Why Oil &Gas Prices are High in 5 Pictures (Updated)

Update: British Petroleum (BP) has released an excellent 2 minute overview using pictures of what's occurring in world energy markets on YouTube. Also, World oil prices (Brent) have dropped to $89 per barrel. ⁽¹⁾

History: After decades of stable oil prices, beginning in the early 2000's the combination of several drivers have fundamentally changed global oil markets: (1) Ongoing war and political unrest in the Middle East; (2) Devaluation of the U.S. Dollar; (3) A dramatic increase in world oil consumption from developing economies; and possibly, (4) The unprecedented levels of money flowing into oil speculation markets since banking deregulation.

Devaluation of U.S. Dollar: Beginning with President Bush's Administration (in 2002) and continuing under President Obama, a significant devaluation of the U.S. dollar has occurred. With currency devaluation the cost of imports (such as oil) increases. In simplistic terms (all things being equal), ~33% of the increase in the price of gasoline could be explained by currency devaluation. Increased Demand for Oil from Developing Economies: A major driver in higher oil prices is/will be the continuing dramatic increase in oil demand from developing countries such as China and India -- something that no President has any control over. Oil Futures: If you don't understand financial futures/derivatives, don't feel alone. When Warren Buffet was asked about what he thinks of derivatives he responded, "I don't understand them". For most people, an opinion on futures trading will depend on which Tribe they belong to (Democrats believe they should be regulated better, Republicans are anti-regulation). While the impact on oil prices from futures trading may be unclear, one fact is crystal: Their use exploded in the early 2000's after banking de-regulation (where now ~60% to 70% of trading volume is by financial institutions). But the above chart is just the tip of the iceberg, where the vast majority of futures trading is unreported (OTC markets). The problem is the lack of transparency/disclosure -- nobody really knows or can know if excessive speculation is occurring.

Can We "Drill Baby Drill" to $2 Gas?: A central theme in this year's election campaign rhetoric on high gas prices is supposedly simple Econ 101 -- Supply and Demand. Under this argument, if environmental regulations were reasonable allowing more oil drilling, the increased supply would reduce the price of gas to a $2 range. Since the economics are so simple, we should be able to just look at the pump price savings in Canada -- as they produce much more oil than Canadians consume. But Whoops! -- gasoline prices in Canada exactly track those in the U.S.

Conclusion: While there are numerous benefits of increasing domestic oil production (e.g., creation of good jobs, greater energy security, improving the U.S. trade deficit) -- expectations of meaningful reductions in oil and gas prices isn't one of them. Simply stated, gasoline prices will always be driven by the world price of oil (an internationally traded commodity).

Extra Credit: If you want to be an A+ Student on market drivers for oil and gasoline prices, read this article from the Canadian "Oil Patch". The reason oil exploration is currently booming in Canada and the U.S. is because of high prices. For example, extracting oil from tar sands (the source of the Keystone project) can cost up to $40 per barrel. Without high oil prices, tar sands would not be economic compared to Middle Eastern oil (which costs 50� to $2 per barrel to extract).

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Simulation is the best way to allocate trucks to shovels in open-pit mine operations

1. The problem

Efficient open-pit mine operations maintain a steady ore feed to the extraction plant (the �bottleneck� as stated in one of my previous postings in this BLOG). This can be guaranteed by allocating sufficient resources (trucks and shovels) to the appropriate circuits. Since hauling represents 50% or more of the total operating costs, economic penalties are incurred when extra resources are assigned. Therefore, an important operational objective is to feed the plant with minimum resources. 

To do this, a two-stage problem is usually formulated:

1. Allocation: Trucks are assigned to shovels according to performance variables of the shovel, desired production levels, and truck cycle times. Successful truck allocation can have a significant impact on the overall performance of the mine. The allocation process is based on historical information and is performed usually at the beginning of each shift.
2. Dispatching: Is a real-time decision making process that dynamically allocates trucks in response to unexpected events or changes in the planned scheme.

Cycle times play an important role in truck allocation and refers to the sum of: travel time from the dumping point to shovel, waiting time at the shovel, loading time, and travel time from the shovel to the dumping point. Due to the inherent variability of mining operations, cycle times are stochastic in nature. To mitigate the risk of not meeting the ore demand due this variability, mine managers often assign extra trucks to haul ore material. This inefficient approach generates long truck queues throughout the mine. As well, when fewer trucks are available for hauling waste material the overall mine planning is negatively affected.

So, the allocation problem can be stated as: �Given a number of available trucks at the beginning of the shift, how to allocate them to have a steady ore feed to the processing plant and to maximize the waste removal.�

2. The usual solutions

Typically, dispatchers allocate trucks at the beginning of the shifts based on historical data and experience. This heuristic approach is inefficient since it relies on the dispatchers' experience, which varies among shifts. On the other hand, many authors affirm that initial truck allocation can be improved by using mathematical programming. There are two main methods proposed: deterministic and stochastic.

Multiple problems arise when using these approaches:

• It is quite difficult (in my opinion almost impossible) to state an accurate mathematical model to represent mine operations.
• Most of the assumptions made to build these models are unrealistic and tend to oversimplify the reality.
• Truck allocation can only be implemented using a discrete number of trucks, and therefore fractional results are not acceptable. Approximations of these fractional results can make the solution non-optimal or unfeasible. As well, integer programming can make problems computationally intractable.
• Deterministic approaches do not include the inherent variability of mining processes (average cycle time is used to state deterministic problems). Random changes due to variability can make the deterministic optimal solution non-optimal (and in some cases unfeasible!)
• It is not always clear if working with stochastic programming will provide an appreciable benefit as a worthwhile trade-off for its complexity. Stochastic programming typically demands heavy computer resources, particularly if there are many realizations to be evaluated.
• In both cases, there is no assurance that the model will converge to the optimum solution within a reasonable number of iterations.

3. The usual suspects: normal and exponential distributions

Typically, stochastic truck allocation models are formulated based on the following assumptions in regard with the variables (e.g. truckloads, cycle times, loading times):

• are normally distributed (models based on �queuing theory� assume that service times are exponentially distributed),
• have known standard deviation, and
• vary independently from each other.

These assumptions make models simpler to be stated and computationally tractable. Most textbooks and papers present these neat formulations without questioning the validity of the assumptions.

The problem is that these distributions (i.e. normal and exponential) have no relation at all with what happens in the reality! Indeed, the range of a normal distribution is from positive to negative infinity. To my understanding there are not negative times . . . are they?

As well, the assumption that all variables are independent it is not true since there is always a certain degree of correlation among them.

Finally, there is no reason to expect that real-world stochastic processes vary in accordance to some theoretical distribution. Those who are familiarized with distribution fitting know that sometimes a triangular approximation is needed, or a empirical distribution is the best alternative. There is no way to mathematically model these situations without doing the above detailed unrealistic assumptions.

