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Big Story along the Big Muddy: Dynamic Fuels begins commissioning of 75 Mgy advanced biofuels project in Louisiana

| July 16, 2010

The Dynamic Fuels plant in Geismar, Louisiana

It was a gigantic day yesterday for the biofuels industry, and the biggest news was saved for last, that Syntroleum and Tyson have completed construction, and commenced commissioning, of their 75 Mgy renewable diesel plant in Geismar, Louisiana. The Dynamic Fuels project becomes, by a factor of 18, the largest operating advanced biofuels plant in North America.

Let’s put this in context – the project in Louisiana, combined with Neste Oil’s 109 Mgy renewable diesel plant in Porvoo, Finland, will represent, between them, 94 percent of the world’s advanced biofuels capacity by Q3, when the Dynamic Fuels project officially opens after the completion of its start-up activities.

The announcement, just as markets opened, followed announcements by Growth Energy for the phasing out of the first-generation ethanol tax credit (in return for a new strategy of building blender pumps and mandating flex-fuel vehicles), the BP’s acquisition of Verenium’s cellulosic biofuels business, and the clarification of the timetable for energy, jobs and tax extenders legislative calendar in the US  (see The Conclave: Biofuels in the Balance as Congress decides energy, jobs, carbon policy”.

75 million gallons of capacity coming online at Geismar

Syntroleum (SYNM) announced the new Dynamic Fuels plant that will produce high quality renewable fuels from animal fats and greases is mechanically complete, and work is now underway to prepare for the start of operations. The prime contractor on the project in Geismar, Louisiana, achieved mechanical completion on July 9th and turned the entire plant over to Dynamic Fuels LLC, a joint venture owned by Syntroleum and Tyson Foods.

“Punch list” items will continue to be addressed by construction and maintenance personnel as the commissioning and start-up of the plant proceed. The first shipments of animal fats have been delivered to the facility. The commissioning activities in progress include flushing of all lines, verifying operation of the control system and installation of catalysts and absorbents. Dynamic Fuels currently expects to begin fuel production and ramp up of production rates, during the third quarter of 2010.

The new facility is designed to convert fats, greases and oils supplied by Tyson Foods into as much as 75 million gallons of renewable fuels per year. Of this, approximately 60 Mgy will be renewable diesel, with the remainder in the form of naphtha and liquid natural gas.

Renewable diesel, by the numbers

The plant is expected to be cash positive at this commercial scale, and is expected to have a material and sustained advantage in feedstocks costs over soy biodiesel, with chicken fats and waste greases trading in the 25 cents per pound range, compared to  the 39 cents per pound range for soybean oil. That’s roughly a $1 per gallon differential in the feedstock costs. Overall, the price differential could rise to as much as $1.50 per gallon compared to conventional biodiesel.

The announcement officially moves advanced biofuels from the “where’s the gallons?” era into the commercial scale-up. But it also marks a particularly sweet milestone for Syntroleum in what the Grateful Dead might have described as  “what a long, strange trip its been” (to borrow from “Truckin”).

The Syntroleum back-story, and technologies

Syntroleum did not start out as a biofuels developer back in the 1980s. In fact its signature Fischer-Tropsch technology, the Syntroleum process, is not even utilized in this project.

The company commenced operations as a developer of synthetic fuels in three modules: a reformer unit that converted natural gas to syngas, its signature Fischer-Tropsch unit that converted syngas to a basic renewable fuel feedsrock, and a refiner unit that converted F-T liquids into unusable fuels.

The price tag on the development of the total Syntroleum system? In excess of a billion dollars, and in the early 2000s, the halt of several Qatar-backed projects, including Syntroleum’s, left the company with a high burn rate and no available path to the commercial markets.

