Cheap Oil and the Promise of Ethanol

Thomas G. Brown |

Headline of article in my local paper (Center Daily Times) reads “Cheaper Oil on Tap in ’07, Experts Say.” This article list a number of reasons such as increased supply, and a mild winter and hurricane season as some of the contributers to cheap oil. It also goes on to state that with lower fuel prices will result in lower transportation cost. Most airlines lock in a price for fuel in contracts for future delivery of jet fuel. Basically transports will have little incentive to drop prices since they will not see a decrease in costs if fuel stays low.
Anyway I just don’t see oil prices staying low or dropping to $30 a barrel as Phillip Verleger an oil economist states in the article. I guess the fact that 62% of the worlds proven oil reserves are in the unstable Middle East doesn’t factor into the cost of oil. With the war in Iraq dragging on day by day and a conflict with Iran looming. Oil supplies at some point will tighten as the region falls apart faster then a Britney Spears marriage!!!
The lack of new refiners alone will prevent fuel cost from dropping. The U.S. has not seen a new oil refinery come online in my lifetime (29 years). A couple have been proposed in New Mexico but have been met with resistance. Even it these refiners get approval they will not go online for several years. This being the case more and more refined oil products are imported into the U.S. and are not included in the oil import statistics.

Corn Ethanol

Ethanol according to many is our savior when it comes to reducing our dependency on foreign oil. The old saying “if it looks to good it probably is” applies here. Let’s look at the energy output of ethanol versus gasoline. A gallon of ethanol provides 59.5% the energy that a gallon of gasoline will produce. This alone should make us question the viablity of this plan. But if your not convinced maybe the fact that the rise in corn prices will set off a whole new set of problems for the US economy. This first that comes to mine…higher prices will entice farmers to grow more corn. This will increase the use of petroleum products such as fuel for tractors and fertilizer production. Also, food products that use corn and corn derivatives will increase in cost for consumers marginalizing any cost benefit if any from ethanol use. Ethanol maybe a good part of an overall plan but it should not be a cornerstone of a plan for energy independence. In addition a better product to use for ethanol production would be switch grass which grows wild and on marginal land that is not suitable for other crops.

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