As another hurricane season inevitably approaches along with another election season, get set for high gas prices to be blamed on President Bush. So much of our refining capacity is concentrated on the Gulf, which is also a major production area and the destination for much Venezuelan and Mexican petroleum, hurricanes could once again cause price spikes.
But another factor is at work as well, as a recent Wall Street Journal editorial ($ link) pointed out.
Capitol Hill... created the conditions for this mess last summer with its latest energy bill. That legislation contained a sop to Midwest corn farmers in the form of a huge new ethanol mandate that began this year and requires drivers to consume 7.5 billion gallons a year by 2012. At the same time, Congress refused to include liability protection for producers of MTBE, a rival oxygen fuel—additive that has become a tort lawyer target. So MTBE makers are pulling out, ethanol makers can't make up the difference quickly enough, and gas supplies are getting squeezed. [....]
This abrupt cut—off of a product that makes up some 1.4% of the nation's fuel supply —— and far greater percentages in some places —— is certain to wreak price havoc. According to a February EIA report, ethanol production is already running near its capacity of 283,000 barrels a day. Yet "about 130,000 barrels per day of additional ethanol may be needed to replace the MTBE currently used" in gas.
Even Bob Dinneen, head of the Renewable Fuels Association and promoter—in—chief of all things ethanol, is admitting his industry can't make up the shortfall. "We're adding as much [production capacity] as we can, as fast as we can. But I don't think anybody anticipated refiners would be hemorrhaging MTBE as quickly as they are," he said recently. We're not sure what corn farm Mr. Dinneen has been living on, but MTBE producers have been warning Congress for years that this is precisely what would happen if it failed to offer the industry legal protection.
The bigger question is whether all this newly mandated ethanol —— the subsidized profits of which are funneled to Midwest farmers and agribusiness giants like ADM —— will even make it to its destinations. Unlike MTBE, ethanol can't be shipped ready—made through pipes. Instead it must be trucked or carried by rail from the Midwest to terminals near its ultimate selling point, where it then must be blended with a special unfinished fuel that is shipped separately through pipelines.
This is creating a logistical nightmare, forcing refiners to add blending facilities at their terminals, convert tanks to hold ethanol, and switch over retail outlets.
Democrat rising star Barack Obama just the other day came out for more ethanol subsidies via government fiat and tax incentives. Asd the Journal notes, increasing ethanol usage beyond the 2012 mandate will require planting entire states in sugar or corn for use as fuel. The fertilizer, transportation, and other logistical challenges all eat up fuel. There's no free lunch.
Most people simply cannot grasp the enromous volume of petroleum necessary to power our economy. No other energy source in prospect can come close to equalling the sheer volume of petroleum available, and easily transported via pipeline.
Hat tip: Ed Lasky and Michael M.
Thomas Lifson 4 4 06