Market Overview

Converting Trash Into Energy - Karl Schoene, CEO Of InEnTec

Welcome to Zing Talk, where Benzinga brings you the biggest names and brightest minds from Silicon Valley to New York City.

Today our guest is Karl Schoene, CEO of InEnTec, an innovative market leader in converting commercial, household, medical, and most industrial and hazardous wastes into clean energy.

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Benzinga: Well I just wanted to take the time and thank you for talking with us this morning, I've been reading a lot about your company lately.

So first, if you could, just start off by telling us a little bit about you, your background, and your experience in the industry?

Karl Schoene: I spent about 20 years managing a variety of specialty chemical businesses, most recently at AzkoNobel before joining InEnTec a couple of years ago. I have trained as a physical chemist. I started out in chemical R&D when I first left University, and then quickly transitioned into management functions and have managed a variety of businesses since then.

Benzinga: Great, great. Well, I know that it is a very complex process, what InEnTec does – but if you could describe what your company specializes in – in layman terms – so that [our listeners] can understand?

Karl Schoene: Sure. InEnTec basically takes what the world does not want, that is, any kind of waste – and we specifically focus on any kind of carbon-containing waste – and we turn it into something the world does want, which is some sort of valuable chemical stream that can be sold as a direct article of commerce or else converted further downstream.

The specific process that we use is a process called plasma gasification, and the specific product that we produce – the primary product that we produce – is something called synthesis gas. Synthesis gas is exactly the same material which is produced as the intermediate in coal to liquids technology and in natural gas to liquids technology where you have to re-form the coal, or the natural gas, with steam – and you make synthesis gas.

We do the same thing. Instead of starting with an extracted fossil fuel, we start with what could be garbage, could be hazardous waste, could be medical waste, could be old plastic, or whatever.

And we re-form it, at a very high temperature using a process called plasma gasification, where we heat the waste material up to an extremely high temperature over the surface of a pool of molten glass and we react the very hot waste material with the steam and that makes synthesis gas.

And then any of the inorganic materials dissolve into the glass bath and forms an obsidian-like byproduct.

So, essentially, when I say that we take what the world does not want – and I'm speaking of any kind of waste material that contains carbon – we turn it into what the world does want, which is synthesis gas, and then anything that does not gasify is dissolved into this glass, this obsidian-like glass.

Benzinga: When people talk about alternative energy – and I am sure you get this all the time – people probably compare it to “Back To The Future,” [say] it's unrealistic – despite the fact that you have been pretty successful in what you're doing. If you look at the Sierra Biofuels project, I think it is producing 10.5 million gallons of ethanol per year and processing 90,000 solid tons of waste – it seems, like you said, the ideal situation. Why do you think that your approach is not getting the kind of mainstream recognition that other methods in the alternative energy space get?

Karl Schoene: Well, I think that there are a number of reasons. I think that the recovery of resources from waste does get a lot of attention. I think that many people fail to understand the variety of ways that resources can be recovered from waste.

We're all familiar with mainstream recycling, where you take aluminum cans or glass bottles and recycle those direct materials. You melt them down, and you make them into new aluminum cans or new glass bottles, right? The same is true with paper. Paper can be recycled and the same fibers in paper can be made into new paper.

That is a form of waste recovery, because the used aluminum can or the used glass is a waste material in the sense that the purpose for which it was created is no longer applicable and it's available to either be thrown away or recovered.

So, classic recycling is a way of recovering resources from waste. What a lot of people fail to grasp is just how much that represents energy recovery because the energy required to make new aluminum from basic ore is about 20 times more than the amount of energy it takes to turn an old aluminum can into a new aluminum can.

My point here is that waste materials have inside them a very high latent energy content and that latent energy content can be in one of two forms. It can be actual BTU value, energy value that you could extract and use for fuel in some process – or, it could be a voided energy that you don't have to put in to produce the same material out of virgin resources extracted from the environment.

What's taking a long time to get adopted into the mindset of the public is just how much energy gets used to produce the things that we don't think of as being energy intensive. When you buy an iPod or you buy a computer, there's a tremendous amount of energy that went into producing that item – and the same is true with any semiconductor device.

