December 24, 2005
Mark Anderson on Energy...
Mark R. Anderson, the publisher of Strategic News Services, one of the smartest people I know, recently was asked to address Warburg Pincus's Energy Day. He summarized his comments in a recent letter to his subscribers which I republish here (with permission).
HIGH ENERGY
One person later said it was the best dinner speech he had ever heard. Another wasn't nearly so kind.
Perhaps because of the various threads we've run here over the last couple of years on everything from Enron's illegal market gaming to recommended paths for future energy technologies, Warburg Pincus had the courage to invite me to talk with the CEOs of their invested energy companies last week.
Knowing just next to nothing about the oil and gas business, I felt inspired by the challenge, and I thought I would use this discussion to share some of the ideas we discussed that evening.
Almost all of the participants were smaller-to-midsize operators on the extraction side of the business ("price takers," as my host put it), vs. the ExxonMobils of the world: they were entrepreneurial, interested in new technology, and subject to the vagaries of price.
I called them the "New Energy" business. I pointed out that we were all in the same room because we shared an interest in the hydrogen covalent bond (the central source of petroleum energy), and that we should perhaps see the energy business in that light.
I mentioned that people have historically thought of oil as resulting from vegetable matter put under heat and pressure conditions for eons, but that perhaps we should think differently. Diamonds, after all, are also carbon-based formations caused by even greater pressure and for longer periods (some say billions of years), and yet the startup firm Apollo Diamond in Boston can now grow a five-carat diamond in a week, indistinguishable from a de Beers (and priced at two-thirds less).
I could also have mentioned work by Karen Brewer of Virginia Tech, in conjunction with the Air Force Research Laboratory, focused on streamlining the creation of hydrogen from water. At first using "collected electrons," and now using a metabolite she calls an "activated catalyst," Brewer is trying to increase production efficiency of molecular Hydrogen.
In other words, both of these teams, like the people in that room in Houston, are focused on obtaining hydrogen covalent bonds at increasingly higher efficiencies.
[It might be worth noting that Bryant Linares' work with Apollo will lead, he thinks, to increased holographic storage, perhaps an enabling step for development of the SNS Spherical Memory device.]
I wanted to talk to this group about two ways of doing business: this modern, technology-driven way, focusing on productivity and real social benefits, vs. the old bag of tricks involving market manipulation, supply control, chokepoints, etc. I suggested that we could look at two platforms - energy and broadband - and find similar lessons, and old vs. new dichotomies, within their stories.
This led directly to a short discussion of Enron, once Houston's pride and joy, and now the source of an endless series of indictments, trials and convictions on fraud and related charges. I suggested it was no accident that Enron was in both energy and broadband, and reminded the group of how Enron gamed the California markets, using some of the same tools used in defrauding broadband-related investors.
Although I didn't really expect any argument over Enron's perfect qualifications as a fraud, I wanted the group to understand that I had some knowledge of the Old Style energy business, so I told them a story about an in-law of mine who worked for Gulf. This fellow was about as close to genius-level IQ as anyone I've met, and the company quickly promoted him to special assignments for the chairman.
At the conclusion of one of these jobs, he asked to speak privately to his boss. (This would have been, I think, just at the end of WWII.) He told the Chairman that he must be confused, because the work he'd done indicated that, through a series of misrepresentations about the source and transport of oil, Gulf was getting paid a depletion allowance, a foreign port allowance, and for the oil itself. Gulf was getting paid three times for each barrel of oil treated this way.
His boss told him he was one of three people in the company who knew this, and to keep it strictly to himself.
I suggested that similar problems had occurred under the 1996 Telecom Act, leading to the current pathetic global standing (18th and falling) of the U.S. in broadband penetration, and I again recommended that we all stop using the word "broadband" to describe the paltry 256k DSL service that most U.S. residents get today.
I linked this failure to the market balkanization that happened during the cellphone license auctions, and made it clear that I thought the U.S. government had demonstrated a clear inability to recognize the economic value of technical standards, hampered in no small part by the oligopolies who benefited from the status quo.
