Watch the crush spread

Trying to chase down cause and effect in energy and resource markets can be frustrating - it is hard to follow a linear path to a new, coherent equilibrium. Take, for example, Geoff Styles' recent line of thought on the impact of Egyptian unrest on renewable energy.

... since the protests started on January 25, and without any actual disruption in oil deliveries, the price of UK Brent crude... has climbed by around $5 per barrel and now trades solidly above $100.

... [Ethanol and biodiesel] stand to gain if oil prices are driven up by factors that don't also push up the prices of the commodities from which they're made [emphasis mine].

That last bit is critical, and can't be taken for granted. In late 2008 ethanol was clearly the marginal use of corn and corn became priced off of its value in use as ethanol, squeezing margins despite high oil prices. If biofuels come back in a big way, this dynamic is likely to kick in (leading, incidentally, to even higher food prices, not good for most people).

Amusing sentences

Biodiesel and soybean industry leaders are urging the U.S. Senate to pass the American Jobs and Closing Tax Loopholes Act, which retroactively extends the biodiesel tax incentive through Dec. 31, 2010.

From Biofuels Business.

Carmelina - the new jatropha?

The U.S. Navy has anointed carmelina its next-generation biofuel feedstock of choice. It certainly sounds like a model candidate...

Camelina was selected by the DESC because it does not compete with food crops, has been proven to reduce carbon emissions by more than 80 percent, and has already been successfully tested in a commercial airline test flight. In addition, camelina has naturally high oil content, is drought tolerant and requires less fertilizer and herbicides. It is an excellent rotation crop with wheat, and it can also grow on marginal land.

... but remember what happened to the last biodiesel darling.

By the way, running military vehicles on biofuels because they're "domestically produced" doesn't strike me as a particularly good argument.

Biofuels Quote of the Day

"I don't believe there's a man, woman or child who believes the industry can hit" the EPA's 2010 biofuel blending targets, says Bill Wicker, spokesman for Sen. Jeff Bingaman of New Mexico, chairman of the Senate Energy Committee.

From a long WSJ article covering the recent troubles of the biofuels industry and in particular the sad and apparently fraudulent case of Khosla-backed Cello Energy. Cello was apparently supposed to supply 70m gallons of plant-fiber-based ethanol in 2010 (70% of the second-gen biofuels mandate) when it was discovered that their process, well, didn't actually work, and they were shipping fossil diesel instead.

Here's a graph showing investment in U.S. biofuels over time and it's not a pretty picture, particularly with second-generation biofuels not yet over the hump to commercialization.


Update: Via Environmental Capital, biofuels appear to have lost out to natural gas in the latest $300m DOE grant for alternative transport systems. CNG is a decent clean-burning transportation fuel which has successfully reached scale in a few countries (notably Argentina, Brazil, and Pakistan), but I worry that this development reflects the cheapness of gas, which is unlikely to last. But T. Boone Pickens will be happy.

A different timeline for commercializing second-gen biofuels

In the NYT:

With the twin goals of making fuel from algae and reducing emissions of heat-trapping gases, a start-up company co-founded by a Colorado State University professor recently introduced a strain of algae that loves carbon dioxide into a water tank next to a natural gas processing plant. The water is already green-tinged with life.

The Southern Utes, one of the nation’s wealthiest American Indian communities thanks to its energy and real-estate investments, is a major investor in the professor’s company. It hopes to gain a toehold in what tribal leaders believe could be the next billion-dollar energy boom.

Long-heralded as the innovation around the corner which will make biofuels actually good for the earth, second-generation biofuels have struggled to make the jump from demonstration plants to commercial scale. Among the difficult hurdles is the return that private investors would have to expect to justify a large capital expenditure with a high degree of associated risk. One potential solution? Find capital from partners with different metrics and timelines:

The Colorado State professor, Bryan Willson, who teaches mechanical engineering and is a co-founder of the three-year-old company Solix Biofuels, said working with the Southern Utes on their land afforded his company advantages that would have been impossible in mainstream corporate America. The tribe contributed almost one-third of the $20 million in capital raised by Solix, free use of land and more than $1 million in equipment.

“If you’re going with strict venture capital, they’re looking for a blistering return on capital in three to five years,” Dr. Willson said. “The Utes have a very long economic view. They’re making decisions now for future generations as opposed to the next quarter, and that is just fundamentally different.”

In theory this is the perfect match, and this sounds very promising. The hard part will of course be finding other chunks of capital which aren't looking for what those crazy business folks consider to be a good return on investment.

Algae flavor of the week

Algae is hot these days, and Green Inc. covers the latest apparent innovation:

A California start-up, Aurora Biofuels, says it has cultivated algae that doubles production of biodiesel by absorbing more than twice as much carbon dioxide as conventional strains.

According to Robert Walsh, the chief executive of the company, Aurora’s breakthrough was to develop algae mutations that can ingest carbon dioxide regardless of the intensity of sunlight.

“Algae have a built-in mechanism to be effective at low light and as it gets brighter during the day their uptake of carbon dioxide levels off,” said Mr. Walsh. “We’ve been able to go in and alter strains by natural mutation to cause the algae to deal with light across the whole spectrum. The algae continue to uptake CO2 through brighter light and are more productive.”

He said Aurora has built a pilot facility “between a 7-Eleven and the beach” near Melbourne, Fla., and that for the past several months the new algae strains have been producing a gallon of biodiesel a day in an Olympic pool-sized pond.

