Transcript for Robert Rapier: The Scientific Challenges to Replacing Oil with Renewables
Below is the transcript for the podcast with Robert Rapier: The Scientific Challenges to Replacing Oil with Renewables
Chris Martenson: Welcome to another ChrisMartenson.com podcast. I am, of course, your host, Chris Martenson, and today we are speaking with Robert Rapier the chief technology officer and executive vice president for Merica International, a Hawaii based renewable energy company. Merica’s core focus is on the localized use of biomass to energy for the benefit of local populations. In addition to his work there, Robert speaks about the intersection of energy and the environment. And I have come to know him through a shared participation at ASPO, the Association for the Study of Peak Oil and Gas, where we had the pleasure of co-presenting on a panel this past year.
He has deep engineering expertise I respect tremendously, notably on cellulosic ethanol, butanol production, oil refining, natural gas production, gas to liquids. He is also currently planning a book detailing present and future energy options in a resource-constrained world. Robert, it’s a pleasure to speak with you today.
Robert Rapier: Pleasure to be here, Chris.
Chris Martenson: While we were at ASPO together, you had a very interesting presentation on how to perform due diligence on alternative energy companies that I really enjoyed a lot that I would like to bring to our listeners today. And the reason is that there are many out there who pin their hopes on a disruption free future to the idea that we will transition from oil to something else. Perhaps they have heard of a lab somewhere that has a made biodiesel from algae at twice the output efficiency of past efforts. I get emails from people all the time telling me of some great lab discovery. Or perhaps they have heard that solar or wind has a high net energy return, could easily replace oil if we ever decided to get serious about that. Make the switch. I want to have a discussion with you about how realistic these ideas and hopes are, given your experience in analyzing the actual companies that are behind these claims. With the intent of putting real money to work on real efforts. That is what you will do is you are aligning opportunities and money. So I guess that means higher level of rigor has been applied than exists in your typical PR release or a news article is what we find in your efforts.
If we could, let’s begin with a story you told about an energy magazine that recently asked you to rank the 50 best alternative energy companies and we will go from there.
Robert Rapier: Right, so the request came in, there is a magazine, online magazine, I won’t say who it is because I don’t know that they want their voters to be know, but they asked to rank the top 50 companies in renewable energy and they asked me to vote this year. I had a list of a couple of hundred companies from the, and as I started to sort the list once I got past about a top five it became really iffy. And I mean by iffy I mean I’m not sure these companies will exist in 10 years.
What I am looking for when I am ranking one of these companies is I think that it can actually go head to head and compete with oil at some higher oil price. That means that the embedded oil in the production of biofuel has to be low because if its not it won’t be competitive as oil prices get higher. And it has to be ultimately cost-competitive. So maybe it costs $100 a barrel to produce but if it has low oil inputs, I think that is a company that could hang around. So many of these companies I think they made so many false claims and some of them I am very sure won’t be in business in 10 years so it got very hard beyond about five, to really rank companies. By the time I’m 10 I’m ranking companies that I’m sure are not going to be around. I mean, some of these companies I am sure will not be around and I don’t think they have a very good business model.
It becomes very difficult in the renewable energy sphere to find some of these companies. Maybe, I mean, my focus is biomass and biofuels, mostly so maybe in the wind sector, maybe in the solar sector and I think solar is actually a good example of something that is coming on and doing pretty well. But in the biofuels sector there is not a lot to choose from there that you could say this company is going to be in for the long haul.
It is the biofuels that I’m most interested in because at present as exciting as wind or solar would be we still do not have even a fraction of a percent of our transportation infrastructure running on electricity. So of the things where we can get liquid fuels, I am glad that is where your expertise is. Let’s begin then, so you are ranking these companies. First you are doing a sort of financial due diligence and you are saying look if they have high embedded oil costs in them and they are not competitive with oil, right now, as oil goes up they will still not be competitive with oil in the future. Just some sort of a receding horizons dynamic at work there.
Robert Rapier: Exactly.
Chris Martenson: What are some of the reasons that you don’t think some of these companies will be around?
Robert Rapier: When you think about what oil is then you understand why these biofuels companies have a tough time of making it work. I mean, oil is accumulation of billions, I mean millions of years of biomass that have accumulated. Then nature has applied the pressure, it’s applied the heat and it has cooked these into very energy dense hydrocarbons. Now, what we are trying to do in real time is speed all this up. Somebody has to plant the biomass, somebody has to grow the biomass where nature did it in the first place. We have to transport it, we have to bring it into a factory, we have to get it in that form, we have to convert it from biomass into some fuel. We are adding energy and labor inputs all along and then finally we get a fuel out of the back end. A lot of the times, a lot of these so-called biofuels are very heavily dependent on fossil fuels to begin with. So some of them it is not even clear that they would be viable if you took the fossil fuels out of the process. When you think about all the labor and energy goes into making a biofuel from an annual crop it becomes apparent why oil has been the dominant fuel for the last 150 years. It is much easier to go poke a hole in the ground and get that oil out of the ground than it is to go through all the labor of actually producing the fuel.
