Biofuels Professor Says Corn Will Never Work

Mike Norman, anchor, HardAssetsInvestor.com (Norman): Hello everybody, this is Mike Norman, your host at the HardAssetsInvestor.com interview series. Today I have with me Roy Nersesian, who is a professor at the Center for Energy, Marine Transportation and Public Policy at Columbia University. We will be talking about biofuels.
Roy, thanks very much for coming on the show. I appreciate it.

Roy Nersesian, professor, Center for Energy, Marine Transportation and Public Policy, Columbia University (Nersesian): Thank you for inviting me.

Norman: "Biofuels." This is a phrase we hear all the time now. It has really taken hold, obviously spurred on by skyrocketing oil costs. Let's talk about it first in a broad sense. Would you define "biofuels" for us? Of course, we know about ethanol. What else would fall into that category?

Nersesian: Primarily ethanol and biodiesel, which is made from vegetable oils.

Norman: With the energy bill, we seem to want to move in that direction because we want to have a renewable source of fuel, but it is causing grain prices to rise. We see that impacting corn, for example. A statistic that I heard was something like half of the nation's corn crop is being utilized to make ethanol. Is there a link, in your opinion, between rising food costs throughout the world and this push towards biofuels?

Nersesian: I think the first thing we have to talk about is how ineffective [corn-based ethanol] is. Twenty-five percent of the corn crop would provide about 3% of our gasoline. If we were at half of the corn crop, we'd be sitting at 6% of our gasoline consumption, and that is consumed in about four to six years by natural growth and consumption. So we're just going nowhere fast.

Norman: There's a whole debate out there as to whether or not ethanol is actually efficient; that it takes actually more energy to produce ethanol than you get out of it. Is that true?

Nersesian: Quite unlike sugar[-based ethanol], that is unfortunately true. I look at it as the conversion of coal, natural gas and oil to make a motor vehicle fuel. You consume about as much coal, natural gas and oil as you are getting as gasoline. In one way, that helps us because gasoline is our transportation fuel. So we are taking coal and natural gas and converting it through bio-means into gasoline, but we're really not accomplishing much. It would be much better to do it with sugar.

Norman: How about this so-called cellulosic ethanol, which is made out of switch grass and other by-products … waste products in effect?

Nersesian: Well, if you want to make a trillion, billion bucks, get a technology that actually works in an economic fashion [with those materials]. Of course, with prices going up as they are, you're getting closer and closer to that, where you would use nonagricultural land. That's what key. This wasteland, pasture land, grazing land … that's what you bring into cultivation and that becomes a biofuel and that truly displaces the agricultural component in this.

Norman: I'm going to get to biodiesel in a second; I know that's what you specialize in. But how does ethanol compare to gasoline now in terms of price? Would the motorist get a break on that? Is it cheaper at the pump than the gasoline?

Nersesian: I hate to say it will never be cheaper. The only thing that makes it worthwhile is that ethanol doesn't have to pay the fifty-one-cent-per-gallon highway tax. That's the whole secret of the economics. Now as gasoline prices go up, maybe we can cut back on that subsidy, but maybe not because corn prices are going up. You have a bio-refinery spread and that spread has to be enough to cover the cost of the conversion of corn to ethanol, plus transportation of it.

Norman: Let's talk about the biodiesel now. I've been hearing a lot about diesel in the news recently. It's really started to skyrocket. It has the whole trucking industry under a lot of pressure. What is happening now in the area of biodiesel? Diesel is the fuel in Europe and we're actually lucky here in America: We get their excess gasoline because they're using mostly diesel.

Nersesian: Diesel is in Europe. Let's say that in the United States, if all the plants that are being built come online, we will be making roughly 1 billion gallons and we consume 55 billion gallons. So if everything comes true, 1 percent of our diesel will be biodiesel.

Norman: So, still, a very small percentage.

Nersesian: Consumed in one year's growth.

Norman: By any measure. OK, folks stick around, because I'm going to be back with the second half of my interview with my guest. This is Mike Norman and you are watching hardassetsinvestor.com interview series.

Be sure to check Part II of the with Roy Nersesian next week.

Comments

[jjason:]

Sorry, not much new info in this story.

2008 May 15 02:49 PM

[rickrents:]

Have you been to Brazil lately!!!!!!

2008 May 15 06:49 PM

[rickrents:]

I don't understand anyone who has not been to Brazil and can say ethanol won't work. How much is the oil industry paying these "experts" to continue their inaccurate rantings.

2008 May 15 06:51 PM

[rhino127:]

it takes 1.2 units petgroleum fuel to produce 1 unit of energy consumed while for Corn it is 0.15:1 according to the National Renewable Energy Laboratory in the UK (unbiased). must read more about biofuels before putting out such uninformed comments.

it bosts about 0.35 cents a liter to make Ethanol from Sugar Cane = it is not made frm Sugar while the cost of making if frm Corn is 0.70 cents per liter. Look a the price of gasoline today world wide and you will get a good understanding of how competitive Ethanol is.

Meanwhile Biodiesel which is even more efficient than ethanol in terms of Energy is unfortunately plagued by a lack of vegetable oil which is a more finite resource at this time.

2008 May 16 09:26 PM

[jblowe:]

I understand this is a "down on biofuels article". However, let's not get too loosey-goosey about the math:

"Let's say that in the United States, if all the plants that are being built come online, we will be making roughly 1 billion gallons and we consume 55 billion gallons. So if everything comes true, 1 percent of our diesel will be biodiesel."

According to my calculator: 1/55 = 0.018, nearly 2% (not 1 percent).

If everything comes true, more that twice the biodiesel wil be available.

I'm not going to get into challenging the rest of the analysis. Anyone who divides 1/~50 and gets 1 percent is already suspect, IMHO.

Small is beautiful.

2008 May 28 01:13 AM

[PLP:]

Here is what I'm drawing from this article.
1. Corn based ethanol and everything associated with it is a bust.
2. Sugar cane ethanol as exhibited by Brazil is the future.

So

1. Probably the US will stop investing/producing in corn ethanol.
2. Probably the US will need to drop the tariff on Brazil ethanol imports.

To me that means Cosan (CZZ) is looking good.
CZZ is the largest producer of ethanol in Brazil. Half of Brazil's collective gas tank is ethanol, half is gasoline. The ethanol business in Brazil requires no government supports. CZZ is a triple play because it is the largest sugar producer in Brazil, largest ethanol producer in Brazil, and the by-product of both is bagasse which is being sold to burn in electricty producing turbines. CZZ is around $12/share.

CZZ looks like a fantastic buy - can somene please tell me where I'm wrong?

2008 Jun 09 11:12 PM

[User 239889:]

This is great news!

2008 Aug 13 07:11 AM