Walking, no talking, through the Valley of Death

What followed was a painful, yet ultimately, rewarding combination of retrenchment and refocus. The company slashed its payroll down to 19 full-time staff and halted production at its 70 barrel per day demonstration gas-to-liquids plant in Catoosa, Oklahoma, which opened with much fanfare in 2004. The $60 million per year burn rate, including a $2 million rate at Catoosa, was simply unsustainable for the company.

The company also embarked on a strategy of charging for its development work on the GTL platform, and today covers 75 percent of its operating costs through fees generated by its staff of public engineers.

Third, the company refocused on biofuels, after concluding that the third part of its overall GTL technology, the refining unit, could be adapted to the upgrading of animal fats and residues to a drop-in biofuel. After conversations with all the major players in animal rendering, the company signed a JV with Tyson Foods in 2006, part of Tyson’s overall strategy of adding more value to its co-products. The process, renamed Biosynfining, is the backbone of the Dynamic Fuels project, and allowed the company to proceed to commercialization and generate cash flows by commercializing the least expensive aspect of its technology.

Essentially, its development in reverse, building out the last unit first, with a long term goal of ultimately building out its reformer and F-T technologies at scale. The company has worked with Sinopec, China’s largest oil refiner, which has acquired rights to Syntroleum technology, is operating the Catoosa pilot, and has redesigned the overall process to work with coal gasification into syngas, as opposed to reforming natural gas.

The key to the Dynamic Fuels project? Syntroleum’s strategy of refining its process to take on the most difficult, and thereby lowest cost, feedstocks in animal fats and residues.

“Yellow grease, anything, the process can work with the cheapest,” recalled Syntroleum’ Sr VP, Finance, Ron Stinebaugh. He described the company’s refocused strategy as a form of “walk, don’t talk,” noting that the company had dismantled its investor relations effort and had concentrated all of its resources on execution.

The Tyson Foods role in the Dynamic Fuels partnership

Tyson’s role: procurement of the feedstocks, using their own resources and their trading network. “Since they routinely acquire huge volumes of palatable, low-cost fats and greases to be mixed into their feeds, they are looking at this project, essentially, as if it is a large feedlot they are supplying,” Stinebaugh added. “They have the logistics, the trading platform, everything we don’t know in the feedstock area. That made it a great partnership, because you have two companies that have complimentary but different strengths and we need each other’s role in order to extract the full value.”

Renewable diesel: we don’t need no stinkin’ subsidy (but will gladly accept)

Like biodiesel, Dynamic Fuels fits within the Renewable Fuels Standard under the biomas-based diesel category, which the EPA confirmed it will require 800 million gallons of production from in 2011. Unlike conventional soy biodiesel, Dynamic Fuels does not require the $1.00 tax credit for biomass-based diesel. “We sure like it, and will accept it if available,” said Stinebaugh, “but what we really require is the mandate itself, and for RIN (Renewable Information numbers, which are associated with the production of renewable fuels) to be fully valued in the market.

“Lately the RINs have been trading at around 50 cents, which is up from the 15-20 cents range they were at,” explains Stinebaugh, “but that’s not their true value, because the $1 tax credit is figured in there, because someone gets that when renewable fuel is blended with diesel. The theoretical value of a RIN is probably around 80-85 cents per gallon of renewable diesel production.”

Big Story along the Big Muddy

Overall, that’s a heady combination – a drop-in renewable fuel that can be blended with the existing diesel fuels without requiring infrastructure changes. A fuel that does not require a tax credit to be economically viable. Does not require the use of additional land for its production, using instead an existing stream of low-value residues and waste to which it adds a high value. Domestically produced without requiring operations at 5,000 feet below sea level in the Gulf of Mexico. Here now. Producing the 50 percent or more reduction in greenhouse gas emissions, compared to conventional fossil fuels, required to qualify as biomass-based diesel under the RFS.

That’s, as they say in Silicon Valley, a “big story”. But even better than the story, are the gallons that will be produced along the banks of the Mississippi.

More on Syntroleum and Dynamic Fuels.

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