Cellulosic Biofuel is next big thing.............

I read this interview in WSJ and I am pasting it here.Actually this article is almost a month old but I forget to paste it here for my readers.I just remembered it and I am pasting it here.

So Read on:


The Wall Street JournalInvestment in ethanol is surging. But how much of a role will it play in powering automobiles? Vinod Khosla, managing partner of Khosla Ventures, has invested in a number of alternative-fuel ventures. Red Cavaney, president and CEO of the American Petroleum Institute, is cautious about when alternatives can make a big difference.Messrs. Khosla and Cavaney talked to The Wall Street Journal's Kimberley A. Strassel. Here are edited excerpts.

Ethanol's Future

KIMBERLEY A. STRASSEL: What role will ethanol play in the future? What are its limits, what are its potentials, and how does it fit in with everything else?

VINOD KHOSLA: The way to think about the problem is over the next 15-plus years, we'll ship one billion new cars. When it comes to transportation and carbon reduction in transportation, what technology can get into 500 million to 800 million of these cars, at least, to make any material difference? There's one and only one choice, and that's cellulosic ethanol, because biomass is scalable in a big way, so it has to be the feedstock. You have to start with a scalable feedstock. You have to start with a technology that doesn't cost any money. A car costs the same whether it's flex-fuel or not.Cellulosic ethanol and flex-fuel cars are the only ones that can get to 500 to 800 million cars. So what's the fuel? We need a low-carbon fuel. The only feedstock is biomass.

MS. STRASSEL: But right now, we're dealing with the corn-based ethanol industry.

MR. KHOSLA: Corn-based ethanol has been a good steppingstone. It has established the market. It's made it easy for me to have 10 different cellulosic ventures, because now it's worth me taking the technology risk, which I would not have taken had the market not existed. But there's no question [about] the kinds of price targets we are talking about -- about $1 a gallon within five years and probably within two. Both oil and corn ethanol will have a difficult time competing in price with biomass-based fuels. In fact, last year, I forecast oil would have to decline to $35 a barrel by 2030 to be competitive. It is the alternative fuel 20 years from now.

RED CAVANEY: I think there's no question that there is going to be some successor fuel to oil and gas. The issue is that the transition, for which nobody knows the duration, be managed sufficiently so that the consumer has a reliable supply of fuel so they can continue to rely on automobiles, trains, whatever the case may be. We are presently absorbing as much ethanol as can be made. It does a lot of advantageous things for us. It adds octane to the fuel, gives it more power. It helps us rely a little bit less on having to import into the country.We have some challenges, and I think the most important thing that could happen is that we get away from the myths about things and start to deal with the facts.

MS. STRASSEL: What do you think the myths are?

MR. CAVANEY: That we can move overnight from wherever we are today to cellulosic ethanol. It will take time. [Ethanol] is going to play an important role, but it's got to be a longer transition, and that's why we don't want people to act too precipitously upfront. Let's learn, let's move together, and the right solution for the consumer will end up coming out at the end of the pipe.

MR. KHOSLA: Red said that we need an alternative fuel. It may or may not be ethanol, and I think we would probably agree on that. We're working on cellulosic ethanol, cellulosic gasoline, cellulosic jet diesel, cellulosic biocrude. You name it; we're looking at the fuel. And I can't tell you sitting here that cellulosic ethanol is going to be the answer. Fortunately, we were able to change the energy bill to refer to cellulosic fuels, not cellulosic ethanol alone, to allow for the wide variety of experimentation.A Viable Industry

MS. STRASSEL: Give me a year in the future when you think we're going to have a viable cellulosic ethanol industry.

MR. KHOSLA: Starting next year.( that is qiuck, early isn't it?)

MS. STRASSEL: Commercially viable?

MR. KHOSLA: The first commercial plants that are cheaper than both oil and corn ethanol are targeted to start operation at the end of next year, probably be in full operation in 2010.

MS. STRASSEL: When you say cheaper than oil, is that standing on its own or with --

MR. KHOSLA: Every time I talk about cheaper, I mean unsubsidized market competitiveness. Whether you get subsidies on top or incentives doesn't matter. Every single effort I talked about is meant to be competitive with oil at $45 a barrel, unsubsidized, within five years.

MS. STRASSEL: Red, what year?

