The Oil Industry’s Plan for Ethanol
The oil industry has a plan for ethanol. Unfortunately it isn't a plan you're going to like.
The oil industry resisted using ethanol to decrease gasoline emissions. They clung tenaciously to a chemical that had poisoned and still poisons hundreds of wells and sickened thousands of humans. They persisted in using this chemical despite the fact that ethanol doesn’t have any risk associated with it’s use.
One of the reasons they give to not use ethanol is that there is not an adequate supply.
When they were forced by congress to phase out the poisonous chemical they instead abruptly stopped using it. This had the obvious effect of creating an ethanol shortage. Lack of supply and overwhelming demand caused the price of ethanol rise.
Now any economist will tell you that the response to shortage is for new producers to enter the market place. And indeed this is happening. Ethanol plants are springing up like mushrooms after a rain all over the Midwest.
Any educated person can predict the result of a vastly increased supply - the price will drop.
As the price drops additional supply will continue to come on line. This is sometimes called 'lagged supply'. The time it takes to bring additional manufacturing on-line lags behind the demand curve. At some point the demand is met but additional supply is still being created. In situations where demand is bound and inelastic, by the time this lagged supply is available, supply exceeds demand. Prices fall. Manufacturers, especially inefficient manufacturers, fail.
Oil companies are counting on this lagged supply phenomenon. They will wait until there is excess capacity – which there surely will be – and then they will introduce an alcohol substitute.
The demand for ethanol will will dry up because oil producers will stop purchasing ethanol. The alcohol manufacturers will go broke. The oil companies will be there to buy them for pennies on the dollar. They will buy the inefficient manufacturers first and operate them at a loss to further drive the price down.
The result? Oil companies will gain control over a competing fuel. And they’ll do it on the cheap. Lots of manufacturers, farmers, investors, and consumers will be hurt.
How can Americans defend themselves from these evil predators? Actually, it’s very simple.
States must pass laws prohibiting oil companies from the sale and distribution of alternative fuels. Gasoline would be allowed to use alcohol as an additive – say 10% or less – but no more. Mixtures above 10% could only be sold and distributed by non-petroleum owned corporations or individuals. Existing laws requiring gasoline be used as the denaturing agent in alcohol fuels must be revoked. The result will be competition - competition between the oil companies and the alcohol/biodiesel manufacturers, distributors, and filling stations. Alcohol manufacturers will be isolated from market manipulations of the oil companies. The United States will have a robust, non-petroleum based fuel industry. Our dependency on Middle Eastern oil will diminish.
Competition is a good thing.
---------------------------
This was written several years ago. Look around. Any of it come true? Have the oil companies successfully blocked the use/increased use of ethanol? Have they caused producers to fail? Have they bought up ethanol plants for pennies on the dollar?
Yes, yes, yes, yes.
And the trend continues.
I have been using 50% ethanol in my 1990s vehicles for over 15 years with absolutely no ill effect. My oil looks noticeably lighter when I change it. Engine performance remains excellent. And, despite my northern plains location, I have had no low temperature starting issues - even at 30 below zero. 50% also works fine in my 2009 Obama funded Traverse.
The oil industry resisted using ethanol to decrease gasoline emissions. They clung tenaciously to a chemical that had poisoned and still poisons hundreds of wells and sickened thousands of humans. They persisted in using this chemical despite the fact that ethanol doesn’t have any risk associated with it’s use.
One of the reasons they give to not use ethanol is that there is not an adequate supply.
When they were forced by congress to phase out the poisonous chemical they instead abruptly stopped using it. This had the obvious effect of creating an ethanol shortage. Lack of supply and overwhelming demand caused the price of ethanol rise.
Now any economist will tell you that the response to shortage is for new producers to enter the market place. And indeed this is happening. Ethanol plants are springing up like mushrooms after a rain all over the Midwest.
Any educated person can predict the result of a vastly increased supply - the price will drop.
As the price drops additional supply will continue to come on line. This is sometimes called 'lagged supply'. The time it takes to bring additional manufacturing on-line lags behind the demand curve. At some point the demand is met but additional supply is still being created. In situations where demand is bound and inelastic, by the time this lagged supply is available, supply exceeds demand. Prices fall. Manufacturers, especially inefficient manufacturers, fail.
Oil companies are counting on this lagged supply phenomenon. They will wait until there is excess capacity – which there surely will be – and then they will introduce an alcohol substitute.
The demand for ethanol will will dry up because oil producers will stop purchasing ethanol. The alcohol manufacturers will go broke. The oil companies will be there to buy them for pennies on the dollar. They will buy the inefficient manufacturers first and operate them at a loss to further drive the price down.
The result? Oil companies will gain control over a competing fuel. And they’ll do it on the cheap. Lots of manufacturers, farmers, investors, and consumers will be hurt.
How can Americans defend themselves from these evil predators? Actually, it’s very simple.
States must pass laws prohibiting oil companies from the sale and distribution of alternative fuels. Gasoline would be allowed to use alcohol as an additive – say 10% or less – but no more. Mixtures above 10% could only be sold and distributed by non-petroleum owned corporations or individuals. Existing laws requiring gasoline be used as the denaturing agent in alcohol fuels must be revoked. The result will be competition - competition between the oil companies and the alcohol/biodiesel manufacturers, distributors, and filling stations. Alcohol manufacturers will be isolated from market manipulations of the oil companies. The United States will have a robust, non-petroleum based fuel industry. Our dependency on Middle Eastern oil will diminish.
Competition is a good thing.
---------------------------
This was written several years ago. Look around. Any of it come true? Have the oil companies successfully blocked the use/increased use of ethanol? Have they caused producers to fail? Have they bought up ethanol plants for pennies on the dollar?
Yes, yes, yes, yes.
And the trend continues.
I have been using 50% ethanol in my 1990s vehicles for over 15 years with absolutely no ill effect. My oil looks noticeably lighter when I change it. Engine performance remains excellent. And, despite my northern plains location, I have had no low temperature starting issues - even at 30 below zero. 50% also works fine in my 2009 Obama funded Traverse.
Labels: big oil, biodiesel, ethanol, fuel, investor, monopoly, petrol, prediction, price
posted by PsySciGuy at 12:12 PM
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