The Controversial World Bank Report on Biofuels

I mentioned it earlier in a post, but now the full text of the World Bank report blaming biofuels for 75% of the rise in food prices has been posted:

A Note on Rising Food Prices

I don’t have time to critique it right now, but wanted to call attention to it since many had questions about how the conclusions were reached. So, you now have access to it.

News on a Lazy Sunday

First up, Vinod Khosla:

On the Record: Vinod Khosla

On biofuels:

I have no question that in 10 years, there’s no way oil will be able to compete with biofuels. Even in five years. Now it will take a long time to scale biofuels, but I’m the only one in the world forecasting oil dropping in price to $35 a barrel by 2030. I’ll put it on the record: Oil will not be able to compete with cellulosic biofuels. If you do it from food, the food will get so expensive you can’t make fuel out of it.

Let’s focus our energy on the research and development and innovation that allows us to produce a $1-a-gallon fuel. There’s no question about it, we can produce it for $1 a gallon and retail it at Wal-Mart for $1.99 a gallon and create a competitor for oil. Oil is a monopoly. It leads to an energy crisis, it leads to a terrorism crisis and it leads to an environmental crisis. So we have to replace it.

And on electric cars and solar power:

Others talk about things like electric cars. Nice cars. In fact, we can make money on them and are investing in electric hybrid batteries and things like that. But they will not make a dent in either worldwide oil consumption or carbon reduction in the next 20 years. And that’s why we have to be clear about nice, (patchwork) solutions that make people feel good.

People say, “Priuses are selling a lot, people want them.” Yeah, but so are Gucci bags. You know, they make people feel good, they’re great fashion statements. Do they reduce carbon emissions enough? If you do a critical analysis, a hybrid reduces carbon emissions about the same as corn ethanol, and costs 100 times more. So what’s the point?

I drive a hybrid, and I can afford it. But in the next 15 years, we’re going to ship a billion cars. Unless a technology can reduce carbon emissions dramatically for 50 to 80 percent of those cars, we haven’t made a dent in the climate change problem. And too many politicians are focused on silly ideas like that, because politically it sounds good.

Take San Francisco, for instance. Putting solar cells on anybody’s roof is absolutely silly, in a foggy city like San Francisco. If somebody wants to do it with their own money, that’ s great. Do it. But don’t do it with other people’s money.

Somehow, not-so-sunny Germany has developed a large solar industry.

Next, Barack Obama shows that he can pander like everyone else:

Obama: Solving energy crisisis going to take time

It isn’t right that oil companies are making record profits at a time when ordinary Americans are going into debt just to fill up their tanks. That’s why we’ll put a windfall profits tax on oil companies and use it to help Oregon families reduce energy costs.

We’ll also take steps to reduce the price of oil and increase transparency in how prices are set so we can ensure that energy companies aren’t bending the rules. And to help Oregon families meet the rising cost of gas, we’ll put a middle-class tax cut in their pockets that will save them $1,000 a year, and we’ll eliminate income taxes altogether for seniors making less than $50,000.

But the truth is, there is no easy answer to our energy crisis — and we need a president who’s going to be straight with us about that; a president who’s going to tell the American people not just what they want to hear, but what they need to know.

So, in addition to telling them what they want to hear, you will also tell them they need to hear. Funny, I didn’t read the “need to hear” bit in that article.

Any Biomass into Oil

I have mentioned LS9 here on several occasions, because I think what they are trying to do is pretty cool. They are trying to engineer bacteria that can consume biomass and excrete hydrocarbons. I have said before that I think someone will crack this problem sooner or later.

Then today I just ran across this story:

Anything that grows ‘can convert into oil’

Company finds natural solution that turns plants into gasoline

After three years of clandestine development, a Georgia company is now going public with a simple, natural way to convert anything that grows out of the Earth into oil. J.C. Bell, an agricultural researcher and CEO of Bell Bio-Energy, says he’s isolated and modified specific bacteria that will, on a very large scale, naturally change plant material – including the leftovers from food – into hydrocarbons to fuel cars and trucks.

“What we’re doing is taking the trash like corn stalks, corn husks, corn cobs – even grass from the yard that goes to the dump – that’s what we can turn into oil,” Bell told WND. “I’m not going to make asphalt, we’re only going to make the things we need. We’re going to make gasoline for driving, diesel for our big trucks.”

The agricultural researcher made the discovery after standing downwind from his cows at his food-production company, Bell Plantation, in Tifton, Ga.” Cows are like people that eat lots of beans. They’re really, really good at making natural gas,” he said. “It dawned on me that that natural gas was methane.”

Bell says he wondered what digestive process inside a cow enabled it to change food into the hydrocarbon molecules of methane, so he began looking into replicating and speeding up the process.”Through genetic manipulation, we’ve changed the naturally occurring bacteria, so they eat and consume biomass a little more efficiently,” he said. “It works. There’s not even any debate that it works. It really is an all-natural, simple process that cows use on a daily basis.”

Is it for real? Hard to say. The concept is not science fiction. This is not that far removed from what I worked on in graduate school. Cows utilize microbes in their stomachs that break down cellulose into organic acids like acetic, propionic, and butyric acid. It isn’t out of the realm of possibility that the bacteria could be tweaked to produce butane instead of butyric acid.

