How Much Alternative Fuel Is Available?

Friday, December 21, 2012

In Turning Oil Into Salt, a paradigm-shifting book by Gal Luft and Anne Korin, they write:

Making methanol from coal
One of the Department of Energy's clean coal demonstration program's most successful efforts is a commercial scale facility in Kingsport, Tennessee that generates methanol from coal at roughly 50 cents a gallon. Methanol contains about half the energy of gasoline per gallon so that's equivalent to about one dollar for a quantity of methanol that will take you as far as one gallon of gasoline.

Producing one million gallons of methanol requires about 5,000 short tons of coal. So 4 percent of current U.S. annual coal production, which in 2007 was 1,146 million short tons, would yield 10 billion gallons of methanol, which is about the same amount of fuel the corn ethanol industry contributes today to America's fuel supply.

There are many other ways to produce methanol. In Germany, Schwarze Pumpe produces 100,000 tons of methanol from sewage sludge and industrial wastes each year. In Sweden, methanol is made from black liquor, a sludge byproduct of paper pulping. Natural gas can also be a feedstock.
And it just so happens that America is rich in natural gas. Says a recent Washington Post article: "So much natural gas is being produced that soon there may be nowhere left to put the country’s swelling surplus."

The OFS bill includes methanol and ethanol, and the sources of ethanol are almost as vast as methanol, and with the advent of such an open market and with so much money to be made, new sources and ways of producing fuel would proliferate in abundance.

We can stop our economy's vulnerability to oil prices right now. We can bring down gas prices permanently. All we need to do is open up the fuel market to competition. If you want to help make this happen, start here.


Conversation With Eyal Aranoff, Curtis Martin, and Ann Norman

Monday, December 17, 2012

In an hour-long conversation on Curtis Martin's radio show, "Breaking Our Oil Addiction," he talks with one of the founders of the Fuel Freedom Foundation, Eyal Aranoff, and their Vice President of Communications, Ann Norman.

The music introduction lasts 40 seconds, but after that is a very interesting conversation about fuel competition in America. Check it out:

Blog Talk Radio: Breaking our Oil Addiction with the Fuel Freedom Foundation

The official description of this episode says, "Breaking our addiction to oil takes more than a single approach. Eyal Aranoff and Ann Norman, from the Fuel Freedom Foundation, discuss the regulatory barriers that exist and how they may be overcome."


Most Americans Want Fuel Choice

Sunday, December 16, 2012

75% of Americans support Open Fuel Standard Act.

In a poll commissioned by the Renewable Fuels Association (RFA) and conducted by American Viewpoint earlier this year, 75% percent of the adults polled said they supported requiring that auto manufacturers build cars that can run on fuel other than oil. This is, of course, what the Open Fuel Standard Act would require.

The question presented, and the responses were:

Do you favor or oppose requiring automobile manufacturers to build cars that will run on fuel sources other than oil, such as electricity, natural gas and bio-fuels?

Favor: 75%
Oppose: 20%
Don’t Know: 5%

Source: Bob Wyman and the Renweable Fuels Association.


Unexpected Help From the Software Industry

Friday, December 14, 2012

By William Tucker on

Eyal and Yael Aronoff
It felt like an opening night gala in Hollywood held on a spectacular bluff overlooking the Pacific. After assigning their Porches and Lamborghinis to the valet parking attendants, the guests were immediately whisked down a red carpet and into an outdoor lighting studio where they posed for souvenir photos. From there they could spend a few minutes browsing the electric-powered Fisker Karma, a Tesla S (Motor Trend’s 2013 “Car of the Year”) and a methanol-powered Pikes Peak International Hill Club racecar, all parked in the driveway. Then it was down a long, specially improvised tunnel that felt like it should be festooned with cave paintings. The illuminated passage opened onto a broad veranda featuring a view that seemed to stretch from San Diego to Santa Monica.

So began the launch party for the Fuel Freedom Foundation, held at the magnificent mountaintop villa of software entrepreneur Eyal Aronoff, co-founder of Quest Software, and his charming wife Yael (above) in Newport Coast, California, just south of Los Angeles. The tunnel was built just on the off-chance that it might rain. But then it never rains in Southern California, right? Well, this turned out to be one of the rare exceptions. Before Stray Cat Lee Rocker had finished his set on the specially assembled outdoor stage, it started to drizzle. No problem! The more than 50 youthful attendants were immediately handing out umbrellas. The drizzle soon became a steady downpour, however, and so the guests, who had come from as far away as New York and Oregon finally retreated inside, where things became even more convivial.

“It was a memorable evening,” said Aronoff, who completely revamped his villa for the occasion. “People say they are always going to remember it because it rained.”

That may not be the only takeaway. They may also remember it as the evening when America took its initial steps on the road to becoming free of foreign oil.

The Fuel Freedom Foundation is the brainchild of Aronoff and fellow software entrepreneur Yossie Hollander, who as a 12-year-old participated in a 1969 IBM test to see if pre-teens could program. (He could.) Now retired from stellar careers in the software industry, the duo has combined to put together an all-star cast of advisors and executives dedicated to the task of clearing away the regulatory underbrush and moving the country toward replacing the gasoline with a variety of domestically generated alternatives.

“Right now America is spending more than $300 billion a year on imported oil,” says Hollander, an ebullient conversationalist who previously founded the Our Energy Policy Foundation. “That‘s half our trade deficit. If we could substitute any of our abundant domestic fuels, we would not only free ourselves from insecure sources of energy but could halve our trade deficit as well.”

Fuel Freedom’s answer is to bust through regulatory roadblocks and free up the market for all manner of alternatives – ethanol, biodiesel, compressed natural gas, methanol from any number of sources and even electric cars. (That’s the reason for the Tesla.) Although Aronoff and Hollander are at pains to say they don’t discriminate between the alternatives, the one most people seem to feel holds the greatest promise is methanol manufactured from natural gas.

“Methanol is the largest business opportunity of this decade,” says Aronoff as he surveys the guests drifting from the hors d'oeuvres to the two-dozen varieties of pasta to the chicken-and-salmon barbecue. Not as gregarious as Hollander, he still has something of the computer geek about him. “We now produce 1.7 trillion cubic feet more natural gas than we did before we started fracking. That 1.7 TCF would sell today for $4 billion on the gas market. But if we transformed it into 17 billion gallons of methanol, it could replace 10 billion gallons of gasoline, worth more than $30 billion. That’s almost a tenfold increase in value. The economic opportunity here is enormous.”

“We have lots of energy sources in this country but what we need is liquid fuel for transport,” adds Hollander, after pausing to introduce Congresswoman Loretta Sanchez who is on hand to rub shoulders with her Orange County constituents. “Methanol easily substitutes for gasoline. The Indianapolis 500 racecars have run on methanol since the 1960s. It only has 60 percent of the fuel value of gasoline but you can easily compensate with a slightly larger tank. It could be delivered with the same infrastructure we have for gasoline.”

Methanol is corrosive and a few engine adjustments would be required. “It’s just a matter of substituting for rubber and aluminum in a few valves and hoses,” says Hollander. “Any mechanic can do it for $100-300 depending on the car. But the real solution would be to have the auto companies produce flex-fuel vehicles at the factory. The only reason they are reluctant now is because putting methanol in your tank is illegal. That’s what the Foundation wants to change.”

And there lies the rub. Through an odd quirk in the law, burning methanol in your engine is currently against EPA regulations. It’s not that there’s any great harm anticipated. It’s just that the EPA is required to write specs for anything you put in your gas tank. It has done the job for corn ethanol but has never gotten around to doing it for methanol. “It’s just a matter of urging them to write the regulations,” says Hollander. To give the EPA a little encouragement, Fuel Freedom is advocating for the Open Fuel Standard Act, now before Congress, which would cut through the regulatory thicket and require the auto companies to design cars that can run on all manner of fuels. The Foundation is hoping for passage sometime next year.

Try to do anything these days, of course, and somebody will tell you it’s already being done in China. Unfortunately, that holds true for methanol. “The largest methanol producer in the world right now is China,” says Aronoff as he and Yael guide their guests through another round of after-dinner treats in their marble-lined kitchen. “They have a million cars on the road already.”

