R-Squared Energy Blog

Technical Feasibility is the Easy Part

2009-07-09T07:27:00.005-05:00

A couple of people have now written to ask for comments on the story from Green Car Congress about the Polish CO2 to methanol scheme. Here is the story:

Report: Polish Power Plant and University to Cooperate on CO2 to Methanol Trial

Here is the bit I immediately focused on:

Nazimek says his “artificial photosynthesis” process is based on the photocatalytic conversion of water and carbon dioxide under deep ultraviolet light. Synthesis of 1 kmole (32 kg) of CH3OH from CO2 and H2O requires 586MJ of energy, according to Nazimek’s calculations. (Methanol has a HHV of 22.7 MJ/kg, or 726 MJ/kmole).

So the implication there is that you are getting more energy in the form of methanol than you put into the system (input of 586 MJ for an output of 726 MJ), for a positive net energy. However, like the Steorn system, this interpretation would unfortunately violate the laws of thermodynamics. Perhaps something has been lost in the translation. Otherwise, either all of the energy into the system is not being measured, measurements are being done inconsistently, or there is some other error.

Here is one problem. Methanol's high heating value (HHV) is quoted above. However, when considering energy that you can practically get out of a system one should not use HHV. Why? Because that presumes that you have condensed the water from the combustion products and taken everything back down to room temperature (25 C). That doesn't happen in practice. Just feel the exhaust coming out of your auto.

So the comparison of energy input into the system to HHV for the output can be misleading. If you consistently use HHV for input and outputs, then you should get a consistent answer for the net energy, but if you mix lower and higher heating values you could easily conclude that you are creating energy when in fact you are simply subtracting apples from oranges.

Having said that, I think artificial photosynthesis has great potential for energy production. I have often speculated on this. Natural photosynthetic efficiency is very low, but it does result in captured solar energy in plants all over the world. Plants do take CO2 in and convert to biomass. The trick is that they do take in more BTUs in the form of solar energy (and maybe also energy in the form of fertilizer) than are found in the the biomass they produce.

So I am in no way trying to diminish the work. This sort of work needs to be done. I just want to inject a dash of reality into the energy balances. It's like I tell people all the time - you can in fact run a car off of water. You can turn combustion products like CO2 and water back into fuels of all sorts. The catch in both of these cases is that you must always input more energy into the system than you can get back. That's how the laws of nature unfortunately work.

So while technical feasibility can often be easily demonstrated, there are many more hurdles that must be jumped before you would operate a scheme like this in practice. For instance, what is the source of energy? If you are using sunlight, then it may be perfectly acceptable to input 100 BTUs of sunlight and get back 10 BTUs of liquid fuel. But it wouldn't be a good idea to input similar quality fuels and get back fewer BTUs.

A second consideration is energy required to purify the final product. The story above indicates that the product is in water at a 15% concentration. This is quite similar to the concentrations of ethanol that corn ethanol producers make and then have to purify. The water has to be removed, and it takes energy to do that. So even if I had a perfect conversion of 1 BTU of energy input to 1 BTU of energy out, the net energy will fall as I input energy to purify the final product. (A 3rd major consideration is the capital costs, which keeps many fine ideas in the lab).

So in conclusion, technical feasibility of so many of these schemes is not in question. (Of course as was the case with Steorn or (possibly) with Cello, sometimes technical feasibility itself is the problem). But beyond technical feasibility are all sorts of considerations that can render a seemingly wondrous invention into something that never escapes the lab. If you hone in on the mass and energy balances of the system (a chemical engineer's bread and butter), you can often see why a promising experiment in the lab won't work in practice.

Cello: A Lesson in Due Diligence

2009-07-07T05:32:00.009-05:00

People sometimes ask me how - if they don't have any particular technical expertise - one determines whether companies are making fraudulent claims. I tell them that the simple test of "If it looks too good to be true..." will work in the vast majority of cases. In the case of Cello Energy, that sniff test could have saved investors some money. Here's what happened.

I haven't written publicly about Cello Energy, but I have exchanged several e-mails with people about their claims. I have long been on the record stating that I do not think the prospects for commercialization of conventional cellulosic ethanol are very good. Any time I hear people promising to produce renewable fuel for $1/gallon (or less!), I generally think that those people making those promises are either severely deluded or committing fraud. Cello made these sorts of promises. Cello said they could make $16 a barrel renewable fuel from cellulose - which works out to be 38 cents per gallon.

About six months ago I received an e-mail from someone within the U.S. government asking for comments on the Cello technology (which they described as cellulose to diesel, not ethanol). We ended up exchanging 17 e-mails discussing the technology. I got some general information (publicly available) on what they were doing, and while the person inquiring was skeptical, he took a tour of their plant and told me "it does seem that his plant does do what he says it does, and that he [inventor Jack Boykin] did indeed invent the invention of the century (it is difficult to verify a technology with a simple plant walk through). And there is this nagging thought - could this really be true (it seems too good to be true)?"

In my first response, I noted that it had elements of two technologies I was familiar with, but "seems very similar to CWT's thermal depolymerization technology." That technology of course resulted in bankruptcy because it simply could not do what the inventors claimed it could do. I also added "It works, it is just a lot more expensive than advertised."

In the next exchange, I noted that I would take a very hard look at their energy balance: "Grinding to an extremely fine state can be pretty energy intensive, and then they are adding heat to the process. Have they made it clear how the energy inputs compare to the energy in the final product?"

In additional follow-ups, I noted that they appeared to have a problem with their energy balance. They claimed that they could produce a certain number of gallons of fuel from a ton of biomass, but the feedstock didn't have as many BTUs as did the final fuel. So I noted that unless there were other energy inputs "that claimed number does not seem possible."

I was asked if it was reasonable that they would have spent $12 million on a plant that didn't actually work, and I responded: "I have seen people throw away more than $12 million on an idea that doesn't work. It just depends on whether it appears to work, and whether the scientist/engineer who is the inventor is a good salesman."

Now despite all of these e-mails, I couldn't say with 100% certainty that their technology did not work. I just saw a lot of warning flags, and wanted to point out some things that he should probably look into. I didn't hear back from him for a long time, but then I saw a story that said that Vinod Khosla had invested in the company. I wrote and asked for an update, and here was part of his reply:

I have assessed a couple different aspects of the technology such as the energy required for grinding. My analyses suggest that they cannot do what they say that they can do because the energy demand is too great. While my analysis shows that grinding down to the fine size that the process requires would require several times more energy than what the entire process consumes, the inventor reassures me that because most of the grinding occurs in the liquid phase using hot product as the liquid, the energy demand from grinding is vastly reduced. While what the inventor says is possible, I cannot verify it.

So he validated my concerns about the energy balance, but the inventor assured him that he had found a way around that sticky problem. (If it were only that easy; to do the grinding in hot liquid!) So far, this one still isn't passing the sniff test, but once again I don't have enough information to conclude that fraud is taking place. But I have enough information that I would be hard-pressed to give them any money.

But now a jury has ruled that they have indeed committed fraud. Two really good stories on this from earth2tech:

Lessons from the Cello Energy Biofuel Fraud Case: Do Your Homework

Cello Energy Leaves 50M-Gallon Gap in Feds’ Ethanol Targets

From the first story:

As far as speed bumps for cellulosic ethanol ventures go, this one’s a doozy: Jurors in a federal court have ordered Cello Energy, a biofuel startup run by Alabama’s former ethics chairman, Jack Boykin, and backed by both Silicon Valley cleantech investors Khosla Ventures and pulp maker Parsons & Whittemore Enterprises, to pay more than $10.4 million in a fraud case.

Cello reportedly accepted a $2.5 million investment from P&W in 2007 to help finance its first plant. Several months later it received a $12.5 million investment and a pledge for up to $25 million for construction and operation of additional plants from Khosla. Cello agreed to use discounted wood waste from the company as feedstock, but “a string of witnesses testified that samples of the fuel allegedly produced at Cello’s facility…were derived entirely from fossil and not renewable sources,” the Alabama Press-Register reports. This week a jury in Mobile, Ala., decided that Boykin’s original claims (made with his partner and son Allen Boykin) were fraudulent.

The second story sees a silver lining here. If the targets fall short of projections, there will be even more money available for cellulosic ethanol (but I still think there is confusion here over whether this is an ethanol or diesel process; I think the claimed process is actually cellulosic diesel):

As the research firm ThinkEquity notes in a new report, if cellulosic ethanol production falls short of the U.S. EPA’s estimate of more than 100 million gallons next year, new incentives are supposed to kick in to support production the fuel as part of the proposed Renewable Fuel Standard update, or RFS2, which is slated to increase the amount of renewable fuels that must be blended into gasoline.

In the event of a shortfall (not enough renewable fuels to meet minimum blend requirements), ThinkEquity wrote in its report late last month that the EPA can sell credits that would increase the value of cellulosic ethanol to a minimum price of about $3 per gallon (up from ethanol futures’ current $1.77 per gallon).

The story notes that the reason for the EPA's 100 million gallon estimate was that they were counting on 70 million gallons from Cello! I have said it before, and I will say it again loudly: CELLULOSIC ETHANOL IS NEVER GOING TO MEET THE PROPOSED RAMPED UP PRODUCTION LEVELS. Too many uninformed boosters have done too little due diligence, and we get all sorts of ridiculous expectations. Back to the first story above, they noted how careless investors were in throwing down money on the project:

...P&W and Khosla Ventures weren’t exactly diligent. The excuse? P&W CEO George Landegger said he trusted Boykin after he promised to invest his own money in the $25 million project. For Khosla Ventures, whose founder Vinod Khosla has called cellulosic biofuel his “real love” and invested in more than a dozen biofuel companies, due diligence was not necessarily a deal breaker, and according to emails revealed in court between Khosla and partner Saul Kaul, Boykin refused to give the investors enough time for due diligence. That made the deal “nerve-wracking” for Kaul, but Khosla wrote, “Great job on this one. Herculean effort. But my bet is it will pay off.”

My bet is that it won't. I think Khosla and the others have simply been scammed. While I appreciate Khosla's desires to "to use his wealth to fight the war on foreign oil and for energy independence", sometimes it feels like he is just scattering a lot of money around in the hopes that something - anything - will work. In this case, it looks like he was betting on a miracle, another in a long line of companies claiming "game-changing technology." Maybe things will turn out OK. But this entire story has all the earmarks of so many biofuel pranksters who came, promised, fleeced investors, and failed. I can promise you one thing: Whether they make fuel or not, it won't be for $16/bbl.

As I noted in my previous entry, one of my jobs going forward with my new company is to make sure we don't get tangled up in situations like this. But based on the limited information I had, I would have steered us clear of Cello. On the other hand, I will continue to look for companies that can actually deliver on their biofuel promises. So feel free to send me your $25 million. It will be in good hands. :-)

“Your Passion is Energy”

2009-07-04T03:37:00.004-05:00

Saying Goodbye Again

Today is Independence Day in the U.S., but I am spending it in the Netherlands without my family. This has become an all-too-familiar situation for me. I have spent far too many birthdays, anniversaries, and holidays in remote locations away from my family. The time has come to rectify that situation.

Most of my career has revolved around energy. But about a year and a half ago, I decided to try something slightly different. I left my job with ConocoPhillips in Aberdeen, Scotland (and I explained the details behind the decision here), said goodbye to friends and colleagues there, and boarded a plane to the Netherlands. This is where I have spent about half my time since then.

But that chapter is coming to a close. On Monday I will leave Amsterdam for the flight back to Texas. I have made this trip around 20 times in the past 18 months, but I am making the trip for the last time in my current role as Engineering Director for Accsys Technologies. This trip was my farewell tour, and I said my goodbyes to a fine engineering team.

The past year and a half has been both interesting and challenging. We are a small company, so I found myself doing more cross-functional work than at any other time in my career (e.g., writing HR policies). We were staffing up, so I also interviewed numerous people for all sorts of positions. Because our company was the first (and still only) to commercialize our technology, we encountered some unique engineering challenges.

As I look back, I am proud of what my engineering team has accomplished. They have vastly improved our process in the past two years, and we climbed a steep learning curve. We managed to increase the throughput of our plant in Arnhem by a third, while at the same time cutting our energy inputs. With all sincerity, our successes came about because I have a clever and dedicated team of engineers.

And while I believe strongly in the product that we have developed, my job involves about 50% travel. I have engineering teams based in Dallas and in the Netherlands, and I have to try to keep a presence in both locations. I knew that I could keep that up for a while, but not forever. If I continue with this schedule, I will grow old forever haunted by the lyrics to Cat's in the Cradle.

I have been fortunate over the years to have had a number of different job opportunities present themselves. In the past six months I began to more seriously listen to inquiries. I decided if the right one came along - and it enabled me to spend more time with my family - then I would make a change. The right opportunity has come along.

Future Plans

If I had to describe my ideal job, it would be to bring sustainable energy technologies to the world. I would do a lot of technology evaluation, visiting with universities, small companies, inventors, and entrepreneurs. The goal would be to identify the renewable technologies that I feel can compete in the long-term, and then work to facilitate that future.

One of the most brilliant engineers I have ever met (who will also be a future colleague), recently introduced me to a very successful businessman who has been in the energy business for decades. Because he greatly values his privacy, I will not divulge his name nor the companies he has been involved with. Suffice to say that his vision is long-term, he is realistic, and he has a long track record of successfully building companies. When I met with him, I discussed my current job, and then we started talking about our views on the future of energy. He made a comment that I often hear when I am discussing energy: "Your passion is energy. You should follow your passion."

