I thought it might be interesting to take a look at the current state of the economy and see if there are any predictions to make. I’ve been around for quite a few years now, and if there’s one thing I’ve learned it’s that the economy is not really all that predictable. Sure, if you consider the big picture, we know that there have always been periodic business cycles—from boom to bust. But, as it turns out, these business cycles aren’t regular. When it comes to trying to predict exactly when we’ll reach the bottom of one cycle or the top of another—and what kinds of smaller economic events will happen along the way—that’s where things get dicey.

According to many economists, the recent recession is now behind us. However, it is clear that the aftereffects of the recession are going to linger for some time. So while the economy is on the upswing, there is still much pain to be felt by many in our nation. The worst may be over, but happy times aren’t here again, and there’s really no telling when they will arrive.

If you look at the current economic data, there is certainly room for optimism about the future.

According to the U.S. Department of Commerce, real gross domestic product increased at an annual rate of 2.8 percent during the third quarter of 2009, driven mostly by increases in consumer spending, exports, private inventory investment, federal government, spending, and residential fixed investment. Compare this to the second quarter of 2009, where real GDP decreased 0.7 percent. The Conference Board reported that its index of leading indicators increased in October to its highest point since September 2007—103.8. This is the seventh month in a row that the index has shown an increase. Consumer spending rose 0.7 percent in October, and during the week ended November 21, 2009, first-time claims for jobless benefits dropped by 35,000 to 466,000. This was significantly less than the figure of 500,000 predicted by many economists.

As I mentioned before, there is still plenty of economic pain to go around. The current national jobless rate is 10.2 percent. According to the Federal Reserve, the unemployment rate will remain above 8 percent through 2012. Mortgage delinquencies hit a record high of 14 percent in the third quarter. This represents 4 million Americans who are either behind in their mortgage payments or in foreclosure. And while consumers are spending more overall, early indications from Thanksgiving Weekend shoppers is not encouraging. According to the National Retail Federation, spending per shopper fell from $372.57 a year ago to $343.31 this year.

My personal concern is that much of the good economic news we are hearing has been driven by direct government intervention. The $787 billion economic stimulus has had an impact. The first-time homebuyer’s tax credit of $8,000—which was set to expire today, but which has been extended through April 30, 2010—has had an impact. Cash to Clunkers has had an impact. What will happen when these federal government cash injections and tax credits run their course? Will the recovery crash, or is it strong enough to walk on its own?

What do you think?

– Bob

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Let me take the opportunity to wish you all a very happy Thanksgiving and an overall pleasant holiday. I am personally thankful to all of you — many of you good friends and colleagues for many years — for visiting my blog and spending some time with me each week. I have enjoyed keeping you up with my latest goings on, and I have enjoyed our discussions.

Next week I will write about the current state of the economy.

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On one of his recent trips to San Diego, SAIC’s new CEO Walt Havenstein dropped in at Cave Street to meet me and to discuss his plans for the company (photos below). I found that many of his thoughts about management were similar to my own — that employees should have a say in the management of the company. This was encouraging to me.

I offered to help him wherever I could, if he chooses to access that resource. I’m beginning to feel that the employees of SAIC are in good hands in these troubled times.

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Last weekend I attended the Ernst & Young U.S. Entrepreneur of the Year ceremonies at the Desert Springs JW Marriott Resort and Spa. One of my remaining impressions of the event was of the venue — the Marriott is really spread out. I’m certain I walked at least a mile each day to attend the different events, which was good for my cardiovascular system.

One more impression: Jay Leno was a wonderful master of ceremonies for the main event. He has the world’s best sense of humor. When Ernest Rady got up to accept his award, he said into the microphone, “Oh, my goodness me — I never expected this.” To that, Jay said, “Look Ernest, you’re going to need to clean up your language — we don’t allow the use of strong language at this meeting!”

The national Entrepreneur of the Year award winners represented 10 different categories:

• Overall winner: Tom Adams - President, CEO, Rosetta Stone
• Distribution and Manufacturing: Ken Solinsky - President, Insight Technology Incorporated
• Emerging: Dallin Larsen - Chairman, President, Founder, MonaVie
• Energy, Chemicals and Mining: M. Jay Allison - CEO, President, Comstock Resources, Inc.
• Financial Services: Ernest Rady - Chairman, Insurance Company of the West
• Health Sciences: Bruce L. Downey - Former Chairman, CEO, Barr Pharmaceuticals, Inc.
• Media, Entertainment and Communications: Timothy J. Leiweke - President, CEO, AEG
• Real Estate, Hospitality and Construction: Lee R. Anderson, Sr. - Chairman, APi Group, Inc.
• Services: Robert Klein - CEO, Safeguard Properties
• Technology: Paul Sagan - President, CEO, Akamai Technologies, Inc.

I finished my trip with a ride on the Palm Springs Aerial Tramway, which took me far up the slopes of Mt. San Jacinto. The upper station is at about 8,500 feet in altitude. The view was inspiring.