California had 500 methanol cars in action in 2005 after a ten-year effort but Governor Arnold Schwarzenegger pulled the plug in favor of corn ethanol when methanol became too expensive. That was just before the fracking revolution. In 2000 the U.S. produced 10 million gallons of methanol from natural gas but soaring prices drove most of the industry abroad. Now those producers are coming back.

“Methanol has a worldwide market as an industrial feedstock,” says Hollander, after introducing Stephen Johnson, a former hedge fund manager who is trying to build a biofuels-from garbage facility in Illinois. “It’s a proven commodity. There’s no mystery about it. Methanol is produced today in commercial quantities for $1.20 a gallon. That’s the equivalent of $2-a-gallon gasoline. What we need to do is open up the market to competition.”

Fuel Freedom has assembled an all-star cast to help its case before the public and Congress. On board are R. James Woolsey, former head of the CIA; Gal Luft, an advisor at the Institute for the Analysis of Global Security; Peter Goldmark a former president of the Rockefeller Foundation and director at Environmental Defense; Dr. Jim Hamilton of UC San Diego, an expert on the impact of oil prices; and John Hofmeister, former CEO of Shell and founder of Citizens for Affordable Energy.

At a luncheon held before the evening gala the advisors painted a grim picture of the security risks America incurs in depending on foreign oil. Luft told the group the country’s naval defenses are stretched paper-thin trying to protect the Strait of Hormuz, the Horn of Africa and other sea lanes around the world. Hofmeister said domestic oil production will plateau but our natural gas resources can make us the Saudi Arabia of methanol. Dr. Hamilton argued that the 2008 financial meltdown, although fueled by an overleveraged housing market, was actually ignited by the oil price run-up of 2008 – another consequence of foreign dependence.

So what does Fuel Freedom plan to do next? The team has a four-point 2013 agenda:

1) Generate public support through media and communications, including a full-length documentary film illustrating the potential of alternative fuels.

2) Challenge the Environmental Protection Agency to remove commercial and regulatory barriers.

3) Develop a proposed Fuel Conversion Plan to present to the Obama Administration that would include pilot programs at the state and national level.

4) Build alliances with other environmental groups, energy security organizations, think tanks and NGOs.

By the end of the evening, the 400 guests had had their fill of food, drink and entertainment. Far from dampening spirits, the move inside had made the evening even more enjoyable. Nor were they unwilling to express their gratitude. Inspired by the impassioned presentations from Woolsey and Goldmark, plus a spirited video message from Virgin Airlines founder Sir Richard Branson, the illustrious gathering pledged more than $500,000 to begin America's move toward a future free from foreign oil.


The Limits of OPEC?

Thursday, December 13, 2012

In a video on the Wall Street Journal, Liam Denning explains the tightrope OPEC needs to walk to keep controlling oil prices without encouraging the development of any competitive fuels. Watch the five minute video here:

Oil Prices Potential Correction in 2013

Let's hope enough of us have had our fill of OPEC bleeding our economy of its wealth, so that regardless of what they do, we can let free market forces work to lower our fuel prices, rather than continue letting a virtual monopoly work to raise our fuel prices.


Electric Cars Are Not the Solution Right Now

Wednesday, December 12, 2012

Gal Luft (left) at the Conference
By Sharon Udasin in the Jerusalem Post:

While electrification of the motor vehicle market should be a long-term goal, the automobile industry should be focusing in the more immediate term on popularizing natural gas-based liquid fuel mix options, an energy security expert contended.

“I think we need to be a little more realistic and understand the pace of penetration of new technologies, how it really works,” said Dr. Gal Luft, executive director of the Washington- based Institute for the Analysis of Global Security (IAGS). “I think the Better Place example is very instructive to sort of level expectations with realities. We should be very careful about trying to predict how consumers are going to behave.”

Luft was speaking at a session called “Energy Security through Fuel Choice” on Wednesday morning, at the second of the three-day Eilat-Eilot Fifth International Renewable Energy Conference and Exhibition in Eilat.

Electrification, Luft stressed, will be vital to the long-term survival of the auto industry, but as the market has thus far reflected in the case of Better Place, the consumers are not yet prepared to adopt the technology across the board – as it is “not yet mature” and has “many uncertainties,” according to Luft. This is not to say, however, that customers should remain dependent on gasoline in the short term, he explained.

Running a car on a natural gas-based product would allow a driver to spend the equivalent of $20 per barrel of oil, in comparison with paying the approximately $100 per barrel of oil price available to them at the moment, according to Luft.

“We should have this progress toward electrification – it’s very important – and invest where we need to invest,” he said. “But we should not neglect the nearterm solutions that allow us to use a $20 a barrel equivalent of fuel today, tomorrow, next week.”

The best way to accomplish this near-term solution of readily allowing customers “fuel choice” and breaking the “virtual monopoly” on fuel is by rapidly introducing natural gas-based fuels in liquid form to the market, Luft explained.

Such fuels can enter a car in the exact same way as gasoline, and can include combinations of gasoline with methanol, GTL (Gas to Liquids) and other products.

“We are a liquid fuel society,” he said. “There is a near-term solution and there is a longterm solution. And we cannot sort of sit there and wait for the long-term solution.”

By sitting and waiting for the long-term solution to pan out without attempting the more immediate-term fixes, countries like Israel are putting them at geopolitical security risks, Luft stressed.

“For Israel, if we could advance some replacement for oil and mainly for transportation, I would sell it even for nothing – to free the rest of the world from the influence of the holders of that oil that may be here in the Middle East, and are up against us,” said Itzik Ben- Israel, director for the National Council for Research and Development.

Israel is completely dependent on oil to run its cars, the same oil from which its hostile Middle East neighbors derive their power, according to Ben-Israel.

These geopolitical concerns mentioned by Ben-Israel, however, are “happening right in front of our eyes while we are waiting for the utopian solutions of electrification,” Luft warned.

In order to push fuel choice forward, Israel should be following the example of the United States National Security Council, which is encouraging the legislation of an “open fuel standard,” Luft explained. This simple piece of legislation would say that an automobile dealer cannot sell a new car in the US if it is certified to run on gasoline only.

“We don’t tell the auto dealers what technology to choose, but they have to offer some sort of fuel option to the consumer,” Luft said.

The cheapest way for car manufacturers to comply to this would be to offer cars that are flex-fuel and can run on any combination of gasoline and methanol or ethanol – a measure that US House of Representatives and Senate members support in a bipartisan manner, according to Luft.

Electric vehicle legislation in the US has been problematic, as the government provides tax incentives of $7,500 when a customer purchases an electric vehicle – but only for the first 200,000 units per manufacturer.

A similar rule applies to cars sold in China and Europe, Luft said. In order to advance the electric car market, the price of the now very expensive batteries needs to come down dramatically in order to offset the need for subsidies, he explained.

“The clock is ticking very fast, which is why I think that from an economic standpoint, anything that does not require subsidy or tax incentive has a much better chance of winning the political game than things that rely on having subsidization,” Luft said.

An open fuel standard is therefore “the most important building block” and should become a global standard, according to Luft. This standardization, however, cannot start in Israel as “Israel alone cannot shape the global manufacturing in vehicles,” he said.

“It happened once in history, and that was Better Place, and I don’t think it panned out too well,” Luft continued. “I don’t think that any auto-maker will build a car for the Israeli market any time soon after the Better Place experience. We have to go through the two big markets – the Chinese market and the US market.”

If the US and China encourage methanol use, only then will this fuel be able to truly take off in Israel and elsewhere, he explained.

“I’m second to none in the support of electrification, but it’s important to understand the difficulties here.”


What An Open Fuel Standard Means

Friday, December 7, 2012

An open fuel standard would mean the end of the petroleum standard, which the world has been stuck with since the early twentieth century. It means the end of a one-fuel economy and the beginning of a free market for transportation fuel.

Many excellent fuels are available that cost less and burn cleaner than gasoline, but our cars were made in such a way that we cannot put these fuels in our cars. An open fuel standard would change this. With only a few small tweaks to the manufacture of a car, it would be capable of burning methanol, ethanol, butanol, and gasoline — in any combination or proportion. Each car would become a platform upon which fuels could compete.

The repercussions of real fuel competition would be enormous. When cars start rolling off assembly lines capable of burning multiple fuels, gasoline prices would have to come down to compete, new jobs would be created by companies scrambling to get a piece of the hundreds of billions of dollars Americans spend on fuel per year, less CO2 and other pollutants would spill into the air, landfills would have significantly less bulk, rural people in developing countries would raise their standards of living, women in oppressive OPEC nations would see the regimes holding them down begin to weaken, America's national security would improve without costing taxpayers any more money, and you, the consumer, would finally be able to have as much choice with your fuel as you do with your coffee.

