The cellulosic biofuels tipping point

| January 8, 2013

As cellulosic biofuels reach commercial-scale, is the tipping point for wide deployment near – and will it be based on breakthroughs in capex, opex or yield? Actually, it may be feedstock costs, in the end.

At the 2011 ABLC, Wes Bolsen (then with Coskata) — reflecting on the long-term prospects for advanced biofuels — offered the view that “if any of us here thought that, long-term, we weren’t facing $100 oil, none of us would be here.”

The IEA oil price outlook

That view was substantially endorsed in this year’s World Energy Outlook from the International Energy Agency, which wrote: “Global oil demand grows by 7 mb/d to 2020 and exceeds 99 mb/d in 2035, by which time oil prices reach $125/barrel in real terms (over $215/barrel in nominal terms).”

The IEA’s outlook is not outlandish — in fact, it projects a 3.7% annual price increase, now through 2035, based on this week’s $93 price for West Texas Intermediate.

tipping-point

What happened to tight oil and shale gas? The IEA, projecting a nearly 25 percent increase in liquid energy demand, sees the new production working on meeting the new demand, rather than collapsing the old price.

Based on a linear rate of increase, we’d see WTI selling for $134 in nominal dollars ($106 in real terms).

All of which makes it very likely that biofuels producers who have been targeting parity with $100 oil will find much to like about the 2010s and 2020s.

Meanwhile, policymakers and the general public are, by and large, going to find much to like about the case for lignocellulosic biofuels. We built the following table based on publicly available costs for first and Nth plants from producers that have made some of their data public.

The cellulosic biofuels price outlook

cellulosic-tipping-point

 

(note: click image for larger version)

In our mid-case scenario — the $0.95 per gallon operating costs are based on the average we have from the projects that have made these numbers available — and the 80 gallon per ton yields are broadly in line, even sightly conservative, based on the Nth project yields that producers are projecting. In capex, numerous producers have indicated that they will have capital costs below $8 per gallon for their Nth project — and even first projects are coming in south of $10 per gallon for the lignocellulosic producers.

Overall, in that scenario, we saw that projects, indeed, can be broadly expected to come in at parity with $100 oil, and providing financeable returns to investors (even based on low RIN prices compared to today’s market).

But there’s one big caveat – and that’s feedstock prices. Producers would need feedstock prices around $50 per ton to make the economics work, in this scenario.

Ensuring affordable feedstock

Of course, tax credits help, enhanced yields help, driving down capex and opex helps — but nothing would do more to assure the long-term future of advanced biofuels at scale as the prospect of $50 per ton feedstock that yields 80 tons of ethanol equivalent per ton.

It’s not an insurmountable barrier. For example, POET-DSM has been targeting $55 per ton for its corn stover biomass and, based on the economics as we see them, they can achieve parity with $100 oil based on hitting 90 gallon per ton yields and reaching those $8 capex and $0.95 per gallon opex costs for their Nth plant.

Designing policies that will encourage the development of a large-scale biomass industry, capable of supplying $50 per ton biomass to this sector — that’s going to be a big challenge over at USDA. But we have no doubt that they are up to the job. And we continue to encourage the development of a Strategic Feedstock Reserve — leasing arrangements for growers on federal lands that would be predicated on the production of $50 per ton biomass. The federal government used its land holding to foster the railroad industry, the oil industry, and the homesteading of the American West. Why not renewables?



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