Cellulosic Ethanol: The Next Biofuel Boom? 12 comments
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The ethanol boom has come and gone. But if you think the opportunity to profit from biofuels has come and gone as well, you're sorely mistaken.
You see, corn-based ethanol turned out to be a bust for many reasons. Its feedstock was in direct competition with food sources, its lifecycle carbon reduction was constantly in question and the energy return on energy invested [EROEI] turned out to be less than desirable--meaning the net energy produced was hardly more than the energy used to produce it.
Of course, with all the heavy capital expenditures that went into developing a corn-based ethanol market, we'll continue to see that product produced. Especially since federal mandates require a certain amount of ethanol to be present in the nation's gas tanks.
In fact, right now there are 139 ethanol biorefineries operating in the US with a capacity of 7.9 billion gallons per year (bgy). Also right now, there are 62 plants under construction and seven expansions underway that will bring an additional 5.57 bgy online.
That gives the US a total projected capacity of over 13.5 bgy.
But the recent energy bill signed into law on December 19, 2007 calls for the blending of 36 bgy of domestic alternative fuels to be blended into our nation's fuel supply by 2022.
Basic math tells me there is a 22.5 bgy discrepancy. Sounds like an opportunity, right?
Cellulosic Ethanol Production
According to JP Morgan Analyst Marc Levinson, ". . . there is no prospect of producing this much [36 bgy] biofuel from corn in the United States."
That's why the Energy Bill also mandates the production of cellulosic ethanol, a fuel that can be made from the cellulose of many plants, rather than competing with corn. It's the stuff Bush is referring in to when he talks so enthusiastically about switchgrass--though it can be made from many sources.
The Energy Bill requires that 3% of ethanol be derived from cellulosic sources by 2012, and 44% by 2022. That means, by my estimates, we'll need to produce 405 million gallons of cellulosic ethanol in 2012 and 15.84 billion gallons in 2022.
I'd consider that a heck of an opportunity, especially since construction only recently began on the first cellulosic pilot plants in the nation. This is truly a ground floor opportunity.
According to consultants McKinsey & Co., "If the 2022 mandate is met, it could let corn ethanol producers reach a production ceiling that does not threaten food prices, while providing them and cellulosic producers revenues of about $50 to $70 billion."
Of course, I believe the cellulosic industry will be the biggest beneficiary. But, until recently, the industry was shrouded in doubt about whether or not it was profitable, how much it actually reduced lifecycle carbon emissions, and even it could be produced on a mass scale.
Now, reports are coming out that ease all those fears.
Bill Caeser, an analyst from McKinsey & Co. says cellulosic ethanol can become commercially available by 2015. And POET, a private ethanol company, hopes to be making commercial amounts of it by mid-2012.
Caeser also said cellulosic could boost the percentage of energy from ethanol in US transportation fuel to about 16% by 2022, up from current levels of about 3% from ethanol made from corn. That could save the United States 1.5 million barrels of oil per day.
You see, ethanol does not contain as much energy per gallon as gasoline, so its contribution to energy supplies is often measured in energy content rather than volume. Some have even said that it takes a gallon of gasoline to make a gallon of biofuel.
But a new study from plant scientist Ken Vogel found cellulosic ethanol actually has positive net energy yield. In a study for the federal government's Agricultural Research Service in Nebraska, Vogel calculated all the energy that went in to producing cellulosic ethanol.
According to Vogel, the study included, "the energy used to make the tractors, the energy used to make the seed to plant the field, the energy used to produce the herbicide, the energy used to produce the fertilizer, [and] the energy used in the harvesting process."
His results?
For every unit of energy used to grow the feedstock, Vogel says he could get almost 5.5 units worth of ethanol. That's even more efficient than making ethanol from corn.
And cellulosic ethanol emits far less carbon dioxide, the main greenhouse gas, than corn-based ethanol. Cellulosic emits 80% less carbon dioxide than regular gasoline, while corn-based ethanol emits only 20 % less.
With so many benefits, there's got to be an investment opportunity.
Cellulosic Ethanol Companies
While investors in corn-based ethanol companies may have done well early on, there hasn't been anything positive to say about the long-term for some time now. Take a look at the following charts from ethanol frontrunners Pacific Ethanol Inc (NASDAQ: PEIX) and VeraSun Energy Corporation (NYSE: VSE):
But the publicly traded cellulosic ethanol companies should prove to fair better. And not just production companies, but chemical companies as well.
In fact, cellulosic ethanol could create a $3 billion to $5 billion industry in enzymes and fermentation organisms, which help break down the tough bits of the plants into fuel.
Companies in the cellulosic sector include Verenium Corporation (NASDAQ: VRNM) and Bluefire Ethanol Fuels Inc. (BFRE.OB). Both of those companies have received federal funding and should prove to be a good bet going forward.
It would also be wise to look at paper and pulp companies like Domtar Corp. (NYSE: UFS), that could start selling their byproducts as cellulosic ethanol feedstocks.
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This article has 12 comments:
gabby
Disclosure: I hold CZZ
Bush budget doesn't alter ethanol import tariff
Mon Feb 4, 2008 4:44pm EST
By Tom Doggett
WASHINGTON (Reuters) - The Bush administration did not propose any changes to the expiring U.S. ethanol import tariff in its new 2009 government budget that was sent to Congress on Monday, an Energy Department spokeswoman said.
The spokesperson said while the 54-cent-a-gallon tariff is set to expire at the end of December during the 2009 budget year, which begins this October 1, the administration will have discussions with lawmakers later this year on what should be done with the tariff.
The tariff is designed to protect U.S. corn-based ethanol makers from cheaper imports, mainly from Brazil which makes its ethanol from sugar.