Learn more on YouTube: What is the Open Fuel Standard?


Americans Want Choice At The Pump

Wednesday, December 5, 2012

A poll commissioned by the Renewable Fuels Association (RFA) and conducted by American Viewpoint, shows American voters have a strong desire for greater choice when pulling up to the pump. Cindy Zimmerman of writes:

Seventy-five percent of those polled said they would support requiring automakers to build cars to run on fuel sources other than oil. The RFA has been a strong and early champion of the Open Fuel Standard (OFS) that would accomplish this exact goal.

Perhaps this piece of news might be something we should send along to our Members of Congress. Get their contact information here, and spread the word!


Gas Prices, Housing and the Slow Economy

Saturday, November 24, 2012

By Marshall Kaplan from his article in the OC Register:

Several respected analysts theorize that increased commuting costs generated the collapse of housing markets in the latter part of the last decade and fueled (excuse the pun) the five-year-long economic malaise in the United States.

Steven Sexton and his colleagues at the University of California's Center for Energy and Environment Economics suggest that low energy prices during the housing boom, in combination with lax lending practices and new mortgage products, made suburban houses affordable to a new class of homeowners with low incomes, high leverage, low credit worthiness and long work commutes.

While cheap fuel prices lead to urban sprawl and the expansion of homeownership, dramatic increases in fuel prices disproportionately impacted suburban homeowners. High commuting costs decreased home values. Mortgages became unaffordable for some households and imprudent for others, leading to unavoidable and strategic defaults.

While predatory and subprime lending have been blamed for the housing crisis and certainly contributed to the problem, another economic factor has been almost entirely overlooked in the timing and the geography of the nation's housing market implosion. The rise in gas prices during the last decade dealt a major blow to consumer purchasing power and weighs most heavily on people who have to drive the farthest.

The analytical trifecta linking three real economic variables — increased costs of gas, the end of the housing bubble and the crisis in the national economy — should generate intellectual curiosity. Gas spikes have occurred at the same time as the recent decline in house values and the down economy. But before we accept the assumed relationships, more analysis is needed. The data suggests a correlation but not yet causation.

Clearly, there are more powerful variables than gasoline prices driving the slow economy, among them the collapse of subprime mortgages and related problems in mortgage-backed securities and the decline in purchasing power related to unemployment and underemployment.

While the price of gasoline may have affected housing values and certainly affects household budget decisions, the impact of both on household location decisions will require more knowledge. Clearly, analysts need to link different household and housing characteristics to urban employment patterns, including the suburbanization of employment. In this context, it's too early to conclude that continued high gas costs will lead to a revival of central cities and a corollary decline of the suburbs.

More likely, continued high gas costs will directly reduce the housing and job choices of the poor, near poor and moderate income groups. Over time, this will lead to increased market and geographic segmentation of housing and jobs. It sounds like America might be on its way back to the future. I hope not.

Orange County has a stake in the outcome of the gas-price, housing-value hypothesis. The county's current land use patterns suggest a suburbanization of upwardly mobile jobs and an urbanization of poverty. My informal interviews with a small number of low-income residents in Santa Ana suggest that the high costs of gasoline restricts job choices and requires a relative large percentage of income for fuel, restricting their choices of basic goods and services.

For many Americans, the choice between "gas, gas and gas" at most fueling stations has become part of our genetic structure, as well as an addiction. We have no real choices at the pump. Consumer costs are real. America's costs are real.

We don't have to wait on new studies to measure the negative impact of America's dependence on imported oil on the economy, the environment and security. We can do better. We must do better. Congress and the Obama Administration are weighing new open fuel standards and environmental regulatory reforms that would open up restricted transportation fuel markets to competition from alternative fuels such as natural gas, methanol and ethanol. Flex-fuel automobiles should become a common sight and flex-fuel choices should become standard at fuel stations.

Marshall Kaplan is an adviser to Fuel Freedom Foundation. You can email him at


Ethanol Saves Americans $29.13 on Average Thanksgiving Trip

Tuesday, November 20, 2012

We need to widen and expand fuel competition. Right now the thin edge of the wedge we're using to open the market is ethanol. On that subject, the Renewable Fuels Association has this to say about gasoline's first competitor:

Ethanol is helping reduce the cost of the Thanksgiving holiday for the average American family. More than 39 million Americans will take to the road for their Thanksgiving holiday, traveling an average distance of 588 miles, according to AAA. That means the average American family traveling by automobile this holiday will save $29.13 on gasoline purchases because of ethanol.*

In May, the Center for Agricultural and Rural Development released a study by economists at the University of Wisconsin and Iowa State University finding that in 2011, ethanol reduced wholesale gasoline prices by $1.09 per gallon nationally. Those savings have a very real impact on the average household budget. Ethanol reduced the average American household’s spending on gasoline by more than $1,200 last year, based on average gasoline consumption data. Since 2000, ethanol has helped save $39.8 billion annually in excess gasoline costs – roughly $340 per household per year.

“Thanks to ethanol, hardworking American families will get a break as they drive to spend the Thanksgiving holiday with loved ones.  The average American family will save $29.13 because ethanol helps lower the price of each and every gallon of gasoline. Ethanol and the Renewable Fuel Standard (RFS) are also helping to reduce this country’s dependence on foreign oil, thus creating a stronger country and a stronger economy. Ethanol is a product made by Americans for Americans and we are proud that on this most American of holidays that we can offer a solution to sky-high gas prices,” said Bob Dinneen, President and CEO of the Renewable Fuels Association.

Dinneen continued, “Now, you will hear some squawking from livestock and poultry producers who oppose the RFS and ethanol.  Don’t let their scare tactics ruin your holiday. The fact is turkey prices are lower this year than the last two years, according to the Bureau of Labor Statistics. The bottom line is ethanol production has nothing to do with the price of Thanksgiving dinner. Food costs are driven by energy costs. Only 14 percent of the food bill goes to raw agricultural ingredients like vegetable oils, dairy products, corn and other grains and commodities. Meanwhile, 86 percent of your grocery bill pays for energy, processing, packaging, marketing, labor and other costs. Don’t let Big Food fool you into believing anything different.”

To read more about Thanksgiving turkey prices and real driving forces behind food costs, click here for RFA’s white paper: “This Thanksgiving, Avoid Big Meat’s Baloney”.


• Turkey prices are lower this year than in 2011 and 2010. The U.S. city average price for turkey is $1.66/lb., down slightly from the previous two years, according to the Bureau of Labor Statistics.

• USDA projects 2012 turkey hen prices will be just 3.8 cents/lb. higher than 2011 prices, while 2013 prices could decrease by nearly 5 cents/lb.

• Turkey production is projected to hit a five-year high in 2012, followed by strong output again in 2013.

• Thanksgiving dinner for 10 people will be $0.80 lower this year in Virginia and $0.61 lower in North Carolina, according to the same Farm Bureau sources.

• The groups decry that “food prices have spiked nearly 18% since 2005,” the year the first RFS was passed by Congress. That’s an average of just 2.57% per year, which is right in line with the 20-year average for annual food inflation.

• Additionally, 2010 saw the lowest year-over-year food inflation in nearly 50 years. Meanwhile, the ethanol industry produced a record amount of fuel that year.

• If there was any truth to the myth that retail food prices have increased abnormally since 2005, it would be mostly because of surging energy prices. In fact, 86% of the average household’s food bill pays for energy, transportation, processing, packaging, marketing, and other supply chain costs. Just 14% pays for the raw agricultural ingredients in our groceries.

• Contrary to Big Food’s rhetoric, ethanol is helping reduce the cost of the Thanksgiving holiday for the average American family. Recent economic analysis from Louisiana State University, the University of Wisconsin and Iowa State University demonstrate that ethanol significantly reduces gasoline prices. According to AAA, 39.1 million Americans will travel by automobile an average distance of 588 miles this Thanksgiving holiday. That means the average American family traveling this holiday will save $29.13 on gasoline purchases because of ethanol.*


*Assumes average mileage of 22 miles per gallon and ethanol savings of $1.09/gallon (Du & Hayes, 2012)


Black Friday Versus Black Gold

Monday, November 19, 2012

By Gal Sitty, reprinted from Fuel Freedom.

