Power Plays

Monday, April 23, 2012

The following is an excerpt from a new book by Robert Rapier entitled Power Plays: Energy Options in the Age of Peak Oil. Reprinted with permission.

It wasn't as if there have never been economic alternatives to oil. Compressed natural gas and methanol, for instance, have both been cheaper than oil on an energy equivalent basis for many years...

The problem lies in the fact that consumers don't have the option of filling up with methanol, ethanol, or any of the other contenders to replace gasoline...because the transportation infrastructure is incompatible and, more importantly, the cars on the roads are not designed to handle these fuels.

Thus, my third proposal calls for support of the Open Fuel Standard that would require that a growing percentage of vehicles sold in the U.S. must be capable of running on fuels other than gasoline. I am not usually a big fan of mandates, because of the potential for unintended consequences, but in this case the additional cost to produce a vehicle that is flex-fuel capable is reported to be between $100 and $200. This would therefore only add 0.5% to the cost of the average new car.

The availability of more flex-fuel vehicles would remove one of the major obstacles for new fuels attempting to break into the transportation fuel market. Currently, there is no demand for methanol or mixed alcohols as transportation fuel primarily because the vehicles on the roads are not entirely compatible. If more vehicles were capable of operating on a wide variety of fuels with little added production cost, the market for domestically produced fuels would grow.

Anne Korin and Gal Luft, in their excellent book Turning Oil Into Salt: Energy Independence Through Fuel Choice, compare the situation today with oil to the situation with salt hundreds of years ago. Salt held a monopoly on food preservation, and was thus an important strategic commodity. Countries with salt mines derived wealth from their salt exports, and sometimes wars were fought over access to salt. But eventually salt evolved from a strategic commodity into simply a commodity, because refrigeration broke salt's monopoly on food preservation. That is the goal of the Open Fuel Standard: to break oil's monopoly on the transportation system and convert it from its present status as a strategic commodity into simply a commodity.

Robert Rapier is the Chief Technology Officer for Merica International, a renewable energy company, which is involved in a wide variety of projects, with a core focus on the localized use of biomass to energy for the benefit of local populations. Rapier's whole career has been devoted to energy issues. He's worked on cellulosic ethanol, butanol production, oil refining, natural gas production, and gas-to-liquids. And he is the author of Power Plays. Read more about Power Plays here.


How Committed Are You?

Sunday, April 22, 2012

We just heard from a reader about an idea that solves our biggest problem. Not enough people are putting pressure on our Members of Congress about the Open Fuel Standard bill because not enough people know about it. That's the problem. I don't know about you, but when I mention the Open Fuel Standard to people, they have usually never heard of it.

Our reader's idea is to create business cards, bumper stickers, and magnets for the side of your car that say: "We can lower gas prices permanently," and then direct them to openfuelstandard.org for more information.

What a great idea. People will see the sign, get curious, and (hopefully) sign up for updates. They'll become informed about the issue and start urging their Members of Congress to co-sponsor the bill.

Our reader bought his cards at a company called Vista Print. I looked them up and their prices are very reasonable. They've got nice looking templates, and you can create your business card or bumper sticker or magnet online and see exactly what it looks like before you buy it.

The OFS bill is a history-changer. It could actually alter the destiny of the United States. Let's make people aware of it. Let's post our cards wherever we see bulletin boards — at grocery stores and schools, for example. We could put bumper stickers or magnet signs on our cars. We could hand out our cards to people.

This is a great idea. I'm going to do it. I hope you'll join me.


National Security Leaders Urge Energy Diversity to Strengthen U.S.

Wednesday, April 18, 2012

On March 27 a panel of senior retired national security officials presented their case at the Methanol Policy Forum for an open fuel standard designed to break the international oil industry’s effective monopoly over the U.S. transportation fuels market.

