Category Archives: oil

The Future of Biofuels

By Robert Potts

First-generation biofuels such as corn ethanol have well-known shortcomings. A a global water crisis looms and corn is a water-intensive crop. As food prices rise globally, corn ethanol diverts food a food crop to fuel use. Add  deforestation and large-scale changes in land use and corn ethanol seems to be a poor substitute for fossil fuels. 

Some see “second-generation” biofuels as the future of the biofuels industry. Second-generation biofuels are synthesized from crop waste or fast-growing grasses rather than derived from human food sources. This improves the efficiency of the agricultural industry by removing waste. And it doesn’t affect food prices.

The production of second-generation biofuels requires complex and costly thermochemical processes such as gasification, pyrolysis and torrefaction. The average cost of cellulosic biofuels is around 40 per cent greater than the cost of corn-based ethanol.

But costs are falling. A new study by Bloomberg New Energy Finance projects that cellulosic biofuels will achieve cost parity with ethanol by 2016. Improved technology is lowering costs. For example, the cost of enzymes, one of the key cost components, has fallen by 72 per cent in the last four years. Analysts believe that if the industry attracts more capital productive capacity will grow and the relative costs of production will fall further.

Critics continue to argue that sourcing biofuels from non-food crops will cause large-scale land use change and increased water usage. The difficulty is that the volume of fuel created from biofuel production, or the “net energy yield per hectare of land,” is not sufficient to supply our economy in the long-term without creating further environmental impacts.

Some maintain that sugarcane ethanol, the biofuel widely produced in Brazil, would solve this issue. However, its wider proliferation is currently constrained by U.S. agricultural policy which mainly favors corn and by Europe’s climate, which does not support sugarcane production there. Its status as a popular crop also limits its long-term sustainability.

One area of biofuel production that might sustain the industry in the long-term is “third-generation” biofuels sourced from algae and bacteria. These fuels are still in the early stages of development and allow the modification of species of algae to produce yields of long-chain fatty acids. Should technology emerge to allow scientists to generate large volumes of fuel from these sources, they may be able to negate the problems encountered so far. In the meantime, first- and second-generation biofuels will continue to play a role in a world-wide energy industry that is highly dependent on a variety of sources of fuel.

Do you think biofuels are a sustainable form of fuel? Are you concerned about the long-term depletion of fossil fuels? Will new technology continue to support our energy usage? Let us know what you think, below, or via twitter @dschatsky


Robert Potts is the owner of RPM Fuels & Oil Pumps, suppliers of tanks and fuel transfer pump equipment to the fuel industry and RPM Fuels, supplier of a range of oil tanks and specialist equipment for biofuels and biodiesel.

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Knowing Your Supply Chain from a Hole in the Ground

A new standard of accountability and traceability for supply chains is emerging. Companies are increasingly faced with the need to be able to trace their supply chains back to the hole in the ground their raw materials came from. This is one of the implications of Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, a U.S. Federal law passed in 2010. Section 1502 requires any company that must file reports with the SEC to assess its supply chain for the presence of “conflict minerals” and determine whether they originate in mines in the Democratic Republic of Congo or surrounding nations.

There are lots of nuances and implications to the law. (For more information, see Dodd-Frank Section1502.) But an essential one is that companies are being asked to know far more about where the raw materials in their products came from, and the conditions under which those materials were obtained, than ever before.

On behalf of a client I am currently researching the impacts of Dodd-Frank Secdtion 1502 on companies. A number of the firms I’ve interviewed see a broader trend toward ever higher standards of visibility, traceability and accountability in company supply chains. As they work to design processes that will enable them to comply with the new rules, they are trying to think ahead and design them to be able to accomodate new requirements, which they believe are all but inevitable.

Another example of these heightened standards for traceability and accountability is the recent announcement by fruit producer Chiquita Brands that it had committed to identifying – and eliminating from its list of fuel suppliers – all of the companies that it believes sell diesel made from Canadian tar sands oils. This action came after a pressure campaign from the environmental group ForestEthics.

We are entering an era when “fungible commodities” such as petroleum and tin are not as fungible as they once were. Companies are going to need to improve their supply chain game to keep pace with rising expectations for traceability and accountability.

