Ethanol Efficiency - A great post by Advanced Biofuels USA

A great blog post (see the original post HERE) by Advanced Biofuels USA by Robert Kozak (NOTE: This is a nonprofit organization I am unfamiliar with other than this post). The article discusses a graph produced by the NRDC showing the CO2 intensification of various energy sources..

The big things I really wanted to pull out of this post.  I haven't seen this said better:

This trendline also got me thinking about how long it took the petroleum industry to reach its current efficiency that allows it to produce a gallon of gasoline for about 26 lbs CO₂. As it turns out, the answer is at least sixty years -1910-1970.

Production and quality improvements have been slow in the petroleum industry. While the first oil well was drilled in Pennsylvania in 1859, demand for gasoline did not really exist until 1900 when cars with internal combustion engines began to be produced. It really took off after 1908 when the Ford Model T began production.  However, neither performance (octane rating) nor conversion efficiency were quick to follow.

For instance, the catalytic cracking of crude oil into gasoline, which doubled existing yields of gasoline, was not developed until the 1930s. Octane ratings, a measure of gasoline’s ability to withstand pressure to produce more power (current regular gasoline has a rating of 87 and ethanol 105+), were about 40 until Allied aircraft needed high octane fuels to fight German and Japanese planes in WWII. This octane development work was largely financed by the US government. The current hydrocracking technology which again increased gasoline yields, did not come on-line until the 1960s, while the current rate of oil to gasoline conversion was reached after the 1973-4 oil shock.

Why did Oil Prices Go Back Up?

Above is a graph showing crude market prices over the last few years.  More on the spike from this most recent February below.

I've been meaning to get this post up for over a month.  Oil prices rose back to 2008 levels suddenly in February.  The price increases coincided with civil protests in the Middle East.  First starting in Egypt the protests expanded to Libya, Iran, Saudi Arabia and Syria.  This unrest ultimately leading to the stepping down of Egypt's long time dictator and an open revolution inside Libya which continues to this day.

Of course the unrest is the defacto explanation for oil prices as the news covers the rising pump prices.  In my own small oil business I haven't had one call to my office by customers asking "why is diesel a dollar more than a few months ago" which is odd.  Usually get a consistent stream of calls as oil prices hit certain dollar marks.  As we past $3 and moved onto $4 a gallon for finished products I didn't hear a peep from my customers.  It seems as if the American consensus is that petroleum is just higher than $3 a gallon and $4 is acceptable.

Here is what I don't get though in this rational script of why prices are high.  For two weeks Egypt's protests grabbed headlines and the markets didn't move but a little bit per barrel.  It wasn't until President's Day, a day the US Markets were closed, that a true price spike occurred. This spike was isolated to just commodity futures trading (not Supply and Demand forces).


There was no watershed event in the Middle East (other than the lack of Egypt's upheaval spreading beyond its Euro-aware neighbor Libya).  The grand scheme of world oil production Libya shutting off its spigot would not normally cause a move like this as a permanent realignment of pricing.  But on a day the US Markets happened to be closed a ran occurred in smaller trading markets with an expected result caused the following day in the US.  I can't help but actually see this as a speculative run attempting to push the price of oil up. 


This strikes me as literally a bold and obvious move to manipulate markets like something out of the Age of America's Robber Baron past.  Player's with market power exercised it in a coordinated way not as an expression of market efficiency but taking advantage to leverage their own market power to pull profits off the top.  Our current oil prices are not solely set by a currently adequate and for the most part unchanged Supply and Demand but because of trading volumes in a futures market.


I also want to share with you my perspective on President's Day.  I remember it because I was at my desk and the Editor of OPIS (the Oil Price Information Service) sent out an email that immediately grabbed my attention.  See below:

Below is the email I received.  I wanted to post it for a single reason.  To document the day prices went back up without a real market explanation.  See OPISnet.com's Editor's email below:

---------------------------- Original Message ----------------------------

Subject: Oil Futures Soar in Electronic Trading; Marketers See Hefty
Tuesday Price Increases
From:    "Oil Price Information Service" >
Date:    Mon, February 21, 2011 11:10 am
To:      "Mark Fitz" >
--------------------------------------------------------------------------


This breaking news story is brought to you by Oil Price
Information Service...