You know how on Black Friday, the notorious shopping day after Thanksgiving, some people camp out in front of the stores that are offering amazing deals to burst inside as soon as the doors open, sometimes trampling fellow shoppers or store employees? Shoppers tend to become frantic because there is a very limited supply of the items they really want at a cheap price. The demand for these items can become very intense; there have been instances of violence, sometimes resulting in injuries and even a few reported deaths.

This may sound crazy, but our dependency on oil really isn’t much different than a Black Friday shopper’s need for discounted merchandise. Like Black Friday deals, there is a limited supply of cheap oil and a huge demand for the commodity. The excessive demand is mainly due to our dependence on oil for our transportation needs, and we need to transport things in order to have a functioning economy. In fact, this actually makes us more desperate than Black Friday shoppers who can (technically) continue to live normal lives without those notorious post-Thanksgiving steals.

Now think what would happen to the average Black Friday shopper in the absence of the highly anticipated deals. They would undoubtedly be forced to cut back on the quantity, or quality, of the holiday presents they planned to buy, spend more money on their shopping or cut their budget for other items, such as groceries. In the case of oil, the “Black Friday” days of $35 a barrel are long gone and, as a result, most of us are either spending less on oil, or, more realistically, cutting back on other expenses.

Worse still is that the increased price of oil has caused the price of other necessary goods to increase as well. From rising food costs to airline travel, the increased cost of oil affects us far beyond the pump. As oil prices continue to rise, our desperation to secure the disappearing supply of affordable oil will also increase. The only way to avoid the devastating consequences of our oil dependency is to embrace replacement fuels. After all, consumer choice is the cornerstone of a properly functioning, free and competitive market place.

. . . 

After successful experiences in finance at Morgan Stanley and an AIG company, Gal Sitty continued to graduate school where he became the first person to receive a joint Master's in Public Policy from the University of Chicago and Tel Aviv University. There he excelled in research, analytics and communication in public policy. He then combined his academic achievements with his professional experiences to design and carry out successful grassroots fundraising and advocacy campaigns for which he received Congressional recognition for Outstanding Humanitarian Advocacy.


This is a Game We Can Win

The following is an excerpt from the book, Energy Victory, by Robert Zubrin:

"As for converting trash, it doesn't matter whether the feedstock is composed of packaging materials, old rags, used candy wrappers, plastic forks, or Styrofoam coffee cups. The stuff is all just compounds of carbon, hydrogen, and oxygen, with a few impurities thrown in here and there, and all of it can be pyrolyzed and reacted with steam to produce sythesis gas, and then methanol...

"The chemistry needed to dethrone oil from its trump-suit status is well understood. We can readily convert our fuel strong suits into an alcohol supply bountiful enough to wash OPEC off the map.

"The only issue is that we need to have cars and trucks that can use it."


Petropoly: The Collapse of America's Energy Security Paradigm

Wednesday, November 14, 2012

We are happy to announce the publication of Anne Korin and Gal Luft's new book:

Petropoly: The Collapse of America's Energy Security Paradigm

In the book they address:

  • Why nine US presidents' preoccupation with self-sufficiency in oil has been counterproductive
  • How OPEC members manipulate oil prices to ensure sufficient flow of money into their coffers 
  • Why the Arab Spring will make us all pay more at the pump
  • Why are cars blocked to competitive fuels
  • How America’s natural gas can change the game
  • How Communist China is offering its people more fuel choice than capitalist America 
  • How can the free market, rather than pork and subsidies, solve our oil predicament 
  • Why auto makers resist fuel choice and why they shouldn't
  • Big Oil: part of the problem or part of the solution?

To order the book on Amazon visit


U.S. to Export Natural Gas Because Our Cars Aren't Warranted to Burn Methanol

Saturday, November 10, 2012

Cheniere Energy won approval from the U.S. government to build America's largest natural-gas export terminal. The United States is overflowing with natural gas and has the potential to become a major exporter.

Meanwhile we're all paying exorbitant prices to fuel our cars because the only fuel our cars can burn is made of petroleum, and oil prices are controlled by an illegal cartel hell-bent on bleeding the world of its wealth. Robert Zubrin proved that cars already on the road are capable of burning methanol. They just aren't warranted to do it.

What we need are cars that are warranted to burn fuels other than gasoline. What we need is fuel competition. What we need is to turn that natural gas into methanol and use this superior fuel for transportation right here at home.

What we need is the Open Fuel Standard.


Since the High Price of Oil Helps Us Conserve, OPEC is Actually Helping the World by Raising the Price of Oil, Right?

Wednesday, November 7, 2012

In the article, Achieving Energy Victory, Robert Zubrin writes:

According to [some], OPEC is a blessing because the world is allegedly running out of oil, and by raising the price, the wise men of the cartel are helping us all to conserve. 
click on image to see larger
Now it is true that raising the price of oil will tend to cut consumption, but not by much. Oil demand is very inelastic — it takes enormous price increases to effect any significant change in consumption. If we accept the demand curve hypothesized in Figure 1, we see that a cut in oil consumption from 85 to 70 million barrels per day (an 18 percent reduction) needs a near quadrupling of the oil price to be enforced. 
The real historical data...suggests that the situation is far worse — the quintupling of oil prices since 2001 was implemented by OPEC simply by cutting 5 million barrels — or 7 percent — out of the oil supply. During the same period, sales of cars with low gas mileage, such as SUVs, continued to grow without missing a beat. 
If we actually wanted to enforce global petroleum conservation through price increases, we would have to raise costs several hundred dollars per barrel. That would give the Saudis control of the world. 
Fortunately, however, the claim that the world is running out of oil has no foundation whatsoever. Such claims have been made repeatedly in the past, and all have proven false. For example, as Learsy notes in Over a Barrel, in 1874, the state geologist of Pennsylvania, then the world’s leading oil producer, estimated that the United States had only enough oil for another four years. In 1914, the Federal Bureau of Mines said we had only ten years of oil left. In 1940, the bureau revised its previous forecast and predicted that all our oil would be exhausted by 1954. In 1972, the prestigious Club of Rome, using an inscrutable but allegedly infallible M.I.T. computer oracle, handed down the ironclad prediction that the world’s oil would run out by 1990. The club said at that time that only 550 billion barrels were left to humanity. 
Since then we have used 600 billion barrels, and are now looking at proven reserves of a trillion more. There is little new about today’s fascination with “peak oil”; since 1972, there have been repeated predictions of imminent oil-supply exhaustion published every few years by various authorities, and not one has come true. 
In fact, if we look at the ratio of proven reserves to consumption rate, the world has a bigger oil supply today than it ever has at any time in the past. The argument that we are threatened with near-term oil exhaustion is simply untrue.

Robert Zubrin is the author of one of our recommended booksEnergy Victory.


Former NATO Commander Calls Americans to Action on Oil Dependence

Wednesday, October 31, 2012

General Wesley Clark (ret.), former NATO Supreme Allied Commander Europe, made an impassioned case for the Open Fuel Standard Act as a policy that will strengthen U.S. national security and stimulate economic growth. Included is a summary of his speech on Capitol Hill.  Please forward it widely to military friends and family.

When we’re dealing with energy policy, we’re dealing with the essence of national security policy in the 21st century. If we don’t get our energy policy right, all the strength of the United States Armed Forces won’t be enough to keep America safe and strong in the world. 
We’re looking at 42 years of tragic policy failure. Since the day when the United States became an oil importing country until this day in February 2012, we’ve spent trillions of dollars, paid thousands of lives, given up billions and billions of dollars every year in foreign deficits.  We’ve funded dictators and corruption and enemies of the United States.  We’ve turned over the hard-won income of Americans to those who don’t have our country’s best interests at heart.... 
We knew it would distort American foreign policy, we knew it would cause additional military expenditures, we knew we would eventually deploy troops and fight wars to protect foreign sources of energy.  But nobody writing in the early 1970s would have believed how far it’s gone over these 40 years.  They wouldn’t have believed Iraq and Afghanistan and improvised explosive devices and what’s happening now with Iran and the rise in the price of oil. 
Make no mistake about it — if we want to keep America strong we have to fix our energy policy. 
Why haven’t we fixed it? Because the very participants of this market place see it as a zero sum game. We can’t have that and have a strong America. 
That’s why I’m so proud to be with this bi-partisan effort. It cuts across parties, industries, states, interest groups and brings Americans together. This is our country’s future.   
This year we’re importing about 9 million barrels of oil a day.... It’s maybe $500 billion a year of lost income we’re exporting.... That’s our money. We have to take it back.... 
In the 21st century, it’s not enough to have a strong military. It’s not enough to have nuclear deterrence.  It’s not enough even to have the best special forces in the world.... We have to have a growing economy and to do that, we’ve got to take back control of our energy policy. We’ve got to work together. We’ve got to get this open fuel standard moving.... 
Ladies and gentlemen, it can’t be done without all of your help. This is a nationwide effort to mobilize American public opinion to take back control of America’s future. It starts with energy. If we fix this, our economy will grow. If we fix this, we’ll create jobs. If we fix this, we’ll have a secure future.  It’s up to us.


