America: The Saudi Arabia of Ethanol

Friday, August 3, 2012

The following was written by George Marchetti.

America is Saudi Arabia of Ethanol
Historically, ethanol has been promoted and used as a gasoline substitute in Brazil and the United States, mainly as a response to the OPEC oil embargoes of the 1970s and to rising gasoline prices. In 2010, the production of ethanol from sugarcane in Brazil reached some 6.9 billion US gallons per year. As of 2011, 83% of the light duty vehicles sold in Brazil were flex-fuel vehicles (FFVs), which are capable of running on either gasoline or ethanol blends (such as E85). A gallon of pure ethanol (E100) has about 67% of the energy content of a gallon of gasoline and a gallon of E85 has about 73% of gasoline’s energy content (source).

The U.S. produced 13.2 billion US gallons of ethanol fuel in 2010, and together with Brazil, accounted for 88% of that year's global production. The ethanol market share in the U.S. gasoline supply by volume grew from just over 1 percent in 2000 to more than 3 percent in 2006 to almost 10 percent in 2010. By December 2010 nearly 9 million E85-capable FFV vehicles had already been sold. It is well known that virtually all of the U.S. ethanol supply is currently produced using corn as the feedstock. Less well publicized, however, are recent, major technological advances that will enable the U.S. to expand its ethanol fuel feedstock base well beyond corn in a cost-effective manner. As more FFVs enter the light duty vehicle fleet and as other abundant domestic resources are devoted to ethanol fuel production, the U.S. could well become not just the world’s major ethanol producer (as it is today), but the “Saudi Arabia” of ethanol. Both renewables and fossil fuels are domestic ethanol resources, which are available for the transition away from petroleum as a primary transportation fuel.

Fossil Fuel Resource Base

(1)    Coal or petcoke. Celanese has recently announced a “game changing” technology, which converts coal or petcoke to ethanol (source). According to Celanese, the cost of converting coal to ethanol is $1.50 a gallon, equal to making gasoline from crude oil costing $60 a barrel. Coal is the most abundant fossil fuel resource in the United States and represented about 90% of total U.S. fossil fuel energy reserves as of 2002. The Celanese process is an advanced “clean coal” technology.

(2)    Natural gas. The Celanese process can further be used with natural gas as the ethanol feedstock. Given the development of shale gas technology and the resulting decline in natural gas prices, the cost of converting natural gas to ethanol is likely in the same $1.50 per gallon range.

Renewable Resource Base

(1)    Corn. Because of the very significant volumes of petroleum remaining to be displaced as fuel for the light duty vehicle fleet (i.e., roughly 125 billion gallons per year at current usage rates), corn will remain an important source of ethanol. However, its overall market share will decline as other ethanol resources are developed.

(2)    Cellulosic Biomass.  Perhaps the most intriguing technological developments with respect to renewable ethanol utilize a cellulosic biomass feedstock.  For example, Novozymes has tailored enzymes, which can rapidly catalyze the conversion of cellulosic biomass to ethanol (source). The cost per gallon of ethanol from this process is estimated to be $2.00 per gallon.

(3)    Municipal Solid Waste. Municipal solid waste is a third source of renewable ethanol. The Fiberight process separates organic materials (the ethanol feedstock) from inorganic materials. The inorganic hydrocarbons can then be used as a process fuel and the residual inorganics can be recycled. The process should further result in a significant reduction in both the amount of landfill solid waste and the cost associated with landfill tipping fees.

In May 2011 the Open Fuel Standard Act was introduced to Congress with bipartisan support. If adopted, the bill would require that 50 percent of automobiles made in 2014, 80 percent in 2016, and 95 percent in 2017, be manufactured and warranted to operate on non-petroleum-based fuels, which includes existing technologies such as flex-fuel vehicles. Considering the rapid adoption of flexible-fuel vehicles in Brazil and the fact that the cost of making FFVs is approximately $100 per car or less, the bill's primary objective is to promote a massive adoption of flex-fuel vehicles capable of running on domestic ethanol. If enacted, the Open Fuel Standard Act would provide an expanded customer base for the ethanol fuel transition, as has already occurred in Brazil.

