HOPE IN JATROPHA
India Gives Biofuels a Chance to Grow
by Brook & Gaurav Bhagat
October 15, 2004
Editor's Note: Critics of biofuel point out the energy and water necessary to produce the feedstock often can exceed the energy value of the fuel produced. But these studies usually ignore the value of the plant mass as animal feed or fertilizer, once the fuel has been extracted. Another valid concern is the tradeoff between using land to grow food and using land to grow fuel. But what if a plant used to extract biofuel grew on marginal land, that was unable to support crops? What if this plant required minimal water and fertilizer inputs?
Jatropha, also known as the Physic Nut, is a plant which may hold such promise. Able to tolerate arid climates, rapidly growing, useful for a variety of products, Jatropha can yield up to two tons of biodiesel fuel per year per hectare. Put another way, Jatropha can yield about 1,000 barrels of oil per year per square mile. In such quantities, Jatropha, like biofuels in general, cannot become a replacement for oil. But Jatropha requires minimal inputs, stablizes or even reverses desertification, and has use for a variety of products after the biofuel is extracted. Moreover, diesel fuel with biodiesel additives causes far less pollution.
Biofuel is not the ultimate solution to the energy challenges facing India or the world. But it is part of the solution, especially when it not only stretches finite supplies of conventional fuel, but restores the land it grows on, does not displace more viable agricultural land, and requires minimal water inputs.
As energy demand increases,
the global supply of fossil fuels decreases, causing inflation, instability and war; the emissions from fossil fuels cause immediate harm to human health and contribute to the greenhouse effect, and, deforestation and the destruction of agricultural lands threaten to turn this Earth into a desert, bit by bit. There is no doubt that the end of the fossil fuel age is not far off.
Then what? How can we combat desertification, reduce the need for oil, and help heal the present wounds in the environment, all in one stroke?
Dr. A.P.J. Abdul Kalam
President of India
A visionary scientist among politicians, A. P. J. Abdul Kalam, the president of India, sees an answer in biofuel. In a recent Presidential address he recognized biofuel, and specifically the plant jatropha, as worthy of mention. Discussing the national problems of water scarcity and drought, he stated that "India needs to grow jatropha to tackle dry land and generate bio-diesel."
India is particularly well-suited for the honor of heralding in a green alternative fuel because of its:
(1) Estimated 50 to 130 million hectares of wastelands-- saline lands (from mining), degraded forests, and other land unavailable for agricultural use due to overfarming;
(2) Resulting shifting sand dunes and continuing process of desertification;
(3) Fastest growing population rate in the world -- increasing the need for food, energy, and employment;
(4) Rural/agricultural population of over 70%: biofuel screw presses are simple to make, and can be produced and maintained by a village blacksmith
(5) Huge national crude oil bill-- second only to defense spending;
(6) Constant battle with drought and shortages of water and electricity;
(7) Warm climate, agreeable both to growing biofuels and running engines that use them.
Indian Council of Forestry
Research & Education
R. P. S. Katwal, Director General of the Indian Council of Forestry Research and Education, said that the Union government had drawn up a blueprint to plant Jatropha trees on 50,000 hectares at a cost of Rs 1,430,000. "Biofuels are gaining importance in the light of increasing energy demand, especially fossil fuels which are non-renewable. Biofuels are renewable, biodegradable, non-hazardous and safer for air, water and soil and its use reduces the emission of greenhouse gases."
Other projects are funded from abroad, like the proposed $2.5 million pilot project in Hyderabad, Rajasthan, which will produce 10 tons of biodiesel per day. Raw oils from Pongamia, Jatropha, and other trees will be sourced from local farmers who are expected to be the major beneficiaries. The German Development Corporation (GTZ) is currently working with the promoters, Southern Biofuels Pvt. Ltd., to prepare a detailed project proposal for possible funding by German companies and the German government.
German Development Corporation
Daimler Chrysler and Hohenheim University (also German) are conducting a research project in two different climatic zones of India. Each plantation will consist of 20 hectares of jatropha trees planted on wastelands-- one caused by industrialization and the other by natural soil erosion. Other aspects include test vehicles and research laboratories. After the five-year research period, it is hoped that the plantations will become self-sustaining, profitable enterprises.
The current rate of Indian development of biofuels, particularly biodiesel, is just a drop in the bucket when compared to its potential. If 10 million hectares (100,000 square kilometers or 38,000 square miles) of India's vast and sometimes destructive wastelands were used for biodiesel production, with a modest estimate of 1.5 tons of seeds per hectare, 4 million tons of biodiesel would be produced-- one tenth of the country's annual oil requirement. If one person was employed per hectare, that would mean 10 million new jobs. And, for use or sale, 11 million tons of organic seedcake fertilizer or livestock feed and 0.4 million tons of technical grade glycerol would be produced.
Ethanol is the most widely used biofuel in the world; technological advances have lowered the cost of its production and processing. Brazil boasts one of the largest green fuel programs in existence: petrol-only engines have been banned and replaced by engines that use pure ethanol or a 78-22 petrol-ethanol blend. The shift has greatly benefit Brazil environmentally and economically, creating employment and reducing the need for foreign oil. Its hot, wet climate is well-suited to the production of sugarcane (from which ethanol is made), and farmers especially have profited.
India is also one of the biggest worldwide producers of sugarcane, but its constant struggle with water shortages in many areas makes growing this crop problematic. However, due to overproduction, sugar prices crashed, and there are actually stockpiles of sugar and spoilt food grain which have no use. These can be used to make ethanol.
Since January 2003, a minimum 5% ethanol blend in petrol has been mandatory in India in nine states and four Union territories. By 2005, the ethanol content should reach 10%. Undoubtedly, ethanol is an important biofuel for petrol engines, but its potential is limited in India due to the high amounts of water required for its production.