At the beginning of our discussion, I mentioned I had predicted oil would go to $100 per barrel, that I still felt that was a likely event, after a fall perhaps down to a floor of $50. I noted the pressures driving oil price, including Hugo Chavez in his PetroAmerica push, the Chinese and Indian economic growth stories, and the entry of purely financial traders into the markets.
One figure I didn't use, but should have, was that currently about 84.6MM barrels of oil are produced globally each day, and 84.3MM are consumed. This near-matching of supply and demand leads to high price volatility (beta), which in turn attracts financial trades. I described one chart I had seen on recent pricing that suggested perhaps one fifth to one quarter of the total price was being supported by financial-only trades, a non-contributor a year ago.
I think I surprised the group by telling them I thought reasonably high oil pricing was good. Among other things, it provided the headroom for technically-advanced extraction techniques, as well as for alternative sources and conservation investment. I mentioned our discovery at SNS that about four-fifths of the fake science done to rebut global warming had been paid for, directly or indirectly, by ExxonMobil. I told the group I thought this was dinosaur-like behavior, intended solely to confuse buyers and resulting in social harm, and had no place in the New Energy marketplace.
Finally, I tried to give them a new goal to shoot for that I thought might be worth their combined energies: expensive, but infinite, energy. I think this is an achievable goal that would eliminate wars, could create unending social benefits, and was worth pursuing.
My suspicion is that finding a chemical or biological means for producing unending hydrogen covalent bonds would probably lead to expensive, infinite energy resources. The Houstonians seemed to think that was a great idea.
During Q and A, I was asked how to improve America's ability to make better decisions. I said the answer was easy: make it illegal for any corporation to give any money to elected representatives. Return to the vision of a republic/democracy framed in the constitution, where there is no mention of corporations (they didn't exist). Go back to the Greek view of one person, one vote. And get rid of all the lobbyists.
Later, at the bar, that second guy, the one who didn't like the speech, wouldn't stop hassling me. Finally I asked him what he did for a living. Yeah, you guessed it: a lobbyist.
Your comments are always welcome.
Sincerely,
Mark R. Anderson
President
Strategic News Service LLC Tel. 360-378-3431
P.O. Box 1969 Fax. 360-378-7041
Friday Harbor, WA 98250 USA Email: sns@tapsns.com
Posted by Martin at 3:27 PM | Comments (0) | TrackBack
November 1, 2005
Why I care about Energy by John Boyd (aka TheNetGuy)
Well this thing about technology people starting to think about energy problems is starting to snowball. Many people are writing with their personal stories. I intend to post as many as I can here. Today I received one from John Boyd, aka TheNetGuy. I am most taken with the very personal nature of most stories I hear about why technology people have come to care so deeply about energy today. Here is John's story...
Why I Care About Energy
-The Net Guy
Growing up in small town USA helped me appreciate more of where I am today than if I would have grown up in a much bigger city. It has given me an advantage my counterparts do not have. You might say it is similar to an episode from a weekly reality series created by a man with bad hair. Street smarts vs. book smarts. I see the obvious and use it to my advantage. This advantage has given me a very successful sales career in high tech. But not a completely happy one.
My father was an insurance salesman who, after many years, finally started a successful construction company. This helped give me a jump start on making money at an early age. One of the toys I bought was a computer in 1984. You might remember the discus thrower from the Apple commercial in the Supperbowl commercial then? I wanted to be part of that movement and finally was.
I continued in the construction trades wishing and trying to change the pre-defined destiny I seemed to have. Going in a direction I did not want to go. One event seemed to change it all. Divorce. At the time is seemed like utter failure. My dad told me that men who are most successful have also failed the most. That was not very encouraging then, but in retrospect, I believe it true now. While I dont plan to be married many times over, or make several unsuccessful attempts in business, I have tried several different occupations which gave me the ability to speak on many topics with some familiarity, except one which Im now very interested in....Energy.
Two years ago it seemed I heard a similar song which you quoted. I found myself asking what now? I felt I conquered my fears, left my home town, shot for the impossible, and achieved it. Here I am. Single, still young, no kids, well off, and the ability to get a job with a couple phone calls. At the same time I had to make a decision. Do I want to be married with a home 5 times bigger than I need with 2.5 kids, fighting traffic, and a pre-planned life to live? I decided not to take the pill which would keep me in a passive blissful state, and make some radical changes to see if I could actually find something more rewarding.
