R-Squared Energy Blog

Pure Energy

The Gold in the Oceans

There was an announcement this past week that Solix Biofuels has started oil production at a facility in Colorado:

Solix Biofuels begins production of oil made from algae

Solix Biofuels Inc. said Thursday it has started the production of oil made from algae at its Coyote Gulch Demonstration Facility, with full-scale commercial operation set for late summer.

“We are ready to prove to the world the viability of algae as an alternative to petroleum-based fuels,” Solix COO Rich Schoonover said in a statement.

Coyote Gulch is located on a two-acre site in the Durango area on land provided by the Southern Ute tribe.

Algal oil production began July 16, Solix said. It said Coyote Gulch is expected to produce the equivalent of 3,000 gallons per acre per year of algal oil by late 2009.

Yes, this is the same Solix whose co-founder admitted earlier this year that the costs of producing fuel from algae were $33/gal. And there’s the rub.

Never mind that “full-scale commercial” output refers to less than 0.4 barrels per day. (Sometimes I wonder if the people who write these stories ever bother to pick up a calculator). Never mind that they are going to require 20 full-time employees at the site to (hopefully) produce 6,000 gallons on the 2 acre site. OK, let’s do the math on that one just for fun. That works out to 300 gallons per year per employee. Let’s be conservative and say that the average salary is $30,000/yr. That is then $100 of salary for each gallon of algal oil that is expected to be produced (it’s actually more, because the site is supported by more employees off-site). And that’s just salaries. You quickly to start to see why John Benemann claims that you can’t even buy algal fuel for $100/gal.

People struggle with these sorts of concepts. They read a story like the one above, and they incorrectly assume that some alternative fuel technologies are at a stage of development that they most certainly are not. This sort of thinking – especially when it infects our political leaders – is dangerous because it creates unrealistic expectations and distorts energy policy.

Sometimes when I am trying to illustrate this point, I use the following example. There are an estimated 25 billion ounces of gold dissolved in the ocean, which is about 10 times the total amount of gold that has been mined throughout history. At current prices, that gold is worth many trillions of dollars. The fact that the oceans are full of gold has been known for over 100 years. That gold is there for the taking. And while people have been running scams related to the ocean’s dissolved gold for over 100 years, nobody has invented a commercial process for extracting it.

I could certainly start a company based on the idea of extracting gold from the oceans. I might even convince some people to invest in the company, if I am very aggressive with my cost projections, can convincingly exaggerate the status of the technology (actually I have the worst ever poker face, so that is unlikely), and I assure investors that technical breakthroughs are inevitable. After all, there is a multi-trillion dollar payoff. What’s a few million from each investor when we are all going to make trillions? (The funny thing is that I used this example with a businessman once, and he was ready to start a company – missing the entire point of the story).

The gold in the oceans and the gold in algal biofuel have much in common. You can develop a production process in each case, but the capital and operating costs for producing each are far too high for them to be commercially viable.

I don’t begrudge anyone trying in either case to improve upon the processes. But can we please do it with a minimum of fanfare and press releases? At some point the public and the politicians are going to become completely jaded at the repeated examples of over-promising and under-delivering (the ‘hype’), and the evaporation of taxpayer money that went into these schemes (the ‘fleecing’). When that happens the money is going to dry up for the hypesters and the promising technologies alike.

Note: Last week was tumultous and I was highly distracted, but I am about to get back on track and start answering the questions that readers recently submitted.

July 26, 2009 Posted by | algal biodiesel, john benemann, Solix Biofuels | 36 Comments

More Reality Checks for Algal Biodiesel

I have to admit, when I first heard about algal biodiesel, I thought it was really an incredible concept. As time went by and I learned a bit more, reality sank in. The reality was brought on by Krassen Dimitrov’s analysis of Greenfuel Technologies and their algae claims, as well as conversations I have had with John Benemann, who has been involved in algal biodiesel research for many years (and was co-author of the close-out report of the U.S. Department of Energy’s Aquatic Species Program.) Krassen’s analysis raised some eyebrows when he suggested that algal biodiesel would have to sell for $20.31 a gallon to be economically viable. That number was so far out there, that many people just dismissed it out of hand.

During my ASPO presentation last year (Biofuels: Facts and Fallacies) I discussed algal biodiesel, and mentioned Solix Biofuels by name and in my slides. Interestingly, Bryan Wilson, a co-founder of the company, just went on record and suggested Krassen was an optimist:

Algae Biodiesel: It’s $33 a Gallon

Algae biofuel startup Solix, for instance, can produce biofuel from algae right now, but it costs about $32.81 a gallon, said Bryan Wilson, a co-founder of the company and a professor at Colorado State University. The production cost is high because of the energy required to circulate gases and other materials inside the photo bioreactors where the algae grow. It also takes energy to dry out the biomass, and Solix uses far less water than other companies (see Cutting the Cost of Making Algae by 90%).

I can’t tell you how refreshing (but very rare) it is to see an admission like this. The biggest warning signal there is that high costs are due to high energy requirements. This suggests a very poor energy return, which means that as oil prices rise, algae won’t necessarily become more viable. It will be subject to the Law of Receding Horizons, which simply means that energy sources that require high energy inputs will always see their point of economic viability pushed farther out as energy prices rise. Remember when oil was $20 a barrel, and oil shale was going to be viable at $40 oil? By the time oil got to $100, I was hearing that it would be viable at $120 oil.

This won’t stop people from throwing money at algal biodiesel. As John Benemann once said to me “This is a good research project, but nowhere close to commercialization.” Somehow, I don’t think this is the reason investors are throwing their money in that direction. They are falling victim to the hype of ‘the next big thing.’

Note: I am about to hop a plane for London, and will be largely out of contact for 5 days.

February 28, 2009 Posted by | algal biodiesel, Solix Biofuels | 80 Comments