   The peace and calm for marketers who are today observing
Presidents' Day has been interrupted by a paroxysm in global
prices for crude and refined products, which almost certainly
will add 5cts/gal or more to wholesale prices tomorrow.
   The New York open outcry markets are closed, but some hefty
volumes have changed hands in electronic trading and sent
overseas crude prices as high as they've been since September
2008,[NOTE: bold emphasis is mine] and pushed gasoline and diesel prices up 5- 7cts/gal in the
process.
   Brent crude, which has been the driving force behind NYMEX
RBOB and heating oil futures price gains in 2011, traded for over
$105/bbl this morning, spurred by violence that appeared to
escalate into chaos in Libya. Libya produces some 1.7 million b/d
of crude. There are also concerns that violence in the Persian
Gulf may be ratcheted higher as unrest in the region shows no
completion date.
   April Brent crude was trading at $104.73/bbl, up $2.21/bbl at
presstime.
Even higher numbers were seen in electronic WTI action, where the
expiring March contract moved up $4/bbl to $90.19/bbl and the
April contract (which will soon represent the prompt month)
rallied some $4.38/bbl to $94.08/bbl. This latter rally has the
interest of technical analysts, who believe it may signal a much
larger pop.
   March RBOB futures were up 5.87cts/gal at $2.61/gal and April
(the low RVP month) moved up 5.87cts /al to $2.749/gal.
   March heating oil was up 6.46cts/gal at $2.7775/gal and April
barrels were 6.52cts/gal higher at $2.7912/gal.
   Most U.S. oil companies are closed today, so OPIS has not yet
seen a host of intraday moves. Terminals are quite busy, however,
as jobbers race to get ahead of price increases that might add
$400-$500 per load when spot markets reopen for business
tomorrow.

President's Day 2011 was the day the oil market returned to 2008 prices.
People far smarter and better qualified than me have theories of why. 
Their theories just don't make sense in my gut.

Now the US Energy Information Administration has this to say about crude prices and Libya:

Crude Oil and Liquid Fuels Overview.  EIA expects continued tightening of world oil markets 

over the next two years, particularly in light of the recent events in North Africa and the Middle East, the world's largest oil producing region.  The current situation in Libya increases oil market uncertainty because, according to various reports, much of the country's 1.8-million bbl/d total liquids production has been shut in and it is unclear how long this situation will continue.  The market remains concerned that the unrest in the region could continue to spread.

Libya and the Middle East unrest definitely has something to do with prices. But they don't have anything to do with a jump like we've seen. A sustain jump indicative not of risk in the future but of a realignment of Supply and Demand needs.  Especially a jump that occurs primarily around a single big day of trading when the US market is closed and no really big information has changed the market's perspective. Lets look at prices during that short time frame.

Notice the price spike in this shorter time frame.  That was President's day.  Or in this chart the day missing between Friday before and the Tuesday after President's day (as our markets were closed).  Supply and Demand did not change.  Only the volume of people in the market for futures. 

My only real thought that derives from this is a need for diversification and true substitutes for petroleum derived liquid fuels. 

NOTE: For those who disagree and believe that markets are rationally pricing the risk of a Libyan oil being sucked out of the market here is a list of production numbers showing where Libya is in the grand scheme of things (this being non-academic and provided by a 3 min google search).  The new production that has come on line since 2007 I would believe should have offset a good chunk of this.  I don't see supply interruptions in my market either leading me to believe there is still plenty of crude available for refining and available tank space for storing refined product (unlike 2006-2008 in my market where there were consistent outages by my suppliers).  And again, just my passing thoughts without even close to enough research to really justify a strong argument.  This is just my gut thinking.

Congrats to Oregon's Puralytics!

