The Gold in the Oceans

There was an announcement this past week that Solix Biofuels has started oil production at a facility in Colorado:

Solix Biofuels begins production of oil made from algae

Solix Biofuels Inc. said Thursday it has started the production of oil made from algae at its Coyote Gulch Demonstration Facility, with full-scale commercial operation set for late summer.

“We are ready to prove to the world the viability of algae as an alternative to petroleum-based fuels,” Solix COO Rich Schoonover said in a statement.

Coyote Gulch is located on a two-acre site in the Durango area on land provided by the Southern Ute tribe.

Algal oil production began July 16, Solix said. It said Coyote Gulch is expected to produce the equivalent of 3,000 gallons per acre per year of algal oil by late 2009.

Yes, this is the same Solix whose co-founder admitted earlier this year that the costs of producing fuel from algae were $33/gal. And there’s the rub.

Never mind that “full-scale commercial” output refers to less than 0.4 barrels per day. (Sometimes I wonder if the people who write these stories ever bother to pick up a calculator). Never mind that they are going to require 20 full-time employees at the site to (hopefully) produce 6,000 gallons on the 2 acre site. OK, let’s do the math on that one just for fun. That works out to 300 gallons per year per employee. Let’s be conservative and say that the average salary is $30,000/yr. That is then $100 of salary for each gallon of algal oil that is expected to be produced (it’s actually more, because the site is supported by more employees off-site). And that’s just salaries. You quickly to start to see why John Benemann claims that you can’t even buy algal fuel for $100/gal.

People struggle with these sorts of concepts. They read a story like the one above, and they incorrectly assume that some alternative fuel technologies are at a stage of development that they most certainly are not. This sort of thinking – especially when it infects our political leaders – is dangerous because it creates unrealistic expectations and distorts energy policy.

Sometimes when I am trying to illustrate this point, I use the following example. There are an estimated 25 billion ounces of gold dissolved in the ocean, which is about 10 times the total amount of gold that has been mined throughout history. At current prices, that gold is worth many trillions of dollars. The fact that the oceans are full of gold has been known for over 100 years. That gold is there for the taking. And while people have been running scams related to the ocean’s dissolved gold for over 100 years, nobody has invented a commercial process for extracting it.

I could certainly start a company based on the idea of extracting gold from the oceans. I might even convince some people to invest in the company, if I am very aggressive with my cost projections, can convincingly exaggerate the status of the technology (actually I have the worst ever poker face, so that is unlikely), and I assure investors that technical breakthroughs are inevitable. After all, there is a multi-trillion dollar payoff. What’s a few million from each investor when we are all going to make trillions? (The funny thing is that I used this example with a businessman once, and he was ready to start a company – missing the entire point of the story).

The gold in the oceans and the gold in algal biofuel have much in common. You can develop a production process in each case, but the capital and operating costs for producing each are far too high for them to be commercially viable.

I don’t begrudge anyone trying in either case to improve upon the processes. But can we please do it with a minimum of fanfare and press releases? At some point the public and the politicians are going to become completely jaded at the repeated examples of over-promising and under-delivering (the ‘hype’), and the evaporation of taxpayer money that went into these schemes (the ‘fleecing’). When that happens the money is going to dry up for the hypesters and the promising technologies alike.

Note: Last week was tumultous and I was highly distracted, but I am about to get back on track and start answering the questions that readers recently submitted.

36 thoughts on “The Gold in the Oceans”

  1. I used to have very high hopes for algal biofuels — until you started crunching the numbers, RR!

    As someone once said, every journey begins with a single step. It is great that people are starting up pilot plants and beginning the long learning process. Who knows, they might find some unexpected upsides as well as the inevitable problems.

    Your main point, though, is how difficult it is for most of us to think quantitatively. Given that most politicians and nearly all their policy staff are not numerate, it would be good for the Political Class to restrict their role in energy to something within their capabilities — setting up large prizes for the first 3 entrepreneurs to supply commercial-scale 24/7 power below a specified delivered price.

  2. I have been backing off on commenting on your blog because I am niether a scientist or economist and find myself quite out of step with your pretty smart commentors. But, two acres in Colorado? I thought you were kidding. You cannot even build a good size storage tank on two acres and heaven knows you must have plenty of storage room in todays oil market.
    Sounds like a Mafia olive oil storage plot in little old New Jersey in the early 1900's. JC Sr

  3. Biofuels look like a tough sell, especially given epic supplies of natural gas.
    Some biofuels make sense–oil from trees, for example, in low-wage nations, looks commercially viable, and palm oil already is viable. Palm oil is actually becoming more viable as time goes by, due to rising yields. It looks like the tree Pongamia Pinneta offers commercial possibilities as well.
    I wish the best to algae oil, but remain completely puzzled that Exxon would get involved in it. The improvement in yields and costs necessary….
    Note to Armchair: I know it is something of a dead letter, but check out this link:
    http://www.time.com/time/business/article/0,8599,1909756,00.html

  4. It's going to come down to labor (specifically: labor in harvesting.)

    I wouldn't throw in the towel on algae, yet; but, I wouldn't throw in any money, yet, either.

