Dana Blankenhorn

Obama as Reagan

Think of this as Volume 18, Number 41 of the newsletter I have written weekly since March, 1997. Enjoy.

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One of the most interesting history papers I ever read was written by my son, when he was in high school. (He chose to study biology in college.)

His subject was the Cold War. He wrote that John F. Kennedy talked the language of soft power but mainly engaged in hard power, the use of military force, while Ronald Reagan talked the language of hard power while mainly using soft power, diplomacy and economic pressure.

Much of what Reagan accomplished was obscured by his stupidities, like the Iran-Contra scandal. But one thing he did do was convince the Saudis to increase production and tank the price of oil, which fell to as low as $10/barrel in 1986.

This gave the Saudi family far more influence in regional and global affairs, which is something we’re still dealing with. But it also strangled the Soviet Union and helped bring it down. Lower oil prices also collapsed gold and diamond prices throughout the decade, eliminating the party’s means of acquiring foreign exchange and keep itself afloat. The final collapse became inevitable.

Something very similar is happening now, spurred by the diplomacy of Barack Obama, who despite his use of drones, planes, and Internet wiretaps has mainly focused on soft power throughout his presidency.

Once again, the Saud family is in the oil market’s driving seat. Once more, they’re hitting the accelerator in order to damage regional and global foes. The 20% drop in oil prices has hurt Iran, which is its main rival for influence over Iraq and Syria. The drop has also hurt Vladimir Putin, and the Russian economy is now circling the drain for the same reasons it did 30 years ago.

The fall in oil prices has also hurt Obama’s main rivals for power in the U.S., the oil barons. Our recovery has mainly been driven by rising oil production, and the producers are giving the Administration no credit for that. On the contrary, oil barons like the Koch Brothers have been spending hundreds of millions of dollars to take back the Congress and, by 2016, the White House.

Winning the War Against The Lines

Think of this as Volume 18, Number 31 of the newsletter I have written weekly since March, 1997. Enjoy.

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The problem of lines, and line jumpers,  has something in common with the problem of global warming, and the problem of slow economic growth.

That is its solution. I've been writing about it for over five years now.

The solution is renewable energy.

Think about it. What's fueling the present conflict between Israel and Hamas? Oil money, from Qatar and the other Gulf states, without which Hamas would collapse. As would ISIS in Syria and Iraq. What fuels the Boko Haram in Nigeria? Oil money, or the hope of obtaining it. What makes Putin feel invulnerable in Ukraine? Oil money.

Yet think about this. Texas now gets over 10% of its grid energy from wind. New Jersey gets the same amount from solar. Efficiency and the drive to kick oil is driving all sorts of innovations, from Tesla cars to LED light bulbs. Efficiency pays for itself in energy savings. The amount of grid energy needed by the U.S. has barely changed in a half-decade, thanks to efficiency. The amount of gasoline consumed has also stayed about the same, thanks to efficiency.

Every day, still, there are new breakthroughs happening, in terms of energy storage, in solar panel efficiency and cost, in windmill efficiency and cost, in biomass catalysts. It's all approaching a tipping point.

And that tipping point is closer than it appears.

The Coming Energy Glut

Think of this as Volume 17, Number 38 of the newsletter I have written weekly since March, 1997. Enjoy.

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Even Noubar Afeyan, the MIT professor and entrepreneur I interviewed this week, does not believe it's possible.

The idea of an energy glut is so fantastic, so far outside normal business experience, as to be inconceivable, he told me. Especially given the millions now entering the global middle class in India, in Africa, and in Latin America. Of course they'll want TVs and cars and the other trappings of American life. They will compete financially to get them. And that will keep energy prices high for at least a decade.

But the U.S. is already in an energy glut. Natural gas prices here remain stubbornly below $4/mcf. The “spread” between U.S. oil prices and global prices narrowed to a few dollars recently, but has since expanded again. And E85 ethanol (which actually contains just 15% alcohol) is priced at nearly 50 cents/gallon below the price of regular gasoline.

Will Biofuels Join the War Against Oil?

Think of this as Volume 17, Number 6 of A-Clue.com, the online newsletter I've written since 1997. Enjoy.

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I haven't gotten into the nitty-gritty of the War Against Oil here in some time.

For those who need a quick refresher, the War Against Oil is the chief economic necessity of our time. The Sun shines, the wind blows, we live on a molten rock, yet we still power our world like cavemen did, by digging up shit we can burn and burning it. As a result we're burning up our planet.