The Open Fuel Standard Act of 2011 would “ensure that new vehicles enable fuel competition so as to reduce to the strategic importance of oil to the United States.” It would do so by requiring automakers to produce vehicles capable of running on alternative fuels in lieu of or in addition to gasoline. 

Among the most economically competitive fuels would be ethanol and methanol derived from domestic feedstocks as well as from hemispheric neighbors such as Brazil, whose transportation sector is fueled by sugarcane-based ethanol. 

David Sandalow, Assistant Secretary for Policy and International Affairs at the Department of Energy, highlighted in his keynote address that “95 percent of the energy used to move our cars and trucks in the United States comes from one source – petroleum.”

Robert McFarlane, National Security Advisor under the Reagan administration, noting that demand from China and India is expected to increase by 10 million barrels per day by 2014 according to some experts, expressed alarm that OPEC states are not increasing production capacity to keep up with demand.

“Consequently, nobody in the industry that I’ve heard of can tell you where that additional 10 million barrels a day is going to come from. So simple upward pressure on price from demand outstripping supply could put oil, according to [former Shell Oil CEO] John Hofmeister, at $200 per barrel.”

Ambassador James Woolsey, Director of Central Intelligence under the Clinton administration, estimated the current financial cost of the United States’ oil dependency.

“We borrow $1 billion per day to pay for foreign oil. That is more than $1,000 added tax per American, per year, and it’s paid to the governments of Iran, Saudi Arabia, and the rest.”

“We have got to get competition at the pump.  Anything less than that is a real dereliction of duty on all of our parts.”

James Roche, former Secretary of the Air Force, added, “It’s not the government’s role to choose but it is the government’s role to remove obstacles in the way of a market trying to do what it should do.”

Retired Vice Admiral Dennis McGinn admonished that “there are a lot of vested interests that like things just the way we are.”

“We will rue the day that we were complacent enough and so comfortable with business as usual when we have our backs to the wall and the options once available to us are no longer.”

His criticism of political operatives aiming to discredit the science on climate change was particularly pointed.  

“The United States is the only developed country in the world [that is still] having a discussion about climate change. And it’s because of wacky science, talk radio, and all of these very polarized political groups that just don’t want to think about another way of doing business.”

“The underlying psychology is that somehow that’s going to hurt our economy, lower our standard of living, affect our quality of life. It’s really ironic because actually the opposite is true. By embracing choice at the pump, by increasing our portfolio of energy choices for both transportation and electricity we create better economy, higher quality of life.”

Transitioning the discussion to ongoing U.S. counterterrorism efforts against Al Qaeda, Ambassador Woolsey contrasted moderate Islamic influences with the more virulent strains propagated by many of the religious leaders in Saudi Arabia, upon which the world has become increasingly dependent to offset oil supplies lost due to sanctions against Iran.

“Lawrence Wright, in his fine book The Looming Tower about Al Qaeda, says that with between 1 and 2 percent of the world’s Muslims, the Saudis control about 90 percent of the world’s Islamic institutions, including schools.”

Who finances them?

“Next time you’re pulling into a gas station, turn the rear view mirror a couple of inches so you’re looking into your own eyes. Now you know who’s paying for it. Welcome to the club,” Woolsey concluded.

Robert McFarlane was equally frank.

“All of us are concerned about our servicemen and women and the sacrifices they are making. Seldom do we ever hear, however, that they are over there in large measure because of our vulnerabilities and our reliance upon a single, petroleum-based fuel.”

“I think Gary Hart encapsulated it as well as anybody ever has. After a panel I chaired with him about a year and a half ago, a young woman said, 'Senator Hart, why can’t our country develop an energy policy?'

“He said, 'We do have an energy policy. We rely on a single fuel, priced by a cartel, and every few years we go to war to maintain that privilege.' ”

The audience laughed.

McFarlane replied, “If it weren’t essentially true, it would be laughable.” 


