[extropy-chat] Debate on Peak Oil

[spike]

> -----Original Message-----
> From: extropy-chat-bounces at lists.extropy.org [mailto:extropy-chat-
> bounces at lists.extropy.org] On Behalf Of Brent Neal
> Sent: Monday, April 25, 2005 7:52 AM
> To: ExI chat list
> Subject: Re: [extropy-chat] Debate on Peak Oil
> 
>  (4/25/05 10:36) Brian Lee <brian_a_lee at hotmail.com> wrote:
> 
> > It should take many, many years to get from peak to
> >negligible production so I don't see an impending crisis.



Has there been sufficient consideration of the great potential
to cut oil consumption?  An unspoken blessing of the US
appetite for gas guzzling SUVs is that we have the potential
to cut way back in short order just by driving the less-used
second car.  

We fill stadiums with fans from all over the nation for our 
football and baseball contests.  We have motorhomes and
trailers that we tow to vacation spots, all at enormous
cost in petroleum.  All this could be switched off with
little real pain.  So a wasteful western lifestyle carries 
the advantage of providing lots of potential for belt 
tightening.  A reduction of oil production can be a 
relatively comfortable transition.  

What do you make of this article from the Chicago Trib?

spike

 
Ethanol prices in free fall even as cost of gas goes up 
 
 
 
 NewsStand - Sunday, April 24, 2005 
  
Chicago Tribune
Greg Burns

CHICAGO - Higher gasoline prices usually spell good times for producers of
ethanol, the fuel additive made from corn.

These days, however, ethanol makers are getting creamed. Even as oil prices
hover around $50 a barrel, ethanol has plunged by at least one-fourth since
January. For the first time in memory, a gallon at wholesale is going for a
dollar less than a gallon of gas at the pump.

The free fall threatens a slew of new manufacturing plants started up in the
rural heartland with the support of local farmers seeking gold in
grain-based fuel. And it is fanning tensions between ethanol producers and
Big Oil, their primary customer.

As a dozen additional facilities now under construction come on line in the
months ahead, overproduction promises to keep a lid on prices. Market forces
are holding in check a product that has boomed in recent years, due in large
measure to the intense support of farm-state politicians.

"There's too many plants going up too fast for the market to absorb it,"
said Todd Block, general manager of Adkins Energy LLC, a two-year-old
ethanol plant in Lena, Ill. "There's a big shakeout coming."

The low prices have hurt the entire industry, added Bernie Punt, general
manager of a plant in Sioux Center, Iowa: "It's to the point where it's
ridiculous."

To hear many analysts tell it, ethanol's problems are a simple matter of too
much supply meeting too little demand. Produced in the same way as
moonshine, ethanol is more easily made than distributed, they say, and the
industry's infrastructure is still catching up.

"We've had a tremendous increase in capacity and production. It just kind of
flooded the market," noted Todd Duvick at Banc of America Securities, who
recently cut his rating of industry leader Archer Daniels Midland Co. ADM
stock has fallen nearly 20 percent in a month as investors react to the
small-fry pouring into a business it once dominated.

Not everyone's convinced, however, that supply and demand alone account for
the low price. The heartland is filled with dark rumblings about
oil-industry conspiracies to keep ethanol down and petroleum pre-eminent.

"At a time when there's record high gas prices, they take all our profits,"
said Punt, who like other ethanol producers depends on oil giants to blend
his product into their gas. "Unless most of these oil companies are told by
the government they have to use it, they won't."

Monte Shaw of the Renewable Fuels Association puts it bluntly: "They're
ignoring an incredible bargain, and consumers are left paying higher
prices."

A spokesman for the oil industry branded that assertion "stupid" and "just
ludicrous."

"If somebody can make additional money blending ethanol, they will do that,"
said Edward Murphy at the American Petroleum Institute. To suggest
otherwise, he said, "betrays a certain economic ignorance."

Nevertheless, ethanol's political backers are taking action. House lawmakers
from Midwest states on Wednesday introduced legislation that would mandate
renewable-fuel consumption of 8 billion gallons by 2012, double the current
usage. The Senate already is considering a look-alike bill.

The proposal drew applause last week from Keith Bolin, a corn and swine
farmer in Manlius, Ill., who heads the American Corn Growers Association.
"The initiatives in this bill will greatly benefit America's farm families,"
said Bolin.

Ethanol emerged from the ferment of farm politics over the past two decades
to become one of the Midwest's signature public-policy issues.

For cleaning up smog, reducing dependence on foreign oil and funneling money
to an important constituency, ethanol can hardly be beat - as farm-state
politicians have come to recognize. What better way to get rid of surplus
grain than burning it in SUVs?

As a result, lavish government subsidies support production, including
direct federal benefits of 51 cents per gallon. Laws restricting the use of
a competing gas additive known as MTBE help even more. Indirect subsidies
that encourage overproduction of corn provide an additional benefit.

These days, corn is plentiful, so raw material prices are cheap. Given the
soaring price of oil, ethanol should be selling for at least 30 or 40 cents
more, and yielding handsome profits all around, its backers say.

Yet the economics of ethanol are complicated, and the market still adjusting
to the addition of 30 new plants in the past three years, bringing the total
to 83.

For starters, cheap corn does not necessarily equate to cheap ethanol. In
fact, one of the fuel additive's economic advantages for farmers is that its
price does not correspond to that of the farm commodity.

Lately, though, ethanol prices have failed to correlate as expected with
energy prices, either. Some analysts chalk it up to the perils of
forecasting in an immature market flush with mysteries. "What do we have to
compare it to?" asked agriculture analyst Joe Victor of Allendale Inc. "We
learn week by week."

One wild card in ethanol's profitability is freight rates. It's costly to
move the volatile brew from production sites scattered around the Midwest to
motorists in California and New York. Fuel surcharges and rail-line
congestion have added to the costs lately, producers say.

Another factor is the sale of byproducts from ethanol's manufacture, notably
grain protein used for livestock feed. Its value typically moves in lockstep
with corn, offsetting about one-third of raw material costs - but not
always.

None of that would matter if the oil industry would simply tank up, ethanol
boosters maintain. But that, too, is not so simple.

>From opening storage tanks and blending facilities to labeling pumps and
changing filters, switching to ethanol takes time and money, so oil
companies aren't jumping at every enticing price dip, said Ed Swinderman, a
vice president at Houston's Jim Jordan & Associates energy consultancy.
"You've got to overcome the inertia," he said.

Murphy of API noted that most oil companies use long-term contracts.
"They're not varying production based on what's happening in the spot
market."

Shaw, of the Renewable Fuels Association, smells a rat: "Oil companies thus
far have not reacted to the market. They're logistically capable of doing so
without changing a thing. It's very frustrating. It's a little bit hinky."

For the balance of the year, analysts expect ethanol prices to inch higher.
Swinderman is looking for $1.35 per gallon, which would be profitable for
the most efficient plants, but only break-even at best for the inefficient
or debt-laden.

Longer term, much depends on how quickly clean-air initiatives and other
government mandates kick in. Ron Miller of Aventine Renewable Energy Inc. in
Pekin, the No. 2 player behind ADM, expects less of a shakeout than some
others do.

"It's more a lost opportunity for the industry than real pain," he said. "At
some point, demand will catch up."

In fact, the pain may come in another fashion. As lawmakers seize the moment
to press for greater ethanol use in gasoline, it reduces America's
dependence on Saudi Arabia but increases it on Mother Nature.

"If you're a senator from the Midwest, you're beating the tom-tom," said
Allendale analyst Victor. "But what if we have a drought? Is there already
too much dependence on ethanol?"