Last Friday Gail Tverberg, a wonderful person and “Beautiful Mind” offered a comment on the day’s post.  Ms. Tverberg is one of the leaders at the oildrum site, where oddly, the argument continues on the petroleum to ethanol matter.  As an actuary and experienced in business and economics Gail offers what might be the world’s best informative view on her chosen topics that can be seen anywhere and is written such most everyone can understand. Here’s some proof, what Gail thinks is something one should know – the link goes back a couple years and when one considers the circumstances today – Gail can change your world as she has mine.  What she concludes might be worth millions, she gives it to us free.

Also held in the hand with the esteem is a leavening, Gail is a lady and comes at things with a feminine and classic view that is security, safety and continuous in its nature – something the individuals of the masculine part of the species take years, maybe decades to acquire, if ever.

There is also Gail showing young ladies with an aptitude for math those maternal instincts harnessing math can change the world and make it a safer and better place.

In the other hand, your writer’s worldview holds more optimism than Ms. Tverberg.  With the onrush of reality she may well be better able to be correct, we’ll see.  Letting go of optimism is very hard, I’ve found. I hope time proves me right, and I suspect she does too.

The next paragraph is the condensed questions from Gail’s comment asked last Friday at 1/7/2011-10:37PM.  My response follows, your comment is welcome.  I think I did OK on the first and remain a bit befuddled on the second.   That’s where joining in can be worthwhile – you might have something that helps Gail help everyone.  Here we go:

“I would tend to look at things . . . and ask questions about whether the ethanol provides much real benefit beyond the fossil fuels that go into it.  I would also ask questions about the sustainability of the whole process . . .”

Hi Gail,

Your note indicates suspicions about the veracity of corn ethanol and the value that might accrue to the economy vs. the petroleum inputs from farm suppliers to the local gas station.  Its not an easy or simple question set.

First, how “much real benefit beyond the fossil fuels that go into it” is a moving target, changing by the second in a world commodity market.  Trying to roll in the petroleum values is rich and rife with potential errors.  Thus, to find a common measure between the petroleum and the ethanol requires a common medium – money.  It was, is and will remain a common unit of value.  The money invested into petroleum and getting to market varies by the circumstances of a well, the same fundamental is true of the bushel of corn or load of sugarcane.  Considering an input of crude to a refinery, which varies in desirability, or the seed and fertilizer to a farm that varies in type, quantity and price, finding the accuracy to the average or mean is quite an exercise.  Its fair to say there will be millions of data points, if not tens of millions.  Finding a quantifiable result for comparison relies on the common unit – money.  But money changes in value, too.  So, how accurate do you need to be? Remember your inputs will be obsolete in seconds and so will the result.

But the work is already being done for you – by the markets.

I re created what I recalled from Midwest high school students estimation on Jan 5 to show roughly the benefit of using petroleum to produce ethanol is quite substantial.  You might call a few farmers and just ask.  The student did, bloggers can, too.  What’s to be found destroys the media and ethanol defamation league’s positions.  Again, I ‘m sorry I’ve lost the link to the student who deserves being noticed and recognized.

A canvassing and survey effort across the breadth and depth of the corn growing region will reveal a surprising difference between the short growing season north and the longer growing season south.  Longer growing seasons dramatically improve petroleum to ethanol ratios when measured in money.

In the meantime the markets, which are driven at the fundamental level by the ‘commercial interests’ that really consume, and the farmers that really produce set the value.  And yes, hedge funds and others get in the market and have an effect, but everyone is try to buy low and sell high off the fundamental value.  Over time the continual momentary irrational becomes a solid fundamental. It goes on right up to delivery – a living market – it’s fascinating to watch.

The past decade has seen China, India and other countries add a great deal to the consumption side of the market.  It’s not just corn; it’s soy, wheat, cotton, rice, oil and gas plus others.  The markets have evolved into bidding for future production to encourage farmers to grow what is in highest demand.   The process is taking place this month.