After much discussion, which included meetings in Houston, Hawaii, and Hamburg - it was clear that my goals and views were very much aligned with his. We saw a similar future, but were both quite realistic about the challenges of realizing that future. The primary objective for both of us wasn't to create wealth, but instead to see our current unsustainable way of life nudged toward something more sustainable. We are both concerned that we are leaving a mess for our children to clean up, and we believe we can build something better for them.

I have therefore decided to join forces with him, and will leave my current job on August 1st. I will continue to assist Accsys/Titan Wood with their technology on an as-needed basis, but my primary energies will be focused around the conversion of biomass into value-added products. The specific end product will depend upon the particulars of a situation. I firmly believe that biomass can work, sustainably, in specific niches. As fossil fuel prices rise, the niches will grow as long as the biomass technologies are not heavily dependent upon fossil fuel inputs. We plan to establish ourselves in some of those niches.

I have written in this blog about some of the technologies and companies that we will be involved with. (In fact, it is a long story, but one of my articles was what led to the initial contact, which occurred almost 3 years ago). Other technologies, which I have felt had great potential, I haven't written about. I am still not yet going to write about them, as we are busy establishing ourselves in various areas and establishing dialogue with different companies. But as one of my new colleagues likes to say "We are technology agnostic." That simply means that we are open to different technologies and won't base our business around a single technology.

I will relocate to Hawaii with my family. I estimate that my travel will drop from the current 50% to around 10%, meaning I will get to spend much more time with my family. Based on our plans, when I do travel, I expect my travels will take me to Germany, which is familiar territory, but also to some areas I have not seen, like Southeast Asia.

Why Hawaii? Hawaii offers a unique laboratory for renewable energy. Hawaii has very good renewable resources (sun, wind, geothermal, ocean thermal, biomass, etc.), and no fossil fuel resources. Hawaii should have a small bias toward renewable energy relative to the rest of the U.S., since all fossil fuels must be shipped in for power and transport. And because of the year-round growing season, I can do a lot more experimentation there both with gardening (which I love to do) and with energy crops.

I won't go into specific details right now about our efforts. We aren't ready for that yet. Some parts of the business are already far along, and others are just starting. But we won't be messing around with pie-in-the-sky technologies. That will be one of my key roles: To make sure we are focused where we need to be focused and not wasting our time working toward dead ends.

Thermodynamics Wins Again

2009-07-02T04:18:00.005-05:00

Back in 2006, the Irish company Steorn announced that they had discovered a “a technology that produces free, clean and constant energy.” A magnetism-based perpetual motion machine is what it amounted to, which would clearly violate various physical laws, such as the First and Second Law of Thermodynamics. Steorn put an advertisement in the Economist after announcing their new technology, seeking qualified experts to form a “jury” to validate their claims.

The jury is in. The laws of science do not fall so easily:

Irish 'energy for nothing' gizmo fails jury vetting

An Irish company had promised it could deliver non-polluting, virtually cost-free power but an international jury said yesterday it did not work.

Scientists doubted the claims and, when the company resisted calls to release precise details of how Orbo worked, it asked an international panel of experts to adjudicate on the device.

Steorn organised a panel of 22 independent scientists and engineers from Europe and North America chaired by Ian MacDonald, emeritus professor of electrical engineering at the University of Alberta.

“The situation was we had engaged them in February 2007 and went through a process with them,” Mr McCarthy said. Two years have passed however and the jury clearly decided that enough was enough.

It posted an announcement on its website http://stjury.ning.com that it was disbanding.

“The unanimous verdict of the jury is that Steorn’s attempts to demonstrate the claim have not shown the production of energy,” it stated. “The jury is therefore ceasing work.”

Undeterred, Steorn rejected science and announced that they would proceed toward licensing their technology by the end of 2009. No joke.

What If I'm Wrong?

2009-07-01T06:23:00.001-05:00

Risk Assessments

I spend a lot of time playing "What if?" We all do this. I do this when I am driving - "What if that car at the next intersection pulls out in front of me?" - when I am working - "What if that high pressure line ruptures?" - and at home - "What if I wake up and find the house is on fire?" I also spend a lot of time pondering the question "What if there are energy shortages in the near future?"

When we do this, we are generally trying to understand the potential consequences of various responses to a given situation. This sort of exercise is a form of risk assessment, and it is a very important tool for making decisions about events that could impact the future. Sometimes the consequences are minor. If I choose not to take an umbrella to work and it rains, there is probably a small consequence. If I choose to pass a car on a blind hill, the consequence may be severe, and may extend to other people.

In this essay I will explore the implications of the question: "What if my viewpoint is wrong?"

What If I'm Wrong About Peak Oil?

I guess it was my training as a scientist that emphasized to me that conclusions are tentative (I was two years into a Ph.D. in chemistry before I decided the job prospects were better for a chemical engineer). They are subject to revision as additional data come in, and you have to always be willing to consider that you may be wrong. But acknowledging that I could be wrong has to go hand-in-hand with the consequences of being wrong.

I spend a lot of time thinking about the possible consequences of peak oil. My view on peak oil is that it presents an enormous challenge for humanity, that we will begin to face these challenges within 10 years, and that there is no easy solution. I see spiking oil prices and the subsequent fallout as a prelude to what lies ahead. These views have influenced my profession, where I have chosen to live, what I read, and what I say to others. Fear of peak oil has influenced some people not to attend college, or to quit their jobs and move away to remote locations. It has even caused some people to decide against having children. But what if I am wrong about the timing of peak oil? What are the consequences?

For me, this one has low consequences. If I am wrong and we have adequate oil supplies for the next 40 years, then perhaps I live a more frugal life than I might have otherwise. I prefer to walk, ride a bike, or take a train instead of hopping into a car to drive some place. When I drive, I probably drive a smaller car than I would have otherwise. Then again, I have always been frugal, so perhaps I would have done all of these things regardless. The one thing that it may have impacted upon in a major way is my interest in energy.

But if I am right, then I have plans in place to manage the impact as well as I can. Those plans start with minimizing my energy consumption. It is my small insurance policy. If the worst case doomers turn out to be right, then there isn't a lot I can do except try to make sure my family and I are in circumstances that minimize the risk. Further, I have done a lot of work that is aimed at improving our energy security in the years ahead. That work includes promoting renewable energy technologies that I think can make a long-term contribution, but also arguing for conservation, and better utilization of our own natural resources. So if I am correct, then I have chosen to work on things that have the potential to mitigate the consequences.

But what if the other side is wrong? Government agencies devoted to monitoring our natural resources often reassure us that there is plenty of oil for decades to come. But what if the government, industry, etc. turn out to have missed the mark on peak oil? In that case I think we will be in for a lot of trouble.

If the peak comes quickly and the decline is steep, I believe we will be wholly unprepared. There is not a cheap, easy substitute for oil. Much higher prices will be inevitable in such a situation. Industries - such as the airline industry - won't be prepared and we will see perhaps entire industries go bankrupt. While I do believe that over time we can transition to natural gas vehicles (and our supplies of natural gas look adequate for a while), that will take some time. If the government is wrong and the peak happens much sooner than expected, we will be in for a very difficult transition period.

What If I am Wrong on Global Warming?

Another question I think a lot about is "What If I am Wrong on Global Warming?" To me, this one is more complicated. If the Al Gore contingent is correct, then we are facing some very major problems. As I have written before, I don't expect us to be able to rein in carbon dioxide emissions, so I see a future with ever higher atmospheric CO2. And while I tend to come down on the side that human activity is contributing to global warming, the scientist in me reminds me that "conclusions are tentative."

On the one hand we have potential global devastation if Al Gore is correct (because again, I believe carbon dioxide in the atmosphere will continue to climb). On the other hand are those who believe that human activities play little or no role in global warming. They view the opposition as putting global economies at risk by putting a price on carbon emissions. While I think global devastation is a much worse consequence than economic stagnation, the impact of that could be pretty severe as well.

So we have two camps, each of which thinks if the other side gets their way it will lead to global disaster. So we get a lot of vitriol in this debate, which I don't like. I don't know what the ultimate outcome on this one will be, but one thing I don't want to see is the debate stifled by placing derogatory labels on those with whom you disagree.

I never discount the possibility that I could be wrong about something. I would say that precious few of my views are embedded in granite. That's why I write this blog; to discuss, debate, learn, and change my mind when reason dictates that.

Tariffs in the Climate Bill

2009-06-29T03:01:00.005-05:00

A number of people have written to ask why I haven't commented on the climate bill. There are two reasons. First, the House and Senate versions are very different, so the final form may not resemble the version the House just passed. Second, I haven't had the time to read through much of it.

There was one issue that I considered quite important, but I didn't know whether it was in the bill. Jim Mulva was recently quoted as saying that the climate bill would impose higher taxes on domestic fuel versus imports. While we can agree that Mulva's comments are self-serving, I also believe that most people would oppose a bill that shifts more of our fuel supply to imports.

While I know the goal here is to favor renewable energy, what happens if it can't fill a void left if the new bill discourages domestic production? The void will be filled by imports. Prices will also rise, so some of the void will be filled by conservation. But in order to keep the playing field level, I really liked the idea proposed by Jeff Rubin: If you place a carbon tax on domestic production, you can place a carbon tariff on imports. This idea was discussed in my review of his book Why Your World Is About to Get a Whole Lot Smaller: Oil and the End of Globalization.

I hadn't heard any discussion of this until today. From Steven Mufson of the Washington Post:

Obama Praises Climate Bill's Progress but Opposes Its Tariffs

President Obama yesterday said that the House took an "extraordinary first step" by passing a climate bill on Friday, adding that he hoped it will "prod" action by the Senate and predicting that the legislation could make renewable energy "a driver of economic growth."

But he said he hopes that Congress will strip out a clause that would impose a tariff in 2020 on imports from countries without systems for pricing or limiting carbon dioxide emissions.

Obama went on to suggest that there were other protections built in that will keep the playing field level. I would like to know what those are. I can understand how tariffs would do it (although enforcement raises some sticky questions). But I have heard enough double-speak on energy policy that I want to see the fine details of how the playing field will be kept level.

Make no mistake: This bill is a tax increase. That's the basis for the political opposition. But I have long advocated a tax increase on fossil fuels to slow the rate at which we are using them up (and to make renewables more competitive). So I don't oppose the bill on the basis that it is a tax increase. On the other hand I can't say that I endorse it, because I haven't read it. I certainly believe there are more efficient ways of raising carbon taxes than this. I still think - perhaps naively - that my proposal to tilt the tax code toward higher fossil fuel taxes and lower income taxes would be more attractive than this.

Geothermal's Earthquake Problem

2009-06-27T03:08:00.004-05:00

In a recent post - It's Always Something - I argued that for seemingly every renewable option, there is a trade-off. In that particular essay I was discussing a recent report that suggested that jatropha curcas - which I have written about as an intriguing option for renewable, liquid fuels - has very large water requirements. It is also poisonous, and was banned as an invasive species by the Western Australian State government. So as the title suggested, there always seems to be a catch with any of these options.

Geothermal energy is one of the most promising renewable energy technologies. There are a number of commercial geothermal plants already in operation (the U.S. is the world leader in geothermal energy), and the economics are much more favorable than some of the other choices. Geothermal electricity makes a much larger contribution to the electricity mix than does solar power, and does not suffer from the intermittency issue. A 2006 report from NREL (PDF warning) concluded that the potential for domestic geothermal energy at a depth of 2 miles (3 kilometers) is 30,000 times all current annual U.S. energy usage.

But while the current plants in operation utilize geothermal energy that is close to the surface, tapping deeper into the earth would hugely increase the geothermal potential. The only problem is that this sort of deep drilling can cause earthquakes. From the New York Times:

Deep in Bedrock, Clean Energy and Quake Fears

BASEL, Switzerland — Markus O. Häring, a former oilman, was a hero in this city of medieval cathedrals and intense environmental passion three years ago, all because he had drilled a hole three miles deep near the corner of Neuhaus Street and Shafer Lane. He was prospecting for a vast source of clean, renewable energy that seemed straight out of a Jules Verne novel: the heat simmering within the earth’s bedrock.

All seemed to be going well — until Dec. 8, 2006, when the project set off an earthquake, shaking and damaging buildings and terrifying many in a city that, as every schoolchild here learns, had been devastated exactly 650 years before by a quake that sent two steeples of the Münster Cathedral tumbling into the Rhine.

Hastily shut down, Mr. Häring’s project was soon forgotten by nearly everyone outside Switzerland. As early as this week, though, an American start-up company, AltaRock Energy*, will begin using nearly the same method to drill deep into ground laced with fault lines in an area two hours’ drive north of San Francisco.

The New York Times article goes into a lot of detail about why the deeper geothermal techniques cause earthquakes, but it also gives a good overview of the geothermal potential. I think the solution to this - if they can't come up with techniques that don't spawn earthquakes - is to only tap geothermal in relatively uninhabited locations. There are lots of places in the Western United States that have very low population densities, but very high geothermal potential.

Regardless, geothermal is one of those options that I think is around for the long haul, and won't require endless subsidies in order to be competitive.

* As a footnote, AltaRock Energy is a company that Vinod Khosla has invested in. AltaRock also has some information at their site about how geothermal works.

Wood Gasification Plant Opens

2009-06-25T11:22:00.004-05:00

Been really tied up, but saw this story yesterday and wanted to bring attention to it. I think it is significant, and a sign of things to come. Not much time to comment, but some excerpts from the article:

Plant making gas from wood opens in Austria

GUESSING, Austria (AFP) – A new plant that produces gas from wood was opened in Austria on Wednesday, paving the way towards new possibilities in renewable energy.

