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 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.

Chris Martenson:

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 cert