  5. Algae does have one advantage. Virtually, every county has 7, or 8 hundred acres of crappy land that could be devoted to algae oil production. This could save considerable money in transportation of the product.

    800 acres X 3,000 gal/acre = 2,400,000 gal/yr.

    2,400,000 gal/yr/county X 3,000 Counties = 72,000,000,000 gal/yr.

    That would just about do it.

  6. Remember, we used to hitch a team up to a wagon, and drive it out into the field where we picked our corn by hand. Then we would bring it in, and "shell" it by hand, as needed.

    Not much comparison to a new John Deere Harvestor.

  7. The Interesting thing about algae is: when you start talking 3,000 gal/acre + quite a few problems start looking, "potentially" solvable.

    Anyway, it starts looking to be worth the effort.

  8. Reminds me of PetroSun's announcement last year. They talk of making algal oil, not biodiesel with the associated added cost of conversion.

  9. Correct me if I'm wrong, but isn't water needed to grow algae?

    It seems to me that any program to grow algae and make biofuels from them in the Western U.S. is going to run into the same water problem the rest of that part of the country faces.

    Water shortages in the Western U.S. are going to be one of the major factors forcing us to change our lifestyles in the next 10-15 yeas.

  10. There is an analysis:

    http://w4.stern.nyu.edu/news/docs/JEPO_Technology_S_Curves.p…

    It would be nice to see a like analysis of the biofuels.
    I do like the idea of prizes instead of stimuli. The US government used to do that in the early 1900s. X prize does it today. Wonder if it could work with the financials?

    The big advantages of prizes are: No need to pay out without results; and you get many innovative approaches.

  12. I was equally disappointed in the ridiculous spin in the Solix PR. It will only serve to ultimately destroy their credibility with investors. Solix recently published a reasonably decent tech paper on the theoretical and practical limits of algal oil production (see Solix ) that I thought might make them a little more credible than most algal outfits, but I'm skeptical of them now. I think the problem is that there are so many groups trying to raise $$ for their technology that each one tries to one up the other in hopes it will bring more investor $$. Algenol is in the same boat. They recently got Dow to partner with them so you'd think they might have something. But they say they are building a 180,000 acre facility in Mexico that will produce 1 bil gal/yr, but at the same time they want to build a 500 acre research facility in FL! (see Algenol ) plus one in TX with Dow! Why do they need the research facilities if they have the funds and science to build the Mexican venture? They all are starting to sound like Khosla / Cello grifters!

  13. All these wild claims give the whole algal biofuel technology a bad name. I do however think there are applications that can make a valuable contribution, e.g., where an existing wastewater source can supply both water and nutrients, and if they can come up with co-products of value besides the fuel (and/or carbon storage via char or similar C sink). The economics of that might work, eventually, and provide benefits on several fronts, but probably would not provide much fuel. But huge facilities (e.g., 10,000 – 100,000 acres) in the desert are just another biofuel mirage.

  14. I think when all is said, and done, I would keep an eye on any ethanol refineries that move toward adding an algae component.

    You're talking water, distribution facilities, a little biofuel aptitude/knowledge, and copious amounts of CO2.

    It looks like a pretty good fit, to me.

  15. I'm not sure the CO2 thing is that big a deal, though. Since the refining will be done at production location, it should be easy enough to recycle the CO2 from the previous batch back into the growth medium, wherever you're located.

    The thin stillage from an ethanol operation should be a Good Growth Medium, however. And, having the railroad tracks handy should be a very strong "plus."

  16. So unless I've missed something, it takes 100 square miles to get 12,500 BPD of fuel. 72,000 square miles would replace all the gasoline the U.S. is using. Probably not going to happen.

  17. Look at it this way, Don. Algae oil is a replacement for Diesel, not gasoline. We only use about 75Billion, or so, gallons of diesel/yr.

    At 3,000 gal/acre that would require about 25 million acres (remember, this can be any old scrub land, desert, etc.)

