Ethanol-The Gasoline Alternative

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In 1956, geophysicist Marion Hubbert made a simple postulation that oil production would follow a bell curve. In the beginning, when the oil reserves were discovered, the production would be great; soon afterward, it would «peak» and fall into a rapid exponential decline. This is known as «peak theory.»

While originally scoffed at, Dr. Hubbert made a simple prediction that came true. Based on his calculations, oil discovery and full exploitation would take 35 years, and in the United States the «peak» period would occur anywhere from 1965 to 1970. Thus far, he was accurate; the oil production peak occurred in the United States in 1970. He further posited that 50 years after his publication there would be a world peak.

Mr. Hubbert’s theory and subsequent play-out of his theory in real numbers has led the world to look for viable alternatives to the potential decline and eventual disappearance of oil as a primary fuel. One of the key front runners is ethanol.

Ethanol is not particularly special. It is has been made in multiple ways, either through fermentation or through petrochemical reactions. As the price of oil has increased, more traditional forms of ethanol production have been explored along with multiple resources.

In the United States, corn has been explored as an ethanol resource. In Brazil, where sugar cane is prevalent, sugar cane is used in the production in ethanol. Many European countries, along with Japan, are looking to their excess wine supply (grapes) and sake (rice wine) to produce ethanol.

The level of desperation to find an alternative has clouded some commercial judgment in deciding that ethanol is the way to go. A clear example of the cart getting ahead of the horse is the level of product needed in order to produce ethanol. In the United States, since corn is the primary crop to produce ethanol, the input/output ratio is skewed. It takes 35 liters of corn (1 bushel) to produce 10 liters of ethanol. Over two thirds of the corn is effectively wasted as ancillary by-products, none of which is fuel.

To reduce this disparity, scientists are attempting to use less essential foodstuffs, such as corn and sugar, and develop ways to break down their by-products (husk and fibers) into a more efficient form of ethanol, along with fast-growing weeds such as switchgrass.

In 2006, 69% of the world’s ethanol supply came from the United States and Brazil. They have the ability to produce 5.1 billion gallons of ethanol per year, with an expected rollout of another 3.8 billion gallons by 2009.

Of course, ethanol production is not without its detractors. The key problems cited are crop yield, efficiency, and using agricultural land for fuel. Regardless of these potential problems, the world has embraced the idea of ethanol as an alternative fuel source, which alone spells opportunity.

Oil Could Reach as High as $4.37/Gallon

Over 30 years ago, October 17, 1973, the Organization of Petroleum Exporting Countries (OPEC) shut the valve on oil to the United States.

The price of a gallon of gasoline went up by 400 percent. United States citizens were forced, by law, to conserve energy. What triggered that event? The Arab-Israeli war.

It’s starting all over again. President Bush is frustrated at our inability to bring Iraq to stability even though we have placed 250,000 troops in the area.

On the other hand, our Arab allies are frustrated that Bush is uninterested in completely resolving the Israeli-Palestinian conflict and the failing occupation of Iraq.

In their minds, the United States’ war against Iraq and Israel’s war against Palestine are linked, and they are beginning to come to the same conclusions that Saudi Arabia’s King Faisal came to in 1973.

With just the hint of war, we have already seen the price of gas go up 69 percent and the price of a barrel of oil reach $40. When that first shot was fired, a barrel of oil soared in price. Now that we cannot stabilize the region, as one shoe leads, the other follows.

The Arabs will finally protest against the mismanagement of Iraq and the failing resolution of the Israeli-Palestinian conflict, not with picket signs, but with an oil embargo. Oil can easily reach $50-60 per barrel.

Gas at the pump could be as high as $3-4/gallon. Only savvy investors will know what to do. In fact, United Parcel Service, along with other major corporations, has already purchased gasoline future contracts to protect themselves.

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