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Lunch at The Four Seasons with: David Lifschultz

Published by The New York Sun on 2005-12-08

David Lifschultz carries his solution to the world's oil problems in a beaten-up briefcase.

Literally.

"See - here," Mr. Lifschultz, CEO of GenOil, said, bringing out a blue velvet box and opening it gingerly. "This is it."

Inside the box, nestling on a blue cushion, were two vials.

One contained heavy crude oil with the sediments lodged at the bottom. Of the two varieties of crude oil that are lifted from the ground - at the rate of 82 million barrels a day - heavy crude is used for industrial purposes such as asphalt manufacturing, and for production of heating oil; heavy crude is high in carbon.

"Now this is what our hydrogenation does," Mr. Lifschultz - the scion of a family that once ran a trucking empire - said, pointing to the other vial. "GenOil's process cracks the oil molecule of heavy oil, and combines with carbon hydrogen in a unique hydrocracking process - which lightens the oil. By increasing the ratio of hydrogen to carbon, the oil is lightened."

That lighter oil can be used for making gasoline, thereby driving down the price of gasoline - which has touched $3 per gallon in recent months. The process also increases the value of this "hydrogenated" oil by up to $20 a barrel after cost, Mr. Lifschultz said - which means that the average of barrel of heavy crude, which currently sells $20 less than that of light crude, will attract the same price as that of light crude. [New York's main contract, light sweet crude for delivery in January, lost 73 cents to close at $US59.21 a barrel.]

Next month, Mr. Lifschultz's company - whose market capitalization is $70 million and whose stock is sold over-the-counter - is scheduled to start producing 1,200 barrels a day of upgraded oil at Silver Eagle Refining in Salt Lake City. Also on the cards is production by Lukoil, the Russian energy giant.

Mr. Lifschultz spins so many facts, figures and projections during a conversation that it sometimes gets bewildering. But then, with the patience of an avuncular professor tutoring a cognitively challenged student, he decelerates his speech and explains what GenOil's hydrogenated solution means to the world's oil problem.

The problem is this: Some 82 millions barrels of heavy and light crude oil are lifted from the ground each day. The 11 members of the Organization of Petroleum Exporting Countries - OPEC - account for 30 million barrels, or 40% of this production, with Saudi Arabia producing 9 million barrels a day; the rest comes from non-OPEC countries such as Norway, Britain, Mexico, Canada, China, Malaysia, and India. Of the world's daily production, 22 million barrels is in heavy oil.

Now the daily overall demand for both heavy and crude oil is also 82 million barrels, of which 16 million barrels is for heavy crude. But the demand for light oil is rising on account of accelerating industrialization in developing countries like Brazil, China, and India.

This rising demand is associated with the number of vehicles in the world. There are an estimated 600 million cars and trucks in the world's 191 countries. Of these, 200 million are in America, where the daily demand is for 20 million barrels - two-thirds of it for transportation.

By 2050, Mr. Lifschultz said, there will be 1.2 billion cars in China alone.
That means an additional 78 million barrels a day of light crude will need to be produced just for that behemoth alone. At current production rates, that figure is well beyond the capacity of the oil-producing states, even though the world's proven crude oil reserves are nearly 1 trillion barrels, some 261 billion barrels in Saudi Arabia alone.

"Now consider the costs of building new production facilities for increasing the extraction and processing of oil," Mr. Lifschultz said. "They are prohibitive."

By his reckoning, it would cost $120 billion to build a conventional plant that would process 2 million barrels a day. To build plants that would process the expected additional demand of 78 million barrels a day could cost $30 trillion - the entire world's current gross domestic product.

"The heavy oil that is converted through GenOil's low-cost process - about $60 million for 100,000 barrels - can be replaced by nuclear power or clean-burning coal, thereby providing a viable alternative to the West's exposure to Middle East oil," Mr. Lifschultz said. "It is practical and can be done right now. It does not need further research as fuel cells or solar energy, which are not competitive fuels for propelling cars."

Pranay Gupte,
Senior Writer and Global-Affairs Columnist


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