According to its backers, the gas produced at the plant can be used in urban heating systems, for gas-powered cars or by power stations that work on gas.

"The gas produced has the same quality as natural gas," said Richard Zweiler, from the European Centre for Renewable Energy (EEE), which is behind the project.

A plant able to produce between 20 and 25 megawatts of power -- about 25 times bigger than the Guessing project -- is already in the works in Goteborg, Sweden.

Readers may know that I am a big fan of gasification over the long haul. Whether the approach described here turns out to be the right one or not, I think gasification makes far more sense than some of the renewable paths we have headed down. I believe 20 years from now we will be doing commercial biomass gasification for heat and power. I don't believe we will be making commercial quantities of cellulosic ethanol or algal biofuels.

John Benemann Responds to Green Algae Strategy Review

2009-06-24T02:05:00.001-05:00

I recently published a review of Mark Edward's book Green Algae Strategy: End Oil Imports And Engineer Sustainable Food And Fuel. Following this review, I published a response from Mark Edwards. In that response, Professor Edwards mentioned Dr. John Benemann, who was Principal Investigator and main author of the U.S. DOE Aquatic Species Program (ASP) Close-Out Report:

Skeptics abound in the algae space and the leading skeptic, Dr. John Benemann, speaks at all the algae conferences and stands in stark contrast to many other equally experienced scientists who do not share his natural pessimism. John revels in his reputation for pessimism. Other scientists engaged in the Aquatic Species Report have a completely opposite view. Several are working for companies that are producing algae for fuel. Professor Milton Sommerfeld at ASU and a co-author on the Report, has been producing algal oil for jet fuel in the laboratory and a field setting for several years.

Dr. Benemann had been following the exchange, and has e-mailed me a response to Professor Edward's response, which I post in full below.

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I had only glanced at Prof. Edwards book last year, but not read it as it has little or no technical content, and thus not of great interest to me. From what I recall, what Robert Rapier wrote in his review, seems quite reasonable, actually rather mild.

In his response, Prof. Edward wastes no time to bring up my name, for which I am honored, calling me the "leading skeptic" who "speaks at all the algae conferences" and "revels in his reputation for pessimism". Well, I admit that I talk at way too many conferences ("all algae conferences" would be impossible), which I should give up as it seems to do little or no good. But I must correct Prof. Edwards, I am neither a skeptic nor a pessimist. I am an incurable optimist and promoter of algae technology R&D, even for biofuels. I must be, to work in this difficult, if not dismal, field. I am, however, also a realist, about such little matters as, for two examples only, engineering head loss calculations and the limits of photosynthetic efficiencies, which are of no concern to Prof. Edwards, whose avocation is marketing. And, I am afraid, are of no concern either to many, even most, practitioners in this field, who should know better but blithely ignore such realities. It is easier to be an optimist if you only need to market the idea, or do research, but creating reality is somewhat more difficult. I work hard for my optimism, trying to find ways to overcome the technical roadblock and economic limitations.

Prof. Edwards, attempting to rebut my alleged 'pessimism" points to scientists working for "companies that are producing algae for fuel" and that one professor has been "producing algal oil for jet fuel in the laboratory and a field setting for several years". Sorry, there are no companies producing algae for fuel, just try to buy some, even at $100/gallon (at $1000/gallon you may be able to get a few). Some are claiming to be producing, but there is not a shred of evidence that they have succeeded in any meaningful way. (Solazyme may have, but the economics still are far from proven, and using corn starch or sugar is not a good idea, and using sugars from lignocellulosic biomass, well let us not go there either).

The only company I know that is producing algae oil is Martek Corp., and that is for human food and sells for a hundred-fold that of petrol. Neither are laboratory and academic "field" pursuits a guide to reality or technology.

Prof. Edwards claims that he has "seen" one or more order of magnitude "cost reductions" of algal oil production, extraction and mixing, in the last year or two. With all due respect to his discipline, seeing is not believing, data would be, but it must be based on actual measurements and methods that can be independently verified. Nothing of the sort can be pointed to.

Prof. Edwards is, I am sure, a most qualified expert in business and marketing, but I see little here that is real business and even less than is marketing. Algae for feed and fuel still need a great deal of R&D, of uncertain outcome, like all R&D. I recommend to Prof. Edwards that he redirect his obvious talents to help the real algae industry, the nutritional supplements business. That would be most useful - it is hard to convince people that they should ingest algae (pond scum) on a daily basis. Some do, but not nearly enough. There is the real marketing challenge! And it would lead the way to increased production, to larger scales, lower costs, more R&D, and, who knows, maybe eventually get us to a price point where we can sell algae for food and feed competing with commodity crops. Maybe even fuels at that point, perhaps. I am just an incorrigible optimist.

John Benemann

U.S. Ramping Up Wind Power Programs Even As Concerns Surface About Possible Declines In U.S. Wind Strength

2009-06-22T12:54:00.005-05:00

Once again at DFW Airport, about to make my way back to Europe. So I will be offline for just a bit, but wanted to post the latest from Money Morning, which as I recently explained will be featured here whenever they have topical material to offer. As always, normal caveats apply: I am not an investment advisor. I don't endorse any specific stocks mentioned in the following story nor the ad at the end of the story.

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U.S. Ramping Up Wind Power Programs Even As Concerns Surface About Possible Declines In U.S. Wind Strength

By William Patalon III - Executive Editor

Money Morning/The Money Map Report

Just as the United States is boosting its reliance on wind power, a new academic study set for release in August says that U.S. wind forces may be getting weaker.

Eugene S. Takle, a professor of atmospheric science at Iowa State University, and the director of the school's "climate science initiative," says the research study concluded that U.S. wind strength has potentially declined by 15% to 30% during the past 30 years - an average decline of as much as 1% a year.

While conducting the study - which will appear in the Journal of Geophysical Research - researchers reviewed wind data taken at airports around the United States, and then based their findings on two sets of figures: One set from 1973-2000, and the other from 1973-2005.

The study concluded that three factors could be contributing to the declines in U.S. wind strength: Land-use changes, a changing climate and changes in the kind of instruments used to measure the wind, Takle told MarketWatch.com.

"If there have been trees growing or new buildings constructed near airports, it could impact the speed of winds on airports," Takle said. However, it is also "[basic] meteorology that the wind is driven by differences in temperature between the poles and the equator, and those differences have been narrowed by climate change."

Tough Timing

The findings come at time when the United States is making a serious push to increase the amount of electricity that's generated by wind turbines grouped into so-called wind-power "farms." Attempts to harness the wind are part of a broader national - or even global - commitment to "green" energy sources as a way of reducing dependence on oil and other fossil fuels for power generation.

Other power sources include solar, geothermal, hydroelectric and nuclear for commercial electricity production, while automakers are looking at new types of batteries and such innovations as power-storing "fuel cells" as alternatives to the conventional internal combustion engines that power most of the world's cars and trucks.

The objectives are twofold. By decreasing the U.S. reliance on foreign oil, the country is hedging against the time when global supplies of the "black gold" begin to dry up, an eventuality that will propel the prices of crude and gasoline skyward. Diversifying away from oil and, perhaps, even coal is also a way of reversing - or at least slowing - environmentally ruinous (and politically controversial) global warming.

President Barack Obama is attempting to use the ongoing financial crisis to create a sense of urgency about America's energy future, a challenge that no prior administration has yet been able to meet.

About one-third of President Obama's $800 billion-plus stimulus package will go to infrastructure, with $30 billion allocated for U.S. roads and highways and another $10 billion earmarked for railways and mass-transit systems.

President Obama has also proposed spending $150 billion "over the next 10 years to catalyze private efforts to build a clean energy future." The administration also proposes to increase the amount of electricity that comes from renewable resources from 10% in 2012 to 25% by 2025, Wall Street 24/7 reported in early January.

Creating the power is only part of the problem. Delivering it will be a challenge, too, especially given the country's aging power grid. Upgrading that aging equipment is expected to cost more than $880 billion, according to a November 2008 report from the Brattle Group.

An Energy Boon For Entrepreneur T. Boone?

In many cases, those federal outlays will serve only as seed capital. It will likely fall to innovators in the U.S. private sector to really energize the alternative-power market.

One key player is legendary oilman and venture capitalist T. Boone Pickens, who has unveiled a plan to cut U.S. dependence on foreign oil through the power of alternatives such as wind and natural gas, Money Morning reported last July.

"We're paying $700 billion a year for foreign oil. It's breaking us as a nation," Pickens said at the time. Former U.S. President Richard M. Nixon "said in 1970 that we were importing 20% of our oil and that by 1980 it would be 0%. That didn't happen. It went to 42% in 1991 with the Gulf War. It's just under 70% now. Where do you think we're going to be in 10 years when our economy is busted and we're importing 80% of our oil?"

Pickens wants to create what he calls a "bridge to the future" that will help cut slash the U.S. reliance on imported foreign oil by focusing on two specific alternatives:

Cars that burn natural gas instead of gasoline.
And electricity generated by wind power.

There's a smooth and elegant logic to his strategy: By constructing electric-generating wind-power farms, the United States can free up natural gas supplies that currently generate 22% of the nation's electricity. That natural gas can then be used to power cleaner-burning cars and trucks, thereby reducing our dependence on imported oil while also reducing the damage to the environment. This will also buy time for the development of other, even-greener, alternative sources of energy.

Pickens' Wind Power Project

According to Pickens, wind power could eventually fulfill as much as 20% of the United States' energy needs. Calling the Great Plains region of the United States the "Saudi Arabia of wind," Pickens last summer launched plans for a $10 billion alternative energy project in the Texas panhandle that has the potential to one day become the world's largest wind-power farm.

Picken's Mesa Power LLP plans to purchase 667 wind turbines from U.S. industrial giant General Electric Co. (NYSE: GE). Each turbine can produce 1.5 megawatts of electricity - enough to provide the ongoing power needs of 360 to 600 U.S. homes, according to Money Morning calculations based on statistics provided by Oregon Power Solutions Inc., a Baker City, OR consulting firm.

The first phase of the Pickens project, already under construction, will produce 1,000 megawatts of electricity, enough energy to power 300,000 homes. GE will begin delivering the turbines in 2010, and current plans call for the project to start producing power in 2011.

Ultimately, Mesa Power plans to have enough turbines to produce 4,000 megawatts of energy. Overall, the "Pampa Wind Mill" project is expected to cost $10 billion and be completed in 2014.

Pickens has launched a "Pickens Plan" Web site, which is urges the country's "energy army" to lobby Congress for funding and a commitment to green-energy projects.

Other Players Showing Interest

An Irish company - its interest in the U.S. alternative energy market piqued by the green-technology money included in the Obama administration's stimulus package - on Monday acquired three Illinois wind farms located within 100 miles of Chicago, The Chicago Tribune reported.

Plans call for the Dublin-based Mainstream Renewable Power to invest $1.69 billion over four years to develop the wind farms. The purchase price was not disclosed.

"The U.S. market is of strategic importance to Mainstream, and the scale of the opportunity is strongly reflected in President Obama's economic stimulus package, which includes $56 billion in grants and tax breaks for U.S. clean energy projects over the next 10 years and a budget of $15 billion a year to fund renewable energy programs," Mainstream co-founder and Chief Executive Officer Eddie O'Connor said in a statement. "The administration's goal of generating 25% of the nation's electricity from renewable energy sources by 2025 will help revitalize the U.S. economy and protect consumers."

The farms have the potential to generate 787 megawatts of electricity by 2013, The Tribune said. The most advanced is the 120-megawatt Shady Oaks project in Lee County. When finished next year, it should be able to generate enough electricity to power about 30,000 homes, Mainstream said.

The other two wind-power farms are the 467-megawatt Green River project, also in Lee County, and a 200-megawatt project set for Boone County. Construction on the Green River project will begin next year, while the Boone County project is still in is development stages.

This is Mainstream's second North American deal in three months; it earlier announced a Canadian wind farm project. It has also announced plans to build a wind farm in Chile.

Founded a year ago, Mainstream was created to build and operate wind-energy, solar-thermal and ocean-current power plants in partnerships with government agencies, electric utilities, developers and investors in North and South America, Europe, and South Africa. Barclays Capital (NYSE ADR: BCS) has a 14.6% stake in Mainstream.

Going Global

As Mainstream's proposed forays into South America, Europe and Africa demonstrate, the push to harness the wind isn't limited to the United States.
As of the end of last year, worldwide wind-powered generators were capable of generating 121.2 gigawatts (GW) of electricity. Wind power produces about 1.5% of the world's electricity and its use is surging: The amount of electricity generated by wind power doubled between 2005 and 2008 alone.

Several countries have already embraced wind power in a major way: As of last year, it accounted for 19% of electricity production in Denmark, 11% in both Spain and Portugal and an estimated 7% in both Germany and Ireland. As of this May, 80 nations around the world were using wind power on a commercial basis.

Not surprisingly, China is making a big push to commercialize wind power and by last year was already the world's sixth-largest user of wind-generated electricity. The country's largest manufacturer of wind turbines - Xinjiang Goldwind Science & Technology Co. Ltd. - went public last year, raising nearly $250 million. It has about 33% of China's wind-power-equipment market, according to KGI Securities Co. Ltd., a Taiwan investment-banking and brokerage firm.

"As China's wind power sector takes off, we think Goldwind is well positioned to become a major beneficiary, thanks to its strong brand and first mover advantage," KGI wrote in a research report.

