Biofuel Innovators with Alternatives to Oil

 |  Includes: ABGOF, BP, DD, RDS.A, SU, VRNM
by: John Addison

Oil soars to $125 per barrel and economies around the world sputter or fall into recession. Enough is enough. Many biofuels can be blended with gasoline and diesel refined from oil, then pumped into our existing vehicles. Even making our fuels with 10 percent biofuel and 90 percent refined oil is enough to drop demand for oil and send the price south.

At the moment, this approach has major drawbacks. Food prices are soaring as more ethanol is made from corn, and biodiesel from soy and palm oil. Rain forests are being slashed and burned to increase production of soy and palm oil. Next generation biofuels, however, promise to minimize these downsides while ending our dependency on oil.

“Once viewed as an environmentally-friendly, silver bullet alternative to fossil fuels, biofuels have recently become 'public enemy number one' in regard to rising food prices. But what role does the growing biofuels market really play in the current food crisis?” asks James Greenwood, President and CEO, Biotechnology Industry Organization, who goes on to answer the question.

There are a number of factors contributing to rising food costs. Poor harvests over the past year in Australia, Canada, South America and Eastern Europe. Protectionist tariff policies affecting the rice-producing nations of South Asia. A weak dollar is driving up the demand for U.S. exports of grains, a dynamic exacerbated by hedge fund and pension fund managers who are pouring unprecedented levels of investment in grain commodities. Growing incomes and meat-eating preferences of an emerging middle class in countries like India and China are increasing global demand for animal feed and the fuel required for production and transport. But the most significant factors driving up food prices are ever-rising energy and transportation costs.

In coming years, biotechnology will allow us to create biofuels from non-food crops, crops that yield more per acre, require less fertilizer and are more tolerant of drought and other adverse conditions. These scientific breakthroughs will only enhance the world's ability to feed and fuel itself in a responsible and sustainable way. As biofuels production transitions to these second and third generation biofuels, biotechnology will play an essential role in providing the world with cleaner fuel and more affordable food.

The U.S. Agriculture Department projects that the combination of a shrinking corn crop and the swelling appetite for corn ethanol will keep the price of the nation's largest crop in record territory into 2009. USDA economists expect U.S. farmers to produce 12.1 billion bushels of corn, down 7.3% from the record 13.1 billion bushels they harvested in 2007, as farmers grow more soy.

In the U.S., ethanol is currently in far greater demand than biodiesel. By law, 36 billion gallons of ethanol must be in use by 2020 in the USA. This ethanol will primarily be blended with gasoline. E10, a blend of ten percent ethanol and ninety percent petroleum refined gasoline will be common. By contrast, in the U.S. most diesel fuel is consumed by heavy vehicles with expensive engines that must run for years. Warranties can be voided and maintenance cost increase unless the diesel fuel meets exacting standards.

Biofuel innovators were discussed and presented at the Platts Advanced Biofuels Conference, which I attended. With improved biofuels we will achieve increased energy security while reducing greenhouse gas emissions. This article examines short-term and longer-term biofuel solutions.

In the heart of Silicon Valley, Khosla Ventures is funding innovative solutions for clean transportation and other major global problems. Brilliant innovators such as Vinod Khosla and Samir Kaul are involved in a number of companies creating cleaner fuels with cellulosic ethanol, biomass gasification, and synthetic biology.

Platt conference keynote speaker Vinod Khosla predicts that within five years, fuel from food will no longer be competitive with cellulosic ethanol. He also predicts, “In five years, oil will be uncompetitive with biofuel, even at $50 per barrel, though oil will take longer to decline in price.”

Khosla Ventures identifies several sources of cellulosic ethanol:

There are four principal sources of biomass and biofuels we consider (1) energy crops on agricultural land and timberlands using crop rotation schemes that improve traditional row crop agriculture AND recover previously degraded lands (2) winter cover crops grown on current annual crop lands using the land during the winter season (or summer, in the case of winter wheat) when it is generally dormant (while improving land ecology) (3) excess non-merchantable forest material that is currently unused (about 226 million tons according to the US Department of Energy), and (4) organic municipal waste, industrial waste and municipal sewage. Khosla Papers and Presentations

Sugarcane is the currently the most efficient feedstock for larger scale ethanol production. While corn ethanol delivers little more energy output than the total energy necessary to grow, process, and transport it; sugarcane ethanol delivers eight times the energy output as lifecycle energy input. Also, sugarcane typically produces twice as much fuel per acre as corn.

