We’ve been hearing about cellulosic ethanol for several years now, generally with the caveat that were at least a few years, and a few scientific breakthroughs, away from it coming to market and helping wean us from foreign oil. Unlike corn, which breaks down into the sugars necessary to be processed into ethanol relatively easily, cellulose is a hardy material that takes time and energy to break down. Its upside is that there happens to be more cellulose present than any other organic molecule on the planet. This is why millions upon millions of dollars has been poured into cellulosic ethanol research, genetically modifying naturally occurring enzymes to break it down faster and looking for ways to bring the price per gallon down closer to the price of gasoline.

Unlike corn, which takes land out of food production, is inefficient as far as how much energy it takes to produce and is a high maintenance crop, finding raw material for a cellulosic plant is easy. Wood chips from sawmills, the kudzu scourge spreading through the hot and humid Southeast, agricultural waste and even up to 80 percent of what ends up in our landfills could be used to make cellulosic ethanol.  Thankfully, the millions of dollars in research and development have begun to bear fruit.

A gas station near Ottawa is the first in the world to begin selling a cellulosic blend, called CE-10, to the public. Iogen, the company behind the demonstration plant that produced the fuel, plans to build its first full scale cellulosic ethanol plant in Saskatchewan. It has reached an agreement with the local government and Royal Dutch Shell to convert an old Mill site to their purposes, with the government even agreeing to purchase any green energy produced at the site. The running demonstration plant only has the capacity to produce about 3 million liters of ethanol each year, using wheat straw agricultural waste, while the new plant will be able to pump out about 75 million liters. It will make use of a more diverse feed stock, including agricultural waste from other crops, grasses native to nearby areas and even wood chips from area mills.

The march of progress continues, with a number of large companies making big investments into these technologies. Last year GM purchased a large share of Coskata, a big player in the emerging cellulosic ethanol industry, who claims to have developed a process that simplefies the complex and costly process of breaking down cellulose and brings the cost of production down to being competitive with gasoline. There are as many as two dozen companies with plans to build plants similar to Iogen’s, but the economic downturn is effecting their ability to finance these projects. Coskata is hoping to get some stimulus money, in the form of loan guarantees, to help finance its plant, with an estimated production of 50-100 million gallons a year.

As President Obama often says, if we intend to be a leader in the green energy industry of tomorrow, we need to move boldly in that direction today. Now is not the time to let companies who wish to lead us in there falter because of financing problems. Some are talking about a new stimulus bill, which most people reasonably see as a terrible idea, that would focus on these kinds of projects and job creation. The first should have done so, and I have little confidence that a new one would make it through congress without being similarly unfocused and pork laden.

We don’t get too many of these chances, where we can kill three birds with one stone. Job creation, independence from foreign oil and environmental progress can all be had with some smart funding priorities. Lets hope the administration recognizes this in time.

Found this on Political Wire and it’s typical of the nonsense we heard from her during the campaign…

Palin: We are the only state with a negative tax rate where we don’t have any income, sales or property tax statewide, and yes we have a share of our oil resource revenue that goes back to the people that own the resources. Imagine that.

Hannity: And it went up higher since you’ve been the governor and you negotiated with the oil companies. That all went up so people get a bigger check.

Palin: There was a corrupt tax system up there and we had a couple of lawmakers end up in jail because of the tax system that was adopted so we cleaned it up and said we wanted a fair and equitable share of the resources that we own, and the people will share in those resource revenues that are derived.

Haha, yeah, imagine that! The people collectively owning the land and spreading the wealth derived from it between everybody.

Why, that’s just good ole, Alaskan capitalism!

And the video…

I swear…it’s like a comedy routine.

While attending the Offshore Technology Conference earlier this week (on sponsorship by the American Petroleum Institute), one truth became very apparent: opening up the outer continental shelf to oil and gas exploration would create a lot of jobs.

Right now, our government is spending hundreds of billions in an effort to revitalize the economy, but President Obama has extended the “public comment period” on OCS exploration/drilling until later this year, preventing any movement forward in that sector. The message is pretty clear: all jobs are not equal. Ideologically, this might make sense, but from a practical standpoint – with our need for jobs and for future energy sources – shouldn’t we proceed with exploration sooner rather than later?

According to the API, the industry employs 1.8 million Americans directly and supports another 4 million jobs in ancillary industries. Furthermore, wages for exploration and production jobs are double the national average. Better yet, creating more of these jobs would cost the nation nothing – in fact,ICF International estimated for the API that currently untapped offshore oil and gas resources could generate $1.3 trillion in government revenue over the life of those resources.