Help Inform People About the Open Fuel Standard

Saturday, October 27, 2012

In an article this week in Forbes entitled, Jobs In a Ripple-Out Economy Come From Oil, Gas, Coal, and Then the Cloud, someone made the following comment, and reminded me that this is a very good way to help reach and educate others about the Open Fuel Standard: Make comments on articles. Too few people even know about the Open Fuel Standard. We need to change that. Here was the comment:

Jobs can not and will not be created by keeping oil and electricity prices artificially high. For every job gained in the oil business or from “green jobs”, 3 are lost to the high cost of oil and/or electricity.

Conventional clean coal generation is essential for economic strength. The EPA needs to stop waging war on coal.

The OPEC cartel has engaged in taxation without representation for 40 years. This can be stopped by passing the Open Fuels Standard Act (OFS) which counter-mandates the limitation on our cars by limiting them to gasoline. The OFS requires cars sold in America to burn gasoline, ethanol and (most important) methanol in any mixture.

This OFS law brings our natural gas supplies on line as automotive fuel since that’s the easiest way to make methanol. The convenience of mixing three different fuels in one tank is unsurpassed by the “Pickens Plan” and the Chevy Volt and others. The cost of the technology is about $100/car; much less than the Volt or “Pickens Plan” which require two separate fuel systems.

With the OFS, no subsidies are necessary. Supply and demand rule the day. Consumers are free to choose the fuel that is most economical on any given day. Since fuel prices fluctuate, flex fuel cars are a natural response.

The OFS protects America from a cutoff of Persian Gulf oil. Should such a cutoff occur, the United States will have plenty of domestic feedstock to keep our automobile fleet rolling with two other fuels that can be made from a variety of feedstocks; not just oil.

Wanna see American jobs grow? Pass the Open Fuel Standard Act and get Americans making our own automotive fuels. The article above represents a drop in the bucket.


Three Statewide Reports Prove: Ethanol is an Economic Powerhouse

Monday, October 22, 2012

By Bob Dinneen

The Renewable Fuels Standard has laid the foundation for private investments in the domestic biofuels industry that are reaping a rich harvest of returns. That’s why with 209 plants in 29 states, the industry supports more than 400,000 jobs, contributes more than $24 billion to the economy, and provides $29.9 billion in household income.

This progress translates into success stories in a growing number of states and communities across the country. That’s the clear message of three recent studies of the industry’s economic benefits in the nation’s fifth largest ethanol producer, Minnesota, as well as two states where the industry is only beginning to grow, Ohio and Georgia.

In a study released in October, the Minnesota Department of Agriculture reports that the ethanol industry supported more than 12,600 jobs and generated more than $5 billion in economic activity during 2011.

With 21 plants – 10 of which are farmer-owned – and 11,000 farmers supplying feedstocks, the ethanol industry offers an economic lifeline to Minnesota’s farmers and rural communities. By processing corn into feed and fuel rather than simply selling corn as a raw commodity, the state’s ethanol industry added $912 million to the value of corn last year alone. Moreover, the report continues, “Minnesota’s ethanol industry has a ‘multiplier effect’ that benefits many economic sectors across the state, including agriculture, manufacturing, transportation, services, construction, and trade.”

Assessing the biofuels industries in Ohio and Georgia, two other studies found similar current and potential economic benefits. In its study, the Ohio State University Extension Community Development concludes that ethanol production has brought economic and employment benefits to the Buckeye State.

With Ohio’s ethanol industry continuing to grow, new construction and additional upgrades of Ohio’s six ethanol plants have attracted $825 million in capital investment. Just operating these plants supports 273 fulltime jobs, with an annual payroll of $9.36 million. When the total impact of plant construction – as the economists put it, “direct, indirect, and induced” – is taken into account, the industry contributes $1.1 billion in economic activity in Ohio, supporting 12,975 jobs and generating $607 million in income.

Meanwhile, in Georgia, a recent study by the University of Georgia’s Selig Center for Economic Growth, takes a new look at biofuels as part of the state’s fast-growing “life sciences industry,” also including agriculture, pharmaceuticals, biotech and bioenergy. Jobs in this industry increased by 1.5 percent from 2007-2010 in Georgia, while statewide employment dropped by 7.9 percent during the same period. Wages paid by companies in this sector also increased at a faster rate (4.4 percent) than those for other companies within the state (4.2 percent).

While ethanol production has yet to reach its full potential in the state, the report identifies eight biofuel companies active within Georgia, with six having been in business for 10 years or less. Currently, ethanol production accounts for 206 jobs within Georgia, while the industry’s total generates $105.32 million in economic activity directly and indirectly supporting a total of 1,026 jobs.

From Minnesota to Ohio and Georgia, American ethanol is driving forward to a promising future. Don’t let the biofuelsbashers put speed bumps in the way of growth and progress.


How to Strip Oil of Its Strategic Status Permanently

Sunday, October 21, 2012

The following was written by Robert Zubrin and published in National Review Online here.

Tripling America's Fuel Production
Most alternatives to oil are pipe dreams. This one is not.

The United States currently produces 8 percent of the world’s liquid fuel but uses 25 percent, making up the difference by importing 5 billion barrels of oil annually. With prices currently near $100 per barrel, this dependency will cost us $500 billion this year, an amount equal to the nation’s entire trade deficit. Furthermore, at a time when Congress is seeking to keep taxes light in order to boost job creation, our dependency will impose a tax on our economy equal to 20 percent of what Americans pay the IRS. Except, of course, that these revenues will go to the treasuries of foreign governments instead of our own.

During the 1940s, the United States produced 60 percent of the world’s liquid fuel. This advantage proved to be a major factor in securing the Allied victory in World War II. Had we been as weak in energy security then as we are today, we might well have lost the war, as enemy submarines could have collapsed our economy, and with it our war effort, simply by cutting off our oil supply.

If we are to break free of the crushing economic burden and national-security threat that oil dependency imposes, we need to triple our liquid-fuel production. There is no realistic way that this can be done through expanding domestic drilling for oil, multiplying the yield of corn ethanol (which now accounts for 20 percent of domestic liquid-fuel production), or a combination of the two. Rather, we need a new source of liquid fuel, one that can be produced easily and economically, from resources available to us, and on the vast scale required to address the deficiency.

Fortunately, such a fuel is available. It is methanol, also known as wood alcohol. In contrast to algae oils and cellulosic ethanol, methanol is not a futuristic pipe dream touted by researchers seeking funding. Rather, it is one of the world’s top five chemical commodities, with an operating global annual production capacity of 27 billion gallons, and a current spot price, without any subsidies, of $1.28 per gallon. While methanol contains only about half the energy per gallon of gasoline, its excellent octane rating of 105 allows it to be burned more efficiently, making $1.28-per-gallon methanol equivalent to $2-per-gallon gasoline. All in all, a very competitive price.

The resources available to support expanded methanol production are vast. In contrast to gasoline — which can be made economically only from petroleum — or ethanol — whose mass production requires the use of sugars or starches — methanol can readily be made from any carbon-containing material. To list a few of methanol’s potential sources: oil, natural gas, coal, urban garbage, or any kind of biomass without exception.