Brazil produces almost as much sugarcane ethanol as the United States produces corn ethanol, but at a fraction of the energy cost. Sugarcane is also grown in the southern U.S., from Florida to Louisiana to California.

Brazil is free from needing foreign oil. Flex-fuel vehicles there get much better mileage than in the U.S. If you drive into any of Brazil’s 31,000 fueling stations looking for gasoline, you will find that the gasoline has a blend of at least 20% ethanol, as required by law. 29,000 of the fueling stations also offer 100% ethanol. Ethanol in the U.S. is normally delivered on trucks, increasing its cost and lifecycle emissions. Brazil's largest sugar and ethanol group, Cosan SA announced the creation of a company to construct and operate an ethanol pipeline.

Most sugarcane is grown in the southern state of Sao Paulo. Economics do not favor its growth in rain forests, although those who favor blocking its import make that claim. It is cattle, soy, palm oil, logging, and climate change that most threaten the rain forests. Some environmentalists are concerned that a significant percentage of Brazil’s sugarcane is grown in the cerrado, which is one of the world’s most biodiverse areas. The cerrado is rich with birds, butterflies, and thousands of unique plant species. Others argue that without sugarcane ethanol, more oil will come from strip mining Canadian tar sands and from a new “gold rush” for oil in the melting artic.

In addition, the residue of sugarcane ethanol, bagasse, can be used for further energy production. While this may likely be used for generating carbon-neutral electricity, it could also be used in cellulosic biofuel production, potentially generating an additional 400-700 gallons per acre. CA LCFS Technical Analysis p 87-88

Sugarcane growers are planning the development of varieties that can produce a larger quantity of biomass per hectare per year. These varieties are being called “energy cane” and may produce 1,200 to 3,000 gallons of ethanol per acre, contrasting with 300 to potentially 500 gallons of ethanol from an acre of corn.

Although sugarcane ethanol is currently the low-cost winner, long-term economics are likely to favor cellulosic sources.

In his keynote speech, Vinod Khosla sited promising sources such as paper waste, wood waste, forest waste, miscanthus, sorghum, hybrid poplar trees, winter cover crops, and perennial crops have deep roots and sequester carbon. Cellulosic ethanol could potentially yield 2,500 gallons per acre.

Large-scale reliance on ethanol fuel will require new conversion technologies and new feedstock. Much attention has been focused on enzymes that convert plant cellulose into ethanol. Because cellulose derived ethanol is made from the non-food portions of plants, it greatly expands the potential fuel supply without cutting our precious food supplies.

Pilot plants are now convert wood waste into ethanol. Over the next few years, much larger plants are likely to come online and start becoming a meaningful part of the energy mix. In Japan, Osaka Project, Verenium utilizes demolition wood waste as a feedstock in producing up to 1.3 million liters of cellulosic ethanol annually. A second phase, planned for completion in 2008, will increase production to 4 million liters per year. Verenium Ethanol Projects

Norampac is the largest manufacturer of containerboard in Canada. Next-generation ethanol producer TRI is not only producing fuel, its processes allow the plant to produce 20% more paper. Prior to installing the TRI spent-liquor gasification system the mill had no chemical and energy recovery process. With the TRI system, the plant is a zero effluent operation, and more profitable.

The spent-liquor gasifier is designed to processes 115 Metric tons per day of black liquor solids. The chemicals are recovered and sent to the mill for pulping; the energy is recovered as steam which offsets the production of steam using purchased natural gas. All thermal energy in the plant is now renewable.

Producing cellulosic ethanol over the next few years is unlikely to be cost competitive with oil refining, unless other benefits accrue such as Norampac’s improved plant efficiency, savings in energy, heat, steam, reduction of plant waste, and/or production of multiple products from the plant. In the longer term, 100 million gallon per year cellulosic plants may be profitable without byproduct benefits.

Another Khosla Ventures portfolio company is Range Fuels, which sees fuel potential from timber harvesting residues, corn stover (stalks that remain after the corn has been harvested), sawdust, paper pulp, hog manure, and municipal garbage that can be converted into cellulosic ethanol. In the labs, Range Fuels has successfully converted almost 30 types of biomass into ethanol. While competitors are focused on developing new enzymes to convert cellulose to sugar, Range Fuels' technology eliminates enzymes which have been an expensive component of cellulosic ethanol production. Range Fuels' thermo-chemical conversion process uses a two step process to convert the biomass to synthesis gas, and then converts the gas to ethanol.