4. Computer Simulation: the right tool to decide truck allocation

Is there a way to decide truck allocation in a more accurate and efficient way? The answer is YES!

Computer Simulation has been widely used to produce experimental data for validating and evaluating different operating policies and dispatching algorithms without interfering in the real mine operations. As well, computer simulation can be used for a careful evaluation of possible combination of shovels and trucks in order to achieve minimum production costs and reduce capital expenditures.

Depending on the completeness of the simulation model, mine operations can be digitally imitated with great accuracy without the need of making unrealistic assumptions. One of the most important aspects of simulation, is the reliability of the results produced! In particular, let suppose that we have a comprehensive simulation model that imitates the real mine operations in a highly accurate way. Let�s assume as well that the model has been properly validated and calibrated and it is ready to use. Can we use this model to find the best truck allocation? Again, the answer is YES.

The simulation model can be used to test different allocation schemes and find the most appropriate one, considering the whole variability inherent to mine operations (e.g. loading times, equipment down time, travel times).

HERE you can find an example of a standardized and highly efficient model that can be adapted to any mid-size mine. This model has a built-in �optimizer� that performs an �intelligent search� among different allocation configurations to find the best one.

In conclusion, truck allocation plays an important role in reducing the operational costs in open-pit mine operations and maintaining a steady ore feed to the extraction plant. Different ways to perform truck allocation can be used ranging from manual allocation (using the dispatcher�s experience) to allocation assisted by complex mathematical programming. Usually these mathematical models are stated based on unrealistic assumptions that prevent them to achieve the right results. Computer simulation can help us in this endeavour by accurately imitating the real operations including all the variability. Finally, the good news is that SmartSimulation has a very comprehensive simulation model that can accurately find the best truck allocation!

Rene Alvarez, IE, MEng
www.SmartSimulation.ca
 

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Current Ethanol Vs. Gas Prices (May 25, 2012)

Ethanol Vs. Gas Price

Tracking gasoline prices versus ethanol prices. The pink line is the commodity price of ethanol (which has less efficiency than gas, E-0). The green line line adjusts for this lower efficiency, allowing an "Apples to Apples" comparison with the commodity RBOB price of gas (the blue line). The red line is the average retail price of gasoline in U.S.

As of May 25, 2012 -- ethanol (adjusted for efficiency) is 8� per gallon higher than gasoline on a wholesale price comparison. However, since most gasoline contains only 10% or less ethanol (E-10), this price differential at the pump is currently eight tenths of a penny (.8�).

Current Retail Gasoline Prices by Region Data Sources:
Per numerous Sources (DOE, EPA), E-10 (10% ethanol) has ~3% less efficiency than E-0 (zero ethanol). Ethanol on a "net basis" has less BTU content, but higher octane.

-- Wholesale Ethanol prices (pink line) are from the Chicago Board of Exchange.
-- Wholesale Gasoline prices (blue line) are from the Chicgo Board of Exchange.
-- Retail Gasoline prices (red line) are from Bloomberg's survey of national gas prices.

-- Real Time Daily Trading Data on energy products.

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Current Ethanol Vs. Gas Prices (May 11, 2012)

Ethanol Vs. Gas Price

Tracking gasoline prices versus ethanol prices. The pink line is commodity price of ethanol (which has less efficiency than gas, E-0). The green line line adjusts for this lower efficiency, allowing an "Apples to Apples" comparison with the commodity RBOB price of gas (the blue line). The red line is the average retail price of gasoline in U.S.

As of May 11, 2012 -- ethanol (adjusted for efficiency) and gasoline are exactly equal ($3.00) on a wholesale price comparison.

Data Sources:
Per numerous Sources (DOE, EPA), E-10 (10% ethanol) has ~3% less efficiency than E-0 (zero ethanol). Ethanol on a "net basis" has less BTU content, but higher octane.

-- Wholesale Ethanol prices (pink line) are from the Chicago Board of Exchange.
-- Wholesale Gasoline prices (blue line) are from the Chicgo Board of Exchange.
-- Retail Gasoline prices (red line) are from Bloomberg's survey of national gas prices.

-- Real Time Daily Trading Data on energy products.

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Current Ethanol Vs. Gas Prices (5/04/12)

Ethanol Vs. Gas Price

Tracking gasoline prices versus ethanol prices. The pink line is commodity price of ethanol (which has less efficiency than gas, E-0). The green line line adjusts for this lower efficiency, allowing an "Apples to Apples" comparison with the commodity RBOB price of gas (the blue line). The red line is the average retail price of gasoline in U.S.

As of May 4, 2012 -- ethanol is about 16� per gallon more expensive than gasoline on a wholesale price comparison.

Data Sources:
Per numerous Sources (DOE, EPA), E-10 (10% ethanol) has ~3% less efficiency than E-0 (zero ethanol). Ethanol on a "net basis" has less BTU content, but higher octane.

-- Wholesale Ethanol prices (pink line) are from the Chicago Board of Exchange.
-- Wholesale Gasoline prices (blue line) are from the Chicgo Board of Exchange.
-- Retail Gasoline prices (red line) are from Bloomberg's survey of national gas prices.

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Current Ethanol Vs. Gas Prices (4/20/2012)

Ethanol Vs. Gas Price

Tracking gasoline prices versus ethanol prices. The pink line is commodity price of ethanol (which has less efficiency than gas, E-0). The green line line adjusts for this lower efficiency, allowing an "Apples to Apples" comparison with the commodity RBOB price of gas (the blue line). The red line is the average retail price of gasoline in U.S.

As of April 20, 2012 -- ethanol is about 8� per gallon cheaper than gasoline on a wholesale price comparison.

Data Sources:
Per numerous Sources (DOE, EPA), E-10 (10% ethanol) has ~3% less efficiency than E-0 (zero ethanol). Ethanol on a "net basis" has less BTU content, but higher octane.

-- Wholesale Ethanol prices (pink line) are from the Chicago Board of Exchange.
-- Wholesale Gasoline prices (blue line) are from the Chicgo Board of Exchange.
-- Retail Gasoline prices (red line) are from Bloomberg's survey of national gas prices.

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Is it possible to accurately estimate production in mining operations?

1. Mines are �Complex Systems�

Mine operations consist of multiple �stochastic dependent processes� interconnected through a wide range of complex relationships. 

Let�s analyze this proposition.

1.1. Mining processes are stochastic in nature

Variability is inherent to mining operations. Each mining process is subject to variability. Examples of this inherent variability are:

• Time to load truck 'A' is not equal to the time to load truck 'B'. 
• Travel time between an extraction point and the crusher, varies for the same truck �A� during the day. 
• Even if trucks �A� and �B� are of the same model type, travel times are different for the same pair origin-destination.
• Big particles generate unplanned stops at the crusher. These stops generate uneven conveyor loading rates.