The United States possesses around 4 billion metric tons (29.5 billion barrels) of proven oil reserves. This would barely be enough to support a fully fuel-independent America for four years. In contrast, our proven coal reserves exceed 270 billion tons, and our natural-gas reserves may be nearly as great. North America currently produces about 40 billion metric tons per year of biomass, of which 2 billion tons are harvested as farm and forestry products and 1 billion tons discarded as agricultural and forestry waste. We also discard approximately a quarter-billion tons per year of carbonaceous urban trash. Thus, taken together, our resources for methanol production not only are up to fully replacing our current oil imports, but are up to supporting the growing demands of an expanding economy for decades or centuries to come.

Methanol burns cleaner than gasoline, causing much less particulate pollution. It is also safer — it is much less likely to catch fire in the event of a crash, and its fumes contain none of gasoline’s rich mixture of carcinogens. While, unlike ethanol, methanol is not edible, it is not especially toxic. In fact, windshield-wiper fluid is one-third methanol, and, because it is readily biodegradable, it has been handled by the public and released onto roads worldwide in vast quantities for decades without any impact on public health or the environment.

If we could convert our auto fleet to run on methanol, the $500 billion per year we are now paying foreign potentates for oil could go instead to American businesses and workers to produce our fuel right here at home. On average, it takes $100,000 of GDP to create one job. At that rate, the $500 billion spent here instead of abroad would create 5 million American jobs directly, and millions more indirectly from the construction, retail, and service industries that would be supported by the methanol workers’ paychecks. This would help address our critical national and state deficits as well, as millions of people would go from the unemployment rolls to the tax rolls.

But can we readily open our vehicle-fuel market to methanol? The simple answer is yes, and quickly. The large majority of cars sold in the U.S. today (and for at least the last five years), including all GM and Ford vehicles, have been equipped with computers and chromated fuel lines that make them potentially capable of flex-fuel operation. If provided with the right software, and with methanol-impervious Buna-N rubber seals (costing less than 50 cents per vehicle) for their fuel system, every new car sold in the U.S. could be fully flex-fuel, capable of running equally well on methanol, ethanol, or gasoline.

There is currently a bill before Congress — the Open Fuel Standard bill (HR-1687), co-sponsored by a bipartisan group including Reps. John Shimkus (R., Ill.) and Eliot Engel (D., N.Y.) — that would require flex-fuel capability of the majority of new cars sold in America. If the bill passes, a market for methanol would be created that would very quickly call into being expanded production and distribution facilities, both in the U.S. and elsewhere. This would force gasoline into competition with methanol at the pump worldwide, thereby putting in place a permanent global competitive constraint on the price of oil. Thus owners of older cars, which are incapable of methanol operation, would also benefit, since their gasoline would be cheaper. And once methanol pumps become widely available, many drivers would see the benefit of spending a few hundred dollars to have their seals replaced and cars reprogrammed to obtain fuel choice. The switch to a predominantly methanol-fueled vehicle fleet could thus take place very rapidly.

The Open Fuel Standard bill would unchain the Invisible Hand, creating a true free market in vehicle fuels. Those reluctant to embrace it need to answer the following question: In whose interest is it that Americans should continue to be denied fuel choice?

We can break our fatal dependence on foreign oil, but Congress needs to act.

— Robert Zubrin is the president of Pioneer Astronautics, a fellow with the Center for Security Policy, and the author of Energy Victory: Winning the War on Terror by Breaking Free of Oil.


OPEC wants 'economic terrorism' complaint dropped

Thursday, October 18, 2012

By Bob Unruh
October 15, 2012

Filled up your car with gasoline lately? Bet you’re glad you don’t live in California, where Forbes reported today the average price is $4.66 a gallon.

But you’re also probably not happy with OPEC, the Organization of Petroleum Exporting Countries, and Larry Klayman, founder of Freedom Watch USA, is on your side.

He filed a lawsuit against OPEC, accusing the organization of “economic terrorism,” and he just recently filed an argument against OPEC’s demand that the lawsuit be thrown out.

Klayman’s claim of conspiracy against American consumers by OPEC is contained in the lawsuit he filed in federal court in Washington. Freedom Watch USA, a public interest organization, charges that the Organization of Petroleum Exporting Countries engages in illegal price fixing and market division by artificially inflating crude prices.

Klayman said the member nations “specifically and intentionally limit barrels of oil that each country produces,” causing the price to rise.

His latest filing explains that OPEC’s “restraint of trade, which directly extends to American soil and has been perpetrated in a blatant violation of U.S. antitrust laws, must finally be ordered to cease and desist.”

OPEC has argued a technicality, claiming that it wasn’t served properly with the notice of the lawsuit.

However, Klayman personally traveled to Austria to ascertain that officials at OPEC were served, and he said the procedure followed all ordinary rules and requirements.

“Defendant now claims that service of process was not proper in an effort to escape liability. Yet defendants cannot be allowed to immunize themselves from U.S. antitrust law. If defendant chooses to play ball in our court, it must play by our rules. Foreign law cannot – and does not – trump U.S. law,” Klayman said.

He said he delivered to Frederick Luger, intake officer for OPEC in Vienna, a copy of the summons and complaint.

“Defendants concede that a summons and complaint were received by hand at OPEC’s headquarters, but mistakenly believe it was by Larry Klayman, counsel for plaintiff. … Defendants were served by someone who is not a party to this action,” Klayman explained to the court.

That OPEC got timely notification was documented, because some two weeks later, it asked for another two months to respond to a motion, he said.

“This court must … look to nothing but the facts of the case to determine whether OPEC is in violation of U.S. antitrust laws as plaintiff alleges. In order to do so, this case must respectfully be heard on its merits.

“Here, OPEC has been conspiring with its member companies and the distributors and sellers of gasoline within the United States in order to fix the price of gasoline, as well as divide markets, within the United States. Defendant sells crude oil and conspires with distributors and retailers within the United States in order to artificially inflate the price of oil and gasoline by limiting production, hampering distribution, fixing prices, and dividing markets,” Klayman wrote.

Klayman alleged in the original complaint that member nations of OPEC “specifically and intentionally limit barrels of oil that each country produces,” causing the price to rise.

“This amounts to illegal price fixing,” he said, as well as antitrust law violations.

“These artificially inflated crude oil prices fall hard on the backs of Americans, many of whom cannot afford to buy gasoline during these severely depressed economic times,” said Klayman, a former Justice Department lawyer.

As a government attorney in the Antitrust Division, Klayman participated in breaking up AT&T. Now he and Freedom Watch have launched a campaign against the 12 nations that work together on oil prices and production.

Klayman alleges leaders of both major U.S. political parties “line their pockets from big oil interests and are just sitting back and not doing anything.”

He also noted the federal government is not allowing the U.S. to increase its own oil production, and Barack Obama’s policies have discouraged oil discovery and drilling.

“This has led to more speculation on oil prices, causing them to rise. And the president’s policies regarding Iran also have contributed to the spike,” he said.

The complaint argues that without OPEC’s anti-competitive agreement, more oil would be in production, and the result would be lower prices.

“Even when OPEC members produce to the full extent of their capacity, they produce far less oil than they would were they operating in a competitive market, because they artificially restrict their production capacity as part of their price-fixing scheme,” the complaint alleges.

“The … nature of OPEC’s price-fixing conduct is further confirmed by its course of dealing with non-members. OPEC has met with these non-members and has secured their agreement to limit production and has thereby increased the price of gasoline and other petroleum products over competitive levels,” the complaint says.

Klayman previously brought legal action against Venezuelan President Hugo Chavez and Iranian President Mahmoud Ahmadinejad on behalf of torture victims, advancing the case against Iran to the point of obtaining a default judgment.

Klayman also won a nearly $2 million unpaid judgment against Cuban interests in 1996 over the shooting down of an airplane.

The new claim against OPEC alleges that “as a form of economic terrorism,” OPEC’s actions “are designed to severely harm the economics or strategic interests of the United States and Western Europe in particular.”

“The illegal conduct of the defendant, and its constituent members and co-conspirators, is thus intended at this time to also influence the American presidential and congressional elections of 2012 by destabilizing the economy to further their pro Islamic and communist agendas,” the complaint says.

For an interview with Mr. Klayman, contact 310 595 5317 or email See also


Will the Price of Gas Ever Return to "Normal?"

Saturday, October 13, 2012

The following was written by Gal Luft:

Clearly, OPEC could produce more oil if it wanted to. But it won't.

The reason is that OPEC countries produce almost nothing but oil. Their population is growing by leaps and bounds, and because Saudis pay no income tax, the House of Saud will need more and more money to keep its citizens happy, and avoid the fate of toppled leaders in Libya, Egypt and elsewhere.

