Chevron, BP, Exxon and friends talk a big game on renewable fuels, but it's like Silicon Valley vaporware: all buzz, nothing in production. That's the other half of the story on the sudden U.S. ethanol glut.
The Wall Street Journal
and the New York Times had similar stories last week--ethanol's price is suffering from overproduction and lack of transport for a finicky fuel. The stories stayed within the financial-analyst silo of the MSM. Who might go bankrupt? (The little guys.) Who might win big? (Archer Daniels Midland, the likely titan of corn ethanol.) They ignored the integrated oil companies' role.
I'll agree that the overproduction is partly the fault of a new industry with the business instincts of a greedy toddler. The other often obsessively described faults of corn ethanol include the energy it requires to produce, its dependence on a soil-destructive monocrop, its effect on corn prices and controversy about its overall reduction in polluting emissions.
However, corn is also a necessary part of a transition to renewable fuels. It's easy to grow and process. Making it does not require homage to brutal dictators. It's the predecessor to cellulosic ethanol and fuels brewed from municipal waste. A distribution system for E85 is also a distribution system for biodiesel, which suffers much the same indifference and hostility from Big Oil.
As Business Week pointed out in its Oct. 1 issue, Big Oil is campaigning to trash ethanol as a credible fuel. Why wouldn't they? Every dollar to ethanol is skin off their backs. If they can't control it, they certainly won't encourage it.
Anyone can grow corn or switchgrass or gather old french-fry oil. As my bootlegger great-uncle John would have said, almost anyone can build a distillery. Biofuels are--so far--a decentralized, competitive and transparent industry. If we were stuck with corn fuel, ADM or Monsanto could change that. But biofuels don't fit the Big Oil business model. No matter what the integrated oil companies say about going green, they hate decentralization.
The contracts between branded retail gasoline dealers and their supplier companies make it difficult to impossible for mainstream gas stations to sell E85. None of the majors offer subsidies to put in biofuel pumps, or supply a branded version of E85 or biodiesel. The paltry 1,000 stations nationwide selling E85 are mainly in the Midwest, the political and physical home of ethanol.
In California, the state government bought GM flex-fuel vehicles that run on E85, but there's still not a single station in Sacramento where they can fill up. There are 6 million flex-fuel vehicles on the road nationwide (and GM got a thick coat of greenwash out of its "Go Yellow" flex-fuel campaign). But it's a sure bet that most of those vehicles run full-time on gasoline.
Yet there is no logical distribution path for biofuels except the branded corner gas station or highway truck stop. A parallel system would be wasteful, even if there were enough stupid capital out there to fund it.
So why did BP build a steel-clad and LED-lit Beverly Hills-adjacent gas station, promote it as the nation's "greenest", then sell nothing but three grades of gasoline? Because BP and Exxon can't pull ethanol out of the ground for as little as $10 to $15 a barrel, sell it for $80 to their own refineries, make another $30 turning it into gasoline and control its retail sale. Their hostility is not just about corn ethanol. Oil companies are flexing their collective political muscle against it to put the brakes on any renewable fuel alternatives that undercut them. Hydrogen, the real fantasy fuel, is embraceable because it requires huge industrial plants to produce.
So when and if the ethanol producers start to go under, go ahead and blame Big Oil.