Petroleum executives think a grain-based ethanol industry will be short-lived because it doesn’t make economic sense.
Stuart McGill, senior vice-president of Exxon Mobil Corp., the world’s largest publicly traded energy company, recently told investors that no “viable, meaningful business proposition” exists for Exxon in ethanol production.
“The nature of the science as it stands today and the technology involved requires significant forms of subsidies and mandates to make a lot of sense,” he was quoted as saying in a Globe & Mail article.
Ted Stoner, western vice-president of the Canadian Petroleum Products Institute, couldn’t agree more. Without a mandate forcing them to blend grain-based ethanol into their fuel supply, oil companies wouldn’t touch the stuff.
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“It won’t go by itself because it actually is more expensive and has less energy value than an equivalent litre of gasoline,” he said.
As of Feb. 1, ethanol was selling for $3.17 US per gallon, more than double the price of gasoline. Pure biodiesel was selling at $3.09 per gallon compared to $1.84 for regular diesel.
Stoner said it doesn’t make economic sense for his member companies to blend alternative fuels at those values. But oil companies have given up debating the issue because they realize society at large is clamouring for these fuels.
While his members have steered clear of investing in grain-based ethanol projects, a couple of major players have put money into Iogen Corp., a Canadian firm attempting to commercialize cellulosic ethanol, made from agricultural and forestry waste.
Once that technology is perfected, ethanol would make economic sense and it wouldn’t steal grain out of the food chain, said Stoner.
In the meantime, his members are faced with the prospect of having to incorporate five percent ethanol into their fuel supply by 2010 and two percent biodiesel no later than 2012 as set out in the federal mandate announced by the Conservatives in December.
Groups have until the end of February to provide the government with comments on the proposed mandate.
Stoner said one of the main messages CPPI wants to communicate to Ottawa is that the mandate shouldn’t be applied to every litre of gas or diesel sold.
For example, the fuel makers would like the flexibility to be able to use a 10 percent ethanol blend in major metropolitan areas and zero percent in remote areas.
“(That way) you don’t have to worry about the infrastructure as you get up into the corner of Spruce and Goose at Nowhereland, Sask.,” he said.
The institute wants the mandates to be phased in but not in the winter when it is difficult to clean and dry out underground storage tanks at service stations.
It said it would take an estimated three years from publication of the proposed regulation to make the infrastructure changes necessary for distribution and storage of renewable fuels.
Stoner said CPPI supports the government’s intention of implementing the ethanol mandate before the biodiesel mandate because it is more of a proven technology.
Quality issues
Oil companies have grave concerns about quality problems with biodiesel that have cropped up in the United States. The petroleum industry is working with the Canola Council of Canada on a demonstration project to ensure biodiesel meets performance standards in Canada’s cold climate.
Stoner said he is encouraged the federal government has said the biodiesel mandate won’t be implemented until those issues are resolved.
Another concern is that there aren’t enough production facilities to meet the proposed two percent biodiesel mandate.
Government officials have indicated that Ottawa is not interested in matching the U.S.’s lucrative biofuel tax incentives so Stoner wonders how that production will get built in time to meet the mandate.
