Richard Ha writes:
A couple months ago, I attended a forum at Kaneohe Marine Corp Air Station that was jointly sponsored by the U.S. Navy and the U.S. Department of Agriculture.
We were told that the Department of Defense regards liquid fuel to be a national defense concern. Many dignitaries reiterated that message. The Navy spokesperson said that Hawai‘i is one of the first places where they will kick off their initiative. He said that the U.S. Navy can use many, many millions of gallons of “drop-in” biofuels — fuel that is interchangeable with petroleum fuels. The U.S. Department of Agriculture person talked about loan guarantees of five years, but said they needed to extend that.
Being a practical farmer, I wanted to know how much they will be paying for this “drop-in” bio fuel. Finally, at the end of the day, they said they will buy it for approximately $1.95 per gallon. Knowing there are 42 gallons in a barrel of oil, this means that they will buy it at $82 per barrel — market price.
I felt the oxygen go out of the room.
Last week, I read a new report on biofuels. The capital cost of the new generation biofuel plants are huge. Whereas the same size ethanol plant might cost around $100 million, the equivalent next generation biofuel plants could cost from $300 - 600 million. It also says that about a third of the operating cost of the plants producing “drop-in,” next generation biofuels is the cost of the feedstock — i.e., farming.
So farming is key?
A farmer makes these kinds of decisions all the time. What size pickup truck should I buy and how am I going to pay for it? If I have a small farm, I’ll buy a small truck. On the other hand, if I have lots of stuff to deliver, I’ll buy a bigger truck. The main thing is to match up the cost with the income.
From the above information, it seems that we have decided to buy a huge truck before we have figured out how to pay for it. We do know that one-third the cost of operating will be the feedstock. Will the farmers supply it at a price that makes everything else work?
On the mainland, to make everything work, the feedstock must not cost more than $60 per ton (.03 cents per lb.). The problem is, farmers can make hay for $100 per ton (.05 cents per pound). So they fixed this by giving a $45 per ton subsidy.
In Hawai‘i, farmers make hay for $300 per ton (.15 cents per pound). Can they make money at $100 per ton (.05 cents per pound)? Would anyone depend on farming to produce enough stuff to pay for the huge truck?
We have to play the position on the chess board that exists. Not the one we hope to have.
Of course, we should pursue studies and trials to see if we can make the very dramatic breakthroughs necessary. And we all hope that algae will eventually work.
But being real, we need to hedge our bets. Geothermal is good. You don’t need to fertilize, irrigate, plow, plant or get stuck in the mud. And if we are subsidizing the production of energy, we should consider the folks who provide the primary source of energy — farmers.
A couple months ago, I attended a forum at Kaneohe Marine Corp Air Station that was jointly sponsored by the U.S. Navy and the U.S. Department of Agriculture.
We were told that the Department of Defense regards liquid fuel to be a national defense concern. Many dignitaries reiterated that message. The Navy spokesperson said that Hawai‘i is one of the first places where they will kick off their initiative. He said that the U.S. Navy can use many, many millions of gallons of “drop-in” biofuels — fuel that is interchangeable with petroleum fuels. The U.S. Department of Agriculture person talked about loan guarantees of five years, but said they needed to extend that.
Being a practical farmer, I wanted to know how much they will be paying for this “drop-in” bio fuel. Finally, at the end of the day, they said they will buy it for approximately $1.95 per gallon. Knowing there are 42 gallons in a barrel of oil, this means that they will buy it at $82 per barrel — market price.
I felt the oxygen go out of the room.
Last week, I read a new report on biofuels. The capital cost of the new generation biofuel plants are huge. Whereas the same size ethanol plant might cost around $100 million, the equivalent next generation biofuel plants could cost from $300 - 600 million. It also says that about a third of the operating cost of the plants producing “drop-in,” next generation biofuels is the cost of the feedstock — i.e., farming.
So farming is key?
A farmer makes these kinds of decisions all the time. What size pickup truck should I buy and how am I going to pay for it? If I have a small farm, I’ll buy a small truck. On the other hand, if I have lots of stuff to deliver, I’ll buy a bigger truck. The main thing is to match up the cost with the income.
From the above information, it seems that we have decided to buy a huge truck before we have figured out how to pay for it. We do know that one-third the cost of operating will be the feedstock. Will the farmers supply it at a price that makes everything else work?
On the mainland, to make everything work, the feedstock must not cost more than $60 per ton (.03 cents per lb.). The problem is, farmers can make hay for $100 per ton (.05 cents per pound). So they fixed this by giving a $45 per ton subsidy.
In Hawai‘i, farmers make hay for $300 per ton (.15 cents per pound). Can they make money at $100 per ton (.05 cents per pound)? Would anyone depend on farming to produce enough stuff to pay for the huge truck?
A friend of mine bailed California Grass on flatlands, with deep soil at Pepe‘ekeo and natural rainfall — perfect conditions. He was fully mechanized and he knew what he was doing.
He got 22 tons of dry matter per acre, but he had to apply 1800 lbs. per acre of fertilizer to achieve that — a little more than .01 cent per lb. Land rent is $200 per acre; that is ½ cent per pound or more. That leaves 3-½ cents per pound to cover the equipment payment, fuel, labor, profit, etc. This assumes perfect weather all the time.
If we think about it, we realize that the sugar industry went through all of this. The last one standing, HC&S, had the best combination of farming necessities. It had flat land, plenty of sunshine, plenty of water and its production facility sat in the middle of the field. I think it is fair to say that if HC&S can’t make biofuels work, others will have a tougher time. Actually, if they can’t do it, maybe it can’t be done.We have to play the position on the chess board that exists. Not the one we hope to have.
Of course, we should pursue studies and trials to see if we can make the very dramatic breakthroughs necessary. And we all hope that algae will eventually work.
But being real, we need to hedge our bets. Geothermal is good. You don’t need to fertilize, irrigate, plow, plant or get stuck in the mud. And if we are subsidizing the production of energy, we should consider the folks who provide the primary source of energy — farmers.
Richard,
I am confused. The government has lots of economists and there are plenty of bright people in government. What is the rationale here? Why is biofuel moving forward with such huge bets? Is it primarily politics and lobbying, or do people really see some dramatic break-throughs and economies of scale? Who benefits from a misguided biofuel policy? And thanks again for your work.
Chuck
Posted by: Chuck | July 01, 2010 at 04:08 AM
Aloha Chuck
Liquid fuel is very important to how our society functions. So, we are trying to find a bio liquid fuel that can replace petroleum liquids. That is why we are throwing so much research dollars at the problem. We need a major breakthrough. However, there are some realities that us farmers know about through experience. And, that is what I am trying to bring to awareness.
Posted by: Richard Ha | July 01, 2010 at 08:56 AM
Here we go again... our government, in all it’s wisdom, is sending us down a path the won't pencil out without subsidies (tax dollars) Bio-fuels, as they are currently manufactured have a low ROI and a lower EROI. They are wasteful and destructive to the environment, they consume huge land resources just to supply electricity to an outdated centralized grid system. I suggest that everyone read “Winning the Oil Endgame, by Amory Lovins. I hope everyone supports Richards efforts to bring Geothermal online. The book is free, is full of innovative ideas that are market driven and a breath of fresh air.
http://www.oilendgame.com/ReadTheBook.html
Posted by: Wally Andrade | July 02, 2010 at 08:00 AM