Groundhog Day, biofuels style

If the RFS the bedrock of the US biofuels industry’s strategy, does industry not owe the US Congress an affordable, reliable roadmap for how the targets will be reached?

Is the brouhaha over missed cellulosic ethanol targets for 2011 and 2012 a meal that will be served to industry, over and over again, like a scene out of the motion picture, Groundhog Day?

In an article yesterday on meeting the US RFS target of 36 billion gallons of biofuels by 2022, we proposed, as a scenario for your consideration, max’ing out the use of the existing US corn ethanol fleet, which will have a capacity of 15 billion gallons by 2015.

In our scenario, we got all the way to 36 billion gallons, without the use of blender pumps, E15, E85, and with the construction of around 75 greenfield biorefineries, instead of the 400 proposed by the USDA in its “meeting the RFS” scenario.

We sure got a lot of mail on this one.

Our achieve-the-RFS scenario

The key points we made:

1. We noted out that, under optimal circumstances, the mainstream (i.e, non flex-fuel) US auto fleet could handle up to 28 billion RFS gallons of biobutanol (21 billion gallons of actual production, since biobutanol has an RFS value of 1.3, because of its higher energy density).

We thought that the existing fleet could produce 15 billion of those gallons of actual production with a combination of corn biobutanol and adding 25 percent to capacity by making biobutanol from cellulose.

2. We noted that there is a lot of excess CO2 produced in corn fermentation that could be recaptured for use by algal-fuel or solar-fuel production systems, in a bolt-on scenario – and that CO2 re-use could add significant capacity to the existing fleet.

The readers respond

From readers (who generally wished to remain anonymous), we had the most negative feedback on three items.

1. We ignored the stronger GHG emissions reduction opportunities available via ethanol.

2. It will take years to convert the corn ethanol fleet to biobutanol, and the industry is at the ethanol blend wall now, so ignoring, for example, blender pumps, does the industry a disservice.

3. Consumers will not pay more for isobutanol than for ethanol (on an energy value basis), so how will producers make more money, and why would companies sell a molecule as a $3 fuel instead of a $5 chemical?

We had a useful conversation with Paul Beckwith, the CEO of Butamax, about the progress that the BP-Dupont joint venture is making in its strategy to convert ethanol plants to biobutanol.

Key takeaways from Butamax and Gevo

1. The Butamax joint venture intends to sell isobutanol into the fuel markets at a competitive price (on an energy-equivalent basis) to ethanol. So, if you get around 30% more energy with isobutanol than ethanol, the price will be 30% higher. Beckwith notes, “we are focused on having a production technology that is competitive in the fuels market. That does not mean that we are ignoring the chemicals market.”

Worth noting that Gevo, which also will be converting corn ethanol plants to production of isobutanol, will be targeting the higher values in the chemical market.

2. The Butamax JV will be capable of and focused on, with its engineering staff and the staff of their proposed partners, conversion of multiple ethanol facilities at one time – rather than onesy-twosy. How many facilities could be converted at one time, by the industry as a whole?

We don’t see any reason why retrofits could not be accomplished at least as the same rate as the fleet was built out during the 2006-09 heyday of corn ethanol plant construction, when 100 plants were constructed during a three-year period.

If 67 percent of US corn ethanol capacity was added in a three-year period, we don’t see any compelling reason why 100 percent could not be retrofitted in an eight-year timeline beginning in 2014.

Over at Butamax, an early adopters group has already been formed, and the 50 million gallon Highwater Ethanol will be the first plant converted from ethanol production to biobutanol, with construction expected to begin in 2013 and completion scheduled for 2014.

Over at Gevo, the company is completing conversion of a corn ethanol facility in Luverne, MN by the end of June. The company projects that it will have 350 million gallons of installed biobutanol capacity by 2015.

The retrofits are, in the case of both Gevo and Butamax, focused on three key units at the ethanol plant. Namely, the units for fermentation, separation and distillation. Both technologies utilize a modified yeast organism (that produces isobutanol, not ethanol), and because isobutanol is more toxic to yeast than isobutanol, they have to have a souped-up unit to separate the alcohol from the yeast before it succumbs to its own by-product.