Beaverton, OR based start up water scrubbing innovator Puralytics is the Winner of the 2010 Clean Tech Open!!!  Or as offhanded mentioned in a Portland Business Journal article the Academy Awards of Cleantech.

Glad to see a local company win the Clean Tech Open.  Exciting.  As a washout in the qualifiers a few years ago its nice to see a local start up take it home.

UofI Biodiesel Education Blog - Gotta Love Jon Van Gerpen

Univ. of Idaho has a great new biodiesel blog.  Gotta love it.

Check it out HERE!

Kholsa Ventures: Food vs. Fuel White Paper

This is from an old post (Dec 1st, 2008) that popped up in my iGoogle news from the Energy Blog I thought it was worth posting.

A Food vs. Fuel White Paper commissioned by Khosla Ventures the big money championing Range Fuels and the future of ethanol as an investment.  Though the biofuels boom has cooled substantially with the recession that started a few months before this paper was published its a good subject matter to keep in mind.

With this white paper in particular there is one other great reason to read it.  It lays out a very good description of the Petroleum industries benefits (i.e. subsidy) provided by the US Federal Government's pro oil development policies.  If you are an undergrad student doing a research project where you want to lay this out there a great recipe for doing so exists in this white paper.

Its been a few years since I glanced at Khosla's web site.  After browsing it awhile there is a lot of interesting subject matter to read.  In particular I liked an interview link shown of an OPB interview with Vinod Khosla (the V.C. whose namesake the venture group is named for).  A great quote I've pulled out of context about the importance of investing in new technology:

"This has got to be what Nassim [Taleb] calls the black swan phenomena. We have to radically change our assumptions. We are very much like turkeys and as Nassim says in his book, Black Swan, "for a thousand days, a turkey's worldview model is it gets fat every day these humans come out and feed it. Somehow [...] before thanksgiving, it's model changes." We have to follow that model. We have to radically change, and that can happen for the negative or the positive.

We have to shift from extrapolating past assumptions, ignore what economists and econometrics tells us about how much oil we need and when we'll run out and what consumptions will be. Because they are based on the false assumptions. Once those assumption change and technology will drive that change, the world will be different."

 So reading between the lines.  Convert to Ethanol or get your head chopped off!

Just kidding, I couldn't help but point out the logic.  I agree with Khosla quite a bit.  Not as boldly as his investment state but still I agree with much of his premise.

Just another story about a homeless man and his Lamborghini.

So you ever have a friend who has a bad year?  Their women walks out leaving them with a house and life they don't want.  Well this guy did the only thing reasonable.  He sold it all, bought a Lamborghini and traveled the United States for years.  If only he solved crimes while doing this he'd have a TV series spun off about it.

Wired Magazine covers it on their website.  You've got to read it.

Fisker Auto's $88,000 Plug-In Hybrid and my own random thoughts.

NOTE: The following post goes all over the place without a specific logic to it other than my coffee induced curiosity and the ability of Google to serve up info.

I noticed in the SIJ website this morning an update about the massive fund raising success of Fisker Auto in its pathway to market for a plug-in electric hybrid vehicle.  The price tag hit me though at $88,000.  Then I thought back to a few books I read about the invention of the auto industry and the early cost of utility vehicles such as the Curved Dash Olds and Model T.    

So I ran it through an inflation calculator (don't ask why I just did).  In 1908 the year the Model T came out that would have been $3,584.  Not comparably cheap even by early adopter status.

The Curved Dash Olds first sold for $650 in 1901.  According to Tom's Inflation Calculator a 1913 Olds selling for $650 would adjust to a $18,895 price tag.  Being the low end no frills electric vehicles with no options or safety go for way below this the industry ain't doing to bad.

The Model T first sold for $825 in 1908 and ultimately after decades of engineering excellence by the Ford Motor Company sold at it's lowest as $260 by 1924.  To adjust that get's fun for one reason.  In 1908 the 2010 value of a Model T was $20,253 which is what a reasonably equipped sedan goes for today.  By 1924 you could buy a more reliable and improved Model T for $3,257!  