In most places where agriculture thrives farmers have choices on what to grow.  And they make economic choices based on markets, from information that comes from the developing market information, signals and their own circumstances.

Thus depending on the location, whether or not ethanol has a worthy role depends on the farmer’s circumstances.  He might be in the southeast Missouri Mississippi flood plain where a highly efficient farmer could get to perhaps eight or even more than ten dollars of ethanol to dollar of finished and used petroleum products.

The far north farmer will choose too. But as the cost to income ratio closes the choice may not be corn it could be wheat or canola or sugar beets.  Petroleum products are only a small part of the inputs cost problem that a farmer works through.

What and how much petroleum product an ethanol plant uses varies by efficiency, too.  Those operators are busily driving to higher efficiency as well.   After processing there remains corn vegetable oil, valuable protein, and plant fiber. Those make their way back into the human food chain.  All that’s actually gone is the starch, and incidentally most valuable for people, the emotionally debated food vs fuel components show up anyway freed of the starch saving on processing costs that would have used petroleum products, too. It may be that petroleum use in processing to ethanol or starch extraction might be equal.  I don’t know or need to know.

The only credibly irritated consumers make chemicals and high fructose corn syrup from the starch.  What actually goes to the human world diet is the high fructose corn syrup sweetener substitute whose “food value” is in debate against sucrose sugar. Sugar looks to be wining that issue.  The corn syrup is still competitively advantaged to sugar in price while sugar is healthier.

Its clear that a top flight farm manager in a great location and efficient ethanol plant will produce a huge amount of ethanol for the petroleum input, if the weather cooperates. Its also clear that a poor farm manager in a poor location with a bad weather diminished crop going to an inefficient ethanol plant could easily have a loss of energy returned to market.

Is safe to say that U.S. corn ethanol is a huge benefit to the U.S. and world economy.  The ethanol vs petroleum issue has become a curiosity cul-de-sac of history, but petroleum use merits a lot of thought on the continual improvement for efficiency and conservation, as do all the costs in getting food, energy and other products to consumers.

The second point, “questions about the sustainability of the whole process” and the risks is a massive question.  The answer isn’t just one and likely any one part answered would be a massive undertaking.  There would also be a set of probabilities that could narrow it up, but you know, probabilities aren’t predictable like the near term weather forecast.

For everyone’s information, Gail is an actuary.  In a general sense, that’s the business of projecting the future from what’s known of experience in the past.  It’s a very high caliber mathematics career choice.  It can be very accurate as the pool of information and the pool of applications are increased.  Most folks think of it as way to price insurance premiums where it works very successfully.

Perhaps Gail is asking what my experience driven opinion reveals about the past in the energy and fuels field.  It can be a very long list. Some big ones are weather down to the innumerous growing areas or oil and gas producing areas or solar activity in the natural world to governments regulating business, fooling around with a nation’s currency value and world population pressure in the civilization arena.

Getting a responsible handle on all of that might not defy an actuary, but it certainly defies this writer.  A worthwhile enterprise would be to know what the reserves of various items should be to survive say a severity rated market disturbance of a chosen time period.  The U.S and China, the world’s two largest petroleum consumers and likely others have strategic petroleum reserves in place now.

Whether or not it’s “enough” is about the strength and longevity of the disturbance.  Again, that’s an area of Gail’s expertise.

I will be watching her blog much more carefully now.

Please add your views, in particular on the second question.  Yes, it’s a big one, but if your mind has an intuition if only on a segment, it might be important someday.


8 Comments so far

  1. Al Fin on January 10, 2011 11:05 AM

    The thing that most impresses me abut The Oil Drum is that Gail and company are not afraid to post viewpoints from contributors who have somewhat contradictory viewpoints to the doomer peak oil view.

    Robert Rapier, for example, has posted articles at TOD which conflict with the doomer position. Regular commenters at the site almost had heart attacks, strokes, and malignant hypertension, if their comments on Robert’s articles are any indication.

