Fuel Source Promoters Promise Great Things

With some government help, a certain fuel source could mean less or even no imports of imported oil. But is it really as wonderful as it sounds?
By Ron Lamberty | November 23, 2013

What if I told you there were a source of fuel out there that can replace nearly all of the oil the United States imports each year? Now, that may a tad bit of hyperbole, but many indicators suggest this fuel source may be the one that frees the U.S. from imported oil, at very least, from the need to rely on oil from the Middle East. It would create many new, high-paying jobs, too. Who wouldn’t be interested in that? 

Early estimates of the available quantity of this fuel source vary wildly. Some peg its potential volume so large that it sounds unbelievable, like some sort of Internet stock scam. Others (opponents, mostly) say it will be so small that it barely merits consideration. When it comes to actual production of physical gallons, this fuel source is something that is technically possible—even being done already on a small scale—but currently too expensive to compete in the marketplace.

Those who promote this fuel source say that it could compete, and could be developed to a massive size, if it could receive some government help. Would that rule it out? Developing this fuel would probably require tax credits on new equipment and infrastructure. A production credit of some kind, or a tax break that allowed income to be offset with some sort of credit would be helpful. And maybe there should be a requirement that a certain amount of fuel made from this source would be required in the fuel supply. Or, at very least, any competing fuels should be severely limited, to assure this new, abundant fuel has its place in the market.

We will also likely find out that although the naysayers were too pessimistic about quantities, the reality is that at its peak, the most optimistic estimates say this fuel source will replace less than 8 percent of the nation’s gasoline. It isn’t something that could be produced just anywhere, but it requires such a large land area that even if the entire continental United States were able to produce this fuel at the same rates as the current area could at its peak, it would only replace half of our transportation fuel.

And then there is one more huge challenge: Even with some government assistance, pump prices would have to nearly triple to make the economics workable. Americans would end up doubling the total amount of money they spend on transportation fuel every year. If you hadn’t given up before this point, you will probably see the futility now. It’ll never happen, right? 

Well, actually, it already has. Many of you are probably wondering why I would paint such an unflattering picture of ethanol, a fuel I promote. I am not. The preceding narrative is not about ethanol. It is a description of the development of the Bakken formation in North Dakota and Montana. Naturally, however, I hope you will recall this article the next time someone wants to bemoan programs for next generation biofuels.

Just over 10 years ago, the retail price of gas was close to $1, and the Bakken formation was producing next to nothing. Special oil industry tax credits, coupled with pump prices that are nearly triple what they were in 2002, have led to a “tight oil” boom. The oil industry is hoping everyone will ignore those realities as they advertise and lobby to maintain the 90 percent gasoline mandate that supports even ridiculously high-priced gasoline, with “greater oil production” as one of their key talking points.

But American families spent 8 percent of their income on transportation fuel in 2012, compared to 4 percent 10 years earlier, standing the law of supply and demand on its head. There is really only one reason Big Oil doesn’t want the RFS to survive. It has to have full control of motor fuels and motor fuel pricing to make the preceding scenario seem like a good deal. Ninety percent is even too little control for them.

More ethanol in the fuel supply means more fuel in the fuel supply, and that means more competition and less profit for Big Oil. More importantly, if advanced and cellulosic ethanol are allowed the same benefits guaranteed to oil, competition will get even tougher. And Big Oil wants none of that.

Author: Ron Lamberty
Senior Vice President
American Coalition for Ethanol