The Case For Ethanol

[~Nikki~]

Here is a little something on why ethanol makes economic sense. Big oil supporters will disgaree but readers should decide for themselves which is better for the economy.


"The economic impact of the homegrown ethanol industry is tremendous, both from a trade standpoint and that of America’s Main Streets.

An average-sized ethanol plant costs approximately $65 million to build and will employ nearly 40 people. These positions are good-paying, high-skill jobs--chemists, engineers, managers, marketers. The plant’s $56 million in annual operating costs circulates throughout the community many times, benefiting everyone from the farmers who provide the corn to make the fuel ethanol to the local businesses that supply goods and services for the production facility. An ethanol plant will increase tax revenue for local and state governments by at least $1.2 million annually."

http://www.forbes.com/2005/11/15/ene...l?boxes=custom

[Melonie]

^^^ all of this is absolutely true, and I don't dispute it one bit. The newly legislated US ethanol industry does indeed provide a great deal of financial benefits and good paying high skilled jobs for those areas where corn is grown and where ethanol refineries are being located. However, it also provides a financial 'burden' for those areas where corn is not grown and where ethanol refineries are not being located.

What the forbes article does not get into in detail is that the US ethanol industry is not profitable on its own. In order to be made profitable, US legislators had to enact import quotas and punitive tariffs to keep much less expensive sugar cane based ethanol from being imported into the US in significant volumes - which in turn allows US ethanol producers to sell their product at a gov't supported price which is 57 cents per gallon higher than the rest of the world. Thus the good paying high skilled ethanol refinery jobs and the additional tax revenues for state and local govt's are actually being paid for by legally 'overcharging' every single person and business and gov't agency who buys E90 alcohol additive gasoline by 5.7 cents per gallon ... rich and poor alike. Additionally, the US price of the corn which serves as the feedstock for US ethanol refiners depends on multi-billion dollar annual federal gov't subsidies to corn farmers - without the corn farm subsidies the US price of ethanol would have to be 17 cents per gallon higher still, and the pump price of E90 gasoline would have to be raised by another 1.7 cents per gallon in order to create profits for the US ethanol industry.

As a net result, it would actually have been much cheaper for E90 ethanol additive gasoline buyers had the federal gov't simply raised taxes and handed over gov't checks to those high skill workers for staying home, and for the federal gov't to hand over grant money to the state and local govt's, rather than create a new ethanol industry to serve as a conduit for transferring wealth from one group of Americans to another group of Americans. Of course had this route been taken then the federal gov't would have experienced a lot of heat by attempting to tax the 'poor' to subsidize the US ethanol industry directly. If the federal gov't really had an interest in affordable 'green' liquid fuels, it could simply have allowed the importation of Brazilian sugar cane ethanol in virtually unlimited quantities at a 57 cent per gallon lower price !

[~Nikki~]

^ Not even close to being true.

As was pointed out in the article creating our own ethanol is more favorable than relying upon foreign supplies of fuel. It would not matter what it was we were importing be it ethonal or oil because we would still be giving away money that we could be keeping here in our own economy. The goal is or rather should be to be energy independant as well as enviromentaly sound. Making our own alternative fuels such as ethanol is the only way to not be dependant on foriegn sources for our energy.

From the article:

"From the perspective of trade, our increasing imports of oil and gas are a costly habit. America’s trade deficit in crude oil has risen from $27 billion in 1987 to $100 billion in 2002. This deficit is the primary culprit in our total trade deficit. Given that each billion dollars in trade deficit costs the U.S. 19,100 jobs, this is a counterintuitive drain on the U.S. economy that must be plugged."

I will agree with you on one thing though. The current federal gov't has no real interest in affordable 'green' fuels. However, that attitude is destructive to the economy not to mention the enviroment.

[Melonie]

^^^ again, if the federal gov't really had an interest in US energy independence, it would be granting leases to drill in the ANWR, off the east, west and gulf coasts etc. in order to (as you put it) keep money here in our own economy rather than giving away money to foreign oil and gas suppliers. Obviously this is not the case. Thus the question arises that if the federal gov't is content to import 70% of America's oil needs when those needs could theoretically be met by domestic production (at much higher US oil prices than the world price of course), why is it erecting import quotas which limit foreign ethanol to 7% of America's ethanol needs plus collecting tariffs which fix the US ethanol price at a much higher level than the world price ? Undoubtedly, there is some sort of reason to explain the diametrically opposed gov't approaches to two different liquid energy sources - but I'm at a total loss to explain the difference in reasoning on the basis of economics !

