[applause]
>>Gal Luft: Thank you folks, always good to
be back at Google.
And I think that the issue is very timely
always because, we'll always have problems
with energy. But before I talk about "Turning
Oil Into Salt", before I talk about salty
commodities, I wanna start on a sweet note
and talk to you about something I like much
more than oil and more than salt and that
is chocolate.
I'm sure you all like chocolate and you probably
all consume it on a daily basis, but I wanna
take you through an exercise. So indulge me
for a second. Let's assume that all of us
are members of a certain village and we have
this genetic problem in our bodies that the
only thing we can eat is chocolate.
That's the only thing we can eat; breakfast,
lunch, and dinner chocolate.
So I think some of you like the idea, but
I tell you a week like this would be a very,
very bad week for all of us. Why is it? Because
this week there've been some riots in Ivory
Coast. And Ivory Coast is a place that produces
35 percent of the world's cocoa beans. So
when there is trouble with cocoa beans, those
of us who can only eat chocolate, it's a source
of great anxiety.
[pause]
Well luckily none of us lose sleep over the
riots in Ivory Coast because we're not that
dependent on chocolate after all. We can eat
many other foods and we're just okay and if
something is wrong with chocolate then, alright
not a big deal.
And I think if you understand this, you understand
what it means, what the concept of turning
oil into salt means. It's about strategic
commodities. Our energy dependence, our oil
dependence problem, is not about the amount
of oil that we consume or the amount of oil
that we import. It is about the fact that
oil is the most strategic commodity in the
world.
Why it is strategic commodity, because our
cars, trucks, ships, and planes can run on
nothing but oil. Go to San Francisco or San
Jose Airport and you'll see all of the planes
have one thing in common: they can run on
nothing but oil.
When I tried to look into the issue of strategic
commodity throughout world history, there
were many commodities that at some point human
beings depended upon and really shaped the
geopolitics of the world in a very fundamental
way. And none of them really resonated with
me like the story of salt. Because salt, just
like oil today, has a monopoly over transportation.
Salt used to have a monopoly over food preservation.
If you lived in Russia and you wanted to eat
well in the middle of the winter you needed
to preserve a lot of food during the summer
by curing it with salt.
And if you read the world history for generations
and generations, it was all about who has
salt. Where is the salt? How can we build
colonies around the areas where salt happens
to be located? Countries used to go to war
over salt.
The word "salary" comes from the word "salt."
You heard the expression, "Salt of the earth."
Now if you look at those places that had salt
you see, and I could throw a bunch of names
I doubt that people heard about, places like
Boa Vista or Tortuga or Turk Island or Orissa.
These were important places just like the
Saudi Arabia, the Dubai, and the Abu Dhabi's
of our own days.
Now what happened? Why is it that right now
we live in a world in which we consume more
salt than we ever did before, we import more
salt than we ever did before, but we don't
think, I don't think we'll ever go to war
over salt. I don't think that many of us know
who are the biggest world holders of salt,
and I don't think we really care.
What happened?
I'll tell you what happened. We broke the
salt monopoly. We broke the monopoly of salt
over food preservation. Actually not we, I
give the credit to Napoleon because in the
year 1800 Napoleon, who had really big ambitions
and wanted to take over the world and send
his military to Russia, he realized that salt
is his Achilles' heel. So he said, "We're
gonna introduce a prize, a cash prize." And
he declared a prize of 12,000 francs to the
person that will come up with a solution to
France's salt dependence.
And a very short time after that a French
chef invented the first form of canning. And
later on came refrigeration and electricity,
and salt lost its strategic status forever.
This is what we need to do to oil. We need
to turn oil into salt. We need to strip oil
of its strategic status by introducing competition
to oil in the transportation sector; the very
same sector that happens to underlie the world
economy.
Remember, the countries that own oil, essentially
control the world economy because oil controls
transportation; transportation controls the
world economy.
So if you want to eat asparagus 365 days a
year, you need to move it around the globe.
And it moves around the globe onboard ships
and trucks and planes that run on oil. And
that has to end.
Now the monopoly of oil in the transportation
sector is only half the problem.
The second half of the problem, which makes
it much worse, is the fact that most of the
world oil is controlled by a cartel. And I
want to explain it to you a little bit about
this cartel because 78 percent of the world's
oil is in the hands of OPEC. There are 13
governments, not the most democratic of governments
in the world, as you know, primarily run by
Saudi Arabia, Iran, Nigeria, Venezuela, and
this cartel --
produces today less oil, less oil than they
did 40 years ago.
So the world economy doubled, we have China,
we have India, we have all of these growth
engines and we need so much more oil, but
OPEC today produces less oil than they did
40 years ago. And it's a deliberate policy
to constrain the supply of oil, to drill far
less than their ability, the geological ability.
So you have a situation today that the folks
who control 78 percent of the reserves, only
produce a third of the supply, and the rest
of the two-thirds of the supply are produced
by the folks who have less than 20 percent.
