Who’s Afraid of the Big, Bad Pandemic? How New Technologies Add Resilience to Our Economy, 7 Wolfpack Experts Analyze the Options

June 8, 2020 |

COVID-19 has made us think about resilience, because some days it’s hard to get milk from the store, or get to the store, or hold a job to pay the bill at the store.

Our economic system, to lean on the story of the Three Little Pigs, is looking these days like a house built of straw. Yet, who’s afraid of the Big Bad Wolf? Nobody, really, because Uncle Sam bails us out every time the wolf beats down the door.

Yes, business is adapting and people are adapting, but as a friend writes, “a lot of the adapting has been closure and bankruptcy. Even those who saw it coming, and could understand the significance, did little or nothing until thousands died and their economies were in turmoil.”

Ahem. Were we ready when the Wolf came to blow our house down? What lessons can we learn?

A thread of hope appeared this week from the bioeconomy’s Wolfpack, those due diligence experts with wily ways and big fangs, hungry for value — Paul Bryan, Ron Cascone, David Dodds, Michele Rubino, Joel Stone and Steve Weiss. Let’s see how they analyzed the options.

The Undamped Network

NEXANT’s Ron Cascone asked a good set of opening questions:

Why were we so dependent on an overly-constrained, inflexible, unsustainable, non-resilient set of supply chains for energy, fuel, food, water, shelter, clothing, medical care, and everything else we depend on?  All this was in the name of “efficiency”, personified by the mentality of “just in time” supply chains, and “just enough” critical services.  The trouble is, goods and services don’t behave like information technology – you actually have to have physical alternatives and plans in place to survive a catastrophe.

David Dodds writes:

Current global supply chains resemble an undamped network.  In such a network, a connection between any two points is rigid, and energy can move very fast and without any loss between those two points, and this makes the network very efficient.  But any undesired perturbation at one point is also propagated throughout the network very quickly.  A single undesired perturbation will eventually dissipate, but multiple independent perturbations will lead to disturbances bouncing around the network, with both constructive and destructive interferences occurring at various places.  At some points, the interference forces will overwhelm and destroy parts of the network.  Building a network that has damping, by making the connections less rigid and therefore individually less efficient, makes the entire network more robust although at some cost of point-to-point efficiency.

Grey Heron’s Steve Weiss agreed that there’s value in resilient supply chains, and the “issue comes home to roost during a crisis.”

From Just in Time to Just in Case

McKinsey says we have to move from “just-in-time to just-in-case supply chains; stop optimizing supply chains based on individual component cost and depending on a single supply source for critical materials”.

Why do we resist that?

Steve Weiss says:

We frequently see consumer actions that are inconsistent with their stated preferences. “I want more leg room on planes” – but shop for the cheapest possible flight. I want to support local jobs / not have manufacturing go to China – but drive cross-town to Walmart to get the cheapest (whatever). Some issues can be impacted by government policies and actions – but many still come down to consumers seeking lowest-price options.

Efficiency, just in time supply chains, and just enough critical services, to use Ron Cascone’s formula — well, that’s the kind of supply-chain that produces the lowest-price options, when things are going well, as they usually do.

Whoops, things went wrong. What are some options?

The Utility Model

Ron Cascone writes:

The electric utility industry, with some exceptions, is one relevant, competing sector offering a contrasting model to the oil and gas sector and to many other sectors that have had poor resiliency in the crisis. They tend to have, or are working towards, “plans B”, in cases of weather emergencies, fires, floods, earthquakes, cyberattacks, etc. In the United States, electric utilities include investor-owned entities, cooperatives, and even publicly-owned systems such as by municipalities.  There is fierce competition in providing power generation that meets the needs of the grid, but it makes no sense to have multiple competing transmission and distribution systems.  Key factors impacting value are the cost metrics and methodology for determining cost of production/generation and pricing tariffs.  These metrics [include]:

• Levelized costs over the economic life that demonstrate an asset or planned project’s viability and profitability

• Tariff-based pricing for offtake agreements that ensures compliance with bankability requirements, transparency in meeting intrastate and/or interstate regulatory approvals, and commercial market needs of end-customers

• Levelized avoided costs that provide a definitive basis for plants or facilities qualified by federal and/or state regulators to have priority in “merit order”-based dispatchable scenarios.

A Place for Carbon, and Distributed Systems

Michele Rubino writes:

One thing that strikes me about McKinsey’s post on supply chains is that there is no mention of a carbon intensity metric. Low carbon intensity will increasingly correlate with resilience. While economies of scale matter, they are dwarfed by diseconomies of supply. Aggregating bio-based feedstock costs, for example. That’s why you don’t have 5 huge corn ethanol refineries in the US. In the bio-economy, small and distributed wins: in terms of carbon intensity, resiliency, cost. Across the board. This is obviously true of the renewables economy more broadly. As the renewable and bio-economy increasingly take over the energy economy, players will have to adapt to this reality … or go the way of Nokia and Xerox … I exaggerate for effect 🙂

And finally we need to continue to point out that, after inflicting what is at this point is certain to be a lot of damage, COVID will go. Climate change is with us for the long haul.

Joel Stone wrote:

I much agree with the points made by Michele and others. I would suggest that a distributed and decentralized supply chain will be the logistics and manufacturing as well as farming of the future. I remember Jim Woolsey and myself serving on a discussion panel over 10 years ago discussing decentralization of power generation as a means to offer security of logistics and supply. The same holds true for all consumer goods as the pandemic has proven to us.  I also firmly believe and would suggest that our future will include biomanufacturing to a great extent and a significant focus on carbon intensity indices including legislation related carbon tax with a dividend payable to consumers such as suggested in the Energy Innovation and Carbon Dividend Act (HR 763).

