Wednesday, August 12, 2009

The Next Step

An image from Qingcheng mountain, near Chengdu, in Western China

One of the most under-appreciated alternatives to crude oil is biofuel from lowly algae. According to a frequent contributor to this blog, who is developing production in China, algal oil is more than a good alternative. It’s good business.
By David DuByne
Media organizations continue to feed us down-turning economic news. That’s fine for now, but why isn’t anyone talking about the problems we will encounter as the global economy starts to strengthen and recover?

Economists and energy traders are increasingly coming to the same conclusion: When the economy begins to get back on its feet again, there will be an immediate ceiling of resistance due to high energy prices which will once again crash the markets. This recurring cycle will continue until world population begins to decline, the economy permanently contracts to keep step with falling oil supply, or we develop energy alternatives and environmental solutions. Of these choices, developing alternatives is better than standing in a soup line during a prolonged worldwide depression and fighting wars for the world’s remaining energy reserves.

We need substitutes for liquid fossil fuel and it looks as if the current options will have to be combined as a multi-solution approach with each part contributing to the whole. Biofuels are part of the solution.

We have all witnessed dramatic food price increases as our world first produced biofuel using corn, sugar cane, sorghum, canola and palm oil instead of putting that on our plates. Plus, many of these crops could only be harvested twice or three times a year. This led most governments to quickly realize that non-edible feedstock crops were needed on non-arable lands. Second-generation biofuels included jatropha, castor beans and Chinese tallow. Those products have important limitations: multi-year long “seed to harvest” growth times, high transportation costs and the need for additional seed treatment to get refined product.

Problem is, by next year when there are 80 million more mouths to feed on our planet, the availability of farm grown biofuel will diminish even further. The market for fuel is growing with our growing population. But so is the demand for food.

Now we have entered the third generation of biofuel. Algae bio-crude is stepping out in front as a real contender to make a difference as energy demand continues to increase. According to one authority, “In the beginning, there were algae, but there was no oil. Then, from algae came oil. Now, the algae are still there, but oil is fast depleting. In the future, there will be no oil, but there will still be algae.” We argue that common sense dictates that algae biodiesel will become one of the most important biofuels.

Alternative methods are great in theory, but in our world “profit is king”. Projects must show a return so investors will seed the investment. Until the solution itself is profitable there will be no change-over. In this area, algae have important advantages. It has multiple product revenue streams from the bio-crude and associated by-products, and it qualifies for carbon tax credits.

As worldwide energy reserves dwindle, the Chinese government has had a serious wake up call and is now aggressively pursuing renewable energy projects including algae biodiesel. Newspapers around the country carry stories of how China is moving down the green path of development. If it’s true, China’s move in a new direction toward algae-derived liquid fuel may leave the west far behind in the number of installed hectares. Since the world’s manufacturing is done in China all they have to do is manufacture and install, the infrastructure is already there.

China can ramp up production on a scale to convert our existing liquid energy production within the next three to five years. It has the resources and motivation. Additionally, since many pollution and environmental problems exist in Asia, solutions could emerge from countries like China to tackle both issues in the energy production chain.

When we look back in history, production follows the same model. First a product is introduced but it is extremely expensive and there is no centralized manufacturing of that product. As more companies start to come out with the same product, than larger scale production begins and the price drops slightly. In the last stage many businesses are manufacturing in a centralized location with prices driven down to the lowest levels that make it affordable for the average person or family. The DVD player is a perfect example. It cost $1500 in the 1980s; now you can buy one for $50.

Algae growing equipment is still in the beginning stage where machinery is expensive and not readily available for the average person or family. DAO Energy intends to change that. I am one of the principals in this company.

Global Solutions
DAO Energy, LLC is an algae bio-diesel company registered in Texas. However, our staff live in Chengdu, in Western China. Our market research has led us to the opinion along with most others in the algae industry that manufacturing cost for photo bio-reactors and grow-out units is the major stumbling block on the way to viable mass production globally.

Our solution is to help algae bio-diesel companies worldwide to inexpensively source, manufacture and commercialize growing systems. This will provide a cheaper alternative for algal production in every country. We seek to cooperate and partner with international companies that wish to reduce material costs by manufacturing in China. These algae growth systems can then be maintained domestically in any country to create local jobs and support energy independence. Additionally, we will produce high quality, inexpensive “off-the-shelf” photo bio-reactors for schools, universities, and private individuals. I personally hope schools will use these as educational tools for students to see where we are heading with renewable energy and solutions that already exist. We are not out to reinvent the wheel, we want to offer basic photo bio-reactors. We want to seed the concept of “algae growth for everyone” at the individual level into the mind of the populace, because if we are going to convert systems for energy production it will take an effort from everyone, individually, not just at the corporate and governmental levels.

Dao Energy is in the process of designing, modeling and building algae bio-fuel prototype equipment with the purpose of lowering material costs and advising on materials sourcing and logistics in China. Local extrusion and injection molding factories already have everything we need right now for production of our “off-the-shelf photo bio-reactor”. There is a tremendous amount of overproduction and idle factories that are looking for different higher value chain products to manufacture. This is the consequence of the economic recession in China.
A close-up of Dao Energy's reactor
Our near-term plans are to build a grow-out photo bio-reactor next to an ammonia plant, sequester their excess CO2 and then harvest and process algae on site at the plant. In the future when algae production does evolve into a global industry this model of local production, local usage can be mimicked everywhere. Eventually, installation of mass grow-out units will increase and as with everything else over time the single dots will connect into a massive web that should cover the planet and provide some assistance as a liquid fuel replacement.

The Sichuan Trump Card
We have been courted by local business owners that have connections to Sichuan government officials who want us to conduct our project in Sichuan province. The reasons include earthquake reconstruction, job creation, environmental cleanup, carbon sequestration and energy production all in one program. Not surprisingly with mandatory CO2 emission compliance just around the corner, carbon credits have been one of the main subjects talked about in our discussions along with oil production.

Sichuan province remained one of the only electrical generation carbon neutral provinces in China as of 2008. In fact, provincial authorities sold all of 2008’s hydroelectric carbon credits to Saudi Arabia in early 2009. As we have been told, the current Chinese time line is three years before emissions controls take effect on a compulsory level and all carbon credit trading or sales go through China Construction Bank (CCB) in Sichuan. There has also been quite a bit of talk about a “Carbon Credit Trading Floor” being started in Sichuan to cover the western part of China. These are the reasons we have chosen Chengdu.

It’s all about Cost
Consider for a moment that we would be squandering our remaining energy reserves and commodities by building new facilities in every country to produce algae growing equipment while existing factories in Asia are unused. If we choose to go down that path it will be one of the greatest wastes of commodities, energy and investment in human history. During the last 15 years investment poured into Asia for this very purpose; centralizing world production of consumer goods. We should use that investment wisely in a way that benefits every nation.

I need to reiterate to everyone that although our system is manufactured in China for a lower cost, the installation, upkeep and repair of the grow-out and bio-reactors units will be done in each individual country along with growing, harvesting, de-watering and pressing of the algae. Refinement of the oil and processing of algae press cake by-products will be handled by companies in the local community. Local and interstate truck drivers will be driving on fuels produced as a supplement to existing nationwide supply chains. This idea of locality can be replicated everywhere.

At the end of the day, whoever manufactures the most affordable equipment will have the ability to produce oil at a lower cost than anyone else. Manufacturing algae bio-fuel equipment in China utilizing existing infrastructure should ultimately lower the cost of machinery, which in turn will lead us to our main objective; the production of inexpensive crude oil and local job creation in every country.
You can contact Dave Dubyne through his website.
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