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The energy yo-yo: When will renewables replace oil & gas?

By Peter Brown | January 30, 2014

We may already be over the tipping point where greenhouse gases (GHG) have so altered the delicate balance in nature that climate changes are irreversible. Two worlds have collided and what may result is the painful start along the road to reclaiming what we have already destroyed. Those two worlds are the oil and gas industry with their reluctance to consider sharing what they perceive as their mission to maintain and increase the worldwide availability of petroleum products, and the renewable energy world’s almost fanatical dedication to change the way energy has been used for centuries.

How is the merger going? Well, not as well as hoped, but there are some very clear patches from unexpected sources. Although the major oil companies have stepped back from their earlier support of renewable fuels, they have endorsed and invested in some major players with most of the major oil companies investing in renewable energy projects.

On the whole it is business as usual, only more so. For the O&G sector we are seeing massive projects to increase distribution and production of their petroleum energy. This is based on a shift in the sources of petroleum products from the Middle East to North America with huge investment in new infrastructures such as the hotly contested XL Pipeline, new shale oil from Argentina, China and even Russia. Dial in the incredible rise of natural gas based on the worldwide distribution of shale gas and the attendant horror stories of the fracking industry, and we have a classic environment versus sustainability issues war. Because oil and gas have become harder and harder to extract, the price per barrel for the products goes up and the financing for new ways to access oil becomes affordable. Tar sands, which less than 30 years ago were not mined because of the extraction costs, have now come roaring back. There are tar sands projects around the world.

The vision of the renewable world is a little different, according to some on the ground there is a lot that could be done to reorient the equation by removing some of the unknowns. From increasing the amount of biofuels in every gallon of rock petrol to just eliminating the personal car and replacing it with solar-charged electrical vehicles. The agenda is clear; GHGs are the direct result of our reliance on oil and gas pulled from the earth and shipped all over the place to be converted into two main products: gasoline and diesel. Most of that is used in transportation and the vast majority of transportation fuels can be replaced by electric vehicles, renewable fuels and some exotics like hydrogen.

It all starts with feedstock, which skews the equation all along the line, from harvesting to delivery at the pump. In the oil and gas industry we have seen two trends, as the extraction process gets more and more expensive because the feedstock is harder to produce, the price of fuel goes up. That increase allows for more money to be spent in the production process. We have witnessed the coming of age of new technologies such as deepwater wells, horizontal drilling and tar sands extraction. The feedstock is also located in areas that are further from the production sites and sometimes as remote as the moon, figuratively speaking of course. The processing technology is old, and the refinements that can be brought to old cracking towers are minimal.

There is a corresponding penalty to be paid in environmental damage such as well blowouts (Gulf Oil Spill), pipeline spills, air quality issues and regional environmental damage. There is also a corresponding increase in price for the fuel. But because of the world’s addiction to oil, the price must be paid since there are no alternatives—according to most petroleum companies.

There are encouraging signs all along the debate lines. To start with, transportation has always been a hot button for fuel providers because it represents such a large percentage of their sales as well as their pollution concerns. That raises a number of options from electric vehicles to biofuel substitutes.

John Nistler, CEO of PSIDA ZEV, a solar power and electric vehicle company, has a plan. “Most of the personal transportation in the world is done within a 10-mile radius of the home, and most daily commutes take place within 30 miles. Today all those issues can be handled by solar-charged electric vehicles that provide a minimum of a 120-mile range, performances on par with gas and diesel powered vehicles and sold at comparable prices.”

What is clear is that as the options appear, the feedstock production is coming closer to home and the cost of the feedstock is coming down. A solar panel on your roof is about as close to home as you can get. Sunshine is virtually free, so the combination will start to impact the energy scene in a significant manner.

We are seeing a fuel-based loco phage movement, the ethanol world has always ascribed to the idea that feedstock (mostly corn) should be harvested within 30 miles of the processing plant. Biodiesel operates on a different principle but proximity is part of the plan with urban facilities based on converting large city waste streams from restaurants and water treatment facilities high on the list.

Biofuels are following that trend with transformative technologies that are allowing cheaper feedstock to be processed into substitutes for the oil and gas required to go there and do that. The latest biodiesel processors can handle up to 100 percent free fatty acids (FFA), the oils and greases headed to the diesel stations come from water treatment facilities, rendering facilities, fast-growing nonfood grains like camelina, algae, town dumps and oils recuperated from crushing operations. Ethanol is slowly weaning itself from its love of corn and Brazil is now seriously committed to sugarcane. What is even more telling is the renewed interest in enzymatic production and the research into new sources of sugar, the building block for all ethanol.

