The cost of gasoline affects us all
The cost of gasoline, whether a fair price or high as a result of speculation, is having an adverse effect on the United States in ways that exceed just the economy. All one has to do is look at any television newscast and you hear the political implication reverberating in the area of Republican presidential rhetoric. All four Republican contenders talk about the high cost of oil and gasoline and blame President Obama and his lack of a meaningful energy policy. President Obama tries to assure us the problem is much more than a lack of “drilling,” implying that we aren’t getting the whole picture.
Those of us who drive a gasoline or diesel vehicle, feed a corn-based product to our cattle, or use any product that has corn in it, are being affected by the situation whether we like it or not, or even understand it. On a CNBC broadcast recently, one assumed expert on energy costs stated that “speculation in the price of oil was adding 50 cents per gallon to the cost of gasoline.”
No way can I verify that number, but he went on to say the list of speculators in the crude oil market included every level of investment entity from individuals to banks and large money market funds and mutual funds. I don’t know how to invest in this wildly erratic commodity market, but it sounds a lot like our recent housing bubble in its early stages.
Somewhere between those of us out here trying to break even economically at the end of the year and those elected to represent us in our nation’s capital, there is a very wide disconnect. When they, Washington, try to manipulate the economy to balance the nation’s growth and unemployment and manipulate numbers such as the Consumer Price Index (CPI), they seem unable to realize their poorly thought out legislation cannot actually work in the long run. The economic laws of “supply and demand” and the laws of nature — that every action causes a reaction somewhere else — are in affect regardless of what the president, or our legislators, desire.
We are several years into our use of corn for ethanol production and the demand of legislation that in 2005 forecast eight billion gallons of ethanol by 2012. According to the web site E85prices.com, in the year 2012 they are expecting to produce more than the 12.5 billion gallons actually produced in 2011. That is up considerably from the nine billion gallons produced in 2008. And, by 2015 the industry is expecting 15 bil- lion gallons of corn ethanol. According to Biofuels Conversion Factors (available on the internet also), one acre of corn is estimated to produce 158.6 bushels. It converts to 439 gallons of ethanol per acre or 2.77 gallons of ethanol per bushel of corn. And, there are other by-products from the process which are gluten feed, gluten meal and corn oil that have to be considered in the actual economic equation. However, if these numbers are correct, it isn’t difficult to recognize that 15 billion gallons divided by 439 gallons per acre yields a lot of acreage devoted to providing the fuel additive that is not producing corn for food and other feed purposes. No matter which side one is on, it is very difficult to prove that our “forced” (legislated) conversion to consumption of a mixed fuel for our vehicles has been effective. There are many unknown variables in trying to assess the actual effect of the ethanol mandate and I can’t find all the information I need to do justice to the frustration it creates trying to understand it. We generally convert everything into a common unit for comparison — gallons, barrels, BTUS, etc. But “they” do an excellent job of confusing the actual cost benefit of corn-based ethanol.
As far back as 2005, an article posted on Slate.com, by Robert Bryce, reported that studies on the production of corn-based ethanol actu- ally required more BTUS of fossil energy (98,000 BTUS) than the gallon of ethanol contained (76,000 BTUS). If we assume some improvement in process efficiency, it would take a 29 percent increase to just break even. The same study showed that producing a gallon of gasoline requires approximately 22,000 BTUS of fossil fuel but the resulting gasoline contained 116,000 BTUS for use as a final product.
All of this is confusing because our government continues to use politically motivated economics to justify the decision all the while subsidizing those ideas that keep their positions in Washington secure. Recently when I paid $3.49 for a gallon of e90 gas, I also paid $8.20 for 50 pounds of corn (shelled corn is 52 pounds per bushel). That is $0.164 per pound for corn and if the figure that it takes six pounds of corn to produce a pound of beef is correct, that pound cost almost one dollar ($.984) and my gas mileage is even less with the ethanol mixed gas. One thing I do know for sure: It is hard to break even at the end of the year when our government is in control of the marketplace.
••• Editor’s note: Leo Lynch, a native of Benton County has deep roots in northwest Arkansas. He is a retired industrial engineer and former Justice of the Peace. He can be contacted at prtnews@ nwaonline.com.