Not a Complete Answer

Although wind power has substantial promise, it's not an infallible energy solution, and has some serious limitations - as the U.S. wind-power study shows. For one thing, although an estimated 72 terawatts of wind power on Earth can be potentially commercially viable - an amount that's six times the estimated 15 terawatts of total power usage on earth - not all the wind energy flowing past any given point can be recovered.

Accoridng to a science axiom known as Betz's Law - named for the German physicist, Albert Betz, who discovered the rule in 1919 - no turbine can capture more than 59.3% of the potential energy in wind.

And there are other challenges, some of which are caused by the natural lay of the land in a given location. In the United States, for instance, where there are now concerns about diminishing wind strength, some coastal areas may retain wind strength because of the greater temperature differences between the land and the ocean.

Given the growing importance of wind power, more study will be required.

Concludes the study: "Given the importance of the wind-energy industry to meeting federal and state mandates for increased use of renewable energy supplies and the impact of changing wind regimes on a variety of other industries and physical processes, further research on wind climate variability and evolution is required."

[Editor's Note: Is it a new bull market, or just a bear-market rally that's going to separate investors from the last of their cash? For the shrewdest investors, it may not matter. A new offerfrom Money Morning is a two-way win for investors: Noted commentator Peter D. Schiff's new book - "The Little Book of Bull Moves in Bear Markets" - shows investors how to profit no matter which way the market moves, while our monthly newsletter, The Money Map Report, provides ongoing analysis of the global financial markets and some of the best profit plays you'll find anywhere - including such markets as Taiwan and China. To find out how to get both, check out our latest offer. ]

ExxonMobil in the Electric Car Business?

2009-06-22T08:18:00.004-05:00

An interesting link from a reader this morning:

The Maya 300: An Exxon-Assisted Electric Car

If you've picked up a magazine in the last year, you've likely seen ads touting ExxonMobil's (XOM) research into lithium-ion batteries.

This week, you will get a further look into how that technology will come to the marketplace.

Electrovaya on Wednesday will discuss its plans for the Maya 300, an all-electric vehicle coming in 2011. The car will run on lithium-ion batteries, charge in about eight to 10 hours, run for 60 miles and plug into regular 110-volt outlets. It will cost around $20,000 to $25,000. An extended-range battery option will run for 120 miles on a charge and cost $30,000 to $35,000.

Turns out that ExxonMobil makes one of the components of the battery:

Exxon Entering Electric Vehicle Market With Maya 300

Electric vehicles have definitely hit the big time now that gasoline-slinging companies are getting involved. The Maya 300, an all-electric vehicle coming out in 2011, will feature a lithium ion battery separator film dubbed "the SuperPolymer" from Exxon-Mobil. The separator--a critical part of li-ion batteries--can withstand temperatures up to 374 degrees. That's 85 degrees more than competing separator films can take.

Interesting development. If you asked me which oil company would be involved in battery technologies for electric cars, I wouldn't have guessed Exxon.

How Much Natural Gas to Replace Gasoline?

2009-06-19T09:37:00.010-05:00

I Took This Picture of a CNG Bus on a Recent Trip to D.C.

You may have seen the news this week that a report by the Potential Gas Committee says natural gas reserves in 2008 rose to 2,074 trillion cubic feet. The New York Times and the Wall Street Journal (via Rigzone) both had stories on it, and T. Boone Pickens issued a press release. First, from the New York Times (and this is a really good article):

Estimate Places Natural Gas Reserves 35% Higher

Thanks to new drilling technologies that are unlocking substantial amounts of natural gas from shale rocks, the nation’s estimated gas reserves have surged by 35 percent, according to a study due for release on Thursday.

Estimated natural gas reserves rose to 2,074 trillion cubic feet in 2008, from 1,532 trillion cubic feet in 2006, when the last report was issued. This includes the proven reserves compiled by the Energy Department of 237 trillion cubic feet, as well as the sum of the nation’s probable, possible and speculative reserves.

The new estimates show “an exceptionally strong and optimistic gas supply picture for the nation,” according to a summary of the report, which is issued every two years by a group of academics and industry experts that is supported by the Colorado School of Mines.

The Wall Street Journal wrote:

US Has Almost 100-Year Supply of Natural Gas

The amount of natural gas available for production in the United States has soared 58% in the past four years, driven by a drilling boom and the discovery of huge new gas fields in Texas, Louisiana and Pennsylvania, a new study says.

...the Potential Gas Committee's study was prepared by industry geologists who analyzed individual gas fields using seismic imagery and production data provided by gas producers. The surge in gas resources is the result of a five-year-long drilling boom spurred by high natural-gas prices, easy credit and new technologies that allowed companies to produce gas from a dense kind of rock known as shale. The first big shale formation to be discovered, the Barnett Shale near Fort Worth, Texas, is now the country's top-producing gas field, and companies have made other huge discoveries in Arkansas, Louisiana and Pennsylvania. Together, the shale fields account for roughly a third of U.S. gas resources, according to the Potential Gas Committee.

Pickens had this to say:

T. Boone Pickens Statement on Surge in Estimated Natural Gas Reserves

Today’s report substantiates what I’ve been saying for years: there’s plenty of natural gas in the U.S. I launched the Pickens Plan a year ago to help reduce our dangerous dependence on foreign oil, and using our abundant supply of natural gas as a transition fuel for fleet vehicles and heavy-duty trucks is a key element of that plan. On the same day this report is going out, diesel prices are again on the rise, squeezing the trucking industry. Now more than ever we need to take action to enact energy reform that will immediately reduce oil imports.

The 2,074 trillion cubic feet of domestic natural gas reserves cited in the study is the equivalent of nearly 350 billion barrels of oil, about the same as Saudi Arabia’s oil reserves.

A number of people have rightly pointed out that a 100-year supply implies usage at current rates. But it got me to thinking about how much natural gas it would take to displace all U.S. gasoline consumption. So in the spirit of my previous essay Replacing Gasoline with Solar Power, I will do the same calculation for replacing gasoline with natural gas. The big difference between this calculation and the earlier one is that solar power still has some technical issues to resolve (e.g., storage) and electric vehicles are not yet ready for prime time. On the other hand we are perfectly capable, today, of displacing large numbers of gasoline-fueled vehicles with natural gas.

How Much Do We Need?

The U.S. currently consumes 390 million gallons of gasoline per day. (Source: EIA). A gallon of gasoline contains about 115,000 BTUs. (Source: EPA). The energy content of this much gasoline is equivalent to 45 trillion BTUs per day. The energy content of natural gas is about 1,000 BTUs per standard cubic foot (scf). Therefore, to replace all gasoline consumption would require 45 billion scf per day, or 16.4 trillion scf per year. Current U.S. natural gas consumption is 23 trillion scf per year (Source: EIA). Therefore, replacing all gasoline consumption with natural gas would require a total usage of 39.4 trillion scf per year, an increase in natural gas consumption of 71% over present usage.

Assuming for the sake of argument that the 2,074 trillion standard cubic feet cited in the study is accurate, that the "probable, possible and speculative reserves" eventually equate to actual reserves, and that the gas is economically recoverable, that is enough gas for 53 years of combined current natural gas consumption and gasoline consumption. If you assume that only the proven plus probable reserves are eventually recovered, the amount drops to about 1/3rd of the 2,074 trillion scf estimate, still enough to satisfy current natural gas consumption and replace all gasoline consumption for almost 20 years.

We can also calculate in terms of oil imports. Right now the U.S. imports about 13 million barrels per day of all petroleum products. A barrel of oil contains around 5.8 million BTUs, but oil only makes up 10 million of the 13 million barrel per day figure. Other imports include things like gasoline (4.8 million BTUs/bbl) and ethanol (3.2 million BTUs/bbl). Scanning the list of imports, I probably won't be too far off the mark to presume that the average BTU value of those 13 million bpd of imports is about 5.4 million BTUs/bbl. On an annual basis, this equates to 25.6 trillion scf of natural gas, which would be an increase over current natural gas usage of 111%. Going back to the 2,074 trillion scf from the study, this would be enough to displace imports of all petroleum products (again, at current usage rates and not factoring in declining U.S. oil production) for 43 years.

What's the Cost?

Natural gas is presently trading at about $4 per million (MM) BTU (although December 2009 is trading at almost $6). Oil is presently trading at $71/bbl, which equates to $12.24/MMBTU. Gasoline is presently trading at over $17/MMBTU. Thus, natural gas is a bargain relative to oil or gasoline. Incidentally, I just checked on seasoned wood and wood pellets, and they range from $8-$12/MMBTUs. So it is cheaper to heat your house with gas than with wood. I am not sure I would have guessed that.

While natural gas is a bargain relative to gasoline, converting a gasoline-powered vehicle to natural gas isn't cheap. According to this source, it can cost $12,500 to $22,500 to convert a gasoline-powered car to natural gas. Honda makes a compressed natural gas (CNG) vehicle, but according to this review in Car and Driver the premium over the gasoline version is $8780. A person would need to drive an awful lot to justify that premium. However, that's what fleets do. They drive a lot. The large price differential explains why fleets would be interested in running their vehicles on natural gas.

Conclusions

So, the good news is that the United States could be energy independent if the newly released natural gas reserve numbers are remotely accurate. It also appears that we have enough natural gas available that civilization isn't going to end any time soon due to lack of energy supplies. There are three caveats. First, energy independence via natural gas could require us to spend significantly more for personal automotive transportation. Second, "possible" reserves may never materialize. Finally, a large chunk of the calculated reserves are based on shale gas, and that requires gas to be in the $6-$8/million BTU range to be economical. Still, it is a bargain compared to gasoline, and it explains why fleets are more receptive to conversion to natural gas than the general public is likely to be for their personal vehicles.

Oil Companies Acquire More Ethanol Plants

2009-06-19T08:39:00.005-05:00

As I noted in my essay Big Oil Buys Big Ethanol, I expected that we would see more oil companies buying up troubled ethanol assets. Per the Houston Chronicle, Sunoco has become the latest:

Oil companies shop for discounted ethanol plants

FULTON, N.Y. — When Sunoco closed this week on the acquisition of a bankrupt ethanol plant for pennies on the dollar, it became just the latest oil refiner to step into the alternative fuels market.

Traditional refiners under pressure to reduce emissions are finding new avenues to meet evolving environmental standards, and finding big bargains along the way.

However, I think the article largely misses the point of why these transactions are taking place:

The plant is close to Sunoco's main operations in the Northeast where many of its 4,700 gas stations are concentrated, but the shift in U.S. energy policy was a big motivator.

The entry of traditional oil companies is part of a natural industry evolution, [Matt] Hartwig [of the Renewable Fuels Association] said.

I don't think these transactions are taking place because oil companies want to go green, or because they see this as a fantastic growth opportunity. They are doing this merely because they have been required to put ethanol in their gasoline. To meet their commitments, they can either purchase ethanol from the ethanol producers, or they can buy their own ethanol plants. If you can acquire ethanol plants for pennies on the dollar, it is cheaper for them to go that route. If, on the other hand they thought the mandates were going away, I don't think they would be jumping in.

But don't be surprised if the top U.S. oil companies — Exxon Mobil Corp., Chevron Corp. and ConocoPhillips — don't make the leap, Kment said.

"For them, a 50 million gallon, or even a 100-million gallon plant would only produce a drop in the bucket of their total needs," Kment said.

But again, it isn't about their total needs. It is about meeting the ethanol mandate, which they can do by producing "a drop in the bucket of their total needs." This isn't about oil companies trying to become ethanol companies. The scale of ethanol is far too small for that. Even if the oil companies bought up all of the ethanol capacity in the country, it would still be only a drop in the bucket. But it would enable to them to fulfill the government mandate.

POET Sets the Standard

2009-06-17T11:15:00.010-05:00

In a recent post (but certainly not the first time I mentioned this), I wrote:

Corn ethanol producers have to move away from fossil fuel inputs - or they need to otherwise find inputs that don't normally track gasoline prices. This is why the sugarcane ethanol producer can compete on a level playing field with gasoline. The fertilizer inputs for sugarcane are much lower than for corn, and the distillation energy is provided by biomass. The only way the ethanol industry in the U.S. will be able to break free from the subsidies is to adopt similar practices.

The ethanol company POET, which I recently described as setting the standard for ethanol production in the U.S., has just taken a big step in that direction. This press release was just e-mailed to me:

Waste material to power cellulosic/grain ethanol plant

POET installs anaerobic digester at pilot cellulosic ethanol facility

SIOUX FALLS, S.D. (June 17, 2009) – A self-sustaining energy cycle for producing cellulosic ethanol is close to reality with the recent startup of an anaerobic digester at POET’s pilot plant in Scotland, S.D.

Corn cobs at Project LIBERTY will not only be used to produce ethanol; the liquid waste will go to an anaerobic digester to power the cellulosic plant and offset natural gas usage at the attached grain ethanol plant as well. That’s renewable energy created at the plant, powering the plant and powering the adjacent facility.

POET installed and fired up its anaerobic digester, which was designed and built by Biothane, on May 20. The digester uses liquid waste created in the process of converting corn cobs to ethanol. That waste is used to produce methane gas, which acts as roughly the equivalent of natural gas.

“This technology will cut fossil fuels out of our cellulosic ethanol production process and further improve the benefits of grain-based ethanol,” POET CEO Jeff Broin said. “Over the long term, POET would like to eliminate the use of fossil fuels at all of our plants through a variety of alternative energy sources.” The alternative energy technologies employed at other POET facilities include a solid waste fuel boiler, landfill gas and cogeneration.

