They withhold enough from the market (they only supply less than a third of what the market needs in spite of their reserves) to keep prices up, today, around a hundred dollars a barrel. Their low production costs and huge reserves mean that we cannot destroy OPEC’s control of the oil market just by drilling for oil ourselves – at best we just improve our balance of payments somewhat. One thing the Saudis do with their oil money is dominate the world’s Islamic institutions, including schools – Lawrence Wright in The Looming Tower says that some 90 per cent of world Islamic institutions are Saudi-funded. This means that what is generally being taught in these institutions is not the open, tolerant Islam personified by the late, great President of Indonesia, Abdurrahman Wahid, but highly anti-Western, anti-tolerance Saudi (Wahhabi-Islamist) views. These are the roots of al-Qaeda and of most current Sunni terrorist ideology. So economically and ideologically oil is at the heart of our strategic problems.
CEI: One of the core arguments in favor of the OFS is that cars could run more sustainably on ethanol. But there is an argument that corn-based ethanol is problematic. How do you address this issue?
JW: Ethanol, in my view, is no longer the central issue. OFS does not require that ethanol be the only readily-available substitute for gasoline. Methanol (wood alcohol) is historically (and still is) made from natural gas in the US. Facilities to do this are relatively inexpensive and the process is well-known. It can also be made from coal and, of course, wood chips. Natural gas is today some five times cheaper than it was merely six years ago and thus methanol’s price advantage over gasoline is easily at least several tens of percent on an equal energy basis (at your local hardware store methanol sells today for around a dollar a gallon – two gallons equal about a gallon of gasoline in volume, but are substantially cheaper). This price advantage plus the fact that natural gas products emit much less carbon than oil (and much less of other pollutants as well) would mean a substantial improvement on all fronts – economic, strategic, and environmental – if drivers shift to methanol from gasoline. Ethanol today is more expensive than methanol. We should get rid of the ethanol tariff and of its and oil’s subsidies (depletion allowance, intangible drilling costs, etc) and let all 3 fuels compete at the pump on an equal, non-subsidized basis.
CEI: Continuing along this line of thought, Al Gore says you can’t use sugar-based ethanol as it is depleting forests and causing land-use change over time. How do you look at this issue?
JW: The use, largely in Brazil, of sugar cane to produce ethanol is reasonable. Since virtually all of the land which is well-suited and therefore utilized is in the southern part of the country, virtually no rainforest is cut to expand sugar cane production. The rainforest problem, as I understand it, stems from the fact that some types of palm trees well-suited to producing palm oil for biodiesel have been planted in Brazil and SE Asia after rainforests have been cut. We should try to discourage this – rainforests are an important part of the planet’s ecology.
CEI: How long will it take to develop cellulose-based ethanol via a sustainable and economically effective process? (Assuming that neither corn nor sugar are sustainable enough).
JW: It’s a big mistake to assume that ethanol has to carry the full load of being the only liquid fuel that can replace gasoline. See discussion of methanol above. Still, ethanol’s potential will be substantially enhanced once cellulosic ethanol is available from various waste products or crops such as switch grass. Bio-butanol, a drop-in fuel, may be available relatively soon as well. As I understand it these are now beginning to be available from pilot plants so progress is being made but not as rapidly as many had hoped. More importantly there are also available in prototype several improvements to the internal combustion engine to make fuels beyond the alcohol fuels usable at very affordable cost.
CEI: Is the OFS act a genuinely a bi-partisan bill?
JW: Yes. See the material on Open Fuel Standard on the Web Site of the US Energy Security Council (www.USESC.org). The bill was introduced in each house by two co-sponsors, one from each party. The bill is in Committee (House: Energy; Senate: Commerce). The House bill now has 12 co-sponsors from each party.
CEI: What is the state of play in the House and the Senate? When will it go for a vote? Is it in a queue?
JW: This depends on Committee action in both houses.
CEI: Does the presidential election mean that the whole issue will be shelved?
JW: We hope not. This is not a party matter. Giving drivers the option at the pump to use US-produced fuels such as methanol could transfer hundreds of billions of dollars to Americans and American companies annually, thus providing substantial economic stimulus to the US economy regardless of the outcome of the 2012 election.
CEI: If no, isn’t there a risk that you going to get tarred with the ethanol brush and in an election year isn’t that a dangerous strategy? If so, is this an issue for a new president to look at?
JW: Ethanol has disadvantages but nowhere nearly as many as gasoline. If consumers choose either methanol or ethanol at the pump the fuel they are buying has a high octane because it is preponderantly alcohol. Thus, unlike the case with gasoline, there is no need to add other octane enhancers such as the benzine, toluene, and xylene that now constitute about one quarter of what is in our cars’ gasoline tanks. These chemicals are highly carcinogenic and are heavily regulated when they are emitted from a stationary source such as a chemical plant. But if you don’t want to use ethanol to help us move away from spewing carcinogens out our tail pipes (see Gray and Varcoe, Texas Review of Law and Politics 2007) then use methanol instead. In order to back the status quo, where we are essentially forced to use gasoline, you need to stand against driver choice of fuel, which you can have for a few dollars’ modification to your car, and in favor of OPEC control over our gasoline prices and OPEC’s freedom to give us cancer. A hard sell for folks opposed to an open fuel standard, I would think.
Edie Lush is a journalist based in London. She has worked as an Associate Editor of Spectator Business Magazine, Director of the Intelligence Squared Green Festival on Climate Change, a political analyst for Hedge Fund Omega Partners and UBS and a reporter for Bloomberg Television.
Disclosure: We have no positions in related stocks.