Governors' Biofuels Coalition

At this point in time we have no clear picture of how the Iranian situation will end up but one thing is for certain– we in the US will remain dependent on oil for our transportation needs.

This is puzzling, frustrating, and so debilitating to our economy, our national security, and our health. Our relationship with oil is a long and complicated story. In the pre-World War 2 era the US was the largest oil producer in the world with little imports and low prices. The population and economic growth over the next three decades resulted in a growing dependence on other sources, notably the oil rich middle east as our own production peaked.

In 1973, due to our alliance with Israel in their conflict with Egypt and Syria, an embargo by all of OPEC was the first punch to the American gut as prices doubled and supply became an issue  Then in 1979, the Iranian revolution resulted in oil shortages that rocked the world, particularly the US as we literally had gas lines, rationing, and unrest.

While these events did lead to the establishment of fuel efficiency standards and a halfhearted effort to develop alternative fuels like ethanol, methanol, and CNG, it was a brief fling, and we went back to our oil habits in a big way. Light duty vehicles—all running on gasoline– increased from 145 million in 1979 to 190 million in 1985. Ethanol production was less than 1 billion gallons annually and the public and the government showed little interest in taking measures to insulate us from a repeat of the 1970s. Ethanol production, only through the determination of American agriculture and the skill of the ethanol and clean fuel stakeholders, hung in there and remains the only commercially available alternative for a gasoline powered vehicle.

As explained in our book Gasolinegate, due to the money and the staggering number of lobbyists the oil industry uses to influence policy, nothing has really changed aside from the critical role ethanol has played to displace more than 10% of our gasoline—thank goodness.

If the public doesn’t like high gasoline prices, they would like them a lot less if we took ethanol out of the system.  If supply is tight now, try taking another 10% out.  Given that, if we didn’t have a Congress and Administration compromised by oil industry influence, a logical step would be to put more of a lower cost, domestic, high-octane product in the mix, not work to keep it out.

The Brazilians certainly have figured that out. Unlike us, they responded to the 1973 crisis with some self-determination by going all in on ethanol.  They produce their own oil and with blends now approaching 30 and 40% they have plenty of both and are not turned upside down when global prices increase.

Sure, we now produce a lot of oil in the US.  We worked our way back from the hard-to- believe 62% import figure of 2005 and at least on paper produce enough oil to meet our needs. But oil has to be refined, and we have been walking a razors edge with respect to refining capacity compared to gasoline consumption.  The recent shutdown of refineries in California has resulted in imports of gasoline to the west coast and there is no indication these refineries are coming back.

The public is being led to believe we are “energy independent” and understandably is asking why then do events in the middle east raise our prices.  This is part of the complication of oil-if the world price of oil doubles, Exxon, Chevron, or any of the big guys aren’t going to leave that money on the table. It is a global commodity, and global demand is going to set the price everywhere.

So how do we reduce the price of oil? Reduce the demand for it, of course. A 42 gallon barrel of oil produces just 20 gallons of gasoline, even less when making premium, high octane grades.  By the same metric, a barrel of ethanol is 42 gallons of high octane fuel and frees up refinery capacity.

My longtime friend and colleague Dave Hallberg has been preaching the value of ethanol when it comes to octane since he formed the Renewable Fuel Association in 1980.  Even back then when he launched the annual RFA conference, he made the theme “Capturing Octane Value”.  Using the 20-gallon gasoline yield figure, Dave recently reminded me that if we were to adopt a 30% blend ratio—like the Brazilians–  it would displace 1.5 billion barrels of oil annually and importantly, free up refining capacity!

This is not just a good idea because of the turmoil we are currently experiencing; it makes sense any time.   Taking the shackles off ethanol to allow truly game-changing blend volumes would result in a positive economic impact on gasoline, groceries, fertilizers, plastics, and all things related to oil.  Yet we seem to have a Congress and an Administration that won’t even allow us to voluntarily add 5% more ethanol into gasoline when doing so would be a service to the public and national security.

The conflict with Iran may be resolved by the time you read this but our exposure to events in the middle east will always be a threat. How have we not learned the lessons of the past?

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