Cellulose Ethanol Renders Peak Oil Irrelevent (for us, at least)

A faithful reader wrote to me with a question on my post Oil Prices (And why Peak Oil is Irrelevant), especially in the context of Fabius Maximus’ post “The Three Forms of Peak Oil.” My position is that Peak Oil is largely irrelevant, Fabius’ view is much more dire.

My point on the post was that upwards of 120/barrel even cellulose ethanol becomes an economic alternative for oil. Clearly there’s the question of moving to engines capable of running on cellulose, but mean time for replacing a vehicle is significantly less than 20 years. Thus around $120 is a hard upper limit on the price of oil for any real length of time.

Ethanol plants can be built quickly and turn around profit fast — that’s why they appear as weeds up here in the midwest. Essentially, all you’re doing is distilling alcohol, which we’ve been doing for a couple thousand years, then adding in substances to make it undrinkable.

“Commercially proven” depends on the market rate. Is there a commercially proven way to get cellulose ethanol now, at $108 ? Nope. Are their commercial proven ways to get cellulose ethanol at $145? Yeah — the break-even point appears to be $120. So even without advances in technology or economy of scale, just sustain prices where they are this summer to ramp up that production.

Demand destruction from oil to ethanol can happen quickly. Immediate consequences will be seen after only one year, and within ten the energy stance of the United States will be significantly altered. We’ve already seen considerably demand destruction for gas in the US economy, and that was just by switching from trucks to cars. Start turning over some fraction of cars on a yearly basis from gas to E85, and that continues.

Of course, really we don’t need to wait for $120, because corn ethanol breaks at about $40, but the problem there is that you’re largely substituting coal for oil and using corn ethanol as a delivery vehicle.

8 thoughts on “Cellulose Ethanol Renders Peak Oil Irrelevent (for us, at least)”

  1. Ethanol is an energy sink. Burn dirty coal, accelerate global warming, generate waste, abuse the earth, take land out of food production, and starve the poor. No thanks. And here it the real problem.

    According to energy investment banker Matthew Simmons and most independent analysts, global oil production will now decline from 74 million barrels per day to 60 million barrels per day by 2015. During the same time demand will increase 14%.

    This is equivalent to a 33% drop in 7 years. No one can reverse this trend, nor can we conserve our way out of this catastrophe. Because the demand for oil is so high, it will always exceed production levels; thus oil depletion will continue until all recoverable oil is extracted.

    Alternatives will not even begin to fill the gap. And most alternatives yield electric power, but we need liquid fuels for tractors/combines, 18 wheel trucks, trains, ships, and mining equipment.

    Surviving Peak Oil: We are facing the collapse of the highways that depend on diesel trucks for maintenance of bridges, cleaning culverts to avoid road washouts, snow plowing, roadbed and surface repair. When the highways fail, so will the power grid, as highways carry the parts, transformers, steel for pylons, and high tension cables, all from far away. With the highways out, there will be no food coming in from “outside,” and without the power grid virtually nothing works, including home heating, pumping of gasoline and diesel, airports, communications, and automated systems.

    This is documented in a free 48 page report that can be downloaded, website posted, distributed, and emailed: http://www.peakoilassociates.com/POAnalysis.html

    I used to live in NH-USA, but moved to a sustainable place. Anyone interested in relocating to a nice, pretty, sustainable area with a good climate and good soil? Email: clifford dot wirth at yahoo dot com or give me a phone call which operates here as my old USA-NH number 603-668-4207. http://survivingpeakoil.blogspot.com/

  2. As is often the case what seems obvious to the most casual observer is dead wrong. “Peak Oil” has nothing at all to do with the amount of oil (or ethanol) in the world. It ONLY has to do with production rates. The world currently uses 86 million barrels of oil per day. When production falls below demand shortages will occur. If you can’t fill up and go to work you can’t feed your kids. This will make you fighting mad. Currently there are 60 major oil fields in the world. 56 of them are in serious decline. There is no way in the world that we can ramp up our ethanol production fast enough to make even the tiniest difference in the date when peak oil induced chaos is going to consume the world.

  3. Ethanol is not an energy sink, except in the sense that the third law of thermodynamics means that pretty much everything winds up costing more energy than we are able to make use of. Nevertheless, most of the energy consumed in ethanol production is solar energy that is used in photosynthesis to produce starches and sugars which are later digested by yeasts who excrete ethanol as part of their metabolism.

    Lots of luck on your business venture, however. For myself, I think that there is more money to be made selling “male enhancement” products. There are not too many men who would not like to have a bigger dick. The trick is to get enough to send you money on the premise that “it’s not that much money and what the heck, it might work”.

    The limiting factor on increasing ethanol production is the speed with which new ethanol plants can be built. With corn prices over $5 a bushel, there will be plenty of farmers willing to switch to growing corn in order to keep them supplied. I read something that compared the increase in the rate at which ethanol plants are being built to the rate at which airplane production increased between 1942 and 1945. That means that sometime in the next two years or so, domestic ethanol production, mostly from corn, will be enough to supply 10% of the gasoline consumption of the United States. Since that is the maximum percent of ethanol that can be added to ordinary gasoline and the maximum percent for which regular, non FlexFuel cars are warrantied, the price of ethanol is probably going to drop pretty quickly at that point. That means that E85 is going to be a real bargain. Since mixing 10% ethanol with gasoline gives you a 95 octane fuel, it also means that the compression ratio of ordinary car engines can be increased significantly which will make those engines more efficient. More efficient means better gas mileage and more power from smaller engines.

  4. Excellent discussion on a very important topic!

    Mark in Texas is exactly right on the ramp-up of ethanol production.

    I remember the first ethanol plant in my homestate when it was still the only ethanol plant there — I visited there some time ago and blogged it [1].

    Obviously, now it’s a much bigger deal.

    Corn ethanol has been a very nice way of diverting money to farmers, but it’s main function is to build the economy of scale for more efficient energy sources. Both ethanol taken from sugar cane (which is naturally sweeter than corn) and switchgrass ethanol (which converted inedible biomass to ethanol) are much more efficient.

    Now that the bulk of engines can run on E10 and more and more can handle E85, we’re close to the demand-side infrastructure and the delivery-side infrastructure.

    [1] http://www.tdaxp.com/archive/2006/07/02/scotland-a-city-of-lovecraftian-dreams.html

  5. The terminology of supply and demand can be confusing when used casually.

    In the short run we have the demand curve, which can increase as prices go down or decline as prices go up. However, the demand curve itself can shift into demand creation or demand destruction. For instance, the market’s reaction to $4/gal gas seems to have been demand destruction, as the crypto-luxury vehicle market is now composed of hybrids, rather than SUVs.

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