Jatropha trees grow on land too
poor and arid to support food crops
Jatropha curcas, also known as physic nut, is unique among biofuels. Although oil can be extracted from over 80 known plant species, jatropha is currently the first choice for biodiesel. Per hectare, yields vary from 0.5 to 12 tons/year depending on soil and rainfall conditions (Makkar and Becker, 1999). An average of about 5 tons of seeds per hectare can be produced under optimum conditions. The oil content of the seed is 55-60%, which can be converted into biodiesel by transesterification. An annual yield of 0.75 to 2 tons of biodiesel could be expected per hectare from the fifth year onwards (Fiodl and Eder, 1997).
What makes Jatropha especially attractive to India is that it is a drought-resistant and can grow in saline, marginal and even otherwise infertile soil, requiring little water and maintenance. It is hearty and easy to propagate-- a cutting taken from a plant and simply pushed into the ground will take root. It grows 5 to 10 feet high, and is capable of stabilizing sand dunes, acting as a windbreak and combating desertification. It has been most successful in the drier regions of the tropics with annual rainfall of 300-1000 mm. It grows naturally at lower altitudes (0-500 m) in areas with average annual temperatures well above 200C, but can grow at higher altitudes and tolerate slight frost.
Jatropha naturally repels both animals and insects-- it can be planted along the circumference of farms to protect other crops. Jatropha seedcakes, produced as a by-product of pressing the oil, make an excellent organic fertilizer or protein-rich livestock feed, and another by-product is glycerine. The plant lives, producing seeds, for over 50 years.
Jatropha cuttings quickly take root
Other parts of the plant are also useful: dark blue dye and wax can be produced from the bark, the stem can be used as a poor quality wood, and the roots help in making yellow dye. The flowers of Jatropha curcas and the Jatropha stem have well-known medicinal properties, and the leaves can be used for dressing wounds. All these things can be used, or sold.
Alternate uses of the oil include varnishes, illuminants, soap, organic insecticide, and medicine for skin diseases, cancer, piles, snakebite, paralysis, dropsy and more.
The Indian Supreme Court has recently banned the use of undiluted petrodiesel for commercial vehicles in Delhi due to its adverse effects on health, and other cities are reported to have followed suit.
As compared to petrodiesel, biodiesel almost completely eliminates lifecycle carbon dioxide emissions. It reduces emission of particulate matter by 40-65%, unburned hydrocarbons by 68%, carbon monoxide by 44-50%, sulphates by 100%, polycyclic aromatic hydrocarbons (PAHs) by 80%, and the carcinogenic nitrated PAHs by 90% on an average. The biodiesel molecules are simple hydrocarbon chains free of the aromatic substances and sulfur associated with fossil fuels.
Although biodiesel does produce more NOx emissions than petrodiesel, these emissions can be reduced through the use of catalytic converters. In petrodiesel vehicles, catalytic converters have generally not been included because the sulfur in the fuel destroys them, but biodiesel does not contain sulfur.
According to most sources, biodiesel can be used in any diesel engine or burner without adaptation. It has a higher cetane number of biodiesel compared to petrodiesel, indicating potential for higher engine performance and causing less knocking. Tests have shown that biodiesel has similar or better fuel consumption, horsepower, and torque and haulage rates than conventional diesel; the use of biodiesel complements the working of the catalysator and can help a current EURO-1 motor attain the EURO-111 standards.
Jatropha planted around farms can
repel animals, incects & wind
It is true that, because of the solvent power of biodiesel, especially older engines or machines can get clogged, but this is because the biodiesel is actually cleaning it, dissolving the residues left by petrodiesel. Rubber gaskets and hoses in vehicles made prior to 1992 may also be degraded, and need to be replaced. Engine efficiency is also increased by its superior lubricating properties, and the more complete combustion of hydrocarbons due to its higher oxygen content (up to 10%). Finally, biofuel is safer to store because of its higher flash point.
One noteworthy drawback of especially undiluted biodiesel (BD100) is its cold-clogging point of 0 degrees Celsius. This is one of the reasons it is usually mixed with conventional diesel, especially in cold countries. This is not a problem, however, in most of India, except in winter in the higher altitudes of the Himalayas.
The argument that biofuels are not energy efficient, due to the oil used to irrigate, fertilize and plow the land is irrelevant in the case of jatropha-- both irrigation and fertilization are generally unnecessary, or its own seedcakes can be used as fertilizer. The energy efficiency of the current agricultural and industrial production process is reported (in Nicaragua) to be between 1:3.75 and 1:5.
Another common objection to biomass energy production is that it could divert agricultural production away from food crops in a hungry world. Using wastelands, however, instead of farmlands, solves the "food or fuel" dilemma-- these lands are unsuitable for growing other crops. Also, if a biofuel like jatropha is grown, drought and water shortages which would ruin food crops can be survived; if grown in addition to food crops, as mentioned above, it can literally protect them from animals, insects and desertification, and its seedcakes can be used as fertilizer.
Once fuel is extracted from Jatropha,
the remaining plant mass is useful as
fertilizer and animal feed
The most difficult problem is, as always, cost. In remote areas, where fossil fuels are not readily available, biodiesel is already a feasible alternative, especially considering wasteland reclamation, rural employment and income generation from jatropha biodiesel and its by-products. This is important to consider in India, where electricity is always in short supply-- biodiesel can power generators, lights and farm equipment as well as cars. On the current global market, however, biodiesel generally cannot directly compete with petrodiesel, at least not yet.
The main reason for this is that biodiesel is not being produced on a large scale. The industry is a fragmented network of small companies whose costs and prices are high. Two British biodiesel companies, however, found a solution by listing their company names on the stock market in order to fund large, efficient production facilities, and passing the savings on to consumers. In other parts of the world as well, as production increases, the cost differential of biofuels is decreasing steadily.
Ironically, the first diesel engine ever made, in 1893, was powered by peanut oil-- a biofuel. By the 1920's the petroleum industry had all but eliminated the biofuel infrastructure and usurped the market with petrodiesel because it was cheaper to produce. Even then, the engine's inventor, Rudolf Diesel, maintained that "the use of vegetable oils for engine fuels may seem insignificant today, but such oils may become, in the course of time, as important as petroleum and the coal-tar products of the present time."