The digester is in the research phase – corn cobs have never been used in this way before. The methane is currently being flared, but once the process is refined, it will be installed as part of Project LIBERTY.

Project LIBERTY is a 25 million gallon-per-year cellulosic ethanol plant, which will be built in Emmetsburg, Iowa. Research and development work is on schedule for the plant to begin production in 2011.

A photo of the anaerobic digester is available at http://www.poet.com/news/showRelease.asp?id=169.

To see a documentary about POET’s pilot cellulosic ethanol plant visit http://www.poet.com/cellulosedocumentary.htm. Media outlets are welcome to link to the documentary in online coverage. Photos are also available for publication at http://www.poet.com/news/releases.asp.

About POET

POET, the largest ethanol producer in the world, is a leader in biorefining through its efficient, vertically integrated approach to production. The 20-year-old company produces more than 1.54 billion gallons of ethanol annually from 26 production facilities nationwide. POET recently started up a pilot-scale cellulosic ethanol plant, which uses corn cobs as feedstock, and will commercialize the process in 2011. For more information, visit http://www.poet.com.

What POET is doing is similar in spirit to what E3 Biofuels attempted. E3 had some startup problems that ultimately put them out of business, but as I described it at the time, this is I believe a necessary step for the ethanol industry. While I don't expect this approach to be as cheap as using natural gas or coal for power, in the long run using biomass to power their plant will dampen some of the oscillations caused by volatile fossil fuel prices.

One other key issue - and I have seen conflicting information on this - is how much biomass can be removed in a sustainable manner. Since POET is just using cobs, they are probably OK. Start taking out large amounts of stover, and you may run into trouble. But using cobs solves many of the logistical challenges that cellulosic ethanol in general will face. The cob is already being collected with the corn (analogous to bagasse) so a portion of that logistics battle is already included in the deal. This is also why I think lignocellulose to fuel schemes need to focus on biomass already coming into central locations, such as landfills.

The one other obvious question is just how much natural gas can be displaced by digesting the liquid waste. Since they are still in a research phase, they probably don't even have a good answer to this yet.

Mulva on Replacing Oil

2009-06-16T17:46:00.007-05:00

My former CEO Jim Mulva spoke today at the National Summit in Detroit, and had some newsworthy comments. Bloomberg reported on his talk:

Conoco Chief Says Replacing Oil May Take a Century

June 16 (Bloomberg) -- ConocoPhillips, the third-largest U.S. oil company, said it may take a century for the nation to replace fossil fuels with alternative energy sources.

I don't know of too many people who think we have a century's worth of oil left. Natural gas and coal? I also seriously doubt we have that much of either of those, especially allowing for economic growth. What I think this means - in any case - is that we have some potentially difficult times in front of us. However, Mulva went on to give his prescription for preempting some of those difficulties:

The country will need to develop its own oil and natural- gas deposits and continue importing petroleum while developing alternative supplies in the decades ahead, ConocoPhillips Chief Executive Officer Jim Mulva said today at the National Summit economic conference in Detroit. At the same time, he said, the nation will need to address climate change.

On the issue of climate change, Mulva thinks legislation is likely, but doesn't want to see U.S. producers punished while foreign producers are left unscathed:

The U.S. needs policy that encourages investments in all types of energy and avoids hurting the economy by making the nation less competitive than countries with cheaper energy, Mulva said. Proposed climate legislation in Congress threatens to drive U.S. refiners out of business by imposing higher carbon costs on domestic fuel than on imports, he said.

That last bit is very important. If we do get climate legislation, we need to make sure that we aren't providing a competitive advantage to countries who don't care about emissions - while putting our domestic producers out of business. This was a major theme in Jeff Rubin's book Why Your World Is About to Get a Whole Lot Smaller. Rubin argued that if we put a price on carbon emissions in the U.S. we can apply a carbon tariff on imports to level the playing field. Rubin argues that this will encourage efficiency from foreign producers of all things that are energy intensive, and it will ensure that the legislation doesn't put U.S. firms out of business. (I reviewed Rubin's book here).

Mulva went on to suggest that oil prices had gotten ahead of themselves. That story from Reuters:

Conoco CEO: oil prices ahead of fundamentals

"We have felt that an oil price between $70 and $80 (a barrel) is a good balance to promote investment, continue to replace reserves and keep production up, as well as a balance with respect to the cost to the consumer," he told Reuters.

But Mulva also acknowledged the price run-up -- expectations of a recovery drove crude prices to $73 a barrel last week, more than double their winter lows -- was "stronger than we would have expected" and was "a little bit ahead of the actual supply and demand situation and inventory levels."

I think "expectations" is the key word here. We do seem to have a little bit of a glut of oil (and natural gas) right now. In that respect, prices seem to be too high. But take this story from Fortune, where a majority of analysts believe that prices long-term are headed much higher:

Why oil is on the rise again

NEW YORK (Fortune) -- Ask a group of oil analysts about the recent surge in crude costs and here's the consensus answer you'll get: Prices have run up too far, too fast and they aren't supported by the fundamentals.

Ask them about where prices will be two years from now, however, and the majority will offer this prediction: A lot higher.

So if I am an investor - and I think oil prices will be "a lot higher" in two years - I am going to invest in oil and/or oil company stocks regardless of what the supply/demand situation looks like today. And when enough people do that, you have pressure on oil prices today, which is why I think we are back to $70 oil.

Full Disclosure: I own shares of ConocoPhillips and Petrobras.

Response to Green Algae Strategy Review

2009-06-15T07:14:00.007-05:00

I have received a response from Mark Edwards, auther of Green Algae Strategy: End Oil Imports And Engineer Sustainable Food And Fuel. I reviewed the book here recently, and as I indicated in the conclusion of the review I would gladly post any of Mark's comments. So, here they are in full. I have added clarifications, such as to indicate when Mark is quoting me [e.g., RR quote]. I have otherwise tried to keep the formatting consistent with what Mark sent me. No further response from me.

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Response to Green Algae Strategy Review

Thank you for the review and the opportunity to respond to your thoughtful comments. Your observations are right on target for someone focused on algal oil as a liquid transportation fuel.

Remember that food energy is actually more important to humans that liquid transportation fuels. We can survive without transportation assistance but we starve quickly without food energy. I see no way to produce algae economically purely for liquid transportation fuels. The only way production makes sense will be to grow massive amounts of algae biomass, harvest the lipids for transportation energy and use the protein and carbohydrates to produce additional forms of energy, including especially food and feed.

RR quote: “Either Mark Edwards is dead wrong, or I am dead wrong.”

On the future of any topic, especially science, the truth is probably somewhere in the middle.

Skeptics abound in the algae space and the leading skeptic, Dr. John Benemann, speaks at all the algae conferences and stands in stark contrast to many other equally experienced scientists who do not share his natural pessimism. John revels in his reputation for pessimism. Other scientists engaged in the Aquatic Species Report have a completely opposite view. Several are working for companies that are producing algae for fuel. Professor Milton Sommerfeld at ASU and a co-author on the Report, has been producing algal oil for jet fuel in the laboratory and a field setting for several years.

Speculation on cost per gallon of algal oil is useless until we see actual field production. The good news on this front is that I have seen the following:

• Cost reduction of algal oil production -- one order of magnitude in the last two years
• Cost reduction on algal extraction -- two new methods promise two orders of magnitude
• Cost reduction on energy for mixing -- one order of magnitude in the last two years

These cost reductions will be reflected in various producers’ cost models. American scientists and engineers are exceptionally talented at taking costs out of production.

The real question is not the cost of algal oil per gallon but the value of the total culture. The best production models I've reviewed have only about 30% of the algal biomass value going to fuel. That means 70% of the biomass produces other coproducts from the protein and carbohydrates. Those many coproducts are examined in analyzed in Chapters 7 and 10 in Green Algae Strategy.

Green solar energy captured in algae creates a portable energy source and grows biomass with solar energy stored in forms that may be used for a variety of purposes:

• People – organic protein in food
• Animals – organic protein in fodder
• Fowl – natural protein for birds
• Fish – natural protein in fish feed
• Land plants – organic nitrogen fertilizer
• Fire – high energy algal oil for cooking and heating
• Cars – carbohydrates refined to gasoline for transportation
• Trucks and tractors – high energy clean, green diesel
• Trains, boats, barges and ships – high energy clean diesel
• Planes – high energy, clean aviation gas and jet fuel

Algae also offer low energy and low cost pollution solutions to clean waste, brine or salt water, sequester CO2 from coal fired power plant plumes and recover abandoned soils. This presentation will highlight the status of the algal industry with a focus on food and energy.

RR quoting a study that I cited in the review: What about the value of sequestered carbon in algae-based biofuels? In short, there isn’t any. Atmospheric carbon is only sequestered for a short time until it’s burned in an engine. Under existing biofuels mandates in most industrialized countries, there will be no opportunity to sell carbon offsets unless fuel production is additional, or beyond such mandates.

This criticism ignores the fact that algae-based biofuels recycle atmospheric carbon and every gallon displaces a gallon of fossil fuel. When algal production occurs with no fossil energy, the production is carbon neutral because the carbon dioxide is simply being recycled. In contrast, cropland-based biofuels such as ethanol emits more carbon than burning natural gas directly due to the huge amounts of fossil fuels needed to produce corn.

I recently presented a paper demonstrating our work with Desert Sweet Biofuels where we produced carbon negative algal biomass by using a gasifier and creating bio-char. The gasifier burned biomass in a oxygen starved container creating hydrogen and carbon monoxide. The hydrogen was burned for energy to create electricity while the carbon dioxide was flued into algal ponds to produce algal biomass. Our calculations showed that we sequestered only about 10% of the total carbon -- the bio char that was scratched into fields. The University of Arizona is currently conducting research to see what percentage of that bio char stays in the soil and for how long. Other research suggests that much of the bio char stay sequestered for decades.

Several countries are financing gasifiers in the U.S. for algal oil production for carbon trade off-sets.

RR quote: Edwards falls prey to the Vinod Khosla fallacy on cellulosic ethanol: This is simply too important and there are too many companies working on this to fail.

Vinod Khosla gave an excellent keynote at the 2009 Algal Summit in Seattle where he outlined his reasoning for not investing in algal production. His primary points were that he needed to see actual production before making investments and that the industry needed to do a better job at conveying the value proposition for algae.

RR quote: He is sufficiently skeptical about the near term prospects for cellulosic ethanol, and is harsh in his assessment of corn ethanol (even more so than I have been).

My prior book, Biowar I: Why Battles over Food and Fuel Lead to World Hunger examines the entire ethanol fiasco including energy and cost models. BioWar I is available for free PDF download with color speaker notes at http://greenindependence.org/. Every claim made for ethanol has turned out to be false. Consider that 2009 production of ethanol produce about 9 billion gallons of ethanol (the DOE Target) and will consume:

• 40 million acres of prime American cropland
• 2 trillion gallons of fresh water for irrigation
• 5 billion gallons of diesel fuel for corn production

The 2009 ethanol production will create severe pollution of air, water and soils while reducing imported oil by about 3%. Algal production, when commercially viable, could produce far more ethanol or other higher energy fuels using no or minimal cropland, fresh water or fossil fuels.

BioWar I covers the research on cellulosic ethanol which, for litany of reasons including that it takes too much fresh water and energy, makes no sense for biofuel production. Cellulosic products may turn out to be an excellent source of carbon for the production of algal oil. BioWar I concludes that our best policy is to end subsidies for ecologically destructive production such as ethanol and big oil and to shift subsidies to ecologically friendly production such as algal biomass. Subsidies played a key role in the review.

RR quote: He blames the lack of progress for algae on lack of funding, which is blamed on corn ethanol. This, he argues, was the politically favorable biofuel that sucked up all the R&D funding (and subsidies). He later writes “If corn ethanol makes sense, the market will reward it without taxpayer monies or protectionist tariffs.” Can’t we say the same about algal fuel?

Making corn whiskey, ethanol, is a 200-year-old technology. Subsidies are useful for changing consumer behavior and supporting new technologies. Subsidizing corn and the many inputs for growing corn for ethanol make no sense and are ecologically destructive. Algal production does not need protectionist tariffs but does need public monies to develop the knowledge base to grow massive amounts of biomass. The two top threats I see to the algal industry are subsidy-based. Lack of government subsidies, which began in the 1990’s at the end of the Aquatic Species Program led to: (Subsidies were shifted to corn ethanol.)

a. No support for academic, institute or government algal research. As a consequence, the US has few algae labs, nearly no American algal professors and very few students trained in algal production. Lack of trained scientists and graduate students put the U.S. at severe disadvantage in algal production.

b. An algal industry constrained by vertical markets. Each algal company jealously protect its intellectual property and does not share bubble research or breakthroughs. Even the scientific meetings are full of statements that the scientist cannot share real numbers because they have signed on disclosure agreements with their employers or grantors.

The R&D necessary for successful algal production will take more money than is available from private investors. Who wants to invest $500 million on R&D. Investors want a fast return and are not willing to fund sufficient R&D. Failing government subsidies, the industry will sputter for decades. Then, when humanity desperately needs sustainable food and energy solutions, we will discover that the intellectual property for production is locked up by a very few producers who monopolize production to the detriment of all humanity.

RR paraphrase: To commercially grow them in the Midwest –pipedream.

