A Corny Idea, Part II The Rude Awakening
Pittsburgh Pennsylvania
Friday, February 2, 2007 - The great ethanol debate continues,
- Some energetic energy calculations,
- Your market wrap returns and plenty more…
Eric Fry, who burns less alcohol than he drinks, reports… "Unsustainable subsidized food-burning." That's how David Pimental, a researcher at Cornell University, characterizes corn-based ethanol production.
"Ethanol does not provide energy security for the future," he says. "It is not a renewable energy source, is costly in terms of production and subsidies, and its production causes serious environmental degradation." According to Pimental's research, ethanol production actually CONSUMES energy. "The total energy input to produce one gallon of ethanol is 129,600 BTU," Pimental asserted in a 1998 research paper. "However, one gallon of ethanol has an energy value of only 76,000 BTU. Thus, a net energy loss of 53,600 BTU occurs for each gallon of ethanol produced. Put another way, about 71% more energy is required to produce a gallon of ethanol than the energy that is contained in a gallon of ethanol."
Over on the pro-ethanol side of this debate, a variety of industry experts dismiss Pimental's findings, while
insisting that ethanol production does yield a net positive quantity of energy, albeit a modest one. Even in the best of circumstances, however, corn-based ethanol production contains significant drawbacks. It does, in fact, consume food to produce fuel; but it does not, in fact, yield a tremendous amount of energy relative to the energy it consumes. In the column below, Byron King, the ever-provocative columnist for Whiskey & Gunpowder, fearlessly enters this debate. Specifically, he examines the Energy Return on Energy Investment (EROEI) of ethanol production. I know this might seem like a pretty boring topic, but it's actually quite fascinating. See for yourself… ---------------------------- A Corny Idea, Part II
By Byron King
Is ethanol a good investment?
For a corn farmer, yes. For an ethanol producer, maybe. For a national energy policy, probably not. For a long-term investor, unlikely. Let's dig a little deeper… Most investors have at least a basic understanding of the concept of Return on Investment (ROI). ROI is the ratio of how much money an investor gains or loses on an investment, relative to the amount of money invested. That is, you buy a stock for $100 per share, and sell it later for $110 per share, for a profit of $10 a share. In this example, the $100 you used to buy the stock is the "investment" and the $10 profit is the "return." So $10 is your "return on investment." ROI is an extremely valuable tool for calculating the degree of investment profitability. Ideally, you want to deploy your investment funds to the most profitable efforts, and certainly avoid the money-losing propositions. A similar concept operates in the world of energy production. That is, the concept of Energy Return on Energy Investment (EROEI) is the ratio between the amounts of energy you expend to obtain a resource, compared with the amount of energy you receive from that resource. Although the academic study of EROEI is, for the most part, of relatively recent vintage, EROEI is a fundamental sort of concept. EROEI has deep roots in the iron laws of thermodynamics, and the immutable realities of geology and biology. But despite its solid scientific basics, EROEI tends to be rather an alien concept to most policymakers, economists…and investors. The best way to keep it straight in your mind is to focus on the point that anything that requires or consumes more energy to obtain than it yields is not a practical energy resource over the long haul. At the most fundamental stage, when the EROEI of something becomes equal to or less than 1, that energy source becomes what is called an "energy sink." It can no longer realistically be used as a primary source of energy because it consumes more energy than it yields. For example, think about the energy that it takes to drill an oil well. It requires energy to manufacture the steel pipe and drill bits. It takes energy to construct and run a drilling rig. It takes energy to run the pumps that lift the oil from the well. And when you compare the energy value of the oil that comes out of the well, with the energy input to make the well, you can arrive at a general value for the EROEI for oil drilling. Many decades ago when most oil was found and extracted from near-surface, onshore fields, the EROEI for oil production was about 100-to-1. That is, for every unit of energy that went into an oil well, you pulled 100 units