Solar Energy

This is the best summation of solar energy I have ever read!

Trying to use sunshine directly to power our grid is akin to using rainfall directly to drive hydro turbines. No one would be so foolish as to collect raindrops while they fall, to power a turbine. Instead, we clear thousands of acres of land upstream from a dam, so water can be concentrated and stored to power our hydro turbines below the dam. The solar equivalents are coal, oil, and natural gas, the products of millions of years of concentrating and storing energy from the sun.

Hydrocarbons the real solar energy!

Ethanol Is Much More Expensive Than Gasoline

“Now flash forward to today. With the Summer solstice less than 24 hours away, East Coast gasoline suppliers paid $5.75 gal for the ethanol that makes up 10% of finished gasoline blends in markets that demand reformulated gasoline… Part of the difference lies in the reformulated blend stock, which currently costs about 22cts gal more than conventional gasoline. But adding 10% of ethanol at $5.75 gal jacks the finished RFG-ethanol price up by another 36cts gal. Subtract the 5.1cts gal ethanol blender’s credit, and the blame for ethanol’s impact on the finished gasoline falls to “just” 31cts gal.”

Consequently, the government mandate of using 10% ethanol in reformulated fuels has raised the price of gasoline 31 cents in RFG areas. Add together the taxes placed on gasoline (federal, state, local) and additional costs caused by government mandates. Compare that number to an oil company’s profit per gallon and see who is gouging consumers.

Ethanol

Chris pointed me at a CNN article on ethanol (This link was removed since it was dead).

I would not favor the government mandates mentioned in the article, for example:

“It would take a combination of consumption mandates to ensure that the demand would be there, and conceivably some production incentives to use sugar ethanol,” he said. When government gets too involved in mandating business, it leads to inflexibility to respond to market conditions since location specific blends of gasoline during supply / demand imbalance can’t be used in another area with different regulations to remedy supply crunch. It also leads to higher prices since ethanol is currently more expensive than gasoline so blending it into gasoline increases the cost at the pump. Remember that ethanol has ~67% percent of the BTUs as gasoline. Therefore, you are paying more for less efficiency (less BTUs of energy).

“Ethanol prices have displayed a measure of volatility in recent months. In Nebraska — where the state has tracked monthly ethanol and gasoline rack prices since 1982 — ethanol was 18 to 44 cents a gallon cheaper than gasoline from March through June 2005. In July, though, the price of ethanol jumped past gasoline, and it has been more expensive since.”

Ethanol contributes to further instability of the price at the pump since its pricing swings wildly. Furthermore, think of the transportation / logistical challenges since ethanol is mixed in at the terminal and needs to follow a parallel path to gasoline. Remember that it can’t travel via pipeline, which is the best transportation mechanism, since it absorbs water. Ethanol and gasoline must arrive at the same time for a product to be available if ethanol blending is required by law.

Is Ethanol worth it?

“A professor of geo-engineering at the University of California-Berkeley, Patzek isn’t impressed by the notion that ethanol will help reduce American dependence on foreign oil. The researcher pointed out that in 2004 American motorists used some 140 billion gallons of gasoline. Meanwhile, the ethanol industry produced about 3.4 billion gallons that year, according to the Renewable Fuels Association. Patzek said ethanol backers are “playing on human inability to see the scale.” “Five years from now with all the ethanol anybody will be able to produce, the impact” on gasoline consumption “of all of that is less than inflating car tires properly, just in passenger cars,” he said.” Have you check your tires for proper air pressure lately?

I also have read that if all the farm land in the U.S. were converted to growing ethanol via corn, we could make E10 (which is 90% gasoline and 10% ethanol) nationwide. E85 is a different story, since there isn’t enough land to scale corn grown ethanol. Think about the huge outlay of infrastructure required just at the store level. Stations currently have two tanks, premium and regular, mid grade is mixed by the pump. To add an additional tank and dispenser would cost ~$100k for a small station and $200k for a large station. A small company has ~1600 stations.

Energy Hypocrite

According to the Competitive Enterprise Institute (CEI), Al Gore has used enough hydrocarbons to circle the globe while presenting over 1,000 Power Point presentations on climate change. Gore’s presentation was entitled “An Inconvenient Truth” and asks, “Are you willing to change the way you live?”

Movie includes footage of Gore and his constant air travel with two CO2 meters running at the bottom of the page that compare Gore’s carbon dioxide (CO2) emissions with those of an average person. CEI also revealed that he recently used five large SUVs to haul his movie entourage a mere 500 yards at the Cannes Film Festival in France, all the while admonishing others to curtail their own energy use. Gore’s “Saturday Night Live” appearance can’t top that kind of comedy. Perhaps Gore would get more respect if he stopped lavishly using the hydrocarbon based products he preaches against?

Gore may be an energy hypocrite, but at least he was “honest” when interviewed:

Q: There’s a lot of debate right now over the best way to communicate about global warming and get people motivated. Do you scare people or give them hope? What’s the right mix?
A: I think the answer to that depends on where your audience’s head is. In the United States of America, unfortunately we still live in a bubble of unreality. And the Category 5 denial is an enormous obstacle to any discussion of solutions. Nobody is interested in solutions if they don’t think there’s a problem. Given that starting point, I believe it is appropriate to have an over-representation of factual presentations on how dangerous it is, as a predicate for opening up the audience to listen to what the solutions are, and how hopeful it is that we are going to solve this crisis.

I was always thought that the end never justified the means. Gore’s crying wolf might not have the desired impact if his credibility is lost due to misrepresentation of the facts. I do care about the environment, but do have to laugh at the chicken little approach.