Conversation with Marc Goldman on Energy Security

Friday, April 13, 2012

In a Q&A session on inSIGHT, David Frum, contributing editor at The Daily Beast and a CNN contributor, answered a question about energy independence, which you can read here.

In a follow-up conversation, Marc Goldman had this to say about Frum's answer:

David [Frum] is right to lay out for [inSIGHT] readers that when we talk about oil supplies and energy diversification we are talking about transportation fuel. We don't use oil to generate electricity; we use domestically produced coal, natural gas, nuclear, hydroelectric, wind, and solar. America imports oil from nasty and dangerous regimes almost exclusively to fuel personal and commercial vehicles. Having rightly focused on transportation, David makes a case for domestic oil, conservation, and a better price structure for gasoline.

But as long as oil in the form of gasoline is the only thing that propels cars and trucks (and ships and airplanes), we will be subject to oil pressure. We are playing/struggling with fuel cells, expensive electric cars, and other technologies that may one day give us vehicles that operate entirely differently, but right now we can use existing technology to break the link between transportation and gasoline by adopting open fuel standards.

There are two bills before Congress (HR-1687 and SR-1603) that would require any new car produced that runs on gasoline to also be able to run on alcohol-based fuels — primarily methanol and ethanol. The additional cost to a new car would be about $100 for gaskets and hose material. You can get more information at www.setamericafree.org.

There are already flex-fuel vehicles, of course, but this [the OFS bill] would open new demand for alcohol fuel and additional pumps at fueling stations — which the market is fully able to meet with the relatively recent understanding that we have trillions of cubic feet of accessible natural gas.

The idea of a "government mandate" really disturbs some people, although as mandates go, this one is minimal. Private capital can be expected to enter the domestic fuels market, both at the production end and at the pump, creating domestic jobs as well as improving our balance of payments. And people won't be required to put alcohol-based fuel in their cars; they can pay the going rate for gasoline. But given gas at $4.25-4.50/gallon and the differential for methanol and ethanol, it is unlikely that they would.

This is not an experimental technology. Brazil has moved almost entirely away from gasoline-only-powered automobiles, and the same companies that make cars for Brazil make them for the U.S. market. The fuel is here, the technology is proven — what we are lacking thus far is leadership.

This goes back to where David and I agree: some of the world's nastiest people pump most of the world's oil. Our Congress and our president have no greater obligation under the Constitution than to provide for the common defense. In my mind, that means they have to make us independent of Iran, of Saudi Arabia, of Venezuela.

Iran is an apocalyptic country — if they do decide to destroy the tanker passageway in the Strait of Hormuz, Americans will see that our dependence on oil is not only about personal vehicles and paying stratospheric amounts of money to fill our personal gas tanks. Oil is how our food gets to market, how we get to work, how we export our products and import goods from other countries — it is hard to imagine the chaos and dislocation if the transportation industry came to a halt. Our way of life, indeed our very ability to function as a nation depends on the movement of goods, services, and people across a very large country and beyond.

Our way of life depends on our alliances as well.

Right now, our friends in Europe are paying $8-10/gallon for gas (which hasn't reduced their dependence on imported oil despite somewhat greater fuel economy; there is a limit to the relationship between price and consumption). They don't have the resources for methanol and ethanol that we have, but if the United States shows leadership by breaking the link between transportation and gasoline, they will follow us. And interestingly, Israel — our good friend, but one that has mixed relations with the countries of Europe — is sitting on a major, major natural gas find. It doesn't take much imagination to foresee the next energy-based alliance being the U.S.-Europe-Israel.

That works much better for me than Iran, Saudi Arabia, and Venezuela.


Are You Outraged About High Gas Prices? It May Depend on What You Know

Sunday, April 8, 2012

In a recent article in the LA Times, columnist Jerry Hirsch points out that although gas prices show every indication of rising higher than they did during the price spike in 2008, people aren't as upset about it now as they were then. Hirsch writes:

Having already seen prices cross the $4 barrier, motorists are less likely to become outraged when they see it happen again, said Michael Sivak, who heads the University of Michigan's Transportation Research Institute. And because the costs of other items have risen — notably food — it stands out less as a household budget buster.

