The Energy Problem - Essay Example

"We think that the recent run-up in gasoline prices has significantly increased the likelihood that we will see another gas crisis in the near future. This is regardless of whether there is a true shortage, or if it's just panic buying that takes hold. Don't be surprised to see gasoline rationing being put in place as soon as this occurs, whether it is imposed by the retailers, or by the government. Don't be surprised to see long lines at the pumps, a la 1972." (The Coming Gasoline Crisis). This paper will deal with the gasoline crisis and it will compare the cost of production of Gasoline to Ethanol in order to suggest a solution to this problem.

The conclusion will sum up the major points of the paper. "In 2003, the U.S. Department of Agriculture surveyed 21 dry-mill ethanol plants to estimate their 2002 production costs, including both variable (feedstock and plant operation) and capital expenses. These plants produced about 550 million gallons of ethanol in 2002. Net feedstock costs for the surveyed plants ranged from 39 to 68 cents per gallon in 2002. For cash operating expenses, the average energy expenditure was 17.29 cents per gallon.

Labor costs ranged from 3 to 11 cents per gallon, maintenance costs from 1 to 7 cents, and administrative costs from 1 to 18 cents. For capital expenditures, new plant construction costs from $1.05 to $3.00 per gallon of ethanol." (Ethanol). There has been a significant rise in the production of Ethanol over the years, the facts speak for themselves and it is found that only 200 million gallons were produced in the year 1980, on the other hand the year 2004 saw a high increase in this figure, it was found that 200 million of Ethanol was produced during the year, the same also gave rise to the no of Ethanol plants.

Way back in 1980s Ethanol was only produced as a fuel meant to extend the supply of gasoline. "In 2004, more than 80 percent of the ethanol produced was used in State oxygen-mandated markets and in a winter-oxygenated program. The rest was used to enhance the octane rating in gasoline throughout the United States. Ethanol production has also been boosted by improved technologies for growing corn, a major input; corn yields increased an average of 40 percent per acre from 1979-81 to 2002-04." (Ethanol).

When the operational cost of Ethanol is taken into account, it basically involves two factors, namely capital costs and variable costs. Some of the components which come under variable costs include electricity, water etc. This is called variable cost because it never remains constant, the price keeps varying. As far as the largest operating expenses are concerned, it was found that in the year 2002 on an average 17.29 cents per gallon of ethanol was produced, which is way too high. In the Capital costs segment it was found that "For new plants, construction costs ranged from $1.05 to $3.00 per gallon of ethanol.

The average cost of building new plants is lower than in the past, possibly due to designs that exploit economies of scale. Of the 21 plants responding to the survey, 16 increased their capacity in 2002 by a combined 253 million gallons per year. Average investment to expand