However, longer chain hydrocarbons are going to be more difficult. It will take more than minor tweaks (IMO) to get rumen microbes to produce something like gasoline or oil. Long chain acids are produced, but in very low concentrations. Even if they got hydrocarbons produced instead of acids, the hydrocarbons in the gasoline range would be of very low concentration. I also find it a bit odd that “it dawned on him that natural gas was methane.” That’s not really a comment I expect to hear from someone on the cutting edge of biofuel research.

The article mentions a patent - presumably pending - but I have spent half an hour searching for it at the USPTO site without any luck. If anyone runs across it, let me know. That will give me a better idea of whether this is more like TDP - in that very big promises were made that never materialized - or whether there is actually something to this.

API Conference Call on Biofuels

After missing about 10 API conference calls in a row, I finally found time yesterday to participate in one on biofuels. Participants per the API web site were:

Devil’s Advocate of Copious Dissent, Nate Hagens of The Oil Drum, Bruce McQuain of The QandO Blog, Robert Rapier of The Oil Drum and R-Squared, Geoff Styles of Energy Outlook, Gail Tverberg of The Oil Drum, and Brian Westenhaus of New Energy and Fuel.

Let me first say that I felt like I was in an episode of the Twilight Zone. The API was defending ethanol against an angry mob of bloggers who thought it was a bad idea. Nate Hagens actually asked “Did I hear you right? The API supports ethanol?”

Unfortunately, there were some technical difficulties, and only the first few minutes of the call were transcribed. First off, here were the questions I asked, and the answers:

00:02:54 ROBERT RAPIER: Hi, this is Robert Rapier. I’ve got a few questions. I am going to have to drop out at about the 45-minute mark, so just to warn you. Is there a change in the corn ethanol tax credit? Does that get phased down over the years here? I haven’t seen anything about that.

00:03:14 MR. MANNATO: Yeah, I’m not aware that it does. The tax credit is limited in nature, so it only goes for a couple years, but typically has been renewed on a very regular basis. So it’s due to sunset and I’m not sure when. It may be 2010. But again, it’s not like it’s ramping down.

00:03:41 MR. KOCH: Robert, this is Matt Koch. To take that a little further, as they worked through this last energy bill, there was a lot of attempts to – the numbers changed significantly and there was a lot of efforts to try to find how they were going to pay for these broader bills as they were moving through Congress. There was – we saw tax bills from anywhere from 14 billion (dollars) up to $28 billion that had come through Congress. And in an attempt to get these numbers to match up, there were discussions about do they extend that tax credit, do they phase it down to a lower number? A lot of that was just all that was in play in the fall as they worked through these trying to get a bill done. But nothing was ever completed; there was no tax component attached to this bill. So we never saw anything come to fruition.

00:04:33 MR. MANNATO: Right, those pieces were stripped out in the end.

So essentially, the corn ethanol credit runs out, and is renewed each time (unlike the wind and solar credits, which have a more difficult time of it).

00:08:05 MR. MANNATO: And this is Al Mannato again. The other point I’d make is I think part of that concern is reflected in the cap for conventional ethanol or corn ethanol that was put into the legislation. So they’ve attempted to deal with those substantive concerns you’ve raised in that technical way by putting a cap on the corn ethanol so it can’t continue to grow, and we won’t need 15 percent. In theory, that 15 billion (gallons) is where some say the sustainable level is; and some say we’re past that already with where we are. So that’s an ongoing debate. But that was the intent behind the cap.

00:08:47 MR. RAPIER: I’d like for you to talk about that cap just a bit. If it’s capped at 15 billion and the mandated limit keeps going up and we don’t have cellulosic ethanol in any commercial volumes, what happens then?

00:09:07 MR. MANNATO: Well, one of the things we really felt strongly about was we wanted a reasonable and workable standard. And the primary concern we had was the one you just mentioned. The technology doesn’t keep up with the promise. So what we have in the bill is a technology review in 2015 where the EPA will do a review of the technology that is out there in 2015 and determine how many billions of gallons of cellulosic ethanol will be produced in 2016.

And what the legislation allows the agency to do is to adjust the standard for cellulosic ethanol to be equal to the amount of production that they project for the following year. So we’re not looking forward five years and trying to predict what’s going to happen. The legislation requires the agency to look forward, in effect, just a few months into the following year and then peg the standard to be equal to the amount that will be produced. We think that’s an important safety valve that was built into this legislation and one that we pushed for very forcefully.

00:10:21 MR. RAPIER: Well, but at 2015, the RFS is already at 20.5 billion gallons. So if the cap is at 15, I mean, they’re saying we must have 5 billion extra gallons before we’re even going to review this. We’re not going to review it until 2015. I think you’re going to have a big problem.

00:10:41 MR. MANNATO: Yeah, I think that’s exactly right. And I think that’s one of the concerns we’ve got moving into the future. And we’re going to try and work through that through the regulatory process to see if we can get some flexibility built in for – there are other – in terms of the bio-diesel provision, which is a billion of that 5 billion you mentioned, that there is the ability to have waivers for that one billion if there are problems with the supply. And there are also general waiver provisions that provide if the fuel isn’t available, if there is a general availability issue, there are general waiver provisions. So there are some safety valves in there. But we will continue to work with the agency to better fine-tune those mechanisms.

