BP PLC's announcement that it would have to shut down its Alaskan oil field at Prudhoe Bay and replace 22 miles of pipeline that had become corroded sent crude oil prices up more than $2 a barrel to a near-record $76.98 on Aug. 7.
Oil prices eased down the following day after Energy Secretary Samuel Bodman announced that supplies from Saudi Arabia and Mexico could help make up the estimated 400,000-barrel-per-day shortfall from the shutdown. But the development was one more example of the roller coaster oil prices have been riding.
Speaking at the recent Milan No-Till Field Day, University of Tennessee economists said research on alternative crops such as switchgrass could one day help ease the heartburn that American motorists have begun to feel every time they drive up to the gasoline pump.
“The bottom line of the message we want you to take home today is that agriculture can play a significant role in providing energy,” says Daniel De La Torre Ugarte, associate professor of agricultural economics at the University of Tennessee. “We believe agriculture has the ability to generate a $25-billion industry for energy production.”
Ugarte and Burton C. English, professor in the Department of Agricultural Economics at UT, have been participating in a study involving switchgrass production funded by the U.S. Department of Energy and the Oak Ridge National Laboratory.
Farmers in Henry County in west Tennessee are growing switchgrass, baling it and shipping it to Gadsden, Ala., where it is being substituted for some of the coal at an electric generating plant. But the UT researchers and others say they believe switchgrass may be more valuable as a feedstock for cellulosic ethanol.
“We believe ethanol could help reduce imports of oil destined for refining into gasoline by 1.5 billion barrels a year,” says Ugarte, one of the authors of a series of papers on bioenergy crop production in the United States. “That could produce savings of $230 billion at current prices.”
A Washington, D.C.-based organization called the 25×'25 Work Group has been talking about trying to replace 25 percent of the country's energy needs with renewable sources such as wind, solar, biomass and biogas by the year 2025.
“Achieving that goal implies producing 72 billion gallons of ethanol or the equivalent of 2.5 times the current U.S. production of corn,” Ugarte says. “So we're talking about a huge demand for feedstock. That is where the opportunity is.”
He said researchers have realized energy suppliers cannot rely solely on corn to meet the goal of 25 percent renewable fuels in that timeframe and have been working with sources of cellulosic feedstocks such as switchgrass to fill the gap.
“We're going to rely to a lesser extent on corn because there are better feedstocks than corn for producing energy,” Ugarte notes. “And those are the cellulosic materials. We think the demand for such materials could grow to nearly 1 billion tons by 2025.”
One of the drawbacks of producing ethanol from corn is that the corn must first be converted to sugar and the sugar then fermented into alcohol for marketing as ethanol. Cellulosic materials, which can be converted directly to ethanol, require less energy to produce.
Ugarte displayed a chart that shows the UT economists' projection of how the growth of alternative fuel sources might play out over the next 19 years. Production of energy crops, such as switchgrass, is expected to increase from almost nil to more than 200 million tons during that timeframe.
How can the agricultural community produce 1 billion tons of cellulosic material when farmers currently devote most of their acreage to grain and fiber crops?
“It will require significant changes in land use,” he says, adding that economists are projecting farmers could be growing 27 million acres of switchgrass by 2015 and 49 million acres by 2025 if the demand for cellulosic ethanol materializes.
The economists think 15 million of those acres could come from the Conservation Reserve Program, either through a release from CRP or from the government allowing the harvesting of switchgrass on those acres. Other acres could be transferred from conventional crops.
“As the prices of switchgrass and other cellulosic feedstock materials increase, they will be able to compete for acres on an equal basis with corn, soybeans and wheat,” he said. “In a span of 15 years or so, we will probably shift about 11 million acres from soybeans to switchgrass and about 6 million acres from wheat. We expect corn to hold its own because of the demand for ethanol.”
While some analysts have been raising questions about the impact the increased demand for energy supplies could have on commodity prices, the UT economists don't see ethanol production taking food out of the mouths of consumers.
“In terms of corn, we expect prices to go from $2.28 per bushel to $3.01 by 2025,” says Ugarte. “That's hardly a record. The same is true for soybeans. We could be talking about $7.48 per bushel, which, again, is not a record price.
“So, yes, the potential is for prices to move up, but still within ranges that we have seen before.” (The economists project that the price of switchgrass could reach $49 to $50 per ton in 2015 and $65 per ton by 2025 if the demand for cellulosic ethanol materializes.)
For now, scientists believe switchgrass can be grown anywhere in the United States east of the Rockies. “We think Tennessee can be one of the states where switchgrass can begin to take hold as an energy crop,” says Ugarte.
As the demand for renewable energy supplies increase, the economists foresee marked improvement in net farm income — by as much as $25 billion — and a decline in government payments — of $2.5 billion — over the next 20 years.
The changing energy mix could have a direct impact of $154.7 billion and a total impact of $560 billion on the national economy by 2025 with a net economic impact (after subtracting revenues displaced by the decreased demand for gasoline) of $129.8 billion and $465.8 billion. The economy could also see a net gain of 3.5 million jobs.
“We believe this has the potential to be a win-win-win situation for agriculture and for the U.S. economy,” says Ugarte. “But somebody has to start the process, and that's what we're working on now.”