Seeking Alpha
Profile| Send Message|
( followers)

Americans are Spending 20 percent of their income on transportation. In the average two-car household it is often higher. Big Oil and Big Ag are fighting for their share of that money.

Petroleum use has started to drop in the United States as we have fewer cars and more fuel efficient cars. The U.S. Department of Energy continues to report drops in refinery utilization due to weak demand for gasoline and diesel.

Ethanol and biodiesel further cut into oil profits. Big Oil is maneuvering to slow Big Ag from selling more biofuels. Big Oil giants include Exxon (NYSE:XOM), Chevron (NYSE:CVX), and Shell (NYSE:RDS.A). Big Ag giants include ADM, Bunge (NYSE:BG), and Cargill.

Industry leaders are trying to sound high-minded, not crude. No food fights. No fighting in the war room.

The latest EPA Renewable Fuels Standard will cause over 8 percent of our car and truck fuel to come from food crops in 2010. That lowers Big Oil’s sale of gasoline and diesel by 8 percent. That’s real money. Billions. The EPA does not require that the biofuel come from food, that’s just our only volume choice in 2010. Cellulosic and waste production is still at the expensive pilot stage. EPA talked tough in developing the new RFS, but in the end, gave the industry ways to qualify by making corn ethanol.

We need fuel from wood and waste, not food and haste. Big Oil may actually win the fight to stop using food crops with low-yields per acre, and help the transition to high-yield low carbon emission sources. The industry has invested over a billion dollars in advanced biofuels, algal fuel, and biotech ventures.

Exxon Mobil’s CEO Rex Tillerson famously referred to ethanol as “moonshine.” Now Exxon is investing $300 million in Craig Ventor’s Synthetic Genomics with plans to produce fuel from algae. BP Biofuels was voted 2009 Biofuels Corporation of the Year by the World Refining Association at its 4th annual Biofuels Conference. BP has poured hundreds of millions into basic biofuel research and into a variety of partnerships including biobutanol with DuPont (NYSE:DD) and Virgin Fuels, and energy cane in the U.S. with Verenium (NASDAQ:VRNM) . Shell (RDS.A) has established a $12 billion sugarcane ethanol joint venture with Brazil’s Cosan (NYSE:CZZ).

In the future, if biotech can deliver low-cost liquid hydrocarbons from biomass that can be profitably blended at the refinery, then Big Oil may partner with industrial agriculture. Valero (NYSE:VLO), the largest refiner in the U.S., bought a number of ethanol plants at deep discounts from bankrupt VeraSun.

For now, both the petroleum producers and industrial agriculture want to control EPA regulation, federal tax breaks, and billions of federal funds. They also want greenhouse gas emissions measured their way. If growing more corn for ethanol and soy for biodiesel leads to rainforests being destroyed, then Big Oil favors that being included in biofuel emission lifecycle analysis. Big Ag is against such land-use analysis. See: Argonne Lifecycle Presentation, California Lifecycle with Land-use Studies, Renewable Fuels Standard.

EPA has finalized a rule implementing the long-term renewable fuels mandate of 36 billion gallons by 2022 established by Congress. The Renewable Fuels Standard requires biofuels production to grow from last year’s 11.1 billion gallons to 36 billion gallons in 2022, with 21 billion gallons to come from advanced biofuels. Increasing renewable fuels will reduce dependence on oil by more than 328 million barrels a year and reduce greenhouse gas emissions more than 138 million metric tons a year when fully phased in by 2022. For the first time, some renewable fuels must achieve greenhouse gas emission reductions – compared to the gasoline and diesel fuels they displace – in order to be counted towards compliance with volume standards.

Biomass Crop Assistance Program. USDA has proposed a rule for Biomass Crop Assistance Program [BCAP] to convert biomass to bioenergy and bio-based products. USDA provides grants and loans and other financial support to help biofuels and renewable energy commercialization. BCAP has already begun to provide matching payments to folks delivering biomass for the collection, harvest, storage, and transportation of biomass to eligible biomass conversion facilities.

Biofuels Working Group. In May, President Obama established the Biofuels Interagency Working Group – co-chaired by USDA, DOE, and EPA, and with input from many others – to develop a comprehensive approach to accelerating the investment in and production of American biofuels and reducing our dependence on fossil fuels. Today the Working Group released its first report: Growing America’s Fuel – a new U.S. Government strategy for meeting or beating the country’s biofuel targets. The report is focused on short term support for the existing biofuels industry, as well as accelerating the commercial establishment of advanced biofuels and a viable long-term market by transforming how the U.S. Government does business across Departments and using strategic public-private partnerships.

Frank Maisano, an energy specialist based in Washington D.C. at Bracewell & Giuliani, a law firm that represents refiners and cellulosic ethanol makers, gives this perspective:

“The long-suffering lifecycle Greenhouse gas rule was released last week with great fanfare, including a call with Energy Secretary Chu, EPA Administrator Jackson, Interior Secretary Salazar and USDA Secretary Vilsack. It followed a meeting with the White House and highlighted several biofuels task force recommendations. Beyond confusing most reporters about EPA’s authority to go beyond the 2007 Energy law requirements for ethanol, the two takeaways seem to be EPA was giving in some (at least enough to placate Vilsack) on indirect land-use regulation of biofuels, and that the US is WAY behind its biofuels requirements in the same 2007 Energy law. Certainly, the coalition of enviro advocates, food groups, small engine groups and refiners were annoyed with the first point while ethanol supporters reluctantly said they could live with the EPA position. Ethanol emissions expert Tim Searchinger of Princeton may have said it best: “the numbers are inconsistent with the great bulk of analyses by others, which consistently find that emissions from indirect land use change for crops grown on productive land cancel out the bulk or all of the greenhouse gas reductions.” EPA’s Jackson said they weren’t messing with the equation to get to a specific result.”


Frank Maisano also summarized the following:

“House Legislation to Limit EPA Authority, GHG Lifecycle Analysis –Last week, House Ag Chair Colin Peterson introduced legislation to prevent EPA from regulating GHGs, but added a twist: a provision blocking its land-use biofuels rule as well. This makes for an interesting dilemma should the two remain together, especially for members such as oil-patch Democrats that may want to block EPA authority on GHG regulation, but toughen land-use provisions to ethanol’s measuring stick. We shall see how this plays out. On the Senate side, Sen. Murkowski said she is likely to petition the Senate Environment and Public Works Committee by the end of February to force the release of her proposal to block the EPA from regulating greenhouse gas emissions. Murkowski now has 41 votes, including her own, supporting the resolution (S.J. Res. 26).”


Regulation that helps Big Oil and Big Ag is billions of tax breaks for exploration and for not growing crops. EPA acts encourage government buying of flex fuel vehicles. No automaker, including the primary beneficiaries of the regulation GM and Ford (NYSE:F), offer a flex fuel vehicle in the U.S. that can deliver 20 mpg (EPA combined) running on E85. No U.S. sold flex fuel vehicle does much better on gasoline. As the 4 million vehicles in federal, state, and local government fleets continue to add flex fuel vehicles, more gasoline and more ethanol must be purchased to deal with the poor mileage. In the end, it’s more taxpayer dollars going to Big Oil and Big Ag.

Disclosure: No positions