    The thing I have noticed about Gail Tverberg’s writing is her obvious sincerity. That is something to be highly valued — particularly in person’s with whom one might disagree on an important point.

    As for the idea that “using petroleum to export or import ethanol is wasteful”, that argument ignores the mass of knowledge that goes into the decision-making processes of both importers and exporters in each individual case. Free markets can do seemingly inexplicable things, when allowed to.

    And yet free markets out-perform highly regulated and top-down command markets in the long run.

    I dislike government energy mandates and subsidies. Ethanol producers should have to face a free market and make or break in that milieu. Where are the free markets?

    Perhaps somewhere in the next galaxy.

  2. Gail Tverberg on January 10, 2011 11:12 AM

    Thanks, Brian. I am now writing posts on my own blog Sometimes The Oil Drum publishes my posts, but sometimes not. I put up a new post on ourfiniteworld today, ( ) addressing some of the issues facing corn ethanol. Let me quote some of it.

    I list five issues as being of concern. These are

    1. Not a good enough energy return.
    2. Ethanol production uses resources that could be used for food production, and tends to raise food prices.
    3. Concern about damage to the environment.
    4. Requires subsidies or mandates to be salable in reasonable quantities.
    5. The amount of ethanol produced may decrease, rather than increase, over time.

    With respect to 1. Not a good enough energy return, I say:

    This is the summary report (Please note, wordpress doesn’t allow images in comments, thus please right click on the following link and choose open in a new tab or window for convenience.)

    of a big corn ethanol study done at Berkeley in 2006 that expresses its results in several ways:

    According to the Berkeley study, “Ethanol today” is a very efficient user of petroleum. Even back when this study was done, it used .04 mega joules (MJ) of petroleum for each MJ of ethanol produced. From what Brian is telling me, advances are working to make this ratio even better. So from this point of view, ethanol is very helpful.

    The objection that is raised by Robert Rapier and others relates more to the total fossil fuels used in making ethanol. This is shown in two ways on the chart–as the ratio of fossil fuels to each MJ of ethanol produced (amounting to .774 for Ethanol Today), and as the reciprocal of this amount. This is the “Net Fossil Ratio” amounting to 1.30 for Ethanol Today. This latter ratio corresponds to what one sometimes sees referred to as Energy Return on Energy Invested, abbreviated as EROEI or EROI.

    The objection that is made is that society needs, on average, a fairly high EROEI to operate, because the energy inputs measured in making this calculation are direct inputs (for example, energy of natural gas in running the ethanol plant, energy of natural gas in making fertilizer). Society as a whole needs a lot of indirect inputs as well, such as roads to take the ethanol to the plant, schools for the children of the ethanol workers, and clothing for the workers. We don’t know exactly how high an EROEI is needed on average to run society, but a reasonable approximation is about 5.0. If ethanol was only at 1.3 at the time of this study, even if it has improved somewhat, it is still almost certainly far below the 5.0.

    The question is whether this comparison is fair–and different people would come to different conclusions. When we make electricity, we lose much of the energy value of the coal or natural gas in the conversion process. Similarly, if we build a gas-to-liquids plant for converting natural gas to liquid products, we use a fair amount of the energy from the gas in the process. A liquid fuel is more valuable than the gas, so this makes sense economically. Perhaps we should view making ethanol as partly a way of converting natural gas to a liquid. In this case, the relatively low ratio is not as much of an issue, especially if we have plenty of natural gas. If we don’t have plenty of natural gas, then shortages of natural gas get to be an issue as well.

    We might also compare the EROEI of ethanol to the EROEI of alternative sources of additional liquid fuels for our vehicles. In this case, alternatives would most likely involve ramping up production from Canada’s oil sands. This would involve huge capital investment in plant and most likely considerable addition to pipeline capacity. The EROEI of this would also be low, perhaps 3.0 or less, when all of the pieces that need to be added to the system plus the expected operational inputs are considered. So it is not as if we have many good alternatives for ramping up liquid fuel production with EROEIs better than 5.0. What we have is a choice between less-than-perfect fuel sources.

