What ethanol can’t do?

Dennis Gartman writes a great financial newsletter and recently wrote about the economics of “gasohol.” I will excerpt a small part.

There are any number of reasons why we find ethanol production comical, not the least of which is that it would be enormously unprofitable now were it not for the fact that the farm lobby has been able to extricate all sorts of expensive price support mechanism from the Congress. We’ll not go into that this morning … What we do find worthy of note today is the inherent losses of energy created as we move to make alcohol from corn. Simply put, and rounding to the nearest numbers for the sake of simplicity, we note that in producing 10 gallons of ethanol we need to expend the rough equivalent of 7 gallons of gasoline. That on the surface would look like a fine swap. The problem is that those same 10 gallons of ethanol produce approximately 85,000 BTUs of energy, while 7 gallons of gasoline produce 125,000 BTUs! Thus the ten gallons of ethanol contain the same energy equivalent of only 6.75 gallons of gasoline. So if we follow the logic through … approximately 10.4 gallons of gasoline will end producing sufficient quantities of ethanol to deliver as much energy as … now follow this please … 10 gallons of gasoline.