It doesn't make sense.
And that's why we have to break the oil cartel.
But we cannot break the oil cartel. What are
we gonna do bomb them? No we can't go in and
throw a bomb in Vienna and destroy the headquarters
of OPEC.
But what we can do is break the monopoly of
oil over transportation by introducing something
that OPEC is extremely afraid of and that
is Adam Smith; competition. Alright?
And I wanna talk to you how we can do it,
and I believe we can do it, and I believe
it is absolutely essential that we do it,
not because, only because of national security
reasons that you all understand, but because
it is a precondition for us to retain and
maintain our prosperity.
Our oil demand imposes a huge levy on our
economy; huge. People are unaware of how heavy
this burden is on our economy.
Just to give you a sense, we today we are
in a recession now and oil is $90 a barrel.
I mean in the middle of a recession and it's
still $90 a barrel. Imagine to yourself what
will be the price of oil when we resume growth.
Imagine to yourself what happens to oil prices
if the dollar collapses and there is a run
on commodities. Or what happens if there is
inflation and there is a run on commodities.
So if oil is $90 in the middle of the recession,
it is almost a given that the price will go
up as we resume growth.
But even today at $90 a barrel we pay for
oil as a nation more money than we give the
Department of Defense to defend us from our
enemies. We're talking about $700 billion
that we pay as a country for oil. This is,
by the way, almost 10 times more than we paid
10 years ago. So in about 10 years the amount
of money that we have to pay as a nation for
oil grew ten-fold.
Now this is money that instead of staying
here, instead of creating jobs and investment
opportunities here in the United States, is
moving abroad to do nation building. To do
nation building in Saudi Arabia, to do nation
building in Iran, to do nation building in
Venezuela, but it doesn't do nation building
here in the United States where we need the
money to build our crumbling economy.
And I wanna also touch a few points that are
related to some of the interest of Google
that have to do with the price of oil.
Google is very interested, for example, in
renewable energy. What happens to investment
in renewable energy when oil prices go back
to $150 a barrel and there is another recession?
We cannot afford to have another recession.
You know another recession is like your second
heart attack. You can maybe withstand the
first one, but if you're too weak and then
you get a second one, that's not good. That
could be fatal.
But what happens to investment in alternative
energy and renewable energy when there is
a recession, of course, the funding dries
up; investment houses don't have money to
invest; everything stops.
We see what happens now in Cancun. We see
that everything that has to do with trying
to advance policies to fix the environment,
people are not interested. People are moving
away from this issue because there are other
priorities. They need to take care of their
jobs and mortgages.
The other thing that happens when oil prices
go up is starvation and devastation in the
poor countries of the world. Because those
poor countries of the world in Africa and
Latin America in Asia they don't get a discount
for being poor, they still have to buy oil
for $150-$200 a barrel just like everybody
else. So they don't get preferential treatment
for being poor. And that kills them; that
destroys them.
In some places in Africa when oil prices go
up you cannot distribute food and people literally
starve.
So it is our responsibility to make sure that
we do not allow oil prices to go to the level
that we saw in 2008 and beyond. And just this
week the Iranian government, that happens
to be the President of OPEC at the moment,
said that they're very comfortable with $100
oil. They said, "That is a fair price."
We cannot afford to pay $150 per barrel, and
we need to build mechanisms that will prevent
oil prices to go to these kind of levels and
devastate our economy and other economies
as well.
What I'm suggesting here that the most important
thing to do in order to break the oil monopoly
in transportation, is to stop doing the silly
things that we are doing today which is to
put cars on the road that can run only on
petroleum.
Remember we talked about the chocolate before?
We continue to produce kids that can only
eat chocolate, if you want. We continue to
produce cars that can only run on oil. And
we do it at a rate of about 10 to 15 million
a year; only in the United States.
So while we are concerned about the future
of oil, while we are talking about depletion
of oil, while we are talking about oil geopolitical
and geoeconomic issues associated with oil
at the same time we continue to put every
year between 10 and 15 million new cars on
the road that can run on nothing but oil.
How's that for smart policy?
You know they say, "If you're in a hole, the
first thing you do is stop digging." Right?
Well we're digging, we're digging fast. And
that has to stop.
So luckily we have technologies and we have
the ability to do it and to do it pretty quickly.
Google has been very active on the electrification
of transportation and I think it's a very
good idea, because if people drive cars on
electricity, on batteries instead of oil,
then few things happen.
First of all, you drive your car on something
that is cleaner, is more efficient, it's quiet,
it's cheaper, it's more environmentally friendly,
even if the electricity is made from coal
it's still better than running your car on
gasoline.
So there are many, many reasons why we need
to electrify our transportation system; why
we need to move to electric vehicles.
But let us be frank and let us understand
that this is not a quick fix. This is not
something that can happen overnight.