After several years working for the largest Telco company and working with some of the prominent business leaders in helping them solve their technical issues on how to become more and more efficient. I left my job and stepped out of the lime light to try something different. I was amazed how easy it was to find a job despite the bad job market and advice from friends and family to reconsider. Three separate interviews and three separate jobs, led me to believe, you can actually shape your own future. What will I do with this knowledge? The frustration continued.
Almost a year ago, I was once again offered a position to move over to a familiar job space which I could make a great income. This time however, I had a plan. I would simplify my life so I could actually live on one fifth of my income. I would then save my money and plan for a trip around the country in search making a difference. Little did I know it was the event from this last year which led me to writing this letter now. I figured if I was going to travel so much I would need a new truck to tow my new trailer so I would not have to worry about breaking down. I looked at diesel trucks for years, but they seemed so noisy, smelly, and loud. The price of gas, however, was rising and the efficiency and recommendations from others led me with one choice. Diesel.
After traveling and visiting several places, I started to notice the price of diesel was now rising higher than gas. What the heck? This was not in the plan! War? Hurricanes? This should not affect me! It was then I remembered reading about a little company selling Biodiesel. At the time it was around $3/gal. so it did not seem like a practical option. Now it was. I did some research and found there was a station near me selling it. I was so impressed with the results, I thought I just found the answer to all of our nations problems. Why didnt everyone know about this? My friends who own wheat farms in Eastern Washington could grow the crops, bringing the farming industry back to its glory once again. The distribution model of the fuel as well as the diesel engines did not need to be modified. I wouldnt have to plug my car while I was at work. The only thing that would change is our radical need to drag the dino fuel from across the planet. This might even have huge political implications. Of course this got me to thinking more and more about all the possibilities as well as the possibility I could make a difference. I understand the many challenges, but I see this as an opportunity to be a pioneer once again.
I do find myself behind the wheel of a large automobile. We live in a world where transportation, heating, and electricity are a critical part of the newly evolved human on todays planet. It is the pioneers and inventors who will be looked back upon as people before their time. Will I be one of those pioneers? What can I do? What talents do I have to make a difference? I will find a way.
And this is why I care about energy.
-The Net Guy
Posted by Martin at 3:49 PM | Comments (2) | TrackBack
September 28, 2005
From Bits to Barrels, the education of a Republican tech geek
This site is a result of a guest letter that Mark Anderson, founder of Strategic News Service, asked me to write a few paragraphs about my transition from bits to barrels and the opportunity I see here. A few paragraphs turned into alot, so here it is....
Publisher's Note: Martin Tobias is the quintessential entrepreneur. I've now known Martin for a decade or more, and I am continually impressed by the energy, focus, intelligence and sincerity he brings to each new venture. Martin's contribution this week is particularly interesting for three reasons. First, he has spent the last couple of years at the well-known Seattle firm Ignition Partners. As you'll discover, he had to go through a personal transition to get from bits to barrels, from venture investing in software and wireless to an operating role in an industrial firm. This change was radical and so inspiring that I asked him to spend a few paragraphs describing it himself. Second, Martin's efforts will directly promote increased climate sustainability on a local, regional and perhaps even national scale. And, finally, as world events such as Hurricane Katrina continue to drive oil toward the SNS $100/bbl figure, finding alternatives to this fuel is both timely and provides direct assists to our economy and security. It might even create Martin's next fortune.
I gave a speech at a Digital Divide conference in Seattle a few years ago in which I suggested that cleaning up diesel emissions was the single most simple and dramatic thing we could do to reduce air pollution. At a time when it is becoming painfully clear that small airborne particulates, such as those in typical diesel transport emissions, are causing real deaths among the very old and very young in our cities, the importance of solving this problem grows. And while firms like Detroit Diesel continue to work on the engine side of the equation, firms like Martin's Seattle Biodiesel will be cooperatively hastening this process, taking it out of the amateur fast-food-chain days, and bringing it into the days of global mass production, and a reduced dependency on fossil fuel.