I thought it was pretty interesting that there is a multi-billion gallon deficit between the corn ethanol cap and how much cellulosic must be produced by the time they get around to reviewing it. I would think they would have wanted to review just as soon as cellulosic was supposed to be scaling up. To use the hover car analogy, they aren’t trying to determine the feasibility after just a few hover cars have been mandated. They will review after demanding that we have a few million out flying around. So what’s going to happen? Lawmakers are going to scramble to undo the provisions when they find out that they can’t mandate technology breakthroughs.

There was a bit of confusion by one blogger.I will let you spot the problem:

00:04:37 DEVIL’S ADVOCATE: Hi, this is Devil’s Advocate from Copious Dissent. I’m going to be candid for just a moment. I really cannot figure out why the government is promoting ethanol in the first place. According to David Pimentel, a professor at the College of Agriculture at Cornell University, it takes 1.29 gallons of gasoline to produce one gallon of ethanol.

The API defended against this charge:

00:05:09 MR. MANNATO: In terms of that Pimentel analysis, I think there is a debate over that whole issue and there is various views about the energy balance and how much gasoline it does take to produce – or how much oil it takes to produce a gallon of ethanol. And I think the bottom line from our perspective is, we think that the net energy balance is slightly positive for ethanol because of a lot of byproduct issues. But again, it’s slightly positive, but I think there are policy reasons why Congress has moved forward with it – energy security reasons.

There were a lot of good questions asked, so it is too bad about the audio. Nate asked a great question about water usage. As I had to drop out early, I did e-mail them 3 additional questions, and I am told they will get back to me. They were:

1). Can you explain the anti-backsliding rules?

2). There was an outcry by certain politicians when ConocoPhillips received the tax credit for the renewable diesel project they are doing with Tyson Foods. A quote from Lloyd Doggett “There appears to be abuse that demands legislative correction.” My question: Were they successful in denying that credit for renewable diesel processes like hydrocracking?

3). Who is going to evalaute the greenhouse gas reduction? You can’t even get scientists to agree on the parameters, how is anyone going to stack hands on this? It will become a hot political issue.

That 3rd one relates to the fact that there is a requirement for a certain percentage GHG reduction for advanced biofuels. When you can’t even get agreement on the energy balance, how on earth will you get agreement on the GHG reduction?

Fertilizer Shortages in the UK

I was pointed to an interesting discussion today about the possible impact the biofuels mandates are having in the UK:

Already paying the hidden cost of biofuels?

The complaint, originating in Wales, reads:

I know we are. This weekend I made inquires about ordering this year’s fertiliser for our holding.

The answer was, quite frankly, shocking. Our local supplier usually has a stock of 4,000 tonnes for local growers (we just want one tonne of that…).

This year, howewver, their total allocation is being pegged at 640 tonnes. The rest, it seems, has been shipped to the USA for the biofuel industry. The silos and bunkers are empty.

And, to add insult to injury, the meagre amount that the supplier has been left with has gone up by £100 a tonne over last year’s price.

I foresee near riots in the next couple of months at agricultural suppliers across the land.

And that’s not mentioning the cost of cereals. A poor harvest here and massive amounts of grain land being ploughed up for biofuel in North America has seen cereal prices shoot up.

As a result animal feed has gone up by a third, and I have heard one dealer predicting the £4 pint by the end of the year because of a shortage of barley. Already the major brewers are telling wholesalers to prepare for a 25 per cent hike in bottled beer prices by March.

It’s one aspect of the green fuel debate that may not have been aired much, but you can bet that it will become a major issue by the end of the summer.

In the beginning, it seemed like the entire ag sector was on the ethanol bandwagon. Then the cattle ranchers and chicken producers jumped off after their feed prices escalated. Now, looks like some overseas farmers may not be too happy (as evidenced by some of the other comments).

I don’t buy fertilizer, so I don’t really know. Anyone else have first hand knowledge of this issue? I have heard some suggest that China is also a factor, but I really don’t know how much their usage has increased.

BioOil Gains Traction

BioOil, also known as pyrolysis oil, is not quite renewable petroleum, but it is a renewable liquid fuel made from the destructive distillation of biomass. A Canadian company has announced that they will build a plant in Missouri:

Canadian Company to Convert Wood to Fuel

KANSAS CITY, Mo. (AP) — A Canadian biofuels developer said Wednesday it plans to build a $24 million plant in southeast Missouri that would convert wood scraps into fuel to operate factories and heat office buildings.

Dynamotive Energy Systems Corp. said the plant, to be built 180 miles south of St. Louis in Willow Springs, could generate up to 12 million gallons of fuel per year, consuming up to 73,000 tons of wood byproducts and other residue from nearby sawmills.

The company said it would be the first commercial plant in the U.S. to produce liquid biofuel from wood residues.

Industrial users could use the fuel, called BioOil, to replace conventional oil to fire their boilers, Dynamotive said. The company said it already uses the fuel to generate electricity at one of its two BioOil plants in Ontario and is negotiating with potential U.S. industrial customers.

The story goes on to explain that the market for this oil is for industrial boilers and not transportation. While I have been familiar with pyrolysis oil for a long time, I honestly don’t know anything about the economics. However, I suspect they aren’t all that bad. The process is straightforward, and doesn’t operate at extreme temperatures or pressures that might require exotic reactors. I guess the main question I would have is that if it is to be primarily used as boiler fuel, why not just burn the wood directly as boiler fuel? Maybe there is a good reason; I don’t know. It’s an interesting development regardless.