In our book, "Turning Oil Into Salt, we looked
into what did it take to get those batteries
quickly into the market. In the end it's a
matter of cost. If you're battery costs more
than the car then there is a problem. So what
do we need to do to bring the cost down?"
The first thing I want you to understand about
batteries is first is that the battery is
a box full of commodities; it's a smart box.
It has a brain, but in the end it is a big
box and it has commodities; a lot of them.
About anywhere between 20 and 30 different
types of commodities, various metals and minerals
that go into the battery. If we are to build
a huge fleet of electric vehicles we need
to make sure that we have those commodities.
Let me throw a few examples here just to demonstrate
the magnitude of the challenge that we are
facing. This Blackberry that I have here has
a small battery that takes about three grams
of something called lithium carbonate which
is an essential component in the lithium-ion
battery.
The Volt that GM is putting on the road right
now has a battery that takes 24 kilos of lithium
carbonate. So when you move from something
that takes three grams to something that takes
20 kilos and up, and I'm not even talking
about the Tesla's of the world that take much
more; think about what kind of ramp up you
need to supply the needs of the world. And
we're talking millions of new batteries like
this.
And we also talk about utility companies that
want to build big batteries to store electricity.
Because one of our problems today with electricity
is that we cannot store it; we don't have
storage capacity. But all of these storage
batteries will need a lot of materials. And
that is true for lithium, that is true for
cobalt, that is true for rare earth elements,
a family of metals of 17 metals that happen
to be mined today almost entirely in China.
And when you look at those minerals you see
that every single one of them tells a story,
and sometimes not a very happy story.
Cobalt, for example: fifty percent of the
world's cobalt is concentrated in the so-called
Democratic Republic of Congo.
Now let me tell you what's happening in the
Democratic Republic of Congo. In the past
decade there has been a genocide that is even
worse than the Holocaust; more than six million
people were killed there in civil war. We're
talking about 40 percent of the women in Congo
were raped at one point or another.
This is a total hell and this is where our
cobalt is coming from. And this civil war
can resume any day because the tensions are
still there and nothing has been resolved
over the years and this is a very, very unstable
place.
Rare earth elements were in the news recently
when China imposed a minor embargo in rare
earth supply to Japan and to the United States,
because they were unhappy about some of the
policies. And because one Japanese fishing
ship collided into another Chinese ship and
they were up in arms and they decided to punish
the Japanese by not sending them rare earth
for their battery industry.
So what we have to realize is that while we
want the solar panels, the wind turbines,
the electric vehicles, electric motors, we're
gonna have to make sure that we have all of
these materials to supply our needs for the
21st century. It's not gonna happen just because
we want it to happen; it will happen if we
take the necessary steps to ensure that we
have the entire supply chain of those next
generation energy devices.
And we have to invest in it; we have to invest
in developing a domestic supply chain. We
need to invest in mining because as much as
you like renewable energy, as much as you
like the solars and the wind and the electric
vehicles, you have to realize that renewable
energy, like it or not, begins at the mine.
If you want to build those big four megawatt
offshore wind turbines you need huge magnets,
huge; hundreds of kilos of neodymium, which
is one of the rare earth metals that I talked
about.
So that's one thing to remember about the
electrification of transportation. We have
to reduce the cost of some of the components
in the battery supply chain.
One of the things that we revealed in the
book is that the most expensive component
of an auto battery today is something called
a separator. It's a thin sheet of plastic,
very smart plastic, but something that looks
like thin sheet of plastic that separates
between the anode and the cathode. This intellectual
property makes up about 10 to 12 percent of
the cost of the battery. The IP actually belongs
to Exxon Chemicals.
So that's the kind of things we need to pay
attention to. How can we bring down the cost
of batteries? How can we identify those components
in the battery that can really bring the cost
down to allow the expedited commercialization?
If you looked at batteries today in China
you see something very interesting; they're
very cheap; much cheaper than the batteries
that we put in the cars in the United States.
Now why?
Because the demands from the battery in China
are much less stringent than they are in the
United States. We want here a battery that
will run for 10 years or 100,000 miles. And
the Chinese say, "Well you know maybe instead
of 10 years we'll do 7 years. That's good
enough." And because the demands are less
stringent, they can get lower cost.
And I think the key is to really begin to
put cars on the road and to start with a good
enough and to improve it later on. We did
not wait for the Intel Centrino to put the
Commodore 64 in the marketplace. We started
with something that today looks really silly
and not a great computer, but at the time
it was good enough. And I think we should
adopt this mindset of starting with a good
enough, improving it as the years go by.
And I believe that we will see electrification,
but the question is: what's gonna happen in
the next 20 years before we see electric vehicles
in very large numbers? Will we be able to
survive the oil spikes that will come, no
doubt, and could drive our economy into chaos
in the next 20 years? Can we afford to bet
the farm only on one solution, that electric
car, and neglect the intermediate and near
term solutions? I believe that we cannot have
this luxury. I think it would be a huge mistake.
