May 24, 2007--Fill 'er Up

With the average price of regular gas now at $3.22 per gallon, this will make the cost of driving this Memorial Day weekend the most expensive in U.S. history.

But relief is on the way, right? President Bush is pushing for dramatic increases in ethanol made from corn; and though it will take some time for enough to come on line, this will mean, right, less dependence on “foreign oil” and cheaper fuel for our cars. Yes? Well, not really. Here’s the problem. Actually, here are the problems.

First, according to a report in the NY Times (linked below), oil companies, expecting more ethanol to be required and eventually available, are not building any more oil refineries—why do so if less, not more gasoline will be required? So this means that while demand for gas continues to increase--in spite of fuel costs and alleged concern about the environment, SUV sales continue to increase--the supply for oil products will not be able to keep pace and prices will thus continue to rise. (Price increases are not just related to Exxon-Mobil’s greed but also to the supply-demand curve.)

Second, though various subsides to the corn-ethanol industry are making it profitable for them to build ethanol production facilities, there is growing evidence that ethanol will not prove to be the solution to our energy addiction. It is expensive to produce and the availability of corn depends on the weather as much as anything else. And we can already see what global warming is doing to our and the world’s weather patterns. If we become as dependent on corn-ethanol as we are on gasoline, one good drought in the Midwest and we’ll be paying $10 a gallon for whatever it is we pump into our tanks.

Then of course there is the even more fundamental question—if we are to move to biofuels, is ethanol derived from corn the best way to proceed? There is evidence that it is not. Among other concerns, is it true, as I heard Jim Cramer claim this morning on CNBC, that ethanol is corrosive and thus not easily shippable through pipelines?

I’m quickly moving beyond what I know about this. But I suspect that the push to produce ethanol from corn, rather than requiring more conservation, is likely to be our current administration’s priority because of its desire to pander to the agribusiness lobby as it does to the petroleum industry.

In the meantime, in addition to paying 60 bucks to fill my gas tank, Con Ed in New York is looking for a 17% rate increase, and have you checked the price of corn-fed beef? Not only will it cost a fortune to drive to the shore this weekend, but who will be able to afford to turn on the AC much less make a barbeque?

I’m staying home and ordering in.