3. What’s the proposition to the bioprocessor, the actual ethanol plant? Higher value molecules, for sure. Also, as a lesser point but still important, less exposure to issues such as the ethanol blend wall.

Butamax’s Beckwith talks in terms of a three-year payback for the required investment to convert an corn ethanol plant over to biobutanol. After that, there’s added free cash flow. That’s a very fast ROI, in the world of industrial biotech.

Consider, for example, the payback timeframe for, say, BP and Dupont in the formation of Butamax – they were doing work on bio-based isobutanol back in 2005, and in Butamax’s case will only begin generating licensing income in 2014.

The conversion timeline. First project will take 18-24 months for the first project, with actual plant shutdown time somewhere in the 2-4 week timeframe – thereafter, around 12 months per conversion.

4. By the way, unless you’ve been under a rock this past year, you are aware that Gevo and Butamax are currently embroiled in patent-infringement lawsuits, Gevo suing Butamax and vice-versa. Some key dates coming up? There’s a hearing for a preliminary injunction requested by Butamax, against Gevo, coming up in March – though the issues over Butamax’s two patents are not expected to be resolved until the full trial, which is scheduled to begin in April 2013.

Not in the mailbag, but of concern

In our scenario, we proposed that an additional 3 billion gallons of biobutanol, could in a max’ed out scenario, be produced from corn cobs and corn stover collected at corn ethanol plants. Though none of our readers questioned the figure, we have some concerns as to whether the focus of companies like Gevo or Butamax will turn fast enough from corn to cellulose. Now, it takes a few years to add on cellulosic biobutanol capacity, so that work would have to begin no later than, say, 2019, to meet the 2022 RFS targets – and probably in the 2017-18 period.

For now Gevo is doing R&D work on cellulose but has not announced a timeline for rolling out options for cellulosic biobutanol. Butamax says it sees the technology coming to market in this order: corn, sugarcane, wheat, cellulose. Beckwith adds, “we them coming to market in that order, but that is not reflective of the R&D focus. Our plan is not to develop the technology sequentially, and indeed the reason that cellulosic butanol is not sooner is that this driven by the availability front end cellulosic technologies and infrastructure.” Overall, sounds likeit could be a long ways away.

However, both Cobalt Technologies and Green Biologics, which produce n-butanol, are developing cellulosic biobutanol capabilities in an accelerated manner. Providing more options in the mix.

One other point of correction we heard from readers: our assumptions about the availability of CO2 at biobutanol plants (i.e. for algal biofuels) may be too high, since biobutanol captures more carbon in its molecules than bioethanol.

The Bottom Line

Is the Digest 36 billion gallon scenario possible? We think so. A number of readers think that ethanol should remain the focus of industry development, or we should be more fuel-agnostic by adding blender pumps, supporting the expansion of E85, and giving ourselves more options.

Well, we certainly agree that, in an ideal world, ethanol might well rule and certainly an “all of the above” portfolio strategy that embraces all fuel molecules is more robust than an “eggs in one basket” strategy.

However, we note the financing and construction timelines, and warn industry that unless they develop an affordable, reliable strategy – which does not cost many more federal dollars – for reaching the RFS targets, the RFS will be opened and revised. Downward, in an investor-crushing manner.

Our take: the Congress will not fund a massive blender pump program that will provide more access to higher blends of ethanol; industry cannot afford it, and retailers and consumers could not generally care less. Absent blender pumps or biobutanol, the industry must construct 21 billion gallons of drop-in fuel capacity by 2022. Cost: around $250 billion for capacity; about $5 billion for full-deployment of blender pumps.

We express our concern over the level of congressional interest in federal aid, retailer interest, consumer pull-through, and lender interest – the rationale for “don’t mess with the RFS” would be stronger, if grounded in a stronger scenario, as opposed to a Groundhog Day-esque, annual “Sorry, We Missed the Targets for the Following Six Very Good Reasons, and its Not Our Fault” recitative.