A few years ago we had a President who said,
"A kid born today his first car will be a
hydrogen fuel cell car." Well this kid is
almost 10 years old now and I don't think
that the first car that he or she will drive
will be a hydrogen fuel cell car.
So even though we think that sometimes we
know what the future will look like, sometimes
that's not the case, and we need to have stop
gap solutions. And I think that the most important
stop gap solution is to have liquid fuel choice.
We need to have liquids that can coexist with
our gasoline system on board the pretty much
the same internal combustion engines, and
to make sure that we have a healthy competition
in the transportation fuel market among a
number of fuels.
Now let's talk a little bit about the liquids,
because I believe that if there is something
that is missing in our energy picture is this
liquid fuel competition.
First of all how do we enable liquid fuel
competition? The first thing that will need
to happen is that cars that we invent, that
we put on the road, are flex fuel vehicles.
Flex fuel vehicles are cars that look and
behave like the cars that you drive today
with one difference: there is a chip and there
is a more robust fuel line; the plastics and
the rubbers are made from materials that are
more resistant to corrosion.
And that enables a whole family of alcohols
and ethers and commodity chemicals to be blended
into our gasoline at any ratio at any combination
that you want and reduce the amount of oil
that we need to move us from one place to
another.
Most of you are familiar with ethanol; this
is only one of those alcohols. Everybody has
an opinion about ethanol. Some people like
ethanol; some people hate ethanol; both have
good arguments. I'm not here to rebut any
of this.
Ethanol has good attributes, it has bad attributes,
but what I want to make sure is that you all
understand that ethanol is only one of many
liquids that currently can play a role in
the transportation fuel market, but they are
not allowed to do it because the cars are
not warranted to run on them.
Sort of like you go to a bar and all you can
order is vodka. But you like gin or rum or
whiskey and you should be able to buy any
form of alcohol that you want in this bar.
But if the barman says, "Sorry, only vodka
is allowed," what can you do?
Let me talk a little bit about an alcohol
that I think presents a very, very promising
potential for a variety of reasons, and it's
called methanol.
Methanol is essentially wood alcohol, it's
a very simple alcohol, it can be made from
anything that contains carbon. It can be made
from natural gas, it can be made from coal,
it can be made from biomass material.
And guess what? We describe it in Chapter
6 of the book, it can also be made from CO2.
Wouldn't that be nice if we could take CO2
and convert it into fuel? Instead of finding
all kind of innovative ways, expensive ways
to take the CO2 to ship it all over the place,
to bury it somewhere in the ground and hope
that it stays there forever; we can take the
same CO2 and recycle it by using it as a building
block for liquid fuel that can run in the
very same cars that we have today.
That's the kind of thing I would like to see
us doing with CO2. This is the kind of thing
that methanol can allow us to do.
Methanol, we just found a lot of natural gas
in this country; natural gas prices are very
low; natural gas burns cleaner than oil. Why
not make methanol from natural gas?
Methanol from natural gas sells today for
about one dollar a gallon; clearly very competitive
with oil.
Methanol from biomass is easier and cheaper
to do than ethanol from biomass because we
don't need to invent all kind of bugs and
enzymes and all kind of funny creatures that
will digest the biomass, we can simply gasify
the biomass and turn it into wood alcohol,
methanol.
Methanol offers us all kind of opportunities
overseas. I just heard a few days ago that
the Iraqi, in Iraq 50 percent of Iraq's natural
gas is being flared; flared! Can you imagine?
And this is methane, this is not CO2. So you
take one of the most potent greenhouse gases
and you flare it.
And that happens in Africa; that happens all
over the world. We take something that is
a very useful source of energy and we burn
it. What a waste.
But if you could capture this gas and monetize
it by commoditizing it, by turning it into
methanol which is a very easy conversion,
then all of a sudden you can sell it and you
don't have to flare it. And those poor countries
can make some money.
And help out poor countries. What do poor
countries do? What are they good at? Agriculture;
most poor people in the world work in agriculture.
Most poor people in the world grow plants.
That's what they do. They don't work at Google;
they grow plants.
And if we have an alcohol economy, if we have
cars that can run on alcohol in addition to
gasoline, those countries will be able to
produce their own fuels. They then will be
able to grow more and more of their fuels
instead of buying oil for $150 or $200 or
$300 a barrel of oil.
So if we go again and face one of those spikes
in price at least there'll be something that
they can do to alleviate this economic pain.
And I want to explain to you, to give you
a demonstration. What happens to an economy
that has fuel flexibility, that has those
flex fuel cars, which by the way, cost only
$100 extra for auto manufacturers to make?
So if you're a GM or Ford or Chrysler if you
want to make all of your cars flex fuel, it's
roughly 100 bucks per car; GM claims $70.