Now, almost a century later, the world has no choice but to listen or perish in pollution and war. As time goes by and global reserves of fossil fuels shrink, the biofuel industries have to grow up fast, and India is in a good position to step up to the opportunity. The government should give tax concessions or other financial incentives to biofuels companies and consumers to speed up the progress, and urge other nations to do the same. With biofuels, we can help heal and preserve the air, the land, our own physical health and peace.
Brook and Gaurav Bhagat are writers and independent filmmakers based in Jodhpur, Rajasthan, India.
Friday, March 9, 2007
Biofuels Can Fuel India’s Carbon Trading Potential
Biofuels Can Fuel India’s Carbon Trading Potential
ASHOK B SHARMA (2004, sep 20 FINANCIAL EXPRESS)
NEW DELHI, SEPT 19: India can tap the $52-billion global market for carbon trading by encouraging production and use of biofuels and plantation of trees having oil-bearing seeds and materials, like Jatropha and Pongamia species. Other plantations having oil-bearing seeds or materials are Sal, Mahua, Kokum, Pilu, Phulwara, Dhupa, Neem, Mango, Kusum, Karanja, Ratanjyot, Jatropa, Tumba, Jojoba, Simarouba
Biofuels, apart from enhancing energy security, ensuring employment and development and mitigation environmental pollution, can be instrumental in carbon trading if certain criteria of the clean development mechanism (CMD) of the Kyoto Protocol of the United Nations Framework Convention on Climate Change (UNFCCC) are fulfiled, said experts.
According to a recent study by Point Carbon, the potential of global carbon market over the next several years is around $52 billion per annum. Growing at a rate of 4% per year, India, the sixth largest producer of greenhouse gases (GHGs), contributing almost 3% of the world’s total emissions (including CH4 from waste generated by cattle) is seen as one of the most attractive destinations for CMD linked investments. Estimates put the cumulative foreign direct investment (FDI) on account of such projects at about $2 billion, growing at the rate of $200 per year.
In light of increased evidences of climate change effects and their mitigation methodologies, several carbon market and investment mechanisms are slowly evolving. Though the carbon market dynamics are not transparent, the scenario indicates a huge potential in future. Till January 2004, the total volume traded in project based transactions is 78 million tonne of carbon dioxide emissions (CO2e). The buyer side included Japan with 41 per cent, The Netherlands and CFB with 23% each. According to estimates, if the CMD captures at least 35% of the global market, the estimated value to the concerned countries would be $18 billion.
A study jointly done by Srikanta K Panigrahi, consultant with the Planning Commission, A Mohana Reddy, director, ZenthEnergy, Hyderabad and P Narendra, a senior consultant of the same company said that as per one estimate, each tonne of bio-diesel produced or consumed leads to a reduction of GHGs by about three times ie avoids 3 tonne of CO2e.
These reductions in GHG emissions can be accumulated and traded as carbon credits. The CMD facilitates selling of these reductions in terms of certified emission reductions (CERs), a unit of which equals to one tonne of CO2e.
The study further said that the present market price of carbon credits is around $5 per CER, which translates into an additional revenue of Rs 690 per tonne of bio-diesel consumed of 75 paise per litre of bio-diesel consumed. This additional revenue from sale of carbon credits can be used to raise plantations of trees having oil bearing seeds and materials or meet unforeseen expenses during stabilisation period of bio-diesel technology, the study suggested. The study pointed out that during 2011-12 there would be a reduction in GHG emissions to an extent of 40 million CO2e with 20% bio-diesel blend in the country.
It also said that largescale plantation of trees having oil-bearing seeds and materials, like Jatropha and Pongamia species will fix carbon by photosynthesis via the carbon cycle.
When the oil derived from these seeds is burnt, same amount of CO2 is emitted as was sequestered.
Bio-diesel avoids release of anthropogenic emissions like CH4 and N2O as is the case with conventional petroleum diesel.
Thus the consumption of bio-diesel as an energy source either in stationery or mobile combustion leads to “no net-addition of CO2 to the atmosphere.”
ASHOK B SHARMA (2004, sep 20 FINANCIAL EXPRESS)
NEW DELHI, SEPT 19: India can tap the $52-billion global market for carbon trading by encouraging production and use of biofuels and plantation of trees having oil-bearing seeds and materials, like Jatropha and Pongamia species. Other plantations having oil-bearing seeds or materials are Sal, Mahua, Kokum, Pilu, Phulwara, Dhupa, Neem, Mango, Kusum, Karanja, Ratanjyot, Jatropa, Tumba, Jojoba, Simarouba
Biofuels, apart from enhancing energy security, ensuring employment and development and mitigation environmental pollution, can be instrumental in carbon trading if certain criteria of the clean development mechanism (CMD) of the Kyoto Protocol of the United Nations Framework Convention on Climate Change (UNFCCC) are fulfiled, said experts.
According to a recent study by Point Carbon, the potential of global carbon market over the next several years is around $52 billion per annum. Growing at a rate of 4% per year, India, the sixth largest producer of greenhouse gases (GHGs), contributing almost 3% of the world’s total emissions (including CH4 from waste generated by cattle) is seen as one of the most attractive destinations for CMD linked investments. Estimates put the cumulative foreign direct investment (FDI) on account of such projects at about $2 billion, growing at the rate of $200 per year.
In light of increased evidences of climate change effects and their mitigation methodologies, several carbon market and investment mechanisms are slowly evolving. Though the carbon market dynamics are not transparent, the scenario indicates a huge potential in future. Till January 2004, the total volume traded in project based transactions is 78 million tonne of carbon dioxide emissions (CO2e). The buyer side included Japan with 41 per cent, The Netherlands and CFB with 23% each. According to estimates, if the CMD captures at least 35% of the global market, the estimated value to the concerned countries would be $18 billion.
A study jointly done by Srikanta K Panigrahi, consultant with the Planning Commission, A Mohana Reddy, director, ZenthEnergy, Hyderabad and P Narendra, a senior consultant of the same company said that as per one estimate, each tonne of bio-diesel produced or consumed leads to a reduction of GHGs by about three times ie avoids 3 tonne of CO2e.