    Also, we're not going to "run out" of oil. In the medium term we probably need to replace half of that. Make it 12 Million Acres. That would be about 4,000 acres/county. That would be an area of about 2.5 miles square, or 6.25 sq miles.

    An average county is about 1,000 sq miles, so, we're talking about 0.625% of area. THAT monkey "won't stop no show."

  18. I don't know if they can make it work, or not. But, the amount of land needed doesn't seem like it would be the deciding factor. Not for something as important as liquid fuel for our trucks, and tractors (and, houses that use heating oil.)

    Might even be able to add in a chunk of land down in the drier parts of Texas for Jet Fuel.

  19. They, probably need to get the cost of the bioreactor down to somewhere in the range of $1.00 sq ft, or less.

    After that, it looks like it's labor cost, labor cost, labor cost.

  21. Rufus, saying that algal oil is only a replacement for diesel is like saying ethanol is only a replacement for gasoline up to 10 or 20%, since you'll need different vehicles to use higher blends (i.e., FFVs). US can ramp up to more diesel vehicles just as easily as building more FFVs. And there are many many more benefits to going that route versus ethanol vehicles. Sooner or later you'll understand that ethanol is just a valuable 'starter' fuel, and will be tossed on the ash heap of biofuel history within the decade. US corn farmers may or may not have a great future as feedstock producers for liquid biofuel. The future US fuel is much more likely B100 than E100 (unless the biomass gasoline folks like Virent etc. get there first).

  22. "(remember, this can be any old scrub land, desert, etc.)"

    Rufus,

    Please explain how they are going to grow algae on old "scrub land" and "desert?"

    If there isn't enough water to grow regular crops on that "scrub land," where will the water come from to grow algae?

    And don't say they are going to use waste water. There is no longer any waste water in the American West. In most places, even the nastiest gray water is now being recycled for irrigation and even human use.

    The water shortage in the American West is a looming crisis that hasn't yet hit most people's radar screens.

  23. Actually, Anony, NO. There's a whole lotta difference between reprogramming an ECU (this is, basically, about all there is between a regular vehicle, and an FFV, now) and building a Diesel Engine. Diesels are Much Heavier Duty engines (and, heavier in weight.) Also, you might have noticed that the U.S. regulatory agencies haven't been exactly easy-going with diesel engines.

    Wendell, I'm "assuming" that a lot of the water in a biodiesel operation can get recycled. It's not exactly a heat-intensive process.

    BTW, there are areas of the West (the Texas panhandle, I think is one,) where underground water is, actually, quite plentiful.

    Look, I don't know if they'll be able to make this work, or not. I just threw out a few thoughts on deal. Like I said, I'm not an investor in the idea. Just an interested bystander.

  24. Anonymous, you very well might be right about the "long term." Long term is way above MY pay grade.

    What I'm thinking is, if we need a considerable amount of biofuels in the next 5 – 10 yrs, a bunch of that is going to have to come from ethanol. 20 years out, I KNOW I don't have a clue.

  25. what are the component ingredients and environment limits/controls needed to produce adequate algae for said fuel?
    what are the exposures to contamination for large reserves of algae?
    has a large working reserve ever existed, under controlled conditions, which would lead to success, if an economic process of oil extraction were to exist?

    this whole enterprise reminds me of commercial trout/salmon farms. not an easy environment to make and control, highly exposed to crop destruction/loss.

    fran

  26. "BTW, there are areas of the West (the Texas panhandle, I think is one,) where underground water is, actually, quite plentiful"

    Actually, there aren't. The Texas Panhandle overlays the Ogallala Aquifer which is currently being "mined" of water that took tens of thousands of years to deposit, and being mined faster than it can be recharged.

    There are parts of eight High Plains states that draw water from the Ogallala. Many parts of those states are already being faced with a "Peak Water" problem. Ogallala Aquifer Depletion It's hard to imagine any algae farms in that area.

    "The Ogallala Aquifer, the vast underground reservoir that gives life to these fields, is disappearing. In some places, the groundwater is already gone. This is the breadbasket of America—the region that supplies at least one fifth of the total annual U.S. agricultural harvest. If the aquifer goes dry, more than $20 billion worth of food and fiber will vanish from the world’s markets. And scientists say it will take natural processes 6,000 years to refill the reservoir."

  27. I don't mean to downplay the importance of "managing" the Ogallala. It's, absolutely, vital. However, it is, in most cases, being done. Some areas are, actually, I believe, seeing increases in the Reservoir.

  28. "Some areas are, actually, I believe, seeing increases in the Reservoir."

    Rufus,

    Be specific, tell us where you think the Ogallala reserves are increasing.

