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Breaking Oil's Monopoly on Transportation

I’ve been thinking about an op-ed in Tuesday’s New York Times written by a former National Security Advisor and a former CIA chief. They propose breaking oil’s monopoly on transportation fuels by introducing more fuel competition at the point of use. This isn’t a new idea, nor is their preferred tactic of requiring all vehicles sold in the US to be flexible fuel vehicles (FFVs) capable of running on a variety of fuels. I looked at this in April, following another op-ed by Mr. Woolsey, and several times previously in conjunction with the Open Fuel Standards Act, a piece of unpassed–so far as I know–federal legislation designed to put such competition into effect. The idea is as interesting as it has always been, though several trends pose new challenges for its ultimate success.

The op-ed was apparently timed to mark the introduction of a new group called the United States Energy Security Council, the membership of which constitutes a who’s who of national security and energy leaders. The Council’s issue statement is worth a read and stands apart from some other similarly-well-intended efforts for its clear recognition that our energy security problem with oil has nearly nothing to do with electricity, and thus won’t lend itself to leverage from renewable electricity sources until large numbers of electric vehicles are on the road. That could take decades, as I’ve noted elsewhere. However, I wish the group had spent more time pondering the source of oil’s natural monopoly in transportation energy, because I think it might have given them pause concerning methanol, one of the competing fuels they’re trying to promote.

The sources of that natural monopoly–the reasons oil continues to dominate the transportation energy market 93 years after the introduction of the Model T Ford–owe little to the market power of OPEC, and much to the energy density and convenience of storage, transportation and distribution of petroleum products. Making fuels like E85 ethanol and methanol as readily available as gasoline, and making cars as compatible with them as they are with unleaded gasoline, won’t affect the miles per gallon and range advantage that gasoline enjoys. That advantage is especially evident relative to methanol, which packs just under half the BTUs per gallon in gasoline.

Even though the abundance of shale gas could conceivably alter the economics of fuel methanol enough to put it into serious competition with gasoline, it would face an even more serious marketing challenge than E85, with its smaller but still significant range and mpg penalties, and its miles-per-dollar penalty that could expand significantly when the ethanol blenders credit expires at the end of the year–or sooner. Without substantial engine modifications to take advantage of methanol’s other properties–modifications that wouldn’t be compatible with fuel flexibility, as I understand it–both mpg and range would reflect a similar ratio as energy content. And unless methanol (with all appropriate federal, state and local motor fuel taxes applied) could be delivered to your corner gas station at less than half the cost of gasoline, then not only would its range be inferior, but also the miles delivered per dollar spent. Consumers tend to notice such things after a while. And that is aside from my long-standing concerns about the mass-market use of methanol.

The group’s focus on alcohol-based fuels also goes against another recent trend in the biofuels industry towards what are called drop-in fuels: fuels that despite their non-petroleum origins are 100% compatible with engines designed to run on petroleum products. Despite all the hype about cellulosic ethanol, it is looking increasingly likely that the main fuels we will get from non-food biomass could closely resemble today’s gasoline, diesel and jet fuel. And drop-in fuels don’t require vehicles to be modified as FFVs.

When viewed from a technical perspective, I don’t find the Council’s arguments for mandating FFVs especially persuasive. However, I think there’s a more compelling argument to be made, relying on option value. If it costs $100 to modify a car to run on other fuels besides gasoline, then that investment would still have value even if in practice the car’s owner never actually bought those fuels, as has been the case with the vast majority of the cars already capable of using E85. The option still has value because it provides an insurance policy against some future circumstance in which the only fuels available (or affordable) are non-petroleum ones, for whatever reason: an oil embargo, peak oil, pipeline failure, or some weather-related catastrophe, take your pick. That kind of competition for oil doesn’t even require large sales of non-petroleum fuels before having an impact in the market. The key question is whether it’s worth enough to us as a society to require the collective expenditure of roughly $1.2 billion a year (adapting all new cars) or up to $24 billion (retrofitting the entire light-duty vehicle fleet) to force it to happen, as opposed to leaving this as the consumer and manufacturer choice that it is today.

Photo by Salvatore Vuono.

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Thank Geoffrey for the Post!
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Geoffrey Styles's picture
Geoffrey Styles on Sep 23, 2011

“Ammonia contains no carbon” is only true until you start looking at embodied carbon.  Nearly all ammonia today is made from natural gas using the Haber process.  I’ve looked at ammonia for fuel before and concluded it doesn’t measure up to other alternatives.  See for an explanation of why renenewable electricity makes a poor feedstock for ammonia manufacture–except for large hydro–and an expensive one in any case.  Having said that, I encourage you to take your case for ammonia fuel to the new United States Energy Security Council for their consideration.

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Geoffrey Styles on Sep 26, 2011

When it comes to breaking oil’s virtual monopoly on transportation energy, mass transit has had decades to accomplish this.  I don’t dispute the potential, though achieving it seems to be even harder than sorting out our oil import dependence in the first place.  (FYI, WRI has done some good work looking at bus rapid transit in developing countries, with lessons that might be applied here.)  It’s also an urban-centric view; once you get outside those 100 metro areas, it’s going to be very hard to replace the car.  I lived in London for 2 years without a car and hardly missed having one, yet I couldn’t conceive of living in the suburb where I do now without two.  I conclude that like almost every other option, mass transit is only a partial solution, and not the overarching answer you suggest. 

One of these days I need to devote a posting to our pursuit of silver bullets, and whether that has helped or hindered our quest for energy solutions.

Geoffrey Styles's picture
Geoffrey Styles on Sep 26, 2011

While I can see methanol being attractive for China, because it’s easily produced from coal (resulting in very large greenhouse gas emissions) the price disparities you cite wouldn’t exist here.  They are an artifact of government control over fuel prices.  Based on information I’ve received since writing this posting, it looks like methanol would currently sell for about a 10% discount to gasoline on an energy-equivalent basis, after applicable federal and state highway taxes are added.

As for advocating inaction, I do nothing of the sort, as you’d know if you’d read more than one of my many postings.  We have plenty of options, including efficiency and robust untapped domestic oil & gas resources.  However, not all options are created equal, and I’d prefer that we avoided wasting time and money on those that either impractical or appear to have drawbacks at least equal to their benefits.

Rick Engebretson's picture
Rick Engebretson on Sep 27, 2011

Thanks again, Geoff.

I just returned from London etc. and this article provided a good reference in my discussion with some good people.

Their public transit system relies on taxis and crazy driving. The air and noise problems are severe. The fuel costs are sinking their economy.

This new leadership group is essential to offer a new policy direction that has been drowned out by (in Ed Reid’s term) “half vast (sustainable energy technology) ideas.”

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