Watch. Within 10 years, most the farms in the Midwest will use algal production to:

a. Recover and recycle energy in agricultural waste streams, especially manure
b. Recover and recycle nutrients in agricultural waste streams
c. Reduce the ecological damage and carbon footprint for agricultural production

Yes, many producers may use greenhouses and geothermal energy for algal production. However, cold tolerant algal species may flourish in the Midwest especially during the normal growing season.

RR paraphrase: Energy return not covered.

Correct. No one can credibly address energy return until production specifications and costs are determined. However, the production of algal biomass using solar, wind and geothermal energy avoid the issue of fossil fuel use. Two new extraction technologies promise significant reduction in energy requirements. One method uses simple air flocculation and another uses ultrasonic waves to break up the algal cells and separate the oil from the other biomass. The ultrasonic solution allows the oil to flow to the top where it can be skimmed off at very low cost.

RR paraphrase: Casually dismiss technical challenges

The technical challenges are treated with seriousness and focus. True, most are not solved in the book. An entire chapter examines each technical challenge and what needs to be done to successfully produce algal oil. In addition, the table in the last chapter provides a summary of the technical challenges and the R&D needed.

RR quote: Page 13: As a criticism of using food crops for fuel, he states that massive planting of corn leads to high humidity because the leaves transpire water. This leads to thunderstorms and potentially tornadoes. That large areas planted in corn can increase the risk of tornadoes is something I have never heard before.

Neither had I before doing the research for BioWar I and Green Algae Strategy.

RR quote: Page 150: When writing that algal fuel mimics fossil fuels without fossilization, he writes “Skipping the fossilization step not only saves 200 million years of pressure and heat, but lowers production costs significantly.” I can’t really comprehend this one.

Consider the true cost of production for fossil fuels. Failing government subsidies, fossil fuels would cost around $15 a gallon and that’s ignoring their ecological cost. Oil fields must be found and developed at huge cost. Extraction and transportation add significant additional costs.

Imagine growing algae locally for fuel production when the inputs are only sunshine, carbon dioxide and wastewater.

RR quote: Page 179: He cites a claim by Aurora Biofuels that their process creates biodiesel with yields 125 times higher and 50% cheaper than current methods. I am going to presume that this was supposed to read 125% higher and not 125 times higher.

You are correct.

RR quoting from the book: Page 204: “When someone invents a carbon capture filter for vehicle exhaust pipes, there will be a nearly limitless supply of low-cost CO2 for growing algae.”

I think this is a great idea. A Brit has developed the vehicle exhaust filter. This is only one of many new and some recycled ideas presented to spur algal production.

Solar Stories

2009-06-12T10:33:00.005-05:00

A couple of interesting solar stories this morning, as well as a new blog covering solar power. First, the new solar-focused blog by Paul Symanski. Paul has experience in the solar industry, and many of his early entries are concerned with solar energy economics:

Rate Crimes - Bringing Transparency to the Economics of Solar Energy

From Paul's first entry in May - There is No More Important Energy - he writes:

The Rate Crimes conversation centers on solar electric energy because of its importance to the future of our society: a society that is defined by electric energy as much as by the fuels that currently provide us mobility.

Solar electric energy has myriad advantages over the traditional fuels that provide us with electricity. Solar energy is plentiful, clean, immediate, proximate, distributed, mobile, scalable, unobtrusive, long-lived, durable, gathered, simple, safe, unassailable, independent, equitable, and profitable. And, like no other energy source, solar energy has the potential to become ubiquitous.

Solar energy is plentiful. Enough solar energy falls on the Earth in one hour to power the whole planet for an entire year. Resources for exothermic reactions (e.g. combustion, fission) diminish. As this occurs, these traditional fuel resources will no longer be able to meet our demand for energy. Energy generated by the photoelectric effect will supplant the traditional fuels.

Next, a pair of headline stories this morning about solar power:

Nation's largest solar plant to be built in NM

ALBUQUERQUE, N.M. (AP) — Utility officials announced plans Thursday to build a giant solar energy plant in the New Mexico desert in what is believed to be the largest such project in the nation.

The 92-megawatt solar thermal plant could produce enough electricity to power 74,000 homes, far exceeding the size of other solar plants in the United States. The largest solar thermal plant in operation now is about 70 megawatts, said Dave Knox, a spokesman for New Jersey-based NRG Energy, the company building and running the facility.

"This is larger than anything in existence in America so far today," he said.

It will be similar in many respects to a steam plant, using the sun instead of fossil fuel to generate steam and produce electricity, said Michael Liebelson, president of NRG and chief of development for its low-carbon technologies.

I have been thinking a little about the intermittency issue. I wonder if you could have a natural gas tie-in, and whenever your thermal mass starts to cool off after the sun goes down, just keep it heated up with natural gas. I haven't heard of this being incorporated into these solar thermal plants (although maybe it is?), but it seems to make sense to me. The capital costs would be higher, but you then have a plant that can run 24 hours a day - with solar contributing perhaps 2/3rds of the power. Of course if you have enough thermal mass, you could potentially keep the plant running overnight anyway before things cooled off to the point that you can no longer produce electricity.

[Note: A reader sent me a link to show that yes, someone has started to build a hybrid plant incorporating the elements I mentioned above: FPL Breaks Ground on First Hybrid Solar Plant]

The second story is from India:

India plans much solar power, slower emissions rise

India is about to publish eight climate "missions" to boost efficiency, renewable energy and sustainable development. "We hope that will be completed in the next few weeks," said [Shyam] Saran [RR: Saran is special the climate envoy to Prime Minster Manmohan Singh]. One policy aim is to install about 20 gigawatts of solar power by 2020, he told Reuters.

"It's around 20 gigawatts, that's something we've been talking about."

The world now produces about 14 gigawatts (GW) of solar power, about half of it added last year. Analysts said they want details of the Indian plan before hailing what would be a big lift to a small but burgeoning market.

Regular readers know that I am bullish on solar power in the long run. I think our long-term future will consist of electricity produced from solar, wind, geothermal, and nuclear (it is going to be a while before coal usage is substantially impacted) and liquid fuels produced from gasification and hydrocracked lipids. Even if we see lots of electric cars hitting the roads, we are going to continue to need liquid fuels for the airline industry and for long-haul trucking. Short term (say, the next 20 or 30 years) I still think fossil fuels will be our primary source of energy.

It's Always Something

2009-06-11T08:34:00.005-05:00

I spend a lot of time thinking about the trade-offs involved with different energy options. Take petroleum, for instance. It offers great convenience, and has been relatively inexpensive for decades. Cheap petroleum has enabled numerous people a level of mobility that had never before been possible. Some of the downsides, though, are that we get air pollution, oil spills, and resource wars. And because of U.S. dependence on petroleum, we find ourselves increasingly at the mercy of regimes hostile to U.S. interests. And when prices go up, money flows out of our economy into theirs. However, we have been willing to live with those trade-offs.

The same trade-offs hold true for renewable energy, and I actually spend a lot more time thinking about those. My near future is going to take me back into the energy sector, trying to work out sustainable, long-term solutions. Sustainable is the key word here. If the renewable option requires fossil fuels, for instance, it isn't sustainable. It might be sustainable for a long period of time if the fossil fuel inputs are low - or if they consist of fossil fuels that we still possess in abundance - but that brings up other trade-offs.

There is no perfect solution, but there are those in which the trade-offs are more favorable. For a tropical country like Brazil, I think ethanol from sugarcane is a good solution. However, try to scale that up to fuel the world, and you start dealing with more difficult trade-offs. One of the options I think looks good longer-term is green diesel made from either hydrotreating/cracking various plant oils, or from gasifying biomass and then converting it via Fischer-Tropsch to diesel (as Choren is doing).

For the hydrocracking option, the specific plant oil (or animal fat) you use is going to involve more trade-offs. Take palm oil, for instance. It is a prolific producer of oil, to be sure. It has provided a new source of income for many tropical countries. But demand from developed countries has led to massive deforestation as some tropical countries rush to plant palm oil plantations.

Jatropha curcas, which I have written about previously, is an interesting option. The primary attraction is that it can reportedly grow in marginal soil, and it is drought tolerant. Presumably, this would imply that it doesn't use much water. Not so, according to a recently published paper in PNAS:

The water footprint of bioenergy

In case you can't read that, the graph shows jatropha as the highest user of water per GJ of fuel produced. Many believe the world faces some very serious issues with availability of fresh water. In that case, an important trade-off will be the amount of water a energy crop uses.

The study doesn't describe their methodology in detail, so it is difficult for me to critique their result. I can say that other studies have shown that jatropha still produces oil under minimal water requirements:

Response of Jatropha curcas L. to water deficit: Yield, water use efficiency and oilseed characteristics

It may be that the best yields are produced when lots of water is supplied. But then there are locations that would be willing to trade lower oil yields for low water requirements. The point is that these sorts of trade-offs are going to be involved with every energy choice. As the title says, "It's always something." But that doesn't mean we don't have options.

As we turn increasingly to bioenergy in the future, it is critical that we make choices that minimize the negative side of the trade-offs. Unfortunately, history shows that the group benefiting from the positive side of the trade-off is not always the same group getting hit with the negative side. But for me, this is going to be an important consideration as I search for optimal bioenergy options.

Note: Incidentally, when I was writing this essay, I ran across a very informative source of jatropha information that I hadn't seen before. There are a lot of nice pictures there: Jatropha Cultivation

Time to Switch to Natural Gas?

2009-06-10T15:17:00.004-05:00

A couple of articles, both at Seeking Alpha, got me to thinking about whether it might be time to trade in my Petrobras (PBR) stock for something in the natural gas sector. From the first of the two articles:

Natural Gas Should Get a Boost from China's New Demand

China has been developing natural gas vehicles for many years, recently the number of vehicles running on nat gas has risen dramatically. For example, the government of Xi'an in western China, a medium size with 8M population, has decided to mandate all city buses and taxis using natural gas. The government website reported 5000 buses and 20000 taxis was using nat gas in 2008, and is expected to grow in coming years.

That wasn't the most interesting bit for me. This was:

With natural gas price at historic low $3.74, investors should take advantage and invest in ETF such as (UNG), or producers such as Chesapeake Energy Group (CHK), Devon Energy Corp (DVN) and XTO Energy (XTO).

I haven't been following natural gas prices closely, and would have expected them to be on the rise like oil prices. Speaking of which, the other article was about Petrobras, and it argued that the price is poised to rise further if oil prices continue to climb:

Petrobras Ready to Benefit from Next Oil Price Spike

During the credit crunch, there were concerns Petrobras would have trouble obtaining financing to exploit Tupi. The stock dropped from over $70 to a low of under $15 in November of 2008. However, the stock has recovered nicely as credit crunch worries have subsided and financing deals have been reached with China and others. Recently PBR traded above $43/share. The PE=11.7 and the dividend yield is a scant 0.70%. But this isn’t a dividend story. Unlike US majors XOM, CVX, and COP, Petrobras is a story about strongly increasing production in an age of peak oil. That will certainly lead to increasing profits and a stock that will outperform its peers.

To me, this explains why PBR is trading at $43 a share. But I bought PBR at $17.50 in November - having just barely missed the bottom - and it has risen sharply with oil prices. But I think the upside at this point is limited unless oil prices continue to climb. In fact, I would have sold it already if I wasn't trying to wait long enough to benefit from the long term capital gains tax rate.

And while I think there is some upside left to PBR, natural gas stocks should go sharply higher if natural gas prices start to respond to higher oil prices. (Historically, this correlation has not been very good, but the two have correlated well in the past few years). We are also entering the low demand time of year for natural gas, and prices also reflect that. But if your outlook is a bit longer than past this summer, natural gas is looking like a real bargain to me. In fact, natural gas stocks remind me of PBR back in November...

The Long Recession

2009-06-09T18:49:00.002-05:00

Sometimes people ask me what I think will happen as a result of peak oil. Well, it depends. We could see alternatives - natural gas, ethanol, GTL, CTL, etc. - fill the gap of falling oil supplies for a while. It just depends on how quickly production falls. But if the alternatives are not up to the task, then I think what we will see - borrowing terminology from The Long Emergency- is The Long Recession. Here's how it would work.

As economies heat up, demand for oil increases. This puts upward pressure on oil prices, which can ultimately cause a recession such as the one we are in now. Historically, spiking oil prices tend to consume disposable income and lead to recessions. Jeff Rubin, whose new book I recently reviewed, has claimed that four of the past five recessions were caused by spiking oil prices.

In normal cycles, oil companies build up capacity when oil prices are high. A recession caused by high oil prices, combined with overcapacity built up during the price rise, can keep oil prices at bay for a long time. But what if oil capacity can't be overbuilt, because oil production has peaked? In this situation, oil prices will start to recover just as soon as the economy starts to come out of recession. This may in turn "restall" the economy, leading to a long recession that just repeats the cycle every time the economy begins to recover.

It is hard to say that we are at that point. However, oil prices have recovered quite a bit of lost ground, and have now crossed $70/bbl:

$70 oil menaces budding recovery

At the end of May CNNMoney.com ran a story asking if $60 oil will kill any economic recovery. 'No," most analysts said - consumers could shoulder $60 crude, and analysts didn't see prices going much higher.

Now oil is touching $70 a barrel. Goldman Sachs recently said it sees crude at $85 by the year's end. With the economy still on life support, oil is drifting dangerously close to being the wet blanket at the recovery's party.

Hmm. Sounds like what could be waiting on the other side of this recession is...a recession.

