Market Access Can Save Us from $4 Gas

Wed, 10/05/2011 - 5:00am
Jim Lane, Editor & Publisher, Biofuels Digest

Why can't Americans get high-tech, low-cost fuels in an era of $4 gasoline? A new group called FuelChoiceNow has the reasons and some answers.

In Washington, a coalition called FuelChoiceNow has opened for business -- one worth taking a very, very close look at.

The pitch: that advanced fuel companies are developing new, affordable and commercial-ready alternatives to oil, but are inhibited by unnecessary vehicle and refueling constraints that choke demand and inhibit change in the marketplace.

The coalition points to ethanol and natural gas as evidence of a marketplace that does not reward price-competitiveness and innovation. Both domestically produced fuels are cheaper than gasoline, but have limited market access, the group observes.

"Americans are paying $4 per gallon for gasoline while we export cheaper fuels to other countries," said Brooke Coleman, executive director of the Advanced Ethanol Coalition and a Biofuels Digest columnist. Coleman notes that cars and trucks could be made to run on any blend of gasoline, ethanol or natural gas-derived methanol for less than $100 per vehicle.

Ah, note that. Gasoline, ethanol or natural gas-derived methanol. And that family of options can also include bio-based methanol, or natural gas-derived ethanol as well.

A Reshuffling of the Coalitions

A combination between the forces supporting biofuels and natural gas fuels may not be all that pleasing to those in the environmental wing of the biofuels movement -- owing to the emissions picture on natural gas. But it may be mighty pleasing to those in the movement who are most concerned about energy security or alternative fuels that cost less. Or, those who focus on the opportunities for jobs and economic development that flow from market access.

And, FuelChoiceNow sees the effort as encompassing a wide range of fuels, including biofuels, natural gas, electricity and others, while supporting the immediate deployment of technologies that are available and price-competitive now. Thereby, in its long-range view, the group has something to offer those whose primary concerns revolve around carbon and the replacement of an oil-based fleet with electric vehicles.

For now, the membership is heavily based around biofuels producers and an influential group of Silicon Valley venture capitalists. But the gambit -- to draw together a group comprising all the alternative fuel technologies and thereby renew the offensive against the oil platform -- comes after a period of three years in which a combination of oil, food and environmental interests have maintained a counteroffensive and substantially eroded much of the fan base of alternative fuels in Washington.

The Market Access Argument

At its core, the coalition will base its appeal on four arguments:

  1. That no single technology, in the near term, has the feedstock or manufacturing base to replace all 180 billion gallons of fossil fuels consumed for road transport in the United States, or even the substantial majority of those gallons that are imported. A portfolio of technologies, and vehicle efficiencies, will be needed to end the addiction on imported oil.
  2. That unleashing those technologies -- through market access and market choice -- will reduce costs for the American driver, create jobs for domestic fuel and vehicle makers, reduce the trade deficit and keep dollars inside the U.S. that can be used to further economic growth through domestic investment. [Note: One question that remains unanswered: How much will a substitute fuel ultimately impact the fuel price at the pump? Low-cost providers, generally, capture more margin, in addition to lowering consumer prices. Some economic work by the FuelChoiceNow coalition, along the lines of indentifying exactly what savings are available for consumers, would do much to substantiate this line of reasoning.]
  3. That unlocking those markets comes at the ridiculously low price of $100 per vehicle, for a flex-fuel conversion. That's the cost of two fill-ups, over the lifetime of the vehicle, based on the prices spotted yesterday at the pumps in the Digest's home city.
  4. That no matter what the U.S. does, the rising economic powers of the 21st Century are going in that direction. That is, China, India and Brazil. And an oil-only U.S. economy, saddled by high energy prices and the costs of defending access to imported oil, has no hope of competing in world trade against countries that have developed superior platforms for domestic energy production.

Where's King Coal?

One feedstock the coalition did not mention -- the dread coal. Technologies that convert natural gas to liquid fuel also generally have the capability to convert coal into liquid fuel.

With coal, the emissions are not pretty -- coal is about as far away today from a carbon-darling as you can imagine. So, there may be limits on the feedstock side to what the coalition is willing to tolerate -- but in the case of China, with its massive coal reserves and its free pass under Kyoto to produce energy without regard to emissions capping -- there's every reason to expect coal-to-liquid technologies to advance there, in the cause of low-cost energy.

Another technology platform we didn't see in the coalition? Compressed natural gas or liquid natural gas vehicles -- generally used by fleets, but yet another route to low-cost fuels.

Ultimately, there's a cleavage. Energy security and low cost? Natural gas and coal. Low emissions? Electric vehicles. And biofuels straddled between the two poles, with an argument for both.