You don't think of the energy content of that device, necessarily, and the energy that went into producing it. You don't think of making an energy purchase when you buy a car itself – you think about the energy that you'll use when you run that car.

The fact is, a tremendous amount of energy goes into producing a motor vehicle. What we do is extract resources out of garbage in such a way that we get those resources and make those resources available to the stream of commerce in a much lower energy cost than what we require to acquire those resources from virgin resources extracted from the environment. And some of those resources that we extract are directly useable as fuel, but they can also be used as a chemical resource.

For example, the production of ethanol – or methanol, or diesel – from a synthetic crude – can all be produced from syngas. And when you do that – if it's diesel, it's a direct fuel. But you've also produced that fuel at a much lower energy cost than extracting oil, transporting oil, and refining oil.

You've recovered that resource, that valuable chemical resource – which may be used as fuel or may be used as a solvent or may be used as something else – you've done that at a very low energy cost. That's why this is getting so much attention now. There's actually been a fair amount of attention placed on recovering resources from waste materials in any number of different technologies.

Benzinga: Everything you're saying seems to be more of a practical and economical solution than the status quo. If you look at corn-based ethanol and the effects that has on the commodities market, it actually almost hurts consumers as much as it helps them in driving up the cost of food prices. Getting oil, and natural gas, has the associated environmental risks, whether that is oil spills with oil rigs or the fracking procedure that is done with natural gas. Waste and garbage is not a natural resource we have to worry about running out of any time soon – [also] don't have to worry about foreign countries, foreign country supply issues.

There seems to be a stability that is not in the other natural resources arena. But given all that, how long do you think it will take until this method will be able to make a serious impact on the ethanol and energy markets so that consumers will actually feel and recognize it?

Karl Schoene: We've been living in the era of crude oil as the energy source for the world. But it was not always this; before it was crude oil there was the age of coal, wasn't there? And before coal dominated, the primary fuel source in the world was actually firewood.

What we're seeing going forward – what I see – for the future is an increasingly diverse slate of energy sources.

So, yes. Solar thermal and solar photovoltaic, and wind and tidal energy and bio gas extracted from agricultural products where the feedbots are taking the manure to bio gas production and capturing a bio gas, and plasma gasification of more difficult materials, and the conversion of synthesis gas from whatever process into any of a wide variety of downstream materials – no one of those is going to be dominant the way oil was.

I think one of the things that happens is people look at different renewable energy approaches and they say, “Yeah, but if you took all the corn in the world, you couldn't make enough ethanol to replace more than X percent of the gasoline that we currently use” – and that's really not the point.

The point is that there will be times that there will be scarcity of grain and times that there will be an excess of grain. In times of plenty, it can make sense to produce energy products or chemical products. But in times of scarcity, it doesn't make sense. There will be times and places where stranded natural gas – there are wells available, but there is no way to get that natural gas to the market. So, extracting that natural gas and converting it and making transportable liquids is going to make a lot of sense for a long time.

Look – coal is a problematic material. I grew up in Virginia, and I know a lot about that. But the fact is, there's a heck of a lot of coal out there. For a pretty long time, coal is going to be a pretty important part of our energy equation. But all these other technologies – they're all going to be part of the overall energy equation. Is tidal energy going to be important in Iowa? No, never. It's not on the beach, and there is no tidal energy there. And there are places where solar just won't work, it just won't be economic – but there are places where solar will be very effective. There will be places where waste resources recovery will be extremely economic and advantageous.

There are places where each one of these technologies will be advantageous. There is no single silver bullet, and nothing is going to completely replace crude oil. But what we're seeing in the future is a world where all these different technologies are each going to find their seasons, in some cases.

There are going to be places where a disposal of waste is extremely expensive and that's where you'll see penetration of these waste conversion technologies very early. They already are being implemented where waste disposal is expensive or where the waste materials themselves are difficult – and so will be for all of these technologies.

