Oil and Gas Looks at Biofuels

Oil and Gas Look at Biofuels by Larry Sullivan

A few, not many, myself included, enjoyed a substantial career in oil and gas before joining the bioeconomy. Oil and gas feature much in the way of international travel, long hours in isolated locations, work on drilling rigs in dangerous countries, and some excellent opportunities to see the world. My drilling career was not for everyone, requiring extensive travel, living, and working in remote locations and often dangerous assignments on drilling rigs from the Sahara Desert to the Barents Sea. One faces new languages, foreign foods, less than standard safety procedures. So, I moved to stationary sites after leaving the rigs for Conoco’s refinery operations. Then, with trepidation, the move to biofuels. In 2002, Crown Iron needed someone to manage an emerging market effort with biodiesel. I had been working in Minnesota with the Soybean Association for novel corrosion-control chemicals as well as starch, cellulose acetate membranes, and even canola oil TMP esters. There is much common ground between Big Oil, Big Soy, and Big Corn. Minnesota Big Iron companies provided computing power to the early days of Big Oil seismic surveys, and Iron Range Minnesota steel built American refineries. Let us find that sweet spot between these giants of American industry.

The origins of the cellulose ethanol efforts started in  WW2, and, before those days when Henry Ford figured the farmers buying his cars would divert a bit of the family’s moonshine to keep the car running. Then, Mr. Rockefeller’s Standard Oil in Cleveland found a home for volatile spirits leftover from his kerosene refining in the new horseless carriages traversing the new roads. This gasoline was ideal for internal combustion engines, and, in Germany, vegetable oils found a home with Mr. Diesel’s modern engines. Biofuels never left the scene, but petroleum sure found its home, especially in the war efforts of the 20^th Century.

So, how does an oil and gas company look at biofuels over 100 years later? And, long after Mr. Ford and Mr. Rockefeller found common ground, the power industry selected government regulation, and the Supreme Court dismembered Standard Oil. The same question is often posed about power generation companies and their views of wind, solar, and biomass power interlopers. Must incumbent industrial companies surrender to emergents? Or is the natural evolution the path as we saw IBM, once dominant in Big Iron, become a company able to fit into the world of Apple computers?

Fundamentally, the oil and gas companies and especially those with refinery assets or divisions, shy away from biofuel producers, developers, and production. There are many reasons:  oxygen was not then fit for gasoline for engine designs in the 1970s, the oil refinery views oxygen as an alien species inside the process units, and, most importantly, it takes market share from refiners. It is one matter to sell a biobased chemical to a pipeline company to reduce corrosion but, a matter entirely different, to substitute ethanol for gasoline. Refinery processes rearrange hydrocarbons and not carbohydrates. These are fundamentally different processes requiring both academic and practical reality to come to bear on processes. However, this is changing as refiners start to make more of their biofuels inside or near their refinery. One might recall, the compromise from the Clean Air Acts was for oxygen mandates inside the refinery! Refiners found MTBE fit more within their refinery skill base, and ethanol failed in the 1970s, only finding its technical fit with dehydration technologies like the molecular sieve. ASTM standards took many years to develop. MTBE lost its edge due to environmental impacts with groundwater. Even refiners fought among themselves as they reformulated gasoline for both unleaded fuels and oxygenated fuels. Refinery managers struggle with biofilms inside some units, so, again, bioprocessing is alien to refiners. Microbiology graduates were not greeted well when refiners visited colleges to recruit staff. Today, they head up the queue.

As we see with legacy and incumbent power generation companies, there remains a conservative ethos and capital-intensive structure that resists new technologies. Dan Yergin, the author of the seminal book The Prize on the history of oil, followed with another book, The Quest, about power generation. In both oil and gas, as well as power, Yergin cautioned investors about disruptive technologies in capital intensive industries with long technology development cycles. He said avoid R&D under the guise of disruption with an eye towards a reality check on how long it takes for change to manifest itself. Power companies, especially investor-owned ones, and the large oil and gas refiners sit way outside the “Fake it till you make it” and the “Fear of Missing Out” paradigms so popular with early-stage biotechnology companies. Theranos’ failure confirmed many an oil and gas manager’s worst fear of disruptive technologies. Of course, the irony remains that the oil company geophysics’ departments led the way with supercomputers, in the early days of Big Iron, and used the wonders of mainframe processing to model the world’s oilfields! Those same mainframes even today run some modern refinery Distributive Control Systems and even Linear Programs. But, in the end, hydrocracking and fermentation are worlds apart. Government, especially the DOE, struggled to wed its past and now funds disruptive technologies. They are now starting to find common ground with CO2 (NETL) and biomass with BETO with the EPA figuring inside the wrestlers’ ring.

