North American Outlook on Biofuels Challenges and Opportunities


Challenges and Opportunities in Biofuels

By Steve Hartig, Former VP of Technology Development at ICM

Special to The Digest

The North American biofuels market can be split into three main segments all of which have major dynamics.  What I would like to do is give a high-level overview of what I see as some of both the challenges and opportunities across these.

  • Ethanol which is a produced from corn and sorghum in about 200 plants mainly across the Midwest and blended at about 10% with gas.  Majors such as POET, Green Plains, Flint Hills, Valero, ADM and Cargill do a bit more than half of the 16 billion gallons production with the rest done mainly by farmer co-op plants.  An average plant size is about 80 mln gpy.  About 10% of gasoline is ethanol.   Cellulosic ethanol is the newer area which has had many challenges but companies such as POET DSM are producing some volumes from crop residues and Lanzatech from gas streams.
  • Biomass based diesel produced mainly from vegetable oils and waste fat in a large number of plants, typically rather small, across the US with the market leader being REG.  Total volume sold in the US, per the EPA was 2.3 bin gallons, in 2018 or about 4-5% of the total diesel supply.  Actual capacity is much larger at 4.1 bln gallons.
  • Bio jet fuel which is still embryonic but an interesting are with about 25 bln gallons of potential.  What is exciting is that this area is likely to grow in volume over time and alternative approaches such as electrification are difficult for aircraft given the weight of batteries so this is a long term and growing market for biofuels

Challenges for the corn ethanol and biodiesel producers are very much around profitability and the regulatory environment while the embryonic cellulosic and jet fuel areas still has many technical challenges to prove viability.

Corn Ethanol

There is a huge challenge today due to oversupply versus demand driving prices down.  There is much arguing as to the cause of this but it seems to be a combination of low or no growth in gasoline demand, significantly added ethanol capacity, a slow uptake of higher-level ethanol blends and the EPA Small Refinery Exemptions.  This is aggravated by the dynamics in corn pricing this year due to weather.

Unless E15 volume increases significantly, things are only going to get worse as essentially all forecasts show gasoline volume decreasing over the coming five to ten years driven by increased fuel economy in the short run and vehicle electrification in the long term.

Forecasting what will happen is difficult as ethanol is very different than most commodity chemicals due to the relatively small plant size, driven by corn supply economics, and the large number of companies active in it.  In most commodity chemicals markets, a handful of companies control the market and new entrants are difficult due to the lack of economies of scale.  However, continued consolidation and the closing of smaller, less efficient and poorly located plants will continue.

The starting point for surviving any downturn and long term sustainable profit will be having a plant with a low cost position driven by a combination of scale, plant technology, location, operational excellence and strong maintenance.  The difference between leaders and laggards here can be over $.10 per gallon, which is huge.

However, the likely winners will be those that also embrace some form of specialization next to the commodity markets for ethanol, distillers grains and corn oil.

A number of options exist and this is also an exciting area of focus for many companies.

Main areas include:

