G.U.N. Oil Report

The oil industry is one of the largest State-Business cartels in the world, and most of the time we hear government blaming Big Business on oil’s rocketing price in dollars. Today, though, we see the volley back as the oil lobby lays some blame on government for the rising price of oil.¹ Edward Murphy, downstream general manger at the American Petroleum Institute, said ethanol mandates, instead of the free-market approach, along with government prerogatives like gasoline price-gouging legislation, “exacerbate” the already high prices. The article continues: ethanol was first subsidized in 1978 and is currently empowered by the high prices and slow, but growing, commitment of automakers to create more vehicles that can run on E85 — 85 percent ethanol and 15 percent gasoline.

Is ethanol a viable alternative fuel, though? Not really, saying Bill Walker at the LRC.² Walker says the ethanol leads to deforestation, unsafe pesticide use, excessive energy wasted in ethanol production and of course additional government sponsorships that cost the taxpayers in hidden ways.

The State of Maryland believes that consumers will see price decreases due to ethanol and E85, but they refuse to let consumers use the newest ethanol gas station in Baltimore.³ Only state vehicles and those registered by nonprofits can use the station, said Dave Humphrey, director of external affairs for the Maryland Department of General Services. Since the State will be the primary user of the new station, who ends up paying for the additional costs to provide the service? Installation of the tank and the pump work was partially funded by a $330,000 U.S. Department of Energy grant and two grants totaling $50,000 from the Maryland Grain Producers Utilization Board, which is a Maryland farmer-backed group aimed at promoting grain usage. The Federal government, as well as a lobbying group that wants more corn-based fuels to be sold.

Another ethanol/E85 plant is being built in the Midwest at a cost of over US$100 million, this one in the Quad-Cities region.⁴ It is the first plant in the Iowa Quad-Cities region, but it joins 24 other plants in neighboring areas. The industry hopes to annually create 2.7 billion barrels of E85/ethanol fuel in coming years, and Iowa is currently producing 20% of the nation’s ethanol fuel.

Nissan is quietly entering the Flex Fuel market as it prepares to launch a Nissan Armada SUV that can use either E85 or gasoline.⁵ The FFV will be sold in regions that currently have E85 stations and a market for E85-capable vehicles. This is a bit of a shock as most Asian car manufacturers are focusing on hybrids rather than ethanol-based vehicles. Toyota and Honda are famous for their hybrid line.⁶

The National Taxpayers Union says that consumers and taxpayers will not see any benefits from the Federal and State subsidies going to ethanol and alternative fuel production.⁷ Despite federal and state subsidies, a guaranteed market that is protected from international competitors, and millions of dollars from private investors, it is abundantly clear that ethanol is not and may never be a truly competitive energy alternative, said study author and NTU Policy Analyst Jeff Dircksen. The additional annual cost of purchasing a blend of 85 percent ethanol and 15 percent gasoline (E85) would be $968.72 in New York (driving a Chrysler Sebring), and $1,570.40 with a Dodge Durango. Even Midwestern consumers inside the “Ethanol Belt” would pay $413.71 in additional fuel costs driving the Durango.

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The Wisconsin Ag connection reports that foreign auto makers are turning their attention to E85.¹ They’re forecasting an announcement “very soon” from foreign auto makers to indicate plans to develop FFVs, or Flex Fuel Vehicles — vehicles that can run on gasoline, E85, or a combination of both.

One foreign car maker that is getting into the game is Volvo, says Azom.com in an article titled Volvo Creates Car that Can Run on Five Different Fuels.² Volvo’s new vehicle can run on hythane, biomethane, natural gas, bioethanol E85 and gasoline, making it one of the most adaptive vehicles ever introduced. It also is targetted as a high performance alternative-fuel vehicle.

I’m not a fan of Ethanol-based E85 due to all the farming regulations, subsidies and anti-competitive cronyism that exists in that industry. The Globe and Mail has a great article today titled Steering clear of the ethanol bandwagon that talks about the downsides of the alternative fuel market.³ As Professor Jim Lemon says in the article, Some sources are better than others — sugar cane is better as Brazil has proven; corn is not good. He also throws up his fists against the subsidies: In the United States, the federal government grants 51 cents (U.S.) per gallon to producers. I am a firm believer that the number one problem with gasoline and energy in general is too many subsidies and not enough of a competitive atmosphere due to overregulating of the industry, with too many preferential programs in place. We want freedom, not governance.

The politics of E85 always come into play ahead of the market efficiency, as we see in a campaign for a Michigan politician. U.S. Rep. Mike Rogers, the Republican incumbent in Brighton, MI, wants to promote ethanol production in order to bring Michigan more income.⁵ Lugar recently introduced the American Fuels Act with Democrat Obama from Illinois — an act that is supposed to promote locally produced and refined gas and gas alternatives. As many like me know, the U.S.’ largest fuel problem is the oversubsidization of a select few energy companies — subsidies that cost taxpayers billions and also keep competition from entering the market on the same level. Would you compete in a market if your competitors were receiving barrels of free taxdollars every day?

The debate on which fuel is better continues as NBC15 compares gasoline to ethanol.⁶ NBC15 is running an ongoing series titled “E10 on Trial” and ran a variety of tests to see if ethanol can hold up to gasoline. Their research surprised them by showing E10 ethanol to be more efficient in this test, with this particular vehicle. One thing to consider, though, is how much the subsidies cost and how far you have to drive to fill your tank.

Discuss this article at the Oil Report forum.