In the presence of variability delays, slowness, and lags in production appear.

1.2. Mine processes are 'dependent events'

As in many production environments, mine operations are composed by a sequence of interconnected dependent processes. Let�s consider the following sequence: 

Extraction ? Truck loading ? Transportation ? Truck unloading ? crushing

Upstream delays due to variability will negatively affect flow and generate lags downstream. For example, delays in the truck loading process will delay the arrival of loaded trucks to the crusher.

1.3. Complex interrelationships

Operation managers know how difficult mine operations are. Synchronizing the different processes is a complex endeavor. Examples of this complexity are:

• The same truck �A� could serve different pairs origin-destination during the same day
• Crusher operation is highly dependent on the rock fragmentation process
• Unplanned truck downtime affects the dispatch process
• Unplanned crusher stops generate truck lines at the crusher, and could reduce shovel�s utilization upstream

2. Aggregate Variability of the Mine as a �System�

Mine production as a whole, also presents statistical fluctuations so-called 'Aggregated variability'.

2.1 Why we need to know the aggregate variability?

For planning, budgeting, and control purposes, operations managers need to estimate the production volume for a given period of time (e.g. month, year). 

Due to the existence of aggregate variability production volumes could take on multiple values. In other words, it is a random variable with an unknown probability distribution.

Being a random variable, we cannot calculate/estimate production volumes with 100% certainty. A typical approach is to use averages to make this estimation. There are two important problems with this approach: 

• Using averages totally ignores the presence of variability throughout the system, and
• The average is only one of the infinite possible values that this random variable can take on.

2.2. How to calculate the aggregated variability?

Unfortunately, the aggregated variability is not equal to the sum of the variability in each of the dependent processes. As well, it is almost impossible to develop an analytical or mathematical model to represent mine operations. To calculate the aggregate variability, it is necessary to use sophisticated computational tools such as 'Computer Simulation'.

2.3 How Computer simulation works?

Computer simulation consists in developing a computational model of the mine. The model is composed of a set of entities. These entities represent elements of the mine (e.g. trucks, shovels). Each entity has its own characteristics and could be tracked during the simulation. Entities are interconnected through a series of hypotheses about the mine operations expressed as mathematical, logical, and statistical relationships among them.

Processes are represented through probability distributions. Therefore, during the simulation, a single process could take on different values. In order to allow the model to generate these random values, data collection in the field is necessary. Based on the collected data, the modeler fits probability distributions and populates the model with them. In this way, during each run the model replicates the real operations using the same variability observed in the reality.

For example, when simulating the truck loading process, the 'entity truck' is positioned near to the 'entity shovel'. The model generates a random loading time keeping the truck near the shovel for this simulated time. The model also generates a random value to simulate the tons of material to be loaded in the truck. This value will be stored in the 'entity truck'.

The model is capable of recording and storing a large number of data, allowing the modeler to process it when the run is completed. 

The model should be validated and calibrated to accurately represent the reality. Once calibrated and validated, the model can be used to estimate the aggregate variability of the process. To do this it is necessary to run the same scenario multiple times. Modern computers allow the modeler to run long periods of time in seconds. This means that a year can be simulated many times in a few minutes.

Each run will generate one value for the production volume. Collecting these values for a series of runs, allows the modeler to build a probability distribution. Using this distribution, different statistical analyses can be performed (e.g. confidence intervals).

Simulation models can also be used to perform experiments in order to fully understand the system performance and evaluate different operational strategies.

HERE you can find more information about a comprehensive mine simulation model.

3. In Summary

Due to the inherent variability of mining processes, aggregate variability appears making it difficult to estimate the production level for a given period of time.

Averages hide and ignore the presence of variability throughout the system and therefore lead to errors when used to estimate production levels.

So, is it possible to accurately estimate production in mining operations? The answer is yes. The use of computer simulation is the appropriate way to do it.

Rene Alvarez, IE, MEng

www.SmartSimulation.ca

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Where should the 'bottleneck' be located in mine operations? . . . crusher conveyor, shovels, trucks?

What is a bottleneck?

A 'bottleneck' is a stage of the production chain (a sub-process), that constraints the throughput of the whole process. Its capacity is smaller than the capacity of the up-stream and down-stream sub-processes.

Why bottlenecks appear?

When a process has no variability (as in bottling lines) there are no bottlenecks. However, in the presence of variability bottlenecks constitute an inevitable fact. It is the nature of the beast!

Bottlenecks appear every time there is a process composed by Dependent Stochastic Events . . . as in mining!

There is a number of reasons why there are bottlenecks in a production chain:

• Inadequate design/planning 
• Unplanned events that constraint the production 
• The inherent variability of the processes 

Since bottlenecks are a fact of the reality, we have to learn how to deal with them.

Are bottlenecks a bad thing?

We use to think that bottlenecks are a bad thing. Often the word 'bottleneck' has a negative connotation in our minds. However, in production systems the 'bottleneck' plays an invaluable dual role.

1. it sets the production pace, and 
2. it allows the manager to program the operations by subordinating everything to the bottleneck. 

In summary, bottlenecks are NOT a problem. Bottlenecks are a FACT of the reality!

Should we eliminate the bottlenecks?

Mining operations are not bottling production processes. Inherent variability in each sub-process (e.g. loading, unloading, transportation) is present all the time.

When trying to achieve the goal of 'no bottlenecks', what happens is that 'floating bottlenecks' appear. Managing moving/floating bottlenecks in mining is a nightmare!

A simple example will help us to understand this: let's simulate a process line composed by four sub-processes. Processing times in each sub-process is simulated using dice. Since the variability in this case is big (1 to 6), a bottleneck will appear in the line. Since capacity and variability are equal for all the 4 stations (1 die), you will see that the bottleneck moves from one sub-process to other over time: 'floating bottlenecks'.

This proves that trying to 'balance the capacity' in en each of the sub-processes to 'eliminate the bottlenecks' is futile. The reason: variability.

The good news is that mining operations are easier to manage when having a bottleneck. Indeed, the manager can synchronize the operations by planning for the 'bottleneck' and subordinating the rest of the processes to it.

In summary, the bottleneck CONTROLS the system's flow.

Where to locate the bottleneck?

I think that the location of the bottleneck is a strategic decision.

For example, if the decision is to have the truck fleet as the bottleneck, it will become very difficult to synchronize the operations to achieve a smooth production.

Some argue that the bottleneck should be located at the operational point where the capital cost to rectify that bottleneck becomes uneconomic. Most mines will got through a series of operational modifications to increase the bottleneck capacity until such a point is reached.

