Agriculture Renewable Energy Blog

Could Trump Deliver U.S. Energy Independence?

noreply@blogger.com (Unknown) — Sat, 23 Jul 2016 21:03:00 +0000

Breaking Story (3/13/18): The Financial Times has a story which mirrors the major points of our following blog article -- Go Here.

"We will become and stay totally independent of any need to import energy from the OPEC cartel" -- Donald Trump.

Key Background Points for Today's Blog: In discussing U.S. foreign oil dependency, two measures are used:

Gross Imports % -- Total Imports/Total Petroleum Used.

Net Imports % -- (Imports minus Exports)/Total Petroleum Used.

What does Energy Independence even mean? In a context of U.S. foreign energy independence, it is oil and only oil that's relevant.

Oil remains the dominant fuel used in the U.S., accounting for ~37% of total energy consumption in 2015. Oil is consumed mostly within the transportation sector, with very little used for electricity generation (~1%).

Metrics Used: Almost always when U.S. foreign oil dependency is discussed in the Media, it will be net imports that is being referenced. Inferring this metric, the EIA states "In 2015, about 24% of the petroleum used by the United States was imported from foreign countries -- the lowest level since 1970".

(Note: EIA data available on-line only goes back to 1973)

But only citing net imports does't tell a whole story. Of the total petroleum used in the U.S. in 2015:

A whopping 49% came from foreign countries (gross imports)¹;

25% was exported (mostly as refined products, e.g. gasoline & diesel);

Resulting in net imports of 24% (49% minus 25%).

⁽¹⁾ About 78% of gross petroleum imports is crude oil. In 2015, the U.S. consumed about 19.4 million barrels per day; imported
~9.4 MMb/d ; exported ~4.8 MMb/d; with resulting net imports of 4.6 MMb/d.

In using Net Imports as the most commonly cited metric, an assumption is thus inferred that Exports must reduce the foreign dependency of Gross Imports. Today, we will explore whether this is an appropriate assumption.

Gross Versus Net: The significance between gross versus net imports is a relatively recent development. For decades prior to the current boom in domestic oil production, yearly U.S. exports were very constant at ~5% of total petroleum used. However, during the past 9 years (breakthroughs in fracking, horizontal drilling), two things have dramatically changed:

Field production of oil/other petroleum liquids has more than doubled.²
Petroleum exports have increased by 5 times.³

⁽²⁾ From 5.5 million barrels per day (2006) to 12.6 million bpd (Feb. 2016).
⁽³⁾ Primary U.S. petroleum exports are diesel, gasoline, and natural gas liquids.

Percentage of U.S. Petroleum Exports Thus, while it may be technically correct that U.S. dependence on foreign oil (using the metric of net imports) is at the lowest level in 45 years, the composition of this metric is very different today than in 1970.

	1970	2015	Change
Gross Imports:	29%	49%	+20%
Exports	05%	25%	+20%
Net Imports	24%	24%	zero

Looking at the above numbers, one might "conclude" that the U.S. is now just importing more crude, refining it, and then exporting the end-use products of this foreign oil (gasoline, diesel) -- with a "net" of zero.

But the Import/Export paradigm (model) just isn't this simple due to:

Configuration/Design of many U.S. Refineries to use heavy oil.
U.S. Refineries using financial arbitrage to gain competitive advantages in high value World Gasoline/Diesel Markets.

Foreign Sources of Oil: This metric can also be misleading. While it is emphasized that Canada is the "single" largest foreign country supplier to the U.S. (2.81 million bpd) -- OPEC countries import a comparable amount of oil (2.65 million bpd).⁴

U.S. Petroleum Imports
(2015) Understanding Some Oil Basics: In long-term forecasts through 2040, the EIA projects that U.S. dependency on imported oil (net imports) will continue at an ~25% level.

Historical and Projections of U.S.
Oil Production & Consumption:

So with the U.S. oil boom, why are we still importing so much foreign oil? The answer is found in the fact that not all crude oil is the same. It can have a density ranging from heavy to light, sour (high sulfur content) or sweet; priced internationally (Brent) or priced domestically (West Texas Intermediate).

Type of Oil: In 2015, ~90% of imported crude oil was heavier, with a gravity below 35 degrees API. At the same time, more than 70% of the crude oil produced in the Lower 48 states was light oil or condensate with an API gravity above 35 degrees.

As the below chart illustrates, as U.S. production of light & medium crude has increased, U.S. refineries have reduced their imports of lighter oils.

However, note that imports of foreign heavy crudes have increased.

U.S. Oil Imports by Type The market value of a crude stream reflects its density and sulfur content. Crude oils that are light and sweet (low sulfur content) are priced higher than heavy, sour crudes.

This is because products like gasoline which sell at a significant premium to other products (e.g., residual fuel oil) can be more easily and cheaply produced using lighter, sweeter crude oil in simpler refineries.⁵

Note how close Brent and WTI are in characteristics.

Pricing Benchmarks for Oil: West Texas Intermediate (WTI) is a benchmark at which oils produced in the U.S. trade. Internationally, about two-thirds of all crude contracts reference a Brent benchmark. For various reasons, internationally priced oil (Brent) has traded at a premium to domestic priced crudes (WTI) for the past decade⁶.

Stated another way, domestic U.S. oil has been trading at a discount from Internationally priced Brent Oil.

Spread Between Brent Versus WTI ⁶ Historically, some reasons have included the U.S. export ban on most crudes resulting from the Arab Oil Embargo in the 1970's; excess domestic production and storage.

What the Heck Is Going On? With the exceptional increase in U.S. oil production from tight shale formations/fracking (e.g., North Dakota, Texas, etc.) there is good and bad news:

Most of this oil is high quality light crude, relatively easy to refine in refineries that are not terribly complex.
However, many U.S. refineries can not use this lighter oil.

Design of U.S. Refineries: Prior to the shale boom, many U.S. Refiners guessed wrong in their planning. They spent billions of dollars to configure plants for heavier and sour foreign oils (the type from Canada and OPEC countries). For example, a high percentage of refineries (especially the Gulf Coast) have coking capacity that can upgrade heavy crude oil into higher-valued lighter products.⁷

⁽⁷⁾ As of January 1, 2014, there were 133 operating refineries with atmospheric crude oil distillation units (ACDU) totaling capacity of 18.9 million barrels per stream day. Heavy capacity denotes refineries with coking capacity; light capacity denotes refineries without coking capacity..

As a result of this infrastructure investment, the U.S. now has more complex Refineries than anywhere else in the world -- as shown in the below graphic which includes the Nelson Complexity Index:

Understanding the U.S. regional (called PADDs) composition of refineries ranging from simpler to complex (catalytic crackers, reformers, cokers) help explain the type of oils primarily used within each region.⁸
⁽⁸⁾ Recognizing that higher and lower API oils are always blended for specific Refineries to optimize production.

For example, Refineries in PADD 1 (East Coast) are generally not terribly complex and thus will use more lighter oils. In PADD 3 (Gulf Coast), 81% of Refineries have coking capacity -- explaining their use of more heavier oils.

	U.S. Oil Field Production	Primary Source & Type of Crude Used in Refineries⁹
PADD 1	01%	Domestic Light
PADD 2	20%	Canada Heavy
PADD 3	60%	Heavier Foreign
PADD 4	08%	Canada Heavy & U.S. Light
PADD 5	11%	50% Foreign Heavy
Total	100%

The overwhelming majority of Canadian oil goes to PADD 2. Most of the Middle East imports are received in PADD 3 (e.g., Saudi Arabia owned Motiva Refineries). Heavy crude imports from Mexico and Venezuela also primarily go to PADD 3 (e.g., Venezuela's CITGO Refineries). The majority of African oil is consumed in PADD 1.
⁽⁹⁾ U.S. Department of Energy Report, pages 15, 26.

Arbitrage: But historically, there's been more to understanding U.S. imports and exports other than just Refinery configuration -- something called arbitrage.

Oil Arbitrage: The practice of U.S. Refineries buying lower cost U.S. light oil (pegged to WTI), refining it, and exporting/selling gasoline to World markets that mostly used higher cost oil (pegged to Brent).

Gasoline is an international commodity. A U.S. refiner could as easily sell their product to the international market if that would maximize their profit. According to the U.S. Department of Energy study, "Brent crude oil prices are more important than WTI crude oil prices as a determinant of U.S. gasoline prices".¹⁰

Thus, U.S. Refineries have had two highly significant market advantages in selling high-end products to both the U.S. and World markets (gasoline to Mexico & South America; diesel to Europe):

Financial Arbitrage on lighter oils.
Ability to use lower cost heavier crudes in complex Refineries.

The impact of these structural advantages are reflected in the below graphic -- where U.S. Refineries can have a profit margin as much as $6/bbl over their international competitors:¹⁰
⁽¹⁰⁾ US refining flexibility sustains export opportunities, profitability.

Nobody Knows Just How Dependent the U.S. is on Foreign Oil? As previously argued, using a dependency metric of Net Imports would be totally appropriate under a paradigm/model where crude is imported, refined, with the end-product (e.g., gasoline) of this foreign oil exported: But the Import/Export Paradigm isn't this simple as U.S. Refineries also:
(1) Process Domestic lighter crudes into gasoline and diesel fuel for export;
(2) Import heavier foreign crudes for Domestic consumption:

Additional Flows of U.S. Refineries' Imports/Exports Exporting gasoline produced from domestic light crude to China wouldn't
decrease U.S. foreign dependency on heavy crude imports from Saudi Arabia.

Thus in using Net Imports as a dependency metric, it would be important to know its composition. Remember, the basic tenent in using Net Imports is that somehow, Exports decrease U.S. Gross Imports dependency.¹¹
⁽¹¹⁾ Gross Imports of 49% minus Exports of 25% equals Net Imports of 24%.

Incredibly though, not even the Energy Information Administration (EIA) can answer this question:

"We cannot determine the exact amount of crude oil produced in the United States that is consumed, as refined products, in the U.S."

In using EIA data though, we can at least frame the "How Much" question of foreign oil dependency -- where of the total Petroleum Consumed, about 50/50 came from Imports and Domestic Production, with 25% Exported:

In using two fictional scenarios, U.S. Dependency on Foreign Petroleum Resources can be "framed" as somewhere between 32% and 65%:

Scenario 1: ALL domestic oil is consumed within the U.S.
Scenario 2: ALL imported oil is consumed within the U.S.

Petroleum in the U.S.:	Low Domestic Use of Imports	High Domestic Use of Imports
Total Processed	100%	100%
Exported	(25%)	(25%)
Consumed Only in U.S.	75%	75%
Produced & Used Only in U.S.	51%	26%
Imported & Used Only in U.S.	24%	49%
Foreign Dependency	32%	65%

Potential Actions: Regardless of what "metric" that one believes is appropriate -- Donald Trump is correct in elevating foreign oil dependence as an important issue in this Presidential election:

While the old GOP mantra of "Drill Baby Drill" and eliminating environmental regulations will assuredly be a Trump meme, will he show depth and breath on this issue? The following are some items that could be proposed:

Refinery Tax Credits: As discussed, a major cause of foreign oil dependency is the configuration of U.S. Refineries to use heavy oil. Without incentives, Refineries are not going to simply walk away from their sunk investment and spend money to reconfigure yet again to primarily light oils. Federal incentives could be an investment tax credit (similar to solar energy) and/or accelerated tax depreciation (e.g., a one year write-off).

Oil Production Tax Credit: Another Federal incentive could be a tax credit (similar to yearly credits given to wind and nuclear) for the domestic production (per barrel) of heavy crudes. The U.S. has vast undeveloped resources of heavy oil in the Alaska North Slope.

Repeal Jones Act on Oil Transportation ; Shipping between U.S. ports costs significantly more than international voyages. This is largely because of a ~100-year-old federal law (Jones Act) which requires domestic cargoes to travel on U.S.built, owned and crewed vessels. A qualifying U.S. tanker currently commands rates from 3 to 4 times more than a non U.S. tanker of the same size.^12,¹³

Tariffs on Imported Oil: While very much of a long-shot, an oil tariff could get political support from two unlikely bedfellows: the domestic oil industry and the renewable energy industry. The domestic oil industry would love a tariff because it protects the industry from the competition of cheaper OPEC oil imports. Saudi Arabia's current price suppression strategy specifically targets the high-cost hydraulic fracturing or fracking in deep shale deposits that has been largely responsible for the rise in U.S. oil production.

The renewable energy industry might well join the oil industry in supporting such a tariff because a high oil price makes alternatives to oil more attractive.¹⁴

Final Thoughts: When Foreign Oil Dependency is discussed, a metric stated in percentages can lose some of its impact as to a "big picture". The below graphic puts foreign oil dependency in a clearer perspective of dollars. Even using "Net Imports", the trade impact is a whopping deficit/negative $123 billion per year ($246.5 less 62.7 less 60.7).

The Significance of Oil Imports on the U.S. Trade Balance: A recent AP story further illustrates this point as the U.S. Trade Deficit hit a 10 month high ($45 billion) from a big rise in imports of oil and Chinese-made computers, cell phones and clothing.

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Additional Resources:
US refining flexibility sustains export opportunities, profitability (excellent)
Why are U.S. Oil Imports increasing in 2017?
Gas Glut in U.S. and Europe -- Bloomberg
Is Russia Influencing Trump’s Thoughts on Energy? (Texas Monthly)
Summary: Effects of Removing Restrictions on U.S. Crude Oil Exports
The myth of US self-sufficiency in crude oil -- Energy Matters Blog.
Who is Buying U.S. Crude Oil? (Bloomberg)
1st quarter 2016 Refiner Profits Decrease
Oil Rich Venezuela Imports U.S. Crude Oil
IEA warns of ever-growing reliance on Middle Eastern oil supplies
When U.S. President Eisenhauer Restricted Imported Oil
Trump is Wrong on Trade Agreements (Wall St. Journal)

Energy Information Agency (EIA) Analysis:
Effects of Removing Restrictions on U.S. Crude Oil Exports
U.S. Crude Oil Production Forecast Analysis of Crude Types
What Drives U.S. Gasoline Prices
U.S. Crude Oil Production to 2025: Updated Projection of Crude Types

Energy Information Agency Data:

Are You A Global Warming Skeptic, Denier, or Contrarian?

noreply@blogger.com (Unknown) — Fri, 15 May 2015 03:46:00 +0000

A previous Blog Post discussed two Opinion Groups that have major disagreements with the IPCC Report on Global Warming/Climate Change -- Skeptics and Deniers. But a Washington Post story presented some thought that a 3rd Category is needed -- Contrarians. Today's Blog critiques these Groups, ways to differentiate between them, and why it's important.

(1) Good Faith Skeptics. Individuals within this Group generally have several distinct attributes in addressing human-driven Global Warming (called Anthropogenic or AGW):

Science Uncertainty Beliefs: Probably 99% of Climate Scientists agree on a core of basic beliefs that does represent a consensus on settled science:

CO₂ is a Greenhouse Gas;
Adding CO₂ will have a warming effect on the Planet;
CO₂ levels have risen dramatically during the Industrial Age;¹ ²
In the past ~200 years, the Earth has warmed.
Since the 1950's, a large part of this warming is human driven.³

⁽¹⁾ NOAA data for 650 million years; NOAA data for past 1,000 years; IPCC AR5.
⁽²⁾ The level of CO² is now 42% above pre Industrial Revolution levels.
⁽³⁾ Views on what "large part" means -- a percentage of ~50% (Curry) to 100% (Schmidt).

But understanding Climate Science/Change is much more than just this "basic science". Called a "Wicked Problem", it involves extremely complex issues where Climate Scientists can and do sharply disagree in how much and how quickly human driven greenhouse gas emissions will effect global temperatures and regional climates (called attribution) through:

Feedback Loops (e.g., cloud formation);
Impacts on Natural Variability (climate oscillations, e.g., El Nino).
The predictive ability of Forecasting Models (e.g., the "Pause").

"Good Faith Skeptics" fit into this above science paradigm: They accept a "consensus view of the basic science", but have valid questions of how much and how quickly AGW will effect climate.

Favored Policy Beliefs: "Good Faith Skeptics" never argue that no actions are needed on AGW. Rather -- based on the "How Much and How Fast" science uncertainty, it's a question of prioritizing actions for:

Mitigation (Energy Efficiency, Renewables, Reducing Air Pollution⁴);
Energy Technology Research (Nuclear Power, Battery Storage);
Adaptation (Flooding, Health, Agriculture, Water Resources)

⁽⁴⁾ Efforts to reduce short-lived-climate-pollutants (smog, methane, HFCs, and black carbon) -- called "Fast Mitigation".

Generally, this Group of Skeptics is supportive of both Research and "true" Adaptation initiatives (not just any special interest infrastructure project). AGW Policy conflict with the so-called mainstream "Consensus" primarily occurs over the ideological approach and perceived effectiveness of certain Mitigation options.

For Policy related current mitigation efforts, "Good Faith Skeptics" are more inclined to align themselves with Conservatism rather than Liberalism. This means that Bottom/Up Policies (flexible and de-centralized) would have much more favor than Top/Down options (e.g., rigid command and control).

Fundamental Ideological Differences Between Liberal Vs. Conservatism When AGW Policy options are opposed/questioned such as a U.S. Carbon Tax (a regressive tax with a questionable global CO₂ outcome⁵), Carbon Trading Schemes (another potential financial derivative play-toy of Wall Street), or a "Federal" Renewable Energy Portfolio Standard (that puts decision making into the hands of Politicians in Congress rather than our Engineers) -- it can be the Policy approach, not the science that is being balked at.

Liberal Vs. Conservative Approaches to Global Warming Policy

⁽⁵⁾ How would a U.S. Carbon Tax impact international trade? Would it simply out-source greenhouse gas emissions to Developing Countries (actually increasing overall emissions)?

"Good Faith Skeptics" recognize there is no "One-Size-Fits-All" current technology approach or geo-engineering "Silver Bullet" in addressing AGW on a Global basis. They also recognize that AGW is not a "stand-alone" issue (CO₂ ppm) -- but is tied to many different issues that effect the prioritization of efforts to improve the quality of life in Developed (e.g., health concerns of smog⁴) versus Developing Countries (e.g., just having a toilet).

Portfolio of AGW Current Mitigation Technology Efforts: "Good Faith Skeptics" truly care about the poor. That "Love Thy Neighbor" thing is serious, and not just a catch-phrase meme. They hate pubic debate that reduces this issue to partisan ideological differences/theatre and not specific actions to address World poverty.

Since this Group has strong conservative attributes, Market Capitalism is extremely important to them. They believe that while "compassionate conservatism" should be practiced to Developing Countries, the "big picture" measure of success shouldn't be things like how many home rooftop solar panels are installed through foreign aid.

It should be how many industrial parks have been created, making cost competitive and lower carbon footprint products for export -- creating prosperity and reducing poverty within a society.

(2) Deniers: This Group is comprised of those who deny the above widely held (consensus) core of Climate Science beliefs. Typically, this is a denial/dispute of (1) the modern temperature record (including conspiracy theories of manipulating data); and/or (2) any acknowledgement there has been meaningful human influence (AGW) on modern history temperatures.

In January 2014, U.S. Senator Schatz (D) introduced a Resolution that simply stated: "Climate change is real and human activity significantly contributes to climate change". But 49 out of 54 Republican Senators voted against this -- justly earning a label of "Deniers". Republican Senator Inhofe sums up the current Republican majority opinion: "If you don’t accept the disease (AGW), you don’t have to accept any potential cure".

Included in this Group is a very vocal sub-set of Religious Fundamentalists. Rather than focusing on science, Biblical scripture is cherry-picked (with simplistic literal interpretations) as a "major basis" of denial views.⁶ This type of "Denier" is especially toxic, demonizing their opposition as Cultist and Worshipers of "Mother Earth" (Gaia) or following a Satanic "Green Dragon".

This sub-Group needs to go to Sunday School more, studying God's Word that "Dominion Over" doesn't mean "Domination". They need to study science better that reinforces what the Bible teaches us about the consequences of man's actions (which can include changing the Climate).⁷

⁽⁶⁾ Dr. Stephen Pope has a good lecture on science and religion (at the 56 minute mark)
⁽⁷⁾ Article on Roger Pielke and Florida's changing climate which contradicts Senator Inhofe's statement: “The hoax is there are some people so arrogant to think they are so powerful they can change the climate.” “Man can’t change the climate.”

