July 31, 2008
Another filed biodiesel plant for sale
The TG refinery in Ferndale. It was a hack job to begin with and never really worked. Too small for scale. Not economic.
July 30, 2008
Peerflix bites the dust
Unfortunate. I helped the boys in BC get going. But after they raised venture, their traffic plummeted and they lost that lov'n community feeling. Traffic went from tens of million of page views to single digits. now it is a "fan site". Bummer. I still love the idea of person to person recycleing.
Cisco buys Pure networks
congrats Ignition on the deal.
July 28, 2008
The thermodynamics of energy storage
One of the big problems with any renewable energy source comes in syncing the production with demand. Wind for example produces power when the wind blows. That is not always when the power is needed. Most energy storage mechanisms are expensive and require special materials (batteries, ultracapacitors, etc.). Wikipedia has a good explanation of all the major technologies implemented on the grid today. What about simpler ones? One idea is to compress air and have the thing drive a turbine to generate electricity on the way out. TOD did a total review of the thermodynamics of that reaction yesterday. Doesn't look good, but in an environment where the electricity is going to go waste anyway (say extra wind power), then efficiency is less important. Today pumped hydro storage is used widely to load balance hydro dams.
what about a consumer version of this???
July 26, 2008
Final Swobo hack
OK, a friend of mine broke his neck when he clipped out of his fixie without a brake. So I have one now. And short bars. Cool eh?
A story about "Ten Points"
I like to ride my bike. Off and on over the years. Some years alot, some years a little. This year I have ridden more than usual. Did 214mi on Seattle to Portland. hacked the Swobo, doing 100mi tomorrow, etc. But I have never been a racer. Racing bikes is a whole nuther kettle of fish. Ten Points wraps all the challenges and demons in life up in trying to win ten points at the Thursday night Crit series. I have ridden the Thursday night Crit (in Seattle). It is brutal. At a certain point, all the racers are fit enough and it comes down to grit, determination and desire to inflict pain on oneself to win or even place.
A very inspiring book about life, bikes and dreams. The important parts, the ability to dream and keep dreaming even when you don’t get your dreams. Everyone should read this book.
I rate 5 of 5 stars.
July 24, 2008
The whole story
Yesterday, Mark over at SNS published the whole special letter that I wrote about here. If I do say so myself, it is a good read. Four years in the biofuel business, how did we loose round 1 to the dinos? What should we do. Real the full letter here. And subscribe to SNS if you can.
Hacking the Swobo (literally)
Ok, so I have gotten the fixie bug a bit lately. Bought two Swobo Sanchez fixies. One for Seattle and one I leave in NYC. One of my favorite features is the beer opener in the seat
cool eh? But I don't really like the long handlebars.
so I decided to chop mine.
hummm that looks about right. Super sazall rules@!!!
After. Ah, sweet simplicity.....
What is really behind food prices?
No, not those darn nasty biofuels. It is oil. The price of oil driving up fertilizer and transportation costs. Check ou tthis new report.
Costs to get crops in the ground will jump by about a third in 2009, fueled by fertilizer prices expected to surge 82% for corn and 117% for soybeans, said Gary Schnitkey, an agricultural economist who conducts the annual survey of input costs.
Fertilizer—the biggest non-land expense for corn and soybean farmers—is tethered to the same cost spiral that has driven steep gasoline and heating price increases over the last few years, said Schnitkey, a professor of agriculture and consumer economics.
The study projects non-land production costs for corn will total $529 an acre next year, up 36% from 2008 and nearly 85% higher than the average of $286 per acre from 2003 to 2007. At $321 an acre, soybean input costs are projected to rise 34% from 2008 and more than 78% from the 2003-2007 average of $180 an acre.
The per-acre costs are based on high-producing farmland in Central Illinois, but corn and soybean farmers across the country will see similar increases.
Assuming cash-rent fees of $200 an acre, the study projects a break-even price of $3.82 a bushel for corn in Central Illinois, based on an average yield of 191 bushels an acre. Soybeans would break even at $9.65 a bushel, based on yields of 54 bushels per acre.
Schnitkey says 2009 prices should be significantly above break-even prices. Based on futures markets, corn should sell for about $6 a bushel next year, with soybeans in the $13 to $14 range.
Finally some backbone in congress
Introducing a bill is one thing, a good thing. What it looks like after the auto industry and oil industry lobbiest mark it up is quite another. Write your rep and tell them to get it done. Support the Open Fuel Standard Act.
