Category Archives: Oil

The “Free Parking” Analaogy in International Relations

In business strategy, it is common to subsidize a money losing business that in order to make a primary business profitable. This is called “free parking.”

For instance, McDonalds is one of the largest parking lot operations in the world. The scale of their investment in an international network of places to park your car is staggering, involving professional and operational employees and contractors all of the world.

But McDonalds is not in the parking business. They are in the hamburger business. But absent providing “free parking,” McDonalds would find the cost of customer acquisition painfully high and the economics of scale from its operations too small.

russia_mcdonalds
Of Interest to Parking Lot Operators

Likewise, the United States runs one of the largest carbon-economy rollback operations in the world. The scale of US investment in preventing the success of the carbon economies (from “King Cotton” in the late 19th century to “King Oil” in the late 20th century to King Natural Gas today) is staggering. This anti-carbon-intervention — from a massive climate science masquerade to military actions in the American South and the Middle East.

In most of the world most of the time, carbon-based economies are naturally despotic and authoritarian. These “hydraulic empires” exist because of the government monopoly over the infrastructure needed to extract wealth from the earth. This form of social organization can be internally stable but maintain considerable freedom of movement in international relations because rules do not need worry about complicated economic links that limit non-carbon economies. That is, they are warlike.

ukraine_pipelines_map
Of Interest to Carbon Extraction Operators

(Whether refers to carbon-economy rollback by that name, or says something about sustainable political-economic growth, or “shrinking the gap” or whatever, the meaning and the concept is the same: minimizing the political and military importance of carbon extraction throughout the world.)

Rolling back the carbon-based economy is to the US what free parking is to McDonlads. For McDonalds, free parking is the side business and selling hamburgers is the main business. For the US, carbon-economy rollback is the side business and selling security is the main business. McDonalds could not afford the customer acquisition cost, and could not enjoy the economies of scale, without subsidizing free parking for its customers and potential customers. Likewise, the US could not afford the country-acquisition cost of its military alliances nor enjoy economies of scale, without subsidizing carbon-economy rollback for its customers and potential customers.

My friend Dr. Samuel Liles thinks that free parking is a distraction, whether for McDonalds in a shopping mall or the US in the world political system. He’s wrong on both points.

McDonalds cannot provide hamburgers (in exchange for cash) without providing parking, for free.

The US cannot provide security (in exchange for power) without rolling back the carbon-based economy, for free.

Bush’s Alternate Energy Legacy

While more recently making strange deals with Congressional Democrats to bail out the UAW, one of George Bush’s most important legacies may be his dedication to alternative fuels and sources of energy:

Domestic Fuel » Archives » US Now Tops in Wind Energy
A record-setting year for American wind power keeps getting better as the United States has become the world’s top wind energy producer.

This story from Environment News Service cites an American Wind Energy Association year-end report that says steady growth has helped the Americans surpass their German counterparts

When Bush took office, hybrids like the Toyota Prius were a novelty, E85 and biodiesel hardly existed, and the U.S. was languishing far behind leaders in alternative energy. Now, that is no longer true.

The work that the U.S. has done under Bush has been impressive. Indeed, it may have played a role in popping the oil bubble, as technologies like ethanol made peak-oil irrelevant.

Besides the direct benefits that wind, E85, and biodiesel have for us, they also strengthen new productive economies like China and India, while weakening parasitical fossil-fuel exporters like Venezuela and Russia.

Presidents cannot do everything, but even if their role is to stand out of the way… President Bush still deserves thanks for how America’s alternative energy technologies advanced during his term.

The E85 Lifestyle

I discovered that our new used car is a flex-fuel vehicle that runs on E-85 (85% ethanol, 15% gasoline). I’ve decided I now need to be smarmy. All those Prius hybrid drivers have been feeling good about themselves by halving their use of foreign hydrocarbons. But I’m walloping them!

Of course, E85 still requires energy to refine from corn. Still, I’m very happy to substitute American coal, American hydroelectricity, etc. instead of importing foreign hydrocarbons from the Gap.

Ethanol has come a long say since E10 first came on the market, and it’s still a growth industry. It’s important that our vehicle fleet get off foreign hydrocarbons, so we stop propping up dangerous regimes such as Russia, Iran, and Venezuela. Plugins like the Chevy Volt, hyrbids like the Toyota Prius, and E85 cars like mine are all part of the solution.

Indeed, if there is going to be any Detroit bailout, the government should use its bargaining power to maximize the number of E-85 plugin hybrids produced.

Photovoltaics

I strongly recommend the “Photovoltaics” article from Wikipedia, which is eye-opening in the way that Netscape Navigator was eye-opening to people whose only exposure to computers had been WarGames.

One big feature of the Wikipedia article is the lead that Germany has in solar technology.  Germany is using solar as a way of gaining energy independence from Russia, in spite of popular opposition to nuclear power.  We should hope them the best.

Another topic is “grid parity,” the point at which Solar becomes a cost-effective energy source.  Projectsions are for grid parity to be reached in ten years, which would be very good. Not so much about global warming (who cares about that), but against because of the promise solar holds to weaken Russia’s ability to harm the countries of the Core and the Seam.

Interesting reading!

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.

Oil Prices (and why Peak Oil is irrelevent)

As of this writing, a barrel of Texas Light Sweet crude would cost you $123.64, according to Bloomberg. This is down from the oil bull market price of $140 or so per barrel. Interestingly, this also the price that makes switchgrass ethanol (gasoline from tall prairie grass, corn husks, and so on) economical.

Prices go up, prices go down.

The only real concern regarding energy prices is that they support crummy states like Saudi Arabia, Iran, Venezuela, and Russia. The less market-oriented countries need to import oil, the less oil-rich countries can avoid market discipline by selling what they fond under their feet.

As the auto production market adjusts to high prices, the long-term shift away from oil begins. Concepts like Ethanol Hybrid Electrics and other mindbending combinations approach the market, making peak oil a mute, meaningless and irrelevent concept.