HardAssetsInvestor

This segment was taped at the American Stock Exchange, which offers trading across a full range of equities, options and exchange-traded funds.

Mike Norman, anchor, HardAssetsInvestor.com (Norman): Hello everybody, this is Mike Norman, your host at the HardAssetsInvestor.com interview series. Today I have with me Roy Nersesian, who is a professor at the Center for Energy, Marine Transportation and Public Policy at Columbia University. We will be talking about biofuels.
Roy, thanks very much for coming on the show. I appreciate it.

Roy Nersesian, professor, Center for Energy, Marine Transportation and Public Policy, Columbia University (Nersesian): Thank you for inviting me.

Norman: "Biofuels." This is a phrase we hear all the time now. It has really taken hold, obviously spurred on by skyrocketing oil costs. Let's talk about it first in a broad sense. Would you define "biofuels" for us? Of course, we know about ethanol. What else would fall into that category?

Nersesian: Primarily ethanol and biodiesel, which is made from vegetable oils.

Norman: With the energy bill, we seem to want to move in that direction because we want to have a renewable source of fuel, but it is causing grain prices to rise. We see that impacting corn, for example. A statistic that I heard was something like half of the nation's corn crop is being utilized to make ethanol. Is there a link, in your opinion, between rising food costs throughout the world and this push towards biofuels?

Nersesian: I think the first thing we have to talk about is how ineffective [corn-based ethanol] is. Twenty-five percent of the corn crop would provide about 3% of our gasoline. If we were at half of the corn crop, we'd be sitting at 6% of our gasoline consumption, and that is consumed in about four to six years by natural growth and consumption. So we're just going nowhere fast.

Norman: There's a whole debate out there as to whether or not ethanol is actually efficient; that it takes actually more energy to produce ethanol than you get out of it. Is that true?

Nersesian: Quite unlike sugar[-based ethanol], that is unfortunately true. I look at it as the conversion of coal, natural gas and oil to make a motor vehicle fuel. You consume about as much coal, natural gas and oil as you are getting as gasoline. In one way, that helps us because gasoline is our transportation fuel. So we are taking coal and natural gas and converting it through bio-means into gasoline, but we're really not accomplishing much. It would be much better to do it with sugar.

Norman: How about this so-called cellulosic ethanol, which is made out of switch grass and other by-products … waste products in effect?

Nersesian: Well, if you want to make a trillion, billion bucks, get a technology that actually works in an economic fashion [with those materials]. Of course, with prices going up as they are, you're getting closer and closer to that, where you would use nonagricultural land. That's what key. This wasteland, pasture land, grazing land … that's what you bring into cultivation and that becomes a biofuel and that truly displaces the agricultural component in this.

Norman: I'm going to get to biodiesel in a second; I know that's what you specialize in. But how does ethanol compare to gasoline now in terms of price? Would the motorist get a break on that? Is it cheaper at the pump than the gasoline?

Nersesian: I hate to say it will never be cheaper. The only thing that makes it worthwhile is that ethanol doesn't have to pay the fifty-one-cent-per-gallon highway tax. That's the whole secret of the economics. Now as gasoline prices go up, maybe we can cut back on that subsidy, but maybe not because corn prices are going up. You have a bio-refinery spread and that spread has to be enough to cover the cost of the conversion of corn to ethanol, plus transportation of it.

Norman: Let's talk about the biodiesel now. I've been hearing a lot about diesel in the news recently. It's really started to skyrocket. It has the whole trucking industry under a lot of pressure. What is happening now in the area of biodiesel? Diesel is the fuel in Europe and we're actually lucky here in America: We get their excess gasoline because they're using mostly diesel.

Nersesian: Diesel is in Europe. Let's say that in the United States, if all the plants that are being built come online, we will be making roughly 1 billion gallons and we consume 55 billion gallons. So if everything comes true, 1 percent of our diesel will be biodiesel.

Norman: So, still, a very small percentage.

Nersesian: Consumed in one year's growth.

Norman: By any measure. OK, folks stick around, because I'm going to be back with the second half of my interview with my guest. This is Mike Norman and you are watching hardassetsinvestor.com interview series.