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The big event this coming week is our annual trip to Palm Desert to participate in the Ernst & Young U.S. Entrepreneur of the Year ceremonies. Thousands of people will come from across the country to attend the event. The national winners will go on to the international competition in Monte Carlo. I fully support this event, and I look forward to attending. It was my honor and pleasure to again serve on the judging panel this year for the San Diego competition. We have many talented entrepreneurs in the area, some of whom have started technology businesses. I believe entrepreneurs play a vital role in our nation’s growth and prosperity, and that we should do whatever we can to encourage the emergence of new technologies and the new business opportunities that result. Jay Leno will be the master of ceremonies for the event. I’ll provide a full report of the event next week. Until then, here is a listing of some of the entrepreneurs who are vying for the national title.

– Bob

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A couple of weekends ago Betty, Mary Ann, and I attended a series of meetings and events in Los Angeles for the X PRIZE Foundation. The mission of the X PRIZE Foundation is to bring about radical breakthroughs for the benefit of humanity. The organization works toward this end by sponsoring $10-million prizes for the achievement of specific goals in a variety of different areas, including space and underwater exploration, life sciences, energy and environment, and more. The prizes are funded with private money. Winners have to be able to demonstrate the performance of their ideas.

There were some very creative ideas presented for the competition, some of which will undoubtedly have a significant impact on the future of technology. Mary Ann has been an active participant in the activities of the X PRIZE Foundation. I primarily attended as an observer. The Foundation for Enterprise Development is helping to fund prize ideas, and I am personally impressed with the scope and depth of the X PRIZE Foundation’s activities. I hope the FED can continue to assist in their future endeavors.

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I thought you might be interested to know that American Banking News is publishing a series of question-and-answer interviews with me on a variety of topics. You can find these articles here:

• Establishing New Office Locations — An Expert Q & A
• Benefits of Employee Ownership — An Expert Q & A
• Creating the Right Strategic Balance In Your Business — An Expert Q&A

– Bob

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In this third and final part of my series on a long-term energy solution for our nation (see also Part 1 and Part 2), I take an in-depth look at the prospect of algae-based biofuels. Regardless of whether you believe that we should pursue alternative fuels because supplies of fossil fuels are finite, or because it is in our strategic interest to become less dependent on the rest of the world for our energy supplies, or because the continued build up of greenhouse gases in our atmosphere requires that we take action to turn the tide now — or for any other good reason — much time and money are today being poured into the effort.

Even the Department of Defense has jumped into the act. At the end of 2008, DARPA awarded contracts to teams led by General Atomics ($19.5 million) and SAIC ($14.9 million) to develop economical methods for making JP-8 jet fuel from algae. Next summer tests will begin on a Navy F/A-18 Super Hornet fighter aircraft burning a mix of conventional jet fuel and biofuel. And in a speech last week to the San Diego Military Advisory Council, Navy Secretary Ray Mabus declared that the Navy intends to use renewable energy sources for half of its energy needs by 2020. It is anticipated that a significant portion of these renewable fuels would be algae-based biofuels, although other biofuels are also in the running. As Secretary Mabus pointed out, “If the Navy has a demand for it, the technology will come.”

The future is now, and there is no turning back.

The Current Situation

Biofuel is fuel derived from biomass — plant-based organic matter available on a renewable basis. Biofuels include such things as ethanol derived from corn, sugar cane, and other crops; reclaimed vegetable oils; biodiesel; algae-based biofuels, and more. As I noted in the second part of this article, Department of Energy statistics rank bioenergy second to hydropower in renewable U.S. primary energy production, accounting for 3 percent of the primary energy production in the United States today. It is my belief that these sources of bioenergy — and others yet to be developed — will one day directly replace the majority of liquid and gaseous fossil fuels used today.

But it is algae-based biofuel that is gaining much of the attention today, and for good reason. In a cover story in the October 19, 2009 issue of The Wall Street Journal, reporter Michael Totty listed Five Technologies That Could Change Everything. Fifth on the list (which includes space-based solar power, advanced car batteries, utility storage, and carbon capture and storage) is next-generation biofuels. While this category includes a variety of different biomass sources such as lumber and crop wastes, garbage, and inedible perennial plants, according to Totty, “…the most promising next-generation biofuel comes from algae.” Why? Says Totty, “Algae grow fast, consume carbon dioxide, and can generate more than 5,000 gallons a year per acre of biofuel, compared with 350 gallons a year for corn-based ethanol. Algae-based fuel can be added directly into existing refining and distribution systems; in theory, the U.S. could produce enough of it to meet all of the nation’s transportation needs.”

This Wall Street Journal reporter is not alone. Today, many organizations are placing their biofuel bets on algae.

In July 2009, Exxon Mobil announced that it was investing $600 million in a venture with Craig Venter’s company Synthetic Genomics to produce renewable liquid transportation fuels from algae. BP and Royal Dutch Shell have also jumped on board the algae bandwagon, funding their own research efforts into the promising biofuel.