High Oil Prices = High Biofuel Prices

You know that forever I have beaten the drum that high fossil fuel prices would make biofuels more expensive due to their poor EROEI. If you are unfamiliar with the argument, it is essentially that most biofuels have very high fossil fuel inputs (and thus a low energy return). That simply means that when fossil fuels get more expensive, biofuels eventually have to follow. I always thought it was funny when people thought just the opposite would happen: As fossil fuels get more expensive, biofuels become more competitive. That could very well be true if you had a ubiquitous source for biofuels that had minimal fossil fuel inputs. But that isn’t what we have. And the Wall Street Journal finally noticed:

Biofuel Costs Hurt Effort To Curb Oil Price

Rising costs of biofuels and other alternative energies are making them less viable as substitutes for crude oil, a development that could frustrate efforts to bring oil prices down in the years ahead.

A few years ago, many energy economists predicted that higher oil prices would ensure the success of alternative energies such as biodiesel or wind power by making them more financially attractive. In many cases, though, the opposite has occurred: Even as crude-oil prices approach $100 a barrel, some alternatives look less attractive than in the past.

Many energy economists predicted that, did they? I guess that’s why I am not an energy economist. That this would happen is a no-brainer, again because of the energy inputs. How they could get it so wrong is beyond me.

One reason: Energy demand is now so intense that supplies of just about every kind of fuel are in short supply, driving up prices of the raw materials involved in making many alternative energies.

It is the same across the energy industry. That’s why projects keep coming in over budget. That’s why GTL projects have been abandoned, and CTL can’t get off the ground. And that’s why I think Shell’s oil shale efforts are doomed. (I know that ethanol prices lately have collapsed, but with high energy and corn prices, their margins are getting crushed and a shakeout is inevitable).

The problem is most acute for crop-based alternative fuels, like ethanol and biodiesel, though it has also proved true to some degree for solar power, nuclear power and other competing energy sources. Biodiesel, a fuel made from farm crops like soybean oil and palm oil, was in some cases supposed to be economically competitive with crude-oil prices as low as $50 a barrel, according to analysts who studied the industry.

What a surprise. Who could have predicted that?

Answering Questions - Part II

OK, I think this finishes off the questions. Thanks to all who asked a question. I think this has been a productive exercise, and I hope you find my answers useful. I may do this again at some point, but for now, I am back to posting and then lurking.

The Questions

Jeff Sutherland asked: It seems to me that electricity is going to be the key energy source in the future….Biofuels, like ethanol, if produced with electrical equipment seems like a good method to store energy….What do you see as the best option for a transportable form of energy in the future? Answer

garsky asked: A couple of posts ago you mentioned some things you were doing to prepare for a worst-case scenario. How about some details? Especially the part about your savings. Answer

Rob asked: Have you given up hope? Based on your more recent posts, it certainly looks like it. Answer

ape man asked: Take a look at this Bloomberg story. Does the story indicate that there are too many tankers, or that OPEC is not following through with its promised production increase? Answer

Doug asked: What would be an optimal location to live in ten or twenty years from now? Answer

Armchair261 asked: There’s always a lot of press about gasoline prices and inventory levels. How are these inventories affected by demand for other products, like diesel, propane, or fuel oil? Are refiners having trouble meeting demand for those products too, and is this siphoning some crude away from gasoline production? Answer

Chris said: Dr. Ramey has created a new and more efficient method of production which increases the yield of butanol and decreases the number of and volume of byproducts….not all species of high oil yielding algae are perfect but there are plenty to choose from.

Questions:

1. Don’t you think that at least one of these species could efficiently produce oil if the electrical energy input was reduced?

2. What was the reasoning behind the #3 point saying that closed bioreators are “totally absurd”?

3. Since you have ruled out the two most efficient and promising fuel alternatives, what do you propose we replace gasoline and diesel with? Answer

anonymous asked: What is the motivation to maintain high gasoline inventories? Answer

mink asked: 1) How do you see the way forward for “peakoilers”? Here and on the oil drum you are interested in getting reliable information and predictions out to the public. But the number of people interested is small.

2) There will come a time when peak-oil will hit public awareness, and it will be an ugly sight. Panic is very possible, and this panic may be very destructive. How do we prevent this? Answer

optimist wrote: Here’s my request: write a posting describing how one might tell if a given technology is promising or not. I think this would be immensely helpful to non-technical readers. Answer

The Answers

Answer

First, I agree that electricity is going to be key. We have the ability to produce much more electricity than we do now, but I don’t think we have the ability to significantly increase our output of liquid fuels. However, I would not produce biofuels from electricity. It would be too inefficient to go that route. For instance, if I had biomass, I wouldn’t convert it into electricity, I would gasify it and convert it into a liquid fuel. The heat produced from the process could be used to produce electricity, but the energy efficiency of the biomass is going to be much higher if you go straight to liquid fuels (if that’s what you intend the final product to be).

As far as the best option, I think electric transport will be the core of our transport system long-term, but we will always have a need for liquid fuels. I think biofuels can fill part of this gap. But we have to get away from this belief that we are going to displace most of our current oil usage with biofuels. That kind of thinking is very dangerous, because it could divert too many resources and waste precious time that could be used on more sustainable long-term solutions. Right now, the government is banking far too much on biofuels as THE solution, when they should be spreading the bets a lot more than they are doing.

