallon.

    I just divide by four, and that way I don't have to mess with figuring in the income from the DDGS.

    It can vary widely depending on the type of plant, but if you figured 35,000 btus of nat gas (this includes fertilizer, process energy, etc) you wouldn't be too far off the average dry-grind ethanol plant.

    35,000 X .0378 = $0.13 NG to produce a gallon of ethanol.

  53. BTW, it takes about 25,000 btus of NG to produce enough nitrogen for a bushel of corn. Cost back 60% of that to the DDGS, and you're looking at 10,000 btus of NG for 2.85 gallons of ethanol.

    10,000/2.85 = 3508 .3508 X $3.78 = $0.0132. About 1.3 Pennies of fertilizer-embedded ng in a gallon of ethanol.

  54. There's a lot of consensus around 10,000. Robert gave a Argonne Labs link the other day that, I believe, also used 10,000/2.85.

    Actually, Robert gave 25,000 btus for a bushel. I adjusted for DDGS.

  55. I'd assume they'll wait for it when crude gets to 147 the next time. That seems logical, right?

    I wouldn't be at all surprised if they let crude get up to $147/bbl again next time, all the while saying that the market is fully supplied, just like they said last year.

  56. 1)Why are CNG vehicles so much more expensive? Is it simply a matter of much lower production volumes than gasoline vehicles, or is there some technical reason why CNG vehicles would cost more even if volumes were the same?

    2)I wonder if CNG could be an alternative fuel for railway locomotives…just stick 1 or more tank cars behind the locomotive as required for appropriate range.

  57. "Why are CNG vehicles so much more expensive?"

    Short answer in the US today is the same one as to most questions — politically-driven distortions.

    Longer answer is — it depends on what the definition of 'CNG vehicle' is.

    If the CNG vehicle is a dual fuel (gasoline & CNG) vehicle originally built as a gasoline fueled vehicle, then obviously it is going to cost more. The customer has to pay for the original vehicle and then for all the conversion work — which can be expensive because it is custom work instead of an assembly line. (Although dropping a large CNG tank in the bed of a pickup truck is comparatively inexpensive — but now the pickup truck has little remaining carrying capacity).

    If the CNG vehicle is a dedicated fuel vehicle, designed from the ground up (eg smaller high compression engine, gas tanks integrated into the frame) and built on a production line in large scale, then the costs would be similar to any other assembly-line built vehicle.

    "I wonder if CNG could be an alternative fuel for railway locomotives …"

    For really large energy demands like locomotives, ultra-cold Liquified Natural Gas (LNG) would be prefered to ambient-temperature CNG. As the stored energy volume goes up, we can get more energy per stored unit volume in a cryogenic LNG system than in a series of large heavy CNG tanks. Also, there would be more knowledgeable trained drivers with a locomotive — which makes cryogenic storage more feasible.

    All of this has been done. Some cities even experimented with LNG busses for a while. The technology is known.

  58. Diesiel coversions to cng are expensive since they have to add sparkplugs and so many other things.

    Hower CNG can be injected into the air intake with a regulator so that the deisel runs with a 50%CNG 50%diesel mix, quite easily and cheaply cutting deisel consumption in half. Another benifit is that if the driver cant find a CNG station he can just run on diesel.

  59. Kill ethanol today,and oil will be $150 a barrel tomorrow.
    BULL!

    Killing ethanol won't save a thing.
    Still, I think it's worth a shot…

    We had an overabundance of corn from previous ag policies. This led to a search for outlets for the corn, and we got high fructose corn syrup – and later ethanol.
    Not to mention that all that high fructose corn syrup helped create an explosion of Type II diabetes: your tax dollars at work…

  60. If you noticed your box of corn flakes went up $0.02 it wuz the ethanol. Ditto for that 2 liter Coke. Your hamburger went up about $0.01. I Never Denied it.
    Put those numbers back where you found them, Rufus. Then I'd suggest washing your hands.

    After extensively researching the issue, the World Bank concluded: Thus, the combination of higher energy prices and related increases in fertilizer prices and transport costs, and dollar weakness caused food prices to rise by about 35-40 percentage points from January 2002 until June 2008. These factors explain 25-30 percent of the total price increase, and most of the remaining 70-75 percent increase in food commodities prices was due to biofuels and the related consequences of low grain stocks, large land use shifts, speculative activity and export bans.

  61. In the 2 months I spend in Brazil/Argentina every single taxi i got into was a CNG eonversion. If the taxi companies of the countries can afford to convert to CNG, certainly we in America should be able to figure out how to do this economically. Can't we?

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