Even if the numbers above are overstated, it’s surprising how little attention offshore exploration and drilling has received during discussions on how to improve the economy. For various reasons, some of our leaders have a reflexive dislike of the oil and gas industry. But there is no reason why we can’t pump money and efforts into renewable energy and “green” jobs even while we create jobs in oil and gas (and help generate a bit more energy security in the process).

In my mind, offshore exploration and drilling should be one prong in our multi-pronged approach to both job creation and energy policy.

Today at the Offshore Technology Conference (which I am at on sponsorship by the American Petroleum Institute), I attended a panel discussion titled: The Case for Access to Oil and Gas Resources on the U.S. Outer Continental Shelf. As the title and graphic to my post probably reveal, the panel was less reasonable than the one I attended yesterday.

Let me say, first of all, I support exploration of the outer continental shelf. It’s been nearly 30 years since anyone has done oil and gas surveying and we need to know how much hydrocarbons are recoverable in the waters off our Eastern and Western seaboards. Exploration should be a no-brainer — we’re going to need oil and gas for many years to come, no matter how fast we ramp up renewable energy sources.

All that said, I was put-off by the anti-environmentalist (as distinct from anti-environmental) attitude of the panel. There seemed to be a general perception that if the environmentalists just got out of the way, the oil and gas companies would take care of things in the best possible way. The situation devolved to a point where one member of the audience accused characters like Dora the Explorer of “indoctrinating” our youth — and no one on the panel seemed to disagree.

As far as I’m concerned, there is no reasonable link between teaching children to conserve and recycle (as Dora does) and the issues surrounding OCS exploration and drilling. The panelists consistently said we need to find common ground, and yet they often had no problem lumping positive environmentalism with the kind of short-sighted, anti-oil crusades being waged by some of the less intellectually honest members of the left. You can’t say you want engagement on the issue (as these industry leaders say they want) and then act like Dora the Explorer is some leftist plot to ruin our future.

I know those on the panel and in the audience were just voicing their frustrations in a closed environment. In the real world, I imagine they are more willing to interact with their Green counterparts. However, I don’t think progress can be achieved so long as oil and gas interests see themselves as some kind of victim. Yes, we need to explore and drill in areas previously off limits. We have the clean technology and high-end machinery capable of making such efforts efficient and of minimal impact to the environment. But if the oil and gas industry wants to convince the majority of Americans of this necessity, they need to be able to separate positive environmentalism with ill-informed obstructionism.

There should be a common ground solution to our future energy needs. But both sides need to move away from demonization.

From today through mid-week, I’m in Houston attending the Offshore Technology Conference. I’m here on the sponsorship of the American Petroleum Institute which has brought in a cadre of bloggers, presumably to help generate coverage and discussion of petroleum issues. Since I believe energy and climate change policy will be some of the most important debates we have over the coming years, I wanted to take this opportunity to delve deeper into the issue.

This morning, I attended a panel focused on meeting our energy challenges. The panelists included an array of wonks, consumer groups, politicians and industry leaders. Going in, I was wary I might be subjected to a bunch of spin. But the group managed to present some very reasonable arguments, concerns and ideas about our nation’s energy policies.

Jason Grumet, who is the Executive Director of the National Commission on Energy Policy and who advised President Obama during the campaign, set the tone with his assertion that in order to move forward, we must first “move beyond the debate careening between ANWR and Kyoto.” Roger Ballentine of the Progressive Policy Institute also pushed this idea, stating that energy policy has become too politicized and we can’t afford to have two sides who talk past each other.

Needless to say, this kind of post-partisan rhetoric caught my attention. As did the statement by Marvin Odum, president of the Shell Oil Company, that he supports cap and trade. That came with the caveat that the policy be “done right,” (i.e. with safeguards to prevent shocking the economy), but in my naiveté, I assumed an oil company would be reflexively against measures such as CO2 cap and trade.

In fact, throughout the nearly three hour discussion, I heard wide agreement that we need to focus on both climate change AND energy policy — and separating the two and picking sides will only prevent anything from being achieved.

In the face of the current financial crisis, we easily forget that a year ago, we were all talking about $4 gasoline. While those costs have fallen dramatically, we’d be foolish to think our problems are resolved. We need a multi-pronged approach to addressing our future energy needs: conservation, alternative energy sources and, yes, more exploration.

Over the next few days I’ll be reporting on and discussing all of these. Check back in.

