DILUTING DINOSAUR JUICE

Welcome to Charge: the future of energy

DILUTING DINOSAUR JUICE
by Dan Sweeney, Ph.D

It’s been a long time since our last post, but we have not been inactive. We were preparing our hydrogen report for release, and it should hit the streets on the 1st of May.

The success of the study will determine our further involvement in energy industry analysis. If it doesn’t sell, we’ll likely go back to so-called high tech reporting which today really only covers only one area of technology, namely IT, information technology. Such is investor infatuation with all things digital, that many people assume that technical innovation is confined to the areas of computing and communications electronics.

If the hydrogen study finds a market and an audience, our next venture will address a topic that is equally timely and just as weighty, namely, alternative fuels. (Obviously, if one strives for grammatical correctness one cannot use the word alternative in the plural, but the term alternative fuels has become part of the energy dictionary, so grammar be damned.)

With gasoline prices having reached the lofty peak of $3.50 per gallon in many areas, the citizenry is, to say the least agitated—sufficiently so that politicians are agitated too. Which is all very curious because anyone with a will to know could have foreseen many years ago that this day of reckoning was on its way. But of course no one with legislative responsibilities was prepared to propose ameliorative actions because a crippling partisan attack would have followed.

Now it seems everyone in political office and in the press is an instant expert on energy policies and energy technologies. Interestingly, many of the proposals we’re seeing in the press have to do with alternative fuels.

Ethanol, biodiesel, and, yes, hydrogen, all have their advocates, and the underlying assumption behind all of the advocacy is that comprehensive solutions are ready at hand if only those opposing a particular policy would get their heads out of their nether regions. Everything is obvious to the instant expert. Just read the editorials. Those editorializing have all the answers.

We’ve been studying these issues intensively for five years, and we certainly don’t claim to have all the answers, but then we’re not inclined to editorializing either. The business of the analyst is to analyze not to advocate. One must confine oneself to determining what is likely to happen rather than declaring what one thinks should happen.

So here we go.

Regardless of how many glaciers melt and polar bears succumb in the ensuing months and years, global climate change is not going to drive energy policy in the U.S. Greenhouse emissions will continue to climb. Indeed if emissions trading were to become a real market, one could grow rich on commissions.

Hydrogen fuel cells are not going to happen, at least not in the transportation sector regardless of what George Bush says. Hydrogen will remain much more expensive than gasoline for the foreseeable future, and increases in the cost of hydrogen will tend to track increases in the cost of petroleum. And there’s no way that the cost of fuel cells themselves will drop sufficiently to permit mass adoption.

What will happen is that people will look to alternate fuels burned in internal combustion engines as the solution to high gasoline prices.

Such fuels include all manner of hydrocarbon compounds including naptha and naptha derivatives such as gasoline produced from unconventional sources such as coal, unconventional petroleum, natural gas, and biomass; ethanol, methanol, and other alcohols; methyl ether; methyl ester and other forms of so-called biodiesel; butane and propane; octane; liquid petroleum gas; and on and on. The total number of contenders is great, and because internal combustion engines cannot normally run on more than one type of fuel, likely no more than four alternate fuels will find a market.

So who will be the winners and who the losers? That will be the subject of our next report. Right now we don’t know the answer because no one ourselves included has ever performed a comprehensive assessment of competitive fuel technologies. What we have instead is self serving advocacy from trade groups representing the various feed stocks used to produce alternate fuels.

What we can say with some confidence is that alternate fuels will probably be initially used as additives to stretch supplies of conventional petroleum products and not as substitutes or replacements. We believe that oil companies will strive to maintain control over the distribution of motor fuels and that independents attempting to sell replacements will face a daunting uphill struggle due to the incredible expenses involved in building parallel distribution networks.

We are also certain that alternate fuels will not lead to low fuel prices though they could help to stabilize prices at some level which will probably be even higher than that for gasoline today.

Even with consumers desperate for some panacea, alternate fuel innovators are going to have difficulty attracting sufficient investment to go into full production. There is simply too much confusion as to which technology is most likely to succeed, and the lengthy period required to set up production facilities is a further inhibitor as is the difficulty of securing distribution. The lack of coordination with auto manufacturers is also a significant problem.

High fuel prices are here to say and they will be first a shock and then a permanent drag upon the economy. Timidity, intransigence, and heavy investment in existing technology will make it difficult for key institutions to implement the changes required to meet the needs of our mature industrial society and consumer culture. Difficult times lie ahead. But they will certainly be interesting.