  • Moving towards higher value animal feed by fractionating the distillers grains into more focused animal feeds.   Options for this exist from many suppliers including ICM and Fluid Quip Process Technologies.  Both companies take an approach of splitting the DDGS into two streams, one a high protein feed product targeted at poultry, swine and aquaculture and the remainder being either a DDGS at the low end of the protein specification or a wet fiber and syrup product targeted at cattle.   The value comes from the fact that the higher protein product more competes with soy rather than corn and  can capture a higher price.  Both companies have multiple installations in place and claim paybacks in the 2-4 year range.  Considerations for installing these technologies would include plant scale and geographic location with proximity to cattle allowing the use of wet feed an advantage.
  • Towards the future, options will include using stillage as a fermentation broth such as both White Dog Labs and KnipBio are developing.  Both companies are focused on using the relatively inexpensive stillage to produce single cell proteins aimed at aquaculture.  These products can potentially compete with fish meal which a$1500/ton and is also limited in growth potential. White Dog Labs has announced an initial installation in Nebraska while KnipBio has announced a cooperation with ICM towards commercializing their technology.
  • Focusing on California and the increasing low carbon fuel markets.  Today, with the value of a carbon credit close to $200, a plant with a CI of 75 can get a premium of over $.25 per gallon.  There are only a few plants in the 60’s but many in the mid 70’s.  Typical approaches include alternative power sources such as land fill gas or anaerobic digestion to biomethane combined with cogeneration of electricity and steam.  Other options include solar or biomass boilers.  A newer approach is the use of membrane technology to reduce the energy used in the molecular sieves or alternatively modifications to the evaporators.  The keys when considering this approach would include a good starting point with plant efficiency and the cost of west coast shipment.
  • Using the ethanol plant as a platform to produce other products.  Edeniq has a number of plants producing cellulosic ethanol from corn fiber while both ICM and D3Max have their first, larger scale, plants under construction.   Cellulosic ethanol from corn fiber is much lower cost to produce than cellulosic ethanol from crop residues or energy crops.  Edeniq has no capex and claims a cellulosic ethanol amount of 3-4% while both D3Max and ICM indicate levels more in the range of 7-8% but have significant capital.   However, the payback can be short given a combination of a D3 RIN and potential LCFS credit.  Another alternative in the future may be butanol with Gevo and Butamax both having demonstration facilities up and running.

I believe these options will be a game changer for the industry but companies must make the right choice based on starting position, plant location, scale and technology, risk tolerance, operational capabilities and capital availability.  A key item for many of these is that they will typically create a more complex plant and business environment which can require a higher level of staffing, capability and management expertise.

I think the future can be bright for ethanol but I foresee a future that likely has fewer, larger and more sophisticated plants than are in place today.

Biomass based diesel

Biomass based diesel (BBD) has very different dynamics with about 100 plants in the US, some of which are very small, less than 10 mln gallons per year.  Many of the plants are driven by location by feedstocks, either soy or corn oil or waste fats and greases.  Demand for BBD is very much driven by the RFS as it typically costs more than petroleum-based diesel but can fulfill either the D4 BBD RIN or the Advanced D5 RIN.  This is particularly the case with the biodiesel tax credit lapsing in 2017 and, at least so far, not being renewed.

The big change going on now is the shift towards renewable diesel, presently about 15% of total BBD, which is more costly to produce but is essentially a drop in for diesel and can have lower carbon numbers, depending on feedstocks.  Due to the lower CI it is being heavily targeted at California for sale under the Low Carbon Fuel Standard.  In addition, it can capture a greater RIN value.

The plants scheduled to come on line over the next few years is mind boggling given today’s position.  Expansions planned or proposed by Diamond Green, NEXT Renewables, RYZE, Philips 66/REG and others could add up to 2 bln gallons of new Renewable Diesel volume focused on West Coast markets and almost doubling the total volume of BBD volume.  This is in addition to global expansions in biodiesel by companies such as Neste and companies coprocessing it in oil refineries.

Selected US Renewable Diesel Projects

Scale (mln gpy)









Phillips 66/Ryze




Under Construction

Diamond Green




Under Construction

World Energy




Under Construction

REG/Phillips 66





Note:  Project information from company websites and public announcements

This will have significant impacts on the market:

  • The total diesel fuel market is not expected to grow much, per the EIA, so this fuel will need to displace petroleum-based diesel which may negatively impact pricing.   There also is more capacity than there are RINs available which will have a downward impact on that.  On the plus side, is the LCFS which is spreading beyond California and will bring a carbon credit.  REG indicated in their 10k that the 2018 value was between $.40-.80 per gallon.
  • Regulation unclarity will continue between the RFS volume obligations, tax credits, trade policy, and the Small Refinery Exemptions which appear to have more impact on BBD than ethanol.  Right now, several smaller BBD producers are not operating due to lack of profitability.
  • How about feedstocks?  Right now BBD uses a combination of soy oil, corn oil and waste fats and greases.  BBD today uses about a third of the US soy oil supply so this will clearly impact pricing and availability certainly in the shorter run.  What will aggravate this is that all the feed streams are byproducts of other processes so cannot be increased on their own along with all the dynamics hitting soy on the trade side.  The EPA in their draft 2020 RVO estimates that from 2019 to 2020 feedstock availability would be enough to produce about 144 men gallons of advanced biodiesel and renewable diesel.