I'm not trying to be overly harsh, but that doesn't sound like a very good yield. There are about 42 gallons in a barrel, which means this technology would appear to need 40 Olympic pool-sized ponds to produce 1 barrel of biodiesel per day.

The company plans to have a demonstration plant capable of producing 1,000 gallons of fuel a day in operation by the second quarter of 2010. A full-scale production facility is to follow in 2011.

By the same math, this demonstration plant will produce <25 barrels per day. By comparison, world petroleum production is 85 million barrels per day, of which the U.S. consumes in the neighborhood of one quarter, or about one million times the size of the output of the demo plant. (To be fair, not all of these petroleum products are diesel but that's the order of magnitude.) So let me know if my back-of-the-envelope is off, but this "breakthrough" doesn't appear to get algae anywhere near where it needs to be to scale effectively.

Win-win renewable power opportunities

Given that wind power disturbs wildlife, wave power kills dolphins, and transmission to any sort of renewable energy creates all sorts of problems, one could be pardoned for thinking there aren't any win-win renewable solutions out there. I'm not saying these latest two are, but it's certainly encouraging to hear ideas that actually alleviate existing environmental problems (or, for the latter, seem to have a minimal footprint).

First, in the WSJ, entrepreneurs are looking to harvest the algae that flourish in the dead zones created by excess nitrogen fertilizer run-off in the Gulf of Mexico. The dead zones move around, so the operators would be a sort of modern maritime shepherds:

"This is the sea equivalent of traveling goats: you have algae, we'll bring the fish," [LiveFuels] says, referring to companies that rent out goats to eat up grasses on California hillsides to reduce the danger from wildfires. They would truck in the fish and release them into a cordoned-off area. Cages would be used to keep carnivorous fish out.

The idea is that the fish oil would be harvested and converted to biodiesel. I'd want to see a rough EROEI calculation of a fuel production technique that involved driving a boat trailing catfish cages before committing any capital, but the idea of capitalizing on the dead zones and reducing the algal blooms has a nice ecological elegance.

The second idea, in Green Inc., is to retrofit existing dams for power generation. What?!? That was my first reaction too. Turns out:

Only 3 percent of the 80,000 dams in the United States are used to generate power, according to Norm Bishop, a vice president at MWH, a water engineering firm. They were built for other purposes, such as flood control, recreation, irrigation or water storage.

Umm... if true, yeah!!! The 3% number seems absurdly small to me, though (maybe it's number of dams, rather than a better metric like cubic meters of water flow? i.e. Hoover Dam counts the same as a small dinky dam). And if my calculations are right, $1.9bn for 350 MW comes to about $5,400/MW, which is not nuclear but not exactly cheap. A utility in Ohio appears to be going ahead, though, so maybe the economics can be made to work...

Bad news for jatropha: BP exits

Days after Exxon announced a move into algal biofuels, the latest darling of the biofuels sector, it appears the sun is setting on the last big craze. Jatropha was billed as a miracle solution to the food vs. fuel tension, growing oily seeds on marginal land that doesn't compete with food, but BP is exiting its jatropha JV with D1, which was a milestone for oil major involvement in the biofuels sector when announced in 2007.

BP Plc, Europe's second-largest oil company, will exit its jatropha biofuel project with D1 Oils Plc to focus on production of ethanol in Brazil and the U.S. and advance biobutanol development.

“To ensure the success of these investments, BP is concentrating new business development in these areas and will no longer be directly involved in the jatropha as a biofuel feedstock,” Sheila Williams, a London-based company spokeswoman, said today in an e-mail.

This could be construed as part of BP's broader pullback from renewables under Tony Hayward. That said, with BP's continuing with ethanol and biobutanol, it's hard to construct a story where this is other than a bad sign for jatropha in general. With such a small capital investment at stake, it makes no sense for BP to exit if there is any appreciable upside.

Update, pat on the back: I beat Environmental Capital, one of my top blogs, to this by a few hours. Which is, of course, irrelevant. Plus their post is much better. It adds at least three interesting facts:

1) "D1 Oils will buy out BP’s half of the venture for 500,000 pounds—less than the price of a nice apartment in London—even though the joint venture is apparently worth more than 7 million pounds."

2) "BP and D1 Oils planted more than 200,000 hectares of the stuff—25% of the worldwide jatropha planting."

3) Jatropha is a water hog, using 5x as much water per unit of energy as sugarcane and corn. So much for not competing with food for scarce resources...

Biofuels criss-cross: biodiesel from sugarcane

The feedstock boundaries in biofuels are generally well-defined - cereal crops and sugarcane are used to make ethanol, whereas oilseed crops like soy, rapeseed and palm oil are used to make biodiesel. Biotech start-up Amyris is breaking the rules, though, with its new large-scale demonstration plant in Brazil that will make biodiesel from sugarcane.

Geoff Styles has a very nice breakdown of the major advantages biodiesel from sugarcane: the natural photosynthetic benefits of using tropical sugarcane instead of temperate oilseed crops as feedstock, higher energy content (2x ethanol on a volume basis, and 20% higher per ton of sugarcane input), and a friendlier European import market compared to the highly subsidized and tariff-protected U.S. ethanol market. I'll add one more - despite the recent reversal due to the economic slowdown, the long-term future growth trajectory of diesel greatly surpasses that of gasoline, so as oil refiners hit the physical upper limits of the portion of each barrel of oil they can refine into diesel (rather than gasoline), diesel will regain a premium over gasoline - which will be great news for Amyris, if they can bring this production to commercial scale.