Australian report shows the way to fast track Electic Vehicles
America may be finally kicking the truck habit
sales of cars surpassed trucks in April 08 for the first time since 2000. Big gas guzzling trucks are on the outs. yea.
July 22, 2008
Crud, on another list
25 who ditched infotech for Cleantech. This is getting infamous.
Humm, do I have market moving powers?
Or is it just a cooincidence? On July 7/8 I make a series of posts related to the current poor economics of ethanol and how the stocks have been beaten down. On July 11, a major part of my thesis was reposted on July 11 over at Earth2Tech. Part of my thesis is that the Oil Companies will start buying Ethanol companies at these depressed (caused by the oil companies) valuations. That day Aventine and Verasun turned the corner on the bottom and started a run up gaining over 55% over the last week. Cooincidence or influence? you decide.... (i am in investor in neither)
Wow, another great article on my house
Sounds like a fun place to live.
50/50 we loose the north pole this summer?
Mattr says those are the odds that the Scientists at the National Snow and Ice Data Center have given it. ouch
More on Coal prices
Ok, the problem in coal is larger than I thought.
and Raymond James says that coal fundamentals are "stronger than oil". I believe it with china having built half the US coal power production JUST LAST YEAR and having 58 plants idle due to no coal. Hummm....
July 15, 2008
total miles driven down
The Goldman Sachs oil analyst had a good question last year. What is the top price for oil? The last dollar that starts to materially destroy demand. Up until dec. 07, no demand had been destroyed at all. Now it seems that the run from $100 crude to $140 crude in the last quarter has started to destroy demand. But prices keep rising due to fears of shortages ala Iran, etc. I do not believe this market is responding to supply demand issues anymore. It is scarcity pricing. In scarcity pricing if you hold a very scarce resource, the price of it is whatever anyone will pay. Not enough demand has been destroyed. And even if demand is destroyed, the remaining oil stays finite. The owners of that will know that prices will be higher if they don't sell now. If it goes down, they wait and it will go back up. I contend that prices will be fairly unresponsive to demand destruction until it destroys over 20M barrels a day of demand. Goldman only estimates 5M has been destroyed. Morgan hasn't put a number on it yet I don't think.
Ethanol crush spreads in the tank
They are now effectively negative. It is not just high corn. Corn has actually not gone up that much relative to other commodities. The problem is that the sales price of ethanol has not kept up with the RBOB. See the next slide on the fact the US is WAY long on Ethanol. WAY too much capacity, allowing oil companies to bid down ethanol.
Watch as electricity is the next commodity to spike
Got a whole raft of cool slides today from Morgan Stanley.
Check this out out. Oil and Natural gas on a tear. Coal has spiked significantly recently. but Electric prices have been relatively flat. Some of that is regulated prices, but most is delay in the supply chain. Go long on electricity. Get effecient air conditioners. Prices are going up.
My investment criteria
Ok, enough bitching about what I don't like in biofuel companies. While I intend to post later about what i DO like about next generation biofuels, I thought I would provide a bit of transparency on my investment criteria for green energy investments overall. While I am a bit of a numbers nerd and internally I have a spreadsheet with all sorts of weights, averages, and trendlines, that is a bit TMI for this blog. Here, in no particular order, are some of the traits I am looking for:
- Big ($1B+) existing market for the product you are going to replace or add capacity to. I don't want to build primary demand for products on a venture budget.
- Many non-ologopoly customers. Markets with only a few big customers tend to have purchasing price power and deny start-ups meaningful margins.
- International customers, ability to reach them. The US is behind the energy/carbon game and with the weak dollar, US companies many times have superior international opportunities in renewable energy markets.
- a leveraged business model. Basically the ability to improve margins with scale and technology. Many business plans I see are basically integrators selling professional services by the hour. While maybe a decent business, it should not be venture funded.
- Positioned with pricing power in the value chain. If you don't control enough of the value chain to set price, you are toast.
- no "miracle" inventions required to develope the product.
- No serious physics, chemistry, mechanical, or material science unresolved issues.
- Can be manufactured with existing off the shelf equipment (no custom fabs, expensive yet to be invented stuff, etc.)
- has some IP protection, but company has primary IP defense rather than offense strategy.
- Fundable CEO.
- World class technical tallent.
- Not their first start-up.
- Valuation and money raise appropriate for stage and raise sufficient to meet valuation milestones.
- Lead money gets a board seat with standard class protective provisions. I never invest without a board seat.