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Answer

My strategy is very long-term, and I do not advise anyone else to do what I do. It has worked for me, but it may not work for you. Going all the way back to the early 90’s, I put a lot of thought into a very long-term strategy. I didn’t want to time the market, so I tried to identify sectors that I thought would fare best over a 20-year period. Health care/biotech was one of the sectors that I could see outperforming, especially as the Baby Boomers grew older. People are going to spend money on health care. I still believe that, so I have a fair amount of money in that sector (and have had for many years).

In the late 90’s and early part of this decade, I partially abandoned my long-term strategy and jumped on the tech bandwagon like many others. I got burned like many others. Why did I get burned? Primarily, because I didn’t really understand the things I was investing in, and I was lured by the prospect of the incredible returns that tech stocks were delivering. I joined the flock with the other sheep and got sheared. So, I reevaluated, and decided: Stick to the areas that I really know, and focus on those. I brainstormed on what I thought the future held, and I concluded that higher oil prices looked very likely. But the U.S. is very dependent upon oil, so it appeared to me that the economy in the U.S. is very vulnerable to higher oil prices.

So, these assumptions were the basis of my strategy. I left my position in the chemical industry for a position in the oil industry. I figured that as oil supplies tightened up and the price rose, and people continued to need energy, the people providing that energy would have the greatest job security. To hedge against the dollar, I put about 20% of my portfolio into international funds (this is more than most financial advisors would recommend). I also made a bet that energy stocks were undervalued. More recently, with my position in the UK, I have further insulated myself against the falling dollar because my compensation is now tied to the British Pound.

Following the tech stock fiasco, my strategy since 2001 has paid off. My overall portfolio - which includes the money I have added into it - has increased at an average annual return of 36% for 6 years. If I exclude the savings, the returns alone have averaged 26% for 6 years. I am now in the process of using some of that capital to acquire land in various locations, which will provide further diversification.

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Answer

Absolutely not. In fact, I am more hopeful than I have been in some time. I believe I am realistic, in that we are going to have to reduce our energy usage. But I am cautiously optimistic that if things get really tough, we can change in ways that don’t seem likely at the moment. We don’t give ourselves enough credit for our adaptability. If oil did peak soon and the price went a great deal higher, a lot of people would find areas of fat that they could cut out. This sort of behavioral shift would give us added time to formulate a better strategy than counting on biofuels to provide the net equivalent of 40 or 50 million barrels per day of oil.

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Answer

Note that this story dates back to August, well before the OPEC announcement that they would supply more crude. So I wouldn’t read anything into it regarding whether OPEC is following through on their promised increase. In fact, reports so far indicate that Saudi has in fact advised Asian refiners that they will be bumping up deliveries there.

Now, as far as why tanker demand was down in September, I can’t say for sure. Spring and fall are typical turnaround seasons, in which refinery utilization goes down and crude demand follows. So what would be of interest would be to compare the tanker demand rate with the typical September rate, and also to look at the condition of oil inventories in the area. That might clarify the situation.

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Answer

I think it will be safe within the walls of my compound.

Seriously, if you strongly believe in a worst-case scenario, there are certain attributes that I would look for. I want to see a high ratio of farmland to surrounding population. I want to be relatively close to decent medical facilities. I would like to be close to transportation via rail or water. I want the place to have a reliable water supply. Those are just a few of the things that would be on my check-list, and there are some places that fit the bill. I think areas on both coasts of the U.S. will fare well. Needless to say, I think Scotland - which will still produce a lot of oil and gas for a long time - will fare well. I absolutely would not want to live (among others) in Houston, L.A., Phoenix, or Las Vegas (although one could argue that the latter two are well-placed for reliable solar energy).

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Answer

Refiners are always looking at margins on diesel and gasoline. When margins for diesel are higher than for gasoline, they will shift production toward diesel (which will also affect things like the propane balance). A typical refinery can shift between diesel and gasoline to a limited extent - perhaps 5%. If production is shifted toward diesel, then that should eventually improve the gasoline margins as supply is taken off the market, and as this happens they will shift some production back. And they literally look at this and adjust multiple times per week.

The one big caveat is that commitments to existing customers take precedence. So, if margins for diesel look better, but you would have to short an existing gasoline customer to take advantage, you are stuck. You can’t declare force majeure for something like that. Maintaining relationships with your customers sometimes means that you have to give up short-term profits.

Are refiners having trouble meeting demand? Yes. Refinery utilization has been down since Hurricane Katrina, and the only thing that has kept this from resulting in $4 gasoline are strong imports. If the imports dried up, refiners would attempt to maximize gasoline, and this may precipitate a distillate shortage. And we don’t import much in the way of distillates, because demand is high elsewhere in the world (unlike gasoline, which is produced in excess, allowing some to be exported).

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Answer

First of all, I certainly don’t want to denigrate Ramey’s patent. It is a good contribution. However, it is clear to me that many people do not understand the real problem with bio-butanol. It is not a problem of conversion rate or reaction speed. Those are the areas that Ramey addressed, and while those things are nice to have, there is a knock-out factor that has not been addressed. That is, if you read Ramey’s patent (which I have done many times), he is still talking about butanol concentrations in the range of 2.5%. That is the problem, not whether the conversion is 25% or 35%.