Anyone else see a trend similar to computing power and gasoline power train?  That drop in true cost of a vehicle really blew me away.  Now lets hope that EV's take a similar pathway in innovation on a far accelerated timeline.

Side note.

The 1901 Curved Dash Olds was the first mass produced cheaper automobile.  The pioneering horseless carriage. Its original success beyond hobbyists was its ability to speed up the day for a travelling professional who would not have to worry about a horse.  For doctors and lawyers traveling within 30 miles of their home this hugely improved their productivity more than paying for itself as an investment.

I don't have proof of it handy.  But while reading one of the better histories of the auto industry they related the cost of a vehicle to the median income in the US at the time.  That would place a curved dash at the time it was introduced to being the equivalent of $70,000 today.

It wasn't till 1908 that Henry Ford introduced the Model T and began to focus on ever improved and lower cost vehicles (and of course we saw how cheap he got).  

The history of the early auto industry was of visionary engineers and entrepreneur wanting to mass produce cheap vehicles and the bankers, investors, and managers around the industry who demand high end high margin pleasure vehicles (because why would anyone want a vehicle for utility purposes?). In fact the amazing early history of Chevrolet and the founder of GM Billy Durant is one of lower mass markets versus higher end markets.  Billy Durant literally swindled his company back from a group of bankers by setting up Chevrolet and trading its stock on the open market for GM stock till he had 51% of the shares back.  

 Special note of personal perspective.  The Oldsmobile ushered in the modern auto industry of the world at the dawn of the 20th century.  It also exited business as an auto brand at the dawn of the 21st century.  There is a bookend story to be had here if I ever put it together.

Oregon's BETC Reform

In energy circles Oregon has been well known in the last ten years for it's generous Business Energy Tax Credit (BETC) which offers up to 50% off the capital cost of a project back as an income tax deduction.  Better yet if you are a low cash flow start up you can "Pass-Through" this BETC for 35% of face value cash up front.  So if you build a $1,000,000 project in theory Oregon will give you a $500,000 income tax break over five years and you can sell this tax break to an investor for $350,000 cash.

Its no doubt one of the greatest deals for project development out there.  Throw into that mix a huge clean energy consumer base and utility connection to wheel power to the California market and you've got a strong comparative advantage in Oregon.  I know I've done several project that would not have happened without the BETC which have directly created jobs at my family's business.  I've also used the BETC as a down payment with a bank as part of financing.  Its a great economic development tool but the lack of boundaries on the program has blown up its use.  Solar panel manufacturers, wind farm developers, and a few large projects have exploded the dollar figure this tax credit brings.

So in Oregon the Department of Energy (ODOE) has been under fire for the Business Energy Tax Credit  taking a large cash draw in the economic downturn.  The fact that the alternative energy tax break is primarily being taken by the Wal-Mart, large banks, and other huge corporations hasn't polished its image any either.  Corporate welfare is never a great selling point.  This causing Oregon's Legislature to push a "reform" to bring down the total dollar figure of the BETC.

First a law capping total dollars came down.  Then rules were written to figure out how to stay within the budget.  So the rules are set and now is the time to pay attention as any potential new project I may come across will be playing in this new league.  Through the recession I haven't had much in the way of project opportunity.  Just trying to keep momentum moving forward for what we built pre-2008.  Taking a look there are things I agree with and those I don't.

First I don't see any reference to property tax impact of a capital project (and I didn't in the debate during the reform). The local positive impact of these projects isn't considered at all.  If the state is losing on the income tax side but funneling more in a much more permanent base of property tax revenues I would call that great policy.  Unfortunately the only focus isn't on long term revenues but instead on a single ticket price

I've always thought the controversy of corporations taking BETC's to avoid income tax is over stated.  In fact its safe to say if it wasn't for the BETC many of these companies wouldn't have realized the same amount of income tax (then avoided by a BETC) by creative and legal accounting gimmicks to minimize profits in Oregon.  I am very confident that the BETC funnels what otherwise would have been money leaving Oregon into capital investments that raise local property taxes far in excess of their real cost to Oregon's general fund.

