How Fast a Transition from Oil?

The Gulf Coast oil spill remains the top energy story this week, eclipsing a $10 drop in oil prices that should soon ripple through to gas pumps near you. With BP's latest effort to contain the spill having run afoul of a slush buildup composed of methane hydrate crystals, the deepwater well continues to leak at an undetermined rate. The longer the spill continues, the greater the chances for severe environmental consequences, and the likelier that it will become a perception-altering milestone event as some environmentalists have already suggested. However, even if the spill were to galvanize public opinion in a manner similar to the 1969 Santa Barbara oil spill, what options do we have that could realistically reduce our reliance on oil produced from offshore platforms?

Last week I focused on the energy contribution of the oil we produce offshore in US waters, particularly in the deep water of the Outer Continental Shelf (OCS) of the Gulf of Mexico. It constitutes 30% of domestic crude oil production, or about 10% of our total oil consumption, and contrary to the wildly-inaccurate assertion on a widely-read environmental blog last week, essentially none of it is exported. (Anyone who doesn't know the difference between crude oil and petroleum products has no business commenting on that aspect of energy policy.) Today I'd like to go into a little more detail on the alternatives to offshore drilling that I alluded to last Wednesday.

Gasoline, jet fuel and diesel accounted for 75% of the petroleum we consumed last year. Other than the heating oil included in the diesel tally, these are the fuels that power most transportation of people and goods. Many initiatives are under way to develop non-petroleum fuels for cars, trucks and even jet aircraft, though at this point they are all in relatively early stages of development or deployment. On paper, at least, electricity looks like the best option for replacing gasoline, by means of plug-in electric vehicles like the Chevrolet Volt and Nissan Leaf. Since less than 1% of US oil consumption is used to generate electricity, switching cars from gasoline to electric power represents a nearly total displacement of oil. It would also facilitate the direct use of renewable electricity sources to eliminate greenhouse gas emissions. This prospect has many people excited, and I've heard it mentioned frequently in reactions to the Gulf spill. Yet this is hardly a slam-dunk, for numerous reasons, topped by scale and the unproven consumer acceptance of mass-market EVs.

In one of their periodic special sections on energy, today's Wall St. Journal included an article on the development of EV recharging networks in the US. It cited a study by Pike Research forecasting 610,000 EVs by 2015. That would be a great start, though it would fall short of President Obama's goal to put a million plug-in vehicles on the road by then. Even assuming that the million-EV mark were reached that soon, and that they were driven as much as other cars and replaced vehicles averaging 25 mpg, the quantity of gasoline they would displace amounts to just 31,000 bbl/day--less than the quantity of oil the leaking Macondo field would have been producing in a couple of years, had Deepwater Horizon's exploration well been completed uneventfully. Substituting for all of the oil currently produced from offshore drilling--or for the decline in US oil production that would occur by 2020 if we stopped drilling offshore--would require up to 50 million EVs, making up roughly 40% of all the cars likely to be sold in the US this decade. I suppose that might barely be possible on a crash basis, with a World War II-style mobilization of the resources required to achieve it, but it doesn't look very likely to me. I would be impressed if the US had 10 million EVs by 2020, implying annual production of well over a million units within just a couple of years, though that would reduce our current oil demand by under 2%.

So if EVs can only take us a small part of the way to replacing our oil consumption in the near future, what about advanced biofuels? There are many promising avenues, including biofuels produced from agricultural or forestry waste or dedicated energy crops, biofuels from algae, and bio-hydrocarbons from plant sugars. All are in their infancy. The EPA recently had to reduce its mandate for advanced biofuels delivered in 2010 from 100 million gallons to just 6.5 million gallons--424 barrels per day--because no truly commercial-scale facilities will come on-stream this year. We might get a few billion gallons per year from these sources by 2020, if numerous technical and economic hurdles can be overcome, but that would displace at most a couple of hundred thousand bbl/day of oil.

Natural gas looks like another good alternative transportation fuel. T. Boone Pickens has put forward his plan to shift long-distance trucking onto compressed or liquefied gas. There's no shortage of gas available for this purpose, thanks to the much larger supplies made possible by shale gas drilling. It starts from a very low level, however, with current natural gas used in transportation equivalent to less than 1,500 bbl/day of diesel fuel. It also competes with other uses of gas, such as generating more electricity to reduce our consumption of coal. Or, looking at it another way, there might be plenty of gas to do both, but not at today's price.

That leaves what looks like the best option for reducing our oil consumption, other than simply deciding to drive less, as some folks have apparently already done. Because the US car fleet is so large and is driven so far, increasing its fuel efficiency by just 3 miles per gallon could save nearly a million bbls/day of gasoline. That's more than the entire contribution of corn ethanol, our most significant alternative transportation fuel. In fact, the latest demand forecasts of the Energy Information Agency are already based on that kind of improvement, reflecting new regulations requiring new-car fuel economy to increase to 35 mpg before 2020. Still, only a small fraction of our fleet of 240 million cars turns over every year, so it will take a long time before average fleet fuel economy even begins to approach these levels.