These reductions in GHG emissions can be accumulated and traded as carbon credits. The CMD facilitates selling of these reductions in terms of certified emission reductions (CERs), a unit of which equals to one tonne of CO2e.
The study further said that the present market price of carbon credits is around $5 per CER, which translates into an additional revenue of Rs 690 per tonne of bio-diesel consumed of 75 paise per litre of bio-diesel consumed. This additional revenue from sale of carbon credits can be used to raise plantations of trees having oil bearing seeds and materials or meet unforeseen expenses during stabilisation period of bio-diesel technology, the study suggested. The study pointed out that during 2011-12 there would be a reduction in GHG emissions to an extent of 40 million CO2e with 20% bio-diesel blend in the country.
It also said that largescale plantation of trees having oil-bearing seeds and materials, like Jatropha and Pongamia species will fix carbon by photosynthesis via the carbon cycle.
When the oil derived from these seeds is burnt, same amount of CO2 is emitted as was sequestered.
Bio-diesel avoids release of anthropogenic emissions like CH4 and N2O as is the case with conventional petroleum diesel.
Thus the consumption of bio-diesel as an energy source either in stationery or mobile combustion leads to “no net-addition of CO2 to the atmosphere.”
Oil majors question Bush biofuel plan
from CNN Money.com
Oil majors question Bush biofuel plan
Exxon, Chevron CEOs say technology to increase biofuel production remains well out of reach.
February 15 2007: 12:13 PM EST
HOUSTON (Reuters) -- Top U.S. energy companies are skeptical President Bush's plan to boost biofuels production can wean the world's largest consumer off fossil fuels because the technology needed remains well out of reach.
Oil majors like Exxon Mobil Corp. (down $0.44 to $75.16, Charts) and Chevron Corp. (down $0.58 to $71.61, Charts), specialists in harvesting energy with drill bits and not plows, are damping the exuberance of U.S. farmers eager to reap the benefits of surging demand for corn-based ethanol.
In his State of the Union speech in January, Bush floated a plan to raise U.S. biofuels production five-fold by 2017 to help reduce reliance on Middle East oil.
A biofuels startup can't deliver on its promises
But top oil executives wonder if the plan, requiring more corn-based fuel production along with a breakthrough in cellulosic ethanol from non-food sources like switchgrass and wood chips, is feasible.
"I don't know much about farming and I don't have a lot of technology I can add to moonshine," Exxon Mobil CEO Rex Tillerson told an oil conference hosted by Cambridge Energy Research Associates this week.
"(Biofuels production) is going to be limited in terms of its scale, absent some significant technological breakthroughs," Tillerson said.
U.S. Energy Secretary Sam Bodman admitted the administration was setting an ambitious target.
"That is precisely the point," Bodman said. "This is the definition of an aggressive challenge. If we are to truly expand our energy horizons, then we must set the bar high."
The government has set aside $375 million to fund bioenergy research centers to reach the goal of using 35 billion gallons of biofuels in 2017.
New technology
Dave O'Reilly, chief executive of No. 2 U.S. oil firm Chevron, said that if no advances are made in cellulosic ethanol, the United States will not be able to get beyond 15 billion gallons of ethanol per year.
The U.S. uses around 140 billion gallons of gasoline per year now. O'Reilly said a practical plan would be to require ethanol in 10 percent of U.S. gasoline supplies.
"To get beyond that requires technology that has not yet been invented," he said.
Other industry officials are less restrained in pointing out sizable hurdles.
"Cellulosic ethanol is all about cooking up the right enzymes. When you get into that area it is basically a Holy Grail-area rather than a known science area," said Matt Simmons of Houston-based energy investment bankers Simmons & Co.
But whether biofuels can stand up under cost analysis, they are here to stay, said Ed Morse, chief energy economist at Lehman Brothers in New York.
"It smacks of good environmental policy. It smacks of good energy security policy, but especially smacks of good agricultural lobbying, and this is a momentum that is not going to turn around," Morse said.
Experts said there is some hope for additional imports from Brazil, the globe's lowest-cost ethanol producer, though a current 54-cent-per-gallon tariff on ethanol imports is keeping a lid on shipments.
"Clearly Brazil is the big player - they have most of the land," said Aaron Brady, an ethanol expert at CERA.
Bodman said the tariff is unlikely to change before its current planned expiration at the end of 2008.
Oil majors question Bush biofuel plan
Exxon, Chevron CEOs say technology to increase biofuel production remains well out of reach.
February 15 2007: 12:13 PM EST
HOUSTON (Reuters) -- Top U.S. energy companies are skeptical President Bush's plan to boost biofuels production can wean the world's largest consumer off fossil fuels because the technology needed remains well out of reach.
Oil majors like Exxon Mobil Corp. (down $0.44 to $75.16, Charts) and Chevron Corp. (down $0.58 to $71.61, Charts), specialists in harvesting energy with drill bits and not plows, are damping the exuberance of U.S. farmers eager to reap the benefits of surging demand for corn-based ethanol.
In his State of the Union speech in January, Bush floated a plan to raise U.S. biofuels production five-fold by 2017 to help reduce reliance on Middle East oil.
A biofuels startup can't deliver on its promises
But top oil executives wonder if the plan, requiring more corn-based fuel production along with a breakthrough in cellulosic ethanol from non-food sources like switchgrass and wood chips, is feasible.
"I don't know much about farming and I don't have a lot of technology I can add to moonshine," Exxon Mobil CEO Rex Tillerson told an oil conference hosted by Cambridge Energy Research Associates this week.
"(Biofuels production) is going to be limited in terms of its scale, absent some significant technological breakthroughs," Tillerson said.
U.S. Energy Secretary Sam Bodman admitted the administration was setting an ambitious target.
"That is precisely the point," Bodman said. "This is the definition of an aggressive challenge. If we are to truly expand our energy horizons, then we must set the bar high."