Major risk execution versus market, policy, or technology. Basically going into a deal I want to believe (true or not) the major risks to be around how the team executes on the opportunity with my dollars versus what happens in the overall market, policy, or if the technology works or not. Many times things happen around the company that have nothing to do with execution (see Imperium), but that is part of the deal.
i will come up with more stuff, but these are the major points.
July 10, 2008
Cost of Oil, gas totally bogus for surfers
I could not agree more. The cost of surfboards has doubled. My drive to Westport used to cost $80 round trip now costs over $200. I might as well fly to Hawaii. Hey, now that is not a bad idea.
July 9, 2008
A story about "1421: The Year China Discovered America (P.S.)"
On my trip to Indonesia, most of my conversations with locals and Americans were Asia centric rather than Euro centric. That was at first surprising, then obvious. Claude from Nihiwatu suggested this book and how it is re-writing western ideas about discovery of America, and a whole raft of euorcentric history books. I love it. In the same year that England invaded France with about 600 men making huge waves in western historical records, the Chinese emperor was marching an army of over 1 million north against the Mongols without as much as a note in the west. The most fascinating part for me has been reading the maritime exploration parts about a 10,000 ship armada with tankers larger than the largest supertankers today going all over the world to find a Southern Star for navigation. We in the west have alot to learn about World history. Read this book. I rate 5 of 5 stars.
July 8, 2008
What I like and don't like about the "second generation" biofuel companies that were funded in Q2
Ok I am a big fan of biofuels. I spent the last four years and substantial personal resources building Imperium Renewables and the largest biodiesel processing plant currently operating in the US at over 100M gallons per year. Lots of people ask me what I think of the "next generation" crop of companies being sold to investors today. Here are a couple general comments then some specific company comments.
- the primary problem of biofuels today is oversupply relative to RFS mandates causing refined biofuel prices to significantly lag refined petroleum products. More biofuels actually makes the problem worse.
- Political will supporting biofuels has weakened measurably over the last year.
- Liquid fuel distribution infrastructure has remained largely stangnant for over 30 years. Most mid and downstream assets are owned by companies with capital structures optimized for cash dividends as opposed to investment for growth. High blends of ethanol requires new distribution infrastructure all the way up and down the chain.
- Debt markets remain closed and skeptical of new technologies.
Range Fuels: Triple the capital cost of first generation. While multiple feedstocks may be technically possible, actual availability of feedstock and transportation logistics will likely significantly change economics once plant is built. While Khosla likes to pay lip service to investing in technologies that are economic w/o government incentives, cellulosic ethanol generally through the 2.5x RFS credits, and Range Fuels specifically through large DOE grants have been showered with government money. If the plant eventually does get up and running
Sapphire Energy: Inventing an algae bug that will produce a crude oil substance compatable with today's light sweet crude refineries is not that hard. The Aquatic Species program of the DOE found thousands of them over a decade ago. The probelm is building the algae farm and cultivation system at a cost per acre that pays an acceptable ROI. I like the strategy to skip the big oil controled refined products channel and go direct to independent crude oil refiners, but the devil is in the details. What will be the actual yield? How will the refined products perform? Will customers accept the products? While the company announced significant funding, it has yet to enter pilot testing and hopes to one day produce "up to 10,000 barrels per day" of algae crude. Ok, that would be 0.011834 % of US daily crude requirements TODAY. Despite the many challenges and my reservations, Sapphire Energy is my favorite biofuel company funded last quarter.
EdeniQ: Actually the smoking dusty remains of the Altra train wreck "still in formation stage". While at Imperium I reviewed and dismissed as non-economic the Port of Morrow site they hope to develop. Maybe I missed something. On technology side they use all the right buzzwords about low capital costs, ellimination of catalyst and additives. All I can say is "show me".
Mascoma: Again, more non-specific "non-grain biomass" as feedstock. GM invested, that hasn't seemed to help their stock price. More government hand-outs (over $60M) and sky high capital costs. Show me the money.
Aurora BioFuels: $20M ain't nuthing when measured against their plans. Their mission statement lays out too much wood to chop in my opinion and not enough focus. It is not at all clear from public information what Aurora is planning to do new, different and proprietary from anyone else. See Sapphiire: Algae in the lab is easy. Making a million barrels a day (about 1% of US needs) is HARD.
Gevo: While the company is "working on an alternative jet fuel for Virgin Airways", Imperium actually supplied Virgin with such a fuel and flew Richard Branson around in the plane back in January. The company's "advanced" fuels like isobutanol and butanol face many distribution, field test, engine warranty and other implementation issues already overcome by first generation refined biofuels. This one is going to be a LONG burn.