As to the accuracy of the foreign ethanol import quotas, amount of tariffs on imported ethanol, amount of gov't subsidies to corn farmers etc. this is all part of the public record. I have already posted the relevant links in another thread and will not repeat them here (because you will undoubtedly again attempt to claim the information is inaccurate even though it comes from official gov't websites).
~

[~Nikki~]

^^^ again, if the federal gov't really had an interest in US energy independence, it would be granting leases to drill in the ANWR, off the east, west and gulf coasts etc. in order to (as you put it) keep money here in our own economy rather than giving away money to foreign oil and gas suppliers. Obviously this is not the case.

Agreed from an economic standpoint even if I oppose the drilling from an enviromental position. I believe the reason that the current government is opposed to none oil based liquid energy is obvious. They are almost all in or connected to the oil industry. They would lose their massive profits if we make a total switch to ethanol.

As to the accuracy of the foreign ethanol import quotas, amount of tariffs on imported ethanol, amount of gov't subsidies to corn farmers etc. this is all part of the public record. I have already posted the relevant links in another thread and will not repeat them here (because you will undoubtedly again attempt to claim the information is inaccurate even though it comes from official gov't websites

You misunderstood what I was calling untrue in my last post in this topic. I was referring to your assertion that it would make more economic sense to import ethanol from Brazil than to make our own here in the US. I was pointing out that importing energy is still importing energy and handing over money that could be kept here in our own country.

[FBR]

In the context of this thread, I thought you would enjoy this article from the July issue of Car and Driver magazine. It touches on the points made here as well as giving the reader a pretty darn good education in the whys and wherefores of gasoline/ethanol production and how the use of this blended fuel can be either good or bad depending upon your point of view. The article is long and somewhat technical in spots but makes for an interesting read and is pertinent considering what we are paying for gasoline nowadays and the unreliability of our petroleum supplies.

http://www.caranddriver.com/features...-promises.html

FBR

[NoCoverLover]

That was a very informative article FBR. Thanks for posting it!

Ethanol certainly isn't the savior that most people think it is. It costs too much to produce right now. That needs to change!

Although some view the mandate for ethanol as a pure tax burden, I disagree. The article talks about being able to make ethanol from the waste corn biomass (stalks, etc.). Requiring more ethanol gives companies the opportunity to improve production methods, thereby lowering costs.

I think it's a good idea myself.

Interestingly enough, my hometown (population 11,000, 50 miles N of Cleveland on the opposite side of Lake Erie) is constructing a plant to manufacture ethanol from Yams as opposed to corn.

Tobacco used to be grown there, but they now produce less than 15% of what they did in 1970. The purpose of this plant, seems to be to give the local farmers something to grow in the shitty sand mix they have there. Not a great motivator, but maybe some good will come of it.

[doc-catfish]

They opened up an ethanol plant in a small Iowa town last year. What are they using as fuel to make the ethanol? Try 300 tons of coal a day.

So much for green energy.

[~Nikki~]

In the context of this thread, I thought you would enjoy this article from the July issue of Car and Driver magazine. It touches on the points made here as well as giving the reader a pretty darn good education in the whys and wherefores of gasoline/ethanol production and how the use of this blended fuel can be either good or bad depending upon your point of view.

Thanks for sharing, FBR

They opened up an ethanol plant in a small Iowa town last year. What are they using as fuel to make the ethanol? Try 300 tons of coal a day.

Ugh. I am not very thrilled with the use of coal either, Doc-Catfish. I agree with this part of your link.

"If your goal is to reduce costs, then coal is a good idea," says Robert Brown, director of Iowa State University's office of biorenewables. "If the goal is a renewable fuel, coal is a bad idea. When greenhouse-gas emissions go up, environmentalists take note. Then you've got a problem."

I prefer methods such as these mentioned in the link:

"a new ethanol plant in Nebraska strategically located by a feed lot, using methane from cattle waste to fire ethanol boilers. Another new plant in Minnesota uses biomass "

Oh and thanks for your link too!

[Casual Observer]

As I said in this post in a similarly utopian-modelled thread, ethanol creates more problems than it solves, particularly environmental problems.

