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We have the initiative, but do we have a plan?by John J. Fanning
“For every action there is an equal and opposite reaction”.
Isaac Newton
Newton’s 3rd Law of Motion
At his state of the union address, President Bush announced an initiative
to replace 75% of U.S. oil imports by 2025. To achieve this objective, the
President has requested an additional $150 million for the Biofuel Initiative
- a 60% increase over 2006 expenditures.
According to the Department of Energy, the Biofuels Initiative will “lead
to the use of non-food based biomass, such as agricultural waste, trees, forest
residues, and perennial grasses (being used) in the production of transportation
fuels, electricity, and other products.”
From a geopolitical standpoint, there is very little to argue about in the
President’s initiative. Reducing dependency on Middle East oil is a smart
move. After all, it isn’t like we have made any new friends in the neighborhood
over the past six years. To Americans, the Middle East is like a gas station
in a bad neighborhood. We may need the gas, but we have no intention of lingering
about and making small talk with the attendant.
The idea of taking soybeans and corn and turning them into fuels that power
our SUV’s just sounds like the right thing to do. Sure, it may cost us
more for an ear of corn in the future as demand for fuel puts pressure on the
salad bar, but that’s a small price to pay for growing our own and achieving
energy independence.
You can obtain about 446 liters of crude oil from one hectare of soybeans,
and about 172 liters of crude oil from one hectare of corn. So I suppose corn
biofuel will be rated “premium” at the pump in the future. Besides
corn and soybeans, there are many other types of organic vegetation that can
be converted to biofuel. Palm oil, for example, is extracted from the fruit
of palm trees. Palm oil can produce 6,000 liters of crude oil from just one
hectare of land. Because of this extraordinary ability, palm oil plantations
are being planted throughout Asia. Millions of hectares of former rainforest
across Malaysia, Indonesia, and Thailand have been cleared to cultivate palm
oil. It has become the world’s number one fruit, surpassing the banana,
which doesn’t have the ability to fuel much more than a minor appetite.
This rush to plant palm oil plantations throughout Asia is bringing an end
to the orangutans that inhabited the rain forests. Unless we can devise some
plan to get debit cards into their hands, orangutans will probably disappear
from the Earth. Some Asian countries are trying to form a palm oil cartel,
like OPEC, with the intentions of controlling the price of palm oil. But because
palm oil can be cultivated in so many places, that could prove to be a non-starter.
Ironically, palm oil originated in the rainforests of West Africa. That being
the case, you might think that palm oil plantations would be best suited for
cultivation there as opposed to Asia. But despite their origin, Asia now produces
twice the amount of palm oil, as does all of Africa. In the future, this will
probably change. As stability comes to West African nations, money will be
invested in palm oil production and West African nations may stand a chance
of finally cashing in at the global marketplace.
Technically, palm oil can be cultivated anywhere within 10ยบ of the Equator
so long as there is sufficient rainfall. At present, palm oil sells on the
market at about $400 per metric ton, which translates into about $54 per barrel.
So if you were wondering why OPEC has dropped their price for crude to around
$54 per barrel, keep in mind that palm oil and the research going into the
improved cultivation of palm oil as a biofuel is something that OPEC nations
don’t particularly want to encourage.
As more palm oil plantations take root throughout the world, the price of
palm oil will drop. And as more biofuel plants come on line, the price of crude
oil will also drop. This is the basic law of commodities trading. Supply and
demand will work to offset the price of crude oil making all fuels cheaper.
Crude oil, which for hundreds of years was the only game in town, now has to
compete on the marketplace with suitable alternatives. And this makes all of
our lives more interesting. In the very near future, Engineers will not only
be checking the price of oil in the spot market, they will also be checking
the price of various biofuels.
As for biofuel production in the U.S., a lot of people are looking to cash
in on the President’s new initiative. But it is important to understand
that biofuel production will be subject to the same economics as every other
commodity. It remains to be seen if corn and soybean derived biofuel can compete
against palm oil and cheap crude. What the President’s initiative really
did was wake up America to the fact that there are alternatives to crude oil.
And now that everyone sees it, it will be very interesting to see what finally
results. For years and years Americans paid lower prices for gasoline than
most everyone else in the world. Will American be willing to pay higher prices
than everyone else in order to preserve a homegrown biofuel industry?
For years environmentalists have warned of the importance of saving the rainforests.
Will the promise of riches derived from palm oil cultivation be the deathblow
to these already endangered habitats? Will future generations of Americans
ride along with the family in the biofueled SUV’s to Disney World to
experience what was an actual rainforest?
And what about the land needed to farm biofuels? From 2000 to 2005, Wisconsin,
a state with great arable land, lost 5% of its farmland to development. That’s
about 30,000 acres a year lost to concrete and blacktop. How can the U.S. sustain
and grow a biofuel industry while at the same time it feeds the world with
commodity exports and plows under its farmland to build gated communities?
It just seems to me that besides an initiative, we should also have a plan.
Hmmm, where have I heard that before?
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