Ethanol market saturated – No need for 2nd Gen?

Day Labor

It’s all about the spread: Why CNG, LPG do not work for the US

Greed killing green fuel options again

Ethanol market saturated – No need for 2nd Gen?

Posted in: Biorefinery, Public Policy | Comments (0)

Geoff Cooper from the Renewable Fuel Association reports about the increasing export of ethanol from the US.
With all my appreciation for ethanol and the corn-ethanol industry, we need not forget that there are significant state and federal subsidies going into corn-growing and ethanol production as well as protective price subsidies. Further, the lay argument for ethanol was a “domestic” renewable supply for “domestic needs”.
If we now discover, that essentially four ethanol plants purely worked for export in 2010 and around nine large-scale ethanol plants produced purely for export in 2011, why should there be any need for cellulosic ethanol from a market demand perspective? Especially if it is so much more expensive in terms of CapEx? Why would any investor (or government) invest in cellulosic ethanol if the domestic market is so saturated with first generation ethanol that the surplus goes into export???
The RFA and the entire ethanol industry certainly has some explaining to do, especially if both ethanol as well as the side product DDGS both are being heavily exported, as the domestic market does not absorb all. It also raises questions about the seriousness of the use of tax payer subsidies for growers or tax subsidies for investors. The system is seriously broken.
What needs to happen is that the internal market demand for ethanol is raised to a level that the “low-cost” ethanol is actually being used internally as long as there are tax or other subsidies involved, or remove those. Further, the fermenting ethanol industry may need to look for higher value added, different products to ferment and produce that will allow removal of subsidies and take out ethanol capacity to bring capacity and market in balance. Gevo comes to mind but there are other options as well.

Michael @ September 9, 2011

Day Labor

Posted in: Public Policy | Comments (0)

Unemployment hangs at 9.1% and for the foreseeable future (2012) it will stick there per the White House.

In a recent interview posted as video at McKinsey Quarterly Kelly Services CEO laid out the structure of future employment for individuals is becoming more a free agent model. and NL Michael Spence points to the fact that virtually all newly created jobs since ’95 where in the non-transferable sector (a.k. service industry), meaning we have significantly less fully employed people, and the jobs have shifted from high-skill manufacturing to low-skill service. The service industry however kept going bust in the last of the three crises.

To add insult to injury, In ’95 the top 1% earner took home 9.5% of the income pot, in 2007, the top 1% took home 23.5% of the total income pot. So we have a factual redistribution of wealth to the top (the part of the population that vehemently opposes closing of tax loop holes or any taxes at all). While the top 1% certainly enjoys the additional 14% of the income pot, that money is missing in the middle class where it would be used in everyday consumption (not for Lear Jets) hence greasing the economy. So the redistribution of wealth has a dragging effect on the national economy.

Conversely the resolution would be to have broad swaths of consumers spending salaries, that they earn at higher levels, which would leave money on the table to be taxed so the deficit can be tackled. But how dow we get to those jobs?

Robert Reich recently referenced the German model, how Germany excels in exports and is apparently able to stem a whole European crisis by way of the strength of its internal manufacturing industry as it did not abandon the middle class jobs while paying decent salaries that keep the economy humming due to internal consumption, and further invests into high-end jobs.

The underlying model goes back into the early ’70s, when Germany faced the loss of the shipbuilding and steel industry and other markets to Japan and Taiwan. It was a wake-up call and the thesis developed at the time was to become a land of blue-print designers, while ceding assembly to other countries. However, the national challenge was: How to make sure there is enough salary to go around for all to be employed. The answer was/is that everyone needed to be lifted up in terms of education so that the jobs to be had would be highest-value add jobs. That requires a high-performing educational system for the benefit of the future of the national economy. Education as a strategic imperative of national importance. Hence, an educational system that was not based on a for-profit concept, drowning its graduates in debt and robbing their freedom. This approach was also replicated in France (already since Napoleon), and Scandinavia (in Denmark it was realized that the only resources the country has are its people). The result is that in the US less than 30% have an education level of a bachelor or higher, in Germany it is 70% and that constitutes the innovative, high-end workforce that pulls a decent salary and drives the economy.

That workforce in Europe is made up of two major parts, the academically trained, and the vocational trained. Important is to understand that the vocational trained still go through three years of post-high school education, add another two years, and then can graduate over another two years to a professional masters degree. Those are the specialists that manufacture and out pace in quality and ingenuity the global competition. The underlying system dates back to the formation of trade guilds from the 12th century onwards.

If America wants to pay back its debt, it will need to provide high-value added export oriented products whose revenues allow taxation at the salary and corporate level. For high value added products, it needs the workforce and the workforce needs cutting edge education. Germany set the elements in motion in 1973/4, some forty years ago, had no debt issue in th ’70s when the foundation for its educational and export strategy was laid, and is reaping the awards now. In the US we lack a deep vocational training system and our educational system is largely proft-oriented and we are in 2011 with debt mounting and the educational discussion is not even started.