Fulcrum Bioenergy: Waste seems like a good source of fuel. Unfortunately the energy balance has never worked for anything but sucking methane off garbage piles. Again the ethanol oversupply problem, the US is already long corn ethanol through at least 2012. From press releases the company seems more like a build own and operate project developer rather than a technology company. While this is a fine model, I am not sure it garners venture capital returns. Permitting of the first facility in collaboration with Casella Waste Systems is supposed to "start" in next 12 months. If the plant is running by 2010, I will give you $100.
Greenline Industries: No comment (too many NDA's).
GreenFuel Technologies: The long struggling Greenfuel may have finally found their stride. They arguably know more about the implementation details of growing algae for biofuels than any other company and have the scars to prove it. Their first pilot grew algae so fast they couldn't harvest it. Not much good. I like the strategy of co-locating algae farms with carbon emitters for multiple revenue streams. I like the folks at GreenFuel and wish them well. They still face the massive problem of getting the cost per acre of the algae farm down to an acceptable ROI. After 5 years, problem still not solved.
Amyris Biotechnologies: Originally founded with quite a different mission, these opportune scientists are marketing their lab skills to the fuel markets these days. More fancy bugs that look good under a microscope and are years away from any scale. If they suceed in making more than 100 gallons of anything by 2010 I will give you $100.
VC's stay drunk at the cleantech bar in Q2
says Cleantech Group. including:
SECOND-GENERATION BIOFUELS: While recent increases in grain prices have created controversy over first-generation biofuels, second-generation biofuel companies, which do not rely on food crops as a feedstock, continue to receive large amounts of venture capital. Second-generation biofuel companies Range Fuels, Sapphire Energy, EdeniQ, Mascoma, Aurora BioFuels, Gevo, Fulcrum Bioenergy, Greenline Industries, GreenFuel Technologies and Amyris Biotechnologies raised a combined $280 million in venture investment in 2Q08. Of this total, $136 million was invested in cellulosic ethanol startups and $84 million in algae biomass startups, including a $50 million round for Sapphire Energy—the single largest round ever raised by an algae company.
While as an entrepreneur, I approve of the continued funding, I want to see the products start rolling much sooner. Come on guys!
Big Oil - 1, Renewable Fuels - 0, part 1
I have written a major review piece on the state of liquid renewable fuels versus petroleum over the last four years. IT will be published in an upcoming issue of The Strategic News Service, after which I will post in parts here. Today I am posting the first two paragraphs:
Four years ago I ditched Technology for Energy and wrote about it for SNS. While preparing for FIRE this year, I had the opportunity to reflect on the last four years of renewable fuels in America. 2004-2008 will go down as arguably the first major battle, first real challenge, to petroleums 100% lock on our liquid fuels budget. In the same time period where Brazil reduced their petroleum consumption 40% largely through ethanol, Americas petroleum appetite grew by over 7% and we continued to consume more than a 1 out of every 4 barrels of oil on the earth. After over $30B of capital investment, Americas liquid renewable fuel industry is today valued at 30-40% of asset replacement cost and is faced with negative operating margins. Capital has fled the sector. The sad conclusion is that renewable fuels/biofuels have lost round 1. Big Oil ran the table, pitched a no-hitter, and skunked the visitors. During the last four years of unparalleled opportunity and investment in alternatives to petroleum oil, thedinosaurs have vanquished all comers.
At this point I could write a letter full of speculation, theories and even conspiracies as to how big oil has managed to maintain, and even improve their lock on our wallets, but I will leave that for another time. For now, let us just review the facts and the current state of the renewable fuel industry. Being the CEO and Chairman of Imperium Renewables, Inc. (5/05-1/08), the first large scale US biodiesel producer, I have been in the middle of this battle and have all the arrows in my back to prove it. While I remain an optimist, it is clear the dinosaurs wont go away without a BIG fightand it is going to take a lot more than nifty technology to get rid of them. While many today extol the virtues of next generation biofuels, the economic damage done to investors in this first round and the structural impediments that remain will provide a significant drag on the industry for some time to come. Let usstart with a few macro stats, a summary of the wrenches that have gummed up the works, and then onto a few modest proposals to help renewable fuels going forward.
What is happening with oil prices?
The hard facts
* The world price of oil in US dollars has doubled in the last year (June 2007 to June 2008) from US$67/barrel to over US$135/barrel
* The world price has gone up by 6 times in 6 years, from US$20/barrel in 2002 to over US$135/barrel by mid 2008
* With hindsight we can see that the great cheap oil era lasted 16 years from 1986 to 2002 when the price was mostly in the range $15 – 25/barrel, coming off a $39 peak during the "oil shock" of 1980 (equivalent to about US$95/barrel in 2008 money). The short sharp spike seen at the end of 1990 was due to the first Gulf War.