Following up on my earlier post about oil speculation, there’s news that 50 million barrels of oil are being hoarded on supertankers.

The market calls it “contango.”

I call it irresponsible.

From Marketplace…

“Contango” refers to a market condition in which the future price of a commodity is higher than the cost of buying it today. Right now, investors can lock in oil futures contracts to get paid $46 a barrel in March. They can fill a supertanker right now for just $41 and change. It’s pretty cheap to keep the tanker floating around in the ocean. When it unloads in the spring, the investors make a tidy profit: more than $3 a barrel.

Daniel Yergin is author of the Pulitzer-winning book, “The Prize.” He says there’s a glut of oil right now, caused by the global recession. But futures prices are going higher, because OPEC has promised to cut production. And, says Yergin, oil traders are reading something else in the economic tea leaves.

Daniel Yergin: “There’s a bet here that all of the stimulus, new economic programs, are going to work, and that by the second half of the year, we’re going to move out of recession, back into economic recovery, and that demand will start rising for oil again.”

As I’ve said before, only companies that can actually use the oil should be able to buy contracts. Not that hoarding was a responsible practice in the first place, but it’s particularly offensive now that we’ve seen what it can do to the market.

But hey, tell me why I’m wrong.

Gee, that sounds oddly familiar…

Last year I argued time and time again that the energy speculators were the cause and that supply and demand couldn’t cause such massive price hikes. And yet some of you continued to fight me on it and claim that this was a result of market forces.

Well, here we are and I’m guessing you’ve watched the story above by now.

However, I’m completely uninterested in who’s right and who’s wrong. What I’m interested in is a fix so this doesn’t happen again.

I think it’s pretty obvious that allowing speculators to enter into this game is extremely damaging to both our short and long term goals. I’m not suggesting we should abolish the commodities market, but what I am saying is that we should only allow companies that can actually use the oil to purchase the contracts. I don’t think that’s an unreasonable notion, and I hope that’s some common ground we can agree on.

I’m glad to see we learned our lesson…

From CNN:

After nearly a year of flagging sales, low gas prices and fat incentives are reigniting America’s taste for big vehicles.

Trucks and SUVs will outsell cars in December, according to researchers at the automotive Website Edmunds.com, something that hasn’t happened since February.

Meanwhile the forecast finds that sales of hybrid vehicles are expected to be way down.

“Despite all the public discussion of fuel efficiency, SUVs and trucks are the industry’s biggest sellers right now as a remarkable number of buyers seem to be compelled by three factors: great deals, low gas prices and winter weather,” commented Michelle Krebs, Senior Editor of Edmunds’ AutoObserver.com.

Well, the one good thing about hybrid sales being down is that those who were on waiting lists will have access to the autos.

Still, this type of news makes me shake my head and wonder how Americans can be so shortsighted. We collectively stopped using as much gas and that forced speculators to drop their supplies on the market and the price plummeted.

Now it looks as if we’ll just start using more again because the price is cheaper and guess what’ll happen.

Ugh.

Massive energy speculation mixed with much lower demand is driving the price down, down, down for the foreseeable future.

From AP:

A report by the Commerce Department showed that sales of new homes fell in November to the slowest pace in nearly 18 years, while new home prices dropped by the biggest amount in eight months.

“The energy markets are reacting first and foremost to bad economic news, and it seems like they’re almost waiting for something bad to occur,” said oil analyst Peter Beutel of Cameron Hanover.

A steady outpouring of gloomy economic news has pushed to the background events that over the summer may have led to price spikes, like OPEC’s announcement this month of unprecedented production cuts, Beutel said.

Prices have fallen 73 percent since July, with massive job layoffs and weak consumer spending eating away at energy use.

Now, I think it’s pretty clear that the economic news is only going to get worse before it gets better (perhaps much, much worse), so what does this do for oil prices?

Will consumers continue to drive less in hopes they can collectively keep their costs down?

Will OPEC continue to cut production to push up the price?

My guess is that it’ll be both and hopefully the energy speculators will stay the hell out of this and not try to game the market the way they did previously. Because I think it’s blatantly clear that Americans didn’t start driving THAT much less to drive the prices down nearly 75%. There had to be a massive dose of speculation going on there and once they saw the demand start to drop, they dumped their stockpiles on the market and the prices plummeted.

And to that point about energy speculation, would it be a good time for us to start putting more regulations on the type of trading that drove the prices through the roof? Especially during these tough economic times we need to know what the price of a barrel of oil will be.

Thoughts?