As Martin notes, there may be nothing else today which is more important. - mra.
FROM BITS TO BARRELS
By Martin Tobias
Having been a longtime subscriber to SNS and participant in FiRe, I should really blame this mess all on Mark. Yes, now that I think about it, that makes all the sense in the world. It is ALL MARK'S FAULT. Without the brain damage (and I mean that in the most complimentary way) of SNS and FiRe, I doubt this tech geek would have ever become CEO of a biodiesel company. I would have been happy living in the world of bits without much of a larger world view. Someone else with good intentions was worrying about the barrels, right? But I am getting ahead of myself.
In the Beginning...
There was a fairly typical tech-geek trajectory. In high school, programming Timex/Sinclairs in the drugstore to loop profanity on the screen, using a cassette deck as "mass storage" for my TRS-80, breaking a toe dropping my Kaypro "luggable," president of the Science club... you get the picture.
In college, Marketing/Computer Science double major, COBOL/FORTRAN programming using a card reader, winning a NEC TV for selling the most dot-matrix printers, selling the first Leading Edge PCs to the university, copying research papers off Compuserve, being the first student to take an essay test on a computer (the Zenith Lunchbox portable with 5.25 floppy and fold-down keyboard), an HP 12C always in my shirt pocket, thinking the IBM AT was the "ultimate PC."
Accenture came knocking right after graduation and pressed me into five years of programming IBM S/38s and AS/400s, until Microsoft saved me from the suits. After six years of serious hard work around the world on various missions, I opted for more pain and started my own software company in 1997. Loudeye Technologies (LOUD) went from napkin to 450 people and IPO in less than three years. (Ah, the good old days.) After a much-needed break, I wanted to get back to helping start companies (the fun part), and I have been doing so as a VC with Ignition Partners ever since.
So there I sat, just over a year ago, listening to yet another wide-eyed software entrepreneur tell me how he was going to be "the Google of XXXX," or was it "the Microsoft of XXXX" - no, it was the "Cisco of XXXX" - oh, I forget. Suddenly, David Byrne's "Burning Down the House" came into my head:
Watch out you might get what you're after
Cool babies strange but not a stranger
Then "Once in a Lifetime":
And you may find yourself living in a shotgun shack
And you may find yourself in another part of the world
And you may find yourself behind the wheel of a large automobile
And you may find yourself in a beautiful house, with a beautiful wife
And you may ask yourself - well...how did I get here?
and:
And you may ask yourself
Where does that highway go?
And you may ask yourself
Am I right? ...am I wrong?
And you may tell yourself
My god!...what have I done?
Well... how did I get here? Where does that information superhighway go? After a lifetime of solving software- and computer-related problems and looking over that horizon for what was next in that field, I was suddenly left wanting. A strong desire to build something REAL took hold of me. When the PC was in its infancy, there were many very tall mountains to climb, and climbing them made a big difference in the world. While there still is a lot of work to do, the path seems fairly well laid out, and there are plenty of very smart people on that path.
So where does the world need help? What is the #1 issue that will define this nation, and in fact much of the world, over the next 10 years? Energy.
There I sat, a lifelong Republican tech-geek software venture capitalist, wondering how I could make a dent in the nation's energy picture. The next day I started canceling meetings and rescheduling my life around figuring out what new energy technologies were going to make a difference in the near term (as in: in my lifetime). It became immediately clear that looking at barrels and BTUs from a bit-and-byte perspective could possibly lead to new solutions.
The Big Energy Picture
Today we use fuels of all types for primarily three forms of work/energy: (1) to generate electricity (natural gas, coal, hydro, nuclear); (2) to provide direct heat (natural gas, wood, oil); and (3) for transportation (oil). Electricity has replaced a long list of mechanical activities (manual typewriters, screwdrivers, adding machines, watches, etc.) and continues to increase its share of the total, primarily due to the exponential growth of new electronic items in our daily lives.