The U.S. Department of Energy is negotiating with Range Fuels research funding of up to $76 million.

Range Fuels was awarded a construction permit from the state of Georgia to build the first commercial-scale cellulosic ethanol plant in the United States. Ground breaking will take place this summer for a 100-million-gallon-per-year cellulosic ethanol plant that will use wood waste from Georgia's forests as its feedstock. Phase 1 of the plant is scheduled to complete construction in 2009 with a production capacity of 20 million gallons a year.

Abengoa Bioenergy also announced the finalization of a $38-million collaboration agreement signed with the DOE for the design and development of the Hugoton, Kansas cellulosic ethanol plant which will process over 11 million gallons of ethanol per year with renewable energy as a byproduct. The biomass plant will be situated next to a conventional grain-to-ethanol plant with combined capacity of 100 million gallons, using scale to make cellulosic ethanol more cost-competitive. Abengoa Bioenergy will invest more than $500 million in the next five years in their production of biomass into ethanol in the U.S., Brazil, and Europe.

Poet, the nation’s largest ethanol maker with 22 plants now turning out 1.2 billion gallons a year, plans to open a 25-million-gallon cellulosic facility in 2009 alongside its expanded grain ethanol plant in Emmetsburg, Iowa. Corn cobs from local fields will supply it. Ethanol 2.0

Ethanol is not the only bio-game in town. Many European cars and most U.S. heavy vehicles use diesel, not gasoline. New generations of biodiesel, biobutanol, and synthetic fuels are being developed that could be blended with diesel or replace it. Some of these fuels could also be blended with gasoline and jet fuel. BP (NYSE:BP) and DuPont (NYSE:DD) have teamed to produce biobutanol, which has a higher energy density than ethanol, can be delivered in existing pipelines, and can be blended with a wider range of fuels.

Amyris will use synthetic biology to develop microorganisms that produce biofuels. LS9 Inc. is in the early stage of using synthetic biology to engineer bacteria that can make hydrocarbons for gasoline, diesel, and jet fuel.

Algae have the potential to be an efficient producer of oil for biodiesel with byproducts of including hydrogen and carbohydrates which could be converted into ethanol. Biodiesel from algae can be done today. The challenge is to make production large scale and cost effective. Ideal forms of algae need to be developed. Oil must be “brewed” with the right solution, light, mixing and stirring. Cost-effective photobioreactors must be developed.

“If we were to replace all of the diesel that we use in the United States" with an algae derivative, says Solix CEO Douglas Henston, "we could do it on an area of land that’s about one-half of 1 percent of the current farm land that we use now."

Mike Janes, Sandia National Labs, is even more optimistic, "Recent studies using a species of algae show that only 0.3 percent of the land area of the U.S. could be utilized to produce enough biodiesel to replace all transportation fuel the country currently utilizes….In addition, barren desert land, which receives high solar radiation, could effectively grow the algae, and the algae could utilize farm waste….With an oil-per-acre production rate 250 times the amount of soybeans, algae offers the highest yield feedstock for biodiesel."

At the Platts Advanced Biofuels Conference, most algae experts, from scientists to CEOs of algael fuel companies, see challenging years ahead before cost-effective commercial scale production of biofuel from algae will be possible. As one expert quipped, “The greatest progress to scale is being done by Photoshop.”

A number of companies are actively exploring the potential for fuel from algae. "Algae have great potential as a sustainable feedstock for production of diesel-type fuels with a very small CO2 footprint," said Graeme Sweeney, Shell Executive Vice President Future Fuels and CO2. Shell (NYSE:RDS.A) is investing in using algae to produce fuel.

These innovators will only make a difference if they receive funding and distribution. Some of the energy giants are helping. Shell is recognized as the largest biofuel distributor among the “oil majors.” Shell has invested heavily in Choren biomass-to-liquids (BTL) in Europe. Shell has invested in Iogen, a maker of cellulosic ethanol catalysts and technology.

Biofuels have the potential to provide solutions for energy security and transportation with a much smaller carbon footprint. Other solutions include reduction in solo driving due to urban density and corporate programs, public transit, more fuel efficient vehicles, and the shift to electric vehicles that require no fossil fuel or biofuel. The new biofuels have the potential to encourage sustainable reforesting and soil enrichment. Biofuel 2.0 provides a path to fuel from wood and waste, not food and haste.

Disclosure: Long ABGOF.PK