If you haven’t noticed, gas prices are back down. In fact, oil has been on one heck of a ride, going from $70 a barrel up to over $140 a barrel and back down to $70 in just one year.

The value of the U.S. dollar took a similar ride, except its value decreased dramatically before returning to about where it was 14 months ago.

What just happened?

The Wall Street Journal points out this volatility was an investment bubble caused as much by Ben Bernanke’s moves at the Federal Reserve than by real market conditions. The Fed mistook the credit crisis as a problem with liquidity rather than a fear of insolvency and created the pressures that drove money into commodities like oil and into non-dollar currencies. Now that the extent of the credit crisis is known and a global recession has begun, the bubble has burst.

As much as unbridled greed and poorly targeted regulations are to blame for recent bubbles, the WSJ is right to remind us that the Fed has played its own important and destructive role (even if Alan Greenspan refuses to admit culpability for the ridiculously low interest rates which helped fuel the home lending boom). In our rush to punish and regulate the free market, we can’t ignore our monetary policy and the problems brought on by Greenspan and Bernanke. As the WSJ says:

As Congress plumbs the causes of our current mess, the main one is hiding in plain sight: Reckless monetary policy that did so much to create the credit mania and then compounded the felony with a commodity bubble and run on the dollar whose damage is now becoming apparent. The American people intuitively understand what’s been done to them, which is why they are so angry. If the next President ignores the monetary roots of our troubles, he is courting the same fate as George W. Bush.

Government doesn’t like to admit that government can be a problem. But if we want more stable markets in the future, we need to be sure to address the problems on all fronts and not just those within the free market.

As purse strings tighten and consumption plummets, the market runs screaming.

Reuters has more…

Oil dropped $6 to below $88 a barrel on Monday on expectations the growing financial crisis will further slow already faltering global fuel demand.

Crude prices have plummeted from a peak over $147 a barrel set on July 11 as high fuel prices and the growing financial crisis slow oil demand in top consumer the United States and other industrialized nations.

“The prevailing macro sentiment is now crystallizing around the notion that we are heading into a synchronized global slowdown, a mirror image of the across-the-board expansion we saw from 2004 to early 2007,” said Edward Meir of broker MF Global.

A silver lining to this crisis or will Americans simply see cheaper gas prices and start consuming more?

I hope it’s the former, but I fear the latter is much likelier.

And as the following graph from The Oil Drum illustrates, prices have dropped over the past 8 7 years, but only momentarily before going back up, up, up.

An average growth of 30% per year over the past 8 7 years. Pretty amazing, no?

Simply put there’s nothing to suggest the bubble has burst yet, and while some say this is due to the basics of supply and demand, I’m still not convinced of that…yet.

I’ll give you one guess…

From TIME:

The Bush Administration estimates that expanded offshore drilling could increase oil production by 200,000 bbl. per day by 2030. We use about 20 million bbl. per day, so that would meet about 1% of our demand two decades from now.

Meanwhile, efficiency experts say that keeping tires inflated can improve gas mileage 3%, and regular maintenance can add another 4%. Many drivers already follow their advice, but if everyone did, we could immediately reduce demand several percentage points.

In other words: Obama is right.

So Obama’s suggestion puts some power back in my hands to save hundreds of dollars every year, while at the same time helping keep domestic demand down, which could have the net effect of making prices a little bit more palatable?

Excuse me while I go check my tire pressure…

From the AP:

Unknown gunmen attacked the convoy of Sheik Ibrahim al-Karbouli in Youssifiyah on Monday, said the group member who spoke on condition of anonymity out of fears for his own security. The sheik was a senior leader of the so-called awakening council in the town, which is a former al-Qaida stronghold about 12 miles south of Baghdad. [...]

Police also discovered the bodies of three awakening council members who were abducted several days ago, police Brig. Gen. Sarhat Qadir said.

However, political reconciliation is still moving slowly, and wouldn’t you know it…it’s about oil…

Meanwhile, Iraqi leaders remain deadlocked in talks over a power-sharing dispute that is blocking U.S.-backed provincial elections. The disagreement over the oil-rich city of Kirkuk forced parliamentary officials to delay a planned vote on the provincial elections bill until Tuesday, at the earliest. [...]

But Kurds object to a measure that would equally distribute provincial council seats among Arabs, Kurds and Turkomen in Tamim province, which lies just south of their own semiautonomous region in Iraq’s north.

More as it develops…

Obviously this ad has a lot more substance than those the McCain campaign has been slinging as of late, but is it only a matter of time before we see the McCain celeb ad or something equivalent?

