How the Oil Industry Influences National Beliefs

Sunday, March 22, 2015

"The New York Times recently published an op-ed attacking renewable fuels from the Manhattan Institute's Robert Bryce," wrote Denise Robbins in Media Matters, "without disclosing his ties to the oil industry, despite a directive from its former public editor for the paper to fully disclose its op-ed contributors' financial conflicts of interest."

While the Renewable Fuel Standard (RFS) is an incomplete solution at best (robust fuel competition is what we need), we thought the excerpt below was an interesting look at one of the ways the oil industry has managed to keep its transportation fuel monopoly despite innovations such as turning municipal waste profitably into clean fuel (while reducing landfill bulk and greenhouse gases) or the ability to create ethanol for a dollar a gallon using undrinkable water and unfarmable land. Robbins writes:

In a March 10 New York Times op-ed, Robert Bryce falsely characterized the Renewable Fuel Standard (RFS) as an expensive "tax." The standard, which requires oil refiners, blenders, and gasoline and diesel importers to blend a set amount of renewable fuel into their gasoline supply, was dismissed by Bryce as a "boondoggle" and a "rip-off."

But the Times failed to disclose Bryce's financial incentive to attack the RFS, identifying him only as a "senior fellow at the Manhattan Institute and the author of a new report from the institute, 'The Hidden Corn-Ethanol Tax.'" The Manhattan Institute has, in fact, received millions from oil interests over the years, including $635,000 from ExxonMobil and $1.9 million from the Claude R. Lambe Charitable Foundation, where Charles Koch and his wife sit on the board of directors. Koch made his fortune from oil and currently has significant holdings in oil and gas operations.

Bryce is, in essence, acting as a spokesperson for the oil industry, which has much to gain from weakening or repealing the RFS. The renewable fuel requirement is set to increase over the next several years, potentially replacing up to 13.6 billion gallons of the conventional fuel supply by 2022.

These financial ties might explain why Bryce's op-ed was peppered with industry myths, including that renewable fuel can damage car engines (this has been proven wrong) and is bad for the environment (ethanol's lower greenhouse gas emissions are better for the climate).

The New York Times faced backlash after similarly failing to disclose Bryce's financial interests in a 2011 op-ed attacking renewable energy policies. A letter signed by more than 50 journalists and media professionals expressed concern that such a lack of disclosure is "a growing problem in American journalism" and asked the public editor to "lead the industry and set the nation's standard by disclosing financial conflicts of interest that their op-ed contributors may have at the time their piece is published."

Read the whole article here: NY Times Fails To Disclose Oil Funding Behind Pro-Oil Op-Ed.

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Can the American Energy Revolution Survive a Deal with Iran?

Friday, March 20, 2015

By Gal Luft, originally published in Downstream Today:

There is no lack of voices warning against the dangerous implications of the nuclear agreement the Obama Administration is advancing with Iran. The opposition has mostly focused on the destabilizing geopolitical impact of a nuclear Iran and what it means for the security of the U.S. and its allies. But there is one less obvious casualty — the North American oil and gas industry.

Undoubtedly in the event of lifting of the sanctions, cash-starved Iran would do all in its power to quickly ramp up its oil exports to make up for lost revenues, and the oil market could face an injection of 500,000-800,000 barrels/day of Iranian crude. At a time when U.S. crude oil supplies are already at their highest level in more than 80 years and storage facilities are reaching their maximum capacity, an influx of Iranian oil could easily slice current oil prices by half. This would be a crippling blow to America’s oil and gas industry, effectively marking the end of the North American energy renaissance.

Even before Iran opens the floodgate the industry finds itself in a precarious situation. To cover their capital investment and operational costs, North American oil drillers have collectively borrowed in recent years about half a trillion dollars. This debt was secured from financial institutions on the premise that the oil would be sold for $100 a barrel or so. But at $50 a barrel the revenues are out of tune with expectations. To avoid bankruptcy, oil companies are forced to pump as much oil as they can to generate sufficient cash flow in order to service their debt. But such Red Queen practice cannot go on for much longer. Hence, many projects have been shelved or streamlined; U.S. rig count, a key barometer of drilling activity, has been declining for the past six months; oil services companies have announced 40,000 layoffs to cope with lower oil prices; and independent oil and gas companies, particularly those with high production costs, are facing defaults and bankruptcies.