Lead times for new industry infrastructure are typically 3 to 10 years. All new mega-projects on the production side are well known out as far as 2012, and few seem likely to boost global supply by enough to overcome declines in old oil fields. See the comprehensive listing of oil megaprojects at http://en.wikipedia.org/wiki/Oil_Megaprojects/2008. Note that major oil projects are developing a history of running late, often years late, as they encounter challenging technical difficulties operating in extreme environments like deep ocean or freezing Arctic conditions.
Rapid demand growth is often blamed for rising prices – demand growth in developing countries, particularly China and India, and in key oil supplying nations such as Saudi Arabia and Russia. But the decline of mature oil fields throughout the world is an even greater source of demand for new oil supplies than the growth of end user demand. Declining fields are losing 5.2% of total oil production per year thus requiring about 3.5 million barrels/day of new oil each year for the global oil supply to stay the same. (Nobuo Tanaka, International Energy Agency) http://www.iea.org/Textbase/press/pressdetail.asp?PRESS_REL_ID=267. Recent annual growth in end user demand, on the other hand has not exceeded 1.5 million barrels/day.
Folks we are going to $200-$300/barrel one way or another. Fasten your seat belts.
July 7, 2008
Make a rainbarrel
Thanks Mom for this reminder. A rain barrel is a simple and economical way to conserve. Just tap it whenever you need more water for the yard, the plants, whatever! At my house I spent a fortune re-routing the gutters into to the apple orchard, but there is still more water running than I know what to do with. the rest goes into the storm sewer. Humm. maybe I need a barrel..
July 3, 2008
The history of oil intensity
for those of you looking for the historical perspective:
Prior to the embargo of 1973-74, total energy expenditures constituted 8 percent of U.S. gross domestic product (GDP), the share of petroleum expenditures was just under 5 percent and natural gas expenditures accounted for 1 percent. The price shocks of the 1970s and early 1980s resulted in these shares rising dramatically to 14 percent, 8 percent, and 2 percent respectively, by 1981. Since that time, the shares have fallen consistently over the last two decades to current levels of about 7 percent for total energy, while petroleum has fallen even further to 3.5 percent and natural gas to just over 1 percent. The shares were lower during 1998, when oil and natural gas prices were lower, but have risen recently in response to higher oil and natural gas prices.
As I noted earlier, the oil intensity is now well over 7% of GDP and growing fast.
July 2, 2008
US shark attack database
Florida and Hawaii top the list. Washington is at the bottom. Go Westport!
July 1, 2008
How about the scrap metal business?
Here is a business idea. Get into scrap metal business for cars. CIBC has a new report out predicting that $7 gas will cause about 10M cars to be scraped over the next 4.5 years. I agree. Humm, how to capitalize....
A 6% scrappage rate would take roughly 14 million
vehicles off the road every year. For the number of
vehicle registrations to remain constant in the face
of that decline, there would have to be an offsetting
number of new vehicle sales that year. But given their
link to fuel prices, new vehicle sales will be at least three
million below that number by 2012. Our projected 11
mn vehicle sales in 2012 will be the lowest level since
the early 1980s. Summing up the cumulative difference
between new sales and scrappage over that period
suggests that somewhere in the neighbourhood of ten
million Americans will be coming off the road over the
next 4½ years (Chart 10).
some petroleum and renewable fuel stats
i am writing a special letter for SNS. Here are some stats I have been collecting about oil and renewable liquid fuel industry from jan 2004 thru May 2008. A couple things jump out.
1. Oil stocks have been winners, ethanol companies loosers.
2. The price of refined renewable products, biodiesel and ethanol, has lagged the run in refined petroleum products significantly.
3. margins in Ethanol/Biodiesel have gone from bad to terrible despite or maybe because of huge capacity additions.
4. If we had all just put all our money in crude oil in Jan 2004, we would have done better than any other possible investment.
Global oil chokepoints
64% of the world's oil runs thorugh 10 chokepoints in the distribution chain. Wonder what they are and how vulnerable the global Oil market is? Read this.
Choke points: Straits of Hormuz, Strait of Malacca, Abqaiq processing facility,
Suez Canal, Bab el-Mandab, Bosporus/Turkish Straits, Mina al-Ahmadi terminal
(Kuwait), Al Basrah oil terminal (Iraq), LOOP (United States), Druzhba pipeline