Who Shall Dare: Biobutanol and the intrepid ethanol producer

June 22, 2012 |

Declining ethanol margins and plant idlings; ethanol price gloom; controversy over RFS2 targets.

Despair? Bah! It all spells “opportunity” for the intrepid ethanolista.

This week in biofuels, two storylines that have been gaining a lot of attention have been the declining margins and plant slowdowns and shutdowns in the US corn ethanol sector, and the battle over IP rights between Butamax and Gevo in the biobutanol sector.

The story lines are, in fact, closely linked. One of the reasons companies like Dupont and BP are pushing so hard on securing IP rights in biobutanol is the massive opportunity to bring the technology forward with corn ethanol producers, to improve their margins and increase the sector’s downstream distribution opportunities.

By the way, that Gevo-Butamax saga is not over, not by a long shot. Think 2-3 years – the trial date isn’t until next April, and the appeals process is likely to drag out for some time thereafter. “The key thing is that this ruling is an early stage in a long and complicated process, and doesn’t affect in any way our ability to commercialize our technology,” said Butamax CEO Paul Beckwith, following a federal judge’s refusal to grant a preliminary injunction against Gevo pending the trial.

“Preliminary injunction requests are rarely granted. We are disappointed, but its not completely surprising. Our view of the strength of that technology, of the strength of that patent, has not changed. It will take a lot of hearings, a lot more rounds; ultimately, we believe we will be successful.

So, back to the promise of biobutanol technology

How much margin improvement can a switch from corn ethanol production to corn biobutanol production bring? The companies involved, either as technology developers or potential licensees, aren’t offering many specifics. However, the technology providers do talk in terms of payback of the retrofit investment in three years or less.

At around 60 cents per pound last December, or right on $4.00 per gallon, the prices for isobutanol far outstrip the $2.20 per gallon pricing for fuel ethanol. Now, a plant that is producing 100 million gallons of ethanol is going to produce in the range of 80 million gallons of biobutanol, according to both Gevo and Butamax.

But still, the economics are compelling for the hard pressed ethanol producer who is looking down the barrel at $5.94 per bushel for the July spot corn contract, with only a little relief expected from what may be a bumper US harvest in the fall.

And of course, there are more than Gevo and Butmax in the hunt. Cobalt Technologies and Green Biologics are coming along fast, to name two others.

Even better, there have been some breakthroughs of late in IP that will open up the distillers grains markets for biobutanol producers, which can offset the corn acquisition cost by around one-third, by returning protein to the feed marketplace in the form of dried distillers grains. DDGS prices, according to a report this week in Ethanol Producer, are expected to be on the up and up throughout 2012 because of high corn prices, and the threat of reduced ethanol capacity as plants slow down or shut down.

Just this week, Valero was the latest to announce a temporary corn ethanol plant shutdown, idling its Albion, Nebraska plant because of high corn prices, corn scarcity between now and harvest time, and falling crude oil demand as the slowdown in the EU and Chinese economies takes hold.

Biobutanol’s optionality

Were the US corn ethanol fleet already switched over to isobutanol, it would conceptually have a lot more optionality.

First, there’s the opportunity simply to distribute biobutanol to the chemicals markets, where it is used directly and as an intermediate in a variety of applications.

Blend rates and biobutanol

Second, and this is key, there is the opportunity to blend biobutanol with gasoline at a higher rate than ethanol – minimally at 12 percent and as high as 16 percent.

So, take the US ethanol fleet right now, which can produce 14 billion gallons of ethanol and struggles to find homes for all that product, given the US blend wall, which currently limits ethanol blending to 10 percent (now in the process of change over to 15 percent). With the US using about 130 billion gallons of gasoline, you can see the blend wall problem – after 13 billion has blended into the gasoline supply, where does the other billion go?

With 100 percent biobutanol switch-over, you would have a total industry production of, currently, 11.2 billion gallons. And, at 16 percent blends, you could blend up to 20.8 billion gallons into a 130 billion gallon gasoline supply.

So, there’s an amazing opportunity right there. Instead of thinking blend walls and lack of market access, blender pump initiatives and so on – think capacity expansion.

What about E15 ethanol?

But what is E15 ethanol really becomes a daily reality in the US? Well, the biobutanol waivers are keyed off the same data – opening up the potential for biobutanol blending rates to go to, minimally, 18 percent, and as high as 24 percent.

That’s right, Digesterati. Up to 31.2 billion gallons of biobutanol blended safely into the US gasoline supply. Now, keep in mind that biobutanol, which has a higher energy density, counts differently on a per-gallon basis towards the Renewable Fuel Standard in the US. One gallons of biobutanol counts for 1.3 gallons of ethanol-equivalent fuel – and keep in mind that the RFS2 vcalls for blending of 36 billion gallons of ethanol-equivalent – not 36 billion gallons of anything.

So, what does 31.2 billion gallons of biobutanol count for? That’s 40.56 billion gallons, and if you toss in say 2 billion gallons of biodiesel, and perhaps another minimally 2 billion gallons of other advanced biofuels (such as renewable diesel)? Well, you have something like, in ethanol equivalency, 46.96 billion gallons by 2022.

Now, that’s all theoretical – basically, it’s blending math — that’s not production, not finance, not feedstock acquisition, or IP dispute resolution, logistics, or customer acceptance. But it gives you some idea why, here in Digestville, we don’t exactly assume the clutch of despair when we think about RFS targets and blend walls.

Meeting the RFS: The production math

In more practical production terms – let’s think through some production math, for a moment. POET-DSM has been floating around a figure of 7.8 billion gallons of cellulosic ethanol by 2022, as a realistic build-out goal for industry – and there’s the 15 billion gallons corn ethanol cap (although, interestingly, there’s no such definitive cap on corn-starch biobutanol). So, that gives us about 23.7 billion ethanol equivalent gallons, and those gallons should be all safely blended into the gasoline supply under some combination of the ethanol or biobutanol waivers, given the shift to E15.

Leaving about 12.3 billion ethanol-equivalent gallons for biodiesel and other drop-in advanced biofuels. Let’s put a goal out there of 3 billion gallons in biodiesel capacity, which counts for 4.5 billion gallons of ethanol-equivalent towards RFS2.

OK, that leaves us with 7.8 billion gallons to find from the drop-in advanced biofuels pool – somewhere between 4.5 and 5 billion gallons of installed capacity – or, simply turn to, say, Argentina, to supply added biodiesel given that the biodiesel blend wall is somewhere north of 10 billion gallons.

The bottom line

Doable? Sure. Financeable? Yes. Wait five year to get started? Nope, that’s an urgent build-out for today. But the targets are reachable. Given that a reference sized renewable diesel plant – for example the Diamond Green Diesel project in Louisiana – is around 130 million gallons – that means, minimally, 35 commercial-scale projects in drop-in advanced biofuels, online by 2022. Probably a lot more, given that capacities may well be smaller and not every plant is going to devote all its capacity to advanced biofuels.

As Henry Wasdworth Longfellow wrote:

But who shall dare
To measure loss and gain in this wise?
Defeat may be victory in disguise;
The lowest ebb is the turn of the tide.

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