Fulcrum BioEnergy: The Digest Interview

May 30, 2013 |

Fulcrum-plantA signature developer of fuels from municipal solid waste lands a high-profile grant from DoD for a drop-in military biofuels project.

The technology, the economics, the progress – CEO Jim Macias and VP Ted Kniesche update the Digest.

For much of the past two years, the intriguing projects of Fulcrum BioEnergy have been advancing to a great extent in stealth mode — partly owing to SEC regulations on communications during the period when Fulcrum was exploring an IPO – partly to keep public attention focused on its signature municipal solid waste (MSW) to-ethanol first commercial project near Reno, Nevada.

So it caught both industry and the public by surprise when Fulcrum was announced as one of the three recipients of an Air Force grant, under the Defense Production Act, aimed at developing plans for a drop-in military biofuels plant, capable of making both marine diesel and jet fuel, which would supply sub-$4 biofuels to the DoD.

We spoke about the new project this week — and on Fulcrum’s overall progress — with CEO Jim Macias and VP Ted Kniesche.

BD: How did the aviation project originate?

Fulcrum CEO Jim Macias

Fulcrum CEO Jim Macias

JM: Over the past past year, we’ve making advancements on integration of plant design. We’ve been focused on the demonstration of the integration of our technology taking us all the way from MSW to fuels, at our demo plant in Durham. But we have other technologies, and see other opportunities. And there is a lot of market pull from customers looking for drop-in fuels. Jet fuel is in big demand, with airlines eagerly pushing for it. So, we added on a Fischer-Tropsch design as a complement, yet quite different, to our alcohol to ethanol capability.


The technology of sub-$4 jet fuel

BD: Tell us what you can about the technology solution.

JM: We have a tubular reactor design. Probably not the most long term cost effective, but reliable and predictable, and that’s important now. So we have our MSW system, and our gasification technology and scrubbing systems, and then the FT process to produce jet fuel and diesel from the gas stream.

BD: That’s a remarkable size for F-T technology. Usually, those systems are built at massive scale to get the economies of scale needed. How is this different?

JM: But, let’s start with the cost issue. Our feedstock cost gives us the flexibility, and the operating cost margins. It’s a game changer. You’re right, the FT technology that’s out there is large-scale, and there have been efforts to scale it down. We took a fresh approach, rather than trying to scale down an existing system. For example, the tubular reactors rather than the slurry bed reactor. The other technology is tougher to scale up or down. We built full scale reactor tubes with all the heat and chemistry components, and then found some designs and technology for the fuel upgrading, to crack the FT liquids and turn it to distillate.


BD: Oxygen and hydrogen needs?

JM: We need oxygen for the gasification, but we have all the hydrogen we need for the fuel conversion with our existing technology and the gas stream. That’s made it easier to go multiple fuels, either ethanol alcohols or distillates, because we can precisely control the hydrogen ratio.

The Economics of sub-$4 jet fuel

BD: So you have multiple fuel capabilities. How does it compare on cost to your ethanol process?

JM: The economics are very similar, in fact a little better. The front end of the plant – the MSW sorting,
gasification, and gas scrubbing are all the same. It’s different on on the FT process – little less costly, because the ethanol process requires higher pressures. We’ll produce at well less than a dollar a gallon for jet fuel, given our feedstock cost.


BD: That’s on the operating cost (opex) side. What about capex? You were at around $173 million for the first 10 million gallon ethanol project at Reno.

JM: It’s about the same. Less than 200 million for the 10 million gallon plant, and a little over 300 million for a 30 million gallon plant.

BD: Will you be able to produce any fuel at any plant, or will you put in specific technologies at a given project?

JM: For each plant you have to decide which of the different paths you’ll take, and go alcohol or distillate, because the economics aren’t there to do noth at a single small refinery. But you can have diesel or jet produced via the distillate route.

The risks of a downselecting process

BD: Ted, you’ve been on point through this DoD selection and bidding process. How did you look at the risk of getting into a project where there’s a downselect before commercial scale grants would be given, and there’s a risk there. And, we understand, the DoD would have the option not to pursue with any of the phase one recipients, but go another direction entirely in phase two.

