The Unconventional Truth: As oil heads for $128, 10 advanced biofuels for under $100 a barrel

February 2, 2014 |

the-unconventional-truthWe had a rousing response to “Get Cracking!” — our focus last week on a new wave of thermal & catalytic technologies.

But how do they stack up, when it comes to cost? How do they compare to other unconventionals – such as are (famously) now appearing on the fossil oil & gas horizon? The Digest investigates.

A number of years ago, now, former US Vice President Al Gore generated a huge amount of attention for climate change with his presentation, documentary and book “The Inconvenient Truth.” Ever since, developed economies have been grappling with the problem of balancing the desire for sustainable, low-carbon energy with low-cost energy. Notoriously worked out in the court of public opinion via the large controversies over corn ethanol, tar sand oils, and shale gas opened up via fracking and horizontal drilling.

Not long ago, the International Energy Agency put the topic into graphical focus with charts outlining the world’s technically recoverable oil resources and the costs of production, and the general state of energy supply and demand through 2035.

IEA-2013-demand

Let’s look at how the IEA forecast compares with some widely-held market sentiment.

Myth #1: Unconventional oil will save us

The IEA writes:

“The capacity of technologies to unlock new types of resources,…is pushing up estimates…but this does not mean that the world is on the cusp of a new era of oil abundance. An oil price that rises steadily to $128 per barrel (in year-2012 dollars) in 2035 supports the development of these new resources. The rise of unconventional oil (including LTO) and natural gas liquids meets the growing gap between global oil demand, which rises by 14 mb/d to reach 101 mb/d in 2035, and production of conventional crude oil, which falls back slightly to 65 mb/d…The need to compensate for declining output from existing oil fields is the major driver for upstream oil investment to 2035.”

iea-cost-comparison-chart-450px

The IEA is projecting $128 per barrel (in constant dollar) prices for crude oil and equivalents — and outlines a 17% increase in oil demand between 2012 and 2035, or 15 million barrels per day. That’s more than twice the entire US energy production in 2012.

Myth #2: Unconventional gas will save us

IEA-2013-gasprice

The IEA writes:

“In the European Union, gas remains squeezed between a growing share of renewables and a weak competitive position versus coal in power generation, and consumption struggles to return to 2010 levels. North America continues to benefit from ample production of unconventional gas, with a small but significant share of this gas finding its way to other markets as LNG, contributing – alongside other conventional and unconventional developments in East Africa, China, Australia and elsewhere – to more diversity in global gas supply. New LNG supplies accelerate movement towards a more interconnected global market, but high costs of transport between regions mean no single global gas price.”

IEA-2013-growth

Myth #3: Unconventional gas will reduce carbon sufficient to combat global warming

IEA-2013-carbon

The IEA is projecting that — to contain global warming to a 2 degree increase, a level beyond which the effect on climate could be catastrophic — the global economy would have to contain carbon emissions, from 2035 until the end of time, to the equivalent of global emissions between 2009-2014.

In the European Union, gas remains squeezed between a growing share of renewables and a weak competitive position versus coal in power generation, and consumption struggles to return to 2010 levels. North America continues to benefit from ample production of unconventional gas, with a small but significant share of this gas finding its way to other markets as LNG, contributing – alongside other conventional and unconventional developments in East Africa, China, Australia and elsewhere – to more diversity in global gas supply. New LNG supplies accelerate movement towards a more interconnected global market, but high costs of transport between regions mean no single global gas price.”

Myth #4: Renewables cost more, require infrastructure change, are driven by subsidies, and disturb agricultural markets.

So let’s look at technologies that do not disturb agricultural markets (e.g. based on idle or under-productive land, or utilizing residues), do not require infrastructure change, are competitive on an unsubsidized basis, and will have costs well below the $128 per barrel IEA target price for oil.

Keep in mind, also, that we are comparing in some cases a finished fuel with a crude oil. There’s roughly a 10% premium, for examplke on the cost of a finished gasoline compared to the cost of a crude oil.

Here are 10 new fuel technologies with well-developed economic models. Plus, two bonus technologies – Renmatix and Sweetwater – aimed at producing low-cost industrial sugars for their fermentation brethren.