So companies are competing against that. Now there are some cases, like sugar cane ethanol is a good poster child for something that competes head to head with oil most of the time, but it has got some very special things going for it. It is largely grown in tropical climates, so you got year round sun. The bagasse when you harvest sugar cane ends up at the plant, it is washed, it is dried and it is there piled up in big piles so essentially you have free energy. Sugar cane ethanol historically has been able to compete on the price of gasoline. Right now it’s a little bit different because there is a bit of a sugar shortage and so the sugar cane ethanol prices are high. That is an example and the biggest reason is the fossil fuel inputs into that process are very low.
Most of the guys that I think will fail are because they are making bad assumptions. So looking forward they will assume, and most of the guys that are predicting a dollar biofuel or two-dollar biofuel are making assumptions on the cost of their biomass, which I don’t think will be very good. And often that assumption is we will get tipping fees to tip this biomass. And that assumption comes up frequently very early in the process before they even had a chance to test on that particular feedstock or pilot on that particular feedstock. You call it a business plan and you say if I assume somebody is going to pay me $70 a ton to take this biomass, well suddenly that offsets the cost of your fuel by a great deal. There may be absolutely no merit to the assumption you just made, but that assumption will drive those costs down. Historically there is the example that I gave at the ASPO conference was a company called Changing World Technologies, they were in Discover Magazine in 2003 and they were very, very much hyped. They said they could turn any waste product imaginable into oil, they talked about this being the solution to our energy problems and they predicted that they produced the oil for $8 to $12 a barrel. This was featured in Discover Magazine before they ever even built a demonstration plan. They got very little critical examination. You had Warren Buffet’s son, Howard Buffet, was invested in it so they had that piece of credibility out there. Obviously, he must know what he is doing. The hype was on this company to deliver and once they built a plant they could not deliver. The worst assumption they made is they thought they were going to get paid to take the biomass, and they ended up having to pay for it. So their actual cost of production at the time oil was $40 a barrel, their cost of production was $80 a barrel.
They had some other technical problems; they had some odor problems and they ultimately they went bankrupt and this was presented in Discover as the solution. If you follow these companies, that story is very, very common. If you follow these companies, Range Fuels has done the same thing; they came out, they made all of these promises and they shut their doors. That will be the case with most of the biofuel companies out there making promises. They get out there; they will build their pilot plant. They will discover that things don’t work as they thought they would and then they will close down.
Chris Martenson: So let’s describe that process, because we read about this all the time – somebody is in a lab. They develop a process and you see a beaker of this looks like oil. That is what it looks like anyway and they hold it up and they say look, we produced this at the equivalent of I don’t know $10 a barrel or something and we can make this out of waste. I don’t know, chicken guts or something, right? And we read that a lot. Describe for us what happens that has to happen in order to go from beaker to 10,000, 100,000 barrels a day, what are the steps and what are the pitfalls or shortcomings that you often encounter?
Robert Rapier: Okay, the scale-up issue is the most important issue because in my experience, most technologies get wiped out as they go up in scale. So something you may be able to do in a lab, 90% of those lab ideas don’t work and only 10% will go on to make a pilot plan. And for lab experiments there are going to be all kinds of things. Your catalyst didn’t work; your actual process didn’t work. Let’s say your process did work in a lab. In the lab, you are doing all kinds of things that are different than what you would do at a larger scale. Your waste products may not be a problem but you may have a small amount of by-product that can be thrown away, lab equipment is smaller and so the heat transfer in that lab equipment is very different than it is as you scale up.
The example I give a lot is a turkey; we are coming up on Thanksgiving. If you are cooking one turkey and you imagine an oven with the heating elements on the sides that is one thing and not everybody gets that right. The turkey is too dry, it’s overdone, it’s not cooked enough. Now imagine taking that turkey and scaling it up to cook say 1,000 turkeys an hour. You can imagine that the issues there are very, very different than they would be in a smaller oven. You got maybe turkeys in the middle that would be still cold while the turkeys on the outside are burnt to a crisp. So you are trying to get an even heating distribution across this larger oven and it is the same as a reactor. As the reactor goes from lab scale, up to larger scale, as you get heat differences and temperature differences inside that reactor you can make different products, different byproducts, things that you didn’t want to make not as much of the thing that you did want to make. And some companies will skip those steps. As you skip the steps, if you think about it – most technologies get knocked out at each step. So normally a company would go from lab scale to pilot scale to demonstration scale to a commercial scale. If somebody is jumping over steps they are greatly reducing the risk or their chance of success.
Chris Martenson: So what would be the chance of success if we jumped straight from the lab to commercial? A big commercial operation?