(3) Bad Faith Contrarians: As described in the Washington Post article, Contrarians are believed to have a politico-psychological trait (some would say a downright obsession) against authoritarianism where issues are framed (staw-man arguments) in extreme terms of black or white, good and evil, individual rights versus socialism. There is rarely, if ever, any nuanced area of gray that could lead to compromise for any mitigation actions.

Make no mistake about this Group however -- they are highly educated in science/engineering and talk a "very good game" of Reasonableness. But it's a game of obfuscation. In the end-game of taking any meaningful policy action to mitigate the threat of Global Warming/Climate Change -- these "Contrarians" usually end up in the same policy place as "Deniers".

For Contrarians, Even If God Told Us Human-Driven Global Warming (AGW)
Was a Real Threat, They'd Demand a 2nd Opinion (probably from Ayn Rand).

For Contrarians, no scientific argument will ever be good enough; no economic analysis (cost/benefit) for mitigation will ever be justified. They distort and magnify uncertainties as an excuse for inaction for financial or ideological reasons.

For this Group, Conservatism has been hijacked and transformed from a philosophy of cautious stewardship into an ideology that often encourages individuals to pursue self interest, whatever the consequences to others.

Good Faith Skeptics Versus Bad Faith Contrarians: Since both Groups are often saying the same thing in AGW science or policy skepticism & opposition -- How does one differentiate between them in trustworthiness?

Historical Track Record: Reviewing One's overall body of opinion on major enacted or proposed environmental policy measures is the starting point. Is there a clear one-sidedness of only/primarily opposition, or is it a mixed bag (showing objectivity over ideology)? In opposition, are there examples of trying to find "common ground" by offering/supporting or at least having a constructive dialogue (other than just saying no) on mitigation options?

You Just Might Be a Global Warming "Contrarian" If You
Oppose/Opposed Most Other Environmental Regulations.

Environmental Issue:
Lead & MTBE (gasoline):
Mercury:
Smog:
Air Particulates:
Acid Rain:
Ozone Depletion:
Fluoridation (drinking water):
Methane:
Coal Ash:
Global Warming (AGW):

Supported

Opposed

Contrarians "Frame" their opposition to environmental issues with straw-man arguments of "Big Government", "Socialism", "Conspiracy Theories", "Junk Science", or "Junk Economics" -- and never things like children cancers, autism, dental health, asthma, and IQ development.

Whether Contrarians run away from their environmental track record or wear it as a badge of honor, they do so with incredible hypocrisy. One one hand they criticize Mitigation Advocates as Catastrophic Alarmists (CAGW) -- but have no problem in their own brand of catastrophic messaging (which time and again has been incorrect) that compliance costs will destroy economies as "the absolute truth".

Being Disingenuous: Usually, a "dead give away" of a Contrarian is when you hear the statement:

I am opposed to the policy of Big Government that distorts the Market and picks winners and losers. The free market should be the Driver.

When Contrarians make their above "Winners vs. Losers" argument it is not their words or even an Ideology (Libertarian) that is the problem. It is their disingenuous inconsistency in "Walking the Talk". As conservative Republican U.S. Senator Grassley (Iowa) states, Contrarians want to have this debate in a vacuum. They show "bad faith" in not wanting to put all energy subsidies on the table for review.

You Also Just Might Be a Global Warming "Contrarian"
If You Have Been Inconsistent on Energy Subsidies.

Which Subsidies Should Be Eliminated?
Oil Tax Benefits ⁸
Electric Utility Tax Normalization ⁹
Nuclear Energy:
- Tax Credit
- Catastrophic Insurance ¹⁰
- Construction Cap Subsidies ¹¹
- DOE Loan Guarantees
- U.S. Export/Import Bank
- Federal R&D ¹²
Renewable Energy:
- Wind, Solar, Biomass Tax Credits
- DOE Loan Guarantees (Solar)
- Solar Net Metering
- State Programs (Wind, Solar)

Yes

⁽⁸⁾ Tax Credits specifically for oil (not general tax benefits taken by Oil & non-Oil Companies). This includes: (A) Expensing of tertiary injectants; (B) Expensing for intangible drilling costs; (C) Percentage depletion for oil wells; (D) Special amortization for geological costs.
⁽⁹⁾ Normalized versus Flow-Through Tax Benefits for Investor Owned Utilities in Ratemaking.
⁽¹⁰⁾ Price Anderson Act. Also, special tax treatment for decommissioning nuclear trust funds.
⁽¹¹⁾ Energy Policy Act of 2005
⁽¹²⁾ Per Senator Grassley (R-Iowa), $74 billion since 1950

Selective Outrage: But this isn't just about energy issues. As Contrarians (Anti-Authoritarian Ideologues and/or Special Interests) obsess over solar/wind tax credits, they also show their "bad faith" by continued obstruction to comprehensive tax reform. Where is their outrage over things like tax preferences to Wall St. Hedge Fund Managers? (who brought down the World's economies in 2008).

Looking For Good Faith: One must always remember though, "Good Faith" is a two-way street. Both sides must demonstrate fairness, objectivity, and grace themselves -- not always looking for a Gotcha! One does not have to agree with every enacted or proposed environmental initiative to be trustworthy. People can also evolve in good-faith from prior opposition positions -- especially in the spirit of trying to find current common-ground.

“What is the environmental platform of the Republican party? I don’t know either.” ~ Sen. Lindsey Graham A Republican Senator admits his party has no plan on climate change. Yet, they’re trying to block President Obama from acting to address the crisis. http://on.nrdc.org/1N8wn77
Posted by NRDC (Natural Resources Defense Council) on Wednesday, March 25, 2015

The constructive dialogue between Republican Senator Lindsey Graham
and the environmental organization NRDC illustrates what's needed.

The Importance of "Good Faith Skeptics": If there is any hope in achieving bi-partisan actions, "Good Faith Skeptics" must play the key role. They must take on a role of "Peace-makers", turning down the thermostat of partisan rhetoric -- seeking, nurturing, and building trust in finding "common ground" among very different constituencies/interests.

Only Through Good Faith Skeptics Can We
Possibly Find Common Ground On AGW As discussed in previous blogs, there are two areas of potential common-ground that may be especially promising:

Reducing Short-Lived Climate Pollutants¹³("Fast Mitigation");
International Trade (including selling U.S. natural gas to Developing Economies as they transition/bridge to lower-carbon standards¹⁴).

⁽¹³⁾ Chemistry and the Linkages between Air Quality and Climate Change.
⁽¹⁴⁾ But as part of a comprehensive plan -- not as a cherry-picked stand-alone policy action that would only benefit Special Interest Groups. A comprehensive plan of this type would place Deniers (e.g. Senator Inhofe) in a real dilemma, and force Contrarians to be more consistent.

A Needed Paradigm Shift: The most important thing that "Good Faith Skeptics" must achieve is to clearly demarcate themselves from the "Deniers" and "Contrarians". All too often in opposition to the the so-called 97% IPCC consensus, this line becomes blurred or even indistinguishable.

Making this distinction isn't about giving up one's values, principles, or beliefs in the name of compromise. It's about defining what one is FOR rather than just always what they are against (and angry all the time). It's about winning the "big picture war" rather than jumping into never ending battles du jour. Its about not allowing to be manipulated into a certain Group.

Incendiary Comments: Often in media settings, "Good Faith Skeptics" hear things they know shouldn't be said -- but just turn away in silence if the "verbal hand-grenade" supports battling the so-called 97% IPCC Consensus.

While this silence may "play well" with Deniers and Contrarians, it sure doesn't help in building trust within a critical target group that is "sitting on the fence" (lukewarmers). When terms like "Fraud" or "Hoax" are used, they should be called out for the epithets they are.

Be Careful Who You Hang Out With: For a moment, let's assume that a parallel World exists -- a World were President Obama (not Reagan) is trying for the first time to address internationally the "Ozone Hole". What would this "debate" look like in today's toxic political environment?

What would be the reaction if no Montreal Protocol existed and Obama proposed EPA Regulations to unilaterally reduce CFCs in the U.S.? Would we be hearing many of the same arguments from the very Groups that have consistently opposed so many environmental issues in the past?

Especially for "Good Faith Scientists", they don't need to be loved and admired -- they need to be broadly respected and viewed as the "Fair Umpire". "Fair Umpires" just don't hang out with Las Vegas Bookies.

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Additional News Stories and Sources:
The Associated Press (AP) on Labels of Denier, Skeptic, Doubter.
Use of Labels in the Climate Change Debate -- (Matthew Nesbit OP/ED)
Gulf Power and Coal Ash

Top Ten List of Good Things About Global Warming (humor).

noreply@blogger.com (Unknown) — Tue, 10 Mar 2015 03:56:00 +0000

The New Yorker Magazine reports (Andy Borowitz) that after a study from Yale showed that the term “Climate Change” elicits relatively little concern from the American public, leading scientists are recommending replacing it with new terms like:

You will be burnt to a crisp and die,
Your cities will be ravaged by tsunamis and floods.

Gee Whiz -- What a Gloomy Gus.

Having a mind just as strange as Andy Borowitz or the folks at the Onion -- it took only 3.14159265359 nanoseconds (easy as pie really) to compile some top positives.

For example, sharks (and their human equivalent, lawyers with lots of people to sue for causing this hot mess) are going to love Global Warming.

Top Ten Good Things That Can Happen With Global Warming:

10	Undersea World of Cousteau Replaces NBC Nightly News.
9	Always Wanted to go to Antarctica for Spring Break!
8	Thong Bikinis on Casual Fridays at Work.
7	Citing EPA Health Benefits of Dry Heat, Hell Moves to Syria.
6	"Where's Waldo Hiding the Cold Brewskis?" is #1 World Game.
5	Russia Solves Economic Problems, Introducing Club-Med Siberia.
4	Carbon Tax on Hot Air Forces Congress to Shut Down.
3	Dinosaurs Reappear in Galapagos Islands After Million Year Hiatus.
2	Florida Washes Away Making Presidential Elections Much Easier.
1	Two Words (even in Nebraska, Alaska, or Sweden): SURF's UP!!!

Some Random Thoughts That Also Pop Into My Head:

The Fussin' and Fightin': In the Blogosphere, when people debate highly technical points (like temperature statistical methods), we are reminded of how Nerds Talk Trash/Smack.

Today's Horoscope for Climate Scientists: Being a Climate Scientist must be pretty stressful -- with everybody suing each other and now Congress inquiring about personal financial records. A Wicked Problem: Most Climate Scientists agree that there are unknown unknowns (things that we don't even know that we we don't know) with Global Warming. When we get to the Pearly Gates, even Saint Peter might not exactly know what's going on.

When Calvinism "Pre-Destination" comes to the Global Warming Debate.

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Is Ethanol Being Forced Down Our Throats?

noreply@blogger.com (Unknown) — Mon, 23 Feb 2015 18:58:00 +0000

Breaking Story: National Public Radio (NPR) has a report which mirrors the major point of our following blog article -- Go Here.

What Would We Replace Ethanol With?

In the U.S., ethanol has become a "Whipping Boy" -- especially among Tea Party Types as yet another example of "Big Government" intrusion on free markets and personal liberties. But in Media reporting and debate, three key aspects of ethanol blending in gasoline are almost never mentioned (as if these realities don't exist):

Octane Requirements;
An Oxygenate for Cleaner Air.
Cancer Concerns with Ethanol Alternatives.

Octane: Octane rating (RON, MON) is a measure of a fuel's ability to resist/reduce the reaction of gasoline to combust/ignite under pressure in a car's engine cylinder (called anti-knock, AKI). Without proper octane levels in gas we buy at the pump, automobile performance levels will decrease and cause engine damage.

Un-blended gasoline (E-0 ethanol free) has a typical octane rating of ~84 and thus needs an octane enhancer to achieve a minimum rating of 87. Ethanol has a high octane rating (~113), where the majority of U.S. gasoline today is blended with ~10% ethanol (called E-10) to achieve the needed regular grade octane rating level of 87 for proper engine performance:

Reason #1 Why Ethanol is Blended With Gasoline

Gas Component:	Octane Rating	Percentage Blend	Weighted Octane
Unblended Gas (E-0)	84	90%	75.7
Ethanol (E-100)	113	10%	11.3
Gas @ Pump (E-10)	87	100%	87

(The above chart illustrates the typical practice used of splash blending.)

Clearly the Media is not presenting the significance of this ~10% ethanol blending level -- which is not a "Big-Government Mandate" but an automotive engineering requirement for a minimum 87 octane rating in gasoline.

Octane's History: For decades, the principle source to meet minimum octane requirements in gasoline was lead. But according to every World Health Organization this results in severe health problems (e.g., central nervous system damage, neurological development in children, fertility problems, high blood pressure, kidney damage).

In fact, there are now only 4 Countries in the entire World that have not taken action to eliminate lead in gasoline -- North Korea, Yemen, Afghanistan, and Burma.

In the 1990's, the U.S. EPA began requiring that lead be phased out of gasoline. Initially, this was achieved by using the high octane and oxygenate additive MTBE (derived from fossil fuels). However in the early 2000's, research from numerous national and international Health Organizations found that high usage levels of MTBE was likely a cancer causing agent. While the EPA has not specifically banned MTBE, its use has been banned in about half of the U.S. by State Legislatures.

States Banning MTBE Like on so many other environmental issues (assessing economic costs versus health benefits under scientific uncertainty), the opinion on MTBE generally followed the Red State versus Blue State deep cultural divide that exists in the U.S. (as the above map reflects).

For all practical purposes however, the MTBE controversy was settled not by Regulation but by the Courts. MTBE Manufactures and Blenders were being hauled into Courts (in hundreds of lawsuits) and losing. In an attempt to address this lawsuit problem by Blenders/Manufacturers occurring at State and local levels, Tea Party Members in the U.S. Congress (e.g., Rep. Joe Barton of Texas, Chairman of the House Energy & Commerce Committee) attempted to protect the MTBE Industry through Federal indemnification legislation -- which was rejected by the U.S. Senate.

Without Federal protection from environmental damage lawsuits (similar to what the Nuclear Power Industry receives for any accident)¹, MTBE Manufacturers/Blenders decided it just wasn't worth the legal exposure and hassle.

⁽¹⁾ The Price Anderson Nuclear Industries Indemnity Act.

Energy Policy Act of 2005: This Federal legislation created the Renewable Fuel Standard (RFS) to collectively address the following issues -- issues which still exist today:

Octane Requirements in Gasoline;
Oxygenate Requirements in Gasoline;
Foreign Oil Dependence;
Economic Development for U.S. Farmers.

In anti-ethanol rhetoric which the Media seems all to willing to accept, the following untruths are routinely presented to the American Public:

The Ethanol Mandate: A perception is often presented that the RFS "mandates" that the ethanol production volume used by Gasoline Blenders must increase by pre-determined levels every year. The EPA has clearly stated that this is just untrue -- and that scheduled increases in the RFS are targets, and not mandates.²

For 2015, the EPA proposed blending volumes of 2.9 billion gallons less than the RFS scheduled targets; which is also 1.34 billion gallons less than in 2014. According to EIA and EPA estimates, ethanol currently provides a little less than 10% (9.74%) of the total volume of finished motor gasoline consumed in the U.S.

⁽²⁾ Under Section 211(o)(7) of the Clean Air Act, the EPA has the authority to reduce the renewable fuel standard requirements if implementing the standard could cause severe economic harm or if there is inadequate domestic supply to meet the requirements.

Ethanol Must Be Blended In All Gasoline: This myth is refuted by the fact that ethanol free gasoline is blended and marketed throughout the U.S. (e.g., Boat Marinas). The problem here is not "Big Government" Regulations -- its the lack of overall consumer volume demand for this pricier product (which has higher cost non-ethanol octane enhancers which we will discuss in a moment).

In fact, the RFS does exactly the opposite of what the Tea Party says. The RFS reduced/simplified a myriad of cumbersome Regulations for gasoline, giving Blenders much more flexibility including the blending of special niche (e.g., Watercraft) gasolines. While most notable was the removal of the 2% oxygenate blending requirement, other aspects included volatile organic compounds (VOCs) and Mobile Source Air Toxics (MSAT) regulations.

One question that anti-ethanol proponents never address is: If Congress just eliminates the RFS, what Regulations would the EPA then impose for clean air? The age old adage "Be Careful What You Wish For" could result in EPA Regulations more restrictive that what currently exist for Blenders.³

⁽³⁾ This includes increased EPA focus on the health concerns (e.g., fine particulates, cancer risks) of any sizable increase in the use of aromatics for automotive octane requirements (benzene, toluene, xylene).

The U.S. Is No Longer Dependent on Foreign Oil: Another argument often repeated in the Media is that since the enactment of the RFS, circumstances have changed dramatically -- as foreign oil imports have decreased from ~60% to ~33% by 2013.⁴ The problem with citing this metric is that it's both irrelevant (to the octane and oxygenate requirements discussed above) and also highly misleading.

Arguments that the RFS is no longer needed are cherry-picking data -- citing U.S. Net Imports (i.e., Gross Petroleum Imports minus Exports). Using a dependency metric of Gross Imports reflects a very different story -- where the U.S. is importing a whopping ~50% of its Oil Demand.⁴

⁽⁴⁾ Using incomplete data from the EIA for 2014, estimated Gross Oil Imports were ~49% and Net Oil Imports were ~28%.

Data is also being cherry-picked as to where this Foreign Oil is coming from. While Spin Doctors can be technically correct that Canada now represents the largest single country importing oil to the U.S, this fails to reflect that a tremendous amount of oil is still being imported by OPEC countries (collectively exceeding that of Canada per EIA data).

U.S. Petroleum Imports(2013) So why is the U.S. still dependent on so much foreign oil? As addressed in depth on a previous blog post, it comes down to two bullet points: (1) Not all oil is created the same; (2) Many U.S. Gasoline Refiners did some "Wrong Guessing".

Crude oil can come in numerous forms. It can be heavy or light, sour (high sulfur content) or sweet. The dramatic increase in recent U.S. Oil Production (from fracking) has primarily been in light oil.

But prior to this shale oil boom, many U.S. Gasoline Refiners spent billions of dollars to configure their plants for heavier and sour foreign oils -- from places like OPEC countries of Saudi Arabia, Iraq, and Venezuela. U.S. Gasoline Refiners using heavy oil (represented in the black dots on the chart below) are not going to just walk away en masse from their capital investment and reconfigure yet again for U.S. light oil.

Further, while it may be technically correct that U.S. dependence on foreign oil (using the metric of net imports) is at the lowest level in almost 30 years, the composition of this metric is very different between 2013 and 1986.

Dependency Metric	1986	2013	Change
Gross Imports	38%	52%	+14%
Exports	05%	19%	+14%
Net Imports	33%	33%	0%

The dramatic increase in U.S. Petroleum exports (primarily gasoline and diesel) reflects an "Inconvenient Truth" that Politicians, the Oil Industry, and the Media are not telling the American Public -- that the U.S. has a Refinery structural problem on foreign heavy oil dependency.

The U.S. will continue to be very dependent on imported heavy oil until/unless many Refineries are re-configured to process light oils.
Unless many U.S. Refineries are reconfigured, much of the U.S.'s light oil will be exported.⁵
This results in higher cost heavy foreign oil ending up in U.S. consumer's gastanks, while lower cost domestic light oil is exported (indirectly through gasoline exports).

This last bullet point is extremely important in understanding foreign oil dependence. If U.S. Refiners were simply importing oil, refining it, and then exporting gasoline/diesel from this foreign oil, then the use of the Net Imports metric would be appropriate. But this isn't what's happening.

Current Oil Prices:
U.S. (WTI) Versus International (Brent)

With domestic oil (WTI) selling at a discount to the international Brent price, U.S. Refiners/Blenders have a competitive advantage over their international competitors. This explains why U.S. gasoline exports have increased so dramatically, as U.S. Gasoline Exporters have lower raw product crude oil cost.

⁽⁵⁾ Either as refined products (primarily gasoline and diesel) or direct crude oil exports (if Congress rescinds the +30 year old U.S. Oil Embargo).

Applying the No Harm, No Foul Rule: Three octane alternatives to ethanol are the aromatic compounds benzene, toluene, and xylene. These aromatics can be produced via high-pressure catalytic reformers in the same refineries that produce other petroleum feedstock for gasoline blending. In a recent study from the University of Illinois, the price of these 3 aromatics was compared with ethanol over a two year period -- January 2013 through January 2015.

As the above graph illustrates, ethanol prices were almost always substantially lower than the price of the other aromatics (with the gap recently narrowing but still favoring ethanol even with the collapse of +$100/bbl oil prices).

