Thursday, May 31, 2007

Why John Edwards is stupid

And he's not alone.

Democratic presidential hopeful John Edwards says a wave of mergers in the oil industry should be investigated by the Justice Department to see what impact they have had on soaring gasoline prices.
What? What malicious wave of mergers is he talking about? The last significant round of mergers happened during the 90's, when oil prices were around $10/ barrel. Its interesting to note you didn't hear anyone talking of any oil company conspiracy then -- or anyone suggesting we bail them out. If an an oil company could "rig the game" now, why wouldn't they have done so fifteen years ago when they were all going out of business?
During a planned campaign stop Thursday in Silicon Valley, Edwards planned to berate the oil industry for "anticompetitive actions" and outline an energy plan he says would reduce oil imports "and get us on a path to be virtually petroleum-free within a generation."
"Vertically integrated companies like Exxon Mobil own every step of the production process - from extraction to refining to sale at the pump, enabling them to foreclose competition," says an outline of Edward's [sic] energy plan provided to The Associated Press by his campaign.
So Edwards also clearly doesn't understand the meaning of the word "competition". Apparently to him competition means "being inefficient" in production. Exxon has competitors on every single level of their business. Major oil companies such as BP, Chevron, and Shell compete throughout the vertical range, while smaller niche companies compete on each individual aspect, such as exploration, drilling, refining, and marketing. In Edwards' delusional world, the only companies you can buy gas on a corner from are Exxon, Shell, Chevron, and BP. The only companies you can get to drill your well are Exxon, Shell, Chevron, and BP. The only companies exploring for oil are Exxon , Shell, Chevron, and BP. The only companies refining are Exxon, Shell, Chevron, and BP.

As an investor I can name a few companies off the top of my head involved in the oil business who compete directly with the oil majors on various levels -- privately held Koch enterprises, Holly Corporation, Boardwalk Pipeline, Range Resources, Chesapeake energy...the list goes on and on. The claim of a lack of competition is totally and completely false.

And you know what? As a rule, smaller oil companies tend to get better profit margins than the Majors do. Range Resources pulled 25% last year. Chesapeake did 23%. Exxon was at 9%. BP got 8.25%. To put that in perspective, you can throw money into a CD and get 5.25% easily, any day of the week. Pharmaceutical companies regularly achieve profit margins of 17-20%. Household products as a category pull 10%.

Targeting the oil companies is nothing but a cheap, dirty lie playing on the average person's ignorance. If you believe that oil companies are making "obscene" profits, you are being used.

But wait, there's more. His brilliant plan also includes:
- Expansion of the use of biofuels such as ethanol, including a requirement for oil companies to make available E-85 fuel (which has 85 percent ethanol) at a quarter of their stations. Edwards wants all new cars to be able to use E-85 by 2010.

- Mandatory restrictions on emissions of carbon dioxide with an aim to cut CO2 and other greenhouse gases by 80 percent by mid-century.
How simply uninformed and wrong can you be? Ethanol is not going to replace gasoline. Period. Never. Its not going to happen. Not only is it a net energy loss proposal, but the only way its even close to being economically viable is through massive government subsidies. To make matters worse, even if we used 100% of our farmland to convert we still wouldn't have enough corn to replace fossil fuels. Currently we're making a whopping 3 billion gallons of ethanol per year...using a decent chunk of our current corn production. Sounds like a lot, right? Wrong. The US uses 134 billion gallons of gasoline per year. Not to mention the crippling effect using more and more corn for ethanol instead of food could have on our food supply.

As for the second proposal, it runs counter to the first. That's right, you heard it here first. Ethanol produces more CO2 per mile than gasoline. If you believe in anthropogenic global warming and are concerned about your "carbon footprint," you should absolutely not use ethanol over gasoline.

Quick figures on Ethanol (***warning*** math ahead)

Ethanol has a density of 789 kg per meter cubed (or 2.79 kg/gal). Gasoline has a density of 737.2 kg per meter cubed (2.99 kg/gal).
Ethanol has a lower heating value (or LHV, a way of measuring energy in fuels) of 76,000 Btu/gal. Gasoline has an LHV of 115,500 Btu/gal.

The chemical formula for ethanol is CH3CH2OH. This has a molar mass of 46 g. Gasoline is a big mix and not constant from barrel to barrel but can be reasonably approximated as 70% heptane 30% octane (C7H16 and C8H18 respectively) with a net molar mass of 104.2 g.

One mol of ethanol will produce 2 mols of CO2 in combustion. One mol of gasoline will produce 7.3 mols of CO2 in combustion (via a balanced combustion equation fuel + o2 -> CO2+H2O).

Crunching those numbers produces a net energy per gram CO2 produced of 13.43 Btu/gCO2 for ethanol and 13.28 Btu/gCO2 for gasoline.

In terms of CO2 production per mile, gasoline is 1% more environmentally friendly than ethanol. So much for green.

Now for the real green -- money. Ethanol is subsidized by the government to be cheaper than gasoline. Without these subsidies their costs are approximately equal (around $3/gallon currently). However, both ethanol and gasoline are sold by the barrel or gallon, which are measures of volume. Neither are sold by the Btu, which is a measure of energy. What does that mean? Well, engines don't care about volume. They care about energy. So every time you buy a gallon of ethanol for $3, you just bought 66% of the energy you could have had for the same amount in gasoline. To put that in perspective, it means a car getting 30 mpg with gasoline will only get 20 mpg with ethanol. And that's assuming that gasoline engines, ethanol engines and E-85 or mixed fuel engines all run at the same efficiency (they don't).

But I don't really believe Edwards is stupid, per se. I don't trust him enough to take what he says at face value. I sincerely believe that he does not sincerely believe the drivel he spouts. He's cunning. He wants power. And he'll say anything to get it. Anyone with a calculator can figure out that ethanol is not the way to go. Anyone cynical enough to follow politics should also understand that politicians like Edwards are dangerous.


Anonymous said...

Your right on . . He does not care what he says as long as he thinks it will get him votes.
Totally irresponsible!