There are still (believe it or not) idiots who deny that methane and carbon dioxide are responsible for increased global temperatures, for more extreme weather, and for the melting of ice caps around the world. Some are paid shills for folks who want to dig shit up and burn it. Others are ideologues who scream “no” at anyone saying yes. And some are indeed idiots.

The political winds toward burning shit grew to hurricane force during the Bush years, with the wholesale takeover of the country by the fossil fuel industry. The results were war and (ta da) rising fossil fuel prices. We're now accustomed to paying $4/gallon for gasoline, just as the “boiling frog” got used to hot water, and the industry wants to apply more pressure.

All the fracking in the U.S. is not going to drop gas prices one dime. It's not in the frackers' interest to do it, they control the process of getting fracked oil to market, it's just not going to happen. Besides, fracking costs big money. Margins are thinner from fracking than they are from sticking a straw into the ground and sucking.

The only way we're going to get a thumb down on prices is with an alternative to fracking. And right now, that means biofuels.

Welcome to the 1970s

Think of this as Volume 16, Number 41 of A-Clue.com, the online newsletter I've written since 1997. Enjoy.

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This decade could have easily been the 1930s all over again.

You wouldn't have wanted to go there. We're talking no social safety net, people living in shantytowns, and starving. We're talking 32% unemployment at a time when women didn't work outside the home. We're talking social unrest and the almost-universal feeling that democracy was doomed (DOOMED!), that only the iron hand of the Left or the Right could save mankind from extinction. And then, of course, World War II.

Want to know what the 1930s were like? Look at Greece today. Greece was induced to follow the advice of the bankers, to practice extreme austerity in the face of impossible loan demands, and look what's happening. People are going hungry, and they're turning to a neo-Nazi party called the Golden Dawn for comfort. Not just as an electoral force, but as a social one, which is more ominous. Want to know where Hitler came from? Stuff like that.

Things could have easily gone that way for us, had John McCain been elected. What McCain was promising in the wake of a 1929-like crash was a great heaping helping of Hooverism. Instead we got the stimulus, we got some honest government, and while the problems aren't all fixed – too many bankers are still walking around loose – things are indeed getting better.

The Lesson of Pyrolysis

You back a variety of technologies because you can't be certain where the breakthrough will come. You back losers because you don't want to miss the winner.

That's the big lesson of the biofuels business.

As the Department of Energy's Biomass program explains it,  technologies like methanol production from corn or cellulose, and the Fischer-Tropsch process used to convert algae to fuel, had the early advantage. But when scaled and perfected pyrolysis, in which waste is burned in the absence of oxygen, often at relatively low temperatures, will actually work better.

Had you been looking at the field three years ago, you wouldn't have bet on this. Back then it could cost $7.68/gallon to use pyrolysis for fuel. Even today the cost is $4.55/gallon. But savings across the board, most especially in turning the resulting feedstock into stable oil for refining, will drop that to $2.32/gallon in five years, with a final price estimated at $2/gallon.

The War Against Oil is Being Won

Think of this as Volume 16, Number 10 of A-Clue.com, the online newsletter I've written since 1997. Enjoy.

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With natural gas prices having tanked, and the President being given stick on the campaign trail over high gas prices and failed subsidies at Solyndra and elsewhere, it may be hard to see that the War Against Oil is being won.

But it is.

The War Against Oil is a long-term project, begun some years ago, meant to wean the market from its dependence on fossil fuels and create a new era of sustainable abundance. It is at the heart of today's politics, oil interests having taken command of our politics 12 years ago and retaining an absolute stranglehold on the Republican Party. But this is, in the end, an economic struggle, and what ultimately matters is cost.

Solyndra, and the other loan guarantee recipients who have struggled, are in fact symbols of this war being won. They failed because their low-cost technologies could not compete in the marketplace, against lower-cost technologies. Because of the pressure created by companies like Solyndra, solar panel production costs are now below $1/watt, and they continue to decline.

The ultimate goal is a cost of roughly 50 cents/watt, which would make solar energy the cheap energy for much of the electric grid. It's already the obvious choice where the grid doesn't exist (which is most of the world), and it can be delivered where it is produced, a huge cost advantage.