Anyone doubting the validity of the above data should think about something. The price of premium octane grades at the pump (greater than 87) always are significantly higher than regular. Higher octane ratings in premium grades are being achieved by using these non-ethanol aromatics.

Thus, by considering three points we can put Tea Party ideological arguments that customers must always have a freedom of choice into a pragmatic context:

Historically, the price of ethanol beats the costs of its alternatives as a needed octane enhancer for automotive engines.
In light of Refiners resistance to commit extensive capital to reconfigure their facilities for domestic light oil, it is inconceivable they would commit billions of dollars in capital to produce octane enhancers to replace lower cost ethanol.
But even if Refiners did want to commit extensive capital to produce non-ethanol replacement aromatics like benzene, they couldn't do it. Benzene is a carcinogen and limited by the EPA to a blending level of 0.62 percent (in the E.U. it's 1%). Also, there are numerous red flag health concerns with the mass use of other options like toluene as well.

What Rescinding the RFS Would Do: As shown, simply rescinding the RFS would have very little (if any) impact on the current volume of ethanol blended into gasoline. What it would do is likely destroy the promising and emerging cellulosic (e.g., using feedstocks such as agricultural wastes instead of corn) ethanol industry.

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Additional News Stories & Sources:
Bobby Likis Interview with Brian West of ORNL (Excellent)
Engine Knock and Octane
Health Concerns of the BTEX Complex -- Benzene, Toluene, Xylene
History of Octane
What is Octane?
Higher Ethanol Blends Would Reduce Air Pollution -- (Bloomberg)
Urban Air Initiative.
Steve Vander Griend -- (Facebook).
Review of Octane Enhancers -- (NREL).
Technical White Paper on Ethanol -- (RFA).
Higher octane, smaller engines, higher fuel efficiency -- (MIT)
The future of engines -- Turbo
The Incrdible Shrinking Engine
Fluid Catalytic Cracking Unit (FCCU) and Octane
Options for Octane Requirements
EPA's Authority to Regulate Octane
The Gasoline BOBs -- (RBOB & CBOB).
Ethanol Retains Low Cost Status for Octane Enhancers for 2015
Health concerns with Aromatics in Gasoline (Benzine, Toluene, Xylene).
Energy Discount & Mileage Estimates for Ethanol.
Could the Hydrogen Economy Run on Ethanol?

Notes on Octane: Increasingly stringent environmental regulation is causing more refiners to seek solutions to offset octane loss due to deeper hydrotreating of the naphtha streams to remove sulfur.
In the US, the growth in light, sweet domestic crude processing has resulted in an octane shortfall in some refineries, creating a clear value proposition for higher octane from the FCCU.
The catalytic reforming process produces most of the aromatic streams for refining, as well as xylenes for petrochemicals. Benzene extraction from FCC naphtha is an option that is being considered to both comply with gasoline specifications and add value to the aromatics produced, but this option requires capital investment. Moreover, steam crackers and new unit constructions and startups in the petrochemical sector do target increased aromatic production, and, as a result, extraction of aromatics from the FCCU is not the preferred option.

Notes on Ethanol's Current Blending Rate of ~10%: In 2015, about 13.7 billion gallons of fuel ethanol were added to motor gasoline produced in the United States, and fuel ethanol accounted for about 10% of the total volume of finished motor gasoline consumed in the United States.

My best to re-create this EIA 10% quote: (1) Go to Department of Energy's EIA Webpage on Ethanol Production for 2015; and take yearly number and divide by 365 (331,897/365 equals 909.307 thousand barrels per day); (2) Go to EIA Webpage on Oil Production. For 2015 Finished Motor Gasoline was 9,161 thousand barrels per day. 909/9161 equals a little less than 10%.

Is Ethanol Being Forced Down Our Throats?

noreply@blogger.com (Unknown) — Mon, 23 Feb 2015 18:58:00 +0000

Breaking Story: National Public Radio (NPR) has a report which mirrors the major point of our following blog article -- Go Here.

What Would We Replace Ethanol With?

Octane Requirements;
An Oxygenate for Cleaner Air.
Cancer Concerns with Ethanol Alternatives.

Reason #1 Why Ethanol is Blended With Gasoline

Gas Component:	Octane Rating	Percentage Blend	Weighted Octane
Unblended Gas (E-0)	84	90%	75.7
Ethanol (E-100)	113	10%	11.3
Gas @ Pump (E-10)	87	100%	87

(The above chart illustrates the typical practice used of splash blending.)

In fact, there are now only 4 Countries in the entire World that have not taken action to eliminate lead in gasoline -- North Korea, Yemen, Afghanistan, and Burma.

Without Federal protection from environmental damage lawsuits (similar to what the Nuclear Power Industry would receive for any accident)¹, MTBE Manufacturers/Blenders decided it just wasn't worth the legal exposure and hassle.

⁽¹⁾ The Price Anderson Nuclear Industries Indemnity Act.

Energy Policy Act of 2005: This Federal legislation created the Renewable Fuel Standard (RFS) to collectively address the following issues -- issues which still exist today:

Octane Requirements in Gasoline;
Oxygenate Requirements in Gasoline;
Foreign Oil Dependence;
Economic Development for U.S. Farmers.

In anti-ethanol rhetoric which the Media seems all to willing to accept, the following untruths are routinely presented to the American Public:

⁽⁴⁾ Using incomplete data from the EIA for 2014, estimated Gross Oil Imports were ~49% and Net Oil Imports were ~28%.

Dependency Metric	1986	2013	Change
Gross Imports	38%	52%	+14%
Exports	05%	19%	+14%
Net Imports	33%	33%	0%

The U.S. will continue to be very dependent on imported heavy oil until/unless many Refineries are re-configured to process light oils.
Unless many U.S. Refineries are reconfigured, much of the U.S.'s light oil will be exported.⁵
This results in higher cost heavy foreign oil ending up in U.S. consumer's gastanks, while lower cost domestic light oil is exported (indirectly through gasoline exports).

Current Oil Prices:
U.S. (WTI) Versus International (Brent)

⁽⁵⁾ Either as refined products (primarily gasoline and diesel) or direct crude oil exports (if Congress rescinds the +30 year old U.S. Oil Embargo).

Thus, by considering three points we can put Tea Party ideological arguments that customers must always have a freedom of choice into a pragmatic context:

Historically, the price of ethanol beats the costs of its alternatives as a needed octane enhancer for automotive engines.
In light of Refiners resistance to commit extensive capital to reconfigure their facilities for domestic light oil, it is inconceivable they would commit billions of dollars in capital to produce octane enhancers to replace lower cost ethanol.
But even if Refiners did want to commit extensive capital to produce non-ethanol replacement aromatics like benzene, they couldn't do it. Benzene is a carcinogen and limited by the EPA to a blending level of 0.62 percent (in the E.U. it's 1%). Also, there are numerous red flag health concerns with the mass use of other options like toluene as well.

Facebook:

2017 EPA Renewable Fuel Standards Volumes:
EPA Finalizes Increase in Renewable Fuel Volumes
Analysis of EPA Ethanol Volumes
Best Analysis of EPA 2017 Ethanol Volumes

Additional News Stories & Sources:
Ricardo Turbo Boost Engines Optimizes Ethanol
The Road to High Octane Fuels (Union of Concerned Scientists)
The Competitive Position of Ethanol as an Octane Enhancer in 2016
Bobby Likis Interview with Brian West of ORNL (Excellent)
Engine Knock and Octane
Health Concerns of the BTEX Complex -- Benzene, Toluene, Xylene
History of Octane
What is Octane?
Future Growth in Ethanol will be in Turbo Performance Engines
Higher Ethanol Blends Would Reduce Air Pollution -- (Bloomberg)
Urban Air Initiative.
Steve Vander Griend -- (Facebook).
Review of Octane Enhancers -- (NREL).
Technical White Paper on Ethanol -- (RFA).
Higher octane, smaller engines, higher fuel efficiency -- (MIT)
The future of engines -- Turbo
The Incrdible Shrinking Engine
Fluid Catalytic Cracking Unit (FCCU) and Octane
Options for Octane Requirements
EPA's Authority to Regulate Octane
The Gasoline BOBs -- (RBOB & CBOB).
Ethanol Retains Low Cost Status for Octane Enhancers for 2015
Health concerns with Aromatics in Gasoline (Benzine, Toluene, Xylene).
Energy Discount & Mileage Estimates for Ethanol.
Could the Hydrogen Economy Run on Ethanol?

The Failure of Conservatives on Global Warming.

noreply@blogger.com (Unknown) — Wed, 15 Oct 2014 16:16:00 +0000

Conservatives have allowed and seemingly even wanted Liberal
Ideology to Hijack the Global Warming/Climate Change Debate.

As a Pew Opinion Poll reflects, Global Warming has become yet another chapter in the ongoing U.S. Culture Wars between Liberals and Conservatives. This gulf in beliefs is especially wide with people who identify with the Tea Party movement (very anti "Big Government") -- where 41% surveyed were "Deniers", believing that Global Warming just isn't happening.

Where the News and Public Media emphasizes the extreme polarization and conflict, rarely is it conveyed what most climate scientists can actually agree on.

Agreement on the Basic Science: Global Warming Theory is based on Nobel Prize winning science¹ -- which is clearly not "Junk Science". One basic concept area that everyone can relate to is Rayleigh scattering -- of why the the sky is blue. Applications

of the fundamental chemistry and physics of Global Warming theory are used in aircraft design, missile defense systems, and the space program.

¹ This includes: Rayleigh scattering and distillation, van der Waals (equations of state), Wien's law, Planck's constant (central to radiation theory).

Probably 99% of Climate Scientists can agree on a core of basic beliefs that does represent "a consensus on settled science":

CO₂ is a Greenhouse Gas;
Adding CO₂ will have a warming effect on the Planet;
CO₂ levels have risen dramatically during the Industrial Age;² ³
In the past ~200 years, the Earth has warmed.
For the past 60 years, a large part of this warming is human driven.⁴

² NOAA data for 650 million years; NOAA data for past 1,000 years; IPCC AR5.
³ The level of CO² is now 42% above pre Industrial Revolution levels.
⁴ Views on what "large part" means -- a percentage of ~50% (Curry) to 100% (Schmidt).

CO₂ Levels:

Temperature Levels:

Science Uncertainty: But understanding Climate Science/Change is much more than just this "basic science". Called a "Wicked Problem", this involves extremely complex issues of our Planet's natural variability (wind and ocean currents), geological events (e.g., volcanoes) and feedback loops.

Where Climate Scientists can and do sharply disagree is how much and how quickly human driven greenhouse gases will effect global temperatures and regional climates through:

Feedback Loops (e.g., cloud formation);
Impacts on Natural Variability (climate oscillations, e.g., El Nino).
The predictive ability of Forecasting Models (e.g., the "Pause").

In describing "Wicked Problems", perhaps the best analogy ever coined was by U.S. Secretary of State, Donald Rumsfeld of knowns and unknowns -- where applied to Climate Change there are:

Known Knowns (the Basic Science);
Known Unknowns (natural variability and feedback loops).
Unknown Unknowns (things we don't even know that we don't know).

The Rhetoric of Uncertainty: But it's important to understand that the current unknowns do not disprove a scientific consensus in the above "core beliefs". A good example of this is the current Global Warming "Pause" -- where for the past ~15 years there have been:

No statistically significant increases in Earth's land temperature,
Even though CO₂ levels continue to significantly increase.⁵

⁵ Although the Earth's average surface temperature rose sharply by 0.9 degree Fahrenheit during the last quarter of the 20th century, it has increased much more slowly for the past 16 years, even as the human contribution to atmospheric carbon dioxide has risen by ~25%.

Deniers or extreme Skeptics/Contrarians saying or implying this "Pause" disproves a core of "Basic Science Beliefs" is a classic application of anti-science. One can try to poke all the gotcha holes they want in "Theory X", but doing so doesn't prove an alternative "Theory Y" (e.g., a tactic used by Biblical Literalists that their attempts to cherry-pick supposed holes in the theory of evolution proves Creationism beliefs).

Ideological Hard-liners can also create all the ubiquitous "conspiracy theories" (i.e., Climategate) they want -- but this still won't change the above 99% Consensus either.

In Public Opinion Wars, the terms "settled science and consensus"
are a reaction to the incendiary statements of many Republicans.

Conversely, Anthropogenic (human driven) Global Warming Advocates need to do a much better job in their communication of uncertainty -- especially their defensiveness. A good start would be a well versed "consensus" recognition that Climate Scientists don't yet adequately understand the sensitivities of this "Wicked Problem" -- especially the ability of current Climate Models to predict near term decadal impacts.⁶

⁶ Called Transient Climate Response or TCR.

Clearly, CO₂ parts per million levels and temperatures have not responded in a linear cause and effect fashion in the short-term (as many initially believed). Maybe the long-term progression of Global Warming is a stair-step function (with pauses of decades or more). Maybe its a exponential log function when some thresholds are broken through until equilibrium. Maybe, its a combination of these functions with warming interacting and compounding natural variabilities on things we currently just don't even know about (unknown, unknowns).

We do know this -- if anything does happen with severe consequences, we won't be able to fix it as changes in atmospheric CO₂ concentration levels can persist for centuries. With a trajectory to double the Earth's CO₂ levels, mankind is conducting the biggest science experiment of all time involving very deep uncertainties.

Reaching a Consensus: A TED presentation provides a good perspective of how to be effective when taking on difficult, wicked problems. The lecture uses a example of Dr. Alice Stewart, who in the 1950’s thought she had found a solid statistical link between expectant Mothers who had received x-rays and childhood cancers. But while Dr. Stewart was eventually shown to be correct, it took the medical science community over 25 years to achieve a consensus in proving and accepting this linkage.

For over two decades within the medical and public policy arena, Dr. Stewart was labeled an Alarmist in her Catastrophic warnings.

As the TED lecture explains, science is most often messy and laborious. In resolving challenges, the Right Kind of both Advocate and Skeptic is needed in an environment of some basic trust -- not driven by tribalism and hard-line ideologies of political, religious, economic, and even academic special interests or egos.

Conservative Hot Buttons:
In recent years, negative ideological "values" messaging from Conservative Think Tanks, Media Sources, and Religious Groups have associated and demonized environmental policy initiatives as big-government, socialism, anti-free markets, job loss, and even with Faith (worshiping the Green Dragon).

Global Warming is framed to hit all the hot
buttons of Conservatives to create a perfect storm.

The effectiveness of this negative messaging is absolutely evident in national polling, where partisan divides on environmental issues are greater than on major issues like the budget deficit, health care, and Social Security.

Widest Partisan Differences Over Issues
(% rating each a top priority)

Issue:	Rep	Dem	Ind	Diff
Protecting the Environment:	28%	65%	48%	-37%
Problems of Poor & Needy:	32%	64%	48%	-32%
Reducing U.S. Budget Deficit:	80%	49%	66%	-31%
Dealing with Global Warming:	14%	42%	27%	-28%

Clearly, environmental issues have become a "hot button" among many Conservatives -- a litmus test in defining one's personal values:

"Global warming is a religion of a secular left that rejects the God of creation in favor of worship of creation. . . Any of those involved in the science of global warming oppose capitalism in general and America in particular. They are maladjusted, Al Gore type angry people in need of prayer." (Erick Erickson of RedState.com)

History of Republican Environmental Leadership: The current adversarial and combative attitude toward environmental issues hasn't always been the case. The Republican Party has a rich history in leadership and bi-partisan cooperation to address numerous serious environmental issues.

Two vivid examples are ozone depletion (President Reagan) and air quality (under both Bush Administrations) -- where significant improvements have been achieved without destroying the economy, advancing socialism, or worshiping a supposed Mother Earth.

Air QualityClick To See Improvement

Ozone HoleClick To See Improvement

When past Republican EPA Administrators⁷ serving under every Republican President thinks Anthropogenic (emissions from human activity) Global Warming is a real and serious threat, this should mean something to Conservatives -- no matter what Al Gore believes.

⁷ Ruckelshaus (Nixon), Thomas (Reagan), Reilly (Bush), Whitman (Bush).

Where Have the Conservative Thinkers Gone?: By reducing Global Warming/Climate Change to Culture Warfare, Conservatives have and continue to fail miserably. The Problem isn't "Junk Science" of liberal scientists, its the "Junk Thinking" by Conservatives. They are forgetting the very core principles of conservatism, and how these principles should be applied to any policy issue.

Fundamental Ideological Differences Between Liberal Vs. Conservatism

The "True Problem" for Conservatives is that from the get-go, the issue of Global Warming was hi-jacked by Liberal Ideology policy proposals. Conservatives have never developed meaningful and consistent policy alternatives based on their principles to pro-actively tackle this issue.

By arguing that no or little actions are warranted, Conservatives are choosing to play a very dangerous and high stakes "winner take all" game. No person on this Planet knows how the science or politics of Global Warming will eventually play out. Two things can absolutely happen: (1) Breakthroughs in science confirming the theory where the timing and consequences are unquestionably serious; (2) The occurrence of extreme weather events which overwhelms public opinion (correct or not) to demand immediate major policy actions.

Waiting to develop, taking a pro-active leadership position, and establishing credibility on conservative policy alternatives is a non-starter. If swings in public opinion do occur to take action, it will be too late. Liberal policies (e.g., carbon taxes) will be too entrenched and Conservatives' credibility will be shot (labeled as obstructionists).

Liberal Vs. Conservative Approaches to Global Warming Policy In their policy approaches to Global Warming, Liberals never really address:

No matter how a U.S. Carbon Tax is packaged, it will still be a regressive tax -- disproportionately impacting the poor.
Impact of a Carbon Tax on U.S. Manufacturing competitiveness. Will it result in increased imports, just outsourcing carbon emissions?
Any Cap & Trade System would be a new Wall St. toy. Remember how these financial derivatives wrecked the World's economies?
A Federal Renewable Energy Portfolio Standard would take Decision Making out of the hands of our Engineers and place it with Politicians.

A Conservative Path : By bashing Liberals less and studying science more, there just might be a way out of this mess. Using an approach advocated by Dr. Ramanathan called "Fast Mitigation", a sound-science foundation for "no regrets" climate policies can be developed -- reflecting

and consistent with the Republican Party's history of environmental leadership and commitment on hard issues (e.g., ozone depletion, acid rain, air quality).

Fast Mitigation (basically targeted to improving air quality) coupled with policies to spur high economic growth using international trade just might provide the ticket needed. With pro-active "smart and creative" conservative leadership, meaningful and immediate reductions in the "Global" trajectory path of greenhouse gas emissions could be achieved.

Fast Mitigation: While CO₂ is about 77% of total greenhouse gas emissions, it is not the only thing that contributes to global warming. Other potent warming agents include three short-lived gases and dark soot particles -- called short-lived climate pollutants:

The warming effect of these short-lived climate and air quality pollutants (which stay in the atmosphere for several days to about a decade) delivers a very big punch. Methane is over 20 times more powerful than carbon dioxide in causing warming. Some HFCs can have a warming potential 11,000 times greater than CO₂.

Global Warming Potential of CO₂ & Short Lived Climate Pollutants ⁸

Greenhouse Gas:	Global Warming Potential Factor	Warming Time Potential
Carbon Dioxide:	1	>1,000 years
Methane:	21	12 years
Hydrofluorocarbons⁹:	1,300	14 years
Smog (O₃):	.25	hours/days

⁹ Based on the most commonly used auto refrigerant (HFC-134a). A new refrigerant (HFO-1234yf) with a GWP that is just 4 times that of CO₂ and exists for only 11 days is scheduled to become the new standard for automakers in the U.S., Europe, and Japan.

According to Dr. Ramanathan, the warming effect of these pollutants is currently about 80% of the amount that CO₂ causes.

Changes in Radiative Forcing from Human Activity Emissions
Since the Industrial Revolution of 1750 (in W/m2)

Decision Making Under "No Regrets": Often the words "no regrets" are used as code "to kick the can down the road" by just calling for more research. Used in a correct context, "No or Low Regrets" should be a process of best efforts to make good decisions, especially under deep uncertainties.

With the U.S. Supreme Court upholding the authority to regulate CO₂ under the Clean Air Act (CAA)¹⁰ and EPA now promulgating Regs, Conservatives can try to:

Overturn the law by re-writing the CAA (through the election of a GOP President & super majorities in Congress).
Further fight the law in the Courts (e.g., current EPA Lawsuit).¹¹
Conduct Guerrilla Warfare (defunding EPA's Budget to enforce Regs).
Make the law better (or less onerous) through Bi-partisan cooperation.

