The US makes so much ethanol from corn that corn prices are through the roof, rising 300% in only six years. Effectively, corn prices are now tied to oil prices. If corn is cheap, and oil is expensive, more corn gets turned into fuel until extra demand makes corn about as expensive as fuel.
Unfortunately, this can’t solve the oil shortage, since it doesn’t scale. If every pound of American corn was turned into fuel – and the US is the world’s largest corn producer, by far – we’d make about 800 million barrels a year. But consumption is 7 billion barrels a year, nine times as much.
To lower oil prices, we’d need a feedstock which a) is much cheaper than oil, b) isn’t already tied to the price of oil, and c) is at least as abundant as oil. What about natural gas? Just twelve years ago, oil prices were close to $12 per barrel; now they’re nearly eight times higher, at $90 per barrel. But natural gas still costs the same as in 1999. Per joule of energy, that means natural gas is now ten times cheaper than gasoline.
Can we convert natural gas into liquid fuel? Yes. The technology is decades old, and (by chemical engineering standards) quite simple. Methane (CH4) is mixed with water (H2O) at about 800 C under several dozen atmospheres, to produce carbon monoxide and hydrogen. This gas then passes over a catalyst at several hundred C, forming long-chain hydrocarbons. Some energy is lost – the process is only 60-70% efficient – but even so, the cost of methane feedstock is far less than the value of oil produced.
Economists often say that markets are efficient – there are no twenty-dollar bills lying around on the sidewalk. Now, granted, industrial machinery to heat methane isn’t available at Walmart. But with a $3 trillion global oil market, this seems like an awfully big pile of hundreds on the sidewalk for anyone who can build it.