How Long Will Fossil Fuels Dominate?

Source: Kimberley Strassel, Wall Street Journal • Posted: Monday, March 26, 2012


Vinod Khosla and Daniel Yergin argue about the prospects of cellulosic ethanol becoming the fuel of the future at WSJ’s 2012 ECO:nomics conference.

Daniel Yergin and Vinod Khosla disagree on when alternative energy will play a bigger role



Vinod Khosla and Daniel Yergin argue about the prospects of cellulosic ethanol becoming the fuel of the future at WSJ’s 2012 ECO:nomics conference.

Daniel Yergin, the chairman of IHS Cambridge Energy Research Associates, says fossil fuels will continue to dominate U.S. energy consumption for decades to come. Vinod Khosla, a longtime Silicon Valley investor who runs the venture-capital fund Khosla Ventures, is betting alternative energy will play a bigger role much sooner.

The Wall Street Journal’s Kimberley Strassel sat down to discuss the issue with Mr. Khosla and Mr. Yergin. Here are edited excerpts of that conversation:

MS. STRASSEL: How many years do you think it will be before half of our global energy production comes from non-fossil fuels?

MR. YERGIN: World energy probably is going to grow by 25% or as much as 35% over the next 20 years. I think the shift in the composition won’t be too significant until after 2030, so maybe by 2050.

MR. KHOSLA: I guess 25 years. I’m definitely more optimistic.

MS. STRASSEL: Where are we on alternative fuels? What’s taking so long?

VINOD KHOSLA: ‘Shale gas was a black swan. Black-swan technologies will show up again.’

MR. KHOSLA: The technology development is going fairly well. We’re approaching the point where there are half a dozen technologies that could compete with $100-a-barrel oil without subsidies by the time they build their third or fourth plant—which means a scaled plant.

What has the problem been? The 2008 financial crisis slowed down a lot of construction.

But that doesn’t mean technology development has gone slowly. I think we are at a point where there are competitive alternatives that are highly scalable. And scalability is the key.

MS. STRASSEL: Can you scale up to the levels necessary to make a big dent in fossil-fuel use?

MR. KHOSLA: You can absolutely scale up technologies off feedstocks—things like wood chips. The simplest way to think about is if there are a thousand paper mills in the country that have gone out of business, you can replace each of those and their feed basins for the wood chips with a fuel facility that would produce competitive fuels.

MS. STRASSEL: Given the boom in natural gas, is there a question about why you do this anymore? If you can fuel the American transport fleet with compressed natural gas, do you need to be making fue

DANIEL YERGIN: ‘What is also striking is what’s happening in U.S. oil.’

MR. YERGIN: That depends on whether you would fuel the American automobile fleet with natural gas. Certainly, the dialogue about that is a lot stronger this year. But the main thing is that natural gas, basically, goes into a different market than liquid fuels. It goes into electric-power generation.

MS. STRASSEL: Is there enough of it to do all of the things we do—manufacturing, electricity and fueling a fleet?

MR. YERGIN: The volume numbers are very large, but that is a subject of great debate. It looks like natural gas has a much more likely possibility of being more important as a fleet fuel for trucks and so forth. That would be its transportation market.

MS. STRASSEL: Vinod, you have argued that it is very important to have these alternative fuels for energy security, but natural gas is produced here. Do you continue to do this then because it is better for the climate

MR. KHOSLA: There’s lots of ways to solve the national-security problem, and natural gas really helps there.

The climate problem is a larger problem. One of the issues is the approach that environmentalists have taken. They have focused on what we should do instead of focusing on what people will do, which is mostly about economics. What people do is not defy the laws of economic gravity, as I like to put it.

You have be able to compete when oil is at $60 a barrel. Because if you don’t stay in business the two years out of 20 that prices are low, then you don’t have a viable business. I do believe technologies can meet that metric and scale.

You asked when will half of global energy consumption be non-fossil fuel. I think the right question is when will our assumptions about alternatives to fossil fuel be dominant? When will 70% of the population believe we are going to get there no matter what? I believe that could happen as quickly as five years from now.

MS. STRASSEL: Dan, do you buy that scenario?

MR. YERGIN: No. When this conference first met, the world was going to run out of oil. It was peak oil. And we were going to be importing so much natural gas that we would be paying $100 billion a year to import natural gas. That was five years ago. The picture changed. The picture will change in five years.

[Regarding national security], we’ve talked a lot about natural gas today. But what is also striking is what’s happening in U.S. oil, with what’s called tight oil and the development of that. You look at Canadian oil sands. You look at what’s happening offshore of Brazil. And you see this kind of rebalancing of world oil going on, where probably 10 years from now the Western Hemisphere will be getting a lot less oil from the Eastern Hemisphere to begin with.

Black-Swan Technology?

MS. STRASSEL: Vinod, in the past, you’ve talked about black-swan technologies—the idea of some innovative idea coming out and turning everything on its head.

MR. KHOSLA: Shale gas was a black swan. And my point is black-swan technologies will show up again. Shale gas was some combination of fracking, which we already knew how to do, and horizontal drilling that changed the assumptions around natural gas from “we need to import $100 billion worth” to “we can export it.” The same thing will happen if an oil equivalent can be produced in country at $60 to $70 a barrel.

As soon as liquid-fuel technologies from things like wood chips, which are scalable, start to reach that level, our assumptions will change.