Robert Rapier: It all depends on how many steps there are that are unproven. If you have multiple unproven steps and somebody goes from say they skip the pilot and go straight to demonstration and the size we are talking about let’s say lab experiment is producing a few pounds a day let’s say and only part of the technology. A pilot plant is going to be around a barrel a day so that is 42 gallons maybe a few hundred pounds a day on a pilot plan. But it is going to incorporate more aspects of the technology. A demonstration scale is going to go up to about 10 barrels a day and the biomass based second generation plants are probably going to be around 600 to 3000 barrels a day. An average corn ethanol plant is 4000 barrels a day and an average oil refinery is 125,000 barrels a day, so we are talking about very, very different scales here. The biomass plants are going to be restricted on the basis of the energy density of biomass and the logistical challenges of bringing biomass into a certain area.
If you were go from say a lab experiment and were trying to jump to demonstration scale your odds of success are probably 10 – 20%. At that pilot scale you would have learned a lot of things that in fact, a lot of times you would have learned that you don’t want to take this forward. You want to stop that right there. And then, the next step at demonstration scale you also learn that. So now you have compounded that. If you had a 50/50 chance of success at the pilot plant and demonstration, well suddenly you are down to 25% by skipping that step of piloting.
The investors, for investors the risk is far lower but the ultimate cost will be higher. If you go through all those steps and you have a commercial process it is going to cost you more to go through all of those steps but your probability of success is much greater and you have got less money at risk throughout that process.
Chris Martenson: So this is just generally true of all the companies you look at; somebody has got a process and basically we are taking a fairly diffuse energy source in some form of biomass. Whether it is corn or straw I guess maybe if there is a cellulosic ethanol process or even algae, does this apply to algae as well? I don’t know. The basic process here is you are saying we have something that needs to be cooked in some way, shape or form; modified, transformed chemically, processed, we’ve got inputs, we’ve got waste streams coming out, we’ve have got pieces of technology that need to be proven out. Do you have examples? So the things I’ve read about. One was the ones where they are basically turning anything into oil that is one thing. Another are these gasification plants. I have heard a lot about those as well. How do these actually bare out in practice. I thought some of these were up and functioning and running?
Robert Rapier: Some of them are, but not biomass based. So the history of gasification, this is what the Germans used during World War II to make their liquid fuel when they were cut off from oil, they took coal and they do a process where they actually burn, you can do a coal natural gas or biomass and you burn it without enough oxygen to completely combust. So to complete combustion would be coal, plus oxygen makes carbon dioxide and water. Those are not very useful for chemical synthesis. But if you only put half as much oxygen in there as needed to combust you will instead make hydrogen and carbon monoxide. That is synthesis gas. And synthesis gas can make a lot of different things and one of those is through the Fischer-Tropsch process to make liquid fuels, can make diesel. And so the Germans used this during World War II, it scaled up. It is a scalable process and they made like 150,000 barrels a day of liquid fuels during World War II for their military.
In more modern times, South Africa during Apartheid when they were cut off from liquid fuels they used the same process. And today, that still produces 40% of their liquid fuels from coal. From natural gas, Shell has a plant in Bintulu, Malaysia. I have been there and seen that plant running. It is 15,000 barrels a day and they have just built a very large facility in Qatar to turn natural gas into liquid fuels. Now, the issues there are the costs are quite high. The capital costs of these plants are very high and it is easier to do natural gas than it is to do coal because the transport is much easier and it is easier to do coal than it is to do biomass. Biomass does not perform as well in a gasification and mainly because you have these tars that form. When you cook biomass you get this stick tar that has to be dealt with and the energy density of biomass is much lower. On the same footprint a plant can produce a lot more liquid fuels from coal than it can from biomass. So nobody has quite cracked the nuts on biomass yet.
There is companies that are building plants. In fact, I was involved with a plant in Germany the company was called Koran, the man that I work for is a major investor in Koran and that was their model; they were doing gasification of biomass to synthesis gas and then to liquid fuels. The commissioning of that plant went on and on and on and it took a very long time. Ultimately, he decided to pull out of that because he is funding the whole operation out of his pocket and he finally got to a point he said I just can’t do this anymore. We never identified any real knockout factors, but there was a lot of different things that you have to get right. And so I would say that gasification holds some promise for the future it is not at $80 a barrel of oil. It is going to be more expensive than that where gasification of biomass could make some impact.
Chris Martenson: What sort of a price are you talking about?
Robert Rapier: I would guess that at $120 a barrel GTO, gas to liquid and coal to liquid can compete head to head with oil just fine. In fact, Sasol, the company in South Africa, says they can compete at $40 a barrel, but then their sunken costs were at $20 they built those plants when oil was at $20 a barrel. Biomass is going to be out there a little farther just guessing. Maybe $150, $200 a barrel you are going to be building some plants. There are a lot of caveats that go in there. I mean, the amount of biomass available is not nearly as large as people think. The pool of biomass out there, what gets burnt in a gasifier is not all interchangeable. So municipal solid waste is trouble some for a gasifier. A gasifier that is designed to burn wood won’t necessarily burn grass, so there is a lot of caveats. A gasifier that is burning biomass has to be in the middle of biomass. The biomass has to be logistically very close because they further you go out, the more labor you are paying and the more energy you are paying into that central location. And the low-density biomass means that it is just more embedded at cost and they will ship a truckload of biomass into the facility rather than a truckload of coal or to bring natural gas in by pipeline.