Benzinga: Everything you're saying makes so much sense. There's no silver bullet to the energy problems, and it seems that unfortunately in America we tend to procrastinate and we don't deal with issues [like this] until they're knocking at our door. All this alternative energy attention comes from oil being at over $100 dollars.

Do you see that in the industry – do you see all of a sudden heightened interest pick up as soon as oil spikes as opposed to when oil's at $35 dollars?

Karl Schoene: That's a natural effect. I mean, the human mind does have a focus on immediate opportunities and immediate threats. But having run capital-intensive businesses throughout my career and having worked around a lot of folks who do focus on getting good return on capital.

When you are putting in capital projects, you really do have to look at the long view. The shortest depreciation life cycle that you've got on capital with a serious amount of steel and concrete involved is sort of ten years. Most people plan for plan-sized times in the decades – 20, 30, years [as a] planned useful lifetime. So when you're looking at making caps and risks in capital investments you really are looking at what you believe the long-term secular trends are.

Now obviously, when the world kind of came to a stop in 2008 and the price of oil dropped precipitously down to – what was it, $32, $35 dollars a barrel?

Benzinga: Yeah it was about that, about $30 dollars a barrel.

Karl Schoene: And then what happens is people do delay capacity expansions and so forth. And then when we get into a recovery cycle as we now are and then the economy is still slower than it was at the start of the recession but it's on a growth track. And any time you see that growth track happening then you see the constraints of capacity coming back and as before. You see that of course with price signals, right?

The long-term sentiment trend is that when I was a boy, my dad used to buy gasoline for $.32, $.35 cents a gallon and those days are not coming back and not just because the dollar is weaker than it used to be.

Now, $2 dollar a barrel oil, we are not going to see again. Natural gas is not going to go back to where it was. When I entered the chemical industry, natural gas was substantially less expensive and always had been. Now when we look at natural gas you say, “Well, at least it's not nine bucks, now it is four bucks” or whatever. The new normal is completely different from what the world looked like in the fifties or sixties when a lot of our industrial base got built.

That reality – the secular trends, the long-term trends of what the demand for energy products is going to be like in the world going forward – is what drives the long-term capital investment.

Benzinga: Going off that, what are your company's plans for expansion? What is it going to take for you to gain more of a foothold on the industry and how important are the synergies with companies like Waste Management to the success of your business model?

Karl Schoene: Sure. Well obviously, Waste Management is a partner in one of our giant ventures, and we really like working with them. They're a very forward looking company – they've got a whole group within Waste Management that's dedicated to a variety of these different technologies for extracting resources out of waste. You know, this guy once said that the least interesting part of the waste business is the picking up and hauling and dropping off – that's just true of logistics.

The interesting part of the waste business is going to be getting the resources out of that waste. A company like Waste Management is very forward-looking, and that makes them an extremely good partner.

Benzinga: So if you could, in your mind, what is the ultimate goal of [InEnTec]? What is your dream view of what your company can do and impact it can have overall?

Karl Schoene: Well the latent energy value contained in the landfill-able waste in the U.S. – The U.S. generates enough landfill-able waste [that] if the energy value were captured through gasification and turned into motor fuels it would replace more than all of the oil than we have [sic].

And we have a tremendous growth profile out in front of us.

Benzinga: It's such exciting stuff, and you could hope that – or I hope that – it can actually be translated into actual results and that people pay more attention to it and [InEnTec] can grow.

Is there anything you'd like to add in terms of the company or the economy overall?

Karl Schoene: Well I'm a long-term bull on the U.S. economy. The U.S. has always and continues to attract people who are willing to take risks and willing to have aspirations for doing something bigger. The nature of the United States' culture is just one that welcomes innovation – and we don't do everything right – but we sure don't do everything wrong. It's a great place to run a business, great place to work on new technology and bring new technologies to the market – and I'm a long-term bull.

Benzinga: Fantastic. Well Karl, thank you so much for talking with us today. We look forward to hearing about the success of your company and your endeavors in the future. Thank you very much for your time.

Karl Schoene: Thanks Will, I appreciate the time.

Posted-In: Benzinga PodcastMovers & Shakers General


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