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Hybrid, hyperlocal: 5 Paths of the New Fuel Economy

| July 2, 2012

Wondering where biofuels are going in a world of low-cost natural gas and titanic battles over renewable fuel standards?

We look at the latest on gas-biomass hybrids, and even further down the line at 5 pathways that may emerge as winners.

In April, we took a look at falling natural gas prices and the bio-based opportunity with companies like Siliuria, Sundrop Fuels and Glori Energy, and in March, we urged observers of the bio-based space to think beyond green, toward opportunities in the Olive Economy – where the new green meets the old brown.

Primus, Sundrop shift to gas

News last week that Primus Green Energy has shifted the feedstock for its 5-barrel-per-day demo facility in Hillsborough to shale gas from wood pellets or miscanthus as originally planned, is more evidence that the ground underneath renewable fuels is shifting.

Primus said that its technology synthesizes feedstock into gasoline using an off-the-shelf catalyst and is meant to break even when oil is at $65 a barrel – sounds like they have turned to the Mobil methanol-to-gasoline process.

Sundrop Fuels has given indications that it is going in the same direction. The company said last month that it will “convert sustainable forest residues and thinnings as feedstock combined with natural gas into bio-based “green gasoline” by using a commercially-proven production path that integrates gasification, gas purification, methanol synthesis and a methanol-to-gasoline (MTG) process.” On Friday, Town Talk confirmed that the company will be using the ExxonMobil’s MTG process.

What’s up? Is this a start of a drift away from biomass?

For companies like Primus and Sundrop, its practical economics. Right now, US natural gas is trading in the $2.50 per MMBTU range, and is expected to be at $5 or less over the next five years, as a shale gas drilling boom takes hold across the United States.

The craze over shale gas has become so intense that Poland Township in Ohio recently received a proposal to lease mineral rights underneath the town cemetery, and the town is reportedly giving careful consideration whether it is OK to drill underneath and around the dead.

The short term impact? Well, oil is trading in the $10+ range per MMBTU, and biomass is in the $5-$10 range depending on feedstocks and contract prices. So, you won’t see natural gas replacing zero-cost residue feedstocks like municipal solid waste, but projects that utilize feedstocks that cost more, are not yet planted in sufficient concentrations, or have sustainability concerns, may feel the heat. You may see projects that are based on gas fermentation embracing some natural gas mixes, or simply getting more traction, sooner, relative to enzymatic processes.

5 Paths of the New Fuel Economy

The long term impact? We think that the emergence of a long-term, low-cost natural gas source will ultimately break production of fuel and chemicals into five key streams.

Long chain molecules. Winning? Bio-based.

These are the long molecules primarily used in chemistry – areas like flavors, fragrances, some lubricants. High-value, low-volume targets. Here, biological processes look like long-term winners, since ultimately what distinguishes them is that biology can, through metabolic engineering in platform micro-organisms like e.coli, develop one-step processes to create these “tailored molecules” from fermentation of biomass-based sugars.

Over in the fossil world, the barrel gives you what the barrel gives you, and target molecules often have to be produced in multiple, complex and costly steps.

Affordable, low carbon fuels. Winning? XTL.

These are the workhorse fuels of the future – offering some of the low-carbon attributes which are sought with bio-based molecules, while accessing some of the “at-scale, low cost” properties of, say, natural gas. Now there are biomass to liquid, coal to liquid, and gas to liquid technologies, or BTL, CTL and GTL. We think that XTL may well emerge as a winner here – feedstock combinations of natural gas with a biomass sweetener that adds low-carbon properties. The resulting fuels, if the technologies prove out, are expected by their developers to be competitive with $50-$60 oil, and that’s below the expected long-term oil price.

Super low carbon fuels. Winning? Bio-based, in electric-hybrid engines.

For super low carbon, there’s just no better way to go than biofuels as long as one is seeking a renewable fuel. We see the combination of electric hybrids and low-carbon fuels as being far more robust on value (that is, on a combination of carbon attributes, price, and range) that all-electric vehicles, for some time. The price and range problems with all-electric await a dramatic breakthrough on batteries – meanwhile, a great electric-gasoline hybrid could deliver traditional ranges and great carbon performance, and we hope will get better on price as demand scales.

Low price fuels. Winning? Fossil blends and bio-synthesis.

For chasing low-price, there isn’t anything as cheap as natural gas in the biomass world, excepting feedstocks that are transitionally available at zero cost, like MSW (and are unlikely to stay there once the value is proven).

And, for now, biomass is having a tough time competing, on an unsubsidized basis, with oil – some of that having to do with price pressures on first-gen feedstocks and the comparative small volumes at which second-gen fuels are being produced.

So, for pure cost, we see traditional gas and oil – especially, as impacted by new technologies such as horizontal drilling – as providing a compelling story for low-price fuels for some time to come.

But then, there are technologies like Joule Unlimited, which offer, instead of conversion of biomass into liquid fuels, microorganisms that make fuel molecules directly from carbon dioxide, non-potable water and nutrients. Joule’s target is to be competitive with $30-$50 oil, depending on the molecule produced. That’s going to be a competitive platform if the technology proves out, and we should know a lot more in the next two years.

Further, we may see that low-price fuels that do not have favorable carbon attributes, may find themselves saddled with a carbon price, designed to incentive cleaner fuels and a clean economy. How will that work? Heaven knows, but a scheme that transfers carbon prices into incentives for low carbon fuels, or energy efficiency, is a likely path.

Hyperlocal fuel? Winning? Depends on where you live, but generally bio.

What is a hyperlocal fuel? It is a fuel where feedstock, refining, finance and distribution all happen in the one place. The community that produces its own low-cost, low-carbon fuels, and finances them, is not going to see money leak out of a community to pay for imported fuels, or leak out of the community to repay project loans on fuel technologies.

Our view – economic multipliers (used to gauge the impact of a proposed development project) are all wrong when it comes to the value of community energy projects.

Energy is pervasive – it’s something like 30 percent of everything, whether that is food, materials, entertainment. A box of corn flakes, for example, has less than 10 cents of corn, and a whole heck of a lot more than that in the energy used for manufacturing, packing, transport, and to power the lights in the Kellogg’s marketing department.

Communities that are not energy-secure leal money out of their communities all the time – whether to Riyadh or Houston, it doesn’t really matter – and traditional economic multipliers take that into account – its a limiting factor on economic impact, because eventually, when money circulates through  the community enough times, eventually all the money leaks out to pay for energy.

Community fuels? That’s a path around that limitation. For most of the world, that doesn’t live atop a gas seam, or an oil field, that means biomass when it comes to liquid fuels. One of the reasons why rural areas look like very strong performers in this century, as they kept enough land back fro fuel and food-production, and could be relatively insulated from the long-term impacts that rising population and economic progress in the developing world, which will put more pressure than ever on resources.

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