Week of November 9

It has been some time since I have run a real discussion of alternative liquid fuels. In truth I am beginning to question the viability of the industry and to doubt whether it is likely to expand beyond niche and regional markets in the midterm. During this last year the sheer volume of investment in new production technology has been impressive, but such new technology remains essentially experimental and has not led to real commercial production except in regard to Brazilian ethanol. In a real sense the industry is little more advanced than it was a decade ago.

One cannot but recall the prior eclipse of the alternative fuels industry, then called the synfuels industry, in the middle years of the decade of the eighties. In those times, unlike the present, the focus of attention was on unconventional fossil fuel production, principally oil shale and coal to liquids. Intensive though not necessarily well publicized research programs had been underway for more than a decade, and had enlisted the efforts of many established process engineering companies and, interestingly, rather few startups.

The collapse of oil prices in 1983 precipitated the decline and near extinction of the synfuels initiatives and oil shale development efforts. Where billions had been invested, mere thousands were allocated by governments and private entity to continue scaled down efforts to commercialize the unconventional sources. Such efforts were, in the main, futile.

There are significant differences, of course, between the two debacles. Oil at the beginning of the decade of the eighties had become expensive because wars in the Middle East had inhibited production and threatened supplies. Real production capacity was not constrained. In this decade, however, production has been essentially stagnant for years, and capacity does appear to be constrained, at least according to a disturbing new report from the International Energy Agency in Paris. The sudden collapse in prices seems instead to be almost wholly attributable to the large economic crisis of the present, almost certainly the worst to occur in the entire period following World War II.

While everyone devoutly hopes that the markets will right themselves and that another boom will ensue in the months to come, such a happy outcome is hardly likely. The current malaise is clearly much worse than a mere market correction. It is a pervasive economic disorder of such severity that it is apt to rank among the worst downturns in the history of industrial society.

There has never been a global market collapse in the past that was not prolonged. Depth and breadth are generally coextensive in serious economic upsets. If the past holds true, that means that relatively weak demand for oil will persist.

The longer that market weakness prevails, the more alternative fuel entrepreneurs will exit the market. Green initiatives and global warming concerns, which scarcely existed in the eighties, will provide some slight stimulus to the languishing alt fuels business, but not enough to permit it to build real markets, which it has not been doing heretofore in spite of recent record high prices. A complete disappearance of the business is perhaps unlikely, but healthy growth in the midterm is even less likely.

A New Kind of Solid Oxide Fuel Cell

We have been in communication with a very small startup firm which wishes to remain in stealth mode and which appears to have achieved a breakthrough in fuel cell design that could expand the use of such devices beyond the tiny niche markets they now occupy. The developers claim that devices could be manufactured for well under $50 per kilowatt in small quantities and could achieve power outputs of a kilowatt per pound while operating at no more than 500 degrees Centigrade. If these claims are true, this device could prove competitive in a number of stationary markets and could conceivably even have application in transportation.

Solid oxide fuel cells play in very limited markets today in spite of significant drops in prices over the course of the last few years. Most such devices operate at temperatures of 1,000 and require lengthy warmup periods to reach their operating temperature, which tends to restrict them to applications where they can be run continuously and never shut down. This restriction rules out their use in backup power, portable power, and transportation. But, according to the developers, the new device requires only minutes to reach its much lower operating temperature which means that when combined with a battery it could serve in a multitude of applications.

Solid oxide fuel cells (SOFCs) can run on natural gas or butane and on partially reformed petroleum as well so they are highly fuel flexible. And at 60% efficiency, they are twice as efficient as most diesel power plants. Whether this or other advanced SOFC will enjoy market success remains to be seen, however. As with any new technology they face formidable competition from entrenched incumbents.