Michael @ September 2, 2011

It’s all about the spread: Why CNG, LPG do not work for the US

Posted in: Biorefinery, Public Policy | Comments (0)

Region United States United States United States Germany Germany Germany
Feed Propane CNG Gasoline Propane CNG Gasoline
Trade Unit  1 gallon   1 GGE   1 gallon  1 liter 1 kg  1 liter 
Trade Unit [SI]  1 liter   1 kg   1 liter  1 liter 1 GGE  1 liter 
Trade Unit Conversion 0.2642 0.3906 0.2642 1.0000 2.5600 1.0000
Cost [Currency]  $           2.39  $           2.10  $           3.75  €         0.764  €         1.000  €         1.515
1/$ 1.0000 1.0000 1.0000 1.4402 1.4402 1.4402
Cost [$/SI Unit]  $           0.63  $           0.82  $           0.99  $           1.10  $           3.69  $           2.18
Cost [$/GGE]  $           2.63  $           2.10  $           3.75  $           4.58  $           3.69  $           8.26
Spread to Gasoline [$/GGE]  $           1.12  $           1.65  $              –    $           3.68  $           4.57  $              –  
Spread to Gasoline [$/l]  $           0.36  $           0.17  $              –    $           0.97  $           1.21  $              –  
Conversion CapEx  $         5,900  $         8,900  $              –    €    2,400.00  €    3,500.00  €              –  
Conversion CapEx [$]  $         5,900  $         8,900  $              –    $         3,456  $         5,041  $              –  
MPG 20.0 20.0 20.0 20.0 20.0 20.0
l/100 km 11.8 11.8 11.8 11.8 11.8 11.8
HV Penalty 10% 0% 0% 10% 0% 0%
Break Even [km]         186,345         173,614             33,276           35,483  
Break Even [miles]         115,789         107,879             20,676           22,048  

It’s not that I was bored, rather bothered, finding out why CNG or LPG is such a no-brainer in Europe and seemingly not working well in the US. Above spreadsheet, current as of August 26, 2011, depicts the sorry state for CNG and LPG conversions. The bright spot is that energy, even gasoline, still is dirt cheap in the US. Imagine, if the gallon of gasoline would run you $8.25, how would America look like then (I mean outside the riots on the streets)? So, at a third of that price, the GGE margin to even cheaper energy for cars, such as CNG or LPG, becomes so irrelevant that you may have to drive more than 100,000 miles to recover a single installation or conversion. That break even point is well beyond the horizon of individual consumers, which may drive 20,000 miles per year or less on average. Don’t get me wrong, I am all in favor of CNG because it can be made from renewable resources to 100% and because it creates less GHG per energy output, but the numbers don’t work here in the US, whereas they work in Europe.

To resolve the situation, the importers need to lower the price of the conversion to European levels and the providers of CNG should consider how much more they could sell if the price would actually be pegged to natural gas (the resource) instead of gasoline (the competitor). Of course it would be nice if the EPA would get behind the CARB mission and try to facilitate with DOT the implementation by reducing the regulatory hurdles. But at this time it seems it is between the conversion installer and the vendor of the fuel there is an opportunity missed here.

Michael @ August 26, 2011

Greed killing green fuel options again

Posted in: Biorefinery, Public Policy | Comments (0)

I just got back from a visit in Germany and they do LPG conversion all over, because it lowers the cost of driving a car to at least a third (not by a third). Enthused I looked at the chance of doing same, using Prins’ technology that is available for a large range of cars and conversion costs around 2000EUR in Germany for a 6 cyl or 8 cyl car. LPG is  tax relieved (tax is what makes the price difference for fuels in Germany, not the actual fuel cost).

The economics are compelling: 1 MMBTU (and in the end we burn any fuel for BTU and nothing else) in Nat Gas goes bulk for $5, in gasoline or diesel for around $28 to $30, crude oil for $15, LPG $16, but get this: compressed Nat Gas $18 (in CA). The mere compressing of Nat Gas to 3600 psi increases the value by approx. 4.5X, conversely running a refinery and trucking the whole stuff only results in a markup on the energy price of 2x.

What we have is a near monopoly on CNG sales that allows the vendor to set a price that makes things economically barely attractive for the consumer, but very profitable given the captive audience, as CA’s CARB does not allow bi-fuel cars, and hence as CNG vehicle owner you are exposed to those prices set.

Further, the market seems to be dominated by the lone importer(s) of Prins LPG or CNG conversion, who charges $8,900 for a car conversion to CNG and $5,800 for an LPG conversion. Making the conversion further unattractive, compared to the $4,000 for CNG and $2,800 for CNG in Europe. Admittingly the conversion in Europe is mostly to LPG and here to CNG, which increases the cost by way of a need for a high-pressure CNG gas tank as opposed to a low pressure, low profile LPG tank.

To be fair I should not let the EPA of the hook either, as they require a certification on the individual car model, which runs you $15,000 to $50,000 per model and year. So that is presumably factored in the price of the install.

In sum the EPA and CARB make their political cut, and the CNG provider its margin, and the Prins importer its profit, what gets killed on the way is the feasibility (you may need to drive more than 40,000 miles per year) for the introduction of inherently attractive different fuel economics, that are renewable possible. CNG could be generated from biogas (alas the latter also having a rough time getting of the ground but with huge potential).

What should be is a competitive field of CNG providers that orient their price on the NG price and not on what the market can bear, a CARB & EPA that aggressively puts market forces to play to foster LPG and CNG adoption, an importer and distributor that would be allowed in all states to have conversions take place at qualified garages, and a capturing of LPG from refining processes so it would be available at near refinery locations in CA, TX, LA, NJ etc.

The mere margin between NG and liquid fuel would drive people to conversion like crazy until the arbitrage opportunity is absorbed. That not happening is the proof for an imperfect, hence manipulated, market.

And yes, LPG or CNG would be 25-50% lower on GHG emissions – just as an aside.

Michael @ August 25, 2011