An expert told me once: "The only commanding process at the mine should be the processing plant capacity. Everything else should be driven by that capacity" . . . and I totally agree!


I often suggest managers should locate the bottleneck in the crusher at the entrance of the processing plant, and program the rest of the sub-processes in a way that the crusher is fed as smoothly, uniformly, and continuously, as possible.

The reason is simple: since there are always other operations inside the mine which are different from the ore feed (e.g. site preparation, stock), you will always have extra resources when needed (e.g. trucks).

Should all processes in the mine be busy all the time?

Having all resources busy at all time should not be the goal. The goal should be having the bottleneck busy all time! 

Since by definition all other resources/sub-processes in the mine have more capacity than the bottleneck, if you keep them busy all the time, no synchronicity will be achieve and lines/overstock will appear all over the place.

How to administrate the bottleneck?

Managers should put emphasis in augmenting the capacity of the bottleneck, and reduce its variability. To reduce the variability Six-sigma & TOC tools work at its best!

Remember what Dr. Eli Goldratt said: "an hour lost on a bottleneck is an hour lost to the whole plant". 

On the other hand, if you increase the capacity of a resource up-stream from the bottleneck, you will get over-stock. 

Finally, if you increase the capacity of a sub-process downstream from the bottleneck, nothing will happen!

A VP of Operations complained that "we doubled the transport capacity, but we are loading dirt onto the trucks". Well, in his case the transport capacity was not the bottleneck . . .

In summary:

1. Decide where to locate the 'bottleneck' 
2. Program the operations in such way that the 'bottleneck' is working smoothly at maximum capacity 
3. Take measures (using continuous improvement techniques) to reduce variability and increase capacity in the 'bottleneck' 

How can I plan the production in the presence of bottlenecks?

Planning the system's flow is simpler if you 'plan the flow at the bottleneck' and make the whole system to be synchronized with it!

Eli Goldratt describes this process as 'Drum-Buffer-Rope'. I can summarize it as follows: Let the bottleneck set the pace of the production and let the rest of the sub-processes work full capacity ONLY when it is required by the bottleneck. The rest of the time they should be ready to produce but idle in order not to waste resources and generate overstock. This is know as the road-runner rule.

Can Computer Simulation aid in planning the operations?

Totally! SmartSimulation has developed a computer simulation program to help managers in planning mine operations and test different scenarios. Computer simulation becomes a powerful tool to analyse different production scenarios, and to decide where to locate the bottleneck.

More information can be found HERE.

Rene Alvarez, IE, MEng

www.SmartSimulation.ca

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Why We Need U.S. Produced Ethanol (Part 1)

Energy Policy

Currently a "War on Ethanol" is being conducted primarily by Tea Party Republicans to "Get big government out of America's gas tanks". Examples include: U.S. Rep. Goodlatte (R-Va.) to completely eliminate the National Renewable Fuel Standard, and State Representative Matt Gaetz (R) to eliminate ~10% ethanol blending with gasoline in Florida. Recently, a FOX TV station in Orlando reported that they asked people on the street, and found very little support for ethanol use in Florida.

Really, nobody can make a lucid argument anymore why U.S. produced ethanol is important? Are Fox News and Rush Limbaugh types right that its all about the Green, Global Warming Agenda by Obama to create a New World Order of Socialism? Are ethanol requirements all about Big Government trying to take away personal liberties? Is it about Government intervention into "Free Market Capitalism" to pick winners and losers?

Lets see if we can help out a little. Does anyone vaguely remember something that happened on 9/11/2001, where 15 of the 19 Terrorists were from (and funded by) Saudi Arabia? Anyone?, Anyone?

How about Venezuela's Hugo Chavez and Iran's Mahmoud Ahmadinejad who are in a strategic anti-American alliance with the economic objective to create instability resulting in high oil prices. As Chavez said in a recent speech in Iran -- "If the U.S. empire succeeds in consolidating its dominance, then humankind has no future. Therefore, we have to save humankind and put an end to the U.S. empire".

What is so disconcerting is just how quickly America has lost focus on why National (enacted in 2005) and Florida (enacted in 2008) Renewable Fuel Standards were originally initiated in the first place. Current news headlines of Iran threatening to block oil shipments through through the Strait of Hormuz and the civil unrest in Nigeria should be a wake up call.

One must wonder how Tea Party types would have responded to a question of whether the U.S. should continue trade with Germany and Japan (funding their economies for their war effort) during World War II.

Funding Terrorism Through Our Gas Purchases Isn't Supporting U.S. Troops.	In presenting why U.S. ethanol production is important, maybe the arguments just have not been entertaining as much as say, Rush Limbaugh. For those who need to be entertained, does the Jon Stewart (Daily Show) clip help on why oil purchases from places like Venezuela and Saudi Arabia is not in America's best interest?

Cold Hard Facts: We used to say "You're entitled to your own opinion, but not to your own facts". Listening to Conservative Media, one would conclude that U.S. ethanol policies (only enacted in 2005) have been an abysmal failure.

Let's spend a moment to look into some of the numbers of foreign oil imports and U.S. ethanol production. According to the U.S. Department of Energy (DOE), in 2010 the U.S. imported about 63% of its crude oil requirements (the type of oil used to produce gasoline). Also according to the DOE, combined oil imports from Saudi Arabia and Venezuela would represent the single largest source of U.S. imported oil.

Again using U.S. Department of Energy information, the below chart compares the gasoline equivalent of U.S. produced ethanol to gasoline produced from Saudi Arabia, Nigeria, and Venezuela oil imports. Although many Republicans would disagree, the below chart sure looks encouraging as to efforts in developing domestic resources.

A common rebuttal to the above chart from Conservative Media and Republican Tea Party types is that "no one can PROVE that U.S. ethanol production reduces foreign oil imports from un-friendly places like Saudi Arabia or Venezuela". It is because of this common rebuttal that the above chart compares only the FACTS of current gasoline production.

Since oil is a world-wide commodity with extremely complex international pricing dynamics, no one can authoritatively state what any one specific event would result in. For example, using this Conservative "Think Tank" logic, one could also state that "no one can PROVE increased U.S. oil production would decrease oil imports from Saudi Arabia, Nigeria, or Venezuela". Maybe increased U.S. oil production would only decrease oil imports from friendly countries like Canada or Mexico. Also, no one can PROVE that building the Keystone project (high price oil from costly tar sands extraction) will result in lower oil imports from Saudi Arabia, Nigeria, or Venezuela.

Its time to stop playing silly ideological games and get to work in seriously developing all domestic energy resources for transportation fuels -- including oil, natural gas, and ethanol/bio-diesel.

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Cost Per Acre for Sweet Sorghum Establishment in Central Florida for Ethanol Feedstock.