The slide in oil prices also impacts the natural gas market. The North American shale revolution has unleashed huge amounts of natural gas but due to lack of infrastructure to export the gas to international markets America’s gas is under-demanded and oil companies holding large amounts of gas in their portfolios are losing their shirts on this commodity as well. So far, the industry has put its faith on the construction of several multi-billion dollar LNG terminals from where the gas could be shipped to Europe and Asia. And indeed five such projects have been approved for construction by the Federal Energy Regulatory Commission (FERC). But a few of these projects could be derailed if the Iranian oil tsunami occurs. LNG prices in Asia are indexed to oil. This means that low oil prices drag down LNG prices — the spot price of LNG in Japan in at its lowest level in five years despite the fact that the country's fifty nuclear reactors are still idle — making America’s LNG less competitive in the Asian market compared to Australian or Qatari gas. Developers of LNG liquefaction facilities in the U.S. who for years struggled to obtain export permits will soon realize that their revenue projections and debt structure may no longer be viable under the low price scenario.

If there is any salvation for the industry it is in the creation of a new market for its product. This can be done in the sector in which it already has a big stake — transportation. Indeed this is the only sector that can gobble an amount of domestic natural gas significant enough to recover the depressed natural gas market.

A barrel of oil has roughly six times the energy content of a million Btu of natural gas. At current oil prices gas is almost three times cheaper than oil on an energy equivalent basis. This means there is enough room for oil prices to come down without crowding out gas from the transportation fuel market. But to generate demand for natural gas in transportation, cars, trucks and ships must be opened to fuels derived from the commodity, like methanol, ethanol, compressed natural gas and electricity. For this to happen automakers should be offered an option to reduce their fuel economy obligation — an unachievable 54.5 miles per gallon by 2025, twice the current efficiency level — if they open most of their cars to some sort of fuel competition, whether through flex fuel engines, electric motors, natural gas engines, fuel cells etc. The abundance of choice enabling vehicles would give rise to greater demand for natural gas and this would pad the balance sheets of America’s energy companies and keep them viable until the oil market rebalances itself. It will also provide consumers with lasting protection against future oil price hikes.

Unlike other industries that are used to investing a great deal of resources in creating demand for their product, oil and gas producers have never been challenged to seek new sources of demand. It has always been there for them. But the new market conditions beg for a new industry mindset — one that views fuel choice not as dangerous competition but rather as a lifeline in what could be a protracted and challenging period.

Gal Luft is Co-director of the Institute for the Analysis of Global Security and Senior Adviser to the United States Energy Security Council. He is also Co-chairman of the Global Forum on Energy Security.

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Why Is Jay Leno Misrepresenting Ethanol?

Tuesday, March 10, 2015

As you read the Op-Ed below by Marc J. Rauch, Executive Vice President and Co-Publisher of the Auto Channel (originally published here), keep in mind two things: Ethanol can be made from garbage, and when it is, it reduces the bulk and harm of landfills, and ethanol can be made for a dollar a gallon using unfarmable land and undrinkable water. Now here's Marc Rauch:

There are two things that everyone knows about Jay Leno: He's a great comedian, and he's a seriously great automobile enthusiast. Generally, when you become great at something you learn a lot about that subject; even if you don't want to learn about the subject, and you just want to be good at engaging in the activity, it's virtually impossible to not become a great student of the history and mechanics of that subject.

I have no doubt that Jay is a master of comedy history, along with the mechanics of what is funny and why it's funny.

I've watched enough video of Jay and his vehicles to believe that he is equally a master when it comes to knowing about his vehicles and the history of how they were designed. I also know that Jay has been a proponent of alternative fuels and advanced technologies. In fact, we even have a few dozen stories and videos of Jay on The Auto Channel website that feature him discussing these things.

I'm also aware of at least two other media pieces done by, or with, Jay in which he enthusiastically discusses his E85-powered 2006 Corvette. (One piece was a Popular Mechanics text story published in 2008, the other was a video produced in Las Vegas at SEMA 2007.)

In both of the stories, Jay expresses a favorable opinion of the advantages of high-level ethanol gasoline blends versus gasoline without ethanol or even just E10 gasoline (10% ethanol/90% gasoline). Among other benefits, Jay cites ethanol's higher octane rating, cooler operating engine temperatures, lower harmful emissions, and ethanol's engine cleaning characteristics that leave behind no nasty gasoline residue and gunk that clog key engine components, such as pistons and valves.

