The hurtlin’, tumblin’, twistin’ of the Big Energy Rollercoaster

Fixated on the Big Rise, the Big Fall, and the gut-wrenching twists of the Energy Market — might we focus also on the Big Energy-Empty at the end of the ride?

There seems to be an awful lot of conversation around RINsanity these days — that is, the world of US renewable fuel credits, called RINs, and the rollercoaster ride of their prices.

We are a culture addicted to rollercoasters — from the monster coasters at Six Flags to the rollercoaster at the pump, brought to you by the market for petroleum. Rollercoasters so fierce and fantastic, that like Superman: Escape from Krypton or Busch Garden’s interlocking corkscrews of Kumba — they focus the mind on the instant of here, the instant of now.

But is the real RINsanity the focus on RINsanity itself?

We might be more focused on the insanely huge amounts of energy demand that are coming, and what the heck we are going to about it, regardless of how you feel about climate change, the shale gas revolution, or the joys of electric vehicles.

Consider, ahem, the math.

The demand drivers

Here in the US, it is fair to say that not everyone feels replete with energy supply at affordable prices. Most families and businesses feel constrained to some extent by the cost and availability of energy. We have to double the 100-energy supply to make us all feel energy replete.

Now go a step farther, and give everyone that lifestyle. That is, not only the West — but Burundi, Brazil, Indonesia, India and all the other energy-consuming nations.

Now, go a step father and add in the impact of population increase — and the global population is expected to reach 9 billion by 2050.

How much energy?

Put it all together — it’s an explosion of energy demand.

Today, the world consumes 400 “quads” (quadrillion British thermal units, or BTUs) more or less. Fulfill the three conditions above — and what formula for eliminating social unrest does not allow for a sustainable distribution of energy — and the world needs 6000 quads of energy.

Translated into the fuel sector, that would be translating today’s 1.2 trillion gallons of petroleum into something around 18 trillion. Talk down those numbers — on the economics — and you’ll get no argument from the Digest. But anything short of 18 trillion is a world where someone feels short on energy. And if you’ve spent any time in a gasoline line, after a hurricane or in the midst of a supply disruption — and you know what being short-changed on energy feels like. Senator Charles Grassley said that any civilization is just nine meals from a revolution.

Let’s put the US proved reserves in that context. The EIA estimates these to be 218 billion barrels. Those would cover a shortfall in current supply, vs 2050 demand — for six months.

Six months! Then it’s all gone. Like Spiderman at Universal Studios — the hurtlin’, tumblin’, twistin’ energy explosion, and then the Big Nothin’.

Now, you might look beyond the EIA and throw in unconventional sources, as the Institute for Energy Research does. That’s a high end on estimates — more than 1 trillion barrels — lasts you just a shade above three years. Keep in mind that is “technically” recoverable oil — not economically feasible oil reserves.

So here is the biobased imperative — in fact, the all-of-the-above imperative. The world needs more energy — a lot, lot more.

Let’s try that again. A lot, lot more.

What does renewable mean?

The demand is so profound that some day we are going to have to re-think what we mean by the term “renewable” instead of the term “sustainable”. After all, what renewable means to most people is that, after you fill your tank at the local service station, you go back next week and there’s more fuel available.

If the fuel isn’t available, it isn’t going to feel renewable, regardless of source.

And, at the end of the day, the sun isn’t exactly a renewable resource. It is burning through its finite supply of hydrogen as we speak, and it will run out eventually. Just not any time soon — which is kind of what we really mean when we talk about “renewables” — and why we have such an elongated, heated discussion about them.

Some people feel that fossil feels are, in essence, renewables — because they keep showing up at relatively affordable prices at the pump, for now — or because we keep discovering more of them, and thereby pushing out the day of reckoning into some non-threatening future. The same as other people feel about wind, solar, or biomass — all of which will peter out on a day that is a long, long time from now.

