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Prepared by the
Institute for the Analysis of Global Security

March 28, 2005
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Energy Security Current Issue

What the 9/11 Commission missed
One of the main conclusions of the 9/11 Commission is that in order for the U.S. to prevail in the war on terror it must develop a multidisciplinary, comprehensive, and balanced strategy, which integrates diplomacy, intelligence, covert action, law-enforcement, economic policy, foreign aid, homeland defense, and military strength. IAGS' Gal Luft argues that a key component is missing.

The Connection: Water and Energy Security
Allan Hoffman, former associate and acting deputy assistant secretary for Utility Technologies in the Office of Energy Efficiency and Renewable Energy of the DOE and IAGS Advisor, explains why water and energy security are inextricably linked.


Saudi Arabia in Crisis
IAGS' Anne Korin presented a strategy for reducing U.S. dependence on Saudi oil as part of a conference hosted by the Hudson Institute on July 9, 2004. Watch the event (Anne's presentation starts at 02:38:35.)

On the technology front How utilities can save America from its oil addiction
Utility companies which have traditionally viewed themselves as providers of "power" for lighting homes or powering computers, can now break the dominance of Big Oil in the transportation energy sector and introduce much needed competition in the transportation fuel market. Gal Luft explains how.

Comparing Hydrogen and Electricity for Transmission, Storage and Transportation

Study: Coal based methanol is cheapest fuel for fuel cells
A recently completed study by University of Florida researchers for the Georgetown University fuel cell program assessed the the future overall costs of various fuel options for fuel cell vehicles. The primary fuel options analyzed by the study were hydrogen from natural gas, hydrogen from coal, and methanol from coal. The study concluded that methanol from coal was the cheapest option, by a factor of almost 50%.

Major improvement in fuel economy and range of Honda's fuel cell vehicles
The 2005 model Honda fuel cell vehicle achieves a nearly 20 percent improvement in its EPA fuel economy rating and a 33 percent gain in peak power (107 hp vs. 80 hp) compared to the 2004 model, and feature a number of important technological achievements on the road to commercialization of fuel cell vehicles.

Biodiesel fueled ships to cruise in Canada
A Canadian project will test the use of pure biodiesel (B100) as a fuel supply on a fleet of 12 boats of various types and sizes, 11 boats on pure biodiesel (B100) and one on a 5-percent blend (B5).

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Back Issues

Yogi and Gasoline

Said a famous NY Yankee, “Its déjà vu’ all over again”. Just when we thought Yogi (as an affable stand-in for our erstwhile political leaders) was enjoying his retirement, he’s floating the idea that the solution to our liquid fuels challenge with the Middle East is based upon a new concept, making usable liquid energy forms out of indigenous U.S. supplies of carbon, a.k.a. coal. Well Yogi, there’s a big, big difference between technological feasibility and political will and that difference makes all the difference.

Nearly twenty five years ago, I was engaged in a program of national importance - The U.S. Synthetic Fuels Program. Announced, as I recall, as a $60 Billion dollar program to “free us” from dependence upon Middle East crude oil, hundreds of engineers, scientists, financial wizards and executives spent years trying to find the most effective means to make crude oil from shale deposits, synthesis gas (syngas) from coal, and liquid fuels (in my case - methanol) from syngas. After thousands of man-years and about $1 Billion dollars of cost, we got our answer from Washington, D.C. - shut it down!!! Thank you President Carter. Ten years later, I read a local interview with the former head of the Synthetic Fuels Corporation in which he claimed victory, since the whole Synfuels program was a bluff that caused OPEC to blink and lower prices. As a result, we stopped investing in developing future liquid fuel options. Well, fast forward another decade. After two Middle East wars, hundreds of billions of dollars, and thousands of U.S. lives, today’s Yogi (politicos) wonder why gasoline is so expensive and lament that we can’t run our autos on hydrogen yet. Where’s the real Yogi when we need a respite from reality?

