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Do We Still Need Alternative Fuels?

alternate fuel needs

As the Obama administration struggles to come up with a solution to the dysfunctional renewables fuel standard (RFS), many in the industry are asking the question: do we actually need alternative fuels? In this blog, I tackle that question from the standpoint of a person who believes that the shale oil and gas revolution is real and can deliver sustained supplies for the next decade and beyond.

This week in Iraq saw a further escalation in hostilities where conflicts centered on the grab for oil and gas assets. On July 11, Kurdish military forces secured a set of oil fields near Kirkuk and thereby prevented the Iraqi Central government from disrupting the Kurdistan Regional Government’s new independent oil pipeline export spur to Turkey. The move followed news reports of a struggle for control of the Baiji refinery in Northern Iraq following attacks by the militant group, the Islamic State of Iraq and Syria (ISIS) and ISIS’ capture of much of Syria’s oil production capacity. Even though the escalation of conflicts in the region has not spread to Southern Iraq where the majority of oil output is located, the exit of technical personnel from Western, Russian and Chinese oil companies active in the restoration of production, there is likely to impact negatively Iraq’s progress in restoring and maintaining any rising oil export flows. It is also a good assumption that the sectarian violence erupting across the Middle East will spread beyond Iraq and Syria and could impact oil assets elsewhere as localized sectarian populations demand a larger financial cut of the resource deposited under their feet as is already apparent in Libya and Nigeria.

If a major oil disruption did take place in the Middle East, US tight oil will provide some relief but the United States is still importing 40 percent of its oil supplies. If a major disruption takes place, even the small marginal supplies coming from biofuels won’t seem as inconsequential as it might in normal times. Biofuels are expected to be 10% of the U.S. fuel supply chain by 2030, up from 5% currently, according to research by the University of California Davis Institute of Transportation Studies (ITS). The possibility of natural gas trucks, which Citi estimates could remove as much as 9 million b/d of diesel fuel demand, may also become instantly compelling, were exportable oil harder to come by. In a situation where oil was temporarily in short supply, these alternative fuels will be a critical marginal supply substituting for oil, even if tight oil supply might be increased over time.

Environmental factors also play a role in what is likely to be a bigger push over time for alternative fuels. Air pollution is a major concern both in major US metropolitan areas and in major developing markets like China and India.  Even European drivers are starting to question the advantages of the shift to diesel fuel on the basis of urban air quality concerns.

Last week’s Supreme Court decision to decline an appeal on the constitutionality of California’s Low Carbon Fuel Standard (LCFS) is further evidence efforts to block policies to bring alternative fuels to market  are missing the big picture.  Geopolitical unrest and severe weather will continue to disrupt fuel supply chains, perhaps more dramatically in the future, and the public will demand a response. To date, some of California’s largest refiners have said they will buy alternative fuels as they become available but don’t think returns are sufficient to make their own investments in their development. Consumers may take a more substantial changes next time gasoline prices spike following a prolonged, 1973-style outage, leaving the US refining industry with a more permanent loss in demand for gasoline and diesel fuel over time.

Already, Millenials are more inclined to favor alternatives such as ride sharing and living densely. These new patterns could gain more momentum if war or other disasters or simply congestion reduce the utility of individual oil-based car ownership in U.S. urban areas. Instead of buying cars and fuels, we could see a major transformation in how transportation services are delivered and priced in the next several decades. We discuss these transformations on a new blog page at University of California Davis.

There is strong evidence that other fuels could pick up the slack for the LCFS where cellulosic ethanol might be failing, including renewable diesel, electricity, natural gas in trucking, and other biogas/biofuels alternatives. The intention of the LCFS is to promote investment in these alternatives without picking winners, and hopefully, in its wake ultimately lower prices for fuels, and create alternatives for consumers. To date, the LCFS is driving fuel shuffling with sugar and sorghum biofuels and cleaner biodiesel being shipped to California to gain LCFS credits and higher carbon U.S. based corn ethanol and more carbon intensive biodiesel being used elsewhere in the United States, and not in California. However, besides encouraging bio-digester and waste-based biofuel start-ups, the LCFS requirement has succeeded in incentivizing major players to venture into alternative fuels, including: Waste Management, Clean Energy, and Southern California Gas Company. These companies, among others, are actively investing in new natural gas or biogas fuels and fueling infrastructure in the state.