Chris Martenson: The wonders of a defuse, rather than a concentrated energy source. There is learning there. When we were at ASPO, Wes Jackson of the Land Institute, he also spoke and he noted that this great carbon liberation that is happening in the burning of the fossil fuels right now was not the biggest nor the largest carbon liberation that has happened in human history. In fact, the first one was taking the native soils that existed before agriculture started as a practice from an average 6% organic matter content down to 3%. So we lost about half the organic matter from soils, which is really a way of saying we have liberated a tremendous amount of carbon from the soils. In this story, that you are talking about with biomass something that I think also escapes notice a lot of times. The idea that this stuff just grows out of the ground and you just take it and if you want to turn that into sim gas and liquid fuels, have at it. What is missing in that story is that carbon that we are taking off of the land is not being returned to the soil. So it is somewhere in this equation if we are going to do this sustainably we also have to allow for some of the grown crops to be harvested back into the soils if it were to maintain the organic content or we are going to be just strip mining the soil. So there is even other considerations here that really – what did Woody Allen say? You can have great optimism about a problem until you understand it, or something close to that. There are complexities in here.
So what I hear you saying is that when we try to operate at scale we have these plants, and there is all kinds of things that bite you from proven technologies that need to be worked out. From waste products that might build up that you didn’t expect, from incomplete reaction cycles that are problematic to fix which gives us things we hadn’t quite intended to produce, and which now are things we have to deal with. From relatively defuse energy sources that by necessity we are going to be getting less out of a plant on a footprint basis than we did out of prior plants. All of these things are actually considerations that exist in the real world. Did I miss anything?
Robert Rapier: No, that’s all correct. Just looked at the scale you think about replacing all of this oil that you use with biomass. Nobody anywhere is saying that they think we have a biomass plant anywhere close to the size of an oil refinery. So then you get into a situation where you have numerous of these biomass based plants. So we are talking about an enormous scale up of these things that will roll out to displace the oil that we use. The other problem is if we do the math and make some assumptions on biomass availability and conversion and so forth, you would come to a conclusion that we are never going to realistically replace more than maybe 10% of the oil we use with biomass based energy – with biomassed liquid fuels, let’s say.
Chris Martenson: So the United States is I guess producing about 5.5 million barrels of liquid oil fuels at this point in time and we are burning maybe 15 in terms of actual oil that goes into the gas tanks. So we are talking 10 million barrels a day that have to come from somewhere if we are to truly be independent from imports and what not, 10 million barrels. Let’s just put that into proper context in the size of these plants you have been talking about. You have been saying if a pretty good-sized ethanol refinery is turning out what 4,000 barrels a day?
Robert Rapier: Right.
Chris Martenson: 10 million, 4,0000 there is quite a big gap there.
Robert Rapier: Yeah, no doubt and these second-generation plants won’t be as big as an ethanol plant. I mean corn is the energy density of corn is quite high and the crops can be grown very high yields all around these plants. I have never seen anybody suggest a second generation biomass plant can be even that large, 4,000 barrels a day.
Chris Martenson: When I read about some of these things, there is such optimism. One of the graphics that fishes through my inbox every so often: somebody says look, if we just took this much of Arizona and dedicated it to algae production and it is this little tiny postage stamp in the upper corner of Arizona, we could solve all of our liquid fuel needs. What is wrong with that story?
Robert Rapier: Yeah, the devil is always in the details. We see this biofuel processes and we project our hopes and dreams and we don’t know enough of the details. And once the details start to come out – by then somebody else has come out with something else. I mean do we remember the hydrogen economy and how exciting that was and I mean it is gone and we didn’t even have a funeral for it. These companies, they come, they are flash in the pan, they come out and they are making all of these claims and most people don’t have a technical background to see what is wrong or to ask the right questions. Eventually, these companies fade away because there is a never-ending cycle of these companies, which is why people can be always optimistic, because there is 10 companies right now claiming to solve all of our energy problems. Surely, one of those companies will have the answer. And if you follow them, you will see them; they go by the wayside, but we get excited about something else and move on.
Just algae, for instance; algae in the desert. Do how much water evaporation occurs in the desert? It’s a lot. I have been to an algae plant before and they tell me two things; I asked them about the viability of producing fuel from algae. He said the problem is my electric bill and my water bill are both very, very high and so there is a detail. So he has got that and that is something he actually has to cope with. He can’t wish that away or hope that if I only had wind power here producing the electricity and so on and so forth. He has to deal with real problems and that is when some of these stories start to fall apart when you see actual details. Jatropha is a perfect example. Jatropha came on the scene; Jatropha is a plant that grows in oil feed, and it has been used in Africa as a living hedge because animals won’t eat it, the leaves are toxic. It sprung onto the scene a few years ago, and it was going to be able to be grown in marginal soil all over the world and all these great yields. And it was going to be the crop that solved all the problems. The truth was, it doesn’t thrive; it was advertised as it “thrives on drought soils.” Well, it doesn’t thrive at all in drought soils. It will tolerate drought. I mean, not drought soils, drought conditions. It will tolerate drought but loses all its leaves. And then the yields that have been projected run the high side of the yields with fertilized and heavily watered crops they took that and they extrapolated it all over the marginal soils of the world. And then suddenly you start to look at the details and you see this as the real story comes out you see why this isn’t the answer that it was put out there to be.