¹⁰ Defined as a pollutant agent under the CAA effecting weather or climate.
¹¹ Both of the first two paths involve deep uncertainties. For example, to overturn EPA Regulations would likely require a super majority (60 votes) in the U.S. Senate. Also, based on other CAA legal precedents, overturning EPA authority is highly questionable.

What Conservatives should be very concerned about are the potential consequences if policy opposition is unsuccessful. By not developing pro-active alternatives, a huge void is created. If public opinion does ever demand immediate action (e.g., from catastrophic weather events) -- it will almost certainly be a liberal top/down approach based on command/control:

Carbon Taxes
Cap and Trade
Federal Energy Mandates (Renewable Energy Portfolio Standard).

Attributes of a Conservative Plan: A pro-active approach to Global Warming based on Fast Mitigation and economic growth (through international trade) fills this current Policy void -- and directly addresses what many consider catastrophic messaging that liberal policy actions must be taken immediately (e.g., carbon taxes, etc).

Buying Time: While Fast Mitigation to reduce short lived carbon pollutants is not a long term cure-all to Global Warming (AGW), it could have a dramatic and immediate effect in decreasing the growth rate (trajectory) in global atmospheric greenhouse gas levels.

Trajectory of Global Greenhouse Gases Since 1850 In Policy decision making, Fast Mitigation can buy some time (perhaps several decades according to Dr. Ramanathan) for our scientists and engineers to hopefully figure out this "Wicked Problem" and how to best address it:

Sensitivities of global temperatures and climate to increased CO₂.
Technology Breakthroughs (solar, natural gas fracking, nuclear, etc).

Improving Air Quality: In forming public opinion, a picture can be worth a thousand words. For many Americans, connecting with the need to reduce CO₂ emissions (a colorless, odorless gas) can be difficult. Fast Mitigation targets known air quality pollutants (such as heavy truck diesel exhaust) that everyone can connect with for cleaner air.

Also, applied on a regional and local basis, Fast Mitigation can be tailored to reflect conservative principles of flexibility and de-centralized bottom-up approaches (compared to one-size-fits-all) targeted to where air quality issues are of higher concern.

Building Low Carbon Global Markets through Economic Growth: Using international trade to address concerns of Global Warming/Climate Change is a perfect example of applying conservative principles of bottom-up, de-centralized, flexible, and reward based no-regrets policy actions.

If reducing the trajectory path in green-house gases is to be truly treated as serious on a global stage, pragmatic lessons must be drawn from international trade -- where reciprocity reigns supreme. No country eliminates or reduces its trade barriers without reciprocal and meaningful concessions from trading partners.

As discussed in previous blogs (including criticism of the Obama Administration on coal use), the template of building low carbon markets is pretty straight forward:

Developing countries would commit (with verifiable standards) to building low carbon intensity economies by purchasing high technology/energy efficient American products.
In exchange, the U.S. would give Developing Countries unpreceded access into U.S. markets for their products.
Simply stated, this Policy approach accentuates stuff we're good at (high technology products) and stuff that Developing Countries are good at (low labor cost products) -- a Win/Win.

An example of this would be current U.S. efforts to create a large free-trade zone encompassing 11 other Pacific Rim countries (excluding China) -- called the Trans-Pacific Partnership. A good first-step would be for the U.S. to create some global "Enterprise Zones" with friendly developing nations (e.g., India, Philippines) to test the effectiveness of using trade to reduce greenhouse gas emissions:

Specific Industries would be targeted to develop and implement "Low Carbon Standards" (LCS) using U.S. high energy efficient technology.
In return, the U.S. would give special access into U.S. markets for these LCS products.

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Additional News Stories:
Simple Explanation of Infrared Radiation
Basics on Global Warming Theory (Nobel prize winner, Dr. Molina)
Climate Etc. Blog thread on the Pause.
Wall St. Journal on Environmental Concerns since 1976.
Global Warming Potentials of Greenhouse Gases (GWP)
Climate Models -- (N.Y. Times)
Fast Mitigation in India -- (Washington Post)
U.S. Policy on Methane emissions -- (N.Y. Times)
U.S. Methane emissions -- (Slate Magazine)
CO2 Equivalents -- (Wikipedia)
Social Cost of Carbon -- (U.S. EPA)
Black Carbon and Arctic Sea Ice -- (What's Up With That Blog)
Estimated Impact of CO2 Power Plant Regs by State -- (Bloomburg News)
Comments on Fast Mitigation by Dr. Curry of Georgia Tech -- (Climate Etc.)
Comments on Black Carbon by Dr. Curry -- (Climate Etc.)
EPA Looking at New Regs on Methane Emissions -- (Fuel Fix).
Political Polarization and the Media -- (Pew Research).
Religion Vs. Evolution (Pew Research).
Who Wants What from the EU 2030 Climate Framework -- (Carbon Brief)
Global Carbon Trading -- (The Independent)
EPA Says U.S. Smog Rules Should be Tightened
True Conservative -- The American Conservative
Republicans Supporting a Carbon Tax? (Weekly Standard).
A Lesson that Carbon Tax Proponents Should Learn from Maryland.
Global Warming Blog/Twitter Wars -- How Much and How Fast.
Investors Support to Reduce Methane Emissions
Obama Readies Sweeping List of Executive Actions -- (Politico).
U.S. and China Reach Climate Deal -- (N.Y. Times).
Americans Trust Obama More Than Republicans on the Environment -- (Pew Research).
Air Pollution & Global Warming -- (Nature Magazine).
New Carbon Tax Bill Introduced in U.S. Senate.
Methane Reductions in Oil & Gas Industry.
GOP and Industry Will Fight EPA Proposed Reg on Smog -- (Politico).
Poll: Why People Don't Believe in Global Warming -- (Business Insider).
Advanced Nuclear Power Technology -- (MIT Research).
Obama Proposal on Methane.
The Damaging Effects of Black Carbon

Real-Time World-wide Map of Air Quality:

The Untold Story on U.S. Foreign Oil Dependency.

noreply@blogger.com (Unknown) — Thu, 17 Jul 2014 00:18:00 +0000

Background Points for Today's Blog:
(1) In discussing U.S. foreign oil dependency, two measures are used:
Gross Imports % -- Total Imports/Total Petroleum Used.

Net Imports % -- (Imports minus Exports)/Total Petroleum Used.

(2) Under laws imposed after the Arab oil embargo of the 1970s, U.S. companies can export refined fuel such as gasoline and diesel but not crude oil itself.

Typically when U.S. foreign oil dependency is being discussed in the Media, it will be the net imports number that is cited. Using this benchmark, the EIA states "In 2012, about 40% of the petroleum used by the United States was imported from foreign countries -- the lowest level since 1991". For 2013 (using non-finalized data from the EIA), estimated net imports were 33% -- the lowest level since 1986.

Of the total petroleum used in 2013, an estimated 52% came from foreign countries (gross imports); 19% was exported (in refined products such as gasoline); with resulting net imports of 33% (52% minus 19%).

¹ The above 2013 values are not official. In 2012 per the EIA, about 57% of the crude oil processed in U.S. refineries was imported.

Historical Perspective: The significance between gross versus net imports is a relatively recent development. For decades prior to the current boom in domestic oil production, yearly U.S. petroleum exports were very constant at approximately 5% of total supply. However, during the past 7 years, two things have dramatically changed:

U.S. field production of oil and other petroleum liquids has more than doubled from 5.5 million bpd (2006) to 11.3 million bpd (April 2014).

Petroleum exports (e.g., refined products of gasoline, diesel) have increased almost 400%.

bpd -- barrels per day.

Percentage of U.S. Petroleum Exports

Thus, while it may be technically correct that U.S. dependence on foreign oil (defined using the benchmark of net imports) is at the lowest level in almost 30 years, the composition of this benchmark measure is very different between 2013 and 1986. Using a gross imports benchmark, the U.S. is much more dependent today on foreign oil.

	1986	2013	Change
Gross Imports:	38%	52%	+14%
Exports	05%	19%	+14%
Net Imports	33%	33%	-

In a world where all oil was the same (type and price), use of net imports would be totally appropriate. After all, this would be an example of American refining technology ingenuity where we import oil, refine and then export it into world markets better (lower costs) than anybody else. However, this isn't what's happening. Not all oil is the same type (light versus heavy crude) or priced the same (U.S. versus World oil prices).

Understanding Some Oil Basics 101: In long-term forecasts through 2040, the Department of Energy projects that U.S. dependency on imported oil (net imports) will stubbornly be above +30%.

Historical and Projections of U.S.
Oil Production & Consumption: So with the U.S. oil boom, why are we importing so much foreign oil? The answer is found in the fact that not all crude oil is created the same. It can be heavy or light, sour (high sulfur content) or sweet.

With the exceptional increase in U.S. oil production from tight shale formations/fracking (e.g., North Dakota, Texas, etc.) there is good and bad news. Most of this oil is high quality light crude, relatively easy to refine in refineries that are not terribly complex. The bad news is many U.S. refineries (especially on the West Coast and Atlantic Seaboard) can not use this lighter oil. Prior to the shale boom, U.S. refiners spent billions of dollars to configure their plants for heavier and sour foreign oils (from Canada and OPEC countries of Venezuela, Saudi Arabia, and Iraq).

The below chart from the EIA illustrates this above point. While U.S. imports of light crudes have been reduced dramatically in recent years (displaced by new oil production from North Dakota, Texas, etc.), imports of heavy crudes have remained constant.

Digging Deeper into the Data: Contradictory to what is reported in the Media, OPEC (not Canada) remains the largest oil importer to the U.S. While statements that Canada is the largest crude oil importer is not a "pants on fire" misrepresentation -- it is "Spin Doctors" at work. Although it is again technically correct that Canada is the largest single country importer, this fails to recognize that OPEC (comprised of 12 countries) is a cartel and operates as a single entity.

U.S. Petroleum Imports
(2013)OPEC is the largest
Importer to the U.S.

U.S. Petroleum Exports
(2013)U.S. is becoming the
Oil Refiner for the World.

In addition to gasoline exports, a major growth market for U.S. refiners is diesel fuel (especially Europe and South America). A large number of European refining plants have closed, as they can not compete with U.S. produced diesel.

U.S. Petroleum Exports: As discussed in prior blogs, a major reason in the unprecedented surge in U.S. petroleum exports is the price difference between U.S. and Internationally traded crude oil.

Current Oil Prices:
U.S. (WTI) Versus International (Brent)

During the current U.S. oil boom, the benchmark price for domestic oil (West Texas Intermediate -- WTI) has been below the international benchmark for crude (Brent). As a result, many U.S. refineries have been using lower cost WTI priced oil, refining it (e.g., gasoline, diesel), and then pricing the refined products into international markets (where competing foreign refiners must pay the higher cost Brent price for crude oil).

Since it is legal for refined oil products to be exported, a refiner's access to lower cost domestic oil does not necessarily translate to cheaper gas for the U.S. driver and consumer. A U.S. refiner could as easily sell their product to the international market if that would maximize their profit. This explains why even with dramatic increases in domestic crude oil production (especially in the last 3 years), U.S. gasoline prices have basically remained unchanged.

Yearly Average of U.S. Gas Prices Putting the Pieces Parts Together: While Politicians and Talking Heads make environmental issues (e.g., Keystone Pipeline, Global Warming, ethanol use²) the center of the U.S. Oil Policy debate -- here is what's really going on:

² As this Blog continues to point out, the current blending of ~10% ethanol in gasoline achieves well established health science benefits (lead removal, oxygenate for cleaner air).

Drivers Of U.S. "Net Imports" Oil Dependence
Note: Notice that there are no major oil pipelines to the West Coast or Atlantic Seaboard.

Foreign Oil Imports: Using 20/20 hindsight, the crystal ball of many U.S. refiners (on the West Coast and Atlantic Seaboard) was not very good. They did not foresee the magnitude of the current domestic oil boom coming -- investing billions to configure their refineries to use foreign heavy oil. These refineries are simply not going to walk away from this capital investment and re-configure their plants yet again to use domestic light crude in making gasoline.

Refined Products Exports: Many U.S. Refiners (along the Gulf Coast) use lower cost domestic oil (WTI), but price their products (gasoline, diesel) into an international gasoline and diesel market based heavily on more expensive Brent. The cheaper WTI becomes in relation to Brent, U.S. refiners make more profits and increase world market share.

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Related News Stories:
U.S. Oil Boom Drives Gasoline & Diesel Exports -- (Fox Business News).
Impact of Lifting Ban on U.S. Crude Oil Exports -- (Wall St. Journal).
World Refinery Margins -- (BP Energy Outlook).
Technical Chemical Engineering Discussion: Why U.S. Gasoline Refiners use so much Imported Heavy Oil
Where the U.S. got its oil in 2015 -- (Fortune Magazine, Robert Rapier).

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Lessons that Greens should Learn from Keystone (Part 2 of Series)

noreply@blogger.com (Unknown) — Sun, 30 Mar 2014 06:11:00 +0000

Today we build on Part 1 of this series: How conflict over environmental issues (e.g., Global Warming) is being used to divert the Public's attention from energy policy objectives of Special Interests -- such as exporting U.S. oil.

The Court of Public Opinion: In a just released Washington Post Poll, Americans approve of building the Keystone XL pipeline by a margin of 3 to 1 -- concluding that economic benefits far outweigh environmental risks.

While support for Keystone from Republicans (and Independents) would be expected, polling data also reflects that ~50% of Democrats support the project (with wide division by income levels).

Looking at other national polling, this reaction shouldn't come as a surprise to Environmental Interests. In the latest Pew and Gallup research, "Strengthening the Economy" is the top priority -- with "Global Warming" almost dead last in importance. By making Global Warming the focal point of the Keystone XL debate, Environmental Interests never connected with the American Public (including ~50% of Democrats) on pocketbook issues they consider most important. Even though reputable independent sources say that Keystone will create only about 35 permanent jobs, what most Americans are hearing and believing is very different. Clearly, public opinion is tuning out environmental messaging.

At the risk of becoming irrelevant outside their Base, Environmental Interests need to use Keystone as a wake up call to: (1) Connect better on key economic issues; (2) Hold Republicans much more accountable for their "double-speak" messaging; (3) Do some soul-searching for pragmatic solutions in the real world.

Inconsistency in Republican Values: In past messaging of why Keystone XL is needed, proponents used three core building blocks. But in current efforts to end the +40 year ban on exporting U.S. oil, Republicans are now making a 180° about-face from the very "core principles and values" they originally made why Keystone is important:

Republican Messaging:
Need for Keystone

Republican Messaging:
Need to Export U.S. Oil

Objective of Special
Interests All Along:

If "core values" of independence from Mid-East oil, lower gasoline prices, and job creation are important to Keystone XL, these same underlying values should also apply equally to any other national energy policy issue.

Independence from Mid-East Oil: As discussed in Part 1 of this blog series, Keystone is crucial in expanding the existing north/south pipeline capacity to move U.S. and Canadian oil to both Gulf Coast refineries and ports (for potential foreign market

exports of crude and refined products such as gasoline). However, Keystone XL does not address two major issues with America's current or future dependence on Middle-East oil: (1) The lack of East/West pipelines to move oil to major markets in California and the Atlantic Seaboard which are heavily dependent on foreign oil; (2) The Jones Act.⁽¹⁾

⁽¹⁾ The Jones Act is a ~100 year old maritime U.S. shipping law which explains how importing oil from Middle East countries can be cheaper than transporting oil via tanker from the U.S. Gulf Coast area to East and West Coast markets.

Republican bravado that Keystone XL would achieve U.S. energy security from Mid-East oil if not a "pants on fire" statement, is pretty darn close to it. But even if the "energy security" aspects of Keystone are simply a matter of overselling potential benefits (which happens all the time on both sides of political theater), a deeper trust problem exists as to exactly what are the Republican core values and principles?

Republican Double-Speak on the Importance
of Independence from Middle-East Oil

In arguments to end the +40 year U.S. oil export ban, current Republican messaging emphasizes the importance of America standing for "free and open market international trade". But in making this free trade argument, what happened to the "core value" of oil independence? Per the Energy Information Agency's long-range forecast through 2040, U.S. foreign oil dependency (currently at ~40%) is expected to remain above +30%.

Historical and Projections of U.S.
Oil Production & Consumption: The Cato Institute (a leading Conservative/Republican Think Tank) has a guiding policy paper which explains why free-trade must always be the underlying core value and that actions to achieve U.S. oil independence have been, and always will be bad policy. Under this view of conservative principles, the international market should always be the driver.

But the point in today's blog is not about the pro's or con's of international trade. It's about "trust", and how this is broken when "doublespeak" occurs on core principles. Is independence from Middle-East oil important or not? In supporting Keystone XL, it's important -- but in exporting U.S. oil, it isn't.

"Oh What a Tangled Web We Weave When First We Practice to Deceive". -- Old English Proverb.

A key to Republican success in achieving public opinion support for Keystone XL is the simplicity of their messaging. After all, it's just common sense that if oil supplies increase (by removing "big-government" barriers) that gasoline prices will decrease. This is just basic economics -- Right? Well, not exactly. Since 2008, total U.S. oil production has now increased 50% as a result of amazing technology breakthroughs in fracking and horizontal drilling. So with this record growth (especially during the past three years), what's happened to gasoline prices? While pump prices have decreased slightly, they sure haven't returned to $2 levels as promised by many prominent Republican leaders.

Yearly Average of U.S. Gas Prices In messaging on gasoline prices, Republican trust problems are two-fold: (1) What can be called an "Original Sin"; (2) Yet another 180° about-face on core values.

The Original Sin: An inconvenient fact with "Drill, Baby, Drill" is the very high cost of extracting oil from fracking/horizontal drilling -- which is 4 to 6 times higher than from conventional oil fields in the Middle East. According to Oil Analysts, the average cost of new oil production from U.S. tight oil and shale gas regions is ~$70 a barrel, with marginal costs (the last barrels produced) as high as $114 a barrel in 2012.^{1, 2, 3}

In order to achieve a return to $2 gasoline would require a precipitous price drop to ~$40 a barrel (bbl) -- a market price significantly below the costs to extract oil using fracking/horizontal or deep-sea drilling. Thus, without a continuance of high market prices (currently over $100/bbl) much of this unconventional U.S. oil would be uneconomic to extract.

Republican leaders have always known these facts of high drilling costs and the non-reality of dramatically lower U.S. gasoline prices, but continue to present a story that people "want" to hear.

More Inconsistencies in Stated Republican Core Values: "Drill, Baby, Drill" can have numerous benefits within the economy (e.g., job creation, reduced U.S. trade deficit) and even the environment. While Environmentalists are absolutely correct that fracking must be safe, this engineering advancement also has the potential to dramatically reduce man-made (anthropogenic) Global Warming (AGW). In using safe fracking practices to extract needed and high value crude oil, a resulting by-product is low cost and lower carbon emission natural gas (displacing coal in electricity generation, oil in transportation fuels).

Where there is wide disagreement with "Drill, Baby, Drill" is its impact on oil prices. Democrats commonly argue that increased production (especially through high cost fracking) wouldn't make much difference, with a belief that oil prices are determined by international markets. Republican pro-drilling proponents adamantly disagree. So, who is right?

In almost all oil transactions, the price that producers receive is derived from a market benchmark value of crude oil. In the U.S., this is West Texas Intermediate (WTI). Internationally, the benchmark is Brent. The two crude oils are of similar quality and historically have been priced very close to each other (the Democrats argument).

However beginning in 2011, prices began to differ between the two crudes. The record growth in U.S. oil production caused a buildup of crude oil inventories at Cushing, Oklahoma, where WTI is priced. This created a supply and demand imbalance at the hub, causing WTI (the U.S. benchmark) to trade lower than the international Brent benchmark.

Note -- Most Current Oil Commodity Prices:

But instead of declaring "Victory" that increased oil production can indeed reduce prices -- Republicans are now contradicting their very own stated core values. In current efforts to end the +40 year old U.S. ban on exporting crude oil, Republicans argue that U.S. oil producers need higher prices.

In order to achieve this Special Interests' objective of higher crude prices for oil producers, the XL and other spurs of the massive Keystone pipeline project play critical roles.

First, Keystone will provide pipeline capacity around Cushing, Oklahoma that will eliminate the bottleneck of oil flow (that currently results in oversupply and depresses U.S. prices) at this critical Hub where WTI benchmark is priced.