Agriculture

Equipment, Labor, O&M Costs:	Cost Per Acre: (initial establishment)	Cost Per Acre: (on-going operations)
Site Prep (Mowing, Disking, Dozer)	$90.00	$22.50
Spraying Herbicide	$13.50	$13.50
Fertilizer Application	$6.00	$6.00
Planting of Seed	$22.50	$22.50
Sub-Total	$132.00	$64.50
Materials Costs:
Fertilizer	$92.00	$92.00
Herbicide	$4.85	$4.85
Seed	$16.66	$16.66
Sub-Total	$113.51	$113.51
Total Base Cost (sum of above)	$245.51	$178.01
Contingencies @15%	$36.82	$26.70
Total Estimated Cost	$282.33	$204.71

An information search on commercial field production cost of planting sweet sorghum for ethanol indicates that our above cost estimate of $178.01 per acre is comparable to other cost estimates which are in the range of ~$150 per acre.

The continued production goal of Homeland Agricultural Fuels at the Bartow Ethanol facility (a nameplate capacity of 5.4 million gallons per year) is to produce ~600 gallons of ethanol per acre from sorghum (in line with what is currently achieved in Brazil using sugarcane).

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Outrage!!! (over less than a penny a gallon?)

Oil Use

In the continuing Red State versus Blue State Ideology Battles, yet another "flashpoint" has erupted over President Obama's proposal to eliminate $4 billion annually in tax deductions for oil companies. From the N.Y. Times, outrage why these tax benefits should continue given record earnings by Oil Companies. And from the Wall St. Journal, their outrage over even considering eliminating oil tax benefits.
After hours of debate and bills introduced in Congress and the countless hours of media "Talking Heads" vilifying either Obama or Corporations and Republicans as the Anti-Christ of Satan -- this topic must be pretty important -- Right?


While we are no fancy Ivy League Economist, we thought maybe we are smart enough to do some "simple math" (with the help of Google, of course). As we understand it, most of these tax benefits are allowable deductions to taxable income (like how us common folk claim a tax deduction for interest on our home loans).

According to the Wall St. Journal article, the effective tax rate for major Oil Companies in 2009 was about 25%. So the $4 billion in allowable expenses, reduced their tax bill about $1 billion (i.e., $4 billion times a 25% tax rate).

Using the wonderfulness of Google, we see that the U.S. uses about 140 billion gallons of gasoline every year. So, spreading $1 billion in taxes over the gas we use equals less than 1 cent per gallon ($1 billion divided by 140 billion gallons).

The toxic ideological talk coming from both Democrats and Republicans is just plain silly -- as keeping or eliminating the Oil Companies' tax benefits will not have any measurable change in gas prices.

Another example of how oil prices are used for political gain is how data is "cherry-picked" by members of Congress and the Media to serve one's ideology. Recently, we saw a graph on how oil prices have increased under the Obama administration -- with the objective to blame Obama's policies for high gas prices. The problem with this presentation was it was neither "fair nor balanced". The below chart is much better in objectively showing oil prices under three Administrations of Clinton, Bush (where record prices occurred), and Obama.

As we have repeatedly said over the years, our oil dependency problem is not a Red State versus Blue State issue, its an American problem that deserves much better effort than our elected members of Congress give us. America can not simply "Drill, Baby, Drill" our way out of this problem.

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What Exactly Is America's Energy Problem?

Energy Policy

With gas prices moving to $4 a gallon at the pump, we are again reminded of the words of the beloved Yogi Berra -- "This is like Deja Vu all over again". So after +30 years, why has it been so difficult to develop a National Energy Plan? A major reason is the diversions used by so many competing Ideological, Political, and Corporate Interests to create a fog of confusion to the American Public.

In this battle over public opinion, just a few simple facts could go a long way in at least identifying what America's real energy problem is -- our oil dependency with transportation:

We do not have an overall "energy crisis". We have an oil dependency problem Only 1% of U.S. oil consumption is used to generate electricity ~72% of U.S. oil consumption is for transportation fuels (primarily cars)

U.S. Energy Sources and End Uses
Since only ~1% of our total oil use is for electricity, the U.S. is already "Energy Independent" from foreign oil for power generation. For transportation, the story is totally different as oil provides ~94% of fuel source requirements, where about 50% comes from foreign oil. The overwhelming majority of oil use is for cars and light trucks, with truck freight hauling and air transportation the other two most significant uses.
The Diversion of Global Warming: So if America doesn't use much oil for electricity, why does the energy policy debate (and failed bills in Congress) focus so heavily on electricity generation from wind, solar, and nuclear power?

By looking at the above FACTS, the American Public can see that what has been framed as an "Energy Crisis", is really two distinct issues -- (1) Oil dependency for transportation, and (2) Global Warming/Climate Change through the use of fossil fuels. By combining these two issues in framing the national energy policy debate, public opinion confusion occurs resulting in a "Status-Quo" by:

Blurring Policy initiatives between electricity generation (not causing our oil problem) and fueling transportation (which is our oil problem). Unnecessarily drawing transportation policy initiatives to reduce oil use into the Global Warming controversy

Even if we put a solar panel on every roof, a wind turbine on every street corner, a new nuclear power plant in every State, and made every building energy efficient (e.g., insulation, light bulbs) -- there would be no real change in our oil dependence. These electricity policy initiatives are to either reduce CO2 and other greenhouse gas emissions, or to advance Special Interests (especially nuclear power).

Conversely, transportation policy initiatives targeted to the three primary uses of oil would be a huge step toward "Oil Independence":

Cars -- Increased Auto MPG, Ethanol, Urban Mass Transit, Electric Vehicles. Freight Hauling -- Creating a natural gas infrastructure for heavy truck hauling. Reducing Air Transportation -- High Speed Rail between major urban areas.

Making Global Warming a focal point in the national energy debate creates a diversion of negative public opinion reactions from increased taxes (carbon tax), even more federal EPA regulation, to destroying the economy and job losses (especially to China). According to a recent national Rasmussen Poll only 33% of Americans believe that Global Warming is man-made from increased levels of greenhouse gases.

But even if Global Warming is the greatest scientific hoax ever created, America still needs to develop alternative sources, uses, and greater energy efficiencies to reduce our transportation dependency problem with oil. We can not simply "Drill, Baby, Drill" our way out of this problem. Americans consume 25 percent of the world's produced oil, but our nation holds less than 3 percent of the world's proven oil reserves.