The government has set aside $375 million to fund bioenergy research centers to reach the goal of using 35 billion gallons of biofuels in 2017.
New technology
Dave O'Reilly, chief executive of No. 2 U.S. oil firm Chevron, said that if no advances are made in cellulosic ethanol, the United States will not be able to get beyond 15 billion gallons of ethanol per year.
The U.S. uses around 140 billion gallons of gasoline per year now. O'Reilly said a practical plan would be to require ethanol in 10 percent of U.S. gasoline supplies.
"To get beyond that requires technology that has not yet been invented," he said.
Other industry officials are less restrained in pointing out sizable hurdles.
"Cellulosic ethanol is all about cooking up the right enzymes. When you get into that area it is basically a Holy Grail-area rather than a known science area," said Matt Simmons of Houston-based energy investment bankers Simmons & Co.
But whether biofuels can stand up under cost analysis, they are here to stay, said Ed Morse, chief energy economist at Lehman Brothers in New York.
"It smacks of good environmental policy. It smacks of good energy security policy, but especially smacks of good agricultural lobbying, and this is a momentum that is not going to turn around," Morse said.
Experts said there is some hope for additional imports from Brazil, the globe's lowest-cost ethanol producer, though a current 54-cent-per-gallon tariff on ethanol imports is keeping a lid on shipments.
"Clearly Brazil is the big player - they have most of the land," said Aaron Brady, an ethanol expert at CERA.
Bodman said the tariff is unlikely to change before its current planned expiration at the end of 2008.
ConocoPhillips: The Making Of An Oil Major
Article from Business Week.
ConocoPhillips: The Making Of An Oil Major
Jim Mulva's boldness put the energy company in the top tier. And his big bets haven't stopped
If you asked Central Casting for an oil company CEO, you would not get James J. Mulva. He's a mild-mannered, soft-spoken number cruncher who started his career in the Phillips Petroleum Co. treasury office. In an industry filled with hard-nosed petroleum engineers, Mulva comes across as way too low-key to be the boss of ConocoPhillips (COP ), the No. 3 American major, behind Exxon Mobil (XOM ) and Chevron (CVX ).
But his actions paint a portrait that's more Mr. T than Mr. Rogers. As chief executive officer of the sleepy Bartlesville (Okla.)-based Phillips, Mulva conceived the bold $16 billion deal that created ConocoPhillips in 2002 and vaulted it into the league of energy giants so large they're called supermajors. Now he's shaping up as an aggressive risk-taker willing to place multibillion-dollar bets in the most volatile places on earth. All of the industry's big players are swimming in cash, but Mulva is plowing some 70% of the company's expected cash flow back into the business, compared with 60% at Chevron Corp. and 35% at Exxon Mobil Corp.. "We're aggressive about where we want to be five years from now," Mulva said to analysts on Nov. 16.
EMBRACING RISK
Mulva's ascent into the supermajor stratosphere was underscored by his appearance -- along with execs from ExxonMobil, Chevron, BP (BP ), and Shell (RD ) -- before the Senate to defend "windfall profits" and "price-gouging" on Nov. 9. But ConocoPhillips, foremost among the majors, is behaving much as Big Oil's critics would have it behave. That's in stark contrast to ExxonMobil, for one, which has pleased the Street by paying down its debt practically to zero and unapologetically refusing to dramatically ramp up its reinvestment rate.
The risk-embracing strategy has earned Houston-based ConocoPhillips a lower price-earnings ratio than its rivals. Still, Mulva vows to boost production 3% annually. To that end, he's jacking up the company's share of Russian energy producer Lukoil (LUKOY ) to 20% (from 15% now), pushing ahead on drilling projects from Alaska and Australia to Venezuela and Vietnam, preparing to splurge on liquefied natural gas projects, and even spending big to expand investment-starved U.S. refineries. Next year, Mulva will hike ConocoPhillips' capital budget to $11.1 billion, up 16% from 2004. His spree will look brilliant if supplies stay tight -- but misguided if prices drop to 1990s levels. Mulva declined to comment for this article. (Harold McGraw III, chairman and chief executive of The McGraw-Hill Companies (MHP ), BusinessWeek's parent, is a ConocoPhillips director.)
A banker's son, Mulva was born far from the oil patch, in Green Bay, Wis., in 1946. He and his brother, Patrick T. Mulva -- who happens to be corporate vice-president and controller of ExxonMobil -- both earned MBAs at the University of Texas at Austin. Jim Mulva became fascinated with the oil business while stationed in Bahrain as a U.S. Navy officer, but his first brush with it came earlier: His high school job was fueling planes at a Green Bay area airport.
He has a much more privileged view of the energy industry now. But at ConocoPhillips, Mulva faces a daunting business challenge, with expenses and political risks rising. The cost of finding and developing a barrel of oil has more than doubled in the past few years. At the same time, the company is also hoping to return to troubled countries such as Libya and Iraq as soon as possible. And its investment in Lukoil, which will hit $9.5 billion by the end of next year, exposes ConocoPhillips to the risks of abrupt change in leadership post-Vladimir V. Putin. Further, Russian state taxes and fees run close to 90% on oil revenue above $25 per barrel.
DEFT MOVES?
Of course, accepting huge risks means the chance of enormously lucrative rewards. On top of its equity ownership, ConocoPhillips is a joint-venture partner with Lukoil, drilling two potentially major new fields in Northern Russia. The alliance with Lukoil, a sizable player in Iraq before the war, may also help the partners win a major piece of Iraq's energy business -- if and when security and politics are stabilized. "Together they could get 35% of one of the largest undeveloped fields in the world," says Oppenheimer & Co. (OPY ) energy analyst Fadel Gheit. "If they do -- and it's admittedly not likely anytime soon -- the payday for Lukoil and ConocoPhillips will be beyond anybody's imagination."