Spurs of Keystone Pipeline Project

Second, by achieving an unobstructed flow of oil to Gulf of Mexico ports coupled with eliminating the current ban on exporting oil, U.S. oil prices would be forced upward to align with the higher Brent benchmark as Producers would now have a choice to sell into domestic or international markets.

Every once in a while just the "perfect" quote comes along that makes it crystal clear where corporations loyalties are: "I don’t make decisions based on what’s good for the U.S.” -- (Exxon CEO).

What's Up Next: In our next blog, we will continue this series by looking at (1) The job creation claims used to justify Keystone; (2) Some needed soul-searching by Environmental Interests.

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Current Oil Prices: U.S. (WTI) Versus International (Brent):

Additional News Stories:
Will Keystone Reduce U.S. Gasoline Prices? (Christian Science Monitor)
Exporting U.S. Oil (N.Y. Times)
Calls to Lift U.S. Export Ban to Punish Russia (Business Week).
Approve Keystone XL to keep Russia in Check (New York Post).
Percent of Oil Demand that U.S. Imports (EIA)
Production Cost of Oil Sands in Canada
Testimony by Senator Markey on Oil Exports and Keystone
Conservatives Can Be Green
Prediction: Obama Will Reject Keystone (Rolling Stone)
Keystone XL Already Becoming Obsolete (Business Insider).

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The Real Republican Agenda with Keystone -- Selling U.S. Oil Overseas

noreply@blogger.com (Unknown) — Wed, 19 Feb 2014 03:16:00 +0000

With the Keystone pipeline, Republican Strategists are using conflict over environmental issues to divert public attention from their real policy objective -- exporting U.S. oil.

In today's toxic political landscape of Red versus Blue States, almost any policy issue pinned with a label of "environmental" not only automatically invokes extreme partisanship. This division also closes people's minds, eliminating the need to question whether a proposed policy is in the best interests for all average Americans - regardless of environmental issues.

In trying to shape public opinion, it's always much easier to demonize an environmental label like Global Warming in a 30 second soundbite, rather than to explain and justify something complicated like trade policy.

Extreme Partisanship Over the Environment: For years, negative ideological "values" messaging from Conservative Think Tanks, Media Sources, and Religious Groups have associated and demonized environmental policy initiatives as big-government, socialism, anti-free markets, job loss, and even with Faith (worshiping the Green Dragon).

Widest Partisan Differences Over Issues
(% rating each a top priority)

Issue:	Rep	Dem	Ind	Diff
Protecting the Environment:	28%	65%	48%	-37%
Problems of Poor & Needy:	32%	64%	48%	-32%
Reducing U.S. Budget Deficit:	80%	49%	66%	-31%
Dealing with Global Warming:	14%	42%	27%	-28%

The Keystone XL pipeline project illustrates this strategy of diversion at work, where current Republican actions are now revealing what Keystone was really always about:

"With record growth in U.S. oil production, Republican and Oil State politicians, big business leaders, and oil lobbyists are all calling to end a nearly 40 year ban on U.S. crude oil exports. The ban was put into place after the 1973 OPEC Oil Embargo." (The Hill)

With a Keystone debate defined by the highly partisan environmental issue of Global Warming, there has been little discussion how Keystone is

intrinsically linked to the policy issue of exporting oil -- as the TransCanda and other north to south pipeline projects provide the critical infrastructure to move U.S. (and Canadian) oil to potential foreign markets.

The Issue of Trust: During the coming year, there will be much debate over whether lifting the U.S. oil export ban is good policy. Maybe its a good idea, maybe not. But the point in today's blog is not really about policy issues. It's about the bedrock of "Trust" to the American Public in addressing issues that have nothing to do with Global Warming.

In the 2012 Presidential Campaign, Keystone was the "Poster Child" of conflict between Environmentalists and Republicans over energy issues -- where Global Warming/Climate Change was (and still is) the epicenter of debate. Less than a year ago in the debt ceiling debacle in Congress, Republicans threatened to shut the Federal Government down unless President Obama approved Keystone XL.

But in current messaging to end the +40 year U.S. Oil Export Ban, Republicans are now refuting the very "principles and values" they have made of why Keystone is critically needed.

Republican Messaging:
Need for Keystone

Republican Messaging:
Need to Export U.S. Oil

Actual Republican
Objective All Along:

Today, we will look at the first of three key building blocks of past Republican messaging of why Keystone was needed -- and how ending the oil export ban is a 180° about-face to the original Keystone arguments made to the American Public. Let's try and be clear though -- it's not the Republican "ideological values" that are in question here,

such as the principle of free market trade.

The problem is the inconsistency in the Republican double-speak messaging and the lack of public dialogue/debate of what ideological arguments like free market trade actually mean (e.g., potential of higher gasoline prices to U.S. consumers).

Foreign Oil Dependence: Spin Doctors are in over-drive giving the American Public the impression that the U.S. has or is on the cusp of attaining Energy Independence -- and that most of the remaining oil we do import is from Canada.

But per U.S. Department of Energy information, the U.S. currently imports ~40% of its oil requirements -- where the single largest importer is from the OPEC Cartel. As we've previously shown, every time you fill up your tank, you are sending 36¢ per gallon to OPEC countries.

Oil Sources of Current U.S. Gasoline Supply¹
(Compared by barrels of oil produced) ⁽¹⁾ While it is technically correct that Canada is the largest "single country" oil importer, in a context of "energy security" this is misleading. OPEC currently imports far more oil to the U.S.

Understanding Some Oil Basics 101: Even in long-term forecasts through 2040, the Department of Energy projects that U.S. dependency on imported oil will stubbornly be above +30%. So with this likelihood, why would policymakers even consider lifting the U.S. oil export ban? The answer is found in the fact that not all crude oil is created the same. It can be heavy or light, sour (high sulfur content) or sweet.

With the exceptional increase in U.S. oil production from tight shale formations/fracking (e.g., North Dakota, Texas, etc.) there is good and bad news. Most of this oil is high quality light crude, relatively easy to refine in refineries that are not terribly complex. The bad news is many U.S. refineries can not use this lighter oil. Prior to the shale boom, U.S. refiners spent billions of dollars to configure their plants for heavier and sour foreign oils (Canada, Venezuela, and Saudi Arabia).

U.S. Oil Dependency & Security: The OPEC Oil Cartel (which largely influences international oil prices) is comprised of countries in the Middle East, Africa, and South America. Currently, OPEC is the largest foreign oil supplier to the U.S. with imports primarily consisting of heavy oil from Saudi Arabia and Venezuela (the 2nd and 3rd largest individual country oil importers to the U.S.).

OPEC Imports to U.S.

When the issue of U.S. foreign oil dependency and security are raised, it's important to understand several key points: (1) Where oil refineries are located; (2) Ports of entry for OPEC oil; (3) The oil pipeline infrastructure; (4) A Federal maritime law called the Jones Act.

While most Venezuelan oil goes to U.S. Gulf Coast refineries, ports of entry for Saudi heavy crude are much more diverse -- not just to refineries on the Gulf (where Saudi Arabia owns three major refineries), but to U.S. East and West Coasts as well.

Location of U.S. Oil Refineries

The significance of Saudi and other Middle East OPEC countries oil imports to the U.S. can be illustrated by California -- where foreign imports (with Saudi Arabia being by far the largest importer) make up 50% of Refiners' oil sources (with very little Canadian imports).

There are two major reasons for this high OPEC and Middle East dependency on both the U.S. East and West Coasts: (1) The U.S. oil pipeline system; (2) The Jones Act.

Oil Sources for California Refineries

The U.S. oil pipeline infrastructure is primarily a North to South system, moving oil in America's heartland. While the Keystone XL pipeline project enhances this existing distribution System -- it really doesn't address major deficiencies in moving oil East or West to refineries on U.S. Coasts (e.g., Northeast and California).

Major U.S. Oil Pipelines & High OPEC Imports

There are three transportation ways to move oil, via: (1) Pipeline (least costly), (2) Maritime shipping; and (3) Rail (the most expensive and as recently seen, the most dangerous).

Shipping between U.S. ports costs significantly more than international voyages. This is largely because of a 94-year-old federal law (Jones Act) which requires domestic cargoes to travel on U.S.built, owned and crewed vessels. A qualifying U.S. tanker currently commands rates about 10 times more than a non U.S. tanker of the same size.⁽²⁾

The Jones Act explains how importing oil from half way around the world (Middle East OPEC countries of Saudi Arabia, Iraq, etc.) can be cheaper than transporting oil via tanker from the U.S. Gulf Coast area to East and West Coast markets. Also, the Jones Act combined with the lack of East/West U.S. oil pipeline capacity can explain why the Department of Energy's long-range forecast (through 2040) expects U.S. foreign oil dependency to remain stubbornly above +30%.

A Needed Change in Approach: When Environmentalists allow (and embrace) any policy issue to be solely defined by an environmental label, they are taking a "bait" that Republicans want. In achieving this "Framing", Republicans are given a free pass (or certainly less public questioning) on whether proposed policies are in the best interests of all average Americans regardless of environmental issues and even if these policies truly "walk the talk" on conservative or libertarian values.

To be more effective, Environmentalists must improve in engaging Republicans on two fronts: (1) Questioning the validity of their message; and perhaps even more importantly, (2) Questioning whether their Messengers can be trusted on any policy issue that could have environmental consequences.

Keystone XL was never about U.S. oil security. At best, the heavy oils from the Canadian tar sands would displace Venezuelan and Mexican heavy oil imports to Gulf refineries. Republican bravado that Keystone XL would achieve U.S. oil security from Mid-Eastern oil if not a "pants on fire" statement, is pretty darn close to it.

(Note: Our next Blog will discuss the Republican double-speak on two other key claims of Keystone XL -- (1) Reduction in gasoline prices; (2) Net Job Creation.)

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Additional News Stories:
U.S. Ruling Loosens Four-Decade Ban On Oil Exports (Wall St. Journal)
U.S. Refiners Don't Care if Keystone Gets Built (Wall St. Journal).
The Psychology of Why Environmentalists Need to be More Specific.
Pew Research Poll on Keystone Pipeline
On a Decade Left in U.S. Shale Boom?
U.S. Light Crude under price pressure without lifting oil export ban
Washington Post Poll Shows 65% of Americans Approve of Keystone

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What Greens "Don't Get" about the Republican War on Global Warming.

noreply@blogger.com (Unknown) — Tue, 04 Feb 2014 22:43:00 +0000

Note: Today's blog uses the term "Greens" as those who believe human actions (anthropogenic) of burning fossil fuels is the primary driver in Climate Change.

In messaging to shape public opinion, Greens constantly agonize over the lack of understanding and denial of science by Conservatives -- and target this "knowledge problem" as the major obstacle in achieving Green policies. But in reality, its Greens who are not very "street smart" in their approach to both opposition and connecting with most Americans.

Conservatives Are Much Smarter Than Greens Think.

The Big Question: In the Greens' World, there is a yes/no big question that everyone must answer, "Is Global Warming caused by humans?" It defines who you are -- as either a carbon tax loving Warmist, or a science ignorant Denier. But as public opinion polls are reflecting, Greens need to ask themselves a Big Question: Don't they need to do a better job in their message and messaging?

Latest Pew Research Poll Results: While over two-thirds of Americans believe the Earth is warming, only 44% are buying into the Greens' Argument that it's mostly caused by human activity (anthropogenic). Even among the strongest group of Greens supporters, about one-third of Democrats are unconvinced. Clearly public acceptance problems exist with the Greens' science message and their "people skills" in connecting -- as the majority of Americans share uncertainty, doubt, or skepticism as voiced by Conservatives.

Greens need to abandon their Ivory Towers and messaging that's far too often patronizing, apocalyptic, and plays the "guilt card". Better resonating science and economic messages must be developed with messengers who are good teachers and bridge builders. Greens also need to be much more adept in responding to both ideological opposition by Conservatives and the hidden agendas of Republican policies when driven by big-business.

A Good Starting Place for Greens -- Stop Stereotyping: Greens' characterization of Conservatives as comic dimwits is both incorrect and counterproductive. As numerous social science studies and poll research show, Conservatives have general science knowledge equal to, or exceeding other politically affiliated groups. In fact, one recent research study found that with increasing levels of scientific literacy, even more partisan polarization occurs over Global Warming.

Take the Pew Research Quiz on Science and Technology to see where your general knowledge ranks compared to the U.S. Public.

But stopping stereotyping is more than just about about fair play -- its about "people skills" with the Greens' Target Market. Negative labeling hurts efforts to connect with Independents, Moderates, and even one-third of Democrats by sending a wrong message: If you disagree or have doubts with the Greens' Argument, you must be ignorant. Patronizing name-calling only alienates and does not win people over, as the Pew Poll is reflecting.

Greens must understand the difference between ideological opposition versus fair questions over science uncertainty, especially the perceived urgency to act (e.g., predictive ability of climate models).

A Major Obstacle & Need For Bridge Building: Contrary to the ubiquitous negative messaging by Greens, science knowledge really isn't the key problem in achieving greater public acceptance. A major problem is the current and growing polarization in "cultural values ideology" between Red State (Conservatives) versus Blue State (Liberals). When issues are strictly defined or framed in terms of ideological values such as Good versus Evil, the results are toxic. There can be no real public dialogue, people of differing views are demonized, and finding common ground is impossible.

When differences are defined
in terms of moral values,
compromise is impossible.

The key in solving any problem
is to find common ground
between differing views.

After decades of negative ideological "values" messaging on environmental issues from Conservative Think Tanks, Media Sources, and Religious Groups, it's now just a reflex knee-jerk reaction for Conservatives (with spillover to Moderates and Independents) to associate and demonize almost any environmental policy initiative as big-government, socialism, anti-free markets, job loss, and sadly even with Faith (worshiping the Green Dragon).

When Exxon/Mobil is a major cash contributor to conservative religious groups to fight Global Warming as satanic -- you know some serious "culture wars" are going on.

The result of this negative messaging is clearly evident in national polling, where partisan divides on environmental issues are greater than on major issues like the budget deficit, health care, Social Security, etc.

Widest Partisan Differences Over Issues
(% rating each a top priority)

Issue:	Rep	Dem	Ind	Diff
Protecting the Environment:	28%	65%	48%	-37%
Problems of Poor & Needy:	32%	64%	48%	-32%
Reducing U.S. Budget Deficit:	80%	49%	66%	-31%
Dealing with Global Warming:	14%	42%	27%	-28%

This extremely negative mindset on environmental issues can explain why over 40% of Tea Party Republicans and 25% of all Republicans (per Pew Polling) believe Global Warming is not even happening.

The consequences of this cultural divide results in very different perspectives in how Global Warming is presented and viewed in the public arena. Where science is the driver for the Greens' messengers, ideological values (effecting policy outcomes) are the drivers for Conservatives.

As Viewed by
Greens

As Viewed by Conservatives

This difference in perspective creates a serious dilemma for Greens -- as it's virtually impossible to discuss Climate Change as a stand-alone science issue. Any argument that human actions are primarily causing Climate Change is intrinsically linked to specific policy outcomes. The most prevalent example is a carbon tax, which will have opposition across partisan, cultural, and socioeconomic lines (e.g., with lower income groups as a regressive tax).

Playing by the Conservatives' Rules: Greens need to fully grasp the importance of ideological motivation in forming public opinion -- emphasizing their own positive set of values that can cross partisan divides and achieve key objectives. By messaging positive ideological values better, they may even find some surprising new friends.

Bridge Building to Find & Develop Common Ground

A recent New York Times article illustrates the incredible potential of connecting on ideological values -- where Greens and Conservative Libertarians (the most negative partisan faction opposing Climate Change policies) have found common ground in support of solar energy.

Recognizing Hidden Agendas: In addition to addressing climate science uncertainty and ideological conflicts better, Greens also need to improve their messaging to a third type of opposition. For decades, Republican Strategists have used environmental issues to divert public attention from hidden objectives of big-business special interests. When issues can be framed in a context of "The Environment versus Job Loss/Higher Costs", Republican policy-makers can avoid public opinion scrutiny and answering hard questions that can have nothing to do with the environment.

By achieving this "Framing", Republicans are given a free pass (or certainly less public questioning) on whether their proposed policies are in the best interests of average Americans (regardless of environmental issues) and if these policies truly "walk the talk" on conservative or libertarian values.

The Keystone pipeline project is a perfect illustration of this Republican strategy, where we now (or should) know what Keystone was originally always about -- exporting U.S. oil to foreign markets (like energy hungry China):

With record growth in U.S. oil production, Republican and Oil State politicians, big business leaders, and oil lobbyists are all calling to end a nearly 40 year ban on U.S. crude oil exports. The ban was put into place in the wake of the 1973 OPEC Oil Embargo.

The Issue of Republican Trust: During the coming year, there will be much debate over whether lifting the oil export ban is good policy. But in this public debate there is something even more important to Greens than Global Warming. It about the bedrock of public opinion -- the issue of Trust and if Republican messengers can be trusted:

Where on the cusp of likely Keystone approval, the Republican narrative to the American Public on why Keystone was important has now completely changed.

In the 2012 Presidential Campaign, Keystone was the "Poster Child" of conflict between Environmentalists and Republicans over energy issues. Less than a year ago in the debt ceiling debacle in Congress, Republicans threatened to shut the Federal Government down unless President Obama approved Keystone.

Republican Messaging
to the U.S. Public:

Hidden Agenda
Policy Objective:

In our next follow-up Blog, we will look at the three key building blocks of past Republican messaging of why Keystone was needed -- and how ending the oil export ban is a 180° about-face to Keystone's original arguments.

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Additional Stories:
When Religion and Science Collide (N.Y. Times)
Scare Tactics not moving U.S. Public Opinion

Where does U.S. Gasoline come from?

noreply@blogger.com (Unknown) — Sun, 05 Jan 2014 15:49:00 +0000

Per the U.S. Department of Energy:

69% of the pump price of gas is crude oil cost which equals $2.24 per gallon.

60% of crude oil is from domestic sources and 40% comes from imports:

Domestic Oil:	$1.34	(60%)
Imported Oil:	$0.90	(40%)
Cost Per Gallon	$2.24

(Note: Crude oil cost of $2.24 per gallon is equal to 59¢ per litre or €.43 per litre.)

The following two charts show where this oil comes from in U.S. gasoline:

The significance of Texas region (TX, NM, LA) in U.S. oil production.

That the "Non Free Trade Cartel" of OPEC is a larger supplier of
imported oil than Canada.

Origin of Oil in U.S. Gasoline Supply
(Bar Chart Perspective) Origin of Oil in U.S. Gasoline Supply
(Bubble Chart Perspective) Notes on Domestic Production: Total U.S. oil production (with record growth during the past two years) has now increased 50% since 2008. Through the extensive use of fracking and horizontal drilling, almost all of this growth is occurring in six U.S. tight oil formation regions -- especially in the Texas region (TX, NM, LA) and North Dakota:

U.S. Oil Production Growth Regions As discussed in our last blog, the production cost of extracting oil from fracking/horizontal drilling is very expensive -- up to 4 to 6 times higher than from conventional oil fields in the Middle East. Without a continuance of high market prices for crude oil (currently $107/bbl for Brent, $95/bbl for WTI) much of this U.S. oil would be uneconomic to extract.

Notes on Foreign Oil Sources: A common misconception in public opinion is that the OPEC Cartel represents only countries from the Middle East. OPEC members also include countries in Africa and South America. The OPEC member of Venezuela (the 4th leading oil importer to the U.S.) is very "oil hostile" -- and has nationalized and continues to seize U.S. Oil Companies' assets.

OPEC Oil Imports to U.S

Following The Money Trail: As stated earlier, 69% of the pump price of gasoline is crude oil cost -- which currently equals $2.24 per gallon. The next chart breaks down where and how much of your money is going every time you fill up.

One thing that should pique/grab American consumers' attention is just how much of their gasoline dollars are going to the "non free trade cartel" of OPEC and other "questionably friendly" foreign countries (like Russia).

Where U.S. Gasoline Money For Oil Goes:
(per gallon) When a Politician or "Talking Head" attacks renewable energy (especially biofuels) with the ideological statement "The free market should determine energy winners and losers, not big-government" -- everyone should think about something:

Every time we fill up our tank, consumers have "no choice" but to send 36¢ per gallon to OPEC (about $220 a year for an average driver). This is the equivalent to a "mandate" that 16% of the U.S. gasoline supply be blended with OPEC oil. This is anything but a "Free Market".