The Diversion of "Drill, Baby, Drill": To achieve the commonly used "Oil Independence" catchphrase only through drilling, the U.S. would need to develop and sustain new sources of oil production currently equal to Saudi Arabia. Is this possible? According to Energy Information Agency information, Saudi Arabia has oil reserves 14 times greater than the U.S.In addition, an inconvenient truth that "Drill, Baby, Drill" Supporters fail to ever discuss is price. Oil is an internationally priced commodity. No oil company would ever sell oil from U.S. resources less than world market prices. Another fact never discussed is that any dramatic increase in U.S. oil production above proven reserves would require developing non-conventional resources (using some very questionable environmental practices like fracking). The reason that tar sands and shale deposits are not widely used is their very high extraction costs, making these resources economically viable only when oil prices are high. So while increasing domestic oil production in an environmentally safe way will have many benefits, reducing prices at the gas pump will not be one of them.

The Diversion that Government Shouldn't Choose Energy Winners and Losers: This often heard statement argues that a national energy policy should be based on free market capitalism, not big-government centralized control of providing incentives to "specific" technologies. However, in "Walking the Talk" this principle is only applied to renewable/alternative energy. A recent example of this hypocrisy is Republican members of Congress introducing legislation to keep federal loan guarantees for nuclear power but to eliminate the same guarantees for renewable energy projects. Federal Government intervention into free market capitalism for energy has occurred for decades, including:

Price-Anderson Nuclear Industries Indemnity Act: As the World has seen recently in Japan, nuclear accidents can be catastrophic with an economic toll in the hundreds of billion of dollars. In order to remove this economic impediment to stimulate nuclear power in the U.S., Congress enacted the Price-Anderson Act that currently limits the individual liability of a nuclear plant's owner to $300 million.

Oil Pollution Act: In the 1990 OPA, Congress limited an oil company's liability to pay for damages to fishermen, property owners and other individuals and businesses, governments (via lost tax revenue) and natural resources to $75 million per incident.

Oil and Natural Gas Federal Subsidies: The total amount of federal subsidies for fossil fuels is difficult to quantify. However, President Obama has proposed eliminating $4 billion a year in more than a half-dozen tax exemptions for oil companies. The tax breaks have a long history -- the so-called percentage depletion allowance for wells dates back to the 1920's.

Where Do We Go From Here?: America's Energy Policy shouldn't be a Red State versus Blue State issue -- it must be an American issue. From our viewpoint, a national energy policy is being held hostage by two major factions: (1) A Democratic Party overly driven by Environmental Ideology -- especially Climate Change, and (2) A Republican Party driven too much by Corporation Special Interests. Hopefully, the American Public will start to see through the myriad of diversions and demand real change, including:

Environmentally Safe Drilling: After the BP Gulf spill, is the solution really just the need for more Government oversight and regulation? We agree with Ron Paul that the answer isn't more regulation. Its just letting the market work by eliminating the $75 million liability cap from the Oil Pollution Act.

"When a business's liability is limited by law, then they make riskier decisions than full liability would allow. For instance, in this case, BP opted for single wall oil pipe casing, as double-wall was "too expensive." Of course, if full liability is incurred, then the definition of what is "too expensive" changes dramatically." -- Rep. Ron Paul.

It's Transportation, Stupid!: If 72% of America's oil use is for transportation (where about half comes from foreign oil), why are we talking about anything other than transportation in a national energy policy debate? Policy initiatives promoting "Energy Independence" through electricity generation is a Red Herring diversion for two reasons: (1) Electricity generation is not causing our oil dependency problem (only 1% of oil is used for electric power); (2) The argument for "electrification" is putting the cart (electricity supply) before the horse (electricity demand). Only after energy demand initiatives (e.g., electric vehicles, high speed rail, etc.) that will achieve significant fuel switching from oil to electricity should new power plants be on the table for discussion.

In solving America's oil problem of course we need to develop new oil resources in an environmentally conscious way. But we also need more, much more by developing alternative sources (ethanol), uses (electric cars), and greater energy efficiencies (increased car mileage).

Without an intense focus on transportation, America really doesn't have a Plan and as Yogi also said, "If you don't know where you are going, you will end up somewhere else."

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Increasing Awareness and Usage of Alternative Fuel & Energy Sources

This site exists to showcase Alabama renewable energy projects and to provide you with alternative energy information so that you can lower your expenses on fuel and ultimately help decrease our country's dependency on foreign oil.

For a more detailed demonstration view our three part biodiesel presentation.

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Core American Values and Oil Use

Oil Use

The N.Y. Times has an insightful story of how Renewable Energy and Energy Efficiency is gaining a solid foothold in Kansas, even through 52% of Kansans are highly skeptical on the science of Climate Change/Global Warming (and downright dislike Al Gore types and Big Government actions to regulate greenhouse gases). In America's very politically conservative Heartland, progress is apparently being made by addressing energy issues in terms of "Core American Values" like patriotism, ethics, saving money, spiritual convictions, economic development and job creation at local levels -- but just don't bring up the divisive subject of Global Warming.

In a N.Y. Times article on training returning Iraq and Afghanistan War Veterans to become farmers (which can include growing energy crops for biofuels like ethanol), we especially liked the quote of an ex-Marine: "It's a national security issue. The more responsibly we use water and energy, the greater it is for our country."

The below chart reflects the top 5 importers of crude into the U.S., 9 years after we were attacked on 9/11. Clearly, historical and current events in Saudi Arabia, Venezuela, and Nigeria don't reflect America's "Core Values".
One place where "Core Values" should especially be discussed is in Florida. According to U.S. Department of Energy data, Florida uses ~41% of the total oil consumed in the mainland U.S. to generate electricity. This is no one-year fluke, but has been going on for decades in Florida.

So, the next time you fill up your tank with gas or especially in Florida, flip on a light switch -- just think about where your dollars are going.

Supporting Terrorism Isn't an American Core Value.	Oil dependence is among the most dangerous threats to U.S. national security. For years, senior military and intelligence officials have warned that too much of U.S. oil payments eventually trickle down to terrorists, who use it to buy the weapons used against our troops in Afghanistan and Iraq.

Bribery Isn't an American Core Value. Nigerian authorities recently made an out of court settlement on criminal bribery charges against Halliburton and former CEO Dick Cheney. The Settlement is the latest fallout of a U.S. federal court conviction of Halliburton and its subsidiary of a bribery scheme in Nigeria -- with a record $579 million fine.

Hurting our Economy Isn't an American Core Value.

Environmental Destruction Isn't an American Core Value. While the BP oil spill in the Gulf of Mexico made world headlines in 2010 -- this type of destruction has been going on in Nigeria for decades. Look at some of these pictures. The issue isn't about some liberal, latte sipping Treehuggers wanting to protect "Mother Earth" -- its about things like clean drinking water for innocent children.