Just as the oil industry benefitted from complying with the clean air rule in the 1980s, by increasing its productivity and profitability, so a broadening of alternative fuels investment will best position companies for a more resilient future that will include a large number of unpredictable uncertainties involving reliability of feedstock supplies, infrastructure security, a growing future appetite for environmental regulation on air quality worldwide (if not carbon), and changes in consumer lifestyles and preferences.

Computing power and innovation have been driving dramatic change across other industries. The refining industry is not likely to be an exception. Changing consumer preferences and government policies aimed to reduce pollution and enhance energy security are gaining momentum. This will spell dramatic adjustments also to gasoline and diesel markets, giving the oil industry impetus for innovation and new strategies. In those circumstances, companies that have alternative fuel portfolios might outperform those sticking with traditional refined products.

Photo Credit: Alternative Fuels and Energy Needs/shutterstock

Content Discussion

Ed Dodge's picture
Ed Dodge on July 15, 2014

Just returned from the EIA conference in Washington DC. The main story line was the boom in tight oil and shale gas rewriting the global energy outlook. Industry is just getting started. Today’s technology is only extracting 5% of the oil in the fields and there is still very little understanding of the resevoir dynamics. And while the USA is leading the way there are shale fields all over the world. Its a Brave New World.

Roger Brown's picture
Roger Brown on July 16, 2014

Besides natural gas what althernative fuel exists that has any real legs? I do not see biofuels or hydrogen/ammonia from electrolysis as being competitors with oil until after a lot of economic destruction has taken place. Furthermore biofuels for anything more than small niche applications is proably an environmental disaster.

Clifford Goudey's picture
Clifford Goudey on July 17, 2014

Yes, everything looks rosie in the medium term if and only if you ignore the role of fossil fuel combustion on CO2 emissions and global warming. 

Bob Bingham's picture
Bob Bingham on July 17, 2014

You need to factor climate change into the future. We have put a massive pulse of CO2 into the atmosphere by burning fossil fuels and have raised the CO2 level from 280 parts per million to 400 parts per million and it is still going up at two points a year. This will raise the temperature 2C, causing huge disruption to food production and raise the acidity of the oceans.  http://www.climateoutcome.kiwi.nz/climate-threats.html

Spec Lawyer's picture
Spec Lawyer on July 17, 2014

Amy Myers Jaffee should never be listened to.  This is what she wrote in 2000:

Oil prices have been flirting recently with $25-$30 per barrel, levels almost reminiscent of the oil shocks of the 1970s. Rising energy prices have been accompanied by the usual hysteria about dwindling supplies and potentially dangerous transfers of wealth, tempting policymakers to consider ways of dealing with a coming oil crisis. But contrary to much received wisdom, the energy problem looming in the early 21st century is neither skyrocketing prices nor shortages that herald the beginning of the end of the oil age. Instead, the danger is precisely the opposite; long-term trends point to a prolonged oil surplus and low oil prices over the next two decades.

 

Yeah, how’d that work out for you, Amy?  And you write this article without even mentioning climate change?   How much does the oil & gas industry pay you?  Sheesh.

Spec Lawyer's picture
Spec Lawyer on July 17, 2014

Amy Myers Jaffee should never be listened to.  This is what she wrote in 2000:

Oil prices have been flirting recently with $25-$30 per barrel, levels almost reminiscent of the oil shocks of the 1970s. Rising energy prices have been accompanied by the usual hysteria about dwindling supplies and potentially dangerous transfers of wealth, tempting policymakers to consider ways of dealing with a coming oil crisis. But contrary to much received wisdom, the energy problem looming in the early 21st century is neither skyrocketing prices nor shortages that herald the beginning of the end of the oil age. Instead, the danger is precisely the opposite; long-term trends point to a prolonged oil surplus and low oil prices over the next two decades.