Well, a few days ago, it was brought to my attention that Jay has authored a new story that appeared in the March 2 edition of AutoWeek magazine. The article, titled "Can't We Just Get Rid Of Ethanol?" basically proposes that the United States end the "Renewable Fuel Standard" (RFS) because of issues related to the use of ethanol fuels in older vehicles. At the close of the story Jay exhorts readers and automobile enthusiasts to write to their legislators to demand action against ethanol.

Clearly there is a difference between old cars and new cars, that is to say "classics" and "antiques," and late model vehicles - like those that make up the overwhelming majority of vehicles on the road today. Therefore, it is understandable for Jay to express two different opinions about ethanol as it pertains to old cars versus new cars.

(For those of you keeping score at home, the average age of all cars and trucks on the road in America is only about 10 years. Keep in mind that since the early 1990's all gasoline-powered passenger cars and trucks manufactured for America have used engine and fuel-system components that are resistant to alcohol's solvent properties.)

However, the problem to me is that Jay didn't say "write to your legislators to demand more freedom of fuel choice to give us old car owners easier access to ethanol-free gasoline," he's instead calling for less freedom of fuel choice. More importantly, as much as I hate to say it, Jay is using information to sway the argument that is untrue and misleading. And so, since I think that Jay should know, and does know better, that he is lying in the AutoWeek story.

For example, in the new AutoWeek story, Jay states that "ethanol will absorb water from ambient air...causing corrosion and inhibiting combustion."

Ethanol doesn't absorb water from the ambient air. This lie is one of the oldest and most malicious of the lies created by the oil industry to denigrate ethanol. The only thing new in how Jay used this lie is that he used the word "ambient." I've not seen that before. I've seen quotes that use the word "thin" to denote ordinary air that we normally breathe, but not "ambient." Regardless, this is not what occurs.

It seems many years ago that some clever oil industry person must have learned that ethanol (alcohol) is a hygroscopic substance, and that the general dictionary definition for a hygroscopic substance is that it can attract moisture from its environment. What the oil industry wag then did was to substitute the word "attract" with "absorb," and "air" for environment. Thus, attracting moisture from its environment magically became absorbing water out of thin air.

To keep with a Jay Leno comedian metaphor, let me offer a classic Abbott & Costello routine that presents a startlingly clear analogy at how silly Jay's hygroscopic statement is:

Costello tells Abbott that a loaf of bread is the mother of the airplane. Abbott tells Costello that he's crazy. Costello asks Abbott if he agrees that necessity if the mother of invention. Abbott replies yes. Costello then asks if bread is a necessity; Abbott says yes. Costello asks is the airplane is an invention; Abbott says yes. Therefore, exclaims Costello, if bread is a necessity and the airplane is an invention, then a loaf of bread is the mother of the airplane.

What I'm getting at is just because you can play semantic word games with the definition of "hygroscopic" that doesn't mean that the result of the game is relevant and correct.

To prove that alcohol will not absorb water right out of the thin or ambient air, I always offer this simple at-home experiment: Fill any open container halfway with alcohol and place it on your kitchen counter. Allow it to sit for one or more days. If alcohol absorbs water right out of the air, then when you check the level of liquid in the ensuing days you would find that it has risen. If you find that the level of the liquid in the container has risen (without any manipulation, change to the environment of your indoor kitchen, or interference to the natural process) and you can document it, I will pay you $1,000.

Incidentally, cotton is also a hygroscopic substance. So just as additional proof that being a hygroscopic substance doesn't mean that it absorbs water right out of the air, place a ball of cotton on the other side of your kitchen counter and see if it gets saturated with water from just sitting out in the open.

Moving on to one of Jay's other points, if you were to pour a gallon of water in your gasoline tank your vehicle will probably have great difficulty starting. But that's not how water gets in your gasoline tank, unless you're very, very drunk when you go to the filling station. You can get water in your fuel system because of condensation. So what do you do if you have some water in your fuel system? Do you stick a straw in and suck it out? No, you add a product like Dry Gas. Dry Gas is ethanol, meaning that you use ethanol to solve the problem of water in your gasoline tank. That's right, to solve the problem!