Related News Stories:
Ethanol and U.S. Foreign Oil Dependence

Spin Doctors on U.S. Oil Production, Costs, and Energy Policy.

noreply@blogger.com (Unknown) — Fri, 27 Dec 2013 03:25:00 +0000

Spin Doctor: A person (such as a "Talking Head") who tries to control the way something is described to influence public opinion in a way that helps their side and hurts (often demonizing) differing views. "Spinning" always contains some elements of truth to enhance credibility, but conveniently overlooks/dismisses any facts not helpful in forming the desired public perception.

Current Status of U.S. Foreign Oil Dependency: Over the past 7 years, the amount of oil supplied from foreign sources has decreased from an all-time record peak of 60% in 2005 to currently ~40%. While lower oil consumption (resulting from economic recession, greater auto efficiency) has played a part, this amazing (and hopefully sustainable) achievement has been primarily the result of technology advancements in oil extraction.

Per the U.S. Energy Information Agency's (EIA) long-term forecast, foreign oil use is expected to decline even further (with an estimated 32% from oil imports by 2040).

Through the extensive use of fracking and horizontal drilling, almost all of this domestic growth in oil and natural gas production is occurring in six U.S. regions:

History of U.S. Oil Production
& Consumption:

Increased U.S. Oil Production Growth Regions

What Spin Doctors Don't Tell Us On U.S. Foreign Oil Dependency: In this renaissance of U.S. oil production, one often hears the sound-bites of "Energy Independence", "Freedom from Mid-Eastern Oil", "Canada is now America's #1 Oil Importer". The problem with these now generally held public perceptions is that they don't exactly tell the full story.

While it is correct that Canada is now the "single country" largest exporter of oil to the U.S., the Mid-east dominated oil cartel of OPEC (which includes a very oil-hostile Venezuela) remains America's largest supplier of foreign oil.

Putting the above chart into a global perspective, OPEC oil consumed in the U.S. is more (or about equal in the case of Japan) than the "total" amount of oil consumed in other leading industrialized nations:

U.S. OPEC Oil Imports Versus
Total Oil Consumed in Other Nations Understanding the massive U.S. appetite for oil is pretty simple -- the American "love affair" with cars. Compared to the rest of the world, the U.S. remains hopelessly addicted to gasoline. Americans (per capita/person) consume more than 300 gallons of gasoline per year, which is by far the highest among 128 countries. That's more than three Germans, or ~7 people in France.

Use of Cherry-Picking Ideological Arguments: Perhaps the most hypocritical example of selective cherry-picking by "Spin Doctors" is the commonly used "sound-bite": "Free Markets should determine energy winners and losers, not big-government".

The following graph (using EIA data) breaks out the individual components of current pump gas prices -- where U.S. consumers currently "have no choice" but to pay 37¢ per gallon to OPEC for crude oil costs.¹

From an ideological argument perspective, this is the equivalent of a mandate that 16% of all gasoline be blended with OPEC oil. ²

Components of Gas Pump Price(U.S. average of $3.34 per gallon @ November 2013)

¹ 69% of the current pump price of gasoline is crude oil costs ($2.30 per gallon). 40% of all crude oil is from foreign sources (92¢). 40% of foreign oil is from OPEC (37¢).
² 40% of all oil consumed is from foreign sources and 40% of foreign oil is from OPEC (40% times 40% equals 16%.)

OPEC is anything but "free market trade" -- a cartel that manipulates markets, restricts output and fixes prices that's had a devastating effect on the U.S. economy. But OPEC's reach is beyond just its Middle-East members, where Venezuela has nationalized and continues to seize U.S. Oil Companies' assets.

What The Spin Doctors Don't Tell Us On Economics: The message of "Drill, Baby, Drill" has mass public perception appeal of basic supply/demand economics that even a caveman can understand. It's just common sense that if U.S. oil production increases (by removing "big-government" barriers) that gasoline prices at the pump will decrease -- Right? Well, not exactly.

An inconvenient fact is that extracting oil using fracking and horizontal drilling technology has dramatically higher costs than in typical Middle East oilfields. According to Oil Analysts, the average cost of new oil production from U.S. tight oil and shale gas regions is ~$70 a barrel, with marginal costs (the last barrels produced) as high as $114 a barrel in 2012.^{1, 2, 3}

Conversely, for conventional oil output in the Middle East, average production costs are just over $20 a barrel , with marginal costs at ~$30 per barrel.

World-Wide Marginal Production Cost of Oil

While there are numerous economic benefits in developing domestic energy resources (e.g., job creation, economic development, reducing the massive U.S. Trade Deficit) -- expectations of significantly lowering the "current" price of crude oil isn't one of them. Simply stated, because of the high extraction costs of advanced technologies, increased U.S. oil production is totally dependent on maintaining high oil market prices.

In order to achieve claims made by "Spin Doctors" for a return to $2 gasoline by increasing U.S. oil production would require a precipitous price drop to ~$40 a barrel (bbl) -- a market price significantly below either the average (~$70/bbl) or marginal (~$110/bbl) costs to extract oil using fracking/horizontal and deep-sea drilling.

We Need to have a "Real" Energy Policy Debate: In order to have a meaningful dialog everyone needs to pause, take a deep breath, and move away from the extreme polarization that partisan "Spin Doctors" create. Energy policy shouldn't be limited to "Red State vs. Blue State" tunnel vision on any one specific "hot button" issue (ranging from Conservatives mistrust of big government to Environmentalists' adamancy‎ on Climate Change).

It's about addressing a myriad of problems and trying to solve them -- compromising and finding common interests in a bigger picture rather than focusing on things that divide us.

Overlapping Issues with Energy Policies:

Additional News Stories:
In U.S. Public Opinion Polls, Saudi Arabia is viewed very unfavorably.
Record Growth in U.S. Oil Production.
Global Oil Prices and Energy Security
Fact Check on Keystone Pipeline Claims

Where Obama Is Wrong on Coal

noreply@blogger.com (Unknown) — Wed, 27 Nov 2013 19:53:00 +0000

Update! While Environmental Organizations are outraged, the recent Budget Bill in Congress rescinded the Obama Administration's banning of the Export-Import Bank to finance any coal power plants.

Coal Use in Developing Countries: As part of it's policy initiatives to reduce global carbon emissions, the U.S. is ending support for new coal-fired plants around the world. Except in "rare" situations of poverty (whatever that means), the U.S. will no longer contribute to coal projects financed by the World Bank and other international development banks.

Like other top-down attempts by governments to control carbon emissions (taxes, treaties), this U.S. "no new coal" policy uses an incorrect paradigm, and will not result in meaningful and needed global reductions.

A correct approach must always balance present humanitarian and economic needs with long-term climate science objectives -- utilizing a bottom-up model, tailored to provide multiple pathways to develop and sustain individual economies with needed lower carbon standards.

The Other Inconvenient Truth: While the below facts are on India (EIA data), these harsh realities are found throughout the developing world where poverty is common, not rare (e.g., India, Asia, Indonesia, Africa).

India suffers from severe shortages of electricity, where only 60% of rural households have access to electricity.
Rural areas rely on traditional biomass for cooking, heating, and lighting because they lack access to other energy supplies.

The biomass used in "open burning" is 62.5% from firewood, 12.3% from agricultural wastes, and 12.3% from animal dung.

Nearly one-fifth of today’s global population – 1.2 billion people – lives without access to electricity. Two-fifths of the population – 2.8 billion people – still relies on solid fuel such as wood, charcoal, cow dung, and coal in low-tech cooking and heating.

Often, it seems as though Industrialized Nations and Environmental Organizations become so overwhelmed by the specifics of Climate Change science (e.g., CO² PPM) that they lose focus on people -- where 35% of the Earth's population (2.5 billion people) don’t even have access to a basic human need of having a toilet.

A correct paradigm recognizes that reducing global carbon emissions is intrinsically linked to reducing world poverty. Addressing this just isn't about industrialized countries providing direct financial aid, but includes issues such as international trade and technology transfers to developing countries.

Size of World If Scaled by Poverty: (43% of the world population lives on $2 a day or less.)

World Coal Use: In writing this blog, the issue of "tone" is always important. Criticism of the U.S. No-Coal Policy is not saying that world coal use isn't a major concern (where 43% of current CO² emissions from fuel combustion are from coal). The problem is the rigidity of a "One Size Fits All" Policy for every developing economy.

A chart from the latest U.S. Department of Energy's (EIA) International Energy Outlook to 2040 illustrates this point.

The future global Climate Change problem with coal use is overwhelmingly from China, not "all" developing countries.

For example, while coal use in India and the U.S. is projected to be approximately equal, India has 4 times the U.S. population (~1.2 billion versus ~300 million people) -- resulting in much lower emissions per-capita (per person).

Carbon Emissions Per Capita: The disparity in carbon emissions per-capita between industrialized countries versus developing economies has and will continue to be a major stumbling block in achieving any consensus on needed global actions.

In the U.S., carbon emissions are currently over 19 tons per person -- a consumption rate over 17 times that of India (~1 ton per person).

Can International Treaties Ever Work?: At the latest U.N. sponsored conference on Climate Change in Warsaw, three events continue to raise "red flags" on the potential effectiveness of making international treaties the "centerpiece" in efforts to reduce global carbon emissions.

(1) The Double Standard Argument: There is increasing skepticism whether "any" meaningful agreement between industrialized and developing countries can ever be reached. Brazil's recent proposal (supported by 130 developing countries) would use carbon emission levels dating back to the industrial revolution to set limits on future emissions. Not surprisingly, the U.S. and EU rejected this proposal.

(Nations Scaled By Cumulative Emissions)

Developing countries argue that because Western industrialized nations have been emitting tremendous volumes of greenhouse gases for over 200 years, they must bear the most responsibility to rein in greenhouse gas emissions.

(2) Can Treaties Really Ever Be Binding?: Japan (the world's fifth largest greenhouse gas emitter) announced a scale-back in its plans to reduce carbon emissions from 25% to just 3.8% (which is actually a ~3% increase from 1990 levels). While Japan's action is certainly understandable resulting from the 2011 tsunami and earthquakes -- this raises a question whether any international treaty could ever be truly binding. Exceptions, ranging from natural disasters (as again recently demonstrated in the Philippines with typhoon Haiyan) to economic hardships will always be present.

(3) Money, Money, Money: As in prior Climate Change conferences, the critical issue of "who pays for necessary actions" was again never seriously addressed (with political reality). The general number tossed around is needed financial support (direct aid, loan guarantees) from industrialized to developing countries of $100 (€73) billion per year.

When Rigid Ideologies Drive Policy: While most environmental groups are applauding this U.S. "no new coal" policy, both they and the Obama Administration are wrong in the paradigm they have created. This policy action is yet another example of the rigid ideological polarization that divides America on so many things today -- where issues are routinely defined (and demonized) in terms of a black-or-white (either/or) paradigm with no gray area that could lead to positive and productive compromise.

The U.S. "no new coal" policy exemplifies this polarization of black/white ideology in solving complex problems. While coal use is clearly a problem, it isn't "the only major" problem. Not only is this U.S. Policy position laden with hypocrisy (coal use per capita in the U.S. economy), it defies the reality that coal will continue to be a major energy resource in the developing world.

Size of World if Scaled by Coal Use: A constructive approach is how to make coal use more efficient, where a multitude of technology options exist. Especially in manufacturing, production efficiency gains can be much more than marginal improvements.


(No unilateral U.S. action will achieve major global reductions in coal use.)	(A "My Way or the Highway" approach isn't pragmatic or productive.)

The Case For Different Pathways: Perhaps the best illustration of providing flexibility through "multiple pathways" to lower carbon emissions is Germany, which is:
-- Dramatically transitioning their energy sector to renewable energy.
-- Investing heavily in energy efficiency ("Smart Grid" infrastructure).
-- Achieving high economic growth.
-- Sizeably reducing carbon emissions
-- Also bringing new coal-fired generation on-line.

Germany's share of electricity produced from renewables has increased from 6.3% to over 25% since 2000. Relative to 1990, Germany has also reduced its carbon emissions by 25%.

However, contradictory to the U.S. "no new coal policy", Germany is currently implementing its biggest new-build program for coal stations in over a decade -- increasing its coal-fired generation capacity by 33%.

Is this a picture of a vase or two
people looking at each other, or both?

The Need For A Mental Reboot: Just because a view doesn't "fit" or "appears" contradictory to a established paradigm/model doesn't necessarily mean its wrong. There's usually always more than just one way in viewing and solving complex problems.

The goal is to achieve a productive "end-result" -- not ideologically pure ways (e.g., no new coal) of how to get there.

Moving Forward: To achieve meaningful and sustainable reductions in global carbon emissions a major "paradigm shift" is needed -- moving away from rigid black/white ideologies (which the U.S. no coal policy represents) to a lower carbon standard (LCS) model (a comprehensive approach as being used in Germany).

As stated in previous blogs, it is strongly believed that international trade should be the centerpiece of this new paradigm. A good starting point is to create the equivalent of "Enterprise Zones" within developing countries (especially free markets economies of India and Indonesia) providing: (1) significant and unprecedented new trade incentives into U.S. and European markets for manufactured products using a "Low Carbon Standard" (LCS); (2) Significant transfers (including financial assistance and less restrictive patent protection) of advanced energy and manufacturing technology into these Enterprise Zones.

Sometimes the pathway in developing countries may look like what has been accomplished in Western Industrialized Economies -- sometimes it may not. Most often, a LCS pathway in developing economies will require a "bridge approach" (with definitive benchmarks that must be achieved to keep new trade incentives) in transforming to the LCS objective.

An example of needing a "bridge approach" is the argument that scaling up renewable energy technologies (intermittent wind, solar) have been demonstrated to be competitive with base load fossil fuel generation. What this argument fails to mention is that this competitiveness is highly dependent on having an advanced large (national, regional) transmission "Smart Grid" (which does not yet exist in developing countries).

Liberal versus Conservative?: Only by using bedrock conservative principles of de-centralization and free markets will the prize of sustainable reductions in carbon emissions be attained.

Facebook:

Additional Stories:
In War on Coal, Coal is Winning (C.S. Monitor)
Kenya postpones Wind and Solar Energy Projects because of high costs.
Geothermal energy crippled in Philippines from Typhoon Haiyan.
World Coal Consumption To Surpass Oil By 2020
NY Times Op/Ed: Coal use in developing countries
More opinions on poverty and coal use in developing countries
Trade/Climate Change Policy: U.S. Liquid Natural Gas Exports?
U.S. Hypocrisy to Undermine EU LCS Standards on Tar Sands Exports
Public Opinion Polls: Views on Global Warming -- U.S. Versus World
Germany set records in coal use.
Wall St. Investment Firm Backs Away From Major Coal Export Project
Solar and Wind Vs. Coal in South Africa
U.S. Regulators Struggle on Writing New Coal Regulations
Climate Change Can't Be Solved on Backs of the World's Poor.

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Global Warming & International Trade -- the Elephant in the Room.

noreply@blogger.com (Unknown) — Mon, 04 Nov 2013 03:11:00 +0000

Update! In a new Stanford University Survey a majority of Americans believe man-made Global Warming is occurring, but do not support a Carbon Tax.

The Global Greenhouse Gas Conundrum: In BP's Annual Energy Outlook to 2030, World carbon emissions from energy use are projected to increase by 26% by 2030. This increase will primarily come from developing countries (e.g., China, India) as they industrialize their economies (as Western economies did during their Industrial Revolution, called the Kuznets Curve).

The primary fuel source for powering Asian industrialization will be their vast natural resources of coal, where coal prices are currently about one-third of Liquefied Natural Gas (LNG) and about half of natural gas.

The biggest carbon emitters among developing nations have made clear that while they are prepared to improve the energy efficiencies of their economies, they have no interest in capping carbon emissions that restrict economic development.

The Politics of Climate Science in U.S.: Many Conservatives twist valid science uncertainties of Climate Change/Global Warming (e.g., Dr. Judith Curry) to become "Deniers" -- arguing that no economic policy actions (e.g., Carbon Tax) are needed. Conversely, Liberals often use a message of apocalyptic doom/gloom to advance climate policy actions. But for most Moderates/Centralists, they just don't "easily fit" in either of these highly polarized groups.

Question: What happens if you (A) Believe in the science of Global Warming, but (B) Disagree with a U.S. Carbon Tax Policy?

Answer: You find yourself in the middle of Red State vs. Blue State, Conservative vs. Liberal, Culture and Political Ideology Wars.

The Mind of "Sympathetic Greens": While Moderates/Centralists are concerned about Climate Change, a major roadblock in their supporting U.S. policy actions is the conundrum of carbon emissions from industrialization in the World's developing economies. These "Sympathetic Greens" recognize a fundamental reality: The U.S. alone (or even the developed world as a whole) can not reduce global CO² concentrations. Unilateral U.S. actions may be admirable (lead by example), but are quixotic.

While a Carbon Tax would undeniably reduce energy consumption in the U.S. (especially among poorer Americans as a regressive tax), how would this impact total Global emission levels? Could an unintended outcome be even more "outsourcing" of greenhouse gas emissions from the U.S. to developing countries? (increasing the already huge U.S. Trade Deficit). Liberals never really address these type questions.

Growth Rates in CO² Emissions A New Path: A Policy option that just might get us out of this ideological mess and also actually achieve meaningful reductions in global greenhouse gas emissions is by thinking "outside the current box" -- Using international trade agreements between the U.S./EU and developing countries.

The below chart illustrates the global CO² impact of international trade where the flow of emissions are allocated to the locations where global goods and services are produced and then consumed -- where Chinese exports to the U.S. and the EU clearly dominate.

Major Global Flows of CO² From Production to Consumption: Start of Arrow: Fossil Fuel Consumption (Production) End of Arrow: Goods and Services Consumption

Responsibility of the U.S. and EU: To be successful, using international trade to sizably reduce Global CO² emissions must be a constructive two-way-street with shared responsibility and recognizable benefits -- not driven by parochial interests leading to confrontation (use of free/liberalized trade agreements versus unilateral tariffs/sanctions resulting in trade wars).

As the World's largest economies, Western industrialized countries must recognize, accept, and act on their unique responsibility:

Since a significant percentage of CO² emissions likely remains in Earth's atmosphere for thousands of years, the bulk (perhaps up to 80%) of current CO² PPM levels (with a man-made footprint) comes from Western industrialization which began in the 18^th century.

Underlying Principle of Free Trade: The U.S. has advocated free-trade policies for decades, but it also has spent considerable effort and diplomatic capital in creating both global and regional trade rules/standards (WTO, NAFTA) -- based on the acceptance and implementation of trade policies by other members (with verifiable actions).

If Climate Change is to be truly treated as serious on a global stage, pragmatic lessons must be drawn from international trade -- where reciprocity reigns supreme. No country eliminates its trade barriers without reciprocal and meaningful concessions from trading partners.

Its ironic that ultimate success in addressing Climate Change will depend as much on social sciences of "human nature" rather than just the physical sciences in resolving climate uncertainties. A good analogy is why young people still smoke, given the overwhelming medical evidence that it's harmful -- The difficulty of making a lifestyle change today to avoid the consequences in 20, 30, 40 years. People also need near-term positive incentives -- like wanting to go out with that "Hot Girl or Guy" who only dates non-smokers.

International Trade Incentives: As the World's largest economies, the U.S. and EU have the ability, opportunity, and responsibility to provide needed positive incentives to developing countries. An illustration of a "concept framework" of trade incentives is California's Low Carbon Fuel Standard.

Applied to international trade, specific products from developing countries meeting a "Low Carbon Standard" (LCS) would be given greater/favored trade access into U.S./EU markets (achieving a competitive advantage over other countries that don't participate in LCS Free/Liberalized Trade).

Correcting a Major Policy Mistake on Climate Change: After the Kyoto Protocol in the late 1990's, a major policy error was the missed opportunity to create "Idea Incubators" with developing countries in existing Free Trade areas (especially India and the Philippines). Such an effort could have created "Success Stories", developing and demonstrating a "Model" for specific multi-lateral trade actions and collaborative cooperation (Western technology transfers and financial assistance) that could be then scaled up to sizably reduce CO² emissions in developing countries.

It's not too late to correct this mistake, it just will take political resolve by Western industrialized nations to do not just the "right thing as to responsibility" but the "smart thing".

Multi-Lateral Free Trade Areas (Below Countries in Red) The following is a conceptual framework of beneficial trade reciprocity between industrialized and developing countries (Wins/Wins) to reduce global CO² emissions.

