The Oil and the Glory
The Weekly Wrap: Oct. 29, 2011
Algae camps: The promise of biofuels entered the global energy narrative several years ago — yeast was going to revolutionize how we fueled our cars, one inventor told us. No, said another, it would be enzymes. Hmmm … no, asserted another. Switchgrass would win the day and be delivered to our neighborhood filling stations. Those ...
Algae camps: The promise of biofuels entered the global energy narrative several years ago — yeast was going to revolutionize how we fueled our cars, one inventor told us. No, said another, it would be enzymes. Hmmm … no, asserted another. Switchgrass would win the day and be delivered to our neighborhood filling stations. Those innocent days seem like a lifetime ago. Nowadays the one biofuel we do have — corn ethanol — is stigmatized, and we recognize the monumental challenge of scaling up any non-food, non-fossil fuel liquid to a size comparable with our gasoline-production and -delivery infrastructure. Except that … one potential biofuel still seems compelling. It is algae. Even some of our most skeptical observers think this disgusting slime could one day make the jump and scale up to a large-volume crude oil. One reason is that in its natural state, it already is up to 50 percent hydrocarbons.
On this subject, we recently caught a fleeting glimpse of some behind-the-scenes tension in the highest-profile algae project in the world. The partners are celebrity scientist Craig Venter and ExxonMobil, the king of Big Oil. The friction in this two-year-old project surrounds how to go about creating algae-based crude oil through the use of genomics. Exxon has pledged to spend $300 million "internally," while rewarding Venter with his own $300 million should he reach certain research "milestones." While the details of those milestones haven’t been disclosed, Venter suggested in a public forum a couple of weeks ago that not only have they not been attained, but he doesn’t expect them to be under current working conditions. Venter urges wholesale abandonment of the natural algae strains that the partners have been scrutinizing, and a search for a purely synthetic variety — a turn fully to the genomics that made him famous. In response, Exxon effectively scolded Venter, and said to keep to his knitting.
As we’ve discussed, that there is a dispute is not surprising — such is the nature of the scientific process. Equally, that does not mean the quarrel does not merit plumbing.
Go to the Jump for more on the algae row and the rest of the Wrap
It starts out with conspicuous fault lines: In the 2009 deal, Venter assumed the bulk of the risk in exchange for a steep fee should he succeed. While he committed his lab’s skills and resources toward the search for the elusive natural algae strain, Exxon’s expenses appear to be entirely internal — hence subject wholly to its own notion of cost — with no apparent payments to Venter unless those undisclosed milestones were reached. Why did Exxon write the deal that way? Recall the context: At the time — 2009 — Washington seemed inexorably headed toward a cap-and-trade law regulating the emission of CO2. If it passed, Exxon would be forced to spend millions to reduce emissions from its refineries. Against that, Exxon embraced the creative solution of a technology that, if successful, could reduce its carbon emissions (algae can eat CO2), while also holding a long-shot possibility of a huge payoff. Paul Sankey, an oil analyst with Deutsche Bank, told me in an email: Exxon "intended to have algae plants next to refineries as CO2 sinks. But since CO2 legislation died…." Sankey did not finish the sentence. We can surmise the rest.
It’s harder to say why Venter agreed to the formulation. The easy answer is that he foresaw a two-step process: Hook Exxon on algae, then when natural strains came up short, persuade it to pony up a bigger chunk of cash for the better gamble — synthetic algae.
There is reason to suggest that this is all water under the bridge and that the days of the Venter-Exxon algae venture are numbered. One reason is that, as discussed above, its primary rationale — adapting to cap-and-trade — has been eclipsed by the ascendance of science skeptics in U.S. politics. The second is that the imperative of an impending oil shortage appears less urgent than it did only recently. The New York Times’ Clifford Krauss writes of a coming oil supply boom from west Africa, Australia, Brazil, Canada, and the Gulf of Mexico, "hundreds of billions of barrels of recoverable reserves [that will] shift geopolitical and economic calculations around the world." Krauss quotes uber-analyst Edward Morse of Citicorp: "Use whatever hackneyed phrase you want, like tectonic shift or game-changer. These sources will dramatically change the energy supply outlook, and there is little debate about that." In the Washington Post, oil consultant Daniel Yergin adds to the list a bonanza in North Dakota oil shale and offshore French Guianan crude.
If the Venter-Exxon collaboration does wither, it will not outright kill the algae fuel industry. For strategic reasons, the U.S. Air Force for one plans to continue to fund research in algae-based jet fuel. Neither is Venter himself likely to abandon the effort, which brings us to the divide that will remain with or without a high-flown collaboration: Algae researchers fall into two distinct camps, explains Stephen Mayfield, director of the San Diego Center for Algae Biotechnology — native-strain enthusiasts, who are looking only in the natural world for the elusive algae that will produce industrial volumes of crude oil; and synthetic fanatics, "who are looking for a designer organism with hyper-efficiency." Mayfield, who is also co-founder of a competing algae company called Sapphire Energy, falls into the former camp. "Craig rolls big dice," Mayfield told me over the telephone. "More power to him." But Mayfield also said that, short of a humongous investment, Venter’s approach isn’t going to soon succeed. In fact, he thinks that Venter is wholly misdirected. "He is fundamentally an engineer. He wants to build from the ground up," he said. "If you ask a guy who has spent his life doing genomics, what answer are you going to get? Genomics. But the process is fundamentally agricultural."