What about modularity?

David Dodds writes:

I am all for modular, decentralized/distributed systems.  (Which is internet protocol, if anyone is looking for an analogy, or an example of how distribution and decentralization can make a system very robust.) I like the idea of a distributed network of Oberon’s DME plant – possibly running off of Enerkem’s gasification-to-methanol and municipal waste management centers.

I am not an engineer, so how do we get away from the “inevitability of scale” — how do we add something to this to account for the liability of centralization, and prevent the business model from driving towards larger and larger facilities with tighter and tighter timing and inventory control? A high carbon tax (say $500/ton) is a simple concept and would move consumer behavior in the right direction.

A resilient energy system proposed

Is modularity the path forward to making decentralized production work?

Ron Casone wrote:

I propose that we leverage existing assets and known, commercialized off-the-shelf technologies to most quickly achieve a resilient domestic energy system.  This would entail:

1. Building AD systems throughout the US, in cities using food waste, and in rural areas ag waste, seaweed, road and forest clearing wastes, etc.
2. Use off-peak power to generate hydrogen to convert the CO2 in biogas through dry reforming to methane to join with the methane in biogas
3. Collect this RNG using the gas grid to deliver it to many central locations to make methanol and/or DME to replace diesel and LPG
4. Use the RNG to make olefins using commercialized MTO technology – make plastics and chemicals
5. Use RNG in SMRs to make syngas for FT diesel, jet, and naphtha
6. Feed bio-naphtha to crackers
7. Use the RNG as CNG in converted gasoline and diesel ICE engines as Nexant did with PTT in Bangkok in 2004
8. Use RNG in SOFCs for facility CHP and for grid power back-up

The entire strategy can be bootstrapped on fossil natural gas, in world-class sized existing facilities, for e.g., SMR, methanol, etc. so that economics during transition are competitive.

Yes, methane is a nice place to start

Some nice things about methane. It’s a dangerous greenhouse gas with high value in carbon markets, if you capture it. It’s dangerous, also, just breathing it. And, it can be moved in natural gas pipelines that already exist and have a standard business model.

Ron Cascone writes:

About 11 years ago, I was working with Harris Mehos, Director of Structured Finance, of OPIC for potential due diligence on a project to address this very problem/opportunity.  The sponsor ultimately demurred, but the French had done a lot of work before 2004 on proof of concept. It’s amazing how long it takes to do something different but good in the energy field.”

I wonder what potential exists to say, put up tennis bubble-like structures where melting permafrost clathrate is leaking methane, convert it to methane or DME, and ship the liquid to populations. Coal bed and mine mouth methane are other sources of fugitive methane waiting to be captured. Please see attached the 2004 “M2M” report on which I collaborated.  See this link to my post on fugitive methane and fracking.

Let’s be careful about picking winners

Paul Bryan writes about the importance of focusing on reducing carbon rather than giving a specific advantage to a single molecule.

By focusing penalties on the specific thing that you are trying to prevent, you avoid the error-prone and politically-fraught process of “picking winners.” Picking ethanol, for example, was not unreasonable when it first occurred. But today, converting a highly fungible biochemical substrate like corn sugars to the cheapest organic molecule on the planet is simply silly. Yet it persists because ethanol is effectively granted economic preference over almost all other potential products. Similar arguments have been made about nuclear energy technology, which was forced in a direction best suited for the Nuclear Navy, resulting in commercial nuclear power plants being inherently less safe and efficient than they otherwise might have been. The list is long.

A cautionary note

A friend of the wolves, Robert Kottkey, offered some cautionary notes:

The McKinsey report goes on and on about the supply chain. While I haven’t been in many retail stores lately, I do remember the endless variety of products available. Six kinds of butter, or fourteen different styles of underpants, or four different brands of the same color of paint: each of which was up for my choice to purchase.  This story is repeated at every level of business and government for that matter. In the grocery store we make choices based on taste with a bit of financial consideration. The higher you go in the chain, the choice is more and more dependent on the money. Asking companies now to enhance their supply chains and warehousing capabilities in preparation for another pandemic is quite a request and I don’t see as being widely adopted.

Can it start with small things?

Kottkey added:

“You get into energy and the environment and that started me thinking. Earlier today we received three DVDs of movies featuring Rowan Atkinson. The three discs were in one plastic DVD folder with three internal carriers. The DVD case was printed with all the information about its contents. Over this was some sealed shrink-wrap. AND over this was a cardboard sleeve that was a duplicate of what appeared on the DVD plastic folder. Why the extra cardboard sleeve? Such a waste. Some really simple things could help a lot.

The Bottom Line

I enjoy the Wolves and their perspective. I wonder how much methane is really out there, how much waste there is to capture, compared to how much energy we need for transport.  I suspect we need more than waste feedstocks, and possibly a wider selection of fuels. We might get into that later in the week.

We also need a new theme. In the 2000s, the world moved on renewable fuels because it responded to a Big Message that was usually summed up as the Three Es: Energy Security, Environment, Employment. But we ran into the Three Fs: Fracking, Food vs Fuel and Factory Automation. These killed the Three Es.

We might think about the Three Cs. Carbon, Choice, Circular.

Carbon. We may not all agree about every environmental goal, but everyone is for reducing carbon, and the bioeconomy can deliver.

Choice. No one much likes ‘picking winners’, everyone likes choice, and the bioeconomy gives us more choices, more options, more ways to supply the chain when it breaks, more choices on project size and location, so let’s focus on that too.

Circular. No one likes waste, or one-and-done, everyone’s for re-use, and re-cycle, That’s resilient. The bioeconomy can deliver on that.

Carbon, Choice, Circular — a Big Message we can all believe in as we tackle the Big Bad Wolf.

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