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Thread: more unintended consequences of gov't Ethanol push ...

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    Default more unintended consequences of gov't Ethanol push ...

    (snip)"WASHINGTON (AP) -- A push from Congress and the White House for huge increases in biofuels, such as ethanol, is prompting the oil industry to scale back its plans for refinery expansions. That could keep gasoline prices high, possibly for years to come.

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    With President Bush calling for a 20 percent drop in gasoline use and the Senate now debating legislation for huge increases in ethanol production, oil companies see growing uncertainty about future gasoline demand and little need to expand refineries or build new ones.

    Oil industry executives no longer believe there will be the demand for gasoline over the next decade to warrant the billions of dollars in refinery expansions -- as much as 10 percent increase in new refining capacity -- they anticipated as recently as a year ago.

    Biofuels such as ethanol and efforts to get automakers to build more fuel-efficient cars and SUVs have been portrayed as key to countering high gasoline prices, but it is likely to do little to curb costs at the pump today, or in the years ahead as refiners reduce gasoline production.

    A shortage of refineries frequently has been blamed by politicians for the sharp price spikes in gasoline, as was the case last week by Sen. James Inhofe, R-Okla., during debate on a Senate energy bill.

    "The fact is that Americans are paying more at the pump because we do not have the domestic capacity to refine the fuels consumers demand," Inhofe complained as he tried unsuccessfully to get into the bill a proposal to ease permitting and environmental rules for refineries.

    This spring, refiners, hampered by outages, could not keep up with demand and imports were down because of greater fuel demand in Europe and elsewhere. Despite stable -- even sometimes declining -- oil prices, gasoline prices soared to record levels and remain well above $3 a gallon.

    Consumer advocates maintain the oil industry likes it that way.

    "By creating a situation of extremely tight supply, the oil companies gain control over price at the wholesale level," said Mark Cooper of the Consumer Federation of America. He argued that a wave of mergers in recent years created a refining industry that "has no interest in creating spare (refining) capacity."

    Only last year, the Energy Department was told that refiners, reaping big profits and anticipating growing demand, were looking at boosting their refining capacity by more than 1.6 million barrels a day, a roughly 10 percent increase. That would be enough to produce an additional 37 million gallons of gasoline daily.

    But oil companies already have scaled those expansion plans back by nearly 40 percent. More cancelations are expected if Congress passes legislation now before the Sensate calling for 15 billion gallons of ethanol use by 2015 and more than double that by 2022, say industry and government officials.

    "These (expansion) decisions are being revisited in boardrooms across the refining sector," said Charlie Drevna, executive vice president of the National Petrochemical and Refiners Association.

    With the anticipated growth in biofuels, "your getting down to needing little or no additional gasoline production" above what is being made today, said Joanne Shore, an analyst for the government's Energy Information Administration.

    In 2006, motorists used 143 billion gallons of gasoline, of which 136 billion was produced by U.S. refineries, and the rest imported.

    Drevna, the industry lobbyist, said annual demand had been expected to grow to about 161 billion gallons by 2017. But Bush's call to cut gasoline demand by 20 percent -- through a combination of fuel efficiency improvements and ethanol -- would reduce that demand below what U.S. refineries make today, he said.

    "We will end up exporting gasoline," said Drevna.

    Asked recently whether Chevron Corp. might build a new refinery, vice chairman Peter Robertson replied, "Why would I invest in a refinery when you're trying to make 20 percent of the gasoline supply ethanol?"

    Valero Corp., the nation's largest refiner producing 3.3 million barrels a day of petroleum product, recently boosted production capacity at its Port Arthur, Texas, refinery by 325,000 barrels a day. But company spokesman Bill Day said some additional expansions have been postponed.

    "That's not to say we've changed our plans," Day said in an interview. "But it's fair to say we're taking a closer look at what the president is saying and what Congress is saying" about biofuels. He said there's a "mixed message" coming out of Washington, calling for more production but also for reducing gasoline demand."(snip)


    The article makes several interesting points ...

    First, the US is now at the point where 6%+ of gasoline sold in the USA must be refined at foreign facilities and imported, since domestic refining capacity has increased very little in the past two decades. This sets the 'marginal price' for blended gasoline somewhat independently of the price of crude oil. This is also arguably responsible for the sustained high pump prices for US blended gasoline in recent weeks.

    By declaring their commitment to subsidizing a huge expansion in US corn based Ethanol, our gov't is sending a clear message to oil refiners that a rising percentage of ethanol in blended gasoline will reduce the percentage of refined oils required in the future. As such, they are changing their minds in regard to expanding US oil refining capacity.

    The risk factor will of course be what happens if the huge expansion of US corn based Ethanol fails to materialize as planned. In the absence of an increase in US oil refining capacity, any shortfall in US ethanol production will either force the dropping of quotas against the importation of foreign ethanol, or force the importation of foreign blended gasoline. Both of these options have profound implications both on the price of blended gasoline and on foreign 'oil' dependence.

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    Default Re: more unintended consequences of gov't Ethanol push ...

    Have you read were China has recently opted out of Ethanol production? China's need to feed the Billion plus population makes the use of edible grains for fuel a non option.
    Look for increased oil specualtion and possibly a shooting war in the South China sea around the Spratly islands in the next decade. That is if China doesn't make a grab for the resource rich but population low Siberia. or both. This threatens many Nations in the area. Australia stands out with its considerable land mass and low population density.

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    Default Re: more unintended consequences of gov't Ethanol push ...

    yes of course I saw the news blurbs about China abandoning Ethanol fuel. Indeed, part of the reason was that China admits that ethanol competes directly with human and animal food supply. Another part of the reason (a big part both in China in the USA, but only China admits to it) is that the demand for additional fertilizers and for additional ethanol refining both increase the usage of natural gas. Neither China nor the USA have a 'surplus' of natural gas well capacity, thus any increase in natural gas demand is likely to run up the price. And unlike oil, until new US LNG terminals receive environmental approvals, there is very little ability to supplement existing North American natural gas supplies with imports. Thus in the US at least, scuttlebut has it that a lot of other things whose cost is tied to natural gas (i.e. electricity, fertilizer, industrial gases like hydrogen) will soon see a major price spike as well.

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    Default Re: more unintended consequences of gov't Ethanol push ...

    I wish a link because it is second hand info. Another consequence. Because of Boll weevils, and corn for ethanol is more profitable (I am told) that cotton production is way down in Texas. So cotton goods may be much more expensive next year.

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    Default Re: more unintended consequences of gov't Ethanol push ...

    the original story was on Bloomberg, but here's another link that covers the same subject indirectly. This story raises the natural gas consumption issue re new ethanol refineries after discovering that a few new ethanol refineries are being fueled by coal (and spewing some measure of coal nastiness up the smokestacks).

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