Week of December 21

This will be our last news roundup composed in 2008, and thus we feel obliged to provide a perspective on the year's as well as well as the previous week's events.

In purely fiscal terms 2008 was a banner year for alternative fuels. Funding rounds in the millions and tens of millions of dollars became commonplace, particularly among startups touting new processing technologies, and the first initial public stock offerings also took place, always a sign of an inflated market and an impending boom. Extensive coverage of alternative fuels in the mainstream press continued, and ascending oil prices throughout most of the year gave rise to heightened expectations among innovators that alternatives were on the point of going mainstream. The private sector invested generously in the alternative fuels sector, and the election of Barack Obama held the promise of lavish government subsidies to go with the enormous infusions of private investment.

Other trends were not so heartening though.

When I launched this publication two years ago I saw the alternative fuels space as the most vibrant sector within the larger alternative energy industry and the most likely to flourish in the midterm. Ascending fuel prices and increasing concerns about the impending peak of conventional petroleum production would trigger a migration to alternative fuels, and concerns about global climate change would render conventional fossil fuels increasingly unacceptable. And in a sense all this happened but not in the way I envisioned and not in way that bodes well for the industry.

Almost all of the growth occurred within the established alternatives, oil sand, grain and cane based ethanol, and biodiesel, and no significant production of advanced or next generation alternative fuels occurred. And within the ethanol sector business failures became endemic in spite of rapidly increasing sales. To date none of the next generation fuels form the bases for real businesses. No one is selling any significant amount of the products, and there are no distribution networks, no brands, no specialized market segments, and no equipment manufacturers serving any of these markets, if the term market is even warranted. Several months ago I wrote a piece entitled "Alt Fuels Manifesto" describing the course that I believe the next generation segment must follow in order to succeed. There is no indication that any company is following such a course. As Al Naqvi, an alternative energy marketing consultant who has published a few articles in these pages, remarked to me fairly recently, there's no value chain in the alternative fuels business.

Even if extensive support is forthcoming from the Obama Administration, that won't in itself rectify the serious structural deficiencies in the alternative fuels business. In fact, it may exacerbate such deficiencies by giving failing companies the means to survive without addressing them.

The other development that promises to retard the growth of alternatives if not to kill the industry altogether is the collapse in petroleum demand and the consequent extreme erosion in the price of crude oil. Current oil pricing renders almost all alternative fuels highly noncompetitive absent outrageous subsidies, and many projects simply won't go forward because investors don't believe they can operate profitably for years if at all.

Even if demand for petroleum had not collapsed the possibility exists that new types of production such as ultra-deep oil extraction might have stabilized prices to the point where alternative fuels producers would have had difficulty going forward. Now such unconventional oil plays themselves are in question simply because the lifting costs associated with them are so high.

Bamboo Ethanol

Recently we saw a news release from Japan announcing the completion of an academic project for producing cellulosic ethanol from bamboo. Bamboo is an extraordinarily rapidly maturing plant and seemingly a prime candidate for a fuel feedstock—if it could be processed economically.

In the new process, bamboo fiber is finely pulverized and then subjected to laser treatment to separate out lignin, always a difficult process in the past. The Japanese researchers claim that they can convert cellulose into glucose with 75% efficiency, and that they should be able to manufacture ethanol for 100 yen per liter. That's about ten cents at current exchange rates, and is less than half the cost of grain or cane ethanol.

A Carbon Capture Project in Canada

Carbon capture and sequestration remains the great hope of the coal industry though whether it is entirely feasible remains to be demonstrated. TransAlta and Alstom Canada hope to prove it is with an undertaking known as Project Pioneer which will utilize Alstom's new post combustion capture technique utilizing chilled ammonia. TransCanada Pipelines is providing transport and an unnamed coal fired generating plant is supplying the carbon dioxide. This will be interesting to observe. Generally carbon capture efforts have been almost nonexistent to date, and if this one works, it could revive interest in the approach.

Sasol to Build a Massive Coal to Liquids Plant

Sasol Limited, a South African firm which currently operates the only real commercial scale coal to liquid facilities in the world, has announced the construction of a really massive plant in Indonesia projected to have a capacity of 1.1 million barrels per day. That's almost as much oil as Canada is currently producing from the entire Province of Alberta with its oil sands reserves of over a trillion barrels.

Sasol is an exponent of the Fischer Tropsch process which begins with syngas and works even better with a natural gas feedstock. Fischer Tropsch was extensively manufactured in World War II by the Nazis in an effort to nullify the Allied petroleum embargo, and which eventually achieved a peak production rate of about a million barrels per day from several dozen plants.

Indonesia has far greater natural gas resources than coal, and what coal it possesses is low grade lignite which is difficult to process due to a relatively small energy content. I find its decision to utilize coal for synfuel rather puzzling but perhaps the nation stands to make more money by exporting the natural gas in liquid form. At any rate, the Sasol facility will be the biggest ever, and the first really large plant constructed in decades. As such it will constitute an important proof of concept and will probably have a major impact on the future of the entire synthetic fuel industry.