Killing Christians an Isn't an American Core Value.
Especially at Christmas, news stories of Christians being murdered in the Middle East and Africa were horrifying. But this isn't anything new in places like oil rich Nigeria or Iraq. Americans and especially American Christians need to understand the Islamic law which governments in the Middle East impose -- where converting to Christianity or any Christian missionary conversion efforts are punishable by death (e.g., Saudi Arabia, Afghanistan)

Radical Religion Isn't an American Core Value. All Americans understand the tragedy when Religion is hijacked in the Middle East to achieve a political agenda. But what about when this occurs in the U.S.? In the current Green Dragon Campaign Environmentalism is being demonized as the work of Satan to a target audience of conservative Christians. But, you're not going to believe where a major source of funding is coming from to pay for this campaign -- its gulp, Exxon/Mobil.

A New Mind-set
In thinking and talking about Energy, Americans (and especially our politicians) need to have a new mind-set. We need to move away from the pure Red State/Blue State, Conservative versus Liberal Ideologies, and always include "Core Values" in a civil national discussion which includes all resources of energy from "Drill, Baby, Drill", Renewable Energy, Natural Gas, Nuclear, and Coal.

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Sweet Sorghum (for Ethanol) Harvesting Trials in Florida Using John Deere 3520 Cane Harvester

Agriculture

As much of the U.S. digs out from freezing weather and snowstorms, Florida's extended growing season allows Farmers to still be growing and harvesting crops like sweet sorghum for ethanol feedstock. A late fall/early winter crop rotation for sorghum takes a little longer to mature (approximately 105 to 110 days from planting) compared to warmer months (where plant maturity occurs in ~90 days) -- due to the reduced amount of daylight hours. Also, while the sorghum's brix (sugar content) appears to be consistent at ~18 throughout all yearly rotations, yields during the fall/winter rotation can be ~40% less than warm weather months primarily because of reduced rainfall (as we do not field irrigate our sorghum). Ratoon yields of our sorghum is extremely poor, as we are using commercial hybrids.

Because of this extended growing season, it is believed that the typical agriculture plan for growing sweet sorghum can be three (3) crop rotations per year on the same acreage (allowing for cyclical soil resting/building to reduce plant disease/pests by rotating in crops like soil nitrogen building white clover legumes).

In early December we conducted sweet sorghum harvesting trials using the newly developed John Deere 3520 cane harvester (developed primarily for the sugar cane industry in South Florida, Louisiana, and Brazil). The capital cost of the Deere 3520 is ~$310,000 with the ability to harvest between 8 and 10 acres per hour (or around +100 acres per day).

The first two pictures below show the Deere 3520 and its total 9 foot width, and 3 foot cutting area dimensions:





The next two pictures shows the sorghum product of the Deere 3520 Harvester -- a 4 to 6 inch billet which is blown into a trailing hay wagon.





The Deere 3520 provides for flexibility in field row planting configurations (18, 24, 36 inch centers) allowing for single pass, two row and even 3 row cutting. The below schematic illustrates the row planting configuration that we use.

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Marketing Renewable Energy Crops by Farmers for Electricity Generation

Biomass Incentives

Today we are trying something new -- asking for feedback from our Readers on a communication problem we are having in marketing "closed loop" biomass energy crops for electricity generation.

A critical point in our marketing effort for energy crops is the Section 45 Federal Tax Credit which currently provides a 2.2 cents/kWh tax credit to electricity generation companies that use "closed loop" biomass fuel. An example of "closed loop" is fast growing trees that would exclusively be used as fuel feedstock. The Tax Credit is available for 10 years.

An important concept that we've been trying (to date unsuccessfully) to explain is the dollar benefit per green ton of biomass fuel purchased. This is important marketing argument, as it plays a major factor in what an electricity generation company will pay farmers for a crop. In Table 1, we present information that the value of the Section 45 tax credit is the equivalent of reducing fuel cost by $25.38 per green ton:

Table 1Converting the Tax Credit to an Equivalent Fuel Cost Savings


In the above illustration, the argument is developed that if a company paid $25.38 per green ton for closed loop biomass fuel, that the effective cost (after the tax benefit) of the fuel would be zero. If less than $25.38 was paid to a farmer, the effective fuel cost would be negative.

While the math of Table 1 may at first seem complex (e.g., using assumptions like the heat rate energy efficiency of a power plant), the question we ark asking input from our Readers is relatively simple. The issue is whether there is a need for a gross-up factor in determining the equivalent impact of the tax credit on fuel costs.

For example, if the tax benefit of deducting interest (reduction of taxable income) on a homeloan was changed to a tax credit (reducing taxes dollar for dollar for the interest expense), wouldn't a homeowner view this as increased value?

Table 2 tries to explain this difference (where in the illustration we use a tax rate of 50%, only to simplify the math to our audience).

For Company A, fuel expenses are $100 and they take a $10 Section 45 tax credit. For Company C, fuel expenses have been reduced by $20 (i.e., the $10 tax credit divided by 1 minus the tax rate), but do not have a tax credit. The cash net income of Company A and B is the same.

So, reducing fuel expenses by $20 was the same as taking a $10 Tax Credit.

Table 2Equivalent of a Tax Credit Versus an Expense Reduction

(2) Fuel expenses only reduced $10 (value of tax credit)
(3) Fuel expenses reduced by $20 ($10 credit divided by 1 minus the tax rate)

Can our Readers help us in understanding where we might be going wrong in explaining this concept in our marketing efforts?

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Energy Crop Agriculture -- Notes from the Field.

Agriculture

Pigweed Control: An issue that continues to plague farmers here in Florida and the Southeast is glyphosate resistant weeds, specifically Palmer Amaranth. A technical service representative for Syngenta, suggest farmers apply a fall weed control treatment now in order to get a head start for next year’s crop. We've had decent control using Dual Magnum

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Dry Weather: With little rainfall in recent weeks, meteorologists from the South Florida Water Management District (SFWMD) reported that last month was the driest October in South Florida since record keeping began in 1932. The low monthly rainfall total, coupled with seasonal forecasts of exceptionally dry conditions, underscores the risks of farming, especially on non-irrigated lands where our sweet sorghum yields are all over the map -- ~40 green tons per acre per harvest, to ~20 green tons per acre per harvest.

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Ergot in Sweet Sorghum: A major misconception of Farmers and non-Farmers (especially here in the Southeast and Florida) is that growing sweet sorghum for ethanol feedstock will be a "piece of cake". This belief is based primarily on the success of growing forage sorghum for decades. But as more field experience develops, farmers will be shocked that forage and sweet sorghum are very different crops. One very serious problem is a plant disease called ergot, which attacks the unfertilized ovaries in the sorghum heads. In our field experience, we've seen Brix (sugar content) go from ~18 in healthy plants to 0 in just 5 days. Ergot can hit with either high humidity, cooler temperatures, or a combination of the two. We are working with seed producers, farming equipment companies (i.e., John Deere), and applying weed control to near-by Johnsongrass (and also Cogongrass) areas to address this devastating problem.

