JetBlue Airways CEO: Coal Could Be Answer To High Oil Prices

The Columbia Journalist:
"Instead of scaling back on costs, Neeleman said he is investing in methanol research. Methanol is fuel made from coal and while it has less energy per gallon than both ethanol – the corn-based fuel touted by President George Bush in his State of the Union address – it is also significantly less expensive."

So good to hear someone prominent echoing what I have been saying in the alternate energy policy debate, "Don't forget coal."

This is the dirty little secret of the "we're running out of oil" hysteria. Going back to the early days of gas lighting utilties, coal was used to produce gas for illumination. In many places this continued to be the case when gas had been relegated to a heating fuel until the natural gas pipeline system was built (i.e., late 1800s to mid 1900s).

In WW1, the British experimented with making oil from coal in response to the threat posed to imports of petroleum products from German U-Boat activity. It worked well enough, but it was expensive and after the war ended interest in the process died.

In WW2, it was the turn of Germany to look to coal as a source of petroleum products and synthetic rubber. With the end of the war and resumption of normal international trade, such plants shut down.

During the anti-apartheid trade sanctions against South Africa, they turned to coal as at least a partial replacement for petroleum. When sanctions ended, petroleum could be purchased in sufficient quantities at lower cost from conventional sources.

In each case, it was just a matter of money. So, you may ask, why has the recent rise in oil prices brought more discussion of oil from coal?

First, the recent rise in nominal, dollar-denominated, cost of crude oil and refined products is primarily a function of the debauching of the dollar. When monetary inflation raises the nominal price of petroleum, it also raises the nominal cost of producing alternatives.

When, if, we see the price of crude oil rising from actual scarcity (what we economists call real rather than nominal price) - the inability of supply to keep pace with demand, then there will come a point where petroleum products derived from coal will become cost competitive with oil and act as a brake on further real increases in petroleum product prices.

Second, there is an unwillingness on the part of politicians to raise the ire of the environmental lobbies by arguing for expanded coal production and use. Coal has been labeled one of the demons in the polluting of the planet - acid rain, particulates, sulfur, global warming, water quality, etc. Until the crisis comes, there will be no political will to open up that can of worms.