What are your thoughts?

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Assessing the Tone of ExxonMobil’s Environmental Reporting

I’ve been spending some time with corporate sustainability reports for a new research project. ExxonMobile’s 2009 Corporate Citizenship Report offers some interesting examples of rhetorical style that are worth considering if you are responsible for your company’s sustainability reporting.
ExxonMobil is bound to take a different tone than, say, Patagonia. After all, the oil and gas production have intrinsically high envronmental impact. And some of the practices involved, such as development of oil sands and hydraulic fracturing, are highly controversial in environmental circles.

Balancing Arguments Made by Environmentalists

The ExxonMobil report provides a useful counterbalance to some of the arguments made by environmental groups. Regarding oil sands, for example, the report states “there is concern among a range of stakeholders regarding the increased energy intensity and water use associated with developing oil sands.” It goes on to cite studies on life cycle greenhouse gas emissions by the Alberta Energy Research Institute and IHS CERA, suggesting that “the oil produced at the Kearl project [in northern Alberta] will have about the same life cycle greenhouse emissions as many conventional crude oils refined in North America.”

For context, it’s worth noting, though the report does not, that the Alberta Energy Research Institute is funded by the government of Alberta, which has a major economic stake in exploiting its oil sands reserve, and research and consulting firm IHS CERA’s major customers are energy companies such as ExxonMobil. But the broader point, that the correct basis for comparison is a full lifecyle analysis, is important and the possibility of achieving impact-parity is worth noting.

A Question of Tone

Yet the ExxonMobil report also raises an interesting question of tone.

Hydraulic fracturing is coming under increasing scrutiny by advocy groups, the media, political leaders and regulators. It’s safe to say that the practice is highly controversial. This search on the New York Times Web site today is illustrative. It turns up several articles with a negative cast linked to hydraulic fracturing, along with two upbeat sponsored links touting “proven technology” and “safeguarding a valuable resource.”

Search results for "hydraulic fracturing" on nytimes.com on March 3, 2011

The ExxonMobile report references this controversy with notable blandness, stating, “The industry has over 60 years of experience with the technique; still, the use of hydraulic fracturing in the growing development of unconventional gas resources has prompted public interest.” “Public interest” is an almost comically mild way of characterizing the debate over this practice.

This mild rhetorical style is not used consistently throughout the report, however. You only need only look at the company’s description of the public policy debate around the impacts of climate change to feel the rhetorical temperature rise. “Designing equitable policies to limit emissions and to create acceptable frameworks for the massive investments and financial transfers has been, and will continue to be, contentious.”

The inconsistent tone of the report is a relatively minor point. Far more important is a factual and comprenhensive discussion of what the company is doing and plans to do and what its results have been so far. But ExxonMobil and other companies would do well to attend to the tone of their sustainability reporting to make sure it portrays them as they intend.

UPDATE:

I just came across oil and gas industry guidelines for environmental reporting.

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Oil Spills and Market Crashes

The current news cycle links continuing coverage of the disastrous oil spill in the Gulf of Mexico, whose cause remains uncertain and whose solution so far elusive, with puzzlement about the cause of a recent 1,000-point plunge  in the Dow Jones Industrial Average.

It may appear that these two traumas have nothing in common. Indeed, the havoc in the stock market will prove ephemeral, while the devastation of the Gulf oil spill could be with us for a generation or more. But they are linked by the role technology played in each of them.

As the New York Times noted, the oil drilling platform that exploded and sank in the gulf “was described before the accident as one of the most technologically advanced drilling platforms in the world.” Drilling for oil miles below the earth’s crust and a mile below the sea was once inconceivable. But now it’s a proud triumph of technological advancement. In the case of the stock market plunge, suspicions center on the role of computer-driven flash trading, the esoteric and technologically sophisticated mechanism for making profits by deploying more computing power than one’s competitors in the market.

The common thread joining these two stories is the ability of technology to elude the understanding of its creators, and its power to wreak havoc beyond our control.

It was over two years ago that the $7.2 billion dollar loss inflicted on Societe Generale by a rogue trader evoked for me the Exxon Valdez and the principal that technological sophistication brings power that tends to outpace our ability to understand it and leaves us unprepared for the consequences of its misuse.

