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Biofuels, True North, natural gas, and Primus Green Energy

| November 14, 2013

Primus - Lab Micro-Reactors low DPIPrimus Green Energy recently completed a landmark technology demonstration — and heads off to scale with a catalytic technology for making $2.00 gasoline.

But, in shifting to natural gas as a feedstock for the first commercial, are they still in the renewable fuels space at all?

Out there in the land of technologies, there are a couple of technologies that have done a remarkable job of figuring out ways to make useful, high-value products from syngas (a soup of carbon monoxide and hydrogen). There are companies like Coskata, LanzaTech and INEOS Bio that have developed techniques for gas fermentation; others like Sundrop Fuels, Fulcrum Bioenergy, Primus Green Energy and Enerkem use inorganic catalysts to form the cooling gases into target molecules like ethanol or methanol, which can themselves be reformed into products like gasoline, diesel or jet fuel.

Now, you can make syngas a couple of ways. One is to heat up biomass. Another is to use a process called steam reformation to make syngas from natural gas.

The Big Stall

In the Big Stall known as “Financing Biofuels at Scale,” a number of the companies that originally set out to use biomass as a feedstock have embraced low-cost natgas as an expedient alternative. Prompting a certain amount of apoplexy amongst the Digesterati and, sometimes, their own investors and supporters.

Coskata was among the first to go over; later Sundrop and most recently Primus. Now, their technologies support both pathways and all companies speak, still, in terms of a mixed feedstock stream…or of doing initial commercial-scale plants with natgas and using biomass for future projects.

What makes bio, bio?

In the case of Primus, to use an example — the connection to the bioeconomy has become a little tentative, given that they are using an inorganic process on a non-renewable feedstock. Promoting questions from time to time about why, in fact, they are any longer covered in Biofuels Digest at all.

Even though they are proceeding nicely towards scale-up and recently completed 720 hours of continuous operation at their demo and received a relatively glowing sign-off from the independent engineers.

What, some ask, makes Primus Energy, Primus Green Energy?

We’ll begin with the observation that, of the 150 advanced biofuels developers or so that we track in our project database, only a handful are yet producing at commercial scale. INEOS Bio, KiOR, Beta Renewables. More are coming, far more.

But they are — as a point of fact, using biomass or biological process today only in the lab, pilot or demo — and will use biomass at commercial scale somewhere down the line. Whether that means waiting to build a fiorst comemrcial in 2019 with biomass, or building with natgas now and biomass in 2019 as a later commercial — well, it really gets down to semantics.

As companies have taken on the complex set of financing challenges and calculations that come with the “jump to light speed” of building a first-of-kind plant with new technologies. Well, they have generally struggled with the problem of sufficiently mitigating the risks to the point where the technologies are financeable.

The risks

First, there’s the policy risk. Right now, the forces of oil — allied with the left wing of the environmental movement for reasons that occasionally passeth understanding — are on Capitol Hill working at top speed to dismantle the entire Renewable Fuel Standard. Having broken enough of it, they think, now to make the argument that it is broken beyond repair.

If it seems to you a situation comparable to the Imperial Japanese Navy in 1941 asking for Pearl Harbor to be abandoned on the grounds that it is damaged — and, not by accident, making the Pacific much safer for the unfettered operations of the Imperial Japanese Fleet — well, you wouldn’t get any argument from the Digest.

Then there’s the commodity price risk – no guarantees about price in the world of liquid fuels. No guarantees in the world of commodity crops, either. Just ask any farmer or oil & gas developer who survived the 1980s — when it go so bad that the pigeons were feeding the developers in downtown Houston.

Did we mention the technology risk? Very easy to find giant EPC firms with big balance sheets interested in construction advanced biofuels technologies. Much harder to find one who will wrap the project with a broad performance guarantee. What about the risk that enzyme or catalyst prices won’t come down?

Diversion in the face of risk

Now, there’s money available in the market for just about any purpose, at a price. After all, blood diamond operations and loan sharking are still with us. And not every cigarette boat that we see passing the Digest’s windows on Key Biscayne, making the run to the Caribbean, is financed solely for the joys of high-speed boating. Affordable financing, that’s the key. The risks associated with the markets and players in the advanced biofuelsphere have stymied many a fine technology on its path towards world energy domination.