Industrialized Nations

High Tech Energy Efficient Goods and Services

(Including U.S. natural gas exports)

Developing Economies

"Low Carbon Standard" Products

(With favored US/EU Trade Status)

Facebook:

Additional News Stories:
Views on Global Trade by Country -- (Pew Research).
In War on Coal, Coal is Winning (C.S. Monitor)
China's Coal Demand Set to Double.
Emerging Economies Nearing One-Half of Global CO2 Emissions.
Argument that U.S. Carbon Tax Would Have Minimal Impact (0.1°C ).
Dramatic Decrease in Carbon Intensity in U.S. Economy
Why A Carbon Tax Will Not Work -- and What Will.
U.S. to Help Ukraine with Natural Gas Development

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The Past, Present, and Future of Ethanol

noreply@blogger.com (Unknown) — Mon, 21 Oct 2013 21:07:00 +0000

In our last 2 blogs, the past to the present of ethanol is discussed -- looking at the health origins of why its use was needed in the first place, and ethanol's continuing importance today in reducing U.S. spending on foreign oil (OPEC).
Today we will look at the future, but first let's do a quick review:
Health Benefits War, Terrorism, China, & Oil
Origins in Health Benefits: This blog post discusses some key aspects of gasoline formulation and how a blend rate of ~10% ethanol (E-10) replaced previously used health threatening additives (lead for octane requirements, MTBE for fuel oxygenation). These health benefits from cleaner fuels (reducing rates of cancer, child autism, asthma, etc.) have been firmly established in medical science for decades.
Consequences of OPEC Oil Dependence: This blog "connects the dots" of past and continued U.S. dependence on Mid-East oil to:
Terrorism & War: From the attacks of 9/11 to now Syria, the
dirty footprint of oil money to fund/cause these conflicts always
emerges as a common denominator.

Financial Strength of U.S.: Over the past 30 years, the U.S. has
reportedly now spent ~$8 trillion to protect the flow of oil in the
Mid-East. In a context of the current debt ceiling debate, this
would represent about one-half of all outstanding U.S. debt.

Opportunism by China in the Middle East: The biggest benefactor
of U.S. "blood and treasure" is China, as they are now the #1
customer of oil from Iraq and other Persian Gulf Countries.

Economic Strength of the U.S.: Historically, the two primary
causes of the massive U.S. trade deficit has been imports of
foreign oil and Chinese products -- resulting in the vast transfer
of American wealth and jobs to the Middle-East and China.

Understanding the Drivers of Ethanol's Future. Of total gasoline currently consumed in the U.S., ~10% is blended with ethanol.⁽¹⁾ Ethanol at E-10 blending levels represents the lowest cost clean-fuel option to meet health standards for needed non-lead octane and oxygenate requirements -- with estimated consumer savings of ~34¢ per gallon below other available options.⁽²⁾
But with the growth rate in gasoline consumption (needing E-10) expected to remain flat (less consumer demand as a result of greater auto MPG, the economic recession, and oil prices above $100/bbl), any meaningful volume increase in ethanol use will only occur with blending rates above 10% (E-15 to E-85).
Under the Renewable Fuel Standard (RFS) "targeted" increases in ethanol use are scheduled (below graph). However, these "targets" are not "set-in-stone" mandates. The appropriateness of required yearly volume levels are reviewed each year, and must consider current market factors such as price and available biofuel supply.
Since the use of E-10 is inextricably tied to compliance with clean-fuel requirements, it is highly unlikely to inconceivable that the use of E-10 could be "eliminated or totally voluntary". Questions that anti-ethanol proponents never address are: "What would they replace it with? -- and what would be the cost?"
What is highly in doubt however, is the implementation of RFS requirements above a current 10% blending level (called the blend wall) either by the EPA (which administers the RFS Program), or through Congress (new legislation to modify or even eliminate the RFS). Since blending levels above ~10% are not required to meet current clean-fuel requirements, the argument for increased ethanol use changes -- from health benefits to primarily price and availability.
As this "blend wall" is approached, we are currently seeing this "price dynamic" being played out, with reports that the EPA will likely reduce required 2014 ethanol levels below the "targeted" RFS levels.
Understanding the basics of this "pricing dynamic" for fuel blends >10% (E-15 to E-85) is pretty easy. Per the EPA, ethanol (E-100) contains ~30% less energy content than gasoline. Thus, simply comparing the market price of ethanol versus gasoline is an un-useful "apples to oranges" comparison. An adjustment must be made for this inherent "energy content penalty" (less MPG).
The below graphic illustrates this, where ethanol (E-100) is currently 83¢ per gallon cheaper than gasoline ($2.64 minus $1.81). Applying the "energy content penalty", the price point where a consumer would be currently indifferent to gasoline or ethanol would be an ethanol cost of $1.85 per gallon ($2.64 times 70%).
Currently, the price of ethanol represents a very small savings of 4¢ per gallon. But for much of 2013, ethanol's "adjusted" cost has been much higher than gasoline -- as a result of high corn feed-stock prices from drought in the Mid-West.
Certainty and Uncertainty of the Future. It is believed that the future of ethanol and bio-fuels will likely follow one of two paths:
Low Growth -- E-10 continues to be used in almost all gasoline
to comply with clean-fuel regulations. E-15's use is limited
in the U.S., with market growth coming primarily from Mid-
western States (where most U.S. ethanol is produced).

High Growth -- Demand for very high levels of ethanol (E-85
and even E-100) increases dramatically throughout the U.S. as a
result of technology advancements in:
(1) Cellulosic ethanol production that significantly lowers costs;
(2) Automotive engineering (engine turbo-charging) that
reduces the "MPG penalty" of ethanol.
There are two areas of future technology advancements to keep an eye on. The first is in the development of cost effective enzymes to break down celluloic feedstocks (e.g., switchgrass, energycane, crop waste, etc.) into fermentable sugars for ethanol production. As the above chart on the Renewable Fuel Standard illustrates, cellulosic (non-corn feedstock) ethanol was always envisioned as the long-term future of ethanol.
One type of feed-stock source that could buy time until enzyme development reaches its full potential is the use of "bridge crops" (such as drought resistant sweet sorghum) using a hybrid approach of plant sugar (brix) extraction and also enzyme technology on the crop's waste steam (i.e., bagasse, presscake).
A second area to watch is in automotive technology advancements of the "incredible shrinking engine size". We are already seeing early glimpses of this technology being introduced into the marketplace with Ford's "Eco-boost engines". A key building block in understanding ethanol's role in engine advancements of "turbo-charging" is octane content:

Ethanol Vs. Gasoline
Comparison: Octane
Rating

Ethanol (E-100) 113

Unblended Gas (E-0) 84

While our future blogs will get "Geeky" in discussing turbo-charging advancements -- The basic concept is the development of smaller engines requiring high octane levels (as found in ethanol) that generate greater power. A simplistic "Average Joe" visualization would be putting an engine the size of a Volkswagen Beetle into a large SUV, and providing the same performance to the driver.
With smaller engines having less weight and increased efficiency (e.g., running cooler), Ricardo Engines (a leader in turbo-charging) suggests that ethanol's (E-100) current "MPG penalty" could be reduced from 30% to 14%. Applying this lower "MPG penalty" to today's gasoline prices would result in current ethanol (E-100) savings of 46¢ per gallon.
Note on MPG Penalty: The highest blend of ethanol sold in retail gasoline is E-85. In AAA's daily tracking of retail gas prices, a MPG Penalty for E-85 of 24.018% is used (vs. ~30% for E-100). E-85's MPG Penalty using the potential Ricardo efficiency gains is 10.418% (vs. 14% for E-100).
Current Ethanol Wholesale Commodity Price
Current Gasoline Wholesale Commodity Price
Current E-85 Retail Prices by State
Current National Average Gasoline Prices

Happy Dependence Day to Mid-East Oil and China!

noreply@blogger.com (Unknown) — Fri, 06 Sep 2013 14:36:00 +0000

This past Independence Day, a mostly overlooked news story was China becoming the largest benefactor of American blood and treasure spent in Iraq (~5,000 soldier deaths and $1.9 trillion) -- as China is now Iraq's #1 oil customer (purchasing ~50% of Iraqi oil with expectations that this will increase).
But this story line isn't limited to Iraq, as China is now also the #1 oil customer of many oil exporting countries in the Persian Gulf -- benefiting from U.S. military protection of the Region's oil supplies (with an estimated U.S. cost of ~$8 trillion during the past 3 decades -- about $27,000 per each U.S. Citizen).
Since Chinese Oil Companies are controlled by their central Government, this shouldn't come as a shock. Unlike U.S. and other Western Oil Companies, China is not driven by shareholder profit but national interest to fuel their economic growth. Simply stated, China is willing to pay more to develop these oil resources than western multi-national corporations (e.g., Exxon, Shell, BP, etc.). Even by paying more for oil, China will still retain a competitive advantage over most U.S. manufactured goods as a result of their cheaper labor, currency devaluation (Yen), and lax environmental regulation (including carbon dioxide).
The below graphic from the U.S. Energy Information Agency is a timeline depiction of Chinese oil consumption that has been needed to fuel their staggering economic growth during the past +30 years:

As Americans now prepare for the likelihood of even more war in the Middle-East, the footprint of oil re-surfaces yet again -- with recent news reports that Iran (through Russia) has been funneling billions of dollars to the dictator Assad to develop oil resources in Syria.
Starting with the funding for the 9/11 World Trade Center attack (Saudi Arabian sources) to the current deadly civil war in Syria -- a common denominator just always seems to be oil money that supports international terrorism and wars for political/religious control in the Region.
This Labor Day as the U.S. prepares for war, Americans should remember that every time we fill up our gas tanks:
Through the hard earned money of our labor -- we are supporting this unending madness and opportunism for China to exploit.
While U.S. foreign oil dependence has significantly decreased in the last few years due to technology advancements in hydraulic fracturing (where its long-term impact on water resources is uncertain), we should not lose sight that the U.S. still imports a tremendous amount of oil -- much of which comes from volatile OPEC countries.
To put this into context, U.S. oil imports from OPEC in 2012 approximately equaled or exceeded the "total oil consumption" of other leading industrialized countries:
U.S. OPEC Imports Versus Total Oil
Consumption of Major Countries This Labor Day as we celebrate the "American Spirit" of hard work, creativity, opportunity, and resolve, it should be recognized that ethanol is a perfect example of this "Spirit" -- and just how far we've come in such a short period of about 10 years. Unfortunately, many politicians today want us to go back to the "Good Old Days" of dirtier fuel and greater fossil fuel dependence by rescinding Renewable Fuel Standards. These politicians would also abandon the vision to dramatically increase auto fuel economy (54.5 MPG) through the development of highly efficient, smaller turbo-boost engines (requiring the high octane found in ethanol).
The next time you hear an opportunist politician rail about "Big Government forcing ethanol down consumer's throats" -- think about which picture of values you want to support when you fill up your gas tank.

Returning to the Roots of Ethanol's Importance

noreply@blogger.com (Unknown) — Mon, 26 Aug 2013 21:36:00 +0000

Ethanol Protects Our Most Vulnerable By Providing Cleaner Gasoline.

Critical in forming public opinion on any issue is the use of paradigms -- an explanation "model/view" of how something works. With paradigms it often doesn't matter if the underlying facts/logic are incorrect or not objective (cherry-picked), its only what the Public perceives as correct or true that matters.

With many public perception paradigms there is usually a strong underlying cause as to why certain beliefs can often be so easily accepted -- such as mistrust by Conservatives in "big government" taking away individual freedoms (spawning conspiracy theories). Two current examples of this affecting public health policy are efforts to eliminate fluoride in drinking water (for dental health) and vaccinations (for children's health).

In today's world of mass communication (e.g., the Internet, battle of viewer ratings, etc.), forming public paradigms can be easily accomplished by the use of simple "sound bites" -- where something can be quickly "demonized".

An example of a highly effective quick sound bite demonization is Sarah Palin's use of fruit fly research to define a paradigm of ubiquitous wasteful Government spending (even though this science research is critical in finding cures for genetic diseases in humans, such as childhood autism).

(Click for the sound bite)

In forming public perception paradigms, a highly effective technique is to "cherry pick" aspects of an issue in order to "frame" the public debate -- forcing opponents to always be on the defensive to specific charges/claims. In the current "War on Ethanol" this is exactly what's happening as ethanol supporters constantly find themselves fighting a public perception of another highly subsidized, big-government, and wasteful program.

Ethanol Supporters must recognize that a strategy limited to "only" refuting claims point-by-point (e.g., engine damage, diverting crops for fuel use resulting in high food costs and world hunger, etc.) is not likely to be successful -- something more is needed.

In the classic movie comedy "My Cousin Vinny", a New York City lawyer (Vinny, played by Joe Pesci) defends his cousin on false murder charges in the State of Alabama (a pretty tough place for a Brooklyn lawyer). In one funny scene, Vinny objects to the Prosecutor's question, where the Judge responds to him: "That is a lucid, intelligent, well thought out objection -- OVERRULED!"

Often, even the best of well thought-out and factual arguments can not overcome ingrained prejudices and biases -- especially in today's Red State versus Blue State culture wars.

In the "Court of Public Opinion" on ethanol what is needed is a "Paradigm Shift" to change the playing field. A good starting place is to return to the original public health benefits roots of why ethanol use was needed in the first place:

Octane: Octane is an additive needed to reduce the reaction of unblended gasoline to combust/ignite under pressure in a car's engine cylinder (called anti-knock). Without proper octane levels in gas, engine performance levels will decrease and will cause engine damage. For decades, the principle source of octane was lead, which according to every World Health Organization was resulting in severe health problems (e.g., central nervous system damage, neurological development in children, fertility problems, high blood pressure, kidney damage).

Ethanol has a high octane rating (~113), where the majority of gasoline today is blended with ~10% ethanol (called E-10) to achieve the needed regular grade octane rating level of 87 for proper engine performance:

Gas Component:	Octane Rating	Percentage Blend	Weighted Octane
Ethanol (E-100)	113	10%	11.3
Unblended Gas (E-0)	84	90%	75.7
Gas @ Pump (E-10)	87	100%	87

Cleaner Air from Less Smog: If you live in a metropolitan area, have you noticed that there is less smog air pollution (severely impacting lung functions of children and the elderly) than a decade ago? This was accomplished by adding an oxygenate additive in gasoline, making it cleaner burning. First an oxygenate called MTBE (derived from fossil fuels) was used, but was found to be probably carcinogenic (cancer causing). Ethanol has replaced the use of MTBE.

Health Benefits Vs. Costs: While the health benefits (e.g., reducing rates of cancer, child autism, asthma, etc.) of cleaner gasoline from ethanol blending are immeasurable, what is the cost that consumers have to pay for these benefits by using ethanol? To answer this question, we need to look to non-ethanol alternatives for (1) oxygenates (ethers) and (2) octane additives (alkylates).

A first step is to compare the wholesale commodity price of un-blended gasoline (E-0) versus ethanol (E-100) -- where currently, ethanol is trading at a "discount" of $0.92 per gallon (yes, you are reading this right, a discount not a premium).

Commodity Price of Gas Versus Ethanol
(per gallon) Removing ethanol as the source of a needed oxygenate and octane additives would eliminate this "discount", resulting in an ~9¢ per gallon price increase at the pump (e.g., price difference of $0.92 per gallon times the typical 10% blending ratio). But in doing this, the ethanol-free gas would then have a performance problem as it only contains 84 octane (versus minimum requirements of 87).

To estimate what the additional costs would be to make up for this short-fall in octane level, we can look to current pump prices where the higher octane levels in mid and premium grades are achieved by non-ethanol additives (alkylates, aromatics and reformates).

Comparison of Average U.S. Gas Prices by Octane Grade

	Regular (87 Octane)	Mid-Grade (89 Octane)	Premium (91 Octane)
Pump Price Per Gallon	$3.57	$3.74	$3.90
Octane Level Vs. Regular	-	+2	+4
Increased Cost Over Regular	-	17¢	33¢

Using the above market data, eliminating ethanol blending in gasoline (for oxygenate and octane requirements) would result in a pump price increase of ~34¢ per gallon:

Consumer Cost Impact:	Increase in Price per Gallon:
Elimination of Ethanol Discount	9¢
Non-Ethanol Octane Additives	25¢⁽¹⁾
Pump Price Increase	34¢

(1) Based on the above pump premiums for mid and premium grades, for each incremental increase in octane level of 1, the increased price is ~8¢.

Thus, contradictory to the paradigm presented by opponents of ethanol (e.g., recent actions by the State of Florida to eliminate blending requirements), ethanol use "reduces" the cost to consumers in achieving health objectives versus other alternatives.

Conclusion: In a culture of increasing ideological divides and short memories (what have you done for me lately?), the ethanol story of health benefits (especially for children) must be re-emphasized and re-told -- and that its just not another "big government" wasteful program shoved down the public's throat.

Also the current myopic view of the environmental community in criticizing ethanol should be taken to task on these health issues. What do they propose to use for the massive octane and oxygenate additives needed to cleanly sustain U.S. transportation?

Only by achieving a fundamental "paradigm shift" in attitudes will the general public even listen to the "point-by-point" argument rebuttals being made in support of ethanol.

References:
Reuters News Article Analysis of Ethanol
Life Without Ethanol
How Stuff Works: How Gasoline Works

Gas Vs. Ethanol Prices -- 2012 Review

noreply@blogger.com (Unknown) — Tue, 15 Jan 2013 20:53:00 +0000

The below pink line is the commodity/wholesale price of 100% ethanol (E-100). But as a N.Y. Times story explains, ethanol gets less MPG than gasoline. The green line adjusts (increases the price) for the lower energy efficiency of ethanol, allowing an "Apples to Apples" comparison with the wholesale price of gas (blue line). The red line is the average of all U.S. retail pump prices of regular grade gasoline.A good "Rule of Thumb" for U.S. consumers in making ethanol decisions at the pump (ethanol blends above 10%, such as E-85) is that used in Brazil. In Brazil, flex-fuel drivers generally buy gasoline when the price of ethanol is more than 70% of gasoline, and buy ethanol when the comparable price is lower. For example, during the Spring, U.S. ethanol was a good deal (as low as 65% of the wholesale RBOB gasoline price). But for most of the year, ethanol has been more expensive on a MPG adjusted basis.It should be noted however, that this current "Rule of Thumb" may soon change as a result of on-going breakthroughs in engine engineering design (e.g., Ricardo Engines Turbo Boost). We will address this improving fuel efficiency of flex-fuel engines (as well as aviation bio-fuels being tested by the U.S. Military) in future blog posts.
The below chart gives an illustration of just how significant these improvements in engine efficiency could be -- where the only data changed from the original chart is the use of efficiency data that Ricardo Engines' is currently achieving in field tests -- where adjusted ethanol prices are a clear winner.
Retail Gasoline Prices: The below map shows the current national average (above chart's red line) by region.
Current Retail Gasoline Prices by Region At year-end 2012, wholesale and retail gas prices were about equal to a year ago (2¢ higher) with ethanol trading 7¢ per gallon lower.
Ethanol Prices: A simple linear regression statistical analysis shows that U.S. ethanol prices can be almost entirely explained (a R² of .91) by the commodity price of #2 yellow corn (which is not used for human consumption). The extreme volatility in ethanol prices since July is the result of a series of initial over-reactions and then corrections in corn futures markets as to the actual severity of the drought in the Midwest on crop yields. As a result of this price increase, ethanol production levels have decreased up to 20% since July. With low or negative profit margins, many ethanol plants have either reduced output or temporarily shut down entirely.
As the below chart reflects, high corn feedstock costs are clearly having an adverse impact on U.S. ethanol production. The levelized (orange line) represents the theoretical monthly bio-fuel production level necessary to meet the yearly Renewable Fuel Standard's requirement of 13.95 billion gallons of bio-fuel use for 2012. In every month except January, actual production (purple line) was below the orange line.
Because of this shortfall in new bio-fuel production, the RFS was met using a combination of 3 market mechanisms: (1) Using RIN Credits from the previous year (where bio-fuel use exceeded RFS requirements); (2) Drawing down of existing bio-fuel inventories; (3) Bio-fuel imports (from Brazil).
During 2012, we agree with two studies (here and here) that ethanol use has had a negligible impact on retail gas prices. This is because the greatest use of ethanol is a 10% or less blend with gasoline (E-10). Year to date, 10% of the cumulative price differential between the wholesale price of ethanol (adjusted for efficiency) and gasoline is ~3¢ per gallon. Also recognizing that without ethanol, fuel blenders would have to substitute higher cost sources of octane additives, the price differential is probably only about 1¢ per gallon.
However long term, Supporters of ethanol must recognize a clear reality. As long as the adjusted price of ethanol (green line) is higher than the wholesale price of gasoline (blue line), ethanol use will always be criticized and lack acceptance by the U.S. Public even at low E-10 blend levels.