Since the beginning of the Arab Spring, Saudi King Abdullah almost doubled his Kingdom's budget, committing billions in subsidies, pensions and pay raises in an effort to keep his subjects from storming the palaces.

This expensive response effectively raised the price of oil needed for the Saudis to balance their budget from under $70 a barrel before 2011 to at least $110 a barrel by 2015.

Like it or not, the bill for keeping the Persian Gulf monarchies in power is now being footed by every American. Every time we fuel our car we send an extra 35 cents per gallon, or roughly $6 per fill up, to the Save the King Foundation. Since oil goes into everything we buy from food to plastics, this adds about $1,500 annually to the expenditures of the average American family.

Paradoxically, we are forced to fund social programs for other nations at the very same time we are engaged in a heated debate about cutting social services and entitlement programs at home.

Read more:
How Saudi Arabia controls the world price of oil
What you can do about it


Energy Self-Sufficiency: A Realistic Goal or a Pipe Dream?

Friday, October 12, 2012

Western publics seem to believe that energy self-sufficiency is an ideal response to those who attempt to wield the ‘energy weapon’. As Gal Luft argues, however, no state will be able to achieve full energy independence, let alone avoid future spikes in prices, in an economically globalized world.

By Gal Luft for the International Relations and Security Network:

The desire for self-sufficiency has always been a common trait of human society. After all, no one likes to be dependent upon others, especially for vital commodities and services. From a geopolitical perspective, this sentiment is arguably at its strongest when it comes to energy. The Arab Oil Embargo, Russia’s gas supply cutoffs to Europe and Venezuela’s and Iran’s threats to use the ‘oil weapon’ have all reinforced importing nations’ urge for energy self-sufficiency. No country is more preoccupied with this than the United States, where for the past four decades achieving energy self-sufficiency has been the mainstay of Washington’s energy policy. The only difference between Republicans and Democrats is that the former emphasize supply side solutions (‘Drill Baby Drill’) whereas the latter call for an ‘oil diet’ that uses less oil through taxation or increased fuel economy standards. The result is that the overwhelming majority of Americans believe that energy self-sufficiency will improve national security, alleviate the debt and budget crisis and yield lower and more stable gasoline prices. This worldview is based on myths and poor understanding of how the modern global energy market actually works. True energy security requires both uninterrupted energy supply and affordable prices. In today’s globalized world, energy self-sufficiency guarantees neither.

Is self-sufficiency really possible?

A nation’s energy basket is usually comprised of several commodities. Coal, natural gas, biomass and uranium are responsible for most nations’ electricity generation while petroleum and its products dominate the transportation sector. Some countries can reach self-sufficiency in one of the two sectors. For example, the United States’ electricity sector is practically self-sufficient. Other countries are not far behind when it comes to electric power: nuclear power generates 78% of France’s electricity, and renewables are responsible for 82% of Brazil’s power. But of the world’s 195 countries, very few are truly self-sufficient. Even energy-rich countries like Russia, Saudi Arabia, Venezuela, Brazil and Canada which are well endowed in hydrocarbons import some of their energy in the form of refined petroleum products due to insufficient refining capacity.

With some effort and investment in new refineries, this dependency can be eliminated, but most countries are not that fortunate. Of the world’s top ten economies, only two, Brazil and Canada, can theoretically reach self-reliance. The rest – China, Japan and Germany to name a few – are poor in resources in relation to their needs and their dependency on energy imports is growing by leaps and bounds. This means that as long as hydrocarbons dominate both our electricity and transportation systems, most nations will never be able to achieve self-sufficiency and will continue to rely on the global energy trading system.

Neither reliable nor affordable

While the pursuit of energy self-sufficiency lends itself to tactical solutions - such as increased domestic production or fuel economy mandates - that may have a positive effect on a nation’s trade balance and the environment, it would not have a profound impact upon the global price of crude and geopolitics. The reason is that oil is a fungible commodity whose price is being determined in the world market on a minute-by-minute basis. A price of a barrel of oil is more or less equal to every consumer, and when the price spikes, it does so for everyone regardless of where their supply comes from. (This is not always the case for natural gas: unless it is traded in the form of LNG, its price is pre-determined in long-term contracts)

In 2008, for example, the United Kingdom was virtually self-sufficient in oil. Yet, in keeping with other import-dependent economies, British motorists were affected by a sharp rise in crude prices that led to protests over the rising cost of petrol. Over the past decade, both US oil production and vehicle fleet fuel efficiency have increased sharply. Consequently, US oil imports have decreased from 60% in 2005 to 42% in 2012. Yet, despite the fact the US is the world’s top oil consumer, none of this had any noticeable impact on the price of crude. On the contrary, the burden of imported oil on the US economy has roughly doubled and the share of oil imports in the overall trade deficit grew from 32 percent in 2005 to 58 percent in 2011.

Both case studies suggest that the move towards greater self-sufficiency does not necessarily lead to cheaper energy prices. All countries, irrespective of whether they are importers or producers, are part of the global energy market. This also casts doubt over the popular assertion that energy self-sufficiency could, in turn, weaken oil-exporting Middle Eastern states that are hostile to the West. OPEC member-states – who control nearly 80 percent of global conventional reserves -- need a certain breakeven oil price in order to keep their economies afloat. Any increase in non-OPEC oil supply or reduction in demand invites a reciprocal cut in production by OPEC aimed at restoring the price to the level OPEC governments would like it to be.

Equally tenuous is the argument that oil exporters can punish or target their clients with effective embargos for geopolitical reasons. Suppose that for some reason, Saudi Arabia decided to cut its oil exports – currently at 1.3 million barrels a day – to the United States. The effect on the US economy would not be more noticeable than the effect on any other economy. The US government has approximately 700 million barrels in its Strategic Petroleum Reserve (SPR), enough to cover for 18 months of lost Saudi supply. But even without tapping the SPR, the US economy would do just fine. Being dependent on oil for 90 percent of its export revenues, Saudi Arabia would have to sell the oil to someone else, say China. Beijing would possibly forgo some of the oil it brings in from Angola, for example, that may eventually find its way to the US market. On the whole (albeit not without some logistical adaptations) market forces would quickly adjust the supply-demand balance in such a way that all importers receive more or less the amount of crude they need. As long as the commodity is fungible no exporter can target a specific importer for more than a few weeks.

A new paradigm is needed

While achieving energy self-sufficiency remains unrealistic, this does not mean that states should sit idly by in the face of the global economy's vulnerability to oil price spikes. High oil prices wreak havoc in the ailing global economy, and the potential for conflict over access to oil seems to be growing as Asia’s thirst for crude grows. But instead of rooting for energy self-sufficiency, the goal should be to diminish the strategic importance of oil. In the book Turning Oil into Salt: Energy Independence through Fuel Choice (2009), the argument is made that oil today has the same strategic importance that salt held for most of human history. As the sole means of food preservation, salt once determined the course of world affairs. Wars were even fought over it. Competing means of food preservation such as canning and refrigeration stripped salt of its strategic status, turning it into “just another commodity” that no longer has geopolitical leverage. Similarly, the strategic importance of oil does not stem from the amount of it we use or import but from its virtual monopoly over transportation fuel. For the most part, automobiles sold throughout the world can run on nothing but petroleum fuels and thus energy commodities from which competitive fuels can be made are effectively barred from competing against oil. Because of this oil is not substitutable, so consumers cannot shift on the fly to competing products when oil prices become too high.

To achieve true and lasting energy security we must replace self-sufficiency with a competitive fuel market paradigm. This can only be done by opening vehicles to fuel competition. Just as the grid is agnostic as to what type of energy was used to generate the electricity it transmits, our cars and trucks as well as our fuel distribution system should be open to a diversified fuel mix. A variety of liquid fuels like ethanol, methanol and butanol can be made from natural gas, coal, biomass and municipal waste. Some, like methanol, are significantly cheaper than gasoline on an energy equivalent basis. Such fuels, in addition to gasoline, can power flexible fuel vehicles (FFV), which cost manufacturers an extra $100 or less to make compared to gasoline-only cars. Electricity can be stored on board automotive batteries and power pure electric vehicles and plug-in hybrid electric vehicles. Natural gas can be used onboard dedicated vehicles (and of course converted into methanol for use on FFVs). Each of those competitors has pros and cons. Some involve a higher premium on the vehicle side, others require costly infrastructure, and some are not cost-competitive except when oil prices are high. However, the uncertainty over future oil prices requires that the transportation sector opens up to these options as a shield against the economic and security challenges posed by a volatile oil market. This, not elusive self-sufficiency, should be our course.