Whether your preferred alternative to offshore drilling requires replacing millions of vehicles with hybrids, EVs, natural gas-powered vehicles, or highly-efficient small conventional cars like the new Ford Fiesta, or depends on a vast new infrastructure of alternative fuel production and distribution, none of these solutions can work overnight. In the meantime, every barrel of oil we consume but don't produce here must be imported, some of it from countries that don't like us very much--as we're frequently reminded--and all of it with serious implications for our national financial and trade balances. (And don't forget the inevitable oil spills from all those extra tankers.) If we don't want OPEC to be the biggest beneficiary of a new environmental mindset after the Gulf Coast spill, then we face some very tough choices, including whether we'd prefer to open up major new areas for onshore drilling, instead of some of the offshore prospects that were slated to be leased in the next few years, or to continue drilling offshore under updated procedures and with strengthened environmental protections, at the same time we pursue all of our options for reducing our overall reliance on oil.

Gasoline from Sugar

It's ironic that with all the current hoopla about various alternative fuels and the electrification of personal cars--hybrids and several kinds of plug-in electric vehicles--it turns out that some of the most promising advanced energy technologies under development are designed to produce more of the same fuels that have powered cars, trucks and planes for the last century. Shell and its technology partner Virent made news this week with an announcement about their demonstration facility for turning sugar from beets or other crops into gasoline. Nor are they alone; many other companies are developing processes to turn renewable biomass into hydrocarbons, rather than the alcohols or esters that have been the principal biofuels of the last couple of decades. If any of these are successful on a scale that could compete with petroleum, it would force us to rethink our assumptions about the sustainability of what we put into our gas tanks.

The first assumption we'd need to jettison is that ethanol is good and gasoline intrinsically bad. The US and Brazil have made major commitments to using ethanol as a fuel, though from very different agricultural pathways and with very different energy, economic and emissions results. In many ways, this was making a virtue of necessity, rather than latching onto a really great fuel that had somehow been overlooked or conspired against for decades--a view you'll hear from some ethanol boosters. Unfortunately, ethanol still has all sorts of problems, even when it's made from sugar cane in the tropics using the most efficient process in the world today. Start with the fact that it's a second-rate energy carrier, delivering only 65% and 59% as much energy to the vehicle as gasoline or diesel, respectively. And while biodiesel doesn't share this drawback with ethanol, it does suffer from similar constraints on the amount that can safely be blended into fuel destined for vehicles that haven't been adapted to run on high-percentage biofuel blends.

Thanks to subsidies and mandates for its use, US ethanol consumption has expanded to the point at which we are approaching the accepted 10% limit on its inclusion in gasoline for cars not designated as Flexible Fuel Vehicles, or FFVs. The ethanol industry and its supporters have been trying to get the government to relax that limit--a move that would benefit them, but at the cost of putting more consumers' cars at risk of mechanical problems and diluting the value of what we are buying at the gas pump. No one is going to give you a discount for gasoline with 15% ethanol in it, instead of 10%, even though it will reduce your miles per gallon and thus your car's driving range by about 2%.

If the plant sugars currently being used to produce ethanol could instead be used to produce renewable gasoline and diesel fuel, it would avoid all of ethanol's compatibility and energy-content limitations, while reducing the cost of distributing fuel to service stations. Instead of having to send ethanol halfway across the country in rail cars or trucks to blending terminals, because it can't be shipped in one of the petroleum products pipelines that crisscross the nation, biogasoline would share the same highly-efficient transportation system that grew in tandem with the post-World War II expansion and dispersal of US population centers and industry. And it would do all this while emitting lower levels of greenhouse gases than petroleum-based fuels, perhaps even lower than those from corn ethanol, depending on the energy inputs required to process it. And if the sugar-to-gasoline process can be bolted onto a commercially-viable process for turning plant cellulose into sugars, biogasoline's lifecycle emissions could be reduced much further.

Now let's put this into perspective, before we conclude it sounds too good to be true. As the press release notes, Shell and Virent have a long way to go to scale up a facility making 10,000 gallons per year (gpy) of gasoline--under a barrel per day--to something that would compete with ethanol facilities producing 100 million gpy (6,500 bbl/day) or refinery units making 50,000 bbl/day. Many a process that looked good in the laboratory has failed to make that transition, which probably couldn't be accomplished in one step in any case. So, at best, this is still years away from commerciality and possibly a decade or more from wide deployment. And unless it can be easily adapted to use cellulosic feedstocks, it is subject to the same practical limitations on food crop production as current biofuels, and the same food vs. fuel competition that proved so divisive a couple of years ago, when corn prices and fuel prices had both spiked--a hardly-coincidental occurrence, considering the energy intensity of corn production.

If it does work, however, its practical advantages over ethanol are compelling, not just from the perspective of the oil industry, which would be relieved to be rid of the cost and logistical headaches ethanol has caused, but also for consumers and taxpayers. It's clear from the analysis supporting their new Renewable Fuel Standard regulations that the EPA regards biohydrocarbons as a viable alternative to current biofuels, and it just might be the pathway to ending our interminable subsidies for ethanol: 32 years and counting.