We have multiple fuel sources to generate electricity and provide direct heat. Scaling up production in those areas is largely within our control (as a nation, we know the way, although we may not have the will). For transportation, there is only oil (well, okay, 99% oil, 1% electric buses/trains, bicycles, skateboards and rollerblades). Therein lies a problem, and quite possibly, an opportunity.
I may be an outsider on energy issues, but here are some assertions this outsider will make:
1. We don't have an "energy crisis," we have a "petroleum crisis."
2. Americans are fundamentally convenience-oriented and do not have the appetite for wholesale transportation platform change.
3. Non-petroleum-based fuels that work in today's engines (no platform change) offer the fastest route to petroleum independence.
Petroleum has a monopoly on transportation. A small handful of global oligopolies control the production, distribution, and consumption infrastructure and technologies. The DOJ should take notice. The U.S. is by far (4x China, but they are growing faster) the world's largest oil consumer, at over 20 million barrels per day - nearly $500B per year at today's prices (http://www.eia.doe.gov/emeu/cabs/topworldtables3_4.htmlWe import more than 12 million of those barrels. After a brief flirtation with small cars and alternative fuels in the early '80s, Americans went back to the well with a vengeance in their SUVs. We are punch-drunk at the bar, with a heroin needle in both arms, yelling "Drinks for everyone!"
This is an industry built on technology (combustion engines and mechanical drivetrains) well over a century old. Transportation is an incredibly inefficient use of energy. Less than 2% of the energy that starts out as crude oil ends up propelling me to work in the morning. Cars, trucks, and airplanes combined (http://www.ecobridge.org/content/g_cse.htmare the #1 cause of global warming, contributing 36.5% of the carbon in our air (yes, more than power plants [36%], but just barely). World oil discoveries have been dropping every decade since the '50s.
Worldwide demand is today roughly equal to supply, at just over 84 million barrels per day ( http://money.cnn.com/2005/08/30/markets/oil.reut/index.htm?cnn=yes A recent oil shockwave scenario (http://www.secureenergy.org/shockwave_overview.phpshowed that as little as a 4% reduction in oil production (terrorist, boycott, civil unrest, weather, whatever) would increase prices over 170%.
Supply/demand is so tight that any disruption at all can cause a price spike. Down in the Southeast Gulf states, where over 25% of American crude comes from and over 40% of our refining capacity resides, Hurricane Katrina has just inflicted over $26B in property damage (early estimates) and put a significant amount of our production/refining capacity offline or under repair. What will be the energy costs to the economy from that disaster? While some in Europe are making a concerted effort to address oil consumption, Americans sit idly by in our SUVs while the sucking sounds from China and India are only getting louder.
In the last decade, less than 1% of the more than $500 billion spent on venture capital went to alternative energy companies, and most of that went into long-term bets on the "hydrogen economy." Very little of what has been funded will show any tangible benefit to our energy picture in the next three to five years. Existing players have ZERO incentive to innovate; they are making too much money! Here is an industry ripe for change.
Yet it ain't going to be easy. Here is the bit-head way to parse the transportation industry: There are three major platforms in transportation, each built around a unique protocol (incompatible with the others): Gasoline, Diesel and Jet Fuel [kerosene]. The standard for each platform is open and defined by international bodies (ASTM, E.U., etc.). Each platform has been optimized for a specific set of applications:
Gasoline: passenger transport and light trucks
Diesel: heavy equipment and machinery, distributed electricity generation, heavy trucks, boats, some passenger cars, and railroads
Jet fuel: flying airplanes.
Each platform is supported by a large, integrated network of very mature refineries, pipelines, terminals, trucking companies, and retail locations. A huge ecosystem of companies (GM, Ford, Chrysler, GE, Cummins, etc.) support each platform with a wide variety of hardware and software offerings as well as a world wide network of sales, service, and support for their products. The platforms are worldwide, employ tens of millions of people all along the value chain, have been adopted by nearly every person on the planet, and enjoy significant government support in every country at all levels. Makes you want to jump right into the fray, doesn't it?
So Why Biodiesel?