What if people knew that the rise in food prices is largely the result of a rise in oil prices? And what if people knew that the rise in oil prices is being driven by to the urgent need of the leaders of Iran, Saudi Arabia, and Venezuela to gain enough money to stay in power? They're raising the world price of oil through OPEC so they can rake in enough money to appease their populations. Would that cause outrage?

And perhaps it is somewhat misleading to say people aren't as upset about it as they have been, because people don't know there is anything they can do about it. Most people have no idea that OPEC is the fundamental cause, and even when they do, they don't know the Open Fuel Standard could solve the problem.

It might be more accurate to say people are more used to rising gas prices, and more resigned to its inevitability.

Hirsch says The Washington Post did a recent survey:

Asked whether "recent price increases in gasoline caused any financial hardship for you or others in your household," 63% of the respondents said yes.

But that percentage was higher during the surge in gas prices in 2008. "Back in 2005," writes Hirsch, "when California gas prices were in the low-to-mid-$2 range, both consumers and politicians were more vociferous with their complaints..."

I can imagine the OPEC leaders reading about this and smiling smugly. Americans are like frogs put into a pot of cold water and heated up slowly. If the water is heated gradually enough, the story goes, the frogs won't notice and they won't bother to jump out until the water is so hot they can't jump any more.

The LA Times article ends with a quote by a man who is clearly resigned after filling up his car: "We have gotten to the point of acceptance," he said, "whether we like it or not."

High fives all around at OPEC headquarters.

OPEC leaders desperately need Americans to accept these high gas prices. Their survival depends on it. Gal Luft wrote recently that the population of Saudi Arabia, the country with the most control over OPEC, is growing very quickly. Writes Luft:

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.

I think most Americans would feel outrage over this, especially if they knew we could change the whole dynamic with the simple, subsidy-free OFS bill. But people don't know this. They are treated to all kinds of complex explanations about what causes high gas prices. In Hirsch's article, he writes:

In 2006, the Federal Trade Commission launched an investigation to look at whether rising gas prices were the result of antitrust violations by oil companies or refiners. It eventually concluded that the increases were based on supply and market conditions.

That same year, the California Energy Commission launched its own investigation, eventually finding that unplanned refinery outages, unusually high fuel exports and tanker troubles — not misdeeds by the oil industry — were the primary drivers behind a springtime price surge.

As prices soared in 2007, state attorneys general jumped into the fray. Florida's Bill McCollum said his office was looking at more than 200 complaints about price gouging at gas stations. That same year, the House approved a bill that made gasoline price gouging a federal offense.

Talk about missing the forest for the trees! Could it be nobody talks about OPEC because they don't realize we could do something about it? After all, we can't make them produce more oil. Prices are rising and most people feel helpless about changing it.

The elegant solution that can solve this problem is to strip oil of its strategic status.

The Open Fuel Standard does exactly that — cheaply, cleanly, and quickly.


Videos of "Opening the Fuel Market: A Key to Economic Recovery"

Friday, April 6, 2012

Click to see larger
As you may remember, the Open Fuel Standard Coalition hosted a panel discussion February 29th  in Washington, D.C. entitled: "Opening the Fuel Market: A Key to Economic Recovery." It was a good turnout, and attendees included representatives from the EU delegation and the Automobile Alliance. Videos from the event are now available on YouTube:
General Wesley Clark

Representative John Shimkus

Representative Roscoe Bartlett

Representative Eliot Engel

R. James Woolsey

Frank Gaffney

Dr. Robert Zubrin, Part 1

Dr. Robert Zubrin, Part 2

Q&A, Part 1

Q&A, Part 2
Please share the videos you like with your friends and family — and with your Members of Congress. We need more people to understand the Open Fuel Standard and why America needs it so urgently.


