Survey: oil execs serious about Peak Oil, but mass-produced biofuels years away

A poll by audit, tax and advisory firm KPMG questioning 553 financial executives from oil and gas companies on the future of oil and biofuels, was recently released. The survey gives a snapshot of oil execs' attitudes to global warming, Peak Oil and the potential of renewable fuels. The fact that a majority of them considers climate change to be a 'natural weather cycle' is highly significant: it shows the oil industry will go against the scientific consensus in order to maintain its power position in the energy matrix of our world.

Peak Oil is real
Twenty-five percent of the respondents said that at least 75 percent of government funding into energy should be directed at the renewable fuels sector, and a further 44 percent said that at least 50 percent of funding should be allocated in the same way. These feelings stem from the overwhelming majority, or 82 percent, citing declining oil reserves as a concern.

"These executives are deeply concerned about declining oil reserves, a situation they see as irreversible and worsening. Oil and gas companies are sending a clear signal to the government that intervention is needed." - Bill Kimble, National Line of Business Leader, Industrial Markets for KPMG LLP.

Sixty percent of the executives said they believe the trend of declining oil reserves is irreversible. And, when asked about the impact of emerging markets, such as China, will have on declining oil reserves, almost 70 percent of the executives said that it would lead the situation to worsen.

Biofuels: 'not yet'
However, more than half of the five hundred plus oil and gas executives said they didn't think 'mass production' of renewable fuels would happen in the near future.

While the petroleum company leaders said they're keen to see renewable energy sources becoming a mass produced reality, 60 percent said it will not be possible by 2010. Of those that believe it will, 18 percent identified ethanol is the most viable for mass production by then, 13 percent said biodiesel and only 3 percent said cellulosic ethanol.

Bill Kimble stressed the survey was not qualitative, only quantitative, so survey leaders didn't have a chance to probe responses in detail. But he speculated the findings reflected two big big issues regarding alternative fuels.

"What is the definition of mass production? Ethanol is a very small, small percentage of fuel production today. And secondly, what's embedded in here is the economics. Without incentives from the government, I don't think people are that positive on it until we get it right," he said. On the other hand, the Brazilian case shows that within a single country where conditions are favorable (climate, crops, land), 'mass production' of biofuels is not unfeasible.

Climate change
An amazing majority of 65 percent of the respondents said that they believe global warming is occurring, but they called it a 'natural weather cycle'. Eleven percent said that they do not believe it is occurring. Just under a quarter said they believed global warming was CO2-induced:
bioenergy :: energy :: sustainability :: reserves :: oil :: gas :: biofuels :: climate change :: Peak Oil ::

Managing declining oil reserves
When asked about their upstream capital spending, the majority indicated that investment will be a factor in helping them manage declining oil reserves. Sixty-nine percent said that it would increase by more than 10 percent, a jump of 49 percent over 2005.

"The reserve opportunities are tougher, so what are you going to do? You could invest in technology, or start playing more in the alternative energy space," said Kimble.

Mergers and acquisitions continue to be a trend, with 24 percent of the executives saying that they expect their company to be involved in one in the next year. Sixty eight percent of respondents expect private equity to play a larger role over the next year than it has in previous years.

Risks in the industry
Responding to perceived risks facing their companies, KPMG's Kimble told Inside Greentech it was a "jaw-dropper" that forty-four percent identified their biggest risks as financial, specifically issues like satisfying regulatory requirements like Sarbanes-Oxley, shareholder demands and corporate social responsibility requirements.

"We put in things like access to access to drilling rigs, political unrest in foreign countries, like the west coast of Africa, environmental damage, plants having problems, access to equipment," said Kimble. "None of those emerged as big factors."

"Corporate social responsibility seemed important. They've got to get that right. That could have an impact on the market value of a company."

Image: Peak Oil scenario by the Association for the study of Peak Oil and Gas.

More information:
Inside Greentech: Oil and gas execs say biofuel mass production years away - May 11, 2007.

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Integrated biorefinery to produce biofuels and dairy products

Process integration can considerably strengthen the energy balance of biofuels (earlier post). By using by-products and residues from the production process in a 'cascading' way so they become inputs for new products or energy is a concept that will drive the design of integrated biorefineries.

Arizona-based XL Dairy Group, Inc. is building such a self-contained biorefinery designed to produce a range of products: high-grade ethanol, biodiesel, milk and dairy products, and animal feed - while all the energy used to power the refinery is derived from residues (glycerol, manure, corn bran, thin silage). The diagram (click to enlarge) offers an overview of this integration.

The US$260 million biorefinery, to be based in Vicksburg, will use proprietary technology to generate ethanol with an energy efficiency ratio of 10:1. The ratio means that for every unit of fossil fuel energy needed to produce ethanol and biodiesel, XL Dairy Group will produce 10 units

It is important to stress that this is the 'internal' energy balance of the system, which does not take into account the energy needed to grow the main input, corn, nor the feed for the cows that deliver manure from which biogas will be obtained. To compare the final energy balance of the biofuels with the energy balance of, for example sugar cane ethanol (which is between 8 to 1 and 10 to 1), one must factor in the energy inputs needed to plant, fertilise and harvest the corn as well as for the animal feed. We estimate that the final energy balance of fuels derived from the concept will then be around 3 to 1. This is twice the efficiency of a traditional dry-grind ethanol plant.

To achieve that efficiency, and generate cost savings of $0.30 to $0.35 per gallon in ethanol production and $0.50 cents per hundred weight of milk, the company will convert waste streams from the 7,500 dairy cows as well as from the fractionation, biodiesel and ethanol processes into energy to power the entire project with recycled, renewable energy.

Fractionation separates corn, the primary element in producing ethanol and biodiesel fuels, into three parts: germ, corn starch and corn bran.

"Environmentally, the project has significant advantages because of low emission of greenhouse gases through the conversion of waste streams to energy and a high energy efficiency ratio. Simply put: as the only biodiesel refinery in the nation with this level of energy efficiency, we will not be energy dependent on fossil fuels and volatile energy markets." - XL Dairy Group Chairman and CEO Dennis Corderman.

According to Corderman, the output from the integrated operation will consist of the following products:

• 54 million gallons of ethanol per year
• 5 million gallons of biodiesel per year
• 11 MW of power and 155,000 pounds of steam per hour
• 525,000 pounds of milk per day
• 110,000 tons of animal feeds per year

Located 100 miles west of Phoenix in La Paz County, construction on the first phase of the Vicksburg BioRefinery dairy farm is complete:
bioenergy :: biofuels :: energy :: sustainability :: ethanol :: biodiesel :: glycerol :: biogas :: process integration :: biorefinery :: bioeconomy ::

The Phase II Dairy will be constructed during 2007, and final engineering is now underway on the biofuels facility which includes the fractionation mill. The project, said Corderman, will process over 576,000 tons of corn into 54 million gallons of ethanol, five million gallons of biodiesel and 110,000 tons of animal feeds annually.

Carbon dioxide produced during the process will be captured and stored on site for sale in various applications including beverage carbonation, cooling and the production of dry ice. Carbon dioxide, one of the major contributors to greenhouse gases and global warming, also can be "scrubbed" on site and converted into oxygen to be released into the atmosphere.

XL Dairy Group also is waiting for patent approval on a proprietary, low-cost algae production system, which will then be incorporated into the XL BioRefinery to lower operating costs and expand the production of motor fuels and animal feeds. "Because algae has a higher oil content than corn, and needs much less acreage to produce much higher volumes, which we will do at the site, we expect to expand to 100 million gallons of ethanol and 25-30 million gallons of biodiesel over the next five years," added Corderman.

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