  3. Gail Tverberg on January 10, 2011 12:27 PM

    I see that in my previous comment, WordPress did not allow images, so Brian put in a link. The post (with the image) can be read at

    Here are the other problems (besides 1. Not a high enough energy return) with ethanol that I discuss in my post:

    2. Ethanol production uses resources that could be used for food production, and tends to raise food prices.

    I think this is the big issue with ethanol production. When poor people around the world are spending 50% or more of their income on food to begin with, they really cannot afford higher prices for food, so higher food prices tend to cause hunger.

    The real issue here is the fact that we live in a finite world, and are reaching limits in many different ways–including petroleum supplies, fresh water, arable land, food supply, and CO2 in the atmosphere. Using corn ethanol instead of petroleum for part of our fuel supply can help us substitute something that is not in short supply for something that is, and temporarily postpone a crisis that we might be reaching.

    The catch is that what seems to be plentiful at one point in time doesn’t always stay plentiful. At the time the decision was made to expand corn ethanol production, we seemed to have an excess of arable land, and corn prices were low. Using some corn for ethanol looked like it would help farmers, and also help increase fuel for our vehicles. There was also a belief that cellulosic ethanol production might be right around the corner, and could substitute, so there would not be as much pressure on food supplies.

    Now the situation has changed. Food prices are much higher, and the number of people around the world with inadequate food supply is increasing. The ethanol we are using for our cars is much more in direct competition with the food people around the world are using, and the situation may very well get worse, if there are crop failures. Cellulosic ethanol is working much less well than hoped, and there are not any other approaches that look close to being commercial, although theoretically, in a few years, this could change.

    If oil supply declines in the future, it is likely that the amount of food that can be produced around the world will decline, because the shorter petroleum supplies will interfere with mechanical planting and harvesting of crops, and with irrigation and herbicide and pesticide application. So as oil supplies drop, the conflict between food and fuel use of corn and of cropland can be expected to increase.

    3. Concern about damage to the environment.

    A closely related issue to (2) is the concern that the growing of corn in large quantities will cause damage to the environment and may make some of our shortages worse. For example, when corn is grown is grown “fencepost to fencepost,” there is concern that it may be planted in areas which are easily subject to erosion. We are already losing topsoil. This would tend to cause us to lose topsoil more quickly.

    Also, water levels are dropping in quite a few aquifers, as a result of excessive water use. The Ogallala Aquifer in particular is dropping. If corn is grown where it needs to be irrigated, there is concern that it will make this situation worse.

    As more and more of the earth’s surface is used for crops, less and less land is available for wild areas. This has an adverse effect on biodiversity. For example, bees and other pollinators may be adversely affected by not having a variety of food sources.

    4. Requires subsidies or mandates to be salable in reasonable quantities.

    At this point in time, corn ethanol is subject to both subsidies and mandates. Of course, oil gets its own forms of subsidies as well, so it is not easy to tell exactly how different costs are, when making a comparison.

    Going forward, the assumption that has always been made is that petroleum costs would rise considerably, making alternatives more competitive. We really don’t know whether this will be the case. Food is a less discretionary item than fuel. If there are shortages of both food and fuel, people will buy food before fuel. So it may be that food prices will rise even more than fuel prices.

    Natural gas prices are very low right now. The expectation is that these will need to rise, if shale gas producers are to make an adequate return on their investment. If natural gas becomes more expensive, this will put even more price pressure on corn ethanol.

    5. The amount of ethanol produced may decrease, rather than increase, over time.

    I mentioned above that the amount of food produced is likely to decrease over time, as the amount of petroleum available declines, because of the use of petroleum in the whole system. It seems to me that some of the same issues may spill over to ethanol production–governments will not be able to plan well enough to protect farmers from shortages. Also, there will be more pressure to move land from ethanol production into food production. Prices for food and ethanol will tend to rise, making it harder and harder for people to afford both fuel and food, so demand for fuel may decline.