Energy Secretary Sam Bodman had hinted last week while speaking at the U.S. Chamber of Commerce that he favored eliminating or cutting back the tariff and that the administration would address the issue in its new 2009 budget.
"I would just say I think that there are advantages to having had the kind of both subsidies and tariffs that have helped protect this industry. I believe that, the best I can tell, this industry is pretty close to being able to stand on its own," Bodman said at the time.
U.S. ethanol blenders get a separate 51-cent-a-gallon tax credit that runs through 2010.
"I think it's very important that we pursue a policy which gives the U.S. industry appropriate time and protection to develop," Deputy Energy Secretary Clay Sell told reporters at a briefing on the Energy Department's new budget.
"We'll look forward to having those discussions with the Congress, as we always do, as the appropriate policy when the tariff expires," he said.
Brazil's sugar cane sector was disappointed the administration did not use the new budget to modify the U.S. ethanol import tariff.
"The continuing ethanol tariff runs counter to America's open and fair trade rhetoric," said Marcos Jank, president of the Brazilian Cane Sugar Industry.
"It is shocking that developed countries such as the United States continue to tax renewable biofuels from reliable democratic partners while encouraging tariff-free imports of petroleum from unstable regions of the world," he said.
However, the Renewable Fuels Association, which represents U.S. ethanol producers, said the import tariff is needed to encourage investment in the U.S. to develop cellulosic ethanol made from wood chips, switchgrass and other farm and forest waste.
"By removing the tariff ... you will cool the kind of investment you have seen in the industry," said RFA spokesman Matt Hartwig.
(Reporting by Tom Doggett; Editing by Russell Blinch and Christian Wiessner)
Good article, but Mr. Hodge needs some help when he claims that CO2 is "the main greenhouse gas". It is if Water Vapor is ignored. Water Vapor makes up over 95% of the earth's greenhouse gases. CO2 is actually a rather minor greenhouse gas in comparison. CO2 makes up about 3% of the total greenhouse gases.
Arkenol's process separates the biomass from waste into cellulose and hemi-cellulose (the main building blocks of plant life) and lignin (the "glue" that holds the building blocks together), converts the cellulose and hemi-cellulose to sugars, ferments them and purifies the fermentation liquids into ethanol and other end-products. This novel process has not been commercialized but has been tested in bio-refinery pilot plants in Japan and California. To this end BFRE has identified El Sobrante Landfill, located in California, where it intends to build its first bio-refinery. The commercial plant is expected to start producing ethanol in 2009 and the company is not expected turn any profits before then. Once BFRE opens its bio-refinery, its profitabilty will depend on the cost of inputs and price of ethanol produced conventionally from corn or sugar cane.
On the other hand, BFRE's licence with Arkenol allows for its CEO to have his cake and eat it. Arnold Klann, BFRE's CEO, is also the owner of Arkenol Inc. This relationship allows him to profit from BFRE even if it does not make any profits while he collects payments, royalties and fees associated with the commercialization and production of ethanol using Arkenol's technology. Although he has invested a lot of equity into both BFRE and Arkenol, he stands to gain the most from the exclusive licencing agreement between the two companies.
Thursday, May 31, 2007
Leaving all processing out (which is a BIG deal) the best you can ever do, is to get about 48% of the fuel value of the cellulosic material out as usable ethanol. From that point you burn it in an engine that gets about 30% efficiency. =14% energy return. You'd be better off to burn original cellose at a power plant and generate electricity, at about the same "heat-to-wall socket" efficiency, and then drive an electric car with a 70-80% energy utilization= 21% energy return.
You talk about no cost. What about not putting the items listed above in our landfills.
Anybody .....
I think a better alternative would be to require landfills to operate a public compost operation that could then be reused in the community. Some places already have this in the US but it does not seem to be going mainstream.
On Jul 08 04:17 PM Mr. Black wrote:
> Cellulosic biofuel deserves much attention. But none of the many
> websites that i have read say anything about adding landscaping waste,
> restaurant fruit and veggie waste, supermarket fruit and veggie waste,
> school cafeteria waste, and oh so much more. Imagine that what we
> usually throw in the garbage could be turned into fuel. How about
> adding curbside home wastes including fruit and veggie, grass clippings,
> leaves, prunings, etc. to the process?
>
> You talk about no cost. What about not putting the items listed
> above in our landfills.
>
> Anybody .....
What will you do with your compost? What problems will that solve? Bluefire's technology, if it can be scaled, reduces what goes into landfills, extracts methane from the existing landfill to use for a heat source (methane is a much worse GHG than CO2), produces usable transport fuel, partially powers itself from the leftover lignin, and hopefully makes money in the process. All without burning fossil fuels. Obviously, it remains to be seen if that latter criterion (making money) can be met, but the pilot plant that has been operating in Japan has been slowly scaled up and is still working well. The Japanese results were known when DoE gave Bluefire the grant.
It should be noted that this process will also work with any other cellulose-based feedstock, such as wood chips (the Japanese plant runs on wood), switchgrass, etc.
Finally, "lowest cost" isn't necessarily required. Lower cost than gasoline (taking into consideration the difference in energy content) is all that's necessary, since no one source can provide all the fuel we'll need. That's why I think this may be viable regardless of what others do. We're going to need every drop of ethanol/methanol/butan... we can get our hands on, and making fuel out of trash or other waste doesn't impact food supplies or land needs.
I don't own any stock in this company, but I am thinking of buying some.
On Jul 11 02:57 AM CCHanderson wrote:
> I believe ethanol production requires a more consistent product than
> yard and vegetative waste to produce a reliable product at the lowest
> cost.
>
> I think a better alternative would be to require landfills to operate
> a public compost operation that could then be reused in the community.
> Some places already have this in the US but it does not seem to be
> going mainstream.