The Bottom Line

The Digest’s view: Energy demand is accelerating. Maximum effort on all fronts — unconventionals, renewables, energy efficiency — is a must for a stable global energy supply. And the US must look with a wary eye on Asia which seeks strong growth but is energy-short. A US replete with energy, in robust economic competition with Asia that is not? Read up on 1941, my friend.

10 (thermal & catalytic technologies) under $100 – and two right on the bubble

Cool Planet

Cost: $64.00 per barrel (gasoline, diesel)
Stage: Preparing for first commercial
More on the company.

Cool Planet Energy Systems says that it can produce its drop-in fuels for $1.50 a gallon at a $50 million plant producing 10 million gallons of fuel per year. Feedstock should come from within a 30-mile radius to keep transport costs, and production costs, down. It hopes to be producing fuel at its first commercial plant by mid-2014 but needs investors to get there.

Last August, Cool Planet CEO Howard Janzen, flanked by Louisiana Gov. Bobby Jindal, announced that the company will build three bio-refineries in Louisiana with a capital investment of $168 million. The project will consist of modular biomass-to-gasoline refineries in Alexandria, Natchitoches and a site to be determined. Cool Planet will create 72 new direct jobs, averaging $59,600 per year, plus benefits. Additionally, LED estimates the project will result in 422 new indirect jobs, for a total of 494 new jobs. The company estimates 750 construction jobs will also be created by the project.

Enerkem

Cost: $81–$93 per barrel (cellulosic methanol, then ethanol. Note, the cost per barrel has been adjusted to reflect the lower energy density of ethanol.)
Stage: Commissioning first commercial.
More on the company

Enerkem confirms that it can reduce capex costs to $3.50 per gallon for a 38 Mgy facility – bolting together four of its Edmonton 9.5 Mgy modules, or $133 million per facility. As the company noted in its aborted IPO effort: “We estimate that we can reduce our operating costs before depreciation and amortization, to approximately $1.05 to $1.25 per gallon in the United States, and to approximately C$1.05 to C$1.25 per gallon in Canada, (or $1.24 to $1.44 per gallon in the United States, and C$1.24 to C$1.44 per gallon in Canada, after depreciation and amortization) by building larger facilities composed of four of our standard 10MMGPY modules producing 40MMGPY.

In December, Enerkem announced that commissioning is underway at its commercial-scale municipal waste-to-biofuels and chemicals facility in Edmonton. Construction of the facility is nearing completion and Enerkem will complete the commissioning during the next few months. Production of biomethanol will start gradually during this period. An ethanol module will be added in 2014.

Ensyn – Honeywell’s UOP (Envergent)

Cost: $45 per barrel (oil refinery intermediate feedstocks)
Stage: Constructing commercial demonstration.
More on the company. 

Back in April, Ensyn and Honeywell’s UOP announced that their pyrolysis process is capable of producing RTP fuel at scale, a crude oil competitor for a price of $45 per barrel (of oil equivalent). Even more startling, the RTP fuel can be upgraded at the refinery – using a modified (but apparently standard refinery equipment – UOP and Ensyn are being cagey about the exact piece of refinery equipment, but our understanding is that is is widely used, particularly in the US — and we assume its the FCC unit).

The Honeywell’s UOP team is reporting yields in the 70 gallons per ton of biomass range with indications that it can reach 90 gallons per ton over time. Good news on feedstock too- its a relatively agnostic process – back in 2010 at the time that Envergent (the UOP-Ensyn joint venture) received a $25M DOE grant to build a fast pyrolysis and upgrading unit at the Tesoro refinery in Kapolei, Hawaii, they said they would test waste agriculture products, pulp, paper, woody biomass, algae and dedicated energy crops like switchgrass and high-biomass sorghum.

KiOR

Cost: $75.60 per barrel (biocrude refinery-compatible feedstock)

Stage: small-scale commercial
More on the company.

“Our proprietary catalyst systems, reactor design and refining processes have achieved yields of renewable fuel products of approximately 67 gallons per bone dry ton of biomass, or BDT, in our demonstration unit that we believe would allow us to produce gasoline and diesel blendstocks today at a per-unit unsubsidized production cost below $1.80 per gallon, if produced in a standard commercial production facility with a feedstock processing capacity of 1,500 BDT per day. This unsubsidized production cost equates to less than $550 per metric ton, $0.50 per liter and $1.10 per gallon of ethanol equivalent.”