Gal Luft is co-director of the Institute for the Analysis of Global Security (IAGS) and senior adviser to the United States Energy Security Council. He is and co-author of the books Energy Security Challenges for the 21st Century (2009), Turning Oil into Salt (2009), and Petropoly: the Collapse of America's Energy Security Paradigm (forthcoming 2012).


Why You Should Support the Open Fuel Standard Even if You Are Against Mandates in Principle

Thursday, October 11, 2012

The Open Fuel Standard says that if you're going to sell a car that can burn gasoline, then it must be capable of burning methanol and ethanol as well. Cars will no longer be limited to burning gasoline only. It's not a big change to the car. GM says it adds about $70 to the production cost of a car (and they ought to know because they've made more flex fuel cars than any other American car company).

But this is a mandate. And for some people, that's a deal breaker. If it is for you, below is a list of reasons to reconsider. None of them are good enough to justify changing your mind on something as important as the mandate principle. But all of them together are more than enough to justify making an exception for the Open Fuel Standard. Here they are:

1. The United States is in a Catch-22. Automakers don't want to make cars for which there are no fuel stations. And fuel stations don't want to add pumps for a fuel cars can't use. The Open Fuel Standard gets around this impasse, and makes it happen quickly. As soon as the bill passes, the whole industry will be confident there will be a growing market for alternative fuels, and infrastructure will begin appearing within three years. When these new fuel stations appear, and people can see that there is fuel available for their car that is cheaper or that puts that money into the pockets of American workers, they will start converting their cars to flex fuel by the millions.

2. Our government has a legal responsibility to break up monopolies that harm its citizens. Certainly OPEC qualifies as such. We should sue them because what they're doing is illegal — a monopoly that harms the public good is against the law. If OPEC was an organization inside the United States, our government could and would break up that monopoly. But they are an organization outside our borders, so we can't. Even if we could, I don't know if we would because we need their oil.

And why do we need it so badly? Because 97 percent of all transportation relies on oil. So our entire economy rests on oil. We can't risk disrupting our fuel supply (OPEC would certainly retaliate with another oil embargo; their first one in 1973 devastated our economy).

However, our government could break up this monopoly in another way — with the Open Fuel Standard. Right now most of us, when we want to drive, have only one choice: gasoline. It's an artificially-induced monopoly. And the only reason we have no choice is that our cars can only burn one fuel.

3. Automakers are slowly shifting over to flex fuel vehicles already, and we should just let the market move at its own pace, but we are under a time pressure. Astonishing amounts of Saudi oil money is being used against America as Saudis buy up corporations, spend lavishly to gain influence in our media, universities, and government, and build mosques that insist upon Wahhabi Islam, an extremist, fundamentalist Islamic ideology. Because of Saudi billions, 90 percent of all Islamic institutions in the world are controlled by Saudis. It is not in America's best interest to allow this to continue as automakers take their time.

4. Taxpayers bailed out the car companies when they were in trouble. They owe us. And this is a very small thing for them to do. In fact, Ford and GM already make plenty of flex fuel cars which they sell to China and Brazil.

5. Brazil had a flex fuel mandate awhile ago and it has been good for their economy and made them significantly less vulnerable to the recessions caused by OPEC's destructive manipulaton of oil prices. And Brazil went from an oil importing country to an oil exporting country.

6. The purpose of preventing the government from interfering with business is so the free market can decide. But the free market is not deciding, because OPEC is functioning as a monopoly in two different ways: First, it is a large enough cartel that it can force (or mandate) the worldwide price of oil. It can make the whole world pay whatever price per barrel of oil it wishes. And second, at the pump there are no options. The reason there are no options (except oil) is because our cars cannot burn anything but gas.

So this Open Fuel Standard "mandate" is actually a counter-mandate. It introduces freedom by law where there is at present no freedom (if you want to drive, you have to use oil in most places and for most cars, and when you buy gas, you have to pay what OPEC decides).

What OPEC does is illegal and their monopoly should be broken up. This counter-mandate is the next best thing, and it won't cost taxpayers a dime.

7. Automakers are receiving subsidies already. Automakers get money from the government if they sell a fuel-efficient car, but not if they sell a flex-fuel vehicle. Without meaning to, we have set things up in a way that keeps us limited to gas-only fuel stations.

8. This bill would not take away anything you now have, and it will give us all something we now don't have. If you want to continue to use only gasoline in your car, you will be free to do so, and the higher-quality fuel lines and fuel sensors automakers install will not interfere with the normal operation of any cars, even if they burn only gasoline.

9. The next time OPEC decides to cut its production to raise global oil prices, as it did in 2007 (and as it has done many times) we will be ready and capable of responding in a way that will prevent a recession. We will have infrastructure in place and American industries ready to ramp up to meet the demand.

10. The principle that government should not interfere with the free market is important and valuable, but not absolute. Child labor is a good example. Government intervened because companies were taking advantage of children, exploiting them, to the detriment of the children's health.

And women's rights. There was a time when sexism ruled and when a woman walked into a drafting firm, for example, they didn't even look at her resume because, "We don't hire women." Government intervened, mandating that businesses are not allowed to discriminate against women. This was a good thing.

What about smog regulation? Los Angeles used to have terrible smog. Several times a year, the news would announce a "smog day" and everyone was warned to stay indoors because the air quality was so unhealthy. Government intervened and the air is much cleaner now. They don't have smog days any more.

The principle of being against mandates is important to maintain because it is a tendency of well-meaning (or not) elected officials to add more and more laws that limit freedom, but it is also true that some values are more important, or that exceptions should be made. I would say, for example, "You should never drive 100 miles per hour on a public road. It's dangerous." But if I'm in an ambulance, bleeding profusely, I would tell the driver to make an exception to my firm principle — to turn on the siren and step on it.

The U.S. economy is bleeding out its wealth. Should we stick by the principle no matter what? Or should we recognize where it should be overridden by an even more important principle: Self-preservation.

11. Anne Korin is a staunch defender of the free market. But she sees that an exception should be made in this specific case. In her testimony before the House Committee on Foreign Affairs, she said: "In a perfect world government would not need to intervene in the energy market, but...the United States is taking an unacceptable risk by leaving the problem to be solved by the invisible hand. This is especially true since the energy market is anything but free. It is manipulated by a cartel, heavily rigged in favor of the status quo, and, as the case of the ethanol tariff shows, riddled with protectionism.

"Every year that passes without Congressional action to ensure that new cars sold in America are flex fuel vehicles is another year in which 17 million gasoline-only cars start their 17-year life on U.S. roads, further binding us to foreign oil. On the grounds of national security and in the interest of stemming the hemorrhaging of our economy, Congress should take swift action to require that new vehicles sold in the United States are flexible fuel vehicles. Such an Open Fuel Standard would level the playing field and promote free competition among diverse energy suppliers. Choosing not to embrace an Open Fuel Standard is choosing to preserve oil’s monopoly in the transportation sector, and with it OPEC’s growing stranglehold over the global economy."

12. "What would it cost to require that all new cars should be GEM (gasoline, ethanol, and methanol) flexible — and to pay a $200 incentive payment back to the manufacturers to compensate them for this?" asks Paul J. Werbos. "If 15 million cars are sold each year in the U.S., this would work out to a cost of $3 billion per year — much less than the potential savings of oil at over $100 per barrel even when long-term national security benefits are not accounted for.

"Some lobbyists have labeled this idea a government mandate. But really, this is closer in spirit to the Open Standards for Digital Television that the U.S. Congress has ordered starting in 2009. The goal is not to mandate a choice of fuel, but to establish open fuel standards: open standards for competition in the fuel market.

"The new standards for the television industry are estimated to cost much more than the $3 billion, but it has been agreed that the value of open competition in the television industry is large enough to justify the cost and the standards.

"Is digital television really more important to national security and the U.S. economy than our dependence on oil from OPEC?"

Read more:

Does a Federal Open Fuel Standard Violate Free Market Principles?

Shouldn't We Keep Government Out of This and Let Market Forces Determine What Happens?


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