Here’s what I learned during my four year investment and intervening years:

  • The world-wide energy crisis is driven by the cost and availability of gasoline.
  • The U.S. has a 200+ year supply of usable fuel in the form of coal.
  • We can convert coal to methanol using proven technology in “zero discharge” plants.
  • Methanol is a high performance motor fuel – just ask the Indy car drivers.
  • Methanol can be stored in tanks, transported by pipeline or tanker and pumped into our cars just like gasoline, which minimizes conversion costs for our fuel infrastructure.
  • Auto manufacturers can produce methanol engines at the same cost as gasoline engines.
  • Methanol is not a threat to groundwater, per the EPA.
  • We can build coal to methanol plants in Illinois, Ohio, Kentucky, and West Virginia – creating jobs in regions that need investment.
  • Since methanol from coal will be more costly to produce than methanol from natural gas, we have to develop some measure of national resolve to allow investment sufficient to produce the amount of methanol needed long-term.
We have minimal technological, environmental and infrastructure conversion cost risks in converting our cars from burning gasoline to methanol. The biggest risk is financial and it’s a risk that U.S. energy companies won’t take. And who can blame them? The Middle East (Saudi Arabia) has pricing power by virtue of its control over marginal supply. If the U.S. makes a significant move toward building coal to methanol facilities, OPEC could pull a reverse Synthetic Fuels gambit on the U.S. Crude will suddenly become plentiful, gasoline prices will drop to $1 per gallon, and the billions invested in coal to methanol plants will be wasted. The cycle repeats. So, to implement a viable liquid fuels strategy, we have to be a bit smarter this time.

Geopolitically, it’s all about emerging consumers. China and India, two countries with over 30% of world’s population, are driving the current crisis. Increasing liquid fuels demand from China and India is the principal reason why crude prices are spiraling, as demand is forecast to outstrip supply. As these countries experience rapid industrialization, the demand for liquid fuels will outpace the supply of crude oil, keeping the cost of crude very high for some time. And we keep getting reports that both China and India are keen to make energy deals and invest to build a more secure supply of liquid fuels. While the world watches, both China and India are embarking on long-term dependence on Middle East crude oil.

To counter this impending disaster, I advocate a two step strategy that minimizes U.S. pain and the need for immediate investment, while improving crude oil supplies and lowering price pressure. The first step requires convincing both China and India that their best long-term fuels strategy is to convert their indigenous coal supplies into methanol. This investment program will provide local jobs, a cleaner environment, and drastically reduce their long term reliance on fickle Middle East nations. A major program by both countries will require U.S. technology, equipment and personnel skills, allowing us to establish best practices for the production facilities, transportation, and use of methanol for automobiles, while repatriating bloated foreign reserves of U.S. dollars, especially from China. And while these countries make this strategic investment over the next 25 years, crude oil suppliers will gradually lose pricing power.

The second step is for the U.S. to build its own coal to methanol facilities, allowing 15-25 years to make the full conversion, after first assisting China and India. This long-term conversion window will keep U.S. aggregate financial risk lower and allow slow but steady progress to avoid operating in a crisis mode. This time window will also allow U.S. energy companies to more purposefully plan and make sound financial decisions with less government involvement. If government involvement is required (and it may be), tax incentives and other risk reducing inducements can be phased in gradually, as we adjust to a changing liquid fuels supply, reducing the need for economic shocks and other dislocations.

But, my biggest concern in implementing this two step liquid fuels strategy is the same disappointment I faced twenty five years ago – the lack of political will. If we can’t sustain the will to implement this long term strategy, we will be faced with a continued reliance on unreliable suppliers, high costs, and, yes, more armed conflict. We need to be smarter this time and have some backbone. As Yogi said: “When you come to a fork in the road, take it!”

Peter J. Vanderzee spent ten years in the energy industry and was a project manager for a $1 Billion Synthetic Fuels project.