Mulva hasn't been right all the time. He'll spend $4 billion over the next five years to add capacity to ConocoPhillips' refining operation -- already the second-biggest in the U.S. But analyst Gheit notes that with refinery margins benefiting from tight capacity and robust demand, it will probably cost five or six times as much to add capacity as it would have five or 10 years ago, back when No. 1 refiner Valero Energy Corp. (VLO ) moved aggressively to expand.
Even with the benefit of hindsight, Mulva has done a lot right. His aptly timed Conoco acquisition put the company in a position to benefit from a new global dynamic of rising energy demand that could last into the next decade. And his bold plans may ultimately prove that he adjusted more wisely and quickly to the changing world of energy than the other majors. Right or wrong, no one will accuse Mulva of being shy.
ConocoPhillips: The Making Of An Oil Major
Jim Mulva's boldness put the energy company in the top tier. And his big bets haven't stopped
If you asked Central Casting for an oil company CEO, you would not get James J. Mulva. He's a mild-mannered, soft-spoken number cruncher who started his career in the Phillips Petroleum Co. treasury office. In an industry filled with hard-nosed petroleum engineers, Mulva comes across as way too low-key to be the boss of ConocoPhillips (COP ), the No. 3 American major, behind Exxon Mobil (XOM ) and Chevron (CVX ).
But his actions paint a portrait that's more Mr. T than Mr. Rogers. As chief executive officer of the sleepy Bartlesville (Okla.)-based Phillips, Mulva conceived the bold $16 billion deal that created ConocoPhillips in 2002 and vaulted it into the league of energy giants so large they're called supermajors. Now he's shaping up as an aggressive risk-taker willing to place multibillion-dollar bets in the most volatile places on earth. All of the industry's big players are swimming in cash, but Mulva is plowing some 70% of the company's expected cash flow back into the business, compared with 60% at Chevron Corp. and 35% at Exxon Mobil Corp.. "We're aggressive about where we want to be five years from now," Mulva said to analysts on Nov. 16.
EMBRACING RISK
Mulva's ascent into the supermajor stratosphere was underscored by his appearance -- along with execs from ExxonMobil, Chevron, BP (BP ), and Shell (RD ) -- before the Senate to defend "windfall profits" and "price-gouging" on Nov. 9. But ConocoPhillips, foremost among the majors, is behaving much as Big Oil's critics would have it behave. That's in stark contrast to ExxonMobil, for one, which has pleased the Street by paying down its debt practically to zero and unapologetically refusing to dramatically ramp up its reinvestment rate.
The risk-embracing strategy has earned Houston-based ConocoPhillips a lower price-earnings ratio than its rivals. Still, Mulva vows to boost production 3% annually. To that end, he's jacking up the company's share of Russian energy producer Lukoil (LUKOY ) to 20% (from 15% now), pushing ahead on drilling projects from Alaska and Australia to Venezuela and Vietnam, preparing to splurge on liquefied natural gas projects, and even spending big to expand investment-starved U.S. refineries. Next year, Mulva will hike ConocoPhillips' capital budget to $11.1 billion, up 16% from 2004. His spree will look brilliant if supplies stay tight -- but misguided if prices drop to 1990s levels. Mulva declined to comment for this article. (Harold McGraw III, chairman and chief executive of The McGraw-Hill Companies (MHP ), BusinessWeek's parent, is a ConocoPhillips director.)
A banker's son, Mulva was born far from the oil patch, in Green Bay, Wis., in 1946. He and his brother, Patrick T. Mulva -- who happens to be corporate vice-president and controller of ExxonMobil -- both earned MBAs at the University of Texas at Austin. Jim Mulva became fascinated with the oil business while stationed in Bahrain as a U.S. Navy officer, but his first brush with it came earlier: His high school job was fueling planes at a Green Bay area airport.
He has a much more privileged view of the energy industry now. But at ConocoPhillips, Mulva faces a daunting business challenge, with expenses and political risks rising. The cost of finding and developing a barrel of oil has more than doubled in the past few years. At the same time, the company is also hoping to return to troubled countries such as Libya and Iraq as soon as possible. And its investment in Lukoil, which will hit $9.5 billion by the end of next year, exposes ConocoPhillips to the risks of abrupt change in leadership post-Vladimir V. Putin. Further, Russian state taxes and fees run close to 90% on oil revenue above $25 per barrel.
DEFT MOVES?
Of course, accepting huge risks means the chance of enormously lucrative rewards. On top of its equity ownership, ConocoPhillips is a joint-venture partner with Lukoil, drilling two potentially major new fields in Northern Russia. The alliance with Lukoil, a sizable player in Iraq before the war, may also help the partners win a major piece of Iraq's energy business -- if and when security and politics are stabilized. "Together they could get 35% of one of the largest undeveloped fields in the world," says Oppenheimer & Co. (OPY ) energy analyst Fadel Gheit. "If they do -- and it's admittedly not likely anytime soon -- the payday for Lukoil and ConocoPhillips will be beyond anybody's imagination."
Mulva hasn't been right all the time. He'll spend $4 billion over the next five years to add capacity to ConocoPhillips' refining operation -- already the second-biggest in the U.S. But analyst Gheit notes that with refinery margins benefiting from tight capacity and robust demand, it will probably cost five or six times as much to add capacity as it would have five or 10 years ago, back when No. 1 refiner Valero Energy Corp. (VLO ) moved aggressively to expand.
Even with the benefit of hindsight, Mulva has done a lot right. His aptly timed Conoco acquisition put the company in a position to benefit from a new global dynamic of rising energy demand that could last into the next decade. And his bold plans may ultimately prove that he adjusted more wisely and quickly to the changing world of energy than the other majors. Right or wrong, no one will accuse Mulva of being shy.
SCITNO Anchor Aweigh
Maritime India
India has had a maritime history dating back to around 4,500 years, since the Indus Valley Civilization. The impetus to later re-develop maritime links was trade (primarily in cotton, pepper and other spices), due to the monopoly of the Persians and later the Arabs over land-based caravan routes. The later maritime journeys spread the influence of ancient and medieval Indian civilisation as far as the islands of Indonesia to the east, the islands of Japan to the north, and the east coast of Africa to the west.