India has invested five billion dollars into Jatropha. There was a story last year that said they are going to lose that investment because it just didn’t produce like they thought it was going to produce. And that is all too often the case once you get into the details you find out there are things here that we just didn’t anticipate.
Chris Martenson: It is fascinating to see that. India has a very intelligent and educated workforce over there, and they have given a good hard run at that with a lot of money. What I find most often is that we got these press releases, I remember when one came out a little less than a year ago, but it might have been a year ago where a company said hey, we have engineered this bug and given it a gene and it just excretes oil. It just all it needs is carbon dioxide and sunlight says the press release. I thought that was a little odd. I have some biology in my background, and I thought I remembered most organisms have this stuff called DNA in them, and there is things like phosphorus and nitrogen in there. Let’s grant them the idea that there is this bug that can just live on carbon dioxide and no nutrients. And when I started scratching at that story, details are really hard to come by, and ultimately I did discover that what happens is this little bug does create these little vesicles that fuse with its outer membrane. It releases this oil like substance, a long chain hydrocarbon, into the water.
So what happens is you end up with an oily sheen on top of the water, and now you have to separate those things. It turns out the issues of trying to scale to skim this oily sheen off and concentrate it and separate it from the water, and then you still have a product that needs further refining and other pieces. It turned out that pretty much rendered this a really, really difficult process to scale beyond anything other than an idea. But that was an example where somebody had a lab with a tiny pilot result and the press that came off of that was staggering. I had that article sent to me probably the most. I probably had twenty copies of that sent to me from various places.
So that you have been in the business quite a while, what is the dynamic at work there and why do we keep falling for these things?
Robert Rapier: I think that we hope and we believe that our energy predicament can be solved by technology. We have seen technological advancement in so many different fields and we expect this is what we are going to see in the energy field. Also, if you look at where computers have come over the last 30 years, we expect that to happen with our energy production that the whole society is going to be running off of solar and wind power going forward. I sometimes say there is not always a neat solution to every problem. Imagine – we’ve still got the common cold. It is still with us. That has not been cured despite it being around forever. So not all problems can be solved easily. And the energy problem is one that is not going to be solved easily in my opinion. Our society has grown up on something that was rich, abundant, and pretty easy to get to. We are trying to replace that with something that the energy required to get it and process it and produce it is a lot higher than the energy required to process oil.
Chris Martenson: Right. So your message here is not that these things cannot be done but, when we do them we are going to discover that our energy costs are going to be going up; that at what we understand to be current oil prices the various technologies that are currently out there in scalable form are not competitive at current oil prices. Maybe at much higher prices, they are. That is always a possibility, and the second piece would be that we are going to discover that there are throughput limitations in terms of the amount of available biomass itself that can actually feed into this process at some point. We might have both a supply constraint and upward price pressure both of those probably combining in some form. Is that the basic message here?
Robert Rapier: Yes, that’s pretty much it in a nutshell. These processes that will work at maybe a little bit higher oil price. It is also very important to note what the energy inputs into that process is. I mean, one of these processes is like oil shale. It is true that we got maybe a trillion barrels or something of oil shale, something crazy in Utah and Colorado, but the reason that process has never been economical is because of the energy inputs into that process are so high. And so if you follow the story there, I talk about a newspaper headline from 1906 that says “Oil Shale Development Imminent.” And 105 years later, it is still imminent; we are still talking about it just around the corner.
No matter what the oil price is, people are always talking about just a little bit higher, because it costs so much energy to process this oil shale. So at $40 it was going to take $60 to be economical. At a hundred dollars, it is going to take a hundred and twenty now, if we are absolutely certain that oil prices are going up. And we sank those costs in today, like the South Africans did with their coal to liquids, we might found out that we can produce oil shale and we can turn it into oil if we are absolutely certain that the oil prices are going up – and more importantly, we are not using oil as our input. We are using something else as our input.
If you get a big diverges between natural gas and oil like we have got now, you will see people doing some things that may be not sustainable, but maybe make economic sense. Like, you might turn natural gas into ethanol, which is kind of what we do today. We use a lot of natural gas and we turn it into ethanol. You say even if the energy balance on that was negative net energy, say you took two BTUs of natural gas to make one BTU of ethanol, you would say on an energy return basis, that is absolutely not sustainable. But on an economic basis, you would say you might do something like that for some period of time until the demand on natural gas prices drives that up.