Butanol is very toxic to the bugs, so it is very difficult to increase the concentration of butanol in the solution. What is needed is a breakthrough that would allow the bugs to thrive at the solubility limit of butanol, which is about 8%. In that case, excess butanol production would phase out, and this would be much less energy intensive than a distillation. But you can’t afford to distill off a 2.5% solution of butanol. The energy inputs into the process will be far greater than the energy content of the butanol. I know this from experience. I have done a lot of work on butanol distillations. At a 3% concentration of butanol, we don’t even attempt to separate it out. Even using relatively cheap (at that time) natural gas, it didn’t make economic sense to extract that butanol. Those levels of butanol are sent to wastewater treatment for disposal.

Believe me, I have a soft spot for butanol. I want to see it work. But right now there are serious issues. That’s not to say that it isn’t worth pursuing. In fact, I am working on it myself. But I have to be realistic.

Now, your specific questions:

1. Don’t you think that at least one of these species could efficiently produce oil if the electrical energy input was reduced?

The collection is the problem. If you go back to first principles of solar insolation, in the absolute best case a square meter of water can produce about a gallon per year of biodiesel. Once you add up the costs and energy inputs to harvest that meter and process the oil, it becomes an exercise in economic futility. Will it ever be economical? I won’t say never. I will say that it is nowhere close.

2. What was the reasoning behind the #3 point saying that closed bioreators are “totally absurd”?

I didn’t write that. It was written by Dr. John Benemann, who was involved in the algal biodiesel work and coauthored the closeout report of the project. He has 30 years of experience in the field, and like me, he likes to reel in hype when it gets out of hand. That’s what he was doing. His reasoning is that the cost of closed bioreactors is far too high - by a couple of orders of magnitude - to justify the amount of biodiesel that you could produce from the process.

3. Since you have ruled out the two most efficient and promising fuel alternatives, what do you propose we replace gasoline and diesel with?

It’s going to take conservation, efficiency, inputs from biofuels, electric transportation, public transportation, etc. There is nothing out there, and nothing on the horizon, that can actually replace our current usage of gasoline and diesel. We have to come to grips with this as soon as possible, and start spreading our bets a bit more. Right now, everyone is counting too heavily on biofuels to deliver.

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Answer

Ideally you only keep inventories where they need to be to make sure that you are always able to supply product to your customers. If you keep inventories too high, you obviously have money tied up that’s not doing anything for you. So let’s say you were maintaining high inventories in 2005. Suddenly, Hurricane Katrina comes along, prices go through the roof, shortages start to crop up, but you are in fat city because you had high inventories. So, it’s a balancing act.

One thing you will see if you look back, is that after Katrina refiners started to keep their crude inventories much higher than before. They saw the effects of a supply disruption, so they played it cautious for a while. Over time, I think we will start to forget, and inventories will creep back into the normal ranges.

Gasoline inventories are a different matter. I think refiners would like to put more product on the market, especially back when margins were so high, but they just couldn’t make enough to satisfy demand and refill the tanks.

One other time that refiners are motivated to keep gasoline inventories high is when they are headed into a turnaround. You need to have very full gasoline tanks when you shut down, so you can supply your customers while you are down.

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Answer

This was one of the more difficult questions to answer. You are correct that the number of interested people is small, but that number is growing. I am seeing more references in the media (some of which are merely to denounce those “crackpot Peak Oilers”). It has been very important to me, and to many others who are concerned about future oil supplies, that we maintain credibility as we discuss this. Those who cherry pick data to support preconceived notions, or who merely ignore inconvenient data do a great disservice to us all. (See Stuart Staniford addressing that here).

Arguments must be sound, and criticisms must be addressed. Where matters are open to interpretation, you must make a convincing case for why your interpretation is correct. With a few exceptions, I think that convincing large numbers of people with factual arguments has largely been a dismal failure. To convince the masses, you have to start convincing the media. The more this pops up in the media, the more the rest of the media will pay attention. But if the media is being presented half-baked arguments, it does tremendous damage.

Panic is only going to happen if things change rapidly. Anger is going to be a common emotion as oil prices spiral higher and higher, and people feel that their hard-earned money is flowing into the coffers of OPEC and the oil companies. The thing I have always believed in is educating people, which is the reason I do this. The best we can do is continue to chip away with sound arguments, and hope that the message starts to sink in. If people understand why things are happening, then we should be in better shape with respect to formulating solutions. If we simply blame the usual suspects (it’s those gouging oil companies!), then we may sit around and point fingers as we drive off a cliff.

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Answer

If it was that easy, people wouldn’t keep offering me large sums of money to vet technologies for them. Seriously, there seems to be a great big vacuum in this area. I get questions from intelligent people who can look at an energy idea with a major flaw, but they can’t see it.

There is no magic formula. I think it requires experience, and you have to take them on a case by case basis. If someone brought me a potential breakthrough in biotechnology, I would be in the same boat as a lot of people are when they try to interpret the latest hyped energy breakthrough. Even though biotech is an interest/hobby of mine, it may be difficult for me to spot a fatal flaw. A molecular biologist may take one look, and say “You see that step where they say ‘insert gene A into position B?’ Well, the status of the technology is nowhere close to being able to do that.”

I think it just pays to be a skeptic first. There is nothing wrong with being a skeptic, even though many people confuse skepticism with negativity. I always tell people that I am a skeptic, but also a problem-solver. I am not shooting these ideas down for fun; I want some of them to work. But you have to sort the wheat from the chaff.