This lower cost can happen in two ways: (1) lowering ethanol's production cost through cheaper feedstocks and better conversion technologies (e.g., cellulosic enzymes); (2) greater auto engine efficiency utilizing ethanol's higher octane levels (smaller engines using turbo-boost).
The Renewable Fuel Standard: The recent volatility and price spikes of ethanol from the Mid-western drought is a good illustration that the future of ethanol is not from corn. Feedstock and production technology diversity is needed from other sources (sorghum, cellulosic). In passing the Renewable Fuels Standard requiring ethanol blending with gasoline, Congress recognized this point by capping the use of corn feedstocks (which current ethanol production has almost approached).

For all the criticism that ethanol use receives, what is generally lost by the general public is the amazing success story that has been so quickly achieved in accomplishing national goals for greater energy security and job creation. This achievement would not have been possible without using the existing corn industry's infrastructure in the Mid-west.
Did you know?: The Renewable Fuels Standard has resulted in a fundamental shift in gasoline formulation. The refining industry has now moved to using predominantly 84 octane "conventional" gasoline and then blending it with higher octane ethanol (around 113) to produce the 87 octane gasoline that is the most popular level with consumers. This change in refining practices is not easily reversed. While other octane enhancers could be used, ethanol's price make it the current lowest cost octane source of choice by refiners.
Data Sources:
Per numerous Sources (DOE, EPA), E-10 (10% ethanol) has ~3% less efficiency than E-0 (zero ethanol). Ethanol on a "net basis" has less BTU content, but higher octane.
-- Wholesale Ethanol prices are from the Chicago Board of Exchange.
-- Wholesale Gasoline prices are from the Chicago Board of Exchange.
-- Retail Gasoline prices are from Bloomberg's survey of national gas prices.
-- Corn Feedstock costs are calculated from Chicago Board of Exchange.
-- Distiller's Dried Grains (DDG) Futures (100 short tons) from CBOE.

-- Wholesale Gasoline Real Time Daily Trading Data.
-- Wholesale Ethanol Real Time Daily Trading Data.

Current Gas Vs. Ethanol Prices (Oct. 19, 2012)

noreply@blogger.com (Unknown) — Sun, 21 Oct 2012 13:22:00 +0000

The below pink line is the commodity/wholesale price of 100% ethanol (E-100). But as a N.Y. Times story explains, ethanol gets less MPG than gasoline. The green line adjusts (increases the price) for the lower energy efficiency of ethanol, allowing an "Apples to Apples" comparison with the wholesale price of gas (blue line). The red line is the average of all U.S. retail pump prices of gasoline.Retail Gasoline Prices: As the below map shows, the current national average (above chart's red line) is skewed upward by spikes in Western prices caused by current refinery problems in California (fires, questionable maintenance).
Current Retail Gasoline Prices by Region The good news is that for most of the U.S., each October marks the annual date where gasoline refiners start switching production to cheaper fuel blends for cooler weather. During summer months, higher cost blends are used to reduce air pollution (e.g., smog). Thus excluding any unforeseen major market event (e.g., war in the Middle East) consumers should expect to see a decrease in pump prices through next Spring.
Ethanol Prices: A simple linear regression statistical analysis shows that U.S. ethanol prices can be almost entirely explained (a R² of .91) by the commodity price of #2 yellow corn (which is not used for human consumption). The extreme volatility in ethanol prices since July is the result of a series of initial over-reactions and then corrections in corn futures markets as to the actual severity of the drought in the Midwest on crop yields. As a result of this price increase, ethanol production levels have decreased ~20% since July. With low or negative profit margins, many ethanol plants have either reduced output or temporarily shut down entirely.
During 2012, we agree with two studies (here and here) that ethanol use has had a negligible impact on retail gas prices. This is because the greatest use of ethanol is a 10% or less blend with gasoline (E-10). Year to date, 10% of the cumulative price differential between the wholesale price of ethanol (adjusted for efficiency) and gasoline is less than 3¢ per gallon. Also recognizing that without ethanol, fuel blenders would have to substitute higher cost sources of octane additives, the price differential is probably only about 1¢ per gallon.
However long term, Supporters of ethanol must recognize a clear reality. As long as the adjusted price of ethanol (green line) is higher than the wholesale price of gasoline (blue line), ethanol use will always be criticized and lack acceptance by the U.S. Public even at low E-10 blend levels.

This lower cost can happen in two ways: (1) lowering ethanol's production cost through cheaper feedstocks and better conversion technologies (e.g., cellulosic enzymes); (2) greater auto engine efficiency utilizing ethanol's higher octane levels (smaller engines using turbo-boost).
The Renewable Fuel Standard: The recent volatility and price spikes of ethanol from the Mid-western drought is a good illustration that the future of ethanol is not from corn. Feedstock and production technology diversity is needed from other sources (sorghum, cellulosic). In passing the Renewable Fuels Standard requiring ethanol blending with gasoline, Congress recognized this point by capping the use of corn feedstocks (which current ethanol production has almost approached).

For all the criticism that ethanol use receives, what is generally lost by the general public is the amazing success story that has been so quickly achieved in accomplishing national goals for greater energy security and job creation. This achievement would not have been possible without using the existing corn industry's infrastructure in the Mid-west.
Did you know?: The Renewable Fuels Standard has resulted in a fundamental shift in gasoline formulation. The refining industry has now moved to using predominantly 84 octane "conventional" gasoline and then blending it with higher octane ethanol (around 113) to produce the 87 octane gasoline that is the most popular level with consumers. This change in refining practices is not easily reversed. While other octane enhancers could be used, ethanol's price make it the current lowest cost octane source of choice by refiners.
Data Sources:
Per numerous Sources (DOE, EPA), E-10 (10% ethanol) has ~3% less efficiency than E-0 (zero ethanol). Ethanol on a "net basis" has less BTU content, but higher octane.
-- Wholesale Ethanol prices are from the Chicago Board of Exchange.
-- Wholesale Gasoline prices are from the Chicago Board of Exchange.
-- Retail Gasoline prices are from Bloomberg's survey of national gas prices.
-- Corn Feedstock costs are calculated from Chicago Board of Exchange.
-- Distiller's Dried Grains (DDG) Futures (100 short tons) from CBOE.

-- Real Time Daily Trading Data on energy products.

High Oil & Gas Prices -- The Real Issues.

noreply@blogger.com (Unknown) — Fri, 28 Sep 2012 17:25:00 +0000

For decades, politicians have been promising America oil independence AND lower gasoline prices. But instead of more promises, we need some straight talk on expectations, global realities, and the tough choices we face. The real policy issues that drive today's high oil prices are the consequences of war and a suffocating federal debt -- anything else is a diversion.

Can We "Drill Baby Drill" to $2 Gas?: A major diversion used in campaign rhetoric on high gas prices is supposedly simple Econ 101 -- Supply and Demand. Under this argument, if U.S. environmental regulations were reasonable allowing more oil drilling, the increased supply would reduce the price of gas to a $2 range. FACT CHECKing this claim should be really easy by just looking at Canada -- as they have historically produced much more oil than Canadians consume. But Whoops! -- gasoline prices in Canada exactly track those in the U.S. (as they also do in other free market "net oil exporting countries" such as Norway).
On the flip side of political rhetoric, President Obama is taking credit that U.S. oil production is now the highest since 1998. Is this credit deserved?
Of course not. As an article from the Canadian "Oil Patch" explains, the reason oil exploration and production is currently booming in North America is because of high prices. For example, extracting oil from tar sands (the source of the Keystone pipeline project) and other unconventional sources can cost up to $40 a barrel. Without high oil prices, tar sands would not be economic compared to Middle Eastern oil (which costs 50¢ to $2 per barrel to extract).

While there are tremendous benefits of increasing domestic oil production (e.g., creation of good jobs, greater energy security, decreasing the U.S. trade deficit) -- an expectation of meaningful reductions in oil and gas prices isn't one of them. Simply stated, gasoline prices will always be driven by the world commodity price of oil.

The Real Price Drivers: After decades of stable oil prices, beginning in the early 2000's the combination of several drivers have fundamentally changed global oil markets:
(1) Ongoing war and political unrest in the Middle East; (2) Devaluation of the U.S. Dollar; (3) A dramatic increase in oil demand from developing economies; and possibly
(4) The unprecedented levels of money flowing into oil futures speculation.
A picture can be worth a thousand words. As the above chart illustrates, there have been dramatic consequences from 10 years of war, bad behavior on Wall Street, and the accumulation of massive debt under President Bush and Obama (devaluing our currency). These are the true drivers of high oil prices, not environmental regulations.
War in the Middle East:: Many oil market analysts believe a war between Iran and Israel would immediately send oil prices to $150 per barrel (and already creating a significant risk premium in oil prices). If an Iran/Israeli conflict were to spread throughout the Region (which supplies ~60% of the World's oil market), the consequences on prices would be catastrophic. With the possibility of $6, $8, $10 U.S. gas prices (fill in the blank as your guess is as good as anyone else), foreign policy is very much a domestic economic issue in the U.S. Presidential campaign.
Devaluation of U.S. Dollar: Beginning with the Bush Administration (in 2002) and continuing with Obama, a significant devaluation of the U.S. dollar has occurred. While there are numerous reasons for this, they are generally linked to Federal monetary policies to finance huge federal budget deficits and to spur a weak economy.
With currency devaluation the cost of imported goods (such as oil) increases as the purchasing power of the U.S. dollar is less. In simplistic terms (all things equal), ~33% of the increase in the price of gasoline since 2002 could be explained by currency devaluation. Many market analysts argue that as a result of world central banks flooding the market with money (to finance budget deficits), its not that oil is expensive -- but its money that is cheap.
Increased Demand for Oil from Developing Economies: A major driver in higher oil prices is/will be the continuing dramatic increase in oil demand from developing countries such as China and India -- something that no President has any control over. [British Petroleum (BP) has an excellent 2 minute picture overview of what's occurring in world energy markets on YouTube.]
Oil Futures Speculation & Oil/Gas Prices: Typically, a belief in whether excessive market speculation is causing a significant rise in oil prices depends on what "Political Tribe" you belong to. Democrats believe oil futures markets should be regulated more -- and are raising the current price of gas between $7 (small car) to $14 (truck) when you fill up. Republicans believe this is paranoia and oppose additional regulation (Dodd-Frank).
Thankfully, there is an Easy Button to resolve this. Even if financial market speculation is adversely impacting oil prices, its an "effect" not a "cause". If the issues of war and federal debt were resolved, this would pretty much eliminate the conditions that drive excessive financial speculation.
The Final Question: After listening to all the campaign rhetoric and attack ads, everyone should ask the question: "What do environmental regulations have to do with war and the Federal debt level, the true drivers of high oil prices?" The answer is simple -- they don't.
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Current Ethanol Vs. Gas Prices (July 6, 2012)

noreply@blogger.com (Unknown) — Sun, 08 Jul 2012 22:05:00 +0000
The below pink line is the commodity/wholesale price of ethanol. But as a N.Y. Times story explains, ethanol gets less MPG than gasoline. The green line adjusts (increases the price) for the lower energy efficiency of ethanol, allowing an "Apples to Apples" comparison with the wholesale price of gas (blue line). The red line is the average U.S. retail pump price of gasoline.Current Retail Gasoline Prices by Region The Bad News: On July 6 -- the price of ethanol (green line) was a whopping ~71¢ per gallon higher than gas on a wholesale price comparison (blue line). Incredibly, this price is higher than the retail price of gas (which includes taxes, transportation costs).
Not as Bad News: Most gasoline contains 10% or less ethanol (E-10). Thus, as this high cost ethanol is blended with gasoline, most people could be paying ~7¢ per gallon more when they fill up.
Better News: The current "price premium" between wholesale ethanol and gasoline has not existed for the entire year. From March to May, ethanol prices (green line) were less than gas. On a year-to-date basis, the price premium for E-10 is ~1.5¢ per gallon.
Hopeful Consumer News: U.S. ethanol inventories remain at near record high levels (excess supply). If inventories remain high, the current price premium may never fully make it to consumer's pocketbooks. Rather, ethanol companies may have to "eat" some of this higher cost, reducing their margin and profit levels to sell product.
What's Going On?: Prior to June, ethanol prices were trending lower in expectations of reduced ethanol feedstock costs from the largest corn crop planted in the U.S. since 1937. However, recent drought conditions in many mid Western States have caused commodity corn futures prices to skyrocket.
Currently, almost all ethanol in the U.S. is produced from corn feedstock. Until the Industry transforms itself to next generation feedstocks (e.g., sugar cane, sweet sorghum, cellulosic sources as is being done in Florida), ethanol prices will be highly dependent on the market price of corn.^{(1) (2)}
⁽¹⁾ A simple linear regression of corn (x) and ethanol (y) prices using 2012 data resulted in a correlation R² of .8378 with a dependent variable value of y= 0.8893x + 0.7536.
⁽²⁾ "Corn Feedstock Cost" is the estimated "Net Costs" reflecting co-product of DDGS (Distiller Grains). The calculation methodology is simplistic, using 70% of commodity corn prices.
Data Sources:
Per numerous Sources (DOE, EPA), E-10 (10% ethanol) has ~3% less efficiency than E-0 (zero ethanol). Ethanol on a "net basis" has less BTU content, but higher octane.
-- Wholesale Ethanol prices (pink line) are from the Chicago Board of Exchange.
-- Wholesale Gasoline prices (blue line) are from the Chicgo Board of Exchange.
-- Retail Gasoline prices (red line) are from Bloomberg's survey of national gas prices.
-- Corn Feedstock costs (orange line) are calculated from Chicago Board of Exchange.
-- Dried Distillers Grains data from Chicago Board of Exchange.
-- Real Time Daily Trading Data on energy products.

Why Oil &Gas Prices are High in 5 Pictures (Updated)

noreply@blogger.com (Unknown) — Fri, 22 Jun 2012 10:54:00 +0000
Update: British Petroleum (BP) has released an excellent 2 minute overview using pictures of what's occurring in world energy markets on YouTube. Also, World oil prices (Brent) have dropped to $89 per barrel. ⁽¹⁾
History: After decades of stable oil prices, beginning in the early 2000's the combination of several drivers have fundamentally changed global oil markets: (1) Ongoing war and political unrest in the Middle East; (2) Devaluation of the U.S. Dollar; (3) A dramatic increase in world oil consumption from developing economies; and possibly, (4) The unprecedented levels of money flowing into oil speculation markets since banking deregulation.
Devaluation of U.S. Dollar: Beginning with President Bush's Administration (in 2002) and continuing under President Obama, a significant devaluation of the U.S. dollar has occurred. With currency devaluation the cost of imports (such as oil) increases. In simplistic terms (all things being equal), ~33% of the increase in the price of gasoline could be explained by currency devaluation. Increased Demand for Oil from Developing Economies: A major driver in higher oil prices is/will be the continuing dramatic increase in oil demand from developing countries such as China and India -- something that no President has any control over. Oil Futures: If you don't understand financial futures/derivatives, don't feel alone. When Warren Buffet was asked about what he thinks of derivatives he responded, "I don't understand them". For most people, an opinion on futures trading will depend on which Tribe they belong to (Democrats believe they should be regulated better, Republicans are anti-regulation). While the impact on oil prices from futures trading may be unclear, one fact is crystal: Their use exploded in the early 2000's after banking de-regulation (where now ~60% to 70% of trading volume is by financial institutions). But the above chart is just the tip of the iceberg, where the vast majority of futures trading is unreported (OTC markets). The problem is the lack of transparency/disclosure -- nobody really knows or can know if excessive speculation is occurring.

Can We "Drill Baby Drill" to $2 Gas?: A central theme in this year's election campaign rhetoric on high gas prices is supposedly simple Econ 101 -- Supply and Demand. Under this argument, if environmental regulations were reasonable allowing more oil drilling, the increased supply would reduce the price of gas to a $2 range. Since the economics are so simple, we should be able to just look at the pump price savings in Canada -- as they produce much more oil than Canadians consume. But Whoops! -- gasoline prices in Canada exactly track those in the U.S.
Conclusion: While there are numerous benefits of increasing domestic oil production (e.g., creation of good jobs, greater energy security, improving the U.S. trade deficit) -- expectations of meaningful reductions in oil and gas prices isn't one of them. Simply stated, gasoline prices will always be driven by the world price of oil (an internationally traded commodity).
Extra Credit: If you want to be an A+ Student on market drivers for oil and gasoline prices, read this article from the Canadian "Oil Patch". The reason oil exploration is currently booming in Canada and the U.S. is because of high prices. For example, extracting oil from tar sands (the source of the Keystone project) can cost up to $40 per barrel. Without high oil prices, tar sands would not be economic compared to Middle Eastern oil (which costs 50¢ to $2 per barrel to extract).

Current Ethanol Vs. Gas Prices (May 25, 2012)

noreply@blogger.com (Unknown) — Sat, 26 May 2012 14:24:00 +0000
Tracking gasoline prices versus ethanol prices. The pink line is the commodity price of ethanol (which has less efficiency than gas, E-0). The green line line adjusts for this lower efficiency, allowing an "Apples to Apples" comparison with the commodity RBOB price of gas (the blue line). The red line is the average retail price of gasoline in U.S.
As of May 25, 2012 -- ethanol (adjusted for efficiency) is 8¢ per gallon higher than gasoline on a wholesale price comparison. However, since most gasoline contains only 10% or less ethanol (E-10), this price differential at the pump is currently eight tenths of a penny (.8¢).

Current Retail Gasoline Prices by Region Data Sources:
Per numerous Sources (DOE, EPA), E-10 (10% ethanol) has ~3% less efficiency than E-0 (zero ethanol). Ethanol on a "net basis" has less BTU content, but higher octane.
-- Wholesale Ethanol prices (pink line) are from the Chicago Board of Exchange.
-- Wholesale Gasoline prices (blue line) are from the Chicgo Board of Exchange.
-- Retail Gasoline prices (red line) are from Bloomberg's survey of national gas prices.
-- Real Time Daily Trading Data on energy products.

Current Ethanol Vs. Gas Prices (May 11, 2012)

noreply@blogger.com (Unknown) — Sat, 12 May 2012 12:24:00 +0000
Tracking gasoline prices versus ethanol prices. The pink line is commodity price of ethanol (which has less efficiency than gas, E-0). The green line line adjusts for this lower efficiency, allowing an "Apples to Apples" comparison with the commodity RBOB price of gas (the blue line). The red line is the average retail price of gasoline in U.S.
As of May 11, 2012 -- ethanol (adjusted for efficiency) and gasoline are exactly equal ($3.00) on a wholesale price comparison.

Data Sources:
Per numerous Sources (DOE, EPA), E-10 (10% ethanol) has ~3% less efficiency than E-0 (zero ethanol). Ethanol on a "net basis" has less BTU content, but higher octane.
-- Wholesale Ethanol prices (pink line) are from the Chicago Board of Exchange.
-- Wholesale Gasoline prices (blue line) are from the Chicgo Board of Exchange.
-- Retail Gasoline prices (red line) are from Bloomberg's survey of national gas prices.
-- Real Time Daily Trading Data on energy products.

Current Ethanol Vs. Gas Prices (5/04/12)

noreply@blogger.com (Unknown) — Sat, 05 May 2012 14:10:00 +0000
Tracking gasoline prices versus ethanol prices. The pink line is commodity price of ethanol (which has less efficiency than gas, E-0). The green line line adjusts for this lower efficiency, allowing an "Apples to Apples" comparison with the commodity RBOB price of gas (the blue line). The red line is the average retail price of gasoline in U.S.
As of May 4, 2012 -- ethanol is about 16¢ per gallon more expensive than gasoline on a wholesale price comparison.

Data Sources:
Per numerous Sources (DOE, EPA), E-10 (10% ethanol) has ~3% less efficiency than E-0 (zero ethanol). Ethanol on a "net basis" has less BTU content, but higher octane.
-- Wholesale Ethanol prices (pink line) are from the Chicago Board of Exchange.
-- Wholesale Gasoline prices (blue line) are from the Chicgo Board of Exchange.
-- Retail Gasoline prices (red line) are from Bloomberg's survey of national gas prices.