Gas Week

EWN Publishing

Oil companies cool on ethanol for vehicle fleet despite $US3.5 billion subsidy

Posted by gasweek on 28 September, 2007

For some industries, the prospect of $US3.5 billion ($4.1 billion) in federal subsidies now, and double that in three years, might be a powerful incentive, according to David Kiley in Detroit, reported The Australian Financial Review. Ethanol fuel draws dislike: But not, apparently, for the US oil industry, which was seeing crude oil prices soar to record highs. The tactics of the industry infuriated a growing chorus of critics, Kiley wrote, from the usual suspects – pro-ethanol consumer groups – to the unexpected – the oil industry’s usual ally, the car industry. The oil industry collected the subsidies, but didn’t lobby for them. Rather, Congress created them to encourage ethanol use. While oil reps said they weren’t anti-ethanol, they were candid about disliking E85, the alcohol fuel mixture that typically contained a mixture of up to 85 per cent denatured fuel ethanol .

Price rise for limited resource: One prong in the oil industry’s strategy was an anti-ethanol information campaign, Kiley wrote. In June, the API released a study it commissioned from research firm Global Insight. The report concluded consumers would be “losers” in the run-up to Congress’ target of 35 billion gallons of biofuel by 2017 because, it forecast, they would pay $US12 billion-plus a year more for food as corn prices rose to meet ethanol demand.

Ethanol efficiency challenged: Academia played a role as well, according to Kiley. There was perhaps nobody more hostile to ethanol than Tad Patzek, a geo-engineering professor at the University of California at Berkeley. A former Shell petroleum engineer, Patzek co-founded the UC Oil consortium, which studied engineers’ methods for getting oil out of the ground. It counted BP, Chevron USA, Mo .1 USA, and Shell among its funders. A widely cited 2005 paper by Patzek and Cornell University professor David Pimentel concluded that ethanol takes 29 per cent more energy to produce than it supplied – the most severe indictment of the biofuel.

Expensive option: Infrastructure problems were behind much of the oil companies’ resistance to E85. It added “too much complexity and cost”, said Shell spokesperson Anne Bryan Peebles, since it required separate pumps, trucks, and storage tanks. That inconvenient truth was one reason oil companies weren’t rushing to install E85 pumps.

The Australian Financial Review, 22/9/2007, p. 35

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