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Answering Questions - Part I

Back in Aberdeen after some very interesting meetings in London, some of which I hope to be able to discuss in the not too distant future. I started working my way through the list of questions while I was in London and had some spare time. Some of the questions really warrant a stand-alone post.

Instead of posting one very long blog, I am going to break this up into at least 2 parts. I have been working my way through the questions in the order they were posted. Click on each answer link below the question and it will take you to the answer in the essay.

The Questions

Tad asked: Where do you see the oil industry in 20 years? Answer

Fat Man asked: You said you were going to cut back on blogging in order to spend more time with your family. You seem to be a blogging as much, or more, as you were before that promise. Are you doing what you said you would, or are you shorting your family? Answer

Anonymous asked: Oil production has been flattish over the last couple years, and consumption is up in many places (with China receiving the most attention in this regard). Is there a source that I can access that shows who has been getting by with less oil? Answer

Anonymous asked: What’s your favourite Aberdeen pub? I’ll be making a stop there in November and always appreciate a local tip. Answer

Anonymous asked: Would ethanol make more sense if it was simply burned at the production facility to make electricity vs trying to build infrastructure to transport it? Or is the EROI still to low even in that case? Answer

Rice Farmer asked: …can ethanol be produced by powering the farm machinery and trucks on ethanol and still come out ahead? I think not. So it seems to me that ultimately, the large-scale biofuel industry will collapse and that biofuels will just be produced locally and on a small scale for local needs. Powering the current huge fleet of cars and trucks on biofuels is just a pipe dream.

So what’s your take? Answer

Anonymous asked: Then would the EROI of using biomass for electrical generation actually work out to be favorable from an realistic economic standpoint (i.e., not completely propped-up by subsidies)? Or is it still a big enough sink as far as energy consumed per unit created that it would still be unfeasible to use for energy production? Answer

scp222 asked: Refining margins are quite low now after been about $30 a while back. What do you think the future holds for crack spreads and the refining business in general? Answer

The Answers

Answer

I think the oil industry is going to evolve quite a bit over the next 20 years. There will still be a lot of oil in 20 years. I don’t believe supplies can possibly meet the demand growth projections I have seen, which of course means continued high prices.

I see a fairly high probability that the U.S. government will pass punitive measures as the public continues to be outraged at the cash flowing out of their pockets into oil company coffers. It won’t matter. I have yet to see a punitive measure that I truly believe will result in lower prices for consumers.

Now, while there will be oil in 20 years, I don’t think there will be enough oil. So, oil companies are going to be tuned to developments in alternative energy. A number are already involved in these areas. Even the pure oil companies like ExxonMobil will find themselves moving into this space. And because of continued high oil prices, they will find themselves with the cash to get into any field that looks promising.

The apparent widespread perception that oil companies will sit around twiddling their thumbs while alternative energy companies put them out of business is ludicrous. I have said before that if they wanted, the oil industry could own the ethanol industry. The entire ethanol production of the U.S. only amounts to the output of 1 mid-sized oil refinery. So, why don’t they own the ethanol industry? Because they see that their capital is better employed elsewhere at the moment. But if that changes - or if a significant breakthrough occurs in butanol, for instance - the oil companies have the infrastructure and the expertise to capitalize.

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Answer

You are correct that I am blogging about as much as I did before. However, I realized that it wasn’t the blogging that was taking time away from the family. I write very fast. I can knock out an essay very quickly, and I usually do it when I am up early before everyone else. But it’s all of the peripheral stuff that was taking up so much time: Answering e-mails (this was consuming over an hour every day), getting involved in debates (another hour), answering questions in the comments section, etc. I have cut those things out.

I have taken my e-mail address offline (although a number of people still have it, and others still find me), and this has cut down the time required to handle e-mail by 90%. While I still have essays put up at The Oil Drum, I haven’t commented there since August. I rarely comment here anymore (and this post was an attempt to catch and address a lot of comments at once.

Now, do I ever short my family as a result of the blog? Sure, sometimes I have to tell my kids to wait just a bit as a finish something up. But do I come home from work and spend the rest of the evening doing correspondence? No. I think I have found a reasonable compromise, and one that my family is pretty happy with.

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Answer

Benjamin Cole provided some information on this. You can’t find information on all countries, and therefore there is much reliance on anecdotal information. A comment that I remember someone once making was “I am tired of hearing stories like, A lightbulb went out in Bangladesh, therefore Peak Oil.” I agree with this sentiment completely. We can’t rely on anecdotal accounts that there is a fuel shortage here or there. There have always been fuel shortages.

The best sources for this kind of information, though, are the BP Statistical Review of World Energy (as Benjamin mentioned), the IEA and the EIA (for more timely information than BP’s stuff). If you look at the two latter options, you will find that the vast majority of the world’s oil usage is covered. This table from the EIA is a good starting point.

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Answer

I am not a big pub guy, so I went to my friend Euan Mearns, who also lives in Aberdeen. Here’s what he said:

Depends what your looking for.

West end chique - try Simpsons on Queens Road. (crap beer but nice wine - the house Merlot is excellent)

My favorite of late is “No 10″ - Rubislaw terrace - good ales

Popular spots down town are The Prince of Wales and Ma Camerons

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Answer

Joules answered this question in the same way I would have: You would burn the biomass directly to produce the electricity. The EROEI is not the problem; capital costs for biomass-to-electricity plants are much higher because it is more difficult to handle the biomass. But long-term, I think this option will be one that we will count on heavily.