Now back to the actual reform.  One good thing is they moved the one year BETC opportunity up to a $20,000 one year project (meaning I can take a tax credit in one year instead of taking it over five years). Short payback of tax credits is very good for small businesses seeing great years and investing in improving their operation.  In the small business community you never know what the next year holds so five year paybacks are a tough sell for a BETC.   Better yet, one year is very positive for the type of projects I do with refueling infrastructure which can be kept under $20,000 if we work at it.  It's also very good for retrofit projects as well so local smaller scale contractors will benefit from this.

As of right now there is a cap of $300 million  in BETC money established through 2011's state budget.  Of this $300 million $218 million potential projects has already been pre-certified.  So in theory its already spent.  But of course it probably won't be close to spent.  It begs the question, how does this work that projects take years and are unpredictable and therefore when the BETC vests to being taken might effect other budget years?

There is a Q&A page but it hasn't posted any questions and answers.  I definitely have small talk to make next time I run into an ODOE staffer.  Just that much more reason to get to local conferences I guess.

To help they have created a "tiered" approach.  ODOE shows an under $500,000 project costs, $500,000 to $6,000,000 project cost, and of course an upward of $6,000,000 project.  This will be interesting.  It does not mention how they will break out the remaining sum of cash between these projects.  I also am curious what happens if you apply pre-project, don't get a pre-certification, then start building and finish in a specific time frame.  If other's in that tier didn't finish can you take their budget allotment?

Oh well. As with all changes questions and ideas pop up.

Zip-Car for Bicycles

Here is a cool concept that even the 'nu-uh' scrooge in me loves.

I saw it at Fastcompany.com and think its a great pay it's own way service.

B-Cycle is a large scale bicycle sharing program that just took off in Colorado.  This would work really good in the Metro area around Portland.  Especially if they had the check out stations at trail heads.  For over ten years I've been meaning to buy a better bicycle and never get around to investing the real money it takes.  I would jump on this and I know I'm not alone.

In Search of the Factory Equipped Hyper Miler

Wired Magazine online has a great article about where fuel efficiency will come from. The Federal government is seeking a 34.1 mpg fleetwide CAFE standard for vehicles sold in the US market.  Wired reports that the National Academy of Science asked 12 engineers, scientists and industry certified smart people to examine commercially available technologies and their impact on fuel economy.

This report is titled "Assessment of Technologies for Improving Light Duty Vehicle Fuel Economy"  and is for sale via the link shown.  The website will allow you to skim the document though.  Of course that's not assuming Wikipedia or some other site won't have it posted for free sometime soon (I can't wait to see).

What did they come up with? Fuel efficiency has a high capital cost.

But of course doesn't all new technology?

What else did they conclude? That VW TDI's kick the crap out of hybrids (okay I exaggerate their findings).  They comment that Hybrids cost around $9000 more per vehicle for a 50% fuel savings and Diesel cost around half that for a savings for 35% so therefore more miles and a longer engine life for less money.

Something I can't see mentioned is the energy impact of these technologies before their life on the road.  I would like to start seeing the energy cost of construction of these various technologies.  No luck there yet though.  Guess only the new fuels are held to this standard while the technologies that harness or precede new fuels aren't judged under this category.

Other note.  The Wikipedia post on CAFE standards is worth checking out.

The best simple description of Oil Sands Development I've seen.

Today I got a call from Energy Today Magazine about our business. In checking into their online addition I came across a few good articles. One in particular goes in depth to the process of capturing and developing oil sands in Alberta, Canada.

An excerpt from Cooperation Needed by Brent Sangster:

The mining and extraction process made a dramatic technological leap in the 1980s when it converted from dragline and bucket wheels to hydraulic and electric shovels that load the raw material (e.g., sand, clay, bitumen) on to massive trucks that today have a capacity of 400 tons.