Ethanol

Corn is an ineffective source of ethanol (since you burn more hydrocarbons producing it than you get out of it), while sugarcane is a very effective source of ethanol (since you get much more energy out of it than you put into it). Brazil has vastly reduced their dependence on foreign oil by growing sugarcane and processing it into ethanol.

Brazil could even help the U.S. lower its dependence on foreign oil. However, the U.S. currently taxes imported ethanol at the rate of 54 cents / gallon and via a 2.5% ad valorem tariff. Do you think that the import tax should be removed on ethanol (which is an environmentally friendly solution produced by a reliable friend)? Many people make the point that huge quantities of environmentally unfriendly oil shipped from unstable suppliers is brought daily into the U.S. tax free.

The other side of the coin is the argument that our farmers and their industry should be protected via tariffs. Farmers have and continue to make America great. Lifting the tariffs would subsidize Brazil’s farmers and be an insult to America’s farmers. Those pro-tariff would also argue there is no guarantee that savings would be passed from big oil companies to those pumping up.

Refiners are now using ethanol in place of MTBF when blending gasoline for U.S. transportation consumption ensuring there will be plenty of demand for ethanol. Removing the tariff would reduce the price of an important piece of the blending equation (both in dollar and environmental impact terms). This would also help alleviate pain and suffering at the pump, since gasoline is the most efficiently and competitively price item in the U.S. What other consumer product is consistently priced on the street for you so you can comparison shop from the comfort of your own car? Savings would be passed on due to cut throat competition.

BP Refinery Accident

The U.S. Chemical Safety and Hazard Investigation created a short but informative animation of the Texas City refinery accident. This animation is an excellent example of how far forensic science has come.

Hopefully, knowledge gained from this accident will help the industry avoid similar future accidents. My thoughts and prayers go out to the 15 workers killed and 170 injured.

Oil = Food

The oil in your oatmeal. A lot of fossil fuel goes into producing, packaging and shipping our breakfast.

What they’ve discovered is astonishing. According to researchers at the University of Michigan’s Center for Sustainable Agriculture, an average of more than 7 calories of fossil fuel is burned up for every calorie of energy we get from our food. This means that in eating my 400-calorie breakfast, I will, in effect, have consumed 2,800 calories of fossil fuel energy. (Some researchers claim the ratio is as high as 10 to 1.)

But this is only an average. My cup of coffee gives me just a few calories of energy, but to process 1 pound of coffee requires more than 8,000 calories of fossil-fuel energy — the equivalent energy found in nearly a quart of crude oil, 30 cubic feet of natural gas or about 2 1/2 pounds of coal.

I am not sure how my environmentally conscious friends can justify their coffee consumption.

Gas Prices

Supply and demand rule the gas station marketplace. High gas prices currently reflect the free market’s attempt to ration a limited supply. Both raw crude and refined product supply are limited to due to the havoc inflicted by Hurricane Katrina.

Gasoline is the most competitive priced product. Every day you see a particular station’s price posted and viewable from the comfort of your car while you drive down the street. If a particular station’s price is out of line you can stop at a different station with a more reasonable price. (I know many will argue no posted price is reasonable right now and believe me I feel the pain too being an avid water skier.) When was the last time you saw the price of your favorite consumer product posted for you to view on the street?

Company Name

The Marathon Ashland Petroleum (MAP) LLC name was officially retired today and we took up the Marathon Petroleum Company (MPC) LLC name showcasing Marathon’s full ownership. I joined Marathon slightly after work on the joint venture with Ashland commenced and created MAP. The upstream Marathon piece and the downstream MAP component always had their own unique cultures and policies.

The upstream and downstream corporate entities have distinct bonus programs. Most times only one entity has a nice pay day. It was always difficult being on the side of the fence with no bonus when your neighbor got a hearty bonus and was jubilating over their next acquisition to keep up with the Jones. When working in IT you do a lot work for both corporate entities and it still was an all or nothing payout.

The 2005 year has been an unusual year in the oil industry. Many describe it as the perfect storm, meaning both the upstream (exploration and production) and downstream (refining, transporting, and marketing) are both solid businesses to be involved in. Usually one side of the house does well at the others expense. Therefore, Marathon’s executing on its decision to become an integrated oil company with full ownership and control of its downstream assets was very wise and quite timely.

An integrated oil company performs the following services:
1) produces crude or natural gas or both
2) refines the produced items into gasoline and other products
3) provides mechanisms to bring that refined product to market
4) is a wholesaler and retailer of refined products

Buyout!

You have probably already heard but the headline on Yahoo! Finance says it all: Ashland Signs Amended Agreement to Transfer Interest in MAP to Marathon for $3.7 Billion. Basically, Marathon Oil is buying up the part of the Marathon Ashland Petroleum LLC joint venture that it didn’t already own. When the first version of this deal didn’t receive a favorable ruling from the IRS I knew it was only a matter of time until an amended deal was signed. I wonder what Marathon Oil will name its wholly owned refining, marketing, and transporting subsidiary. I propose the acronym, “MOP”, standing for Marathon Oil Petroleum LLC.

My personal opinion is that once this deal has been completed, Marathon Oil (MOC) itself will be a takeover target. After all, CEO Clarence Cazalot himself told Wall Street he would sell the company to the highest bidder:

“We’re for sale every day on the New York Stock Exchange,” Mr Cazalot said. “And certainly if someone wants to come in and pay a premium over what is trading on the New York Stock Exchange, our board would be interested.”

We all know that drilling for oil is most successful when completed on the floor of the New York stock exchange.