There are a lot of complexities here. The biggest ones are cost-competitive with oil and what embodies the energy input into that process, and I will give you an idea; going forward at higher oil prices, a particular process has much of a chance.
Chris Martenson: So what is the best process we have right now? Are you saying we would have to have some sort of a grab bag; we would have to try all sorts of things?
Robert Rapier: I think we are going to have a lot of different options. If we were in a tropical climate, we maybe could pull it off with ethanol. We’re not, so we have to look for some other solutions. Your point is well taken about the soil, and that is one of the things I am very concerned is treating soil, farming as an extractive industry. It doesn’t have to be that way, and I have always thought it would be ideal if the breadbasket of the country where the ethanol is produced also used that ethanol to make themselves a lot more self-sufficient. They did it in a way that the corn was a lot more sustainable than it is now. They are actually maintaining the quality of the soil. You don’t want to trade off your soil for some short-term fuels, because in the future, we are going to need to eat.
So yeah, for the mid-section of the United States, for the Midwest, maybe, ethanol is a bigger part of the solution than it is for, say, California. Maybe you have a gasification process there; you can do some jet fuel and some things like that. In Arizona, maybe you have got more solar cars and solar panels in Phoenix and electric cars there, because of the high quality solar energy there.
There is not going to be one thing that replaces oil. I think there is going to be a lot of different things and more importantly I think it is going to take a lot less oil than we are using now. The good news is we have dropped a million and a half barrels a day over the last five years. The bad news is, a lot of that is because of the recession; it shows we do have some capacity to reduce our oil consumption. There is still a lot of low hanging fruit in my view. It is going to be painful as we scale down and some of the alternatives are going to have to meet somewhere. At some level higher than they are today and at some level of oil consumption lower than we are today those will have to meet.
Chris Martenson: And that doesn’t necessarily have to be a bad thing, unless of course you are expecting, requiring, or in some way demanding that the future look just like the present, only larger. My main point in all of this is when I say a destruction-free transition. I think some people hold the idea that as we have currently configured our lifestyle – where we live eat, work, play transport ourselves; all of those things requiring and relying on a liquid fuel system – that somehow we will manage to transition to another liquid fuel system. Some form of biofuels in combination with electric cars. We will put together all of those things. In your estimation, so first, what percentage of penetration, like how much of our transportation infrastructure is running already on what we call alternative fuels. Whether it be an electric vehicle or – I am not going to count hybrids here, but just a pure electric vehicle or vehicles running on biofuels themselves, and from that percentage to get to something meaningful, like 50%, how long would that take?
Robert Rapier: The electric vehicles are such a small percentage – that it is, – it is a decimal of a percentage very, very small. I think the goal is to have a million cars on the road by 2015, which I don’t think is close to being reasonable, but Jeffrey Styles recently did a calculation that said even if we got to a million and Jeffrey Styles is fellow energy blogger. He did a calculation that showed even if we got to a million cars that is going to displace about 5% of the oil that would have come down the Keystone pipeline. It is a very small amount that we are talking about for a very long time in the future. So electric cars may scale up farther out in the future to make more of a dent but in the near term they are not going to make much of a dent.
How much of biofuels contributing today that depends on how you want to figure what is a gallon of ethanol? Is a gallon of ethanol a gallon of biofuel? Or is it a fraction of a gallon of biofuel and some amount of natural gas that has been turned into fuel? So if you consider a gallon of ethanol is fully renewable we got about 10% of our fuel supply by volume is ethanol. But energy content it is about 6 or 7%. But then if you back out and you start to back out the fossil fuels out of that and you say 80 or 90% of the BTUs from that ethanol actually were derived from natural gas in the fertilizer, in the processing. Then the petroleum is moving that around you would say the actual real displacement of oil would still be maybe 5 or 6%.
But of fossil fuels, if you look at all fossil fuels it is a much smaller percentage. Because what we have done is taken one depleting resource, natural gas and used it to make ethanol and that is not always going to be sustainable. If you only count the fraction of ethanol that you would say and then some people say ethanol is not renewable at all. I would disagree. I think it has got some I think the energy return is above one. Some people argue it is below one. But it is the amount that is above one that is really your renewable fraction. If you said, how much of that is there in the fuel system? That is one percent maybe or less than 1% of truly renewable fuel that is in the system.
Chris Martenson: All right, so if you were to go to say 50% leaving aside whether there is enough land to do that. Leaving aside the idea that even the electric cars you started with, the electricity mostly came from fossil fuels itself. It got burned somewhere very far away and got transported through electrical transmission lines so we don’t see it that way. Assuming our electric cars can run on solar panels and that is all well and good. How long would it take to get to a 50% displacement do you think?