of energy out. This very favorable ratio is one reason why oil was so downright cheap for so many decades. Even today, with oil drilling occurring in remote locales and in deep waters, the EROEI for the world oil industry is estimated to be between 25- to-1 and 30-to-1. As the world's depleting oil reserves become trickier to locate and develop, oil's EROEI will certainly continue to fall. Ominously, for frontier exploration over the past decade, EROEI has been estimated as low as 8-to-1. But guess what? 8-to-1 is still about three times higher than the most flattering estimates of ethanol's EROEI. Chemically speaking, ethanol is a form of alcohol based on the ethane molecule, containing two carbon atoms. As opposed to methanol, commonly known as wood alcohol, ethanol is the kind of alcohol that you can drink (but not to excess, please.) Ethanol has a relatively high energy density, although it only has about 60% of the energy density of standard gasoline. Still, you can burn ethanol in a properly modified automobile engine, up to and including NASCAR racers. And ethanol can be handled, transported and distributed relatively safely, without the need for expensive and heavy cryogenic or high-pressure systems, which are required for gaseous fuels like methane gas, propane or butane. And ethanol, say some promoters, is a "renewable fuel." This usually assumes that the ethanol is produced from fermented biomass such as corn in the U.S., or sugar cane in Brazil. But upon closer inspection, "renewable" seems like a gross misnomer. The EROEI for corn-based ethanol, produced in the U.S., has been estimated at anywhere between .8-to-1, or below the break-even point, and the slightly energy-positive 2- or 3-to-1, depending upon who is doing the calculating. Even if you concede the highest ratio, it is clear that producing ethanol from corn provides about only one-tenth the EROEI of current oil drilling (3-to-1 for ethanol, versus 30-to-1 for oil drilling). And the higher EROEI estimates for ethanol tend to discount the need to use oil- and natural gas-based inputs for corn farming, such as for tractor fuel, fertilizer, transportation and process heat for manufacturing the ethanol. You need more than just fresh air and sunshine to grow corn. And if conventional, fossil fuel-intensive U.S.
agriculture is the basis for growing corn, then what currently passes for "renewable energy" production is really more of an "energy trade." In particular, oil and natural gas are used in great quantity to grow and harvest corn, which is then converted to ethanol. So at the end of the process we are merely trading one form of non-renewable fossil fuel for the illusion of another, so-called renewable kind of fuel. The claimed environmental and long-term sustainability advantage of corn-based ethanol in the U.S. is simply not going to be realized because, viewed as a system, the net result is a negative fuel balance. Brazilian ethanol, on the other hand, is estimated to have a rather respectable EROEI of 7- or 8-to-1, and even up to 15-to1. This is because Brazil produces ethanol from high-yielding sugar cane, in a tropical climate, using an agricultural system that is far less dependent on fossil fuel inputs than is the case in the U.S. Brazil has been developing its ethanol industry for over 30 years, and the EROI has improved over time, as Brazilian agronomists and technical personnel have gained knowledge in the field. The bottom line is that corn-based ethanol does not "save" all that much oil or natural gas, and may well be a one-for-one trade in terms of net energy produced. The U.S. is not gaining anything by focusing on the manufacture of corn-based ethanol. By throwing resources into corn-based ethanol, the U.S. will not supplant its dependence on foreign oil, nor produce a truly viable, large-scale alternative to gasoline consumption. Investor beware. Joel's Note: Regardless of ethanol's future, the recent past in the corn market has seen many a profit opportunity for nimble investors…nimble investors like Kevin Kerr. Last year Kevin played corn options four times, finishing up 110%, 16%, 50% and 70%. How did he predict these early moves? Find out his secret here… Kevin Kerr's Trading Tactics --- Straight From the Trading Floor --- A Secret $200 Million Profit "Blueprint" Anyone Can Follow… Using the same profit "blueprint" that turned a pizza boy's pitiful $400 stash into over $200 million… See how one of the world's most famous young resource traders wracks up gains as high as 379%, 396% and 516%, in as little as 12 days… 
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