(AP Photo/Charlie Neibergall)

As The Investment Edge column and blog have indicated, probably too many times, we are likely to have a boom in the years ahead, thanks to cheap energy. No matter what the presidential contenders said about how much they loved coal — could they have been soliciting votes? — the reason utilities are using natural gas instead is not because it’s clean, it’s because the stuff is doggone cheap.  

My monthly checks for the sale of natural gas used to be in the hundreds, and now I’m lucky when a month brings $30 combined — and that’s for a number of partnerships. Why would a utility or manufacturer buy coal? Natural gas is cheap and environmentally friendly, too. And it is abundant. Horizontal drilling and shale fracking (hydraulic fracturing) have made the United States into a new Saudi Arabia, at least so far as reserves are concerned.   

No matter who won the election, this country was bound to be net energy independent within 20 years’ time and probably sooner than that. No one can stand in the way of a boom, at least not for long. (Oil that is refined into fuel for cars is also abundant in the extreme in the United States, but the pump price is set more by the international market than by the purer economic supply and demand rules of domestic natural gas.)

In the midst of all this cheap energy, our government has responded by coming up with E85, an mix of 85% gasoline to 15% ethanol, which apparently will begin to be available soon in a gas station near your home.  

The only way that the current 90/10 fuel mix works is because of government subsidies, and the main reason for an ethanol mix at all, at the moment, seems to be the support of various politicians by the ethanol lobby. These yahoos, in turn, seem to support ethanol production because of campaign contributions, which indirectly are probably paid by taxpayers through those selfsame subsidies.     

I think the ethanol and corn lobbies used to be aligned — is that still true? Maybe not. There is significant angst over ethanol prices (remember, there is a subsidy, too) driving the price of corn into the stratosphere, making the yellow stuff far more expensive for animal feed and for export to third-world countries. Only the government would figure that we need ethanol when its competition is getting cheaper. In Brazil, they let ethanol (and the ethanol there is made from switch grass and other cheap stuff, not relatively expensive corn) and gasoline duke it out at the pump. This choice allows the market to work. Consumers make choices daily based on market prices; they may buy either fuel at the same fueling station.

The other thing about E85 is that at least four auto manufacturers say they will not honor warranties if the 85/15 mix is used in their cars, and finally, the E85 mix may be lethal to pre-2001 automobiles. (I’m getting a picture in my mind of lots of lawsuits. Maybe this is all a relief act for those in the legal profession. People who have cars damaged will sue everyone — governments, fuel companies, fuel retailers, auto manufacturers that don’t honor warranties and on and on.) 

Have a great week, and pray that the federales handle the Affordable Care Act — our new health insurance mandate — better than they handle ethanol. Both seem to be explosive subjects; if so, the title of this blog may have a double meaning.

 

For more from Richard Hoe, see:

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