 

Yeah, how’d that work out for you, Amy?  And you write this article without even mentioning climate change?   How much does the oil & gas industry pay you?  Sheesh.

Spec Lawyer's picture
Spec Lawyer on July 17, 2014

Electricity.   Tesla Model S, GM Volt, Nissan Leaf, BMW i3, VW eGolf, Fiat 500e, Ford Focus Electric, Chevy Spark EV, etc.

Nathan Wilson's picture
Nathan Wilson on July 17, 2014

Well, natural gas could be really big in the US.  It wholesales for around a quarter the cost of oil, so even if today’s prices don’t last, it is still likely to be the most economical option.

But the cost challenge that faces hydrogen and ammonia from electrolysis is a developed world problem.  In China and India, sustainable electricity is half the cost that it is here.  Once the technology gains a toe hold there, it could eventually become dominant.

I agree biofuels are not environmentally friendly when scaled up for the needs of our energy-intensive lifestyles.  They would remain objectionable, even if we could reduce our liquid fuel use 3x using EVs and efficiency improvements.

Paul O's picture
Paul O on July 17, 2014

“Spec Lawyer”. Not withstanding her alleged or real past predictions, I would sooner and rather listen to what Amy has to say, and then decide whether she is credible or not based on what she has said, than listen to people like you who Spit Out the same tired old attack typically seen on “Green” websites.

At least you avoided calling her a “shill”, which was the tired old buzz word from “greenies”.

Spec Lawyer's picture
Spec Lawyer on July 18, 2014

I provided you with material that she said so you can judge for yourself.  Is that so hard?

Please . . . go ahead and read her full article entitled “The Shocks of a World of Cheap Oil”

Here are some more of her great words of wisdom:

The high probability of oil prices in the $12-$20 range over most of the next two decades will condemn to a perilous future the arc of instability along the southern rim of Eurasia — from the Balkans to the Caucasus and Central Asia and maybe the Persian Gulf as well. 

I’m really enjoying this great $12 to $20 oil, aren’t you?  BTW, I love childish insults.  Thanks.

Paul O's picture
Paul O on July 18, 2014

Certainly, I’ll read her past statements. I’ll probabaly be amused or maybe even bemused. However I still won’t condone what you are doing.

 Amy will not be the first person to make wrong predictions, but if you want to castigate her for that you should be doing the same for other energy/climate change writers, an example that comes to mind is Amory Lovins of The Rocky Mountain Institute.

In any case, all that is irrelevant, I still demand the right to hear what she has to say here, now, today, on TEC.

Clifford Goudey's picture
Clifford Goudey on July 18, 2014

“you should be doing the same for other energy/climate change writers …..”  How do you know he doesn’t?  I find the criticism spot on, particularly that she could write an article that neglects its title and fails to present why there is good reason to need alternative fuels.  It’s not so much the faulty predictions, rather its the obvious neglect of reality upon which they teeter. 

Paul O's picture
Paul O on July 18, 2014

Frankly if you think his criticism is spot on Good For You, I don’t.

I still want to hear what she wants/has to say, and I don’t want anyone trying to hush her up.


 

Spec Lawyer's picture
Spec Lawyer on July 18, 2014

Please explain how me providing additional words that she said is “trying to hush her up”.  Seems a bit contradictory to me.

Spec Lawyer's picture
Spec Lawyer on July 18, 2014

No, actually there is very little H2.  Hydrogen is mostly chemical bonded to other elements such that we need to expend energy to free it.  The vast majority of synthesized H2 is made by steam-reforming methane such that any hydrogen powered system is effectively a natural gas powered system.