OT? Interesting presentation on Ethanol

kevinh · #1 07-22-2006, 12:42 PM

Hi ya'll,

So a couple of weeks ago there was a discussion about ethanol in avgas. Some of the posts addressed the 'false economies' of Ethanol production. I thought those posts we're very compelling, however I've just watched a very interesting talk by Vinod Khosla. Vinod is one of the principals of Kleiner Perkins - one of the two powerhouse VCs behind Silicon Valley's most important ideas over the last twenty years. Vinod is now mostly retired as a VC, but he's got a number of good arguments in favor of Ethanol. He is really smart and honest fellow, so when he says something is compelling I listen.

Vinod recently gave his talk at google and they are now distributing it online: (click here to view)

If you are concerned about the future of fuels, oil dependance and some surprising consequences for greenhouse gasses, it is worth watching. At least watch the first five minutes to decide if you want to watch more.

rv8ch · #2 07-22-2006, 02:39 PM

That is a very interesting talk. I agree that getting real entrepreneurs into the energy business will allow us to come up with some great solutions. My major concern is the one he brought up - the oil companies dropping the price of oil to kill these types of initiatives.

Thanks for the link - I doubt I would have ever found this video without you pointing it out.

hevansrv7a · #3 07-22-2006, 04:01 PM

Excellent stuff. Thank you. I passed the link to several friends. I don't buy all of it and I disliked some of the political slant, but it was VERY eye opening.

kevinh · #4 07-22-2006, 04:44 PM

Quote:

Originally Posted by hevansrv7a

Excellent stuff. Thank you.

You are welcome. I've talked with this fellow in a few other contexts and he's a real straight shooter.

Bitsko · #5 07-25-2006, 10:53 AM

Interesting. I disagree with the "big, bad oil companies" nonsense, though. "Oil companies" don't control the price of oil...or even refined fuel. They are commodities. WE control the prices, ultimately, though supply and demand. (Once we've paid OPEC for the oil, which is another matter entirely.)

Ethanol is very high octane fuel, though the energy content per gallon is a bit lacking. And you can legally make the stuff yourself, in your garage. Yes, folks, operating a "still" is legal! You need a permit from the BATF, but it's easy to obtain. You just have to pinkey-swear you won't drink the stuff. It's pretty much done on the honor system. (You're required to put poison in the fuel, but nobody actually checks up on it.)

rv8ch · #6 07-25-2006, 11:08 AM

Quote:

Originally Posted by Bitsko

Interesting. I disagree with the "big, bad oil companies" nonsense, though. "Oil companies" don't control the price of oil...or even refined fuel. They are commodities. WE control the prices, ultimately, though supply and demand. (Once we've paid OPEC for the oil, which is another matter entirely.) ...

Hi Bitsko, I'm just curious, what part of what he said about oil companies did you disagree with? If I recall correctly, he said that an oil company exec told him that they would drop the price of oil down to the point where ethanol production is not economically viable if they felt ethanol would become a threat to their business. Is this what you disgree with, or was there something else that I missed?

vlittle · #7 07-25-2006, 12:23 PM

I've worked closely with many Venture Capitalists, and I've been involved in purchasing or investing in several companies with values up to 2 billion dollars.

Vinod seems to be a typical VC. In general terms, the VC formula is:

1. identify disruptive business or technology trends with potential large payoffs
2. identify key 'startup' players and technology, or put together startup companies with hand-picked individuals
3. place several investments
4. through their investment influence, try to drive industry standards or government regulation in a favorable direction.
5. publicize and hype the new business/technology and how it will payoff to investors
6. just when the world has bought into the arguments and momentum is building, sell the company or take it public to make money.

[example the 'Tech Bubble']

In the above, actually having the market develop or technology widely deployed is not an objective.... making money is. The VC's motivation is not to make the world a better place.

Having said all that... Vinod may be right, for all of the wrong reasons. To me , he blew his credibility badly when he quoted an oil company executive as saying all of the new oil is coming from (paraphrased) 'despots and terrorist countries'. The fact is, most new oil is coming from one of the world's largest reserves... the Alberta tar sands in Canada.

Last time I looked, Canada was a stable, democratic country... and literally just 'up the road' from the US.

Of course, VCs like to use emotional hyperbole, but it totally blew his credibility. How much of the other information that he provided was false or misleading? It pays to be a skeptic. This man want's your tax dollars spent to his benefit.

He makes a lot of excellent points, but underpinning everything is the big hand of government guaranteeing him a return on his investment.

This is my opinion of course (humble or otherwise). Be skeptical... look for other sources of information before making any judgements (or investments).

It will be a while before I convert my O-320 to run on corn whiskey.

Vern Little
RV-9A
-professional skeptic-

hevansrv7a · #8 07-25-2006, 04:03 PM

He did not deal with the ramifications of converting our food exports to energy. What would happen to the price of grains in the poorer parts of the world and what political changes might that cause? What if Canada followed suit? Between US and Canada, there's a lot of food exports others need.

A friend contributed these points (some of which numbers differ):

Most of the people babbling about carbon have no real contribution to energy production and consumption as our society is organized and functions. Stanford University did a long, hard study of Ethanol in the economy and determined that, in whole, it consumes more energy than it provides ? a net loser. We have embraced it because of the politics of coalitions. The environmentalists are a little chastened because they foisted MTBE on us in 1990, and now we have more contaminated ground water than at any time in the continent?s history. They got together with the farm lobby to foist ethanol on us as a fuel.

1)You can?t ship it around the country through pipelines ? it eats them quickly. So it must be trucked or trained ? a windfall for those transportation industries.

2)It needs lots of biomass as input to the conversion process. The Stanford guys said that our transportation consumption is great enough that we would have to plant every acre of the continental US ? and still would be short of current consumption levels.

3)Ethanol, at current cost and tax levels, is 30% less cost efficient than 87 octane gasoline.

4)Ethanol is a massive taxation problem. Ethanol taxed for consumption provides $20-60 per gallon in tax. In order to protect that tax revenue, ATF requires that any ethanol produced be certifiably poisoned with 15% gasoline to prevent untaxed consumption. As ethanol production and distribution increases, this will be huge, because the blending doesn?t happen before shipping.

kevinh · #9 07-25-2006, 04:18 PM

3)Ethanol, at current cost and tax levels, is 30% less cost efficient than 87 octane gasoline.

Which is why Brazil consumers have switched 40% of their auto fuel consumption from petrol to domestically produced Ethanol? Please site sources for this statement, I don't see how that adds up.

I was totally against Ethanol until I first saw this talk, then I poked around a bit and found this article:

http://en.wikipedia.org/wiki/Ethanol_fuel_in_Brazil

As for the implication that Vinod is trying to pump up eventual stock sales, I don't think this is true. Vinod has at least a billion dollars and I note that the companies he cites that would primarily benefit are either farmers or large public corporations.

kevinh · #10 07-25-2006, 04:25 PM

Most of the people babbling about carbon have no real contribution to energy production and consumption as our society is organized and functions. Stanford University did a long, hard study of Ethanol in the economy and determined that, in whole, it consumes more energy than it provides ? a net loser. We have embraced it because of the politics of coalitions. The environmentalists are a little chastened because they foisted MTBE on us in 1990, and now we have more contaminated ground water than at any time in the continent?s history. They got together with the farm lobby to foist ethanol on us as a fuel.

Would you mind a citation for this? I'm honestly curious and my googling hasn't found this Stanford study.