The real term is “sustainable” — meaning, economically, socially and environmentally sustainable, and probably in that order. Environmental sustainability os generally a concern of good economic times or bad environmental outcomes. When the air is clear enough or the economy troubled enough, we don’t think much about polar bears floating on small ice floes in the Arctic, very much.

What pays out, that’s generally what people get behind — and waiting for a better moral order is not exactly a recipe for energy abundance. Six years ago, it was ethanol. Today, it’s cheap shale gas. Tomorrow, it will be something else. Inevitably the complications ensue, and the players get set, and the market gets locked in — and attention ultimately moves on to something else. Such as the gender of the Duchess of Cambridge’s next baby.

The immutable law of feedstocks

So — how to construct a sustainable biobased fuel industry. First of all, the economics have to be there — and those are rooted, without exception, in affordable feedstocks. Fuel will not be made from $1000 soybeans no matter how carbon-friendly the fuel may be. On the other hand, make 85-cent E85 from corn — and here at the Digest we could just about guarantee that you will not only find a market, you will find a whole bunch of friends who used to jabber about fuel vs food, or ethanol misfueling, or energy return on energy invested.

What they are really saying is that they don;t see the percentage in it — which is to say, the personal benefit. They see in corn ethanol a big hand-out to US corn farmers that they have troubled feelings about from time to time.

Cheap molecules will find big markets. Processing technologies will emerge to serve cheap feedstocks. It is the lesson of petroleum and natural gas.

It is not the case that sugar-based feedstocks are doomed, or gasification can’t deliver affordable fuel. Everything based on sufficiently cheap feedstocks works — and, in sharply constrained markets, that where we find out what cheap really is.

What is cheap energy — or cheap enough to compete?

Think of it this way — anything that competes effectively with $125 oil is probably cheap enough. Why? In a brief note from Liam Denning in this week’s Wall Street Journal, he noted that $125 per barrel, for Brent crude, is described as the “demand destruction” tipping point, where rising energy prices cause consumption to actively taper off.

It’s the fear that prices might reach those levels, soon, that has been cooling enthusiasm for oil exploration and production stocks like ExxonMobil and Chevron.

Here’s the concern: the 12-month rolling Brent crude average has now spent 18 months above the October 2008 peak which contributed mightily to the commencement of the global financial crisis. Meanwhile, the US Federal Reserve is signaling that the era of easy money, designed to stimulate the damaged economy, may be drawing to a close.

Bottom line: to stimulate some growth, a structural reduction in energy prices is badly needed, particularly on the liquid fuel side. When it comes to those sources, there are four and just four sources that have the potential to transform supply at a scale that could impact global prices: tar sand oils, tight oil, shale gas and biofuels.

For other countries — the tipping point may come sooner. With US interest rates rising and the economy recovering, the US dollar is rebounding off low points. With oil priced in dollars, the 12-month rolling Brent crude prices are 20% higher, in Euros, than in October 2008; and 33 percent higher, in rupees. It’s a recipe for slowdown, unless the energy picture changes — and radical, disruptive changes in energy prices are the only way around those difficulties.

It’s what has been called the choke-point in global economics. Stimulate the economies, energy demand grows, prices rise, and growth halts.

New energy sources for structural changes in energy cost

Now, shale gas works mightily to alleviate supply woes — but not everyone is enamored of the environmental trade-offs, and shale gas is not equally distributed around the world. There are winners and losers, as there is with, say, the diamond trade — and countries that have elevated carbon anxiety or are outside the gas revolution ought to be focuuing one heck of a lot on biomass.

But there’s biomass and there’s biomass. Which is to say, on the one hand there is existing biomass with its existing customers — and on the other hand there is new biomass or truly marginal biomass not otherwise in any kind of serious demand from other sectors. If the only reason that some industry isn’t using biomass is that it is unaffordable to aggregate and scale, currently — well, as soon as you aggregate and scale it, you have a problem.