So let's take a country that actually did
that; it's called Brazil. And let's look what
happened to Brazil when 90 percent of cars
sold in Brazil are flex fuel vehicles. Let's
see what happened to Brazil in 2008 when all
of us suffered under this terrible $150 oil
situation.
In Brazil it was barely felt. Why? Because
Brazilians had fuel choice at the pump; when
oil prices became too high, they had cars
that were able to absorb alternatives and
they opted for the lowest cost fuel, just
like anybody would do.
I mean people are economic creatures, after
all. And you know what happened in Brazil
in 2008? Something really remarkable: gasoline
in Brazil in 2008 became an alternative fuel.
Less gasoline was sold in Brazil than ethanol,
which they happen to make from sugar cane.
So you see that when you look at it from the
standpoint of strategic commodities we have
alternatives to oil. But we need to put them
to work. We need to be able to allow those
alternatives to play in a free market environment.
Today we have a mandate that says that we
can only use gasoline in our cars. We have
to have a different mandate. We have to have
a mandate that says that you cannot sell a
car in the United States unless it offers
you fuel choice. That is the mandate that
I would like to see happening in this country.
We should have an open fuel standard that
requires that every car sold in America, if
you are Ford or Toyota and you want to sell
cars in the United States, they have to offer
fuel choice. And yes you'll have to invest
the extra $100 in making the car just like
you invested a few dollars in putting a seat
belt or an airbag or a rearview mirror or
FM radio. Or just recently I heard camera
that sort of watches how you drive in reverse
to prevent accidents.
The economic benefit is clear. It is a way
for us to cut our oil expenditure significantly.
It is a way for us to protect ourselves against
oil spikes that can drive us into our second
and potentially fatal heart attack. It is
a way for us to protect our national interests
and our national security.
All of those alternatives are more environmentally
friendly than gasoline. So there's clear environmental
benefit by using all of the above whether
it is electricity, alcohols, you name it.
So this is really something that we could
do without putting an onerous burden on our
deficit, without Congress paying many, many
billions of dollars to implement all kind
of policies.
You all know what kind of Congress we have
today in Washington; this is a Congress that
was elected on the platform of fiscal conservatism.
So there's not going to be a lot of money
to go around to distribute to all kind of
great project that maybe some of you would
like to see. So we have to be realistic.
And if I started talking about politics maybe
I will throw in one or two thoughts here about
the new Congress.
We have a Republican control over the House
and very likely in two years from now there'll
be Republic control over the Senate. So any
way you look at it when you have 23 Democrats
running for re-election in the Senate and
only 10 Democrats, the likelihood is that
in 2012 Republicans will take over the Senate
as well, if not the White House too.
So we have to think about solutions that can
be accepted by Republicans and Democrats alike.
This is the reality that we live in and we
cannot afford to spend the next four, five,
six, I don't know how many years, but at least
four, on policies that have zero chance of
success.
And I think that there is one policy that
can really capture the interest of both Republicans
and Democrats is the open fuel standard. Because
Republicans as well as Democrats don't like
our oil dependence, they don't like the fact
that we export hundreds of billions of dollars
every year to our enemies, they don't like
the fact that we are beholden to those governments,
and they don't like monopolies and cartels.
So I think that in this respect we have a
winning combination that if we just get some
focus we can get this done in this coming
year. And if we do that, we break the oil
cartel, we break the monopoly of oil, we turn
oil into salt. This is how you become energy
independent. This is how you strip oil of
its strategic status. No longer chocolate
only society.
Thank you.
[applause]
>>commentator: Thank you Gal.
Hello, ah there we go.
Okay, thank you for that stimulating talk.
I'm gonna lead off with a few questions just
to get the ball rolling and then I'll turn
things over to the audience.
And I guess we don't have mics for the audience,
right? So you'll have to repeat the question.
So first question is on this flex fuel initiative
which is very attractive; I'd buy the $100
per car argument, but the other side is the
distribution network.
So think back in the '70s there were a lot
of oil burning heat, the price of oil goes
up, basically everybody switched to gas because
it was relatively cheap to do the switch as
long as you had natural gas distribution to
your point of fuel usage.
So what are the estimates of the cost for
providing the distribution system for flex
fuels?
>>Gal Luft: Yes, the distribution will happen
only when there are cars. No gas station owner
will go into the hassle of retrofitting their
pumps and storage tanks unless they see that
there are 20, 25 percent of the cars on the
road can actually run on the fuel. So we gotta
start with the cars here.
And that's why it's important that we have
an open fuel standard, because three years
after you introduce an open fuel standard
you have enough cars on the road to reach
this sweet spot in which gas station owner
says, "Now it makes sense for me to collect
this tax credit and go through the hassle
of retrofitting a pump or two and maybe next
year a third one and gradually to turn all
the pumps into alcohol pumps."
