By Terry K. McMahon, CONTROL columnistGIVEN OUR
prodigious appetite for energy, alternative sources are a continuing theme. Recently, the political establishment became aware that hydrogen is a very common atom in the earth’s crust and that, when combusted, it produces only water. So what’s not to like about this potential fuel?
A little knowledge in the wrong hands can be dangerous and, if those hands are political, dangerous becomes a gross understatement. It’s no secret that Federal Government directives have a big influence on private investment. Therefore, the potential Hydrogen Economy has attracted investment from two highly-respected members of the U.S. corporate establishment. I’d like to relate a previous experience wherein serious and accomplished business people failed miserably because they didn’t understand the technology they were dealing with.
In early 1968, I was employed by a financial firm for about six months. At the time, “computer leasing” was a red-hot business concept and Wall Street analysts were the cheering section. This business concept was enabled by two factors: 1) An IRS ruling that computers could be depreciated over 10 years with a 10% residual in Year 10, and 2) A single dominant manufacturer (IBM), whose business model emphasized equipment rentals.
IBM’s rather conservative rental rates effectively depreciated the underlying equipment in 3-4 years. Obviously, with the generous IRS depreciation rule, independent computer lessors could purchase the equipment from IBM and lease it to customers at a sharp discount from the IBM rental.
For the first few years (1968-70), everybody was happy. Customers got discounted computer rentals, IBM was raking in cash from purchases vs longer-term rentals, and computer lessors were reporting extravagant “paper” profits. This business model, unfortunately, was fundamentally flawed. The depreciation charges extended far past the economic utility of the asset (computer). Remember, IBM priced its rentals to recover the cost of the underlying asset in less than four years plus a healthy profit margin. Needless to say, the “computer leasing industry” was a pile of rubble by 1971. The losers were the investors, primarily the poor souls (widows and orphans mainly) who bought the bonds floated by the computer lessors and their bankers (another shady bunch).
This was a classic example of business people (let’s be charitable and assume that the computer lessors were only ignorant, not criminal) embracing a flawed business model with zero understanding of the technology underlying the model. During my tenure, I wrote a report entitled “Computer Leasing – Priam’s Treasure or Fool’s Gold,”
detailing a plan to extend the economic utility of the computers under lease, all IBM System/360s. My employer was horrified to learn that they needed to invest in some modest application development efforts. The report disappeared in a “management review” and I was politely shown the door.
Back to the Hydrogen economy. At a meeting of the New York Section of the American Institute of Chemical Engineers at Con Ed’s HQ in June 2005, Shell Oil and General Motors discussed their joint project, which to date has resulted in a commercial-scale hydrogen fueling station in Washington, D.C., and a concept hydrogen fuel cell vehicle. An impressive demonstration, but aren’t we putting the cart before the horse? Where is all the hydrogen going to come from? This is the crux of the problem. I have great respect for Shell and GM. My last four cars were all GM models which have given me 58 years of cumulative service to date with two still in service. But this project, I fear, is more focused on government approval than economic opportunity.
The real engineering opportunity (process control and other disciplines) is in hydrogen production. At present, most hydrogen is produced by cracking natural gas but this route can support only a tiny fraction of the transportation fuel demand. Hydrogen from natural gas is a key raw material for ammonia synthesis. Ammonia, in turn, is the source of fertilizers to keep U.S. agriculture the most productive in the world. Already the cost of natural gas feed-stocks is squeezing the petrochemical business (see The U.S. Chemical Industry: R.I.P.,
July 2005) as most new electric generating plants are natural gas fueled to meet emission ceilings. Producing hydrogen for transportation fuel from natural gas is a huge thermodynamic blunder.
If we had enormous electric power resources, such as with thermonuclear power stations, the electrolysis of water to produce hydrogen and oxygen would be the obvious route. But why not use the electric power directly? Hydrogen is an extremely dangerous, highly combustible material. It rates it own electrical hazard classification. Chemical cracking of water into hydrogen and oxygen powered by direct solar radiation would be optimal. Unfortunately, Bell Labs isn’t around any more to take on these tough problems.
If the business opportunity seems too good to be true, it undoubtedly is.
Terrence K. McMahon of McMahon Technology Associates, Leonia, NJ is the "Around the Loop" columnist for CONTROL magazine and ControlGlobal.com. He can be reached at Mcmahontec135@aol.com