Tuesday, May 29, 2007

High gas prices headed higher - thanks to greens

Today's New York Times has an article discussing Ethanol and its implications on gas prices and global warming. The Greens like to promote this type of solution because its "renewable" and force it by fiat (like low flush toilets) onto the the consumer. In the end the consumer ends up paying a higher price for the product and the environment is in worse shape.

As a Chemical Engineer, I think forcing ethanol on the market is one dumb idea (this despite the fact that the company that employs me is pushing this and cellulosic ethanol). One of the key causes of high gas prices is the fact that environmentalists have restricted drilling for oil here and prevented oil companies from building new refineries for the past 20+ years. Last year industry executives were going to spend money to expand refinery capacity but the turn to build ethanol capacity makes that a poor business decision, so we will get little or no investment now and a continuation of high gas prices. Politicians don't belong in the market. Nixon's' price freezes in the 70's did tremendous harm to supply and price.

The federal ethanol mandate adds substantially to gasoline prices. Ethanol costs more per gallon than gasoline; it contains less energy per volume so a blend of 90 percent gas and 10 percent ethanol delivers 3 percent fewer miles per gallon; and ethanol has a higher vapor pressure which makes it even more expensive for refiners to meet EPA summertime vapor pressure maximums. The ethanol mandate also adds to costs for blending gasoline because companies now have to manage different two fuel supply chains.

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