Now the important thing to remember about
flex fuel is, a flex fuel car is like your
cup of coffee. You can mix any amount of coffee
and milk that you want. You can drink your
coffee black like I do; you can have a little
bit of milk; you can have a lot of milk. But
if you're allergic to milk, you can drink
soy milk or coconut milk or rice milk. The
car doesn't care. You can mix any combination
of gasoline, ethanol, and methanol at any
blend you want and the car could not care.
So it's not that you move from one liquid
to another; you can mix them and blend them
as you wish. Having fuel choice, by the way,
does not mean that you need to exercise a
choice. If you have fuel choice and you still
want to run your car on gasoline, fine do
it; nobody's forcing you to do it. Just like
nobody's forcing you if you have plug in hybrid
car that can run on electricity and liquid
fuel, nobody's forcing you to plug it in.
If you don't feel like plug it in, fine, drive
your car on liquids.
So I think that what it gives you is the flexibility
and I believe that supply chain and distribution
chain will follow once there is incentive,
once there are cars, and once, of course,
the oil prices are going to the place where
I think that they are going, which is North.
>>commentator: One fuel that you didn't mention
that would work quite easily for vehicles
is propane. I mean there are 13 million propane-powered
vehicles in the U.S. according to, in the
world, according to the Wikipedia. And here
in the Bay Area we see lots of signs saying,
"This bus is driven by propane."
We already have a distribution mechanism for
that; there are a lot of public vehicles that
are running on propane. How come that isn't
part of the solution here?
>>Gal Luft: Well yeah, I mean it's called
CNG, compressed natural gas.
>>commentator: Yeah, LNG, maybe, or --
>>Gal Luft: It's not LNG, its compressed natural
gas; its gas that you basically compress it
and put in a canister; it takes half of you
trunk and then you can drive your car and
it's a very elegant solution for fleets. That's
why you see busses and some taxis and garbage
trucks and so forth.
However, we looked at our institute at various
ways to utilize natural gas in transportation,
and realized that the best way to use natural
gas in transportation, other than making electricity
from it and then run it in electric vehicles,
is to turn the natural gas into methanol.
And I want to explain why.
The cost of a platform to run on CNG is in
the thousands extra. In other words, today
to convert your car to run on CNG you're talking
at least $10,000 conversion, at least; whereas
to make your car flex fuel 100 bucks. So it's
much easier in terms of cost to go to the
methanol flex fuel route than CNG.
However, I'm not opposed to it. I think that
there is a role for it in the overall mixture.
Around the world, as you mentioned, there
are well over 10 million vehicles that can
do it and already do it. But if you look carefully
into those numbers you see that most of those
vehicles are in places like Iran, Pakistan,
Bangladesh.
And the reason that you see it there and less
so in the developed world is because the equipment
that they use, the tanks that they use, are
made from low grade materials. And that imposes
all kind of safety concerns.
You really if you wanna put your family in
a car like this you really wanna make sure
that the canister is made from very, very
strong materials that are normally very, very
expensive to make. You don't wanna put it
in a small tank that is explosive and so forth.
So I think that if we are to do it in the
United States we'll have to have very high
safety standards that will make it much more
expensive, which is why I go back to the original
argument that it's much easier to do it, to
take the gas and make it into alcohol and
then use the alcohol in the existing platforms.
>>commentator: So one thing you didn't mention
in the discussion of methanol, which I think
is very relevant, is the fact that in the
last five or ten years we've seen a revolution
in natural gas production in the United States
with horizontal drilling and shale gas.
If you look on the Web you can find maps of
the U.S. with shale gas deposits that are
really quite striking. Now there's some environmental
issues with respect to extraction here, but
in general it looks like it would be very,
very easy for the U.S. to be completely energy
sufficient, and indeed, an exporter of natural
gas using LNG technology.
So what you're describing is quite feasible
in terms of domestic capability, I would say.
>>Gal Luft: I think that the question to ask
is, look we got a gift. This country got a
gift. It's like all of a sudden an uncle that
you never knew died and you find yourself
with a big inheritance.
Even in my book, I must admit, I wrote it
before this natural gas revolution started
and I wasn't as bullish on natural gas as
I am today. So things happened very quickly,
very suddenly.
But the question to ask is, if we are to use
natural gas in transportation, what is the
best way of doing it? How do we get the most
economic activity from each cubic meter of
natural gas? How do we get the most energy
security value from each cubic meter of natural
gas? How do we make the most environmental
value from each cubic meter of natural gas?
And we have to look, because as you said there
is more than one way of using natural gas,
and we have to sort of go into this analysis
to make sure that we don't squander this gift,
that we really put it to use in the best way,
most efficient way so they can really utilize
it in the best say.
Because, after all, natural gas too is a finite
resource so we want it to last for as many
years and move around as many people and goods.
And that can be done, I think, the best way
through the conversion to liquids and later
on when we have electric cars through production
of electricity, and then we can run those
electric cars that are made from electricity,
made from, among other things, natural gas.