Today, most oil and gas companies are adopting technologies to mitigate their carbon exposure, and biofuels fit well now after stops and start from President Carter’s gasohol 1970s to President Bush’s warning that we “end our addiction to oil…” in the 2000s. We see today an over 40-year cycle that is yielding excellent progress. Many refiners are investing in projects Inside the Battery Limits (ISBL) using existing refinery units. Some exploration and production (E&P) companies are using biotech like biobased carbon dioxide with grants from the DOE and other sources. Some drillers welcome biotech companies for their ability to solve problems with corrosion, environmental impacts, and, most importantly, to show opponents as well as investors that sustainability is a significant concern.

Economist Mariana Mazzucato published works on an academic understanding of the early phases of novel technologies seeded by governments (EU, US, Canada). We know Google had its start with NSF funding. Tesla featured DOE funds, and I have worked on many SBIR grants in the past for innovative financing. Her works show the often-dismissed roles that the governments played in early-stage companies. Finally, the oil refiners grasped the message. They initiated a willingness to look more carefully at recruiting outside of engineers, accountants, and lawyers who typically dominated petroleum suites atop the office towers in Dallas and Houston, Los Angeles, New York, and San Francisco. Now one finds biologists, chemists, and even economists, starting to migrate up the corporate ladders in these petroleum giants, be they Rockefeller’s American progeny or the Signor Mattei’ ENI, Shell’s Samuel and Deterding. In the world of petroleum economics and geographic destiny, the skills these early leaders left do benefit today’s leaders.

It is not unusual to see the slow uptake by petroleum companies, and even today, there are resistant managers to Artificial Intelligence (AI) in the Big Oil and Big Data interfaces, Halliburton and Microsoft meet-cute. As we now know, the oil and gas companies did not invent mainframe computers but used them for finding oil and gas. So, from an oil man’s review, these slow adoptions are not unusual. The $1 billion refineries or power plants do not become obsolete like a $500 smartphone. Yet, while that cliché is illustrative, risks found in oil and gas exploration also exist with most new technology adoption. While an insider joke exists in oil circles about Mr. Rockefellers New York, the wrong side of the Hudson River step-child, SOCNY (Mobil) hiring management consultants to tell them “try to avoid drilling wells where to do not find petroleum” it does ring true. Oil refiners are risk-averse compared to oil drillers. Mr. Rockefeller bypassed his board to push his Standard Oil into exploration for oil in tiny Lima, Ohio, thus creating a risk-taker we see today with the healed relations between the New York and New Jersey offspring investing in algae.

So, sustainability drives company paradigms today regardless of the nature of their business, be it electricity, gasoline, or biofuels. Shareholders and their proxies wage battles over who will be the new Chief Sustainability Officer (CSO) in those suites in the suburbs of Dallas (Irving), San Francisco (Richmond), and this move away from the rarified suites to a CSO as the catalyst can now bridge the gap between the past and future. I always enjoy Dr. Brown’s response to Marty’s concerns for roads, “Roads? Where we’re going, we don’t need roads!”

About the Author

Professor Sullivan has a B.A. from the University of Texas, M.A. from Arizona State University, and additional graduate studies in Geosciences from Texas A&M University.  He authored the EPA RCRA Implementation Plan for the Texas Department of Water Resources and brings 35 years of experience in commercializing new technology and technology transfer, renewable fuels and chemicals, bioprocessing, and expert witness skills.  Profess Sullivan teaches World Regional Geography at The Citadel as an Adjunct Professor and was recently elected as a Commissioner on the South Carolina Consumer Affairs Commission.  He also serves as one of the  150+ bioeconomy expert with Lee Enterprises Consulting, Inc.