Soil Micro-Nutrients: This is a good lesson in never really trusting anybody for advice unless they have "dirt underneath their fingernails" -- which are typically the "Old Timers". In walking our fields with typically ~15 foot height sorghum, we always saw what we describe as "crop circles" -- circular or oblong shaped areas where the sorghum was dwarf of a couple of feet tall. After extensive soil testing, we added a micro-nutrient pack to our fertilizer (N) regiment, but the problem still remained. Talking to an "Old Timer" who had worked similar fields, we applied a foliar manganese application -- problem solved!

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Phosphate Mining and Climate Change

Land Use and Mining

While today's blog treads into the subject of phosphate mining in central Florida, the bigger picture involves all surface mining (e.g., mountain top removal for coal), and an even bigger picture of large land use development anywhere on our Planet. The following discussion is neither pro or anti mining or land development, but raises a question "Don't we need to talk about something?" -- where the "Something" is Climate Change.

In arguments (and legal fights) over mining or land development, the major environmental issues usually involve topics of water (pollution, use) and habitat loss, with wetlands being the focal point. Never (at least here in Florida) have we seen the subject of Climate Change even enter into the discussion of land use development (like mining).

According to the U.S. Army Corps of Engineers, phosphate mining has occurred on 1.32 million acres (~2,100 square miles) in central Florida. Additional mining is being requested for ~100,000 acres. And here is the problem -- in mining 1.42 million acres, has this resulted in a significant Climate Change event? Nobody really knows, because the question has never been asked.

In phosphate mining, has the greenhouse gas mass balance (i.e., the release of primarily CO2 through land clearing and soil disturbance and the carbon capture post-mining practices of land reclamation) been: (1) relatively carbon cycle neutral, or (2) resulted in large carbon deficits?

One science based scientific citation that can be used in an initial discussion is work performed by Kimble, Heath, Birdsey, and Lal (The Potential of U.S. Forests Soils to Sequester Carbon and Mitigate the Greenhouse Gas Effect). The below table presents an estimate for total carbon capture (above and below ground) associated with forests which would be representative of pre-mined phosphate lands.

Type of Forest (Pre-Mining):	C in Biomass (t/ha)	C in Dead Mass (t/ha)1	Soil Organic C (1-m depth)(t/ha)2	Total Forest C (t/ha)
Oak-Gum-Cypress	81.1	26.5	152.2	259.7

(1) Dead mass includes standing dead trees, down dread trees, and forest floor.
(2) Soil includes both mineral soil and organic soils (i.e., histosols).

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Estimating the carbon released from mining 1.42 million acres (from the above proxy estimates from Kimble, et al.) results in ~548 million tons of CO2 released. Putting 548 million tons of CO2 into perspective -- would be the approximate CO2 release equivalents of:

-- Operating a coal power plant like TECO's Polk Power Station for 515 years.

-- Operating all coal fired power plants in Florida for ~8 years.

-- Operating all power plants in Florida (coal, oil, gas) for ~4 years.

-- Approximately 3 years of total volcanic activity on the Earth.

Of course, the above illustrations only reflect one part of the total greenhouse gas mass balance -- the initial emissions from land clearing and soil disturbance. According to landmark research on phosphate mined soils performed by the U.S. Department of Energy's Oak Ridge National Lab, carbon capture/sequestration on heavily forested post-mined lands and/or wetlands can be dramatic. However for lands reclaimed to pasture, the majority of the sequestered carbon is soon converted back to CO2 through respiration (Murray, Economics of Forest Carbon Sequestration, 2003).

In conclusion, it is believed that the topic of Climate Change needs to be on the "Table" whenever large land use applications (such as mining) are being decided. Clearly it is impossible to develop any type of "Actions" if the magnitude of the Climate Change concern is simply not known -- where in our opinion, the best actions are always voluntary and market based solutions.

As Mike Myers used to say on Saturday Night Live!, "feel free to discuss amongst yourselves."

(A draft of the letter to the U.S. Army Corps of Engineers is available for comments).

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Biomass Energy & Carbon Accounting (Part 3)

Sustainability

As we've discussed in prior blog posts, the EPA in its proposed "Tailoring Rules" does not consider a mass balance (inputs and outputs) approach to greenhouse gases -- only focusing on air emissions and not the source of the fuel feedstock (biomass versus fossil fuels).

It is unclear whether the EPA will change its earlier decision not to exempt biomass from its recently adopted “Tailoring Rules” which prescribe Clean Air Act permitting requirements for GHG emission sources beginning January 2, 2010.  As written, the “Tailoring Rules” treat emissions from burning biomass the same as emissions from burning coal or other fossil fuels.  Congress is expected to vote on proposals to block or delay these rules and litigation opposing the rules is currently underway.  But some states may very well find themselves scrambling to revise their State Implementation Plans (“SIPs”).  In September, the EPA released a proposed determination that 13 states’ SIPs are “substantially inadequate” and a second rule that allows the EPA to assume responsibility for the permitting of GHG emissions for those states that do not timely submit compliant SIPs.

The below data of stoker and fluid bed biomass energy technology systems comes from Babcock Power Report, while gasification technology data for carbon capture comes from previously discussed NREL (50%)and our own estimate (30%).


While we join others in the Biomass Energy Industry to disagree with the EPA proposed position -- if these rules are implemented, is there a fall-back argument to "carbon cycle neutrality" for biomass power (electricity, combined heat and power)?

The answer is yes, through the combination of (1) gasification technology; (2) biochar; and (3) below ground carbon sequestration of growing dedicated energy crops:

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Biomass Energy & Carbon Accounting (Part 2)

Sustainability

In our last post on "Biomass Energy & Carbon Accounting" we cited an engineering science reference from the U.S. Department of Energy's National Energy Technology Lab (NETL) that ~50% of carbon emissions can be captured through oxygen starved biomass gasification technology.

In our extensive experience with biomass gasification, we feel uncomfortable with the NETL estimate -- concerned that the carbon capture percentage may be too high. Our "educated guess" is the percentage would be closer to a +30% carbon capture for commercially available biomass gasifiers (i.e., up-draft gasifier) -- which is reflected in below amended chart.



While we could be wrong (overly conservative) so could NETL.

The problem in getting a handle on the issue of carbon capture is the lack of commercially operating biomass gasifiers (providing much needed engineering data). On the topic of carbon capture (biochar), the majority of engineering science work has been either at lab scale or with small gasifiers (i.e., stoves). It should be remembered that while biochar has always been a waste product of biomass gasification, only recently has it become a critical issue. Critical in the sense of the very viability of biomass power, recognizing current questions on carbon neutrality (i.e., the EPA's Tailoring Rule").

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