Shell VP Matthew Tipper, at ABLCNext:
“We will likely begin manufacture in the southeast United States. We plan to be operational by late this decade.
“We believe our best bet is woody biomass and energy crops as feedstocks. We plan to do this with a scale-up of smaller plants with widespread feedstock availability.”
“The RFS is key to Shell’s advanced biofuel manufacturing ambitions. However, we continue to support RFS revision out of necessity. But NOT repeal.”
“Importantly, advanced biofuels could ultimately supply a significant part, perhaps all, of Europe’s transport fuels needs. So we have big plans. We have a credible vision.”
Advanced biofuels at scale and in meaningful volume based on novel technology from Shell’s considerable vault of talent, with a sensible approach to market-creating mechanisms like the Renewable Fuel Standard. Those are the headlines from a remarkable address ‘given by Shell’s VP for Alternative Energies, Matthew Tipper, at ABLCNext, the Advanced Bioeconomy Leadership Conference in San Francisco.
The address is in complete form below.
It’s my pleasure to be with you again at the ABLC, this time in San Francisco. Let me begin by restating a simple fact. We believe there is a strong future for advanced biofuels. That they can make a substantial contribution to US fuels demand.
That’s why we’re still committed to this journey and with you – the industry and regulators. We’re committed to getting advanced biofuels right for investors, customers and society at large.
Profitable. Affordable. Sustainable.
Now one thing we have learned over the years of ‘learning by doing’ is that getting it right is hard. It’s very hard.
There will be false starts and disappointments and plans re-written. But difficulty is not stopping innovators making progress. In Shell, we have built six pilots and have a 7th on the way.
A breakthrough year
I’m particularly pleased to note that this has been, in many ways, a breakthrough year for advanced biofuels. $1.6 billion of capital projects have completed in 2014.
Recent achievements include:
• Emerald Biofuels’ intention to build an 82 million gallon per year plant on the Gulf Coast using waste fats.
• Fulcrum’s award of $105 million from the USDA for its plant in Nevada using municipal solid waste (MSW.)
• And Red Rock Biofuels’ grant to build its plant in Oregon using woody biomass.
Much of this investment is in cellulosic ethanol, but further down the line we will see fungible hydrocarbons too.
And that’s why Shell is still here.
Focused on fuels
We’re convinced advanced biofuels will be a critical part of our transport fuels portfolio. And our focus remains in fuels, rather than specialty products. We’re very proud of the efforts we’ve made in unlocking advanced biofuels and our achievements to date.
As a company, Shell is deeply committed to innovation and discovery. It’s our corporate ambition to be the most innovative and competitive energy company in the world.
The search for new businesses in Shell beyond the scope of Oil and Gas has a 50-year history. So let me just step away from advanced biofuels for a moment and look at the global energy picture.
Global trends such as population growth, urbanization, climate change, and advances in technology will drive huge changes in mobility. These present challenges to Shell as well as to the increasingly complex energy ecosystem in which we operate.
A truly sustainable global energy system doesn’t just need to be lower carbon – it needs to deliver more energy to meet the needs of a growing and affluent world. This means change including the switch from coal to cleaner-burning natural gas, a strong and stable carbon pricing system, the potential for carbon capture and storage (CCS), as well as the role of biofuels and liquid fuels.
By 2100, CCS could account for more than half of the CO2 reductions needed globally. Shell is at the forefront of CCS innovation. We are developing large-scale commercial CCS projects and have research partnerships with industry and leading academic institutes. Our current activities include Gorgon in Western Australia, Quest in Alberta, Canada and Peterhead in the UK. All built through Public-Private Partnership.
We also envisage an increase in global demand for traditional hydrocarbon fuel notwithstanding growth in biofuels, hydrogen, electricity and natural gas – including GTL, and LNG. This will result in multiple combinations of fuel and drive train technologies optimized to local circumstances. Today, we are active in all of these fields.
For example, this summer we signed an agreement with Air Liquide, Daimler, Linde, OMV, and Total to establish a joint venture to construct a hydrogen refuelling network of up to 400 stations in Germany by 2023. In effect, we have overcome hydrogen’s blendwall by a collective and cooperative effort between Industry, Berlin, and Brussels. Not by lawsuits! This is pending regulatory approvals but we are hopeful to begin building the network next year.
But our largest operating alternative energies business is Raízen, our joint venture with Cosan in Brazil.
Raízen produces 2.2 billion litres of ethanol annually, 4 million tonnes of sugar, and has installed capacity of 900 MW of electric energy derived from sugar cane bagasse. Also, Raízen is in the final stages of construction of a 10 million gallon per year cellulosic ethanol plant.
APTC and RAPT
But our primary focus for alternative energies growth at Shell is advanced biofuels. Two of the technology pathways we are progressing in-house we call APTC and RAPT.
Aqueous Phase Thermal Conversion (APTC) produces fungible drop-ins from cellulosic feedstocks. The pilot plant at our Technology Center in Houston is operating and providing valuable data.
We are now looking carefully at reactor scale-up, and will do so for the year or two.
The Reverse Acid Pre-Treatment (RAPT) process is a proprietary biomass deconstruction technology that we believe gives beneficial yield and operating performance. A pilot plant will be operational at the end of next year for the production of cellulosic ethanol.
Additionally, Shell catalyst company, CRI, is the exclusive worldwide licensor of IH2 Technology, which was developed at the Gas Technology Institute (GTI) in Des Plaines, Illinois.
This technology directly converts biomass to cellulosic hydrocarbons such as gasoline, diesel or jet fuels via a two stage thermochemical process. The technology uses tailored CRI catalysts.
We are currently considering how to move forward with technology development and early deployment.