In December, KiOR announced “Despite our accomplishments to date, we still have a lot of work to do to bring the Columbus facility towards target throughput, yield and financial performance levels. “Given these factors, we believe that, from both an operational and financial perspective, we need to focus our execution on three simple goals: first, bringing the Columbus facility to the levels of operational and financial performance that we expected when we designed that facility over three years ago; second, continuing to develop our technology so that we can improve our yields and process improvements both at Columbus and at future facilities; and third, aggressively managing our cost without sacrificing our long term goals.

“To that end, from now through the end of the first quarter of 2014, we expect that our efforts at Columbus will be focused on implementing a series of mechanical improvements to the facility rather than production volumes. We plan to operate the facility on a limited campaign basis only to verify the expected impact of improvements we intend to implement. In addition, we continue to see encouraging developments in our catalyst and process development efforts that we believe will continue to drive improvement in yields and overall plant economics.”

Licella

Cost: $50-$70 per barrel (biocrude refinery-compatible feedstock)

Stage: demonstration
More on the company.

Economic modelling by the University of Sydney Engineering Department, based on the results of test runs at the Large Pilot Plant (LPP), indicates that at a commercial scale the Cat-HTR technology can upgrade biomass into BioCrude at a cost that is competitive with existing conventional crude oil production.

As we noted last February: “Licella produces drop-in biofuels from a wide range of biomass — the JV with Norske Skog focuses on wood as a feedstock — and uses a supercritical water-based technology and catalysts to break up biomass and reform it into a drop-in fuel hydrocarbon. The compelling features of supercritical are several:
1. It uses all of the biomass, including lignin. So, higher yields, fewer discussions on how to monetize lignin.
2. It provides all its own process heat and water. In fact, it is a net producer of water — almost unheard of for any fuel technology regardless of feedstock.
3. It produces a far more stable bio-oil than traditional pyrolysis — because the process temperature is set low enough not to break carbon double bonds and create unstable free radicals in the oil — those that continue to react long after the actual processing has finished.
4. It produces a blendable intermediate for traditional crude that works in traditional infrastructure.
5. At scale, it is expected to be competitive with fossil petroleum (using the Tapis [Malaysian] oil benchmark) — yet a scale compatible with known regional timber supplies with no need to transit biomass over long distances at great expense.
6. It has a small physical footprint compared to fermentation technologies because of the continuous flow design, and a processing time measured in minutes versus days.

Primus Green Energy

Cost: $60-70 per barrel (green gasoline)

Stage: Commercial demonstration; financing first commercial
More on the company.

Last March in New Jersey, Primus Green Energy announced that it has completed its third round of funding with the recent $12 million investment by IC Green Energy Ltd, the renewable energy arm of Israel Corp. Ltd. This latest investment brings the total of funds raised since 2007 to $40 million.

The company says that, at scale, it can produce gasoline at a price competitive with gasoline produced from petroleum at $60-$70 per barrel. Primus Green Energy said that it plans to raise $50 million to $100 million to this year to take its wood pellets-to-drop-in gasoline demonstration plant, which should be online by year’s end, to commercial scale by 2015. Last October, the company announced the commissioning of its up to 100,000 gallon-per-year natural gas-to-gasoline pre-commercial demonstration plant at its Hillsborough facility.

Renmatix

Cost: $0.04 per pound (industrial sugars)
Stage: Developing first commercial plant
More on the company.

If Renmatix’ technology works at scale, it;s a new game,” we commented a year ago. “Those are 4-cent per pound sugars they propose to produce. That’s well less than 40 cents per gallon for the feedstock. That’s like getting, say, 100,000 tons per year out of a full-scale Renmatix plant at the something like $20-$30 per bone dry ton of biomass. Plus, they’re talking less than $1.25 per gallon in capital costs.”

To put this in context, corn sugars (based on $5 corn) run something like $18 cents per pound, just in terms of the feedstock – let alone the processing to extract them. Those sugars can be fermented by a variety of advanced technologies into all the major fuels and chemicals.