>>commentator: Okay, well let me open this
up to questions.
>>male #1: Sure. Some of what you're describing
in the upper level it sounds vaguely like
a policy that's a lightning rod. And at war
time when lighting rod policies happen, but
this seems like a lower grade. Is there an
equivalent of economic warfare or economic
policy lightening rod that has been employed
in the past for example if you wanna roll
out something like this. Because at first
you wanna do the car conversion, but then
in order to really hammer the point home would
you have to have the capacity to supply the
energy [inaudible] at least to a certain degree.
>>commentator: So give a quick summary of
the question.
>>Gal Luft: If I understand the question correctly,
you were looking for precedent, historical
precedent of how we are able to break through
this political gridlock, I take it, to really
impose a requirement on changes to the vehicle
platform.
>>male #1: Right. It's an economic type of
precedent.
>>Gal Luft: Well I think that first of all
the case of Brazil. I mean Brazil started
their flex fuel vehicle exercise that brought
them to where they are today after the 1973
embargo; they got a wakeup call. They realized
that they suffered a great deal as a result;
they had a military dictatorship, it helped
in terms of decision making, but they no longer
do. Now it's a democracy.
But at the time they realized that they no
longer want to be in this situation that somebody
stops the supply of oil and they don't wanna
have to face this vulnerability and they went
down this road.
And we have a number of precedents in this
country even that in time of war and there
were all kind of mandates that were introduced.
For example, the reason that we have FM radio;
you know it's by law you need to have an FM
radio; that auto makers are by law required
to provide FM radio to every car that they
sell. And that goes back to the Cold War when
the military had all kind of plans to expropriate
frequencies, and they really wanted to make
sure that the public can remain informed in
time of emergency.
So we have those precedents in which national
security arguments, but today I think it's
even easier because we have an auto industry
that's still living off our dime. And an auto
industry that every time that oil prices go
up and they cannot sell those SUV's, they
come to us and ask for our money to keep them
alive.
So I think that one other thing we can do
is tell them, "Look guys you know if you want
our money again you better give us something
in return. And the least you can do is give
us fuel choice."
>>commentator: One example that might be an
historical precedent is the Sputnik and then
the race to the moon and there were billions
and billions of dollars committed in a peace
time effort to achieve a technological goal.
So it can be done, it just has to be pitched
in the right way.
Question.
>>male #2: [unintelligible]
So my question is if I run out and buy a new
car right now, is it the case that I could
go spend $100 and upgrade it, or it seems
like there might be other issues of emissions
and stuff like that or is there some kind
of in between thing that the manufacturers
can do so that if I wanna upgrade later? 'Cause
it seems like the futures market if the oil
producing countries saw that we were gearing
up for this that would have an immediate impact
on their behavior.
>>Gal Luft: You're talking about aftermarket
conversions and it can be done. There are
folks who sell those kits for few hundred
dollars. I think that of course technically
it can be done; it will be more expensive
if it's done as an aftermarket than if it's
done at the manufacture's level, which is
why I'm focusing on the manufacturers because
I think that's the best way to put a lot of
cars in a very short time to start of this
program of getting the infrastructure to follow
and the investors in alternative fuels to
follow, because they need some certainly as
well.
But I think that as we go forward on this,
there'll probably be all kinds of entrepreneurs
that will buy used cars and ship them, I don't
know to Mexico or China and have them go through
a retrofit and sell the engine back to the
U.S. market.
We could see all that, but our focus now is
to get the auto makers to produce those cars
and to make sure that they produce it in such
a way that is not only warranted to run on
ethanol, but is also warranted to run on methanol,
because methanol is the most corrosive of
all alcohols. If a car can run on methanol,
it can run on all the other alcohols and the
ethers.
>>male #3: So I wanted to ask you how much
rare earth and other rare minerals are getting
into the production of the cars themselves?
>>Gal Luft: How many?
>>male #3: How much of the rare earth and
other rare minerals are required to produce
the cars themselves? And aren't we running
into the same problem with production of any
car?
>>Gal Luft: Yeah, first of all there are already
a lot of applications in your car and in your
home and in everything around us. You know
those monitors have rare earth, fluorescent
lights have rare earth, but of course also
the car.
And that depends on the car; it depends on
the type of battery. Each battery has different
rare earth. For example, if you have a nickel-metal
hydride battery you probably have more lanthanum.
If you have lithium-ion battery you probably
gonna have more neodymium; so each battery
chemistry requires different materials.
Just to give you a sense, we're talking something
like a Toyota Prius something in the order
of 20 kilos of cumulative rare earth, which
is quite a lot if you think about a market
of about 170,000 tons globally. And we'll
need much more of it as we move into bigger
and bigger applications.
>>commentator: Let me ask a question about
ethanol.
So as I understand it, a car now with no modifications
can burn up to 10 percent mix of ethanol with
gasoline, right?