Accordingly, a number of technologies have diverted from the True North of advanced biofuels. Those that haven’t, generally have enjoyed determined corporate godfathers with big balance sheets — and there aren’t a hundred of them. Or, they have had access to zero or negative-cost feedstocks available in long-term contracts — so that they have more characteristics in common with, say, wind or solar power. Enerkem and Fulcrum have maintained their focus, in this way.

Some have diverted to higher-value, smaller markets in chemicals, nutraceuticals and the like. Others — like Coskata, Sundrop and Primus, have veered towards natural gas as a feedstock.

In doing so, they might have found ideas to relate to in this scene from last year’s motion picture, Lincoln.

ABRAHAM LINCOLN: A compass, I learnt when I was surveying, it’ll…it’ll point you True North from where you’re standing, but it’s got no advice about the swamps and deserts and chasms that you’ll encounter along the way. If in pursuit of your destination you plunge ahead, heedless of obstacles, and achieve nothing more than to sink in a swamp, what’s the use of knowing True North?

Financing in the face of risk

“At the end of the day, natural gas is financeable,” says Primus CEO Robert Johnsen, simply enough. The former Mascoma CEO said that “I have hit my head against the walls, for years now, to get biofuels expanded beyond lab to the demo and from the demo to industrial scale. You have to get the financing. There’s no future for biofuels without financing. That’s where the rubber meets the road. Everyone we talk to – strategics, airlines, equity investors – however enticing pure biomass-fed fuel is to them, in the end, they want an alternative to crude oil, and they want it at scale. A natgas product is greener than crude, and probably cheaper in the long run. We’ll do that now, because getting to scale, being successful, makes the future of everything else you do possible.”

“Convincing company equity investors that the project is financeable – that’s been a challenge in this entire sector,” says Johnsen. “With this first project, we are isolating the Syngas-to-gasoline technology as the only element that has any degree of risk or process risk. And we’re working to bring forward an EPC to provide some kind of performance guarantee, or we may bring forward a wrap via an insurance company. For the insurance companies, it’s easier for them to get their arms around the challenge of offsetting risk.”

For now, Primus is making gasoline — forming natural gas into methanol, then reforming the molecules into the gasoline range. The expectation is that, having completed their 720 hour demonstration — a 30 day continuous run — that they’ll tweak their engineering package and break ground on their first 28 million gallon commercial plant, somewhere in the US, in the second half of next year.

Capacity, capex and economics

Primus Demonstration Plant_September 2013 low DPI

The production train will remain 28 million gallon, but future plants will have multiple trains, and the second commercial plant is expected to check in at 111 million gallons.

Now, here’s some of the irony. For plant number one, they probably won’t even use natural gas. The gas works fine, and is mighty affordable, but you need a steam reformer plant to convert the natural gas to syngas, and that could add as much as $150 million to the overall cost of the project. Tougher to finance. What they are aiming for is a cost of $150 million for the first plant, or less than $6 capex per gallon of capacity, if they can buy syngas “over the fence”.

The overall economics are startling, with natural gas. When they are using $4 per MMBTU natural gas instead of $100 per barrel crude oil, it’s $2 per gallon of gasoline, capex, opex, the whole shebang. For 93 octane gasoline.

The demo plant, and the first-of-kind culture

As projects go, Primus has made a remarkable run of late, getting the demo plant operational in quick time and running it successfully. “I’ve never seen anything smoother,” noted Primus VP George Boyajian. “The team we’ve assembled are guys with 30 years experience, no ego, all on the same page, everyone pitches in. What we did in 9 months would take years at a large company, and at 4-5 times the cost. What you need are the guys who specialize in first-of-kind technology — who aren’t as interested in doing the ninth or tenth plant, but thrive in the early stage tech culture.

Demo Plant w- employees

Technology changes coming? “What we are doing now.” said Boyajian, “is learning to control the type of gasoline we produce. There’s a range of chemistries — highly aromatic, highly paraffinic — so we’re learning that, and after that we are going to be working on diesel and jet. The offtakers are interested in gasoline, if they can get it for a few cents cheaper. But they are long gasoline — and what we may find is that we deliver to them an even lower cost product that is blended in that doesn’t fit exactly to gasoline spec. Some of them take the view “the stuff you are treating for and removing, we can use, and if you can deliver it cheaper without that last step, fine.”

“What they are very much interested in is diesel – most are long on gasoline. And jet is a cut off diesel, so we will do that when we do diesel.”

The bottom line

“The technology passed all expectation,” says Boyajian, “with a catalyst life longer than expected. We welcome you to come and visit, and if you’ve got syngas we definitely want to talk with you.”

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