By Terry J. Mazanec, PhD; T-MAZ LLC, Member, Lee Enterprises Consulting
Special to The Digest
This is the third in a series of articles prepared by the experts at Lee Enterprises Consulting (LEC) who will be speaking at the ABLC 2018 conference in Washington DC, February 28 to March 2.
Previous installments in the State of the Advanced Bioeconomy 2018 series
Part 1: Extraction of Valuable Oils from Algae and other Green Plants: Challenges, Opportunities and Commercial Landscape
Part 2: Case Study: 1MW to 3MW Anaerobic Digester Upgrade in Only 6 Months!
Biofuels are not new, of course. Our earliest ancestors mastered fire in prehistoric times, and the use of wood for heat and light was established. The first “man-made” fuel was char produced by the slow pyrolysis of wood or other vegetable matter. Liquid fuels have also been known since prehistory in the form of vegetable oils such as olive, castor, or rapeseed oils, used in pottery lamps. Coal, although known to the ancients as a curiosity, began to displace wood as the fuel of choice in about the 13th Century. Petroleum was also known to the ancients, but its production was on a small scale and its use was specialized.
But the 19th century changed the picture dramatically. The Industrial Revolution included the invention and/or perfection of technologies that could convert coal into power with the steam engine. Coal mining boomed to feed the multiplying industrial machines, and rock oil and whale oil were refined to supply lamps. The pivotal events were the erection of the first US oil well in Titusville, PA, and the near-simultaneous invention of the internal combustion engine, both in 1859. The world has been consuming oil in voracious quantities ever since, and biofuels were relegated to the sidelines.
Early refineries were relatively simple facilities, primarily distillation towers. As the decades rolled by, however, refiners learned how to improve the efficiency of their units and add newly invented processes that resulted in newly available products – gasoline, olefins, jet fuel – that further increased demand for oil. Most modern refineries comprise more than 20 individual unit operations, each of which is a complex process on its own. And different refineries are optimized for different blends of crude oil, different product slates, and under different environmental and legal regulations. This network of over 700 highly sophisticated, rigorously optimized, and locally tuned facilities operating at massive scales make up the landscape in which biofuels must compete. Is it any wonder why biofuels have not made more than a token impact on the market?
Development of biofuels, eclipsed by petroleum early in the 20th Century, has now been revived. Recognition that petroleum resources are finite meant that ‘peak oil’ will be a reality, although the date keeps receding into the future. Geopolitical events in the Middle East and Russia highlighted the need for fuel resources that are not subject to international manipulation. Calculations of the impact of CO2 and other GHGs on the world’s future climate raised additional concerns. All of these sparked a renewed, intense interest in alternative fuels, including biofuels.
The fuels market is about the largest in the world. Each succeeding generation of inspired inventors and entrepreneurs, with visions of immense profits dancing in their heads, have taken on the challenge of energy. In the 1950’s nuclear power was predicted to become so cheap that electricity would be free; hard realities of the market and disasters at Chernobyl and Fukushima have largely cooled that fever. In the 1970’s natural gas from the North Slope and elsewhere was touted as a replacement for petroleum – BP re-christened itself ‘Beyond Petroleum’ – and several massive gas-to-liquids plants were built in niche locations when oil prices spiked in the 2000’s. But further expansion has been deep-sixed by all the major players as fracking – the first 21st Century energy revolution – has greatly expanded the supply of gas and liquids from known sources. Fossil fuels account for about 80% of all of the world’s energy supply, a fraction that has remained essentially unchanged since 1970.
Now the world turns its lonely eyes to biofuels. The attraction of developing an alternative fuel source that is completely renewable, locally sourced, and morally uplifting due to its ability to impact CO2 and CH4 emissions, is inescapable. The litany of companies founded in the last 20 years with the intent of producing sustainable fuels is nearly as long as Moby Dick. The list of those that failed or changed focus is only a page shorter.
In this dog-eat-dog world of energy competition, with technology continuously making fossil fuels less expensive, and politics yo-yoing the producers around, what will it take to make a successful biofuels company?
The critical realization that biofuels entrepreneurs need to come to is that the widespread displacement of petroleum will be a very long and difficult process for all the reasons cited above. Even Draconian government interventions can only make a small dent in the market and only in very limited geographies. Moreover, reliance on government largesse is only as steadfast as government policy, which ultimately reflects the will of the people and their response to living conditions and costs. Even Germany, the world’s leading proponent of biofuels, has seen its $222 billion Energiewende investment (since 2000) bear little fruit, and is doomed to fall short of its 2020 carbon commitments. Germany is reportedly installing more coal plants in response to energy costs that have doubled in a decade, and continues to rely heavily on fossil natural gas from Russia.
But the reflexive withdrawal from nuclear power after Fukushima and the intermittent nature of alternate renewables wind and solar, provide a window of opportunity for biofuels. The initial renewable replacement for petroleum has been, of course, ethanol made by corn starch fermentation. Ethanol has been widely embraced as a valuable fuel component in blends from 5% to 85% with gasoline. The downside to ethanol, as we all know, is that it competes for feedstock with food applications, particularly as feed for livestock, conversion to sweeteners, and industrial uses. The volume of ethanol made from corn in the US has risen 10-fold since 2000, while corn production has only risen 35% (see Figure). In 2016, according to the Iowa Corn Board, 41% of the Iowa corn crop now goes to fuel with only 26% going to feed livestock. Since the ethanol mandate went into effect the impact on beef prices has been substantial. The food vs fuel debate has played out in other countries as well.