Robert Rapier: It is hard to say. It depends on, if you had a dictator, you could force that to happen very quickly, but we have a democracy and in a democracy you have to work with the other party, people have to agree on things, and they don’t agree on anything. And so the next party could come in you could have an agreement now and the next party could come in and turn that over so things in the energy field and this is always a complaint that we don’t have good systems for some of these long-range projects. When you look down the line you say okay to get to 50% if you had complete control of the whole system you could maybe turn that over assuming again, you have the electricity you could turn that over in 10 or 15 years. In a democracy – and what we have to work with here is going to take a lot longer than that – it may be 30 or 40 years before you could get to something like that. The way you are going to get there I think, are people not agreeing okay this is what we are going to do. It is going to be oil I think getting so expensive that people are looking for other options.
Chris Martenson: Right, so my market force is 40 or 50 years. You go to ASPO a bunch, where do you personally think we are in the Peak Oil story.
Robert Rapier: We are right there. I mean whether we are just past or just before I still think that we are right there. And that is the argument that I have always I don’t want to focus I never like to focus too much on a date for the peak but rather what happens when oil peaks and this is something I have been thinking about since 2005. When oil peaks and production declines, there is going to be not enough supply for everyone at a certain price. We don’t have to necessarily wait for the peak to happen for that to happen. I mean over the last 10 years demand in developing countries has grown and all the excess capacity in the world practically has been used up. And so 10 years ago where you had all these suppliers that could come online as the price went up you don’t have that anymore. So we have a lot more volatility and a lot higher oil prices than we had before.
So effectively, whether you got peak or not, you got effective peak and that is what I have always talked about as peak light and some people misunderstand that to mean I mean peak is going to be a live event. I don’t mean that – I mean it is like peak, it is a pseudo peak, and it is behaving as a peak, even if this year we set a new production record. Next year we can set a new production record, but effectively there is no spare capacity in the system. So prices are going very, very high and we are being squeezed in the west while a country like China who uses two barrels a year of oil per person, the United States uses more than 10 times that so higher oil prices impact us a lot more than it does them. So they will grow if they get their oil consumption even up to four barrels per person per year, ours is going to have to come way down because they are going to drive oil prices much higher than they are now.
If that happens, if China goes a little higher, we got a little lower, it will potentially devastate our economy but they may still be able to grow because they are starting from such a low base.
Chris Martenson: This was a great point made at ASPO this year, that I heard was that what is the marginal utility of a barrel to somebody. That if I am consuming 20 barrels can I dial that back to 19 easily. If I am a farmer in Brazil and I got a tractor I need to run, it turns out I will pay quite a bit for that oil. Because the amount of utility I get out of that tractor plowing that field instead of doing it by hand is much higher than the marginal utility I personally get up here in the United States by consuming my 20th barrel instead of just my 19. I think that point is well made that in some ways the intrinsic value of the work that the oil can perform has a higher value in a developing nation than in a western nation at that margin barrel.
Robert Rapier: That is exactly right, and I think that is a mistake that we have made that as oil prices get higher, the developing countries, the poor countries are going to be priced out of that market. It is going to be Europe bidding against the United States, the wealthier countries. But in truth, the opposite has happened over the last few years. As oil prices have gotten higher, it is the developing countries that have consumed more and more, and that is exactly why because they are starting with such a low amount, it is worth so much more to them they are not using oil to run to the store and back for a candy bar. They don’t use it s frivolously as we do, and it is worth a lot more to them. It is exactly right, how much would you pay for oil? It all depends on what your other options are. So if our option is, okay, we don’t drive to the store or I have to bike to work, I have to move closer to work we can do some of those things. We got discretionary oil usage. Them, not so much. I mean, you got a lot of people who would love to spend – they would spend a lot more of their income than we are used to spending on their oil. And that is a danger for us, whether we are at peak five years ago or this year or five years from now, we are in that paradigm now.
Chris Martenson: I think we absolutely are. We look at oil prices right now at $97 for WITC and over $107 for Brent. It is pretty clear that those are not oil prices that I think anybody would have predicted five years ago or six years ago. If you had said here is the economic growth of the world, here is the current financial difficulties, here is consumption in the West, particularly the United States it is still declining. You put those parameters in front of me five or six years ago I would have not have predicted those current oil prices but here they are, one possible indication of supply tightness is higher prices than you might expect.
Robert Rapier: And this was my long recession thesis. The Long Emergency is a book that I read that really made an impact on me on how things could turn out. I paid homage to Jim Kunstler with I would have to say that I called the Long Recession. The Long Recession says that historically what happens is, oil prices get high, throw us in recession, demand goes down, supply creeps up, and suddenly oil prices are down and then we can recover. But when oil supplies are extremely tight, when Peak Oil is happening, when all of these developing countries want to consume more oil, you don’t have that relief, because new supplies aren’t coming online at the rate that would allow prices to collapse and the economy to recover. So you get in a situation where we have now (even in a very weak economy) – oil at $100. It is unheard of, and it may be that is because we are in a new paradigm of potentially never-ending recession until we can really dial our oil consumption back faster than say these new guys come online, the new production comes online, or these developing countries are using up all this extra capacity. You want to stay out in front of that. And unless we can do that, I think we are in a situation where I don’t see an end to the recession. It is hard for me to see how this recession ends if our oil supplies are now permanently tight.
