Focus on Fuels 1-28-08
Submitted by DTN Ethanol Blog
Energy Profits Gyrate
By Gary Wilhelmi
DTN’s Man on the Floor of the CBOT, CME
The energy profitability formula is getting more and more dramatic in its gyrations. Crude has dropped into the high $80s per barrel range from a test two weeks ago of the $100 area. The alternative fuels feedstocks corn and soybean oil have also been quite volatile and the jitters are likely here to stay.
The outside markets include gold and the global security markets and both have been exceedingly active. The profitability formula became so adverse that ConAgra pulled the plug on a planed ethanol plant in New Mexico. It is important to note that Midwestern plants close to the raw material source (corn) have been much more stable. Any facility that requires long supply lines can quickly become unprofitable in this Wild West environment. More and more we hear rumblings about ethanol as the cause of higher food prices, and it certainly does carry a share of the blame.
We who live along the southern shore of the Great Lakes are seeing some contentious environmental battles over the refining of Canadian oil sands imports to refineries along the south shore. It is a good thing, economically, that we were not so environmentally conscious 100 years ago when the steel industry developed along this same south shore. Without the Rust Belt our history would have been much less successful for anything from autos to the tanks that beat the Axis powers in WWII. The refining of oil sands crude is much cleaner than the manufacturing of steel, but the fanaticism is now slanted toward environmental care rather than the bottom line of big steel. Now that the need for alternative fuels creation is so clearly defined we need to be making some trade offs.
The fear of fat at the fast food restaurants has been overcome by transfat being flushed from the menu, but diesel engines are not concerned about clogging their arteries. Stories are popping up about individuals who contract with McDonalds etc. for their waste product cooking oil then filter it and put it right into their fuel tanks and away they go, smelling like a fresh batch of French fries. We cannot all do that, but for a few of us it is the answer and it shows how ingenuity does not only come out of university labs. A little basic chemistry, some engine modification and a simple filter and away they go for peanuts or, if available, peanut oil. How about that!
The key word in cellulosic alternative fuel development is experiment, because at this time that’s where we are — in the experimental stage. Five to ten years of trial and error are likely before we find our way. When the science is complete the profitability becomes the ultimate test and that will be an ongoing procedure in pursuit of the most economical products.
An associate of mine here in Chicago has a new oil strategy — he would push drilling in the Gulf of Mexico, step up exploration off shore and drill but cap wells in Anwar in order to put more competitive pressure on Mideast suppliers.
Gary Wilhelmi can be reached at gary.wilhelmi@dtn.com
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