MR. CAVANEY: I don't know the exact year, but it's later rather than sooner, not that we won't make the technical breakthrough, not that Vinod's plant won't come on and produce it. But to really have a meaningful impact, you need to get the volumes up.Everybody has a scheme to say, "Well, we ought to go tax the oil and gas industry to fund all these alternative products." We invest more than our total income, and we've done that for decades because we're a capital-intensive depleting industry.So what we want to do is make sure you keep oil and gas there until these other things really can stand on their own, they get the volumes, and as Vinod said, we're not sure what the ultimate successor is going to be. It may be something we haven't even thought of yet.Chicken and Egg

MS. STRASSEL: Don't you have a chicken-and-egg problem here? There are something like 169,000 independent retail gas stations across the country, all of whom would have to decide that they were going to make this big investment to sell ethanol to their customers. If you don't have that in place, people won't buy the cars. If people don't buy the cars, the retail gas industry or anybody in the industry won't want to take the step of putting this out there for customers who don't have cars. Which comes first?

MR. CAVANEY: One of the big challenges that we have, of course, is how do you get that product from where it's actually in the refinery to where the consumer is. Of the 169,000 retail outlets that you spoke of, almost 95% of those are not owned by the oil companies; they're owned by individual entrepreneurs who have to make a decision on whether to invest. They're not going to do that till they see demand.We have a love/hate relationship with the auto, but let me tell you something that we did that we thought was in everyone's best interest and worked it out.We went forward over the last four years and put over $8 billion in investment in ultralow-sulfur diesel. We took 97% of sulfur out of the diesel. It is now the cleanest diesel fuel in the world. We had to do that before Detroit ever produced their first new generation of diesels that they're trying to sell. So we went first, made the investment.When you look at E-85 [85% ethanol, 15% gasoline], the autos have got to go first because if they don't create the vehicles to get the demand, how are you going to convince those people to make the investment?

MS. STRASSEL: Why is it different from diesel?

MR. CAVANEY: Because in diesel, we had to make the investment to go first, and they had to trust us that we would do it to bring their cars along.Here, we're saying the autos have to produce the cars first. It isn't going to all come on overnight, but it can come on gradually.

MR. KHOSLA: This is the chicken-and-egg question that has to be solved by policy. The three largest U.S. auto makers -- GM, Ford, and Chrysler -- have said by 2012, 50% of their cars will be flex-fuel cars. That's a lot of new cars. And they stood with President Bush and announced that last year.What needs to happen is the oil companies [need] to sign up for a mandate. And there's a very simple mandate on pump distribution that makes sense. You don't want every one of those 169,000 stations to offer E-85. You don't need the mom-and-pop stores to offer it. Every station that sells more than $5 million of liquid fuel a year [would have] an E-85 pump, if that was the mandate. If you have one E-85 among the 16 different pumps you have, we will cover 25% to 30% of the automobiles in this country. That, with Detroit's commitment, would solve our problem. That's the voluntary commitment we need from the oil companies and their franchisees.Who Pays?

MS. STRASSEL: Who pays for that? Who pays for that mandate?

MR. KHOSLA: There are strong federal incentives to put those pumps in. I do believe in the end it needs to be a mandate, and the sense I get is the auto companies would sign up for a 50% flex-fuel-car mandate by 2012 if the oil companies signed up for 10% of the highest-volume pumps to have E-85.

MS. STRASSEL: Red, do you think that's the case?

MR. CAVANEY: There are enough mandates in this business right now that makes it complex enough.This is a big challenge. It's not going to be solved overnight, and even a mandate isn't going to do that. So what we need to do is work together, and I think that's the solution.

MR. KHOSLA: There is no reason this mandate doesn't make sense. You know, we do have a mandate on what your tailpipe emissions can be. Why not this? Because it is so critical to global security and global climate change.


MS. STRASSEL: I have been surprised by the number of people I've talked to in the audience who are involved in different forms of alternative technology, who have been a little miffed at the ethanol industry. They feel as though it has gotten the lion's share of government help and support and that its time should be over, that it doesn't actually do enough for global-warming reductions, for instance, and other things.What do you have to say to these people? When will ethanol be set free to do its own thing without government mandates or help?

MR. KHOSLA: I don't believe we need continuation of subsidies for a long time. I've always said every renewable technology, be it solar, wind, cellulosic ethanol, should not get subsidies for more than five to seven years after its introduction in the market. But we need to get competition started. We need competition for oil.


Comments:
I hope I have not to summarise my views as I have already highlighted them in bold and color letters.......Ready to discuss.........with anyone about this topic........