News and Musings - March 2007

One of my sources recently told me that a pinch in soy bean supplies was about to precipitate a crisis in the burgeoning biodiesel industry. This is a story we’ll be pursuing, because, if true, it would not only be crucially important, it would also be indicative that certain outcomes I have long foreseen for the biofuels industry in the U.S. are arriving ahead of schedule.

My source, who spoke on background, said that the soy bean crunch was causing a number of investors in big biodiesel plant projects to hesitate, and that it could, if it continues, cause many of these projects to abort. We’ll follow up on this and attempt to determine if there is any substance to these claims. Because this individual makes a living from the sale of biodiesel manufacturing equipment, I believe that he has no reason to view such developments with anything other than acute consternation, but a hidden agenda is always possible. In other words, if you’re funding a plant, don’t pull the plug just yet, but keep an eye on soy futures and take a close look at alternative feedstocks.

Certainly a soy shortage is inevitable if biodiesel production continues to expand at its current torrid pace, and already in many quarters there is a clamor for Asian palm oil, a low cost substitute for soy oil that is derived from the oil palm, a tropical tree which provides one of the highest yields of useful oil per acre of land for any source of plant lipids. Substitution of palm oil for soy oil would not benefit American farmers, however, and might not prove beneficial to the American biodiesel industry as a whole, at least in the short term.

We are in the process of gathering statistical information on biodiesel production and distribution, but it is evident that some considerable portion of biodiesel is produced and consumed locally, since biodiesel pipelines are nonexistent and the cost of transport is therefore rather high. Shift from a local feedstock to one that is imported, and the industry changes structurally, more nearly resembling petroleum. One also faces the disquieting possibility that production could move entirely offshore. Biodiesel production imposes no high barriers to entry on the producer, and an oil palm plantation owner could simply elect to produce biodiesel on his own rather than shipping the oil for processing in the United States—and, indeed, there would be no good reason to follow any other course. Biodiesel is a much higher value product than palm oil, and since the cost of shipping biodiesel is no greater than that for shipping oil, why not complete the process?

My same source had another little morsel for me which we’ll also be investigating. I have long lamented that the utter unwillingness of American farmers to plant fuel crops was ultimately going to constrain the biofuels business, but, now, if my source is to be believed, that sad state of affairs may be about to change. Camelina, an oil seed crop somewhat akin to rape, is apparently exciting the interest of farmers across the northern plain states, and, if all proceeds according to predictions, the soy bean crisis will be averted and camelina will become the new light crude.

That excited my interest as well, and we will be poking around to see if there’s any substance there. Camelina certainly has been proposed as fuel crop before and has been subject to studies at various aggie colleges, but that doesn’t mean that it’s poised for dominance. The economics are merely pretty good from what I’ve been able to determine, and one still has to allocate farmland for the purpose of growing the stuff.

What I think I see here is fresh evidence of the miracle crop mentality, the notion that there is some overlooked shrub out there in the hinterlands that is pining to be an alt fuels superstar—kind of like an American Idol for energy. The kid is a natural—grows like a weed, resists pests and drought, needs no fertilizer, and has some kind of incredible yield of fatty oil or cellulose or sugar or whatever, or maybe all of the above. Could be that it’s mentioned in the Bible as well. That should count for something, especially if it’s in the Book of Deuteronomy.

Many candidates have presented themselves over the years. The petroleum tree (I kid you not), water hyacinth, the Chinese tallow tree, pongama, jatropha, and on and on—a vast Kew Gardens of leafy green energy solutions. The problem with most of these miracle workers is that they either fail prove so miraculous upon closer inspection, or that they have gone over to the Dark Side, so to speak. Water hyacinth and the tallow tree, for instance, really do provide remarkable yields with remarkably little cultivation but it is just that propensity that makes them so fecund that also makes them so dangerous. Both have an ability to disrupt local ecosystems that is downright scary. They’re like some nativist’s nightmare of illegal immigrants come true. Or like the guy who brought rabbits to Australia.

So maybe Camilina is the Second Coming, but I doubt it. But I promise, we’ll look into it.

On another note, I had an interesting conversation with the investment relations guy at Silverado Gold Mines. So what does silver and gold have to do with alternative fuels? It seems these guys have a novel approach to coal gasification and have plans to construct a six billion dollar plant in Canada.

What they’ve done is develop a process for conditioning low grade lignite coal, the cheapest kind, as it happens, to serve as a feedstock for Fischer Tropsch processing into petroleum analogs. In the past higher grades of coal have been required, and the Silverado process should improve the somewhat dubious economics of coal to liquids. Unfortunately, the very high capital costs will remain, and only the operational expenses are reduced.

Startups at Last

Lately startups and technology innovators have begun to come out of the woodwork. We’re happening on new ones almost daily.

I spoke briefly with the principals of a firm calling itself Genotype in the Bay Area who have a project for producing ethanol from microbes requiring no fuel other than CO2. I’ve seen references in scientific papers to this concept, but to date I’ve met no one else attempting commercialization.

I also made contact with a company named Terralog Technologies which has developed a novel and interesting form of anaerobic digester for producing methane from biosolids. They select sites with sharp geothermal gradients, place the biosolids in wells several thousand feet deep, and use geothermal heat to stimulate bacterial decomposition. The process supposedly eliminates problems in disposing of residues and sequesters the CO2 produced by the process.