I think this business will continue to have challenges in the future and it is also likely not all the plants proposed will be built but the trend towards renewable diesel will continue.

Bio-jet Fuel

Bio jet fuels have a completely different environment that ethanol and biodiesel both as they are presently not mandated by the government and also as they are in an earlier stage of technical development.

There are three broad technology areas that cover much of the effort.  Most technologies would produce a fuel that could be blended at some level with standard jet fuel.

  1. Renewable diesel/oil to jet—This process is an additive process to biobased diesel taking the diesel and cracking it, isomerizing it and then purifying the end product.
  2. Alcohol to jet—Basically taking an alcohol, either ethanol or butanol, and then dehydrating it to remove the extra oxygen and then catalytically or chemically converting this to jet fuel.  The advantage of this is the ethanol routes are well developed so only the final process step is new.  Potentially this could consume some of the excess ethanol in the market but that would likely be with a penalty to CI compared to routes such as LanzaTechs using cellulosic feed streams.  Players here include Gevo, LanzaTech and Byogy.
  3. Gas to liquids—the typical routes here are gasifying a biomass or MSW stream into syngas and then using technology such as Fischer Tropsch to convert it to jet fuel.  Pyrolysis is another alternative.  This is earlier stage technology but has the potential for very low carbon due to feedstocks and will have wide feedstock availability.  Players here include Red Rock Biofuels and Fulcrum.

Selected US Jet Fuel Projects

Scale (gpy)




Red Rock

15 mln

Wood to Syngas to Fischer Tropsch




10 mln

MSW to Syngas to Fischer Tropsch




10 mln

Gas fermentation to ethanol to jet



The diesel fuel route is clearly the one with the fewest technical hurdles but will run into the same feedstock issues that biodiesel has if it moves to any significant volumes.  Alcohol to jet would be the next most straightforward while it seems like the gas the liquids route has the best carbon footprint and also feedstock potential.  However, it is unclear what the cost will be and what technical hurdles they will hit.

The next five years will see major learning taking place as commercial plants for many of these technologies are underway.

What makes bio jet particularly interesting and challenging is that it really is a global market so any regulations put in place by a single country could be very challenging to implement and enforce.  Conversely, given the global trade environment it seems unlikely that a global pact will appear anytime soon.

Without a mandate, it appears the airlines are broadly experimenting with biofuels but not making any major commitments.  My cynical view would be that they are doing everything they can to show progress while putting minimal money on the table.  Given the impact of fuel prices on airline profitability and the fact today that most or all biojet fuels will be more expensive than fossil-based fuels I would guess progress will move slowly.

Looking at the RFS, the pathways exist to capture a D4 RIN for biodiesel type approaches, a D5 RIN for Renewable diesel approaches and a D7 when using cellulosic feedstocks.  It does not appear that there is an existing pathway for a corn-based ethanol to jet fuel.

The question is what the RFS will do if biojet fuel grows significantly in volume as they presently define all their mandates based on surface transportation.  If there were suddenly an extra billion gallons of RIN’s available without the obligated parties needing to purchase them this would crash the value of the RINs.  California is working on routes within the LCFS but this presumably would be restricted to California.  Overall, this could provide benefits would not want to bet a business on the availability of RINs.

Long term, I think bio jet fuel will be a large and important market but it will take some form of carbon charge or other mandate.  Until that it will likely stay small.

I think today is an exciting time in biofuels, as always, with lots of dynamics and opportunities for companies to succeed but also fail.

Author Notes

Steve Hartig is an experienced executive with almost 40 years of experience across DuPont, DSM and ICM in leadership roles.  He is presently acting as an advisor/consultant to companies in the biofuels and other segments.

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