Right now the market is dominated by a single technology, polysilicon, and by a single country, China. But the opportunity is so huge that American innovators, working with organic compounds, mirrors, and rare earths, are poised to blow through the current cost floor over the next four years and achieve real grid parity. And it's that point that is key here, because once you're competing effectively on price with fossil fuels, all you need do is scale profitable production to knock those fuels out of the market.

The current reduction in subsidies, in Germany, England, and elsewhere, sounds like a defeat but is in fact a victory. Because these subsidies were always based on cost, and as costs for solar fall it's natural that subsidies will fall with them. Remember, the goal isn't subsidized power, but lower-cost power, without use of fossil fuels.

Wind is problematic. Over the long run, I don't think it competes with solar, because its costs fall only arithmetically, not geometrically as tech costs do. But wind is highly reliable. What's most important about it is that it has gotten buy-in from utility companies who have found markets for the resulting power, with “green credits” that draw companies like Google, Kohl's and Starbucks into paying subsidies so government doesn't have to, and which gives them an appetite for green power.

All of which brings us to cars.

Why Gas Prices Are Rising

It's not what you think. Drilling has nothing to do with it. Oil prices have little to do with it.

This is a story of conservation and content. The story is in the refineries.

The gas you use in winter is different from what you use in summer. It's different depending on where you live.

Gas used in the winter contains a lot of butane. Butane is cheap, but it turns to gas at about the melting point of water. That's why your gas cap has a “vapor lock” – it's trying to trap the gases in the gas in the tank, so they can be used, rather than blow away and be wasted.

What replaces butane in summer gas? Mainly ethanol. Alcohol. It can be made in the refining process, or it can be made in other ways. Ethanol costs more than butane. Some people pay as much as $250/gallon for it – if it's properly aged in the right barrels. But even the cheapest ethanol has a price higher than that of butane.

Lessons of Brazil's Renewable Boom

While America has spent the last decade sitting on its assets, the socialist government of Brazil has been building a renewable future that holds important lessons for the rest of us.

That future is based on hydropower, wind and sugar. It may not be a model we can follow easily, but it means Brazil is getting about 45% of its energy from renewable sources and will continue to do so throughout the decade, despite an expected skyrocketing demand. The result will be carbon emissions at half the level of 2000, only with a middle class economy.

That's pretty good. A little efficiency and even a few steps toward that direction in this country could set oil prices back down to 1980s levels. So what's the secret?

Location, Location, Location – Different power sources work best in different places. In Brazil's case, that means wind power in the Amazonian north, water power in the river-laden south. What you have should determine what you build first.

For America that means solar is the low-hanging fruit in the American deserts, it's wind in the Midwest, and it may be something else in the East. The less you need to transport power, the more of it you keep, so using it where you make it also makes sense.

Have a Plan – Planning has a bad odor for Americans, but it works in Brazil's case, and it works for capital industries in this country, like utilities. Having utility companies plan for future supplies, based on the assets nearest at hand, can deliver results.

Renewable Doesn't Guarantee Green – Brazil's trump card in the renewable power arena is sugar cane. Sugar cane uses up the soil, it uses lots of water. You can't grow it everywhere. It generates waste, and pollution. Burning it also pollutes.

An Opportunity Agenda

Think of this as Volume 14, Number 33 of A-Clue.com, the online newsletter I've written since 1997. Enjoy.

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This is the point in any crisis Presidency when the ghouls come out.

The problems haven't been solved. The President seems to be moving too slowly. He's trapped between his need to be the old AntiThesis (Clinton the Triangulator in this case) and the old fading Thesis (Bushism) still practiced in the Capitol. His own troops are dejected. Change is hard.

What turned things around for all past crisis leaders was, simply, an agenda. Setting a course against the true enemy, in defiance of political assumptions, is the test of leadership.

In the current case, that agenda is simple.

The War Against Oil.

As I've said before, a climate bill isn't really a climate bill. It's really a jobs bill. It's also, right now, the hardest bill to get through the Congress. Republicans won't touch it, and many Democrats are wary as well.

The argument is over stimulus. The question should not be how much, but what the stimulus does. A stimulus that doesn't take us in a useful direction is mindless spending. Whether that's in the form of government aid or tax cuts, it's equally mindless.

We need a stimulus that creates stuff.

The last depression was ended by World War II. Republicans love to say that. They don't like to admit that the war was fought at a deficit, although it was. But we don't have to build bombs to win this war. We can win it with plowshares.

But we first have to declare it.