These trucks transport the material to a crusher, where it is slurried with water before being transported via pipeline to an extraction plant. New technology is being tested here to move the crushing and slurrying operations right to the mine face, eliminating trucks or at least significantly reducing hauling distances.At the extraction plant, the bitumen is isolated from the water, sand, and clay (known as tailings), which are pumped into large containment ponds for settling and eventual reuse. Some unrecovered bitumen and naptha finds its way into these ponds as well.

Tailings ponds are designed to reclaim both the water and the area itself as a natural habitat. But the silts in the mixture can take many years to settle, during which time nearby water sources must be safeguarded from contamination and the ponds must be monitored to ensure wildlife is not exposed.

Technological issues here focus on ways to increase the speed of silt settling, such as using chemical thickeners or centrifuges to separate the silt from the water. Other needed advancements include technologies to remove the residual bitumen, recover valuable minerals such as zircon, and polish the water for re-use.

Just something I thought might be worth finding again.

Thorium the Green Nuke Fuel

This months Wired has an interesting story on Thorium as a "green" replacement for uranium as a nuclear fuel.

Given the future of the world will be lowCO2 with no emmissions if possible Nuclear power is going to have to be a good portion of our energy portfolio. Anything that helps with this debate is good.

I'm curious to see if shortly politicians start using the word "thorium" to sound smart similarly as they would use "clean coal" a decade ago.

So a Friend Asked: When will we have sustainable biofuels?

Sustainable biofuels depends on your definition of sustainable.

If you define sustainable as net-energy positive (more energy in than out) than we are there with even basic corn ethanol. The majority of corn ethanol plants produce more liquid ethanol btu's of energy than they cost all the way back to the farm (meaning every drop of energy from the farmers tractor on). When ethanol is considered a net energy loser is when they don't consider the other products made along side corn (brewers mash, corn oil, and other products sold after ethanol is produced). Also sometimes the cost of transporting ethanol to market by truck will make it a little bit of an energy loser.

For the most part corn ethanol is seeing a 20 to 40% increase in btu's of energy created. This is never talked about though as in the late 70's it was an energy loser and the same old expert from the 70's (a guy named Pimitel) still pimps the old out of date methodology that has been disproven. The national news always interviews this dude as the counter-opinion of the biofuels industry.

Beyond corn ethanol on net energy return you've got a whole host of other sustainable definitions. Is the corn a genetically modified organism? Is it a permaculture or monoculture farming style? How much water does the farming deplete fromt the natural aquifer below the farm? What about fertilizer and pesticide wash off of the field? These are the sticky wickets that cause a debate.

And then beyond this technical jargon filled debate is the Climate Change debate. Namely the CO2 reduction opportunity of a biofuel. If the biofuel can't substantially reduce CO2 emmission in the lifecycle of the fuel some don't consider it "sustainable" though it would be renewable and cleaner than petroleum.

Beyond corn ethanol though there are a slough of other biofuel products. Biodiesel in particular is extremely sustainable under any metric or debate. The only issue is that environmentalists hate soy bean farms (but somehow hippys love soy). But regardless if its soy, canola, or waste fryer grease biodiesel is 70% less CO2 (for its whole lifecycle) and has no real concerning emmissions issues. This metric being the goal post set by California recently in their "Low Carbon Fuels Standard" set to combat green house gases in their state.

I would go into cellulosic ethanol or some of the other advanced biofuels like "gas to liquid diesel" but it might be a little to much for you. It will make you sorry you asked.

Unless of course you want to hear more. Then my wife will thank you for distracting me enough to stop boring the crud out of her with this stuff.

Mark

(NOTE: This was an answer to a Facebook question asked in my profile)

This is a good paper. I wish I had time to read the whole thing.

Calfornia Low Carbon Fuels Standard Technical Analysis.

California Low Carbon Fuels

So I'm doing simple research on RINs and a potential financial business model. I am looking the world over for a CO2 off-set value for biodiesel and can't find a thing.

Look up the California Low Carbon Fuels Standard though I found some really interesting charts. Though worthless to my project today I felt they were worth posting for posterity.

Below is a chart showing weight and btus. A handy one stop chart.