It would be a good thing if our technophilic society learned humility from these episodes.

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Where is Clean Tech Heading in 2010?

Sorry, I can’t say I know yet where clean tech is heading in 2010. I’m still getting reoriented after the holiday. But early signs are that, as usual, both the hype and the backlash against the hype, are a bit overblown.

The Economist had a nice assessment of the post-Copenhagen landscape: mixed, essentially.

On the downside, the article said, a lack of firm mandate to cut emissions should have a chilling effect (pun accidental) on investment in clean tech. The article quoted VC Vinod Khosla as saying, “Almost all areas of clean technology will get a little less investor interest because there is no mandate.” And it said that German power company E.ON would back away from plans to accelerate plans to cut its emissions, which it had announced when it expect a firmer result out of Copenhagen.

On the upside, India and China have made important commitments to improve energy efficiency and rich countries have promised billions in green-investment support to poor countries. The article also rightly points out that a lot of the clean tech action to date has been driven by national, regional and local mandates and regulations, not international deals, and those were unaffected (so far) by Copenhagen. Finally, it’s worth noting that climate change mitigation is not the only driver of clean tech. Efforts to develop alternative energy supplies that are more secure than fossil fuels are an important driver as well. The recent period of volatile oil prices and geostrategic natural gas games in Eastern Europe (despite burgeoning global gas reserves) is a persistant motivator of investment in some cleantech subsectors. Chris Nelder is worth a close read for his take on the impact of resource scarecity on investment trends. He foresees a bull market in renewable energy investments. See his take on energy-related investment themes for the next decade here and here.

Some observers have taken note of a slow-down in venture investment in clean tech. Greentech Media tallied 2009 clean tech venture investments at around $5 billion in 2009, down from $7.6 billion in 2008.  But in the broader context of overall VC, that decline doesn’t look so bad. According to the National Venture Capital Association, U.S. total VC investments in the first three quarters of 2009 were $12.2 billion, down from $22.1 billion during the same period of 2008. That’s a sharper decline than clean tech alone experienced.

What are the key questions facing clean tech and energy in 2010? I’d love to hear your thoughts and take some suggestions of what to dig into next on this blog.

Happy New Year.

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My Clean, Green, Sustainable Reading List

Over the last few months I’ve been reading through the literature on clean tech, energy and sustainability. In case you are looking for suggestions, I can recommend any or all of these. If you have any reactions or suggestions for further reading, please consider leaving a comment.

Solar Revolution: The Economic Transformation of the Global Energy Industry
Solar Revolution” provides an excellent overview of the spectrum of solar energy technologies and the prospects for the growth of solar energy. It is the

most thorough treatment I’ve ever read on the subject. Travis Bradford presents a holistic model comparing the total cost of solar energy with grid-based electricity alternatives and finds that solar is already more cost effective than many people realize. He also develops a sophisticated and persuasive model of the growth of the solar industry to show convincingly that solar is destined to become “the preferred energy choice for a large majority of locations and applications.”

Earth: The Sequel: The Race to Reinvent Energy and Stop Global Warming
Interesting and inspiring overview by Fred Krupp, president of Environmental Defense Fund, of the many technologies that are pointing the way to a carbon-free future and a chance of averting environmental catastrophe. Plenty of specific examples and some colorful characters as well. The book returns repeatedly to the importance of creating a cap and trade system in the U.S. It’s logic is as good as any I’ve seen, but it gives the carbon-tax approach short shrift (which is the author’s prerogative.) An engaging read for folks newly wondering how the world will get past fossil fuels.

Harvard Business Review on Green Business Strategy (Harvard Business Review Paperback Series)
Good collection of some classic and more recent articles on the topic of Green Business Strategy, including must-read “A Road Map for Natural Capitalism” by Amory Lovins, Hunter Lovins and Paul Hawken.

Getting Green Done: Hard Truths from the Front Lines of the Sustainability Revolution
Charming and witty look at how sustainability happens–and doesn’t–at real companies. Real-world, nitty-gritty examples mixed with some punditry and policy, this book is a good complement to the literature about greening and sustainability. And author Auden Schendler is an engaging storyteller.

