Ethanol Growth Faces Tremendous Obstacles

Following up on the new ethanol “mandates” contained in recent federal legislation and also on my essay on ethanol and biodiesel, a discussion of ethanol in the Oil and Gas Journal of November 26, 2007 is of great interest. A quick review of some of its salient points follows.

The introductory paragraphs are a dramatic summary:

The rapid increase in ethanol consumption during 2002 – 06 will prove to have been a one-time event that captured two thirds of the ultimate near term market. Growth beyond the remaining third of ethanol’s potential will depend on ethanol’s ability to replace gasoline as a primary fuel.

Gasoline replacement by ethanol is constrained by two factors: The gasoline-ethanol distribution infrastructure does not deliver ethanol for gasoline blending everywhere in the country [ed: in fact it is primarily in the upper Mid-West], and there are physical limitations on existing vehicles – all 240 million of them – as to how much ethanol they can use in combination with gasoline

This excellent piece in an equally excellent publication then goes on to say:

• the growth of ethanol use in recent years is due to its substitution for MBTE.
• MBTE was outlawed for environmental reasons.
• Ethanol replaced MBTE as an oxygenate, octane booster, and supply extender. Now that this purpose has been fulfilled the natural disadvantages of ethanol will keep it from being much more widely adopted. They include:
  • having only 2/3 the energy content of gasoline per equal volume
  • having no ability to be transported in existing pipelines
  • having very few points of sale
  • and having little or no support by foreign car manufacturers

The article goes on to say that even if the science of cellulosic ethanol is discovered, the market for ethanol – because of all the factors discussed above – will be limited to just a little more than is being sold now as a substitute for MBTE unless vehicles are designed for E85. Few such vehicles are on the road today. The authors believe that without the support of foreign car makers, which does not exist, relatively few E85 will exist in the future.

I think the logic of this article is compelling and I am even further convinced that ethanol is likely to be only a very limited part of the path toward energy independence and that biodiesel offers substantially more exciting potential. Biodiesel can be incorporated into the diesel mix up to 20% with no need for any engine redesign. Moreover, diesel engines, I believe, will steadily gain market share over gasoline fueled cars for reasons discussed in my earlier referenced piece.

Disclosure: Author has a long position in some related securities

Comments

[GH]

The four points you quoted about ethanol's natural limitations are correct and present an interesting contrast with butanol, which is a different alcohol-family chemical that can just as easily be made from the same feedstocks as ethanol using similar processes or others (such as Fischer-Tropsch) that are well-established. Here are the four points, rewritten for butanol:
• has 95% of the energy content of gasoline (and generally produces more power and lower emissions in internal combustion engines due to more complete combustion)
• can be transported in any pipeline that can carry gasoline or oil
• can replace a gasoline grade point of sale with minor infrastructure changes (e.g. pump re-calibration)
• has (at this time) little support by car manufacturers

BP and DuPont are developing butanol biofuels. Competing against ethanol, given the 3 advantages listed above, my money is on butanol. Ethanol is a good MTBE replacement but a relatively poor fuel.

[Vegasjoe]

Ethanol made from corn is much maligned; the media hates it but it is here to stay; I am going to build a sugar cane based plant in Hawaii and forever get rid of $4,00/gallon gas!