In any event, it’s clear to me that McCain has started to change the tone in this campaign and Obama isn’t afraid to go right there with him.

More as it develops…

In June, Obama said this:

“When I’m president, I intend to keep in place the moratorium here in Florida and around the country that prevents oil companies from drilling off Florida’s coasts. That’s how we can protect our coastline and still make the investments that will reduce our dependence on foreign oil and bring down gas prices for good.”

Even earlier this week, he called John McCain’s support for offshore drilling “a strategy designed to get politicians through an election.”

But, yesterday, Obama made this statement:

“My interest is in making sure we’ve got the kind of comprehensive energy policy that can bring down gas prices. If, in order to get that passed, we have to compromise in terms of a careful, well thought-out drilling strategy that was carefully circumscribed to avoid significant environmental damage – I don’t want to be so rigid that we can’t get something done.”

So, Obama is putting offshore drilling on the table. Flip-flop or principled shift? On one hand, polls show that around 70% of voters support opening up offshore drilling. That’s a sizable majority and Obama is smart enough not to cede the issue to McCain. He could very well be modifying his position because of the polls. That’s a flip-flop.

On the other hand, leadership is not about holding rigidly to one set of beliefs no matter what. George Bush is rigid and he’s failed time and again at leadership because of that rigidity (most notably on Social Security reform where he refused to leave enough on the table around which to build compromise legislation). Obama’s shift could be seen as a good leader recognizing that his goals will be better met through compromise than through obstinacy. That’s a principled policy shift.

Personally, I’m glad to see Obama showing flexibility on an issue that really does deserve extended thought and debate. But I wish his first instinct hadn’t been to reject the idea outright. No, offshore drilling is not a panacea and I question the cost-benefit of the plan but, at this point, all energy options need to remain on the table if we’re going to create a long-term, sustainable energy plan.

Obama may have made a principled policy shift, but he’s left himself open to charges of flip-flopping because he refused to start with a more reasonable stance.

That’s misleading at best and dishonest at worst. If we canceled the ban on offshore drilling today, we wouldn’t be able to add any additional oil/gasoline to market until 2030. Even if we could fast-track that delivery, we’re talking about a distant impact on fuel prices. The psychological boost of knowing more resources will become available in 20+ years wouldn’t be all that significant. Too many immediate factors are at play.

But I guess the McCain campaign thinks “Obama doesn’t want more fossil fuels available in 2030” was a little lackluster of a point to make. Easier to just sensationalize and demonize. That’s a shame. Increasing domestic drilling is definitely an issue we need to debate and McCain used to be a guy you could trust to talk about such matters seriously. Now he sounds like any other politician looking for an advantage rather than looking out for the nation’s interests.

I love this idea…and I would certainly take advantage of it if it becomes law.

The bill is called “The Energy Efficient and Environmentally Friendly Automobile Tax Credit Act of 2008″ and it provides tax credits of up to $2K for people who sell or trade in their car for a model that’s 20% more fuel efficient.

Fort Bend Now also notes some additional ways to save:

The bill also creates a federal tax deduction for any state or local taxes paid on the purchase of the more fuel-efficient automobile and makes interest on loans to purchase the more fuel-efficient automobile tax deductible.

On the flip side, you have McCain proposing tax incentives for car companies to make more fuel efficient vehicles, but if Americans can’t afford these traditionally more expensive autos in the first place, it’s going to hurt adoption rates. That’s why I called it a stunt when he proposed it.

Ultimately, Paul’s bill is meant to help people use less gas, which will drive down gas prices and lessen pollution. One of the fews ways the government can actually help accomplish this is to incent Americans to take action, and I can only imagine that if the car companies were smart, they’d be much more in favor of an idea like this instead of McCain’s.

In any event, well done Mr. Paul. I hope to see this legislation up for consideration in the House soon.

It’s an intriguing solution, but one that falls short when you consider getting private companies to A) build more cars that run on natural gas and B) get oil companies to rebuild their infrastructure to offer natural gas as an alternative at nearly every single station.

Also, I cringed when I heard Pickens say the following…”This can all be accomplished in less than ten years if you have the right leadership…and everybody in this country has to cooperate.”

Ultimately, I think this has a lot more to do with Pickens’ massive investment of his own in wind power. However, that doesn’t mean this isn’t a VERY good idea, and if we all could cooperate on putting this plan in action, I think we’d be in a much better place in 10 years.

What do you think?