    You're right, managing the Ogallala is vital, but in most cases it's not being done*. A handful of farmers recognize what is happening and have shifted back to dryland farming. But the vast majority are just trying to get what they can before the Ogallala becomes unusable, and then will let others worry it about while they retire to Florida.

    As with all other biofuel schemes, oil from algae will run up against natural limiting factors (LIMFACS) such as depletion of the Ogallala Aquifer.

    ——————–
    * In western Kansas, wells now have to go 150 feet deeper than in 1975 to reach the Ogallala water. It takes a lot of energy to pump water up 150 ft further.

  29. The water issues surrounding Algae cultivation and growth are real. And at 3,000 gallons of algae-oil production per acre, per year – it would take about 73,000 acres of algae cultivation to only equal the small-sized refinery outputs of 15,000 bpd – something which operates on 15-20 acres.

    Hummmmmmm….. I keep thinking that $100 won't buy me a gallon of this stuff for my Dodge diesel pickup. Am I wrong here or what?

    Solix has a photo posted online of their new 2-acre algae development site. They are running all kinds of news releases about being located in Cayote Canyon near Durango, Colorado. I've spent the last hour doing dilligent research herein and cannot find a location called Cayote Canyon in La Plata County, Colorado.

    What's up Solix? Where is your demo located?

    Press releases said something about being adjacent to a Southern Ute utility plant of some kind which offgasses CO2.

    Please respond as I know you folks are reading this blog. I live in the northern reaches of the same County and don't really have a clue here. It appears you are making far more news release noise to distant points beyond than you are accomplishing locally where you now only recently operate.

    Thanks.

    Cliff

  30. "I live in the northern reaches of the same County and don't really have a clue here."

    Cliff,

    What's the water situation in Durango and LaPlata County?

  31. Off topic — armchair261 and Benny Boom from two threads ago: what if you could both be right? — high oil prices based on market fundamentals and high price volatility as the result of market manipulation? And according to the theory I read here, the manipulators are not "oil thug states" but your very own favourite market intermediaries, such as Goldman Sachs. I'm not saying I subscribe to the idea (especially given the site that's hosting it) … but it and the accompanying comments were interesting nonetheless.

  33. Wendel & Clee:

    Responding to your comments A) my typo – I meant Cayote GULCH not CANYON.

    It appears that your map has located the Cayote Gulch area. At 7 o'clock position from the arrow I see a 3rd major coal stripmine in this area mining Fruitland Coal right up to the NM/CO state line. It is worked by the Australians last I heard just north of the Navajo boarder… And at about 2 o'clock from the arrow, I can see what appears from the sky to be one of four major coal-bed methane gas cleaning (here's the CO2) and compression stations (just east of where the photo is merged with another not so clear.

    The fault (Canyon) being the Gulch itself (if you back up this map to a higher perspective is the Fruitland Coal Outcrop) which rises to the n.e. and is the delineating boundary of the San Juan Basin.

    To reach this Solix Algae demo-site (if it is here) would be a drive allright – and this territory isn't public land – it's interlaced with gas field roads, mostly private thorough-fare on Tribal Lands.

    And B) Hows the water here? It's been a very wet and cold spring and summer so far. Yet the altitudes differ rather quickly in this
    County.

    The Gulch area is probably at around 5,000 ft. elevation. Other reaches in this same County approach 13-14,000 feet. So during the heat of the day the water needs vary widely in this general area depending upon who you are and what you are doing. Are you irrigating a hay or alfalfa field or are you a municipality concerned with clean water flows or are you doing a major industrial project?

    Whiskey is for drinkin' and water is for fighting over.

    There still is massive pressure for more water flowing from the s.w. Colorado area to New Mexico, Arizona & California. We are not in a drought situation this year – yet the major lakes downstream from here on the Colorado River Plateau are low and have been extra low for several years. Global Warming inching in. ??? Who knows.

    How can I post a jpeg image on this blog? Real photo vs: URL to it posted somewhere?

    Cliff

  35. I can see potential for this if the algae are something like thermophilic halophytes.  Brackish water is easy to come by, and saturated salt solutions would eliminate the problem of keeping the cultures pure.  The bugs would have to be thermophiles because a covered pond in the sun is going to get mighty warm.  Water evaporated from the pond would condense on the cover, yielding distilled water as a potential co-product.

    Can anyone do this at a cost which makes it competitive?  Maybe if the system is based on inflated tubes of heavy visquine, but not rigid polycarbonate.

  36. Correct me if I'm wrong, but isn't water needed to grow algae?

    Sure, but it doesn't have to be clean, and it can even be salt water for many species.

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