Sundrop Fuels

Cost: $84 per barrel (green gasoline)

Stage: Constructing first commercial plant
More on the company. 

Last November, Sundrop Fuels said that it has selected IHI E&C International Corp as their contractor for their $450 million plant outside of Alexandria. The plant, which will use natural gas to produce about 60 million gallons of gasoline each year, will provide the platform to test its gasification technology for woody biomass-based “green gasoline.” Sundrop Fuels has begun preparing their site for the plant, which will occupy about 100 of the 1,213 acres that the company purchased in February. Construction is scheduled to begin late this year, with operations expected to begin at the end of 2015.

Velocys

Cost: $50-70 per barrel (synthetic diesel and jet fuels)
Stage: Financing first commercial plant
More on the company. 

Velocys has developed Fischer Tropsch (FT) microchannel reactor technologies for the efficient, economical and environmentally friendly small scale distributed production of biofuels via biomass to liquids (BTL) and liquid fuels from gas via gas to liquids (GTL). FT technologies have been around for a long time — what distinguishes these are the relatively small-scale, costing in the millions, not the billions.

For now, with diesel about six times more expensive than natural gas, and nat gas projects generally appearing more financeable through traditional sources than biomass-based fuels projects, expect Velocys to focus on natural gas for now. The first customer likely will be Calumet Specialty Products, a maker of oils and solvents that has said it will install a series of reactors at its plant in western Pennsylvania, where it has access to gas from the Marcellus shale. The project likely will break ground next year.

Depending on the feedstock used, the synthetic diesel and jet fuels produced are economic when oil prices are in the range of $50 – $70/barrel. According to Zeus Intelligence, with natural gas at $3.89/MMBtu, they can produce diesel for US$1.57 per gallon; that’s $65.94 per barrel.

Two bonus projects

Here are two that are making industrial sugars as an intermediate used by fermentation technologies to produce ethanol, green gasoline, diesel, jet fuel and specialty chemicals.

Fulcrum Bioenergy

Cost: $103 per barrel (cellulosic ethanol. Note, the cost per barrel has been adjusted to reflect the lower energy density of ethanol)
Stage: Financing first commercial plant
More on the company.

In November 2012, Fulcrum BioEnergy announced that it has successfully secured commitments and is proceeding toward closing $175 million in financing to fund construction of its first municipal solid waste to low-carbon fuels plant, the Sierra BioFuels Plant and to fund the development of future projects. The project is expected to be completed in 2015. $105 million of the $175 million is the USDA loan guarantee, which the company secured in a conditional commitment in August 2012.

The cost of production at future Fulcrum plants is now expected to be less than $0.50 per gallon, down from $0.70 per gallon as previously disclosed. Generally speaking, capex is amortized over 15 years by most close observers of the industry – and with that, the company is looking at $1.14 in capex and $0.75 for opex, or $1.89 per nameplate gallon of capacity on plant #1- well under the market price of ethanol. That compares to $2.01 per nameplate gallon, last year at the time of the Series C financing, when the figures were projected at $120 million for capex and $1.25 per gallon for opex. For future plants, the company is projecting that costs will decline to $1.64 per gallon – and perhaps more, if there are economies of scale in capital expenditure, or reductions in the engineered cost as design redundancies are reduced after operation at scale.

Sweetwater Energy

Cost: $1.73 per gallon (cellulosic ethanol produced from Sweetwater industrial sugars)
Stage: Financing first commercial plant
More on the company.

That’s the shape of the deal that emerged overnight between Wisconsin’s Ace Ethanol and New York’s Sweetwater Energy. Sweetwater, for its part, will build, own and operate a cellulosic sugars facility dedicated to supplying cellulosic feedstock to Ace Ethanol. Ace will mix the sugars in with its corn mash, and produce ethanol. Pre-permitting work has already started up, and construction of a first cellulosic sugars facility is expected to be completed by mid-2014. Permitting is no walk in the park — there’s going to have to be a resubmission on the air permit. But its in a state with a lot of experience with ethanol.

The initial project delivers enough refined monomeric sugar for Ace to produce up to 3.6 million gallons of cellulosic ethanol per year. It’s a 16-year deal for this phase of the relationship, with a total deal value of up to $100 million – or around $1.73 per gallon of ethanol.

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