There are alternatives that start to become economical with oil at $70 or more. Oil sands, for one. Natural gas vehicles also start to look pretty good at those oil prices. Even GTL, CTL, and BTL stand a chance of being economical if oil prices hang around at lofty levels. But companies - especially oil companies - are pretty risk averse when it comes to predicting oil prices. I doubt any U.S. oil companies are basing future economics on the expectation of > $70 oil. If they were, you would see far greater investments into unconventional energy sources.

How to Calculate Ethanol's Value

2009-06-07T13:46:00.004-05:00

There was a comment following the previous post that claimed that ethanol producers are making money - minus subsidies - at $1.75 a gallon. I attempted to set the record straight in the comments, but I thought this was probably worth a post.

The way the blender's credit works is that gasoline blenders get a credit - recently reduced to $0.45/gal - against the federal gasoline taxes they have to pay for each gallon of ethanol blended into the gasoline pool. However, it is not true that this subsidy actually benefits the oil companies. Ethanol proponents like to make that claim, but any time there is talk of getting rid of the credit, they are the ones who scream loudly. You won't hear oil companies lobbying to keep it. Thus, it should be clear who really benefits.

If you think about it, though, isn't it kind of silly to have a subsidy (and I haven't even mentioned the additional state subsdies) on something that already has a mandate for its use? Are we going to use less ethanol if the subsidy is taken away? No, because we have a mandated amount that has to be blended into the gasoline pool. What would happen if the subsidy is removed - and this is why the subsidy stays - is that consumers would pay more for their gasoline, and ethanol's impact on gasoline prices would be more transparent.

Anyway, at the current price of around $1.75 a gallon, gasoline blenders are getting a discount of $0.45, paid for by tax dollars. Thus, the real price they are paying for ethanol is $1.30 a gallon today - too low for the ethanol producer to make a living. That is why the ethanol industry - after 30 years of direct subsidies - still can't survive without them. If you took away the mandates and the subsidies, the entire corn ethanol industry would go bankrupt. Actually, a fair chunk is going bankrupt even with subsidies and mandates.

You can also use a different route to determine that the real, unsubsidized price of ethanol today would be $1.30 a gallon. Last Friday on the NYMEX, gasoline closed at $1.95/gallon. (Note that this price does not include state and federal taxes). Because ethanol contains 67% of the BTU content of gasoline, the price should reflect this. Thus, if I am a gasoline blender, I would be willing to pay 67% of $1.95 for my ethanol, all other things being equal. That puts me at parity to what I am paying for gasoline. How much is that? $1.31. Ethanol would have to trade at or lower than this value, unsubsidized (and at the present price of gasoline) to compete in an open market.

So what if gasoline was trading at $3.00 a gallon? Then the gasoline blender would be willing to pay $2.00 a gallon for their ethanol. But when gasoline prices are rising, generally so are other fossil fuel prices. Because (corn) ethanol is so heavily dependent upon natural gas (for corn fertilizer and for distilling the ethanol) costs will generally have risen sharply for the ethanol producer. This is the vicious circle the ethanol producer is in, and it explains why the industry has been subsidized for 30 years.

Corn ethanol producers have to move away from fossil fuel inputs - or they need to otherwise find inputs that don't normally track gasoline prices. This is why the sugarcane ethanol producer can compete on a level playing field with gasoline. The fertilizer inputs for sugarcane are much lower than for corn, and the distillation energy is provided by biomass. The only way the ethanol industry in the U.S. will be able to break free from the subsidies is to adopt similar practices.

Book Review: Green Algae Strategy

2009-06-04T17:11:00.007-05:00

Introduction

I love to read. I particularly enjoy books about energy, sustainability, and the environment. One of the benefits of reviewing books is that I end up getting a lot of free books on these topics. One thing about getting free books, though, is that I have to be careful that it doesn't impact my objectivity. After all, the publisher or author was nice enough to send me this free book. How do I then approach the matter if I sharply disagree with some aspects of the book?

I am on record as being very skeptical about the ability of algal biodiesel to scale up and contribute significantly toward liquid energy supplies. Mark Edwards, a Professor of Strategic Marketing and Sustainability at Arizona State University recently saw one of my essays, and said that while he agreed with my points that many algal producers have been overly optimistic, he also felt like I had glossed over algae's potential. He offered to send me a copy of his book Green Algae Strategy: End Oil Imports And Engineer Sustainable Food And Fuel.

The first thing I thought when I saw that title is "Either Mark Edwards is dead wrong, or I am dead wrong." But I believe it is important to read and understand a wide range of viewpoints, because I just might change my mind. Maybe I am dead wrong. This book won the 2009 IPPY award for the best science book, so there are definitely those who think Mark makes a good case.

Mark Edwards writes that he has three goals:

1. Create Green Independence for America and the world

2. Halt and reverse climate change

3. End American and world hunger

While I can certainly get behind those goals, the devil is always in the details. And I think in the details we are going to run into some very challenging problems. Of course this is something I wouldn't mind being dead wrong about. In fact, a few years ago I was very optimistic about the possibility of algae to produce large amounts of fuel without utilizing large amounts of good crop land. The prospects for algal fuel certainly sounded too good to be true. But a series of articles and discussions since then has swung me increasingly to the belief that the stories were too good to be true.

My Slide Toward Skepticism

First I read an essay at The Oil Drum called Has the Algae Cavalry Arrived? The essay was mostly based on work done by Krassen Dimitrov, who had gone back to first principles of incoming solar insolation to argue that GreenFuel Technologies was exaggerating their claims. While Dimitrov's work has been criticized, he does raise a number of important issues. Primarily for me was the issue of just how much renewable diesel could be made from a square meter of area, contrasted with what the overall costs might be. Dimitrov concluded that you could make at best about a gallon of algal oil per square meter per year. However, costs were estimated to be over $100 per square meter. That sounded like a pretty serious, but potentially surmountable problem. (Important to note that in Green Algae Strategy, Mark Edwards also argues that GreenFuel made "some serious mistakes in executing strategy", and led the industry in "hope and hype").

Then came a post from John Benemann: Algal Biodiesel: Fact or Fiction? John has been heavily involved in algae studies for many years. In fact, he was the Principal Investigator and main author of the U.S. DOE Aquatic Species Program Close-Out Report. He certainly has some credentials on the topic of algae, and he weighed in to say that the essay described in the previous paragraph was generally correct. John's position is that the present status of algal biodiesel is nowhere near commercialization, but in 10-15 years commercialization may not be out of the question. But it is far from a sure thing, and it certainly won't happen soon. (See also John's recent position paper on the subject: Opportunites and Challenges in Algae Biofuels Production).

Meanwhile, more question marks emerged. De Beers Fuel, having made some pretty far-fetched claims about their ability to deliver algal biodiesel, as well as having sold 27 franchises for algal biodiesel production, turned out to be a scam and collapsed. GreenFuel Technologies finally decided their future was bleak, and they closed down.

Information about the true costs started to become publicly available. While it has long been known that algal biodiesel is currently very expensive to produce, the actual price was only vaguely quantified. Krassen Dimitrov had suggested costs of around $20/gal. The government in British Columbia commissioned a study to look at the prospects, as well as the estimated costs of production. They estimated that the net cost of production per liter for photobioreactors (PBRs) was $24.60 ($93.23 US dollars/gallon), for open raceways it was $14.44 per liter, and for fermentors was $2.58 per liter. (There are some other issues with using fermentation that I won't get into here). The report also stated that the much-touted carbon sequestration benefits of algae were illusory:

What about the value of sequestered carbon in algae-based biofuels? In short, there isn’t any. Atmospheric carbon is only sequestered for a short time until it’s burned in an engine. Under existing biofuels mandates in most industrialized countries, there will be no opportunity to sell carbon offsets unless fuel production is additional, or beyond such mandates.

Finally, Bryan Wilson, a co-founder of Solix Biofuels, went on record and stated that they could indeed make biofuel from algae, but the cost to do this was $33/gallon.

That preamble is meant to establish that there was quite a lot behind my slide from algae optimist to algae skeptic. But I was looking forward to seeing whether Mark Edwards could push me back toward the optimist camp with his book.

The Book's Strengths

Let me talk first about what I feel are the book's strengths. Edwards clearly lays out the challenges we face over our dependence on fossil fuels. He takes on current U.S. biofuel policy in a credible way. He is sufficiently skeptical about the near term prospects for cellulosic ethanol, and is harsh in his assessment of corn ethanol (even more so than I have been). He cites familiar names such as Lester Brown, delves deeply into the challenges of water and soil depletion, and discusses the issue of NPK (nitrogen, phosphorous, and potassium) availability in the future.

On the overall topic of algae, the book is incredibly informative. I had no idea that algae played such an important role in food, medicines, and consumer products (e.g., Aquafresh toothpaste). Edwards discusses many different varieties of algae, and characterizes them according to lipid, protein, or carbohydrate production.

Edwards makes a good case for why it would be a great idea to have algae-based fuels. He emphasizes that the co-products in many cases can improve the overall economics of the process. He lays out all the possible benefits of procuring our fuel from specific waterways as opposed to trading topsoil and fossil aquifers for fuel.

I can say with certainty that this book will come in handy for me in the future as a reference book. (More details at a later date, but I am likely to do some work on algae myself in the not-too-distant future). But what I won't use this book for is as a "How To" guide. And that's a good segue into the problems I had with the book.

The Book's Weaknesses

At times it felt as if this book was written by two people. There was Mark Edwards, the cellulosic ethanol skeptic, accurately reporting on some of the potential problems with commercialization of cellulosic ethanol. Then there was Mark Edwards, the algal biofuel optimist, uncritically presenting seemingly far-fetched claims from any number of would be algae producers.

There was even Mark Edwards the algal fuel skeptic, but I just couldn't reconcile that person's views with those of Mark Edwards the optimist. On one hand, Professor Edwards notes that the current estimated costs for algal biodiesel are over $20/gallon. He said that over 75% of the companies who had algal aspirations in the 80's and 90's no longer exist. He wrote that the algal fuel industry as a whole has produced less than 100 barrels of product. Then he turns around and writes that within three years the industry will be producing hundreds of millions of gallons. (Based on the 2008 publication date, I guess we can expect a gusher of production next year).

I had a number of specific criticisms as I read the book. First, it was presented throughout the book that algae can be used to produce food and fuel, all while sequestering carbon. I don't agree with that. Certainly algae take up carbon dioxide and convert it into biomass as they grow. However, unless that biomass is stored away without being consumed, there is no real carbon sequestration. Imagine two different scenarios. In the first scenario, the carbon dioxide from a coal-fired power plant is bubbled through tubes filled with algae. The algae will consume that CO2, preventing the immediate escape into the atmosphere. But what happens if fuel is produced from the algae? The carbon dioxide ends up getting released into the atmosphere. What you can say is that the release was delayed, and (depending on the energy inputs into producing the fuel) potentially more fuel was produced for a given emission of CO2. However, that isn't carbon sequestration.

Second case, algae are grown utilizing atmospheric CO2. During the growth phase carbon dioxide is indeed removed from the atmosphere. Take that algae and bury it deep in the earth, and carbon is sequestered. Turn it into fuel, and the CO2 taken up during the growth-phase is released back into the atmosphere. This is potentially a greenhouse gas (GHG) neutral process, but there is little potential for sequestration if the goal is to use the algae for fuel. However, this carbon sequestration meme is mentioned many times in the book (and many themes in the book were unnecessarily repetitive).

He blames the lack of progress for algae on lack of funding, which is blamed on corn ethanol. This, he argues, was the politically favorable biofuel that sucked up all the R&D funding (and subsidies). He later writes "If corn ethanol makes sense, the market will reward it without taxpayer monies or protectionist tariffs." Can't we say the same about algal fuel? If the potential is so great, money should flood in from investors looking to get in early on a huge growth opportunity.

I don't recall that the issue of energy return was ever covered in the book. If the energy inputs into the process are too high - as Bryan Wilson of Solix Biofuels recently suggested - then you have a potentially serious issue. How can algae be harvested and processed with minimal energy inputs? One of John Benemann's comments from his position paper was "At present there are no low-cost harvesting technologies available." Why? It takes a lot of energy to extract the algae from the water, relative to the BTU content of the algae you are extracting.

I felt that there was some confusion around the usage of specific terminology. For instance, on Page 6 Professor Edwards wrote that oil pressed directly from algae can be used directly in a diesel engine, and this is called green diesel. While plant oils can be used straight in a diesel engine, this product is called straight vegetable oil, or SVO. (Note: Do not attempt to use SVO in a vehicle unless you understand the caveats!) Further, there is a difference between green diesel and biodiesel, but this terminology is used interchangeably in the book. (See my Renewable Diesel Primer for an explanation of the differences between green diesel and biodiesel.) Another misuse of terminology comes on Page 15, where ethanol is called a hydrocarbon.

But those aren't the biggies for me. The title of the book indicates that it is a strategy book, but I see it more as a series of facts, connected to goals. What is missing is the "how to", which would be the strategy part. Yet difficult technology challenges were addressed casually. There are numerous instances where there is a presumption that technology will solve a particular problem. The word "might" is used an awful lot in the book. But when you casually dismiss technical challenges, you can effectively argue that the most implausible scenarios are inevitable. Let me give you an example.

Bananas are a very healthy food, and in the U.S. we depend on imports from tropical countries for our banana supplies. Just imagine if we could grow bananas in the Midwest. The soil is fertile. There would be additional options for farmers to make money. New jobs could be created in the domestic banana supply chain. So let's say I write a book about my Midwest Banana Strategy. I talk at length about the benefits of bananas, and the benefits of growing them in the Midwest. These are facts. I then tie them to my goals: To commercially grow them in the Midwest. The only problem is that unless I am willing to invest in heated greenhouses - at very great expense - my banana goal is going to come to naught. So presently Midwestern bananas are a pipe dream. But if I invoke the wonders of biotech - "there will be a solution that will enable cold-tolerant bananas" - then problem "solved." And that's how I felt many problems were dealt with in the book.