The vast majority (http://www.energy.ca.gov/gasoline/whats_in_barrel_oil.html of each crude barrel of oil consumed in the U.S. is refined into gasoline (140B gallons/year), diesel fuel (50B GPY), or jet fuel (40B GPY). To reduce our transportation grid's near-total reliance on distillate products from crude oil, you can attack the problem from either production (substitute fuels, use existing vehicles and distribution system - a backward-compatible version upgrade) or consumption (substitute vehicles, fuel, AND distribution system - the platform upgrade). Natural-gas buses are an example of the latter. Implementation requires a whole new fleet of vehicles, a new fueling infrastructure, scaling up production of natural gas, etc.
Despite years of evangelism and vehicle research, natural gas is still not a practical option for anyone except a few scattered (okay - Los Angeles), very centralized fleets with centralized fueling. It is like getting someone to switch operating systems or hardware platforms. Lots of pain awaits. What about all your favorite old applications? A drive to the beach house for the weekend? Oops, can't - no natural gas stations out there. A quick jaunt to the mountains with a carload of friends for some snowboarding? Oops, can't - the natural-gas car doesn't have enough room or power.
Fuel cells for transportation are an even uglier platform upgrade. You need new vehicles of all types, new wholesale and retail distribution systems for the hydrogen, service and support infrastructure, and, oh yeah, an energy-efficient way to reform massive amounts of hydrogen from a cheap, renewable source. So why are Big Oil, Detroit, and Pres. Bush selling us that song? Good old-fashioned Fear, Uncertainty, and Doubt about change to the current platform. "Be happy with what you have today and place all your faith in a future upgrade." I have seen this movie before: "Everything will be fixed in Longhorn [the next MS operating system], so don't bother me to fix anything in the current version." No, I don't believe anyone selling a platform upgrade is serious about solving our dependence on oil anytime soon.
What it is going to take is a version upgrade. An upgrade of either the fuel or the vehicle would allow you to leverage the existing infrastructure investment. Since gasoline is the largest liquid-fuel market, you would expect the first traction for upgrades to come in that market segment. The Prius is a vehicle version upgrade for the gasoline platform: some new technology in basically the same form factor that is plug-compatible with existing infrastructure while providing unique new benefits (lower emissions and higher fuel economy). This is just the first baby step in the siliconization of the automobile. If you want details on how "the electric power train is overwhelmingly superior to the mechanical - five orders of magnitude better on every key metric," read The Bottomless Well by Huber and Mills.
Ethanol (made from plant starch) is a plug-compatible fuel version upgrade that is replacing an older flawed technology (MTBEs) as a gasoline additive of up to 10% (3B gallons were mixed into the US fuel supply last year). A higher blend of ethanol (85%E, 15% gas), when combined with an automobile version upgrade (flex fuel vehicle - basically a computer timing upgrade), will yield even greater reduction in petroleum usage and more environmental benefits.
Alas, I have never been much of a hardware engineer, so no upgrading the vehicle for me. The ethanol industry is fairly mature and is mainly a capital deployment business today. While there is the promise of some technology change on the horizon (cellulosic production from the whole plant instead of just the starches: http://www.eia.doe.gov/oiaf/analysispaper/biomass.html the first commercial plant has yet to be built, and it will still take more R&D and 10 years to make a difference. The market also has a natural cap on it, in that no more than a 10% ethanol blend is backward-compatible with all existing gasoline engines (the 85% blend requires a new car with the new computer program). What about jet fuel? Humm, redesign a jet to be more fuel-efficient (already a top design criterion), or convince airlines to take a chance on a new, untested fuel? Looks like another LONG road.
That leaves the diesel platform. Most of the early advances in the gasoline platform do not transfer. Ethanol can't be mixed with diesel effectively. Hybrids are okay for light commuting, but have been a total failure in heavy-duty applications. The city of Seattle tried some hybrid diesel buses and found that dragging the extra weight of the electric engine and battery packs up and down the hills resulted in WORSE total fuel consumption than straight diesel. The much-trumpeted Lexus Rx 400h just turned in 10% worse mileage over a 5,200 km road trip test against the Mercedes ML 320 CDI - all diesel: http://www.b100fuel.com/archives/2005/08/mercedes_ml_320.html.