Fulcrum VP Ted Kniesche

Fulcrum VP Ted Kniesche

TK: Our understanding is that you have to be involve in some way in the phase one process, you need to be in the program in some way to advance through to phase two. We think as well that it helps to go through phase one, to get the credibility that comes from being closely evaluated. As far as phase 2, it’s a competitive downselect process, but we are confident that we will be far enough along that we’ll be highly competitive. This is a grant to do the engineering and finalize the design. We’re happy to get the matching funds for the plant and for the acceleration it provides to our program.

Future sites

BD: Jim, the public focus has been on your Sierra project near Reno, but in this DoD award there was a specific reference to Fulcrum Brighton Biofuels, which is a Colorado project. Tell us about your project roadmap.

JM: In the DOD grant weren’t required to identify a site. That’s appropriate, because you want to be able to decide the site in the plan, based on engineering. As far as our overall program, the first is the Sierra project near Reno. The second is Brighton, just northwest of Denver. The third is Toronto, then Seattle, and then San Francisco. All of these are planned to be near the metro areas.


The jet market

BD: Looking at the broader demand for aviation fuels and your interest in producing jet fuel, how do you see the market right now?

JM: Jet fuel opens up a whole new market for us. There is a tremendous appetite for competitive biojet. It’s a big uncontrollable cost for them.

BD: Are these strictly customer relationships and offtake agreements, or strategic relationships?

JM: In offering a low cost options to an airline, we have talked to customers that they may also be interested in helping us accelerate our program as strategic investors, to get access to low cost and low carbon fuel sooner.

BD: Is the interest more from domestic airlines, or international carriers who may have more exposure to carbon regulations, for example the European Emissions Trading Scheme.

JM: It’s both, but it’s fair to say it’s more international interest than domestic.

Fulcrum’s path to commercialization: IPO’s , financing and more

BD: When last we spoke, the company was aiming to close up financing for the first commercial plant in the first half.

JM: We’re in the document closing phase. With the situation in the capital markets the past few years, there’s more more diligence than ever, and it takes longer to do everything, But we’ll have it completed in the third quarter.


BD: One of your strategic suppliers and investors, Waste Management, had been trimming some investments.

JM: Waste Management, as an investor wants to see performance and commitments like anyone else. And like any investor they are going to rationalize the portfolio from time to time. But we are very pleased with the relationship. As with Waste Connections.

BD: You withdrew your S-1 registration statement for the IPO recently. What was the thought process there?

JM: After the Facebook IPO, the markt changed. Some of our underwriters said it was a short term problem, but we weren’t going to be able to wait and hope, so we moved back to working with strategics and have had some good success there. We got commitments and are closing on those, and that has allowed us to proceed with the plan without having to wait.

BD: Future plans?

JM: We still follow the public market closely and want to be ready should our investors want to take advantage on an IPO window opening up. But keeping the S-1 up to date, and needing to make progress with our private investors, we decided it was better to restart the process later than rather than constantly updating an S-1. It was more logistics than a conscious decision about an IPO — we plan to go when we feel the market is receptive.

The Renewable Fuel Standard embroglio

BD: Back to the ethanol side. Lots going on. The blend wall, E15, E85 maybe making a bit of a comeback, pushback on the Renewable Fuel Standard. How does that market look to you these days?

JM: Personally, I have not lost any enthusiasm for ethanol. Even at E10, its a large market and there is tremendous upside potential through the blend wall.


TK: RFS is doing what it was designed to do. It’s driving pressure. Forcing companies to buy alternative fuels, and bringing investment into the sector, because investors need to know there will be a market. All the RFS noise is not good for investor confidence, but we expect it will continue to be there. It could be flex-fuel vehicles and E85, or it could be E15, but we think that the market will continue to expand beyond the debate around the blend wall.

JM: As soon as breakthroughs come along. Whether it is INEOS Bio, or us, or Enerkem or another one of the companies in the space. As soon as people see that the technology works at scale, there is going to be too much demand for domestic renewable fuels that compete on both a price and environmental basis. The barriers are going to come crashing down. But it has to be about economic sustainability and not just carbon.

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