Which is why we’ve been following, closely now for year, a handful of companies that are doing their utmost to bring biomass feedstock game-changers to market. Some of these are energy crop developers — some of them have new technologies that can work with heretofore unusable residues such as flue gas, carbon monoxide, or municipal solid waste.

The case of SG Biofuels, and feedstock transformation

This week in California, SG Biofuels announced that it has achieved consistent germination rates of more than 95 percent with its top performing JMax Jatropha hybrids in a range of high-stress growing conditions. The replicated germination data was validated across SGB’s JMax Knowledge Center locations in India, Brazil and Guatemala. In India alone, the data was generated from more than 76,000 seeds composed of 14 different hybrids.

The germination rates enable the use of direct seeding to cost-efficiently scale large Jatropha projects with high-performing hybrid planting material. Direct seeding reduces establishment costs by approximately $200 per acre compared to transplanted seedlings.

It’s that kind of work which are the “hard yards” of biobased commercialization — and, in a broader sense, the beginnings of addressing, on a sustainable basis, the meeting of future energy demand.

It takes time. SGB’s hybrids have been developed following five years of breeding, drawing from a diverse germplasm library including more than 12,000 genotypes. In the case of SGB, it took a complete R&D operation and a global network of 15 Jatropha hybrid trial and agronomic research sites.

The Boys of Sumer

Energy demand — it’s so vast, nothing in human civilization since the dawn of sustainable agriculture will have matched this task. We talk about the Summer of Algae, and the Summer of Aviation Biofuels when we should be thinking in terms of Sumer — of the building of a civilization based on energy abundance.

The Sumerians and their kith and kin of long ago knew the score: they knew all too well the pitfalls of failing to be sustainable — in their case, in agriculture.

Just look at the bones of those ancient civilizations — compared to the bones of the hunter-gatherers who came before them. And you’ll see the cautionary tale etched in their skeletons.

You see, the bones of the agricultural populations were not larger, and stronger, and more disease-resistant than the bones of their ancestors.

They were, in fact, smaller, weaker and more disease-scarred and pitted.

By all means, go check the anthropological record. Or, should you care for something less prosaic, read the Book of Genesis some time in the context of food supply.

The agricultural revolution did not occur — the walled cities of Jericho and Babel were not built — because the technologists of that time had discovered a way to live better.

The world of that time simply overran its resources — and in those bones and walls and battles and epic poems you can see the mayhem of war and pestilence that came in the wake of supply not nearly keeping up with demand. Agriculture improved productivity, but people did not turn to agriculture to live better. Hunter-gatherers were bigger and healthier and less racked with disease. Agriculture came along as a response to a catastrophe in the balance of supply and demand.

We are just now, in the past two centuries, courtesy of fossil fuels — moving beyond the cruel times that followed — of low food yields, short lives, and constant war over the control of land. The Biblical span is 70 years, yet in the Middle Ages the average peasant was lucky to see 40.

Short on energy now, short later

We’ve done well off fossil fuels. Those of us who got a hold of them, and found what to do with them. They transformed agriculture, freed generations of people from the land and from mass nationalist armies — and sent them in to the labs and offices to drive innovation and marketing — the two concerns that Peter Drucker once said should drive all enterprises.

We are in a time of carbon reckoning, whether it comes in the form of dwindling supply or growing consequences — most of us think — but it is controversial and carbon mitigation is too much a product of sunny economic summers. We need economic drivers that get more acute, not less acute, when hard times come.

That is supply itself. There’s not enough. We need more. We’ve seen the same shale gas reports that everyone else has — and interviewed many of the key players.

There still isn’t enough energy. Not near enough.

Hear the Lord telling Jeremiah, listen: “stand ye in the ways, and see, and ask for the old paths, where is the good way, and walk therein, and ye shall find rest for your souls. But they said, We will not walk therein.”

Jim Lane is editor and publisher of Biofuels Digest.