Indus Valley Civilization
The world's first tidal dock was built in Lothal around 2500 BC during the Harappan civilisation at Lothal near the present day Mangrol harbour on the Gujarat coast. Other ports were probably at Balakot and Dwarka. However, it is probable that many small-scale ports, and not massive ports, were used for the Harappan maritime trade. Ships from the harbour at these ancient port cities established trade with Mesopotamia.
Maritime trade with western Asia
Several Indian or East Asian products (e.g. Cinnamon, Cassia, Nard) are mentioned in the Bible (as early as the time of the Exodus) and by Sappho. Indian products were already known in the mythical Punt and Ophir. Cinnamon and Cassia are spices that originated from China and South-East Asia, and South India was probably along the trade routes for these products.
References in Bible
One of the earliest references to maritime trade with India is from the Bible (I Kings 9:28) which states that King Solomon collaborated with King Hiram of Tyre/Sidon, and built a fleet at Elath and Eziongeher (or Ezion-geber). Manned by Phoenician sailors, it sailed to Ophir (also spelt as Qphir) and brought back many treasures which two kings shared between themselves. The precise location of the port of Ophir is another unsettled topic. Dutch/German Indologist Christian Lassen hoped to close the controversy in the 19th century by identifying it with Abhira in the province of Gujarat in India.
Alexander
During the 4th century BC, Alexander the Great shipped the bulk of his army from North Western India to Egypt via the Indian Ocean led by his friend, Nearchus who also wrote the book, Indikê about the voyage. This was after he sailed down the Indus.
House of Ptolemy
Around 116 BC an interesting incident that had happened in Egypt was reported by Posidonius (ca. 135 BC - 51 BC (also spelled Poseidonius), and later recorded by Strabo. We are told that a shipwrecked Indian sailor was discovered, half-dead, by coast guards on the Red Sea, and was brought to the Egyptian King Physkon (also known as Physcon or Ptolemy VIII Euergetes II) during 118 BC. The sailor said he was the sole survivor of a ship that had sailed from India. The sailor promised to guide any of the King’s navigators on a voyage to India. So a Greek sailor, Eudoxus of Kyzicus (himself an envoy from Greece to Ptolemy VIII), was appointed to that mission.
Poseidonius recounted two direct journeys to India. The first in 118 BC, guided by the Indian sailor, proved successful. From Berenice Harbor to Muziris below Calicut took 70 days. Eudoxus returned with a cargo of aromatics and precious stones. Ptolemy VIII promptly confiscated the cargo.
The second, under the sole guidance of Eudoxus, occurred in 116 BC, just after the death of Ptolemy VIII and during the reign of Cleopatra III, his wife and queen.
A position titled, Commander of the Red and Indian Seas, came into being under Ptolemy XII, also nicknamed Auletes (80-51 BC) to encourage trade with India. The best known occupant of this office was a gentleman named, Callimachus the epistrategos, who was the Commander between July 78 BC and February 51 BC .
[edit]Roman connection
Roman Emperor Augustus Caesar in 26 BC commissioned his prefect in Egypt, Aelius Gallus, to capture the port of Aden to attack the Ethiopians who controlled the trade from India. This was after the death of Cleopatra in 30 B.C. Although Augustus was unsuccessful in capturing Arabia Felix (present day Yemen), the Romans opened sea routes to India through the Red Sea, where they could buy Chinese silk, bypassing war-torn areas and diminishing the role of Persians and Arabs who previously dominated the trade. Greek writer, Nicolaus of Damascus records an Indian delegation from Pandion (Pandyan?) visited Emperor Augustus in 13 BC at Antioch.
Pliny complained that the Indian luxury trade was depleting the Roman treasury to the extent of 50 million sesterces annually. The Roman Senate even contemplated banning the use of Indian cotton in the clothing, Toga that Roman citizens wore, because it was so expensive to import.
The Periplus Maris Erythraei ("Circumnavigation of the Erythrean i.e., Red Sea"), by an unknown author presumed to be a Greek merchant, written in the 1st century AD, lists a series of ports along the Indian coast, including Muziris (Cranganore), Colchi (Korkai), Poduca, and Sopatma. It also records the accomplishment of Hippalus, who having determined the patterns of the Indian monsoons, discovered a sea-route from the Red Sea to Southern India. The book also references the port of Kodungallur (anglicised to Cranganore, and also known as Muziris or Shinkli), in present day Kerala on India's West coast. Pliny refers to this port as primum emporium Indiae.
Mauryan Empire
The earliest known reference to an organization devoted to ships in ancient India is to the Mauryan Empire from the 4th century BC. The word navigation is derived from the sanskrit word "Navgath" also. Its believed that the navigation as a science originated on the river Indus some 5000 years ago. Emperor Chandragupta Maurya's Prime Minister Kautilya's Arthashastra devotes a full chapter on the state department of waterways under navadhyaksha (Sanskrit for Superintendent of ships). The term, nava dvipantaragamanam (Sanskrit for sailing to other lands by ships) appears in this book in addition to appearing in the Buddhist text, Baudhayana Dharmasastra as the interpretation of the term, Samudrasamyanam.
Journeys to the East and later centuries
Indian maritime expertise helped disperse the Indian civilisation (including Hinduism and Buddhism) as far as the islands of Indonesia, Java and
Great cholas
The cholas were experts in ship building, sea trade flourished under their empire with trade routes established well in south-east Asia. Further cholas also spread Hinduism in Indonesia(java) and other south-east Asian countries.
Travels of the Friar Odoric between 1316-1330 AD mention trips between the Persian Gulf, and the West coast of India.
Finally, the advent of Portuguese sailor, Vasco Da Gama in 1496 opened up the trade routes to India to the Europeans. As a result of the Battle of Swally, the Portuguese monopoly began to crumble and the rise of the British East India Company began.
India has had a maritime history dating back to around 4,500 years, since the Indus Valley Civilization. The impetus to later re-develop maritime links was trade (primarily in cotton, pepper and other spices), due to the monopoly of the Persians and later the Arabs over land-based caravan routes. The later maritime journeys spread the influence of ancient and medieval Indian civilisation as far as the islands of Indonesia to the east, the islands of Japan to the north, and the east coast of Africa to the west.