But wouldn’t Venter reply that he is the guy who, against the conventional wisdom, mapped the human genome at turbo-speed? Yes, Mayfield replied. "I can picture it," he said. "Craig walks into the Exxon board and says, ‘Give me $1 billion and 10 years, and I will get it done.’ My guess is that the Exxon board says, ‘You are nuts. We’re not giving $1 billion to a scientist like you.’"
Life is timing. Today Mayfield may be correct — Exxon probably would balk at the commitment that would be required to bring algae to market in the next decade or so. But two years ago, that same approach might have been successful. Where Venter may have gone wrong was in presuming that the popular stage of the age of biofuels would last longer than it did. Back then, he probably could have rolled sevens.
The electric car race takes a left turn: Major industrial nations have approached the nascent advanced battery and electric-car industries as a vital matter of national wealth and global power. To all, the 800-pound gorilla in the room has been China, which declared boldly a couple of years ago that it would dominate the world in the manufacture of both. Today the playing board is changed. Chinese consumers have not flocked to electric cars as Party functionaries hoped, and highly touted companies such as BYD have failed to produce high-quality, competitive vehicles, the Financial Times’ Patti Waldmeir has reported in a pair of recent articles (here and here). So the Party appears to be turning to the safer bet of encouraging any vehicle as long as it’s efficient. What does this mean for Japan, the United States and South Korea, all principal players in this industrial race? Certainly some of the fear factor dissipates — one is not apprehensive of being crushed by China Inc. But apart from that, one senses no similar equivocation on the part of General Motors, Hyundai and Nissan, nor the myriad of European entrants in the electric-car race. For most of the competitors, the contest was always going to be long, reaching the straightaway only in the 2030s. The winners are likely to be plug-in hybrids with all the bells and whistles that cost the same as pure gasoline-driven vehicles, but take you more than 300 miles on a charge and a full tank. China’s shift means only that it will not be the runaway winner. Not in the next few years anyway.
Staying relevant in the Pacific: What is the objective of China’s military buildup? From Beijing’s standpoint, it’s a sensibly and strategically contained aim — obtain sufficient blue-water naval capability to secure the way if necessary between the location of your raw resources and the homeland; and control the waters near your coastline, along with the resources buried underneath the seabed. The first aim has seemed to ruffle no feathers, but not the second: Vietnam and the Philippines are joining ranks to assert rights to oil and gas reserves of their coasts against rival Chinese claims, for instance, and Taiwan is preparing a combat force in the South China Sea. For its part, the U.S. held joint Marine drills with the Philippines. This latter point perplexes my FP colleague Clyde Prestowitz, who excoriates U.S. Defense Secretary Leon Panetta for stepping up the U.S. military presence in Asia. Panetta, writes Clyde, should "start talking like he’s living in the 21st century — rather than the 1950s of his youth." If America wishes to remain a global power, the appropriate focus is its economy — it should "make wealth not war," he concludes.
Clyde is right that geopolitical power fundamentally flows from economic strength, and is lost in the absence of it. Yet, while withdrawing combat troops from Iraq and Afghanistan, the Obama Administration plays to long-term U.S. interests by getting in China’s face in this regard. U.S. assertiveness is necessary to push back against Chinese challenges to the oil and gas claims of U.S. allies strewn around the East and South China seas. Closer to home, can Clyde state flatly that Exxon will be able to exploit the natural gas find that it’s just announced off the coast of Vietnam, waters also claimed by China, if the U.S. isn’t making volubly clear that it’s not going anywhere?
When crowd-sourcing goes wrong: Ever see a long line and wonder what all those people were waiting for? Or, worse, get in the line only to maddeningly discover that nothing was for sale? So it seems with a growing swarm of big players queued up behind the idea of solving the problems of Afghanistan by resurrecting the Silk Road, a web of commercial land routes that went all-but defunct six centuries ago. On Thursday, U.S. Secretary of State Hillary Clinton repeated her endorsement of the idea as part of what she calls "fight, talk and build." Movers including the U.S. Army’s Central Command speak beatifically of a gigantic natural gas export pipeline, a World Bank-backed electricity grid, modern roads, plus factories, shops and thousands of jobs. What is the origin of this unfinanced notion of building tens of billions of dollars of long-term infrastructure across perhaps the most unstable stretch of land in the world? Frederick Starr, a jazz musician and historian who directs the well-heeled Central Asia-Caucasus Institute at Johns Hopkins University, is the pied piper of this show. I personally like the charming and erudite Starr, who has always welcomed me at his programs despite the mildy critical remarks I’ve made about his Silk Road idea. Usually I associate this fascination with the stories of Marco Polo and Kipling and the romance of Central Asia and Afghanistan, but the current active motif is desperation — no one knows how U.S. and other foreign troops can be extricated from Afghanistan in a way that approximates dignity and order, and the Silk Road seems so, so … silky. The thing is, no financial institution is likely to commit this scale of investment for infrastructure lasting upwards of three and four decades — who can guarantee this stuff won’t be blown up? In terms of this queue, there is something for sale. Only it disappears in your hands. (For those interested: On Nov. 14, the latest members of the queue to nowhere will join Starr at an event sponsored by the Jamestown Foundation in Washington, D.C.)