>>Gal Luft: Yes.
>>commentator: And so if you applied the modification,
this $100 modification you were describing,
you could have a larger fraction of ethanol
in the fuel mix?
>>Gal Luft: Just like the coffee and the milk,
remember?
>>commentator: You get much larger?
>>Gal Luft: Much, well --
>>commentator: Substantially larger?
>>Gal Luft: Well at least 85 percent and in
places like Brazil you could do 100 percent.
The reason that we can go up to 85 is because
of the cold temperatures in the winter.
But certainly you can use up to 85 percent
alcohol.
And it's the kind of thing that consumers
will decide. We would like to see, for example,
the concept of a blended pump. The blended
pump is sort of like those ice cream machines
that you have a chocolate on the one hand
and the vanilla on the other and in the middle
you have this one that sort of blends the
two.
A blended pump will do the same. You'll come
to a gas station and you'll have a knob and
you'll be able to determine what blend you
want to have in your tank.
And I think that you will make the decision
or the gas station probably will make the
decision based on the daily economics of the
fuels. So one day when gasoline is up and
alcohol is down they will shift the knob towards
the alcohol and then you'll get more alcohol
in your tank. The beauty of it is that the
car doesn't really care. So you can really
mix it in any combination.
To your point about the 10 percent: one of
the problems we have today with ethanol is
because there is a blend wall; you can only
blend 10 percent, there is no justification
to grow the ethanol industry. The ethanol
industry cannot grow anymore because they
have hit this blend wall and in fact, they're
exporting this stuff now. So America became
the next ethanol exporter because the market
is saturated, which is why we need to remove
this blend wall altogether and the way to
remove this blend wall is to make sure we
move to flex fuel cars.
>>commentator: So it sounds like the political
support from the ethanol lobby would be there
for this proposal, and on top of it you would
have strong political support from the natural
gas industry because natural gas is also dramatically
lower in price. People are looking for ways
to increase consumption.
>>Gal Luft: I call this the triple A: the
American Alcohol Alliance.
>>commentator: [laughs] I'll join. [laughs]
>>Gal Luft: And indeed that's the vision that
I have to marry the traditional farm groups
with the natural gas industry and have them
all support a vehicle platform that can accommodate
the alcohol that is made in the Midwest and
the alcohol that is made in the natural gas,
or that will be made hopefully in the natural
gas states.
And also the alcohol that will be brought
from friendly countries like Brazil. I mean
let's face it, why is it that we don't have
tax on imported oil but we have tax on imported
alternative fuel? If you wanna import today
ethanol from Brazil you pay 54 cents a gallon.
It's crazy.
So we have to open the market and then we
don't need this protectionism because the
market will be big enough for everybody to
profit.;
>>commentator: Let's take another question
back there. Yes.
You can just ?
male #4: Okay.
>>commentator: go ahead.
>>male #4: [unintelligible]
>>Gal Luft: Yeah, it's a question that I get
asked a lot about food versus fuel. If we
produce ethanol how is that gonna affect food
production?
Well I think that the anti-ethanol industry
has done a very good job in instilling this
food versus fuel myth. The Congressional Research
Service looked into it, as well as the World
Bank, by the way, and they concluded it's
certainly not true.
The fact that food prices went up in 2008
was primarily driven by the fact that oil
prices went up. And in fact food prices today
are cheaper; the growth in food prices is
the slowest in more than 20 years even though
ethanol production is growing.
The reality is that there are two answers
here. One is that not every form of ethanol
can and must be made from food. Certainly
today we make ethanol from corn and in some
places from sugar cane, but we can make ethanol
from lots of other feed stocks that don't
conflict with food crops.
The second thing that I would say about this
is that corn is like any other commodity.
When there is a rush on commodities you'll
see that the rise in corn prices follows the
rise of gold, the rise of silver, the rise
of sugar, oil, natural gas, you name it. All
commodities go up; all commodities go down.
What we use the ethanol for, the corn for
in the ethanol industry, we use the sugars.
In food we use the proteins. So when you look
at the corn you have sugars and proteins.
We do not use the sugars, we do not use the
sugars in our food production we use the proteins.
And therefore they're two separate issues.
If you go to an ethanol plant, you'll see
that they separate the sugars from the proteins;
they take the proteins, they feed it to cows;
and they take the sugars and they refine it
into ethanol. So there shouldn't be any conflict
here.
The fact that you hear about bread riots in
Egypt and tortilla riots in Mexico, that's
not because of ethanol. It is not. In fact
why should there be bread riots in Egypt if
we don't make ethanol from wheat?
So it was a political ploy that was very well
orchestrated and we know today that it was
completely fabricated.
>>commentator: So I think we're running short
of time here.
Gal you will be around for at least a half
hour or so signing books and you can ask any
of these remaining questions personally.
So thank you very much for coming.
>>Gal Luft: Thank you.
[applause]