Biofuels derived from renewable wastes from corn, wood processing, palm oil production, livestock, or MSW have received increasing attention since their use does not impact the food supply much, it at all. In addition, these cellulosic feedstocks can be made available in nearly steady streams of somewhat consistent quality or composition, so processing them is not plagued by the intermittent supply problem of wind or solar. Moreover, their carbon ‘savings’ are at least something, and possibly a great deal, depending on the assumptions of the study. So cellulosic biofuels, including cellulosic ethanol, biodiesel, biogas, and so on, have some notable advantages over competing renewable fuel sources; they are collectively referred to as ‘advanced biofuels.’
So what’s holding them back?
Cellulosic feed materials contain a mixture of cellulose, hemicellulose, and lignin, as well as numerous minor components and minerals, and their composition varies widely with the source. The complexity of the mixture of components in any cellulosic feed produces a wide range of chemical and physical properties and reactivities, so they do not convert selectively to desirable products. Many of these materials – particularly lignin – are much more resistant to chemical breakdown into useful derivatives than are sugars. Processing conditions are necessarily more severe in temperature, pressure, time, or chemical reagent to get such materials to convert to simpler, more useful intermediates or products. Biological conversions by microorganisms tend to be more selective, but suffer from slow rates of processing and modest yields of valuable materials.
A huge handicap that ethanol and advanced biofuels carry compared to fossil fuels is the inability to take advantage of the economies of scale. Petroleum resources are available in massive quantities at single sites. This allows producers to design single plants to handle large amounts of material. The economy of scale factor for most unit operations in refineries or biorefineries is about 0.7. This means that for a refinery that has double the capacity the investment only increases by a factor of about 1.6, and for a ten-fold increase in capacity the investment increases by a factor of about 5.
Biomass feedstocks are dispersed because they need large tracts of land to grow the crops. The biomass must be transported to a central processing point to be upgraded to fuels, and transport costs increase with distance. Thus there is a natural limit to the size of biomass upgrading plants that is set by the cost of transport and that limits the ability to take advantage of economies of scale. The largest ethanol plant in the US is ADM’s Decatur plant with a capacity of 375 million gallons per year, or 24,000 barrels per day. By contrast there are 76 US refineries (out of 137) with capacities of more than 100,000 bpd with a few over 400,000 bpd. Factor in the reduced energy content of ethanol – about half of gasoline – and the largest ethanol plant only delivers one-eighth as much energy as a 100,000 bpd refinery. Assuming investment costs are similar, this means the ethanol plant is about twice as capital intensive ($/GJ energy) as petroleum refining. Hence, the requirement for government subsidies and loan guarantees.
How do the smaller refineries compete? All of these are older facilities so the investment has long since been paid off. Many of these are boutique facilities that focus on specific products like lube oils for specific markets or customers. And don’t forget that over 100 refineries have closed in the US since 1980, so they are a vanishing breed.
Finding an appropriate niche in the market seems to be the most viable strategy to establish a biorefinery. The niche could take advantage of favorable geography, local agriculture, specialized product(s), or, of course, government subsidies. Identifying one’s niche is critical.
There are no petroleum refineries in Iowa (although there are several in neighboring Minnesota and Illinois), so it is no surprise that there are 41 ethanol plants in Iowa. Since the corn is grown locally, there is a major societal advantage as well. In combination with government mandates to blend ethanol this forms a very comfortable niche for ethanol or advanced biofuel plants.
The California market is another niche made possible by the Low Carbon Fuel Standard (LCFS) approved by the California Air Resources Board in 2009. Over time “LCFS programs will build an integrated West Coast market for low-carbon fuels that will create greater market pull, increased confidence for investors of low carbon alternative fuels, and synergistic implementation and enforcement programs.”
The specialized product niche has enticed many biofuels companies to refocus as biochemicals producers (see In For A Penny In For A Pound). A typical example is Cellana, who started out as an algae to biofuels company and has morphed into a bioproducts company with fuels as a sidelight. They expect 90% of their revenue to be from nutraceuticals BHA and EPA in the early years and to slowly transition to a biofuels focus.
Barring a huge jump in oil prices, it is likely those early years will last a very long time.
I would like to invite all of you to join me Feb 28- March 2, in Washington DC, at ABLC2018 where we will have a panel discussion about the opportunities involving advanced biofuels. Please contact me with any thoughts and suggestions about recent advances in biofuel and how we can overcome the challenges we face. [email protected] .
About the author: Dr. Terry Mazanec, an independent consultant dba T-MAZ LLC, is an EVP at Lee Enterprises Consulting, the world’s premier bioeconomy consulting group, with more than 100 consultants and experts worldwide who collaborate on interdisciplinary projects, including the types discussed in this article. The opinions expressed herein are those of the author and do not necessarily express the views of LEC. Terry will be a guest speaker at the ABLC 2018 Conference commencing on February 28, 2018.
The next article in this series is Innovators Dilemma Revisited in Renewable Chemicals and Materials by Joel Stone and Daniel Lane.