    As the amount of oil produced declines, the amount of ethanol that can be blended into gasoline as E-10 or E-15 decreases. So that portion of the ethanol market is likely to get smaller over time. E-85 has not caught on, in part because it tends to be expensive, and in part because there are not enough service stations selling it make it reasonable for flex-fuel cars to be tuned to use E-85 in a more efficient manner. If there is pressure to use more and more land for food, I doubt the E-85 service station situation will get much better, so cars are likely to remain tuned to optimize mileage for gasoline, rather than ethanol. So I expect the proportion of E-85 sold will remain low, although we can debate this.

    I also have a worry that many will think odd. Our financial system is very much tied in with all of our petroleum problems. I am afraid credit problems will become more and more of an issue, and ripple through the system. For example, farmers may not be able to get credit to buy new machinery, or even to buy seed for putting in the new crop. Because of this, production of corn, both for food and ethanol, may drop. Or your local electric utility may run into financial difficulties, and not be able to pay creditors or buy fuel. If there are electrical interruptions, this could affect ethanol production, even if the farmers are able to grow the corn.

    In my post, I didn’t mention ethanol exports as a problem. I suppose the issue is that “our” subsidy is going to help someone else. The theory is that If we are going to subsidize something, we should be subsidizing our own ethanol use, not someone else’s (although, in the end, it all goes to reduce oil use), and both act to reduce our balance of trade problems.

    I don’t see this as a very big issue, compared to the others.

  4. Mitch on January 10, 2011 1:59 PM

    PLEASE BW – don’t answer, let it die in that cul de sac. Lets move on? Tverberg surely knows that study is getting old and the data is even older. The metrics have been shown beyond doubt to be non reality based also long ago. #2 just isn’t so, the only thing gone is the starch. What, the leftovers are landfilled? #3 applies whatever crop is grown – so no crops? Wild buffalo? #4 government fiddles with everything energy and fuel related. The ethanol people are just good at it. So? #5 Yup. Smart, capable, sincere here’s a gem point. But don’t see how targeting ethanol or other biofuels now which sure as (expletive deleted myself)are to be rolled in the scenario is going to keep us fed, sheltered, clothed and moving. The finance thing merits much more attention than we’re seeing. Go Gail – on that! Thats a point poorly explained, explored and considered by the masses. It deserves a blistering in the blog space.

  5. Gail Tverberg on January 10, 2011 2:22 PM


    Regarding (2), you are not understanding what I meant. I meant that arable land and water and fertilizer are being used on corn ethanol, that might otherwise be used on food. This was not an issue initially, because we seemed to have more arable land than we needed, but as things get squeezed tighter and tighter, it is getting to be more of an issue. Also, using corn for food tends to raise food prices, making it more difficult for poor people to afford a reasonable diet.

    I have been writing about some of these issues regarding the decline ahead. I write some fairly disturbing things in The OIl-Employment Link Part 1 and Part 2.

  6. J.P. Katigbak on January 10, 2011 5:57 PM

    It is too sad to know the truth about the consequences of growth skepticism in which are just as, well, philosopically and ideologically different.

    Environmentalism is a different kind of misanthropical idea that results from the romanticization of nature – and one brilliant person needs real proof about this anti-human idea because it would lead to victimhood of human suffering, excessive politicking, the imposition of the so-called “precautionary principle”, and a lot more.

    It will have his or her work cut out before the situations happen in different parts of the world both socially and economically.

  7. willG on January 15, 2011 12:38 PM

    The only replacement for oil that might work is GreenNH3 or The scientists and strategists now believe that BigOil is intentionally funding biofuel and algae research which they know will never work and intentionally ignore some (like those above) which could. This tricks governments to do similar things but keeps money away from those more sure technologies. BigOil wins again.

  8. Beauty supplies on November 27, 2011 10:07 PM

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