There are a series of independent facts, and then we have a black box, and then we have commercial algal biofuel. Solutions are presented as inevitable ("when this happens") instead of possible ("if this happens"). Sometimes I had flashbacks to The Singularity Is Near, in which author Ray Kurzweil employed this tactic throughout to argue that the near future is so fantastic we can't even imagine it. It is certainly true that a lot of companies are working on algae. But I would argue that Professor Edwards falls prey to the Vinod Khosla fallacy on cellulosic ethanol: This is simply too important and there are too many companies working on this to fail.

If I hand wave away the challenging problems and presume technology will solve them, then who needs algae for fuel? Hydrogen is waiting to solve all of our problems. Recall all that hydrogen economy business that was all the rage a few years ago? Despite numerous potential benefits, there are multiple very challenging technical issues that keep a hydrogen economy at bay - and will continue to do so for the foreseeable future. But I could still write a book called Hydrogen Economy Strategy if I am willing to brush away those technical issues as temporary.

While there were a number of claims that I thought were presented uncritically, there were also some claims that I found to be very odd. Some examples:

Page 13: As a criticism of using food crops for fuel, he states that massive planting of corn leads to high humidity because the leaves transpire water. This leads to thunderstorms and potentially tornadoes.

That large areas planted in corn can increase the risk of tornadoes is something I have never heard before.

Page 105: Algal biodiesel is carbon neutral because the power needed for producing and processing the algae can come from the methane produced by anaerobic digestion...

That sentence is inaccurate. It is only carbon neutral if the power does come from digestion, not that it can. Based on the above, we could also say that corn ethanol is carbon neutral, because the power for processing can come from methane produced from digestion.

Page 150: When writing that algal fuel mimics fossil fuels without fossilization, he writes "Skipping the fossilization step not only saves 200 million years of pressure and heat, but lowers production costs significantly."

I can't really comprehend this one. The reason biofuels have trouble competing with fossil fuels is because nature already did the heavy lifting for the fossil fuels. Nature provided all that heat and pressure for free. Humans have to provide the heat and pressure to process biofuels - at a price. So I would come to the opposite conclusion: Skipping 200 million years of pressure and heat increases production costs significantly.

Page 179: He cites a claim by Aurora Biofuels that their process creates biodiesel with yields 125 times higher and 50% cheaper than current methods.

I am going to presume that this was supposed to read 125% higher and not 125 times higher.

Page 204: "When someone invents a carbon capture filter for vehicle exhaust pipes, there will be a nearly limitless supply of low-cost CO2 for growing algae."

I don't even know what to say about that one. It gets back to the issue of energy return. Anything you do here (e.g., compressing the spent CO2 from the vehicle) is going to take energy (and add weight to the vehicle) which is a penalty against the overall energy return of the process.

Conclusion

Let me say that I agree with the goals of Professor Mark Edwards, and that I think his heart is in the right place. I agree that we should spend research dollars on an algal biofuel program. I agree with him that economical algal biofuel could provide substantial benefits. (A good portion of the book was devoted to algae as food, and I didn't really address that at all in this review). Where I disagree sharply is that solving the technical challenges is inevitable. This is primarily where I found fault with the book.

On the other hand, the book was very informative on the topic of algae. I learned a lot I didn't know. But at the end of the book, my skepticism had not been swayed because I did not see a real pathway to get from where we are today to vast quantities of commercial algal biofuel. The book failed to make the case that the technical challenges will be solved.

No doubt Professor Edwards will disagree with some of this review. But I am a strong proponent of allowing people to answer criticisms. I therefore extend an open invitation to Professor Edwards. If he wishes to dispute or address any of the points I have raised, I will happily publish his comments.

Accoya, Ethanol, and an Anniversary

2009-06-03T00:47:00.005-05:00

Coming up I have a book review ready to go for Green Algae Strategy: End Oil Imports And Engineer Sustainable Food And Fuel. However, I will wait another day or so to put that out there. For now, I will just share a couple of interesting links that readers sent to me. On the topic of my current job, a reader just noted that TreeHugger has an article (and pictures) on the bridge in the Netherlands that I have mentioned a couple of times:

Wood Bridge In Netherlands As Strong as Steel and a Lot Prettier

Have I mentioned that I love wood as a building material? If sustainably harvested it provides a strong, beautiful material that can last for centuries and sequester CO2 the whole time. People have built bridges from it forever, but in such exposed circumstances they don't last forever.

But now there are better wood preservation techniques, and Kris De Decker of No Tech Magazine points us to a lovely new bridge in the Netherlands, purported to be the first wooden bridge in the world that can support the heaviest load class of 60 tons.

It is made from Accoya Wood, where source-certified sustainable species, including FSC certified wood, is treated by acetylation. The supplier, Titan Wood, writes:

Acetylation effectively changes the free hydroxyls within the wood into acetyl groups. This is done by reacting the wood with acetic anhydride, which comes from acetic acid (known as vinegar when in its dilute form). When the free hydroxyl group is transformed to an acetyl group, the ability of the wood to adsorb water is greatly reduced, rendering the wood more dimensionally stable and, because it is no longer digestible, extremely durable.

Second link, also brought to my attention from a reader, has the Wall Street Journal with their latest missive on ethanol:

Ethanol's Grocery Bill

Both CBO and EPA find that in theory cellulosic ethanol -- from wood chips, grasses and biowaste -- would reduce carbon emissions. However, as CBO emphasizes, "current technologies for producing cellulosic ethanol are not commercially viable." The ethanol lobby is attempting a giant bait-and-switch: Keep claiming that cellulosic ethanol is just around the corner, even as it knows the only current technology to meet federal mandates is corn ethanol (or sugar, if it didn't face an import tariff).

As public policy, ethanol is like the joke about the baseball prospect who is a poor hitter but a bad fielder. It doesn't reduce CO2 but it does cost more. Imagine how many subsidies the Beltway would throw at ethanol if the fuel actually had any benefits.

I close with a digression before returning tomorrow with regularly scheduled programming. Today, June 3rd, is my 20th wedding anniversary. Unfortunately, I am spending it in the Netherlands while my wife is in Texas. I don't say this to generate sympathy, but rather to set the stage for some changes that I will be announcing soon. The nature of my job - having teams in both Texas and the Netherlands - means that I am away from home a lot. I knew I could do that for a while, but I have now been doing it for a year and a half. I always knew it wasn't sustainable in the long run for me personally, and I am experiencing the limits of my sustainability. Interpret that as you will, but all will be made clear shortly.

Happy Anniversary Sandy. Wish I was home today.

Obama's Secret Meeting With the Oil Industry

2009-06-01T03:18:00.007-05:00

Sometimes I come across information that isn't publicly known. That occasionally happens because I am digging, and I uncover something newsworthy. I can generally report on those kinds of things. But sometimes it is because someone sends me information that is confidential - or they tell me something they learned in confidence. That has happened a couple of times with some of the biofuel companies I have written about. In those cases, I would never use such inside information. While I appreciate the knowledge that my intuitions were correct, it also hampers me from being able to objectively write about those companies in the future.

A particular example I will name (but not the only one) is that of Range Fuels. I have written about them in the past, and while I am a fan of gasification, I don't think gasification to produce ethanol is the right path. But if you search through my blog, you will find that I have not written much about Range Fuels. Why? Because two different people have passed on sensitive information to me that compromises my ability to criticize the company. Now if I write that I expect Range Fuels to be wildly successful - or not - my writing could be influenced because I know some things that aren't public. So, I play it safe and generally don't say much about Range Fuels - even though they would appear to fit the criteria of a company that I would normally focus on.

Such was the case with some juicy information I received last year. In July of last year I received the following tip: Presidential candidate Barack Obama had summoned some of the CEOs of the top oil companies to a secret meeting to talk about energy policy. I knew who was at the meeting, and I knew what the meeting was about.

Some may know that Vice President Dick Cheney also summoned a number of energy executives to private meetings at the White House in 2001, and he had been criticized heavily over the secret meetings:

Document Says Oil Chiefs Met With Cheney Task Force

The task force's activities attracted complaints from environmentalists, who said they were shut out of the task force discussions while corporate interests were present. The meetings were held in secret and the White House refused to release a list of participants. The task force was made up primarily of Cabinet-level officials. Judicial Watch and the Sierra Club unsuccessfully sued to obtain the records.

Sen. Frank Lautenberg (D-N.J.), who posed the question about the task force, said he will ask the Justice Department today to investigate. "The White House went to great lengths to keep these meetings secret, and now oil executives may be lying to Congress about their role in the Cheney task force," Lautenberg said.

So now we had Obama conducting secret meetings with Big Oil, but the press didn't seem to have wind of it. I had a possible scoop on the story. The only problem was that I was asked not to divulge the information. So, I waited until it hit the press. And I waited. And I waited until now, almost a year later. I have finally seen the story in the press for the first time. Not surprising to me that Washington Post reporter Steven Mufson would have the story:

How Obama Made Energy Platform 'Pop'

After a long day of campaigning on July 8, candidate Barack Obama arrived at his Chicago headquarters for a three-hour brainstorming session about a suddenly hot issue: energy and climate change.

He had summoned a cross section of experts, including top executives from three utilities and two oil companies, the chief energy economist of an investment bank, a climate scientist, a California energy and environment expert, an oil consultant-historian, and several campaign staffers. Despite the late hour, one participant recalled, "He walked in as if he had just gotten up after a refreshing night's sleep to lead a class. He was clearly there to harvest information and then do something with it."

My version is slightly different from this. I was told that the meeting happened in D.C. - not Chicago - and it happened on July 10th - not July 8th. Not sure which of those versions is correct [RR: My source has sent me a note correcting previous statements; the meeting was in Chicago on the 8th, although there was a similar meeting on the 10th in D.C.], although I got the information very close to the source. Otherwise, the description of the meeting is consistent with the information I had been given.

To be clear, the Washington Post story isn't about uncovering a secret meeting with energy industry executives. That bit is just the preamble to the story of how Obama's energy policy crystallized into a high-profile part of his campaign. Oil and gas prices were headed to record highs, and Obama wanted input from energy insiders on how to tackle energy problems (although I was told that he did most of the talking).

So how will partisans react to this news? Will those who denounced Cheney for his secret meetings now do the same for Obama? I had seen endless speculation that the Cheney meetings were all about carving up Iraq for the oil companies to loot. This, despite there being no public details about the meeting available. Once again, the Washington Post finally broke the news of who some of the attendees were to Cheney's meetings:

Papers Detail Industry's Role in Cheney's Energy Report

Provided a copy of the list, Cheney's office said he would not comment on it. "The vice president has respectfully but resolutely maintained the importance of protecting the ability of the president and vice president to receive candid advice on important national policy matters in confidence, a principle affirmed by the Supreme Court," spokeswoman Lea Anne McBride said by e-mail.

Rep. Henry A. Waxman (D-Calif.), chairman of the House Oversight and Government Reform Committee, who unsuccessfully pushed for details of the meetings, said it is "ridiculous" that it has taken six years to see who attended the meetings. He described the energy task force as an early indicator of "how secretively Vice President Cheney wanted to act."

Waxman said he was not surprised to see the prevalence of energy industry groups on the list of meetings. "Six years later, we see we lost an opportunity to become less dependent on importing oil, on using fossil fuels, which have been a threat to our national security and the well-being of the planet," he said.

One thing that fueled the speculation was that Cheney fought to keep the names of the participants and the discussions that took place a secret. But that certainly didn't stop the speculation that the meetings were for planning the U.S. invasion of Iraq and the subsequent division of the spoils among the oil companies.

Don't get me wrong. I am glad Obama summoned energy executives to these talks. To formulate a good energy policy you had better be engaging those who provide the energy. I am also sensitive to the fact that this could have been unpopular with his supporters. But I suspect that those who suggested sinister motives behind Cheney's meetings won't do the same over Obama's meetings.

Oil Moving Back Up

2009-05-29T13:52:00.005-05:00

On my latest trip to Amsterdam this week I saw 19 oil tankers parked off the coast in the North Sea (ironically next to a Dutch offshore wind farm). These tankers are being used for floating storage due to the glut of oil in the market. Despite this, oil prices have been on a steady climb. Oil passed $66 today - despite a global recession and all of that oil parked offshore. The Wall Street Journal thinks we are headed back to $75:

Oil Prices: $75 Crude, Here We Come

Oil prices aren’t rising because demand is recovering or because record-setting oil inventories are being burned off. Rather, Mr. Horsnell says, the market believes OPEC is coordinated enough to defend a price floor, presumably through acting together and keeping production in check. Add in a growing belief that the economy could be regaining its footing and oil prices will climb to the price that OPEC is willing and able to defend.

Some say this is all due to speculators. If the reason cited above is correct, then I guess speculation is a good way to describe the recent price rise. There is an expectation that OPEC will maintain discipline and push prices back above $70, which is what OPEC hopes for. Further, if the economy recovers, demand will recover somewhat, further supporting higher prices. Those expectations are being priced in, hence the price rise.

I just hope oil prices don't make another swift run to $150. In the long run, I do favor higher oil prices because it incentivizes conservation of oil, but if prices change too quickly we are going to find ourselves in The Long Recession.