Ethanol wouldn't exist as an industry--either in the US or Brazil, doesn't matter--without heavy government subsidization and industry protection.

[FBR]

"a new ethanol plant in Nebraska strategically located by a feed lot, using methane from cattle waste to fire ethanol boilers.

Do you have a link to this information? Im curious about the tradeoff between the electric motor/compressor/energy cost of collecting and compressing the methane from the feed lot (which is presumably just drifting around at atmospheric pressure) as compared to the useable energy released when the methane is burned.

Compressing atmospheric air (or methane in this case) requires about 1/4 HP of electric motor energy to create 1 standard cubic foot of compressed gas at 25 PSIG. This seems like a reasonable pressure to provide to a boiler although I could be wrong on that. 1/4 HP relates to about 0.19 kilowatts which if you want to do the math relates to some kilowatt-hour electric generating cost versus already compressed from-the-ground natural gas which just has to be downward regulated to a proper working pressure by an inexpensive pressure control valve. Presumably cow doo is a renewable resource (although their feed costs energy to produce and aint free) as compared to natural gas which is admittedly limited although no one knows how much natural gas is really out there.

FBR

[~Nikki~]

It is true that it is the new kid on the block compared to oil and coal. I guess we will have to see what the main fuel in the US is in 25 years. We can make all the predictions in the world as to what the answer to that will be (that goes for both sides of the debate)

However, in terms of investing in ethanol that is a personal choice each private investor can make for themselves. If Casual Observer or Melonie or other neocons don't want to add it to their portfolio that is fine by me.

I started out discussing alternative fuels in the first place because I have had nice returns on it and their was someone who posted asking to know what others had done well with. This was never supposed to be some right verses left debate. I was just responding to a request for info and whamo I got bombarded with flames, harassment and acts of intimidation. It's been surreal in a very negative way ever since.

[~Nikki~]

FBR,
Here is some stuff on Biomass. I'll look later for some stuff on Methane specifically but I do have to get ready to go to work. Also to be honest I have tired of this massive debate,nothing personal regarding you though rest assured It just gets old having to defend oneself over and over just because I invest in alternative fuels. Not that you took part in that but after days on end of battling Melonie I need a rest. I'm just a member not a moderator and thus don't have the same advantage nor do I have the same objective of trying to promote a political bias. I was originally just trying to help someone who asked for information not looking to get attacked and pulled into some kind of all out war

But I digress, here are some links for you. Have a nice evening.

http://www.oregon.gov/ENERGY/RENEW/B...ironment.shtml
http://www.seco.cpa.state.tx.us/re_biomass.htm

[Melonie]

FBR, there's really nothing to be gained from calculating the decimal points on the actual energy cost of methane fermentation and gas compression, because these are small potatoes compared to the amount of energy input necessary to get the current American productivity rate of corn and/or animal feedstocks which studies seem to take for granted. If you take the time to add up the natural gas used to produce chemical fertilizer, the petrochemicals and energy used to manufacture pesticides, the diesel fuel for tractors to plow, plant and harvest the corn and/or animal feedstocks, the electrical energy needed to dewater the harvested corn or other animal feedstocks etc., and the diesel fuel to truck the dried corn to refineries, you've already exceeded all of the 'new' energy the ethanol produced from that corn will contain. If you try and bypass the chemical fertilizer and pesticide step, per acre productivity falls to the point where extra farm diesel fuel costs wash out the costs savings of fertilizer and pesticide.

As your Car and Driver link and the Iowa Corn Report concur, bottom line is that there simply aren't enough available acres of 'primo' farmland available in the USA to ever produce enough ethanol to supply more than a minority percentage of the nation's current requirement for liquid fuels. Planting 'marginal' land to increase total output decreases production per acre, increasing fertilizer, pesticide, diesel fuel and farm labor requirements thus further increasing the already premium costs of US ethanol. And has already been pointed out in several places by several people, the only reason that anybody is turning an apparent 'profit' in the corn farming and ethanol businesses is because of massive direct and indirect gov't subsidies which we all pay for at the pump and via income taxes.

Both the Car and Driver link and the Iowa Corn Report also make reference to the fact that the huge new demand for ethanol is having a direct impact on the price and availability of corn. This will have trickle-down effects which stem from cutting US exports of 'cheap' corn to other parts of the world (which not only aggravates the US trade deficit but also exacerbates food shortages in 3rd world countries), to raising US prices of other commodities for which corn is a component i.e. beef and alcoholic beverages to name a couple (which will have a particularly bad inflationary effect on Joe Sixpack LOL).