While America turned away from diesels for consumers (as I did after an underpowered, dirty 1980 VW Rabbit diesel experience), relegating it to heavy industry, Europe embraced clean diesel technology, and today diesels power more than 50% of the consumer vehicles (in addition to the heavy industry). Europe also developed an alternative fuel in the form of biodiesel: http://www.biodiesel.org.
Biodiesel is a one-for-one replacement for petroleum diesel that can be made from a variety of vegetable oils, animal fats, and waste grease. Biodiesel is backward-compatible, with 100% of the existing fleet (minor fuel hose replacement in much older vehicles) and fueling infrastructure. It is biodegradable and nontoxic. It can be blended in any ratio with petroleum diesel or used in its "neat," 100% pure form (as I have been doing in two cars for over a year). 100% biodiesel is renewable, carbon-neutral (the plants consume the equivalent amount of carbon that comes out the tailpipe), with lower emissions of all types across the board (although the scientists are still debating NOx).
In Europe, they make almost a billion gallons of biodiesel a year out of rapeseed. In America, soybean farmers have been driving the development of biodiesel, largely because they have an extra 1B gallons of soybean oil a year. The National Biodiesel Board has done the hard work of getting the fuel certified as an "alternative fuel" under federal guidelines and is carrying the torch for more government support of the industry. Last year, America made about 30 million gallons of the stuff (less than 0.0005% of our diesel consumption). Coincidentally, Seattle consumed over 10% of that and has the highest per-capita biodiesel consumption in the nation. The analysts project the market growing at over 100% a year for the foreseeable future.
The basic chemistry for making biodiesel is pretty simple. Vegetable oil is a triglyceride molecule that looks kind of like a three-legged stool. A glycerin molecule is the seat, and three ester (fatty acid) molecules are attached at the legs. The chemical name for biodiesel is methylester [alcohol] (you can also make ethylester, but I digress).
Those of you who didn't sleep through chemistry class (as I did) have already figured out that what you have to do is detach the glycerin molecule from the esters and re-attach a methanol molecule to each ester leg, and voila! You have biodiesel. I have done it using salad oil in a blender (makes great margaritas afterward!). The glycerin and biodiesel separate like oil and water (different specific gravities), and after a little more cleaning, your biodiesel is ready to use. If you are going to sell it commercially, it must pass a battery of tests defined by the American Society for Testing and Materials (www.astm.org
So if there is a more environmentally friendly, renewable, ready alternative to diesel that is easy to produce, what is the problem? You could just as easily ask why everyone isn't running Windows XP or the latest version of Office. Even backward-compatible version upgrades have issues. There are bugs in the new code that need patches. There may be field-compatibility issues with the many various configurations in the field. In biodiesel's case, there are more issues. While soy is the largest crop in the world, soy is a fairly inefficient oilseed crop, at less than 14% oil. If one were to grow a crop primarily to produce vegetable oil to make biodiesel, one would not choose soy.
The first American refineries have been built by the same Austrians and Germans that are building the European refineries. They use first-generation technology that is highly engineered and very expensive per pound (think IBM mainframe). Good old American ingenuity and PC-style economics have yet to take hold. Even with recent crude oil spikes, it still costs more to make a gallon of biodiesel than it does to make a gallon of dinosaur diesel. Only government subsidies get the prices close to parity (in some locales, even less than diesel).
So I say to myself, "If someone could make a series of inventions (in crops, process technology, etc.) that lead to being able to make a gallon of biodiesel cheaper than a gallon of dinosaur diesel (with crude at, say, $45/barrel), well, that someone would have cracked a nut that really needs cracking." This may be one of those rare cases in which one can do something good for the world and put a little jingle in the pocket, too.
So here I am, Chairman and CEO of Seattle Biodiesel, charging up the hill again. Last time I made it over the top, but the weight of the arrows in my back caused a bloody and painful trip back down. This time I am better prepared and plan to take it a bit slower and with laser focus. This mountain is worth taking. I invite you to join the climb. Mark, thanks for encouraging me to take the first step.
Posted by Martin at 9:14 PM | Comments (0) | TrackBack