The New Ethanol Debate

May/27/2011 16:17PM
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Two big rich oilmen are on opposite sides of an important issue. The issue is government subsidies to get CNG in place for trucks and buses.

Charles Koch, CEO of Koch Petroleum, the second largest privately help company in the US, says no. Koch feels any time the government get in the free market unfairness happens. He cites ethanol as an example. Koch wants the ethanol subsidies to go away and stay away. He believes CNG can do fine in a free market. It costs more for a diesel rig, $100,000 more by most accounts, but the savings will give a quick return on that investment. It will take large investments to provide fueling outlets for those CGN vehicles, but less than it took to convert to unleaded gasoline and there was no government subsidy for that. Consumers can have CNG dispensers on their garage walls. Now, that cost is $6,000, but it’s dropping.

Koch feels the CNG market should develop as a free market. No favorites will be played and the economics are good enough now to make that happen.

Pickens, while he agrees with Koch about dropping the ethanol subsidies, wants a lot of tax dollar help for CNG. He says Koch opposes it because he is in the gasoline, diesel, and chemical business and he doesn’t want the competition or the raw material costs to go up for his chemicals. Pickens has invested millions in CNG and has fueling stations now for metro buses and delivery vans. Pickens feels it smarter to invest in CNG infrastructure than to give money to the Middle East for oil.

So, who is right in this debate? You pick our side, but I’m with Koch. If CNG really gets rolling, and it will if natural gas prices stay low compared to crude oil, there is no need for government aid. Fleets, like the UPS fleets now converting will happen. As demand for CNG conversion equipment goes up, prices will go down. If enough CNG vehicles happen, fueling locations will emerge.

The only government help we need is for the government to stay out of the fracking issue. If oil companies can continue to find and produce new natural gas wells without Obama and his EPA freaks stopping them, CNG will happen and happen quickly.

Call it a deficit savings. The government can stop spending billions on ethanol. The government can stop paying for Hollywood types to buy Volts, since no one else is buying them. The government can stop subsidizing billions in other bad ideas and sit back and watch capitalism at work. The combination of plentiful natural gas here in the lower 48, which will keep the price down, and emerging technology to build or convert to CNG vehicles will push this along quickly.

The threat to this is not government help, it’s government interference.

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