Making Sustainability Work: Best Practices in Managing and Measuring Corporate Social, Environmental and Economic Impacts (Business)
Dry but systematic and tailored to the needs of executives and corporate sustainability professionals. Recommended for those kicking off or managing corporate sustainability initiatives.

Strategies for the Green Economy : Opportunities and Challenges in the New World of Business
Nice, crisp and current overview of green/sustainability from corporate and corporate marketing perspective by long-time pundit and consultant Joel Makower.

Green to Gold: How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage
Packed with light case studies and some handy frameworks. If you are doing corporate sustainability you should probably read it, but but I suspect it works best as a lead generator for the authors’ consulting business.

The Clean Tech Revolution: The Next Big Growth and Investment Opportunity
Good overview of the clean tech space.

The Prize: The Epic Quest for Oil, Money & Power
Liked it a lot. See my thoughts at elsewhere on this blog.

I welcome your comments on the above or your suggestions for other reading.

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Energy Price Volatility Dampens Growth; Can Renewables Help?

The New York Times today reported that recent extreme volatility in oil markets has “is puzzling government officials and policy analysts…” It is also “hobbling businesses and consumers … as they try in vain to guess where prices will be a year from now–or even next month.”

Random Reasons for Volatility

Oil is a complex market, and analysts struggle to explain its gyrations. Supply is affected by many things, including reserves, politics, and possibly financial speculation in recent years. John Lipsky of the IMF concluded in a recent speech at the 4th OPEC International Seminar, however, that  “financial market dynamics and flows have not been a major driver of recent oil price trends.”

What is behind oil price volatility? A 2005 study by Hui Guo and Kevin L. Kliesen, economists at the Federal Reserve Bank of St. Louis, concluded that “crude oil price volatility is mainly driven by exogenous (random) events such as significant terrorist attacks and military conflicts in the Middle East.”

Impact of Volatility: Dampening Growth (Except for Oil Companies)

A common sense suggests that low oil prices help drive economic growth while high oil prices tend to dampen growth. But the St. Louis Fed study demonstrated that volatility itself–whether yielding price increases or declines–can put a brake on economic growth. The study found that ” sharp oil price changes—either increases or decreases—may reduce aggregate output temporarily because they delay business investment by raising uncertainty or induce costly sectoral resource reallocation.” In order words, “an increase in the price of crude oil from, say, $40 to $50 per barrel generally matters less than increased uncertainty about the future direction of prices.”

Similarly, a report published last month by Amanda Logan and Christian E. Weller at the Center for American Progress (which describes itself as a “progressive” think tank) cites data from the Bureau of Economic Analysis to show that consumers and businesses curtail spending following periods of energy price volatility. The Logan/Weller report also found that, while energy price volatility may dampen economic growth, the energy companies themselves can benefit from it. The study found that “the profit rate of oil—and coal—companies increased on average by 0.8 percentage points during periods of high energy price volatility and that there is a 63.0 percent chance that the profit rate will increase during periods of extraordinary price volatility.”

Can Renewable Energy Help?

There are a variety of policy options for trying to smooth out energy prices, but they all have their limitations. (Wonks may want to refer to a 2008 report on this topic by the International Bank for Reconstruction and Development.)

But I was wondering: Does renewable energy suffer from the pricing volatility of fossil fuels? After all:

  • The energy sources (wind, water, sun, geothermal) are basically eternally free, and
  • The supplies are more broadly distributed than fossil fuels

According to a 2008 report by the government-sponsored National Renewable Energy Laboratory, “whether a utility owns its renewable generation or purchases renewable energy through a power purchase agreement, the price is known and essentially fixed over time.”

So while stocks of renewable energy companies may be volatile (it is, after all, a very young industry), renewable energy itself may exhibit substantially more price stability than fossil-fuel based energy. This could end up being a significant, but less-noted, benefit of the uptake of renewable energy.

And price stability is worth money.  (Hence the flourishing markets for insurance and options and futures.) So isn’t possible that higher costs for some forms of renewable energy may be at least partly justified by the promise of stabler prices?

Your Thoughts?

I would love to hear your thoughts: Will renewable energy prices be less volatile, and will energy consumers pay for that benefit?

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