Indus Valley Civilization
The world's first tidal dock was built in Lothal around 2500 BC during the Harappan civilisation at Lothal near the present day Mangrol harbour on the Gujarat coast. Other ports were probably at Balakot and Dwarka. However, it is probable that many small-scale ports, and not massive ports, were used for the Harappan maritime trade. Ships from the harbour at these ancient port cities established trade with Mesopotamia.
Maritime trade with western Asia
Several Indian or East Asian products (e.g. Cinnamon, Cassia, Nard) are mentioned in the Bible (as early as the time of the Exodus) and by Sappho. Indian products were already known in the mythical Punt and Ophir. Cinnamon and Cassia are spices that originated from China and South-East Asia, and South India was probably along the trade routes for these products.
References in Bible
One of the earliest references to maritime trade with India is from the Bible (I Kings 9:28) which states that King Solomon collaborated with King Hiram of Tyre/Sidon, and built a fleet at Elath and Eziongeher (or Ezion-geber). Manned by Phoenician sailors, it sailed to Ophir (also spelt as Qphir) and brought back many treasures which two kings shared between themselves. The precise location of the port of Ophir is another unsettled topic. Dutch/German Indologist Christian Lassen hoped to close the controversy in the 19th century by identifying it with Abhira in the province of Gujarat in India.
Alexander
During the 4th century BC, Alexander the Great shipped the bulk of his army from North Western India to Egypt via the Indian Ocean led by his friend, Nearchus who also wrote the book, Indikê about the voyage. This was after he sailed down the Indus.
House of Ptolemy
Around 116 BC an interesting incident that had happened in Egypt was reported by Posidonius (ca. 135 BC - 51 BC (also spelled Poseidonius), and later recorded by Strabo. We are told that a shipwrecked Indian sailor was discovered, half-dead, by coast guards on the Red Sea, and was brought to the Egyptian King Physkon (also known as Physcon or Ptolemy VIII Euergetes II) during 118 BC. The sailor said he was the sole survivor of a ship that had sailed from India. The sailor promised to guide any of the King’s navigators on a voyage to India. So a Greek sailor, Eudoxus of Kyzicus (himself an envoy from Greece to Ptolemy VIII), was appointed to that mission.
Poseidonius recounted two direct journeys to India. The first in 118 BC, guided by the Indian sailor, proved successful. From Berenice Harbor to Muziris below Calicut took 70 days. Eudoxus returned with a cargo of aromatics and precious stones. Ptolemy VIII promptly confiscated the cargo.
The second, under the sole guidance of Eudoxus, occurred in 116 BC, just after the death of Ptolemy VIII and during the reign of Cleopatra III, his wife and queen.
A position titled, Commander of the Red and Indian Seas, came into being under Ptolemy XII, also nicknamed Auletes (80-51 BC) to encourage trade with India. The best known occupant of this office was a gentleman named, Callimachus the epistrategos, who was the Commander between July 78 BC and February 51 BC .
[edit]Roman connection
Roman Emperor Augustus Caesar in 26 BC commissioned his prefect in Egypt, Aelius Gallus, to capture the port of Aden to attack the Ethiopians who controlled the trade from India. This was after the death of Cleopatra in 30 B.C. Although Augustus was unsuccessful in capturing Arabia Felix (present day Yemen), the Romans opened sea routes to India through the Red Sea, where they could buy Chinese silk, bypassing war-torn areas and diminishing the role of Persians and Arabs who previously dominated the trade. Greek writer, Nicolaus of Damascus records an Indian delegation from Pandion (Pandyan?) visited Emperor Augustus in 13 BC at Antioch.
Pliny complained that the Indian luxury trade was depleting the Roman treasury to the extent of 50 million sesterces annually. The Roman Senate even contemplated banning the use of Indian cotton in the clothing, Toga that Roman citizens wore, because it was so expensive to import.
The Periplus Maris Erythraei ("Circumnavigation of the Erythrean i.e., Red Sea"), by an unknown author presumed to be a Greek merchant, written in the 1st century AD, lists a series of ports along the Indian coast, including Muziris (Cranganore), Colchi (Korkai), Poduca, and Sopatma. It also records the accomplishment of Hippalus, who having determined the patterns of the Indian monsoons, discovered a sea-route from the Red Sea to Southern India. The book also references the port of Kodungallur (anglicised to Cranganore, and also known as Muziris or Shinkli), in present day Kerala on India's West coast. Pliny refers to this port as primum emporium Indiae.
Mauryan Empire
The earliest known reference to an organization devoted to ships in ancient India is to the Mauryan Empire from the 4th century BC. The word navigation is derived from the sanskrit word "Navgath" also. Its believed that the navigation as a science originated on the river Indus some 5000 years ago. Emperor Chandragupta Maurya's Prime Minister Kautilya's Arthashastra devotes a full chapter on the state department of waterways under navadhyaksha (Sanskrit for Superintendent of ships). The term, nava dvipantaragamanam (Sanskrit for sailing to other lands by ships) appears in this book in addition to appearing in the Buddhist text, Baudhayana Dharmasastra as the interpretation of the term, Samudrasamyanam.
Journeys to the East and later centuries
Indian maritime expertise helped disperse the Indian civilisation (including Hinduism and Buddhism) as far as the islands of Indonesia, Java and
Great cholas
The cholas were experts in ship building, sea trade flourished under their empire with trade routes established well in south-east Asia. Further cholas also spread Hinduism in Indonesia(java) and other south-east Asian countries.
Travels of the Friar Odoric between 1316-1330 AD mention trips between the Persian Gulf, and the West coast of India.
Finally, the advent of Portuguese sailor, Vasco Da Gama in 1496 opened up the trade routes to India to the Europeans. As a result of the Battle of Swally, the Portuguese monopoly began to crumble and the rise of the British East India Company began.
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