These huge oil companies are being joined by other large companies. The 2009 Algae Biomass Summit — organized by the Algal Biomass Organization (ABO), and held in San Diego from October 7-9, 2009 — was sponsored by such companies as Airbus, FedEx, Raytheon, Boeing, Sapphire Energy, and Invitrogen. According to Mark Allen — a former SAIC employee from the ’80s and founding board member of ABO — the event was expected to attract more than 1,000 scientists, engineers, venture capitalists, and industry executives. Mark is also a co-founder of A2BE Carbon Capture, which is working on closed photobioreactors (PBR) for the cultivation of algae on an industrial scale. Other ABO corporate members include Air New Zealand, Virgin Atlantic, EPRI, General Atomics, Siemens, Waste Management, and many more.

Why Algae? Why Now?

So, why all of the interest in algae? And why now? Algae grow rapidly and can develop a high energy content. According to the Department of Energy, some algal strains double their mass several times a day, with more than half of that mass comprising lipids or triacylglycerides. These are the basic ingredients of common vegetable oil. The lipids and triacylglycerides produced by algae can be turned into biodiesel, green diesel, green gasoline, and green jet fuel. The Department of Energy has pinpointed five key benefits of algae-based biofuels (PDF):

• Impressive Productivity: Microalgae, as distinct from seaweed or macroalgae, can potentially produce 100 times more oil per acre than soybeans — or any other terrestrial oil-producing crop.
• Non-Competitive with Agriculture: Algae can be cultivated in large open ponds or in closed photobioreactors located on non-arable land in a variety of climates (including deserts).
• Flexible on Water Quality: Many species of algae thrive in seawater, water from saline aquifers, or even wastewater from treatment plants.
• Mitigation of CO₂ During photosynthesis, algae use solar energy to fix carbon dioxide (CO₂) into biomass, so the water used to cultivate algae must be enriched with CO₂. This requirement offers an opportunity to make productive use of the CO₂ from power plants, biofuel facilities, and other sources.
• Broad Product Portfolio: The lipids produced by algae can be used to produce a range of biofuels, and the remaining biomass residue has a variety of useful applications:
  • combust to generate heat
  • use in anaerobic digesters to produce methane
  • use as a fermentation feedstock in the production of ethanol
  • use in value-added byproducts, such as animal feed

Research by Dr. Oliver Hemmers — director of strategic energy programs at University of Nevada Las Vegas — indicates that production of algae-based biofuels could top 15,000 gallons per acre in warmer areas of the United States. And in colder areas, algae ponds could be coupled with coal-burning power plants, using CO₂ produced by the power plants (which, on average, produce more than 5 million metric tons of CO₂ a year) to feed the algae. According to Hemmers, a coal-burning power plant combined with an algae-pond system could produce 156 million gallons of biodiesel a year.

Of course, while the promise of algae-based biofuels is great, we are still in the early stages of research and development. It will be a number of years before algae becomes an economically viable alternative to petroleum. According to Emil Jacobs, vice president for research and development at Exxon Mobil’s research and engineering unit, large-scale commercial plants to produce algae-based fuels are at least five to ten years away.

Much to Be Done

There are still a number of challenges to overcome before algae-based biofuels can move from the test tube to the filling station. For one thing, the technology is still in its early stages, and the price of algae-based biofuel will not be competitive with conventional petroleum fuels until significant production facilities and refineries are brought on line. That said, progress is being made. According to the General Atomics team, they have already been able to cut the cost of algae-based biofuel from $30 a gallon to a range of $6-7 a gallon. However, this figure needs to get closer to $1 a gallon says David Hazlebeck, General Atomics’ program manager.

There is much debate about which approach to growing algae is best, with much of this debate centering on open ponds versus closed vessels. Open ponds are far more cost effective, but environmental conditions within closed vessels can be controlled much more precisely. Eventually, I believe that the most cost-effective approach that offers a reasonable amount of control will win out. As Stephen Mayfield — professor and associate dean of graduate studies in the Department of Cell Biology at the Scripps Research Institute here in La Jolla — noted on this blog on April 21, 2009, the capital expense of building closed bioreactors (vats) is prohibitive. According to Stephen, “Fuel, even at $4 gallon is still only $0.60 a pound, and it’s tough to get that cost of goods out of a facility that contains [expensive] bioreactors…For those of us that think about fuels retained in the algae, then open ponds are the only way cheap enough to work.”

But surmounting these challenges will undoubtedly be of great benefit to our nation, and I believe that unlocking the secrets of algae-based biofuel is a smart investment of both time and money. According to David Hazlebeck at General Atomics, doing so will create “trillions of dollars in economic activity” for our economy while reducing our dependence on foreign sources of oil.

Whatever happens in the future, I am certain that algae-based biofuels will be an important part of our nation’s alternative fuel portfolio, and one that cannot be ignored. Follow the money, and you’ll see that the prospects for renewable algae-based biofuels are brighter than ever.

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