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.