Current U.S. ethanol policy is tilted exclusively toward renewable ethanol resources to the exclusion of fossil fuel resources. The Energy Independence and Security Act of 2007, signed into law in December 2007, increased and expanded the renewable fuel standard. By 2022, 36 billion gallons of renewable fuel must be used per year. A certain percentage of the renewable fuel blended into transportation fuels must be cellulosic biofuel, biomass-based diesel, and advanced biofuel. In order to meet this mandate, there clearly must be enough vehicles capable of operating on the biofuels. The Open Fuel Standard Act complements the Energy Independence and Security Act by requiring increasing numbers of multi-fuel FFVs to be sold in the United States. Indeed, the policy goals of the Energy Independence and Security Act make little sense, and cannot be achieved, unless the Open Fuel Standard Act becomes law.

However, imagine if, in addition to 36 billion gallons of renewable fuel, there were 36 billion gallons of ethanol from coal and natural gas. By 2022, roughly half of the fuel requirements of the light duty vehicle fleet could be satisfied with domestic non-petroleum resources, creating a significant number of new jobs and enhancing national energy security at the same time. Having committed to renewable ethanol (corn and cellulosic biomass), Congress would be foolhardy to ignore the enormous contribution to ethanol production that could be made by abundant and inexpensive fossil fuel feedstocks like coal and natural gas. Ethanol production is a “big tent” project and does not require an “either/or” approach. Both renewable and fossil resources can be economically processed to yield ethanol transportation fuel. Flex-fuel vehicles, running on a blend of ethanol fuel derived from renewables, natural gas and coal, is a straightforward, and uniquely scalable, method to implement the transition toward non-petroleum vehicle fuels in the United States. Cost-effective technology is no longer an impediment. Hopefully, future U.S. ethanol policy will be modeled more on the policies of Brazil (the country) rather than on “Brazil” (the darkly satirical movie of bureaucratic incompetence).

Looking Into the Future

What if the United States actually became the “Saudi Arabia” of ethanol by 2022? What would be the effect on crude oil imports from the Middle East of substituting 72 billion gallons of ethanol for gasoline to power the light duty vehicle fleet? With the “back of the envelope” calculations below, I am assuming that overall fuel consumption by the 2022 light duty vehicle fleet is, on average, the same as today. It may be more; it may be less. With that very big caveat, it nevertheless appears that all US imports of crude oil from the Middle East could be eliminated by 2022. Here’s  a summary of my analysis and assumptions.

(1)     (1) As a rule of thumb, about 19.5 US gallons of gasoline on average can be derived from one barrel (42 US gallons) of crude oil (source).

(2)    The net US imports of petroleum as of 2010 were an average of 9.4 MMbd.

(3)    So, about 67 billion  gallons of gasoline per year were derived from petroleum imports( 19.5 x 9.4MM x 365), which is roughly half of total United States gasoline consumption.

(4)    If we add 24 billion gallons of cellulosic ethanol (from the Energy Independence and Security Act of 2007) and 36 billion gallons of fossil ethanol (from domestic natural gas and coal), we get 60 billion gallons of ethanol per year (in addition to corn ethanol at 12 billion gallons per year, which is already in the fuel supply). This would be a 50/50 blend of renewable ethanol and fossil ethanol overall.

(5)    A gallon of ethanol has 67% of the energy content of a gallon of gasoline. So, the  60 billion gallons of ethanol which have been substituted for gasoline have an energy equivalent of 40 billion gallons of gasoline.

(6)    That still leaves a deficit of 27 billion gallons of gasoline (67 billion-40 billion gallons of gasoline equivalents) per year or 74 million gallons of gasoline per day to be imported.

(7)    In 2011, the US imported the following amounts of crude oil from these countries: (a) Canadaà 2.157 MMbd; (b) Mexico à1.113 MMbd; and (c) Nigeria à 0.826 MMbd (source).

(8) The total petroleum imports from these three countries equaled 4.1 MMbd. Using the 19.5 gallons of gasoline per barrel of crude oil “rule of thumb”, it appears that we are able to derive 80 million gallons of gasoline per day from crude oil imports from these three countries alone, which is sufficient to cover the deficit of 74 million gallons of gasoline per day.

In principle, and based on these assumptions remaining relatively constant, the United States could entirely eliminate its dependence on Mideast oil by 2022 with a combination of domestic crude oil, crude oil imports from three non-Middle Eastern countries, biomass ethanol and fossil ethanol.  Isn’t that really the national policy goal that every President since Jimmy Carter has advocated? I think James Woolsey might even find this “back of the envelope” analysis of particular interest from a national security perspective.

If nothing else, it could be a topic of discussion if there is a lull (typically during the questions and answer period) at the conference. Clearly, adoption of the Open Fuel Standard Act is absolutely critical in this scenario.

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