The Gretsky Imperative for biofuels and chemicals

| March 12, 2014

Vancouver - New York RangersWhat about this speed-up in biobased chemicals,  this slow-down in biofuels, and the frenzy in natgas?

Real, imagined, over-sold, under-cooked? We know where the puck is – but where actually is the puck going?

We look at two reports and three project announcements for the skinny.

Over the past few weeks, Lux Reseach released a pair of reports that illustrate a trend in project development.

In late February, Lux issued their “Cultivating Capacity for Bio-based Materials and Chemicals through 2017,” concluding that “Bio-based material and chemical technologies have reached an inflection point” and projecting growth in intermediate chemicals like adipic acid and lactic acid from 2.0 million metric tons to 4.9 million MT in 2017, with biobased polymers growing 18% per year through 2017, and farnesene to grow at a compound annual growth rate (CAGR) of 46% between now and 2017.

Just this week, they issued a forecast of what they termed “a huge slowdown in [biofuels] capacity growth” projecting that the 53.2 billion gallon/year biofuel industry would grow at 3.2% annually from 2013 to 2017 – reaching 60.4 billion gallons – off from 19.6% annually from 2005 to 2013. While fuels such as renewable diesel, butanol, biojet and biocrude, “will grow at a significantly higher 18.7% annual rate” they will remain just 3.3% of all biofuels.

“The sharp decline is on account of a significant industry transition to novel fuels and feedstocks,” says Lux, “to enable long-term growth in the face of impediments like the food vs. fuel debate and the imminent blend limits for biodiesel and ethanol. Next-generation biofuels – such as renewable diesel and butanol – that can offer higher blends, in contrast, are not quite mature.

But they caution that “companies led by Beta Renewables, POET-DSM and Abengoa have announced 782 MGY of cellulosic ethanol capacity but only 384 MGY will come to fruition.”

A question of scale

One cautionary note in looking at the data — consider the scale. For example, a 7.2 billion gallon increase in annual biofuels capacity translates to 144 new 50-million gallon projects. And, it translates into the equivalent of around 20 million metric tons per year. Substantially more than the growth in chemicals that we’re seeing.

So, keep a perspective on percentage-based growth rates — adding one 50 million gallon project when there is only one other one around, that’s 100% growth. Adding the same capacity when there are 1,000 around, that’s 0.1% growth.

But we definitely see the surge in chemicals — and alternative strategies being pursued by technology developers once almost entirely focused on fuels.

Three cases in point, in the news this week.

Maverick Synfuels and Plant Process Equipment formed a partnership this week to manufacture and sell small-scale Gas-to-Liquids methanol plants.  These skid-mounted modular plants can be rapidly deployed and are capable of producing between 3,000 – 10,000 gallons per day of ultra-clean synthetic fuels and chemicals from natural gas or methane-rich “waste gas”.  Maverick has the exclusive rights to sell and deploy these factory-built plants that convert potent greenhouse gases into guaranteed quantities of methanol.

As Maverick puts it, “Now, for the first time, waste gas producers have a financially attractive alternative to flaring or generating electricity.” Converting methane gas to methanol liquid is one component of Maverick’s “hub and spoke” distributed production strategy that builds on Maverick’s patented Olefinity technology.

Now, this promising development comes from a company that until a couple of weeks itself was named “Maverick Biofuels.” Sing of the times — and we’ve seen companies like Primus Green Energy, Coskata and Sundrop become more focused on natural gas as a feedstock.

More about that here.

Over on the BioPower side

In Mississippi, New Biomass Energy announced a joint venture with international chemical giant Solvay to expand its production of torrefied wood pellets as an innovative renewable energy source.

“With Solvay’s industrial expertise and equity contribution, the recently created Solvay Biomass Energy joint venture is positioned as the preeminent producer of torrefied wood pellets worldwide,” the companies said.

Torrefied wood, which handles and burns similar to coal, is produced through torrefaction, a roasting process that changes the chemical composition of the material. Compared to traditional wood pellets, torrefied pellets contain 35% more energy by weight, which yields significant logistical benefits. Torrefied wood pellets are an immediate and practical replacement for coal, enabling power plants to generate clean energy.

New Biomass Energy’s plant in Quitman, owned by BTH Quitman Hickory LLC, is the largest torrefaction facility in North America. This project will complete the expansion of the Quitman plant, bringing annual production capacity to 250,000 metric tons by the end of 2014.

Our takeaway? A couple of years ago, a big chemicals concern and a wood biomass aggregator might have been working on higher value products that power generation. Sign of the times.

Small biomass power plants – a way forward

There’s some reason to be optimistic about the future for small biomass power projects — despite the low revenue per ton associated with power gen. This week, writing in the journal Biomass and Bioenergy, University of Missouri research team led by Tom Johnson, the Frank Miller Professor of Agricultural and Applied Economics, found that creating a bioenergy grid with these small plants could benefit people in rural areas of the country as well as provide relief to an overworked national power grid.

“Transporting power through power lines to remote, rural areas is very inefficient and can be expensive for farmers and other rural citizens,” Johnson said. “Farmers already have access to a large amount of biomass material left over each year after harvests. If they had access to small biomass power plants, they could become close to self-sustaining in terms of power. If the grid was improved enough, they could even provide additional power to other people around the country, helping to stabilize the national power grid. This could help save rural citizens money and be a boon for rural economies.”

Johnson warned that if this bioeconomy system is created, safeguards must be in place to protect the renewable resources, such as biomass. He also says mechanisms must be in place to ensure an equitable distribution of the rewards from investing; otherwise, local citizens risk becoming impoverished by the destruction of renewable resources and potential environmental degradation. In other words, think how well Africans have done from all the things transported out of Africa.

“We need an integration of policy and programs among community leaders, rural entrepreneurs and economic developers or practitioners who act as conduits between entrepreneurs and policy,” Johnson said. “In order to grow this bioeconomy, the goals of these actors need to be aligned.”

More about that here.

The Bottom Line

Project developers are diversifying, seeking routes to markets and commercial viability – it’s an undoubted trend, and more will come.

But, discerning readers should be wary of acting like the five-year-olds on the soccer field — all rushing madly after the ball, at all times. As Wayne Gretzky advised hockey players, skate where the puck is going, not where the puck is.



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