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Answer

I agree. I believe that if ethanol had to be used to provide energy to grow the corn and produce the ethanol, the whole thing would collapse. Remember, the energy balance is already very marginal. The only reason it is 1.3 or so is because of the credits for DDGS byproduct. On a fuel in versus fuel out basis, it is very close to parity.

I am convinced that we have to learn to get by on a lot less energy, but biofuels will provide a portion of our energy needs. I personally believe that the bulk of the solution must come from electricity. I contend that it is simply not possible for the world to produce enough biofuels to displace our current usage of petroleum. Conservation, greater efficiency, and electricity are going to have to be big parts of the equation.

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Answer

I am a fan of biomass gasification to produce electricity. In the long run, I think we really need it. But as I stated above, it isn’t the energy balance that is the problem; capital costs are much too high to enable it to compete with coal or natural gas. If carbon emissions were taxed, it would give the biomass to electricity option a boost.

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Answer

With gasoline inventories still so low, I think crack spreads are likely to explode again - certainly by late spring. Right now, with oil as high as it is, and with gasoline inventories where they are, it doesn’t make much sense that gasoline prices are soft. There is a bit of disconnect here, but one that I have seen frequently. This situation should put to rest any notion that refiners are in control of their margins, such that they boost profits by boosting margins. I know this seems to be a very popular notion, especially among those with the Oil Watchdog mentality, but any time I hear someone say it, I immediately know that at least on that topic, they are ignorant of the facts.

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LS9’s Oil-Crapping Bugs

I have only half-jokingly commented before that the ideal microorganism for energy production would consume garbage and excrete gasoline, which would float to the top of a reactor to be skimmed off via a low-energy process. Technically, there isn’t any reason that this shouldn’t be feasible. It’s just a matter of understanding the metabolic pathways, and successfully doing the genetic engineering. But to put that into perspective, it is probably also technically feasible to engineer humans to use photosynthesis for energy, or to engineer a blueberry tree. In other words, technically feasible is often a long way from imminently doable.

But there has been a flurry of stories this week about another venture backed by Vinod Khosla called LS9 which bills itself as the renewable petroleum company and is promising something not too far from what I have described above. A story this week by David Roberts of Gristmill captures the highlights:

LS9 promises ‘renewable petroleum’

The process is the same as making cellulosic ethanol insofar as cellulosic feedstocks are converted into fermentable sugars, and those sugars are placed in a fermentation vat. The difference comes in the microbes doing the fermenting. With ethanol, it’s generally some form of yeast. The researchers at LS9 have engineered their own microbes, lifting genes from other microbes and recombining them into an organism that does just what they want. In this way they can precisely tweak the characteristics of the resulting fuel.

Yeast fermentation produces ethanol, which mixes with water and subsequently has to be extracted via distillation. LS9’s microbes produce — via fatty acid metabolism, in a process I won’t claim to understand — hydrocarbons (the building blocks of petroleum). These hydrocarbons are immiscible, i.e., they don’t mix with water. Instead, they float to the top of the vat, where they can essentially be skimmed off. That allows LS9 to skip the distillation process, which saves a whole boatload of energy. (That’s where most of the claimed 65% energy savings comes from.)

There is certainly no reason to think that this isn’t technically feasible. After all, the human body produces fatty acids that have a chemical structure that involves long-chain hydrocarbons. It is not far-fetched to accept that organisms can be engineered to produce very specific hydrocarbons. And I do think this is a much better approach than producing ethanol that requires an energy intensive distillation to remove the water.

Roberts writes:

Can you be more concise?

Sure. LS9 has genetically engineered microbes that will eat sugar and crap oil.

Naturally, this all piqued my interest. Since several news releases referred to “patents pending”, I went and searched the United States Patent Office for published applications. After an hour of searching, I came up empty. But, that’s not necessarily a negative indicator. I have had patents that took a while to work their way through the process. It just means that it is harder to understand whether there is more hype here than warranted, because the technical details aren’t in the public record. I wrote to LS9, and they responded back immediately and said 1). They read this blog; and 2). No, their applications aren’t yet published.

So, thwarted on that front, I started looking through their web site in search of 1). Advertised job openings; and 2). The specific skill set of the team they have in place. Both of these things can tell you a lot. If they are advertising for a lot of public relations types and are skimpy on looking for scientists and engineers, then my suspicion is raised. Likewise if they are very generic about available openings. But, they did have specific advertised openings for those sorts of technical positions. So I view that as a positive.

On the second item, the background of the team can tell you a lot. In order to have a good chance at success, I would expect that they are putting together a team knowledgeable about specific metabolic pathways for microorganisms. I found that. Again, as soon as their web site is back online, I will be more specific.

At this stage, I see no reason to doubt their claims, but you essentially have to take them at their word. But I give very good odds that even if they don’t pull this off, someone will. I will try to update this story as more information comes out.

A bit of additional reading:

Making Gasoline from Bacteria

Producing hydrocarbon fuels is more efficient than producing ethanol, del Cardayre adds [Stephen del Carayre, VP for R&D], because the former packs about 30 percent more energy per gallon. And it takes less energy to produce, too. The ethanol produced by yeast needs to be distilled to remove the water, so ethanol production requires 65 percent more energy than hydrocarbon production does.

At least they have their facts in order. Of course all of those who insist that it is more energy efficient to produce ethanol than gasoline aren’t going to like that.