In California there is a serious effort underway to extract natural gas from biodigesters attached to the hundreds of farms, wastewater treatment plants and solid waste disposal sites. We are now seeing new systems that will extract ammonia and nitrate fertilizers from these same facilities ahead of the methane extraction. The methane is fed directly to turbine generators, compressed and shipped or flared because the local electrical utility is unable to absorb the energy in a financially attractive manner. The fertilizer is bagged and sold locally to other farmers.

How are all these innovations getting to the customer? The order of the day as far as liquid fuels goes appears to be coexistence with biodiesel appearing in your local major petrol station. This concept is best illustrated in Brazil where the renewable fuels are available from biodiesel in several combinations, to ethanol and straight gas all at the same pump. Selection is based on price and distance. Ethanol is significantly cheaper than gas, but it does not go as far so Brazilians are masters of the fuel fumble equation, how far do I need to go?

In Europe, biofuels have been included in every gallon of fuel for many years now, and the switch to diesel that swept Europe 30 years ago is starting in North America with major auto manufacturers offering existing European models. That is interesting enough since they are now being offered along with plug-in electrics and hybrids. There is a real choice slowly emerging on how to get from A to B for the least expense, the least pollution and the smallest investment. Of course, in the U.S. the domination of the big gas guzzler, the SUV and the urban assault vehicle has not disappeared yet.

Propel Fuels, in Redwood City, Calif., now offers a selection of biofuels, and they can be found under their own banners or tucked comfortably with mainstream oil companies. You can buy Propel B99 and E85 at Shell Stations, Chevron and 76. They transport their fuels from Texas, California and Oregon and are actively investing in new facilities. The emphasis is on local production, local distribution and local consumption. This model is in direct contrast to big oil that is still wedded to the faraway feedstock with centralized refineries strategically placed near major ports and waterways. Propel Fuels is for peaceful coexistence, inserting their biofuels pumps anywhere they are accepted. “We can envision over a 20 percent replacement of conventional liquid fuels with renewable alone, and strong penetration into the transportation market with electric and CNG,” said Matt Horton, CEO of Propel.

The trend towards getting production as close to distribution is now mirrored in what we call the Urban Bio Revolution. Cities across the world are using local collections, from waste vegetable oil traps in restaurants to water treatment plant sludge to produce biodiesel. Wendell Jenkins, CEO of DC Biofuels, after years of development, is poised to collect what he can in and around Washington, D.C., and produce up to 7 million gallons of ASTM biodiesel or 22 million gallons of B20. Veridis in Oakland, Calif., is looking for the funds necessary to build a biodiesel facility to recuperate sludge from the water treatment facility and add biodiesel to their existing methane digesters.

“It has been a long, laborious process, not because of the facility, not because of feedstock or offtake issues, but mostly because, even here, within shouting distance of the White House, we are unable to nail down a credible financing package,” said Jenkins. “There is more red tape associated with the financing package than with the permitting issues.”

Jenkins’ remarks reflect the views of a well-known processor manufacturer who asked not to be cited. His position was that, “If I had a penny for every million dollars dropped on the oil and gas industry, I could cover the country in biodiesel plants, fill their pipeline from Alberta to Texas with clean biofuels and have enough left over to pay for restoring the Gulf.”

So the race is on as feedstock prices drop, and the renewable industries find new ways to make fuels as the elusive oil fields start to peter out, become embroiled in political instability or become just too distasteful to use, who and what will come out the winner? Never have the stakes been as high, the rewards as large and the outcome so uncertain. The various governmental agencies around the world play a huge role that we did not even discuss. There are climate change deniers, and people who have no problem with rising gas prices. There are destitute third world countries that could play pivotal roles and are as yet not aware of their power; engine builders and car manufacturers who may be able to lower gas consumption to a level that would make certain fuels redundant; farmer co-ops that by banding together could dictate fuel prices in a new eco-OPEC.

Brazil holds the key and is the model. They subsidize and support energy in a constantly changing game to ensure their independence, supplies to the people and adjustable solutions that stress clean air, lower costs and jobs. It is an elegant balancing act that we should all emulate, or at the very least study how that huge second world country became the country with the highest level of renewable energy in the world with so little resources when they embarked on that crusade.

This is a worldwide effort because it is just as important that the Ghanaian farmer get his produce to market with affordable biodiesel from local palm plantations and that the New Delhi Indian city dweller and the Chinese executive can walk in his town without suffocating just as the child in West Oakland will not suffer from asthma due to idling ships running on bunker fuels.

As we move ahead in the race against the damage we have done and are doing, it is clear that the Arctic ice sheet, the crazy storms, droughts, typhoons and other obvious climate changes are not caused locally, but come from all over the world and roost here and there regardless of national borders, wreaking incredible force and wrath. We, the purveyors of solutions, can but do the best we can with whatever weapons we have and can build.

Author: Peter Brown

Co-founder, International Procurement Tools Inc.

peter@euromarketingtools.com

 

 

 

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