What the RAND report IMHO characterizes is a repeat of somewhat known issues (with algea), the development of a hypotheses based upon longstanding hopes (FT), and the skirting of the white elephant in the room (money).

Let’s focus on the elephant:

Profitability, in view of complex financial markets, rules the project feasibility and hence the production of commodities (!). Which ever way you will get to a new process to produce sometype of energy will cost you CapEx at the tune of $/EUR 2.8 and more per Watt installed capacity. In addition you have to procure your feedstock, which can be at a cost of zero (wind, sun, waste) or at up to 90% and more of revenues (cane, sugar, corn, camelina, palm, etc.). Between the CapEx and the ops cost the process has to be feasible and the operations need to be financable. Eventually, that requires cheap (debt) capital in large amounts (billions would be good) as well as reliability/predictability of the input/output spread (no commodity speculation would be helpful).

Sadly none of these basic financial limits and mechanics have been touched upon in the RAND report, but the financial workings are crucial to making any of the technologies work at relevant scale. To use RAND’s numbers, even a FT GTL plant clocks in at $/EUR 2.8 to 3.8 per gallon CapEx and the gas input needs to be procured at around $4.5 per MMBTU in the US. Also the cited Pearl/Qatar facility at a $5bn price tag will need to be somehow financed, which is where a huge balance sheet (i.e. that of Shell) helps, and also provides a barrier of entry (The last time I checked my bank’s credit officer would not give me $5bn to do same).

And this is where the issue lies: lack of project finance capital, i.e. debt capital at LIBOR plus few percent for 8 and 9 digit amounts for “risky” projects. It’s absence and the resulting lack of financial feasibility, rather than any of the other more technical points challenges the transition of technology from scaling to deployment.

On the other side these very same large financing amounts also make commodity production a non-VC business, the equity premium (usually linked to some IP) just is not available in a margin business, the WACC would get completely out of whack using VC ideas on returns (3X, 5X, 7X, whatever …) in these projects. It is the huge equity investments made by VCs in plants, that tilted the balance and drove past projects to a capital loss.

That algea has a few fundamental problems of physics to overcome is long known (see the work of J Benemann and M Cooney). On the other side, the number of CTL/GTL facilities built since WWII, i.e. in the last 60+ years is really limited as well and only feasible when done at huge scale, as in SASOL, Qatar etc. This is actually pointed out in the report and hence they conclude that it will be 20yrs+ when BTL is to be expected large-scale. Sadly, oil might run short before then.

Woolsey’s hypothesis to turn “Oil into Salt” is the most compelling rational, and indeed if Oil would not be a priced resource, we would not have wars to begin with and the logistics challenges to continue. That is why distributed global renewable fuel production, and abundant fuels should be a core military goal.