Ethanol doesn't actually absorb the water, it breaks the water molecules down so that ignition and combustion of the gasoline can take place. The water molecules are then expelled in the exhaust. In other words, ethanol aids combustion, not inhibits combustion as Jay stated.

Jay goes on to say, "It gets worse. Ethanol is a solvent that can loosen the sludge, varnish and dirt that accumulate in a fuel tank. That mixture can clog fuel lines and block carburetor jets." The sludge, varnish and dirt that Jay is referring to is caused by gasoline. So ironically, the cleaning characteristic that Jay is now criticizing is the same beneficial cleaning characteristic that he previously championed when discussing the benefits of ethanol.

Then Jay writes, "Blame the Renewable Fuel Standard (for these problems). However, that's not where the blame lies. The blame lies with gasoline; the liars in the gasoline industry; and the politicians who forced us to use gasoline, which resulted in gasoline becoming the dominant and default vehicle fuel. Ethanol cleans the gunk, gasoline causes it.

Even if ethanol is never introduced into a fuel system the time will come when the engine must be cleaned. The engine repair industry didn't spontaneously arise with the advent of E10 or E85 gasoline. Engine repair, maintenance and replacement is a natural result of the internal combustion process. If we can have a fuel that (as Jay previously wrote) burns 100 percent, leaving behind no nasty residue and leftover gunk that clogs key engine components, why shouldn't we have that fuel readily available? Shouldn't that fuel be our primary default engine fuel?

Jay talks about damage that ethanol has caused to the fiber diaphragms in the fuel system of one of his Duesenbergs. I think he's probably correct about this. But is this the reason why America should abandon the RFS and return to gasoline that contains poison?

If you watch the video that Jay did in Las Vegas in 2007 he says something very interesting; in response to the question of how he selects which vehicle he is going to drive to work on a given day, with great humility he acknowledges that there are greater problems in the world to worry about. That was a correct, very modest response. So in keeping with that recognition, I suggest that the fiber diaphragms in his or anyone else's Duesenbergs have no significance in our national decision on what is the correct engine fuel to use.

As a person who has owned classic cars (although I've never owned more than one at a time, and they weren't especially valuable), while I can appreciate his concern over his vehicles, I suggest he suck it up as a noblesse oblige sacrifice that he must make.

For some inexplicable reason Jay also throws in negative comments about ethanol producers and the "food vs. fuel" argument. This inclusion made me think that perhaps Jay didn't actually write this article - that it was actually written by some API stooge and Jay just signed off on it. Jay refers to some ethanol producers as "giant agri-businesses," and its mention is couched within a paragraph that is meant to demean the producers and the overall effort to make us energy independent. Admittedly, some ethanol producers are large corporations, but when you compare them to the giant oil companies they are virtually mom and pop businesses.

For example, in the same year that ExxonMobil reported their fiscal fourth quarter profit as $40 billion, Archer Daniels Midland reported their fiscal fourth quarter profit of $372 million. Although $372 million is nothing to sneeze at, it’s less than 1% of ExxonMobil’s profit. So if there's a picture being painted about huge greedy companies looking to take advantage of the American consumer, the illustration is of ExxonMobil not ADM. And we must remember that the ethanol we use in America is produced here in America by Americans. No American military man or woman has ever died defending domestic ethanol production and distribution.

As for "food vs. fuel," Jay might as well claim that the Earth is flat. About 10 years ago, The World Bank issued a statement in which they claimed that increased corn-based ethanol production was causing food prices to rise. Since that time, The World Bank has twice rescinded that earlier claim based on new and better studied information. The fuel-related culprit they acknowledge as causing food prices to rise is gasoline, diesel, and other petroleum oil products that are used in packaging.

I think that Jay was irresponsible for writing, or signing off on, this article. However, the bulk of the responsibility for letting this misinformation come to the light of day belongs to AutoWeek magazine. Regardless of what Jay Leno had to say, they should not have allowed it to be published, or at the least they should have published it with some considerable disclaimers. I guess that AutoWeek's decision was predicated upon the hope of increased advertising support from the oil industry, and that the reason they chose to embellish the headline title of Jay's story on the online version of the story with "Jay Leno hates ethanol" was to make sure that they were kissing enough ass. I also presume that Jay made the same decision to create the story based on the potential of getting oil company sponsorship for his new automotive content ventures. If I'm correct then there is little reason for this magazine article to have been written and published.

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