CBS: "More US drilling didn't drop gas price"

Thursday, April 5, 2012

Gas prices in Waimea, Hawaii
The reason drilling more doesn't lower the price of gasoline is that the U.S. government does not force American businesses to sell us their gas at a discounted rate. So they sell their gas at the going rate — the global price of oil at the moment. And that global price is set by OPEC.

Even if U.S. drillers found huge reserves and flooded the world market with oil, OPEC would simply lower its production. They've done it many times when new oil fields have been discovered (for example, Norway's). They cut their production (so oil is scarcer) until the price comes up to where they want it. They are a large enough cartel to have that kind of impact on the global supply of oil.

Other competing fuels will bring the price down. The Open Fuel Standard will do that.

As Gal Luft put it in a recent post:

Cartels, by definition, exist to maximize the profits of their members. OPEC members, which last year raked in $1 trillion in oil revenues, are doing that masterfully.

No amount of U.S. drilling or efficiency measures will change that. The cartel's financial needs will drive it to respond to counter moves by its clients: When we drill more oil at home, OPEC can drill less to return to a tight supply-demand relationship. When we use less, OPEC can drill less.

And here is a different take on the same issue from a recent article on CBS News. In the excerpts below the authors point out what has already happened. It points to the same painfully ineluctable fact — drilling more doesn't lower gas prices:

A statistical analysis of 36 years of monthly, inflation-adjusted gasoline prices and U.S. domestic oil production...shows no statistical correlation between how much oil comes out of U.S. wells and the price at the pump.

If more domestic oil drilling worked as politicians say, you'd now be paying about $2 a gallon for gasoline. Instead, you're paying the highest prices ever for March.

Since February 2009, U.S. oil production has increased 15 percent when seasonally adjusted. Prices in those three years went from $2.07 per gallon to $3.58. It was a case of drilling more and paying much more.

When you put the inflation-adjusted price of gas on the same chart as U.S. oil production since 1976, the numbers sometimes go in the same direction, sometimes in opposite directions. If drilling for more oil meant lower prices, the lines on the chart would consistently go in opposite directions. A basic statistical measure of correlation found no link between the two, and outside statistical experts confirmed those calculations.

When you hear people tell you "the answer to gas prices is drilling more," please take the time to educate them. This widespread erroneous belief is wishful thinking, and it is standing in the way of progress.

Read more:

Question: Isn't Drilling for Our Own Oil a Better Option?

The Flexible Fuel Answer to OPEC


The Council's Methanol Policy Forum 2012 Draws High-Caliber Speakers, International Audience

Wednesday, April 4, 2012

Last week, in collaboration with Methanol Institute, the USESC held the inaugural Methanol Policy Forum in Washington, D.C. with over 175 attendees from around the globe coming to speak with industry innovators, federal agency employees and Hill staffers. The full-day event featured four panels and a luncheon discussion.

Topics ranged from the markets created by sustained low natural gas prices in the U.S. to the development of renewable methanol pathways to current pilot programs around the globe.

The day opened with a video address by Department of Energy Assistant Secretary for Policy and International Affairs David Sandalow, saying in part:

“Methanol has many attractive features as a transportation fuel,” Sandalow continued. “At today’s low natural gas and high oil prices, methanol could help reduce fuel costs consumers pay at the pump.” “At DOE, we’re planning additional research in this area. Among the topics: What’s the potential for short‐term displacement of petroleum with methanol worldwide, by blending methanol at low levels into liquid fuels or with other strategies? How can some of the challenges identified above best be overcome? We’re eager to work with you and others in exploring these topics.”

You can view his address here.

Former Governor of Shanxi Province in China  (the leading province in methanol deployment), Wang Maolin, offered insight into the success of methanol in his home province.

