Khosla Chides Big Oil on Risk and Biofuels

When a big money entrepreneur criticizes Big Oil for its questionable approach to risk-taking, perhaps it’s time to pay serious attention.

Billionaire venture capitalist Vinod Khosla took Big Oil to the woodshed this week for taking on expensive and long-odds risks on deepwater drilling rather than embracing the future of biomass energy.

Khosla, speaking Monday at the 2011 Brazilian Ethanol Summit in Sao Paulo, said the world is on the verge of a technological breakthrough in cost-effectively converting crops like sugarcane into most of the fuels and consumer products that petroleum now provides.

According to a Reuters report he “bluntly chastised” executives from energy companies, including as Royal-Dutch Shell and Britain's BP, who were sitting on stage with him before a crowd of 2,000 people, for what he said was a failure to sufficiently embrace biofuels.

“It's not that oil companies don't take risks. They will sink tens of billions into drilling new deepwater oil wells, some 3,000 meters below the ocean floor, with only 25 percent chance of success. That is risk taking,” Khosla said. “But when it comes to biomass, they only jump in when the technology has been well proven,” he continued.

Khosla, the co-founder of Sun Microsystems, founded Khosla Ventures in 2004 with a focus on seeding next-generation energy projects, new materials, mobility, the Internet and silicon technology.

Khosla Ventures is the lead investor in the U.S.-based biotechnology firm Amyris, which has teamed with Brazilian sugarcane mills to produce advanced biofuels and biochemical, including bio-jet fuel, biodiesel, plastics and cosmetics from cane by employing bioengineered yeasts.

Khosla’s message is to “expect change,” with the winners those who take the risks to invest in winning energy technologies, and those in possession of ample reserves of arable land to grow biomass crops, such as Brazil and the U.S.

He said coming technological breakthroughs could “actually create great risk for those companies like oil majors unwilling to take risks on new technologies at this point.”

Big Oil company executives at the conference disagreed of course. They rebutted Khosla's assessment of their investment plans, but nearly all agreed with him that sugarcane had the most promising future for scalable biofuels production of all commercial crops.

“Our largest allocation in the research and development budget is in biofuels,” Mark Gainsborough, vice-president of strategy and alternative energy at Shell, said. BP's chief executive of biofuels, Phil New, said his company had hundreds employed in the area of risk management and added that oil majors had invested “tens of billions” in the biofuels sector.

“Biomass is the future,” Khosla says. “Hydrocarbons will remain the fuel of choice but biomass will be the source,” he predicted. “The future is likely to hold cheaper hydrocarbons, cheaper than conventional ethanol, cheaper than petroleum and made from biomass.”

Big Oil’s approach to biomass and other alternative energy solution remains a well-parsed sideshow. For Khosla it’s the main event. Big Oil won’t really change its spots until it moves past a risk-obtuse and feckless commitment to fossil-fuel energy solutions.