Other studies show that sugar cane use as an ethanol feedstock is much more energy efficient overall than corn. beets, yams or any other crop that likes to grow in North America. The cane stalks can also be directly burned to fuel the refining process. Unfortunately, from a geographical standpoint, the only areas where sugar cane can be feasibly grown in the continental USA are the 'hurricane states' . For a fact, Brazilian and other sugar cane based ethanol production facilities have developed/utilized enzyme assisted fermentation and partial vacuum low energy refining processes such that their actual production costs are significantly lower than the SUBSIDIZED costs of US producers (and massively lower than the unsubsidized 'real' costs of US producers). Even so, practical limitations in regard to cultivatable farmland still limit Brazil to about a 10% ethanol contribution to it's total liquid fuel supply. Thus any utopian thoughts of a 'total switch to ethanol' are a practical impossibility even in the most favorable climates for sugar/alcohol bearing crops.



(snip)"Guided partly by Brazil's apparent success, American policy-makers are crafting new mandates for ethanol, and flex fuel vehicles are now taking shape. We have the impression that ethanol is king.

In reality, ethanol is a minor player in Brazilian energy supply. It accounts for less than one-tenth of all the country's energy liquids.

The real source of Brazil's self-sufficiency is the country's extraordinary success in producing more oil. After the 1970s oil shocks, when Brazil's fuel import bill soared, the government pushed Petrobras, the state-controlled oil company, to look asunder for new energy sources.

Petrobras delivered, especially at home, where the firm pioneered the technologies that make it possible to extract oil locked in sediments under the seabed in extremely deep water.

In the middle 1970s Brazil struggled to produce just 180,000 barrels of oil per day while importing four times that amount. Today it produces about 2 million and is self-sufficient. Indeed, the current milestone of self-sufficiency arrives with the inauguration of Brazil's newest deep water platform, the P50.

When P50 reaches its full output later this year, that one platform will deliver more liquid to Brazil than the country's entire ethanol program.

Brazil's self-sufficiency offers three lessons for U.S. energy policy:

* First is that ethanol, with current technology, will do little to sever our dependence on imported energy. Today's approach involves growing a crop - sugar in Brazil, corn in the United States - and then fermenting the fruits to yield fuel.

* Sugar plants in Brazil's climate are a lot more efficient at converting sunlight to biomass than is corn in the Midwest, but U.S. policy nonetheless favors corn (and imposes tariffs on imported sugar) because the program is really a scheme to deliver heartland votes rather than a commercially viable fuel.

* Yet, even with Brazil's favorable climate and sugar's inviting biology, ethanol is already reaching the limit. That's because the land and other resources devoted to ethanol can be put to other uses such as growing food and cash crops."(snip)


Back to the focus of this forum, it would appear that the best medium to long term investment possibilities raised in this thread so far are probably PetroBras shares and COMEX corn futures !!!

~

[Casual Observer]

I'm just a member not a moderator and thus don't have the same advantage nor do I have the same objective of trying to promote a political bias.

No one here is talking politics; we're talking about the economic viability of ethanol, as per your original post. Just because the reality of the economics of ethanol are not a utopian solution and that fact makes you uncomfortable vis a vis your own political views is your own issue.

[~Nikki~]

No one here is talking politics; we're talking about the economic viability of ethanol, as per your original post. Just because the reality of the economics of ethanol are not a utopian solution and that fact makes you uncomfortable vis a vis your own political views is your own issue.

I respect your right to have your opinion about my bias or lack therof however I can assure you that your above statement does not hold true in regards to me or the results I have had on investing in alternative fuels in general or ethanol specifically.

I started discussing alternative fuels only because a member asked what other people who post in Dollar den have had success with as far as investments. For me it has been alternative energy. For example, I have invested in ADM which has had an 85% RETURN IN THE LAST YEAR ALONE .

Another example of something I have done well with is MGPI which has a 169% return over the last 12 months.

A third example would be PEIX which has had a 93% return in the last 12 months.

From finacial point of view these investements have been great for me. Any political "feel good" emotion is just a bonus for me.

Now I think it is time for ALL of us to let these subjects go and move on to other things. If others agree on with that idea then just let these thread alone and they will move their natural course down the board.