“The main technical obstacles on the way to replace gasoline and diesel with methanol have been basically overcome,” Wang said. He explained that last year in the Shanxi Province, methanol-based gasoline production reached more than 6 million tons, and that in the next few years hundreds of thousands of flex fuel vehicles will roll onto China's roads.

Wang, who flew to Washington especially for Methanol Policy Forum, is also the Honorary Chairman of the Chinese Association of Alcohol and Ether Clean Fuels and Automobiles.

The conference also featured a lunch panel with members of the U.S. Energy Security Council, focusing on the importance of opening the transportation fuel market to competition.

Robert McFarlane
“We must introduce competition at the pump,” said Robert McFarlane. “We will never have a better set of circumstances to get off a single fuel source than now. Environment, national security, and economics are all an influence on our foreign policy – and are all at a crescendo.”

Other USESC members, such as Jim Roche, Jim Woolsey, Bennett Johnston, Jeff Harris, Dennis McGinn and Boyden Gray echoed McFarlane in stressing the dire need to open the transportation fuel market to alternative energy solutions and competition in order to reduce American dependency on foreign oil.

More video and information from the conference will be coming available for download shortly, including speakers’ presentations and session video recordings.


Where Does the Price of Gas Come From?

Tuesday, April 3, 2012

From an article by Jill Schlesinger on CBSnews.com:

Click image to see it larger
Gas prices are nearly 31 cents higher than a year ago. The biggest culprit for the rise in prices at the pumps is the $30 spike in crude oil that has occurred from $75/barrel in October to $105 today. The reason is that crude oil is the largest contributor to the price at the pumps.

Here's a break down of a $1 at the pump as of January 2012, according to the Energy Information Administration (EIA):

  • Crude oil: 76 cents
  • Taxes: 12 cents
  • Distribution and Marketing: 6 cents
  • Refining costs and profits: 6 cents
And what is the main factor controlling the price of crude oil? OPEC.

How does OPEC control gas prices?


NPR: The Real Reason Gas Costs $4 a Gallon

Monday, April 2, 2012

Posted Monday morning on NPR:

In his latest column for the New York Times Magazine, Adam Davidson cites Gal Luft, an oil expert who dismisses political proposals from the left and the right to lower the price of gas. We asked him to elaborate in the following post.

Saudi Crown Prince 
When in December 2008, 60 Minutes correspondent Lesley Stahl asked Saudi Oil Minister Ali al-Naimi how much it cost Saudi Arabia to produce one barrel of oil, he didn't blink: "Probably less than $2 to produce a barrel." If it costs only $2 to produce a barrel of oil, then why do we pay over $105 a barrel?

Wall Street, Big Oil, President Obama, the Fed, environmentalists, the EPA have all been accused of pinching hardworking Americans at the pump.

But there is a much more important player that gets much less attention: OPEC.

Members of the oil cartel sit on top of nearly 80 percent of the world's conventional crude reserves. Yet they account for only a third of global oil production.

We need oil now more than ever. In the past three decades, global oil demand grew 45 percent.

During that same time, OPEC's production increased by merely 19 percent, despite the fact that two new countries (Angola and Ecuador) joined the cartel during that time.

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. It is a sad state of affairs that in the 21st century the world's most strategic commodity is still being controlled by a cartel.

Cartels, by definition, exist to maximize the profits of their members. OPEC members, which last year raked in $1 trillion in oil revenues, are doing that masterfully.

No amount of U.S. drilling or efficiency measures will change that. The cartel's financial needs will drive it to respond to counter moves by its clients: When we drill more oil at home, OPEC can drill less to return to a tight supply-demand relationship. When we use less, OPEC can drill less.

To change this vexing dynamic, consumers must be able to substitute for petroleum by purchasing competing fuels, like alcohol fuels, biodiesel, natural gas or electricity, if they are less costly on a per mile basis. But as long as our vehicles are able to run on nothing but oil, keeping oil monarchs on their throne will remain our national side job.


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