Chris Martenson: I agree with you. I wanted to have this part of the discussion around where we are in the Peak Oil story. Because it is really essential I think to put our hopes and our dreams about what we might be able to do on a technological basis with respect to these alternative fuels up against the reality of where we are in the Peak Oil story. Because there are actual hard conditions, there are details, as you say, there are things that we really have to consider that are involved in going from an idea of how we might live on alternative fuels to the reality of pumping out 10,000, 20,000 maybe 100,000 barrels per day out of a plant. And what is really implied in that – and we haven’t really yet fully made that transition in the biomass way – with the exception of ethanol, we get a bunch out. But really, as we ran through the percentages, we see where we are in that story we are very much at the beginning of the story of transition.
Your point was, and I agree with this if we wait for market forces to deliver that to us, waiting for the price signals of oil to deliver the correct message so that we make individual and collective decisions as businesses and individuals that will be decades. We don’t have decades before we are going to start facing a Long Recession, if you follow recession thesis and how it couples to oil. So in recessions, it turns out things that were formerly possible are not possible anymore. Big capital investments, when budgets are being trimmed, that is not the time to get creative and aggressive and have what feels like a Manhattan Project times an Apollo Project times ten. Some big national outpouring is not something we have traditionally in the United States, rallied around barring having something external like a war to focus on. We would have to have, I think, in my submission some really, very serious re-orientation of priorities beginning 20 years ago it would be awesome. Even today it would have to be really, really a startling redirection of resources, talent, energy, ideas into really ramping up our domestic alternative energy production for it to have a meaningful impact on our current way of life is how I see it. What do you see?
Robert Rapier: That is, of course, why so many of us are so worried. We have a problem seeing that happening. It is like you say, if we had to have a major effort right now to ramp up say coal to liquids, we got let’s say we don’t have a problem with our coal supplies, hypothetically. You are going to have a lot of resistance from people number one who don’t want to use coal but then where is the money coming from? You are in a very tight economy. These plants take a long time to build. I think some of them will get built anyways but it is hard to imagine that the government is going to roll out a trillion dollar effort to replace a lot of our oil consumption when the economy is so bad and they are trying to find a trillion dollars of savings even now. So this is what concerns everyone, and the time frame on these projects is long-term. It is hard for politicians to plan long-term. So the political situation being what it is, it is hard for us to imagine that they are going to be a lot of help with getting the solution out there.
Chris Martenson: Exactly. I agree with that as well, and we will wait for the liquid fuels emergency to come and then we will respond. I think our solution set will be smaller and less favorable than it would have been say 10 years ago. I see that we are in a shrinking environment so we better get busy quick. I have really enjoyed this conversation. I always enjoy your writing. How can people follow you and read your writing as it comes out?
Robert Rapier: My regular blog is R-Squared Energy Blog if you google “r-squared energy” or if you google Robert Rapier you will find it. I’m on Twitter, I’m on Facebook, I am on all those things, and I put out usually a couple of new articles a week I have started putting out a video blog at the request of several viewers. They say it would be nice while eating lunch or something I could just listen to you answer a few questions, so I started doing that. But yeah, I’m not too difficult to find. I write for the Oil Drum some, and I write for Forbes some, and the stuff is out there. But the most regular way to find me is on the blog. That is where all my columns will come out – there first, before somewhere else.
Chris Martenson: And R-Squared, that is all spelled out, right?
Robert Rapier: Yes. R-Squared Energy Blog.
Chris Martenson: R-Squared Energy Blog. Well, there it is. Okay, well, Robert, this has been a pleasure. I hope we get to do it again sometime.
Robert Rapier: Thanks so much, Chris.
Robert Rapier has been devoted to energy issues and has worked on cellulosic ethanol, butanol production, oil refining, natural gas production, and gas-to-liquids (GTL). He grew up in Oklahoma and received his Masters in Chemical Engineering from Texas A&M University.
He is presently the Chief Technology Officer for Merica International, a renewable energy company. Merica is involved in a wide variety of projects, with a core focus on the localized use of biomass to energy for the benefit of local populations.
Robert is also the proprietor of the blog R-Squared, which fosters open discussions of Energy and the Environment.
Our series of podcast interviews with notable minds includes:
- Gordon Chang
- Turd Ferguson
- Eric Janszen
- Paul Brodsky
- Carolyn Baker
- David Stockman
- Rob Hopkins
- Joel Salatin
- Charles Hugh Smith
- Frank Barbera
- Nate Hagens
- David Morgan
- James Turk
- Eric Sprott
- John Rubino
- Addison Wiggin
- Simon Black
- Axel Merk
- Paul Tustain
- Francis Koster
- Bud Conrad
- John Williams
- Robert McFarlane
- David Collum
- Joe Saluzzi
- Jim Rogers
- Bill Fleckenstein
- Marc Faber
- Willet Kempton
- Dan Ariely
- Ted Butler