A Technology Case in Point

All of which brings to mind Celanese Corp. -- a poster child if ever there was one for the dilemma.

Texas-based Celanese has created a new ethanol technology called TCX to create ethanol from local hydrocarbons, such as abundantly available natural gas. This ethanol is price advantaged, chemically identical to corn-derived ethanol and used for industrial applications (to create products such as paints, coatings, inks and pharmaceuticals) or as a fuel.

The background here? Celanese is the long-time leader in the manufacture of acetic acid, which is a two-carbon cousin to ethanol and is also the primary component of vinegar. About five years ago, the company developed a list of 26 chemically possible additional products it could produce using its basic intellectual property, and eventually whittled that down to industrial ethanol and fuel ethanol.

The path to methanol from natural gas has been around for a long time -- ethanol is something of a breakthrough in terms of the costs they can produce it at. Essentially, the Celanese breakthrough has been to develop a highly selective chemical reaction that produces lots of ethanol, and a lot less byproduct than other reactions developed elsewhere in the past. They produce ethanol from methanol and syn-gas, which suggests that they will generally be co-located with a gasification facility.

The model? Tolling on behalf of a refiner and marketer.

Parity with $60 Oil Today

At scale, Celanese can produce ethanol from natural gas at parity with $60 oil or around $1.50 to $1.75 per gallon -- substantially advantaged over corn ethanol while corn remains at $7 to $8 per bushel.

Subsequently, Celanese has started to look at countries that are hydrocarbon rich, but gasoline or crude poor, compared to its domestic demand. Unsurprisingly, we find the United States on the list, as well as Australia, China, India and Indonesia.

So, where is Celanese heading to commercialize this U.S.-developed technology? Why, China. As Celenese's Mark Oberle points out, "China has half the world's demand for industrial ethanol and is growing fast on the fuel side -- it's a country that will have the largest energy demand complexes." Why risk the dark waters of deploying highly advanced technology in China, given the technology piracy and international partnership perils, instead of the comfortable home waters of Texas?

"It's faster to work through the commercial discussions [elsewhere], than the U.S. policy discussion," said Oberle. "On the U.S. side, there's been a significant amount of interest in this economically viable, technology proven, ready now option. We continue to have discussions with folks across a broad spectrum of interests: those that have raw material, those in states that have high impact from corn for ethanol, those concerned about water supply. There, our technology can be a very legitimate part of an energy portfolio. But, outside the U.S., we have quickly moved from exploring the technology to substantive commercial discussion with multiple customers in multiple countries. In China, for example, not using a lot of arable land and water is important."

The scale and cost of Celanese technology? The company can build a 350 million gallon (1.1 million ton) facility for less than $600 million.

Made in the U.S., Heading for China

Initially, expect those investments and jobs to flow through China. Celanese is looking at building a 200,000-ton unit in the Nanjing area by 2013, and is continuing to negotiate to have 1 to 2 greenfield units in China by 2014. The U.S. will be home to a much smaller technology advancement facility in 2012, which will not have significant commercial volumes.

Let's bring this back from Celanese to the policy front. Fuel ethanol, from $1.50 to $1.75, produced at 100 to 350 million gallons per manufacturing plant, and constructed at a cap of $1.75 per gallon, based on technology out of Texas. It's certainly not a complete substitution for the oil platform or anywhere near it -- but why not part of the U.S. energy mix? There are two reasons:

  1. Carbon policy, as natural gas-derived ethanol will not qualify under the U.S. Renewable Fuel Standard.
  2. Market access. There's not much room under E10 blending caps for more ethanol in the U.S. Already, domestically produced ethanol fuel is being exported in record amounts, even while crude oil is being imported in huge volumes -- simply a function of the number of flex-fuel cars and pumps.

Market Access vs. Solyndra on the Numbers

So -- new technologies -- sidelined by limits to market access. Given the kinds of money tossed around, say, toward the Solyndra loan guarantee, the absence of action on flex-fuel vehicles is a scandal. At $100 per vehicle, 5 million new flex-fuel vehicles could have been constructed for the price of the failed Solyndra loan.

Using, say E30, they could have represented 1.0 billion gallons of added renewable fuel demand and generated $2.6 billion in domestic fuel demand annually. Over 10 years, that's $26 billion in money that stays at home, as opposed to money mailed to the you-know-whos in the you-know-wheres.

And how much economic activity is stimulated, overall, by $26 billion? Economic planners usually use multiples in the neighborhood of three to one. So, arguably, $78 billion over 10 years. Lot of jobs in there. Lot of money to fight the carbon problem.

No wonder the Chinese are embracing technologies like Celanese. They know that, in order to fight a war on carbon, first you need to fill your war chest. Not someone else's.

Copyright 2011; Biofuels Digest


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