As well as these technology developments, we are trialling advanced biofuels for today’s road transport, aviation and marine engines.
With Virent we have developed a gasoline made from sugars that has this year been registered by EPA for blending in gasoline at up to 40%. We have made a jet product that can be blended at 15% and is going through the certification process and have partnered with Rolls Royce to continue development. The technology will also make road diesel and marine diesel fuel.
So we are active on many fronts. But can it work for us? Can these technologies meet the needs of our investors, customers and society at large?
The answer, we still believe, is yes.
But for advanced biofuels to be viable to Shell, we must be able to manufacture at a certain scale – and sustainably, of course. We plan to do this with a scale-up of smaller plants with widespread feedstock availability.
Woody biomass and energy crops in focus
We believe our best bet is woody biomass and energy crops as feedstocks. We will likely begin manufacture in the southeast United States. We plan to be operational by late this decade.
Here there is an established and sustainable forestry industry, robust transport infrastructure and national and state-level incentives.
We’re also confident that this can be replicated in Europe.
Crucially, our choice of feedstock makes that a real possibility, given the extremely high sustainability bar in Europe.
Importantly, advanced biofuels could ultimately supply a significant part, perhaps all, of Europe’s transport fuels needs. So we have big plans. We have a credible vision.
Let’s imagine a world where CO2 emissions from transport have been cut by more than 60 % through the deployment of a range of energies across all forms of transport.
Our vision implies an energy future where industry, government, and consumers work together to decarbonize road transport.
Today, we believe governments have probably the most important role to play.
Our vision will only become reality with the right policy frameworks in place to spur continued research and development and support for commercialization. And not hinder it. Many governments have policies in place to 2020, and discussions are beginning in Europe about policies to 2030.
We need policies that address vehicle, fuel, infrastructure and the consumer together as a whole.
They must be pragmatic enough to be realised, but flexible enough to keep pace with technological development.
Yes to the RFS
Of all existing road transport policies, the Renewable Fuels Standard (RFS), through its RIN trading and cellulosic waiver credit mechanisms, provides the most explicit price support for cellulosic biofuels.
The RFS is key to Shell’s advanced biofuel manufacturing ambitions. However, we continue to support RFS revision out of necessity. But NOT repeal.
To move beyond current ethanol blend levels requires a coordinated effort among the biofuels industry, OEMS, infrastructure providers and consumers. Until then, the EPA’s proposed volumes for 2014 seem to us to be a sensible solution intended to keep the RFS stable.
The RFS must receive support beyond 2022, albeit with the necessary amendments to ensure stability. Without the level of support implicit in the RFS, advanced biofuels in the US won’t happen.
Back home, the European Commission appears muddled, but we’re hopeful that the changes in governance will put an end to in-fighting and lead to greater realism.
We think that carbon intensity fuel standards, such as the EU Fuels Quality Directive (FQD) 7a or California Low Carbon Fuel Standard (LCFS), as currently constructed, provide neither the investment certainty nor price signal for new technology development.
These shortcomings must be addressed in the setting of feasible compliance standards and the development of the alternative compliance mechanisms that send stable price signals.
So we agree that getting advanced biofuels right is both complex and difficult. It is demanding of both technology and policy. But at Shell we like a challenge. In fact, we’ve made a business of tackling tremendous challenges through innovation for more than 100 years. With pragmatic policy frameworks, advanced biofuels can – and will – have a real impact on cleaning transportation, as well as creating value and prosperity for companies and communities the world over.
Congratulations again to this industry for its achievements to date. I very much look forward to returning in the coming years to update you of Shell’s progress. Many thanks for your time. Thank you.
A follow up conversation with the Digest.
Following his ABLCNext address, Tipper visited with the Digest as we explored some of the themes of the address in more detail.
Shell’s technical path to advanced biofuels
We explored in more depth the news regarding Shell’s two advanced biofuels technologies — in particular APTC, which sounded remarkably similar to Virent’s technology that Shell has backed for a number of years — but not entirely the same.
“APTC is very close to Virent” Tipper explained, ” in fact it is a two stage process, and the second stage is Virent. But in the case of Virent what you have typically seen elsewhere to date is a sugars to hydrocarbons route, and we have a distinctive digestive first step where we dissolve the biomass as a pretreatment. We don;t actually produce a sugar, we do produce an intermediate that Virent can process, and this process materially reduces the capital cost, and we convert all the biomass.
We asked whether this pathway was in any way related to the reasoning of retaining the investment in Virent directly within Shell at the time the Raizen joint venture was created with Cosan in Brazil — when interests in technologies such as Codexis and Iogen was contributed by Shell to the JV, but Virent was not.
“We held on to that for a couple of reasons, one of which was that, in terms of the talent we have within Shell, no one can do this better, and so in this area, this pathway plays to our strengths. We are known to be passionate about drop-ins, and though this is high risk challengiing chemistry going through a critical step over the next two years, from now until the end of 2016, we just went through a internal investment process (not unlike a private company raising external capital) and we secured a significant round of funding internal for this pathway.”
Vehicle migration and investment signals
We also explored the theme of vehicle adoption as it relates to ethanol and other fuels that face infrastructure challenges.
“Since 2010 ,” Tipper noted, ” I believe that’s the year, vehicles have been warranted for higher ethanol blends like E15, and the vehicle pool will slowly migrate, but there’s definitely a challenge in money, in infrastructure, and in the retail vision. There’s a tremendous amount of money generated by systems such as the RINs within the US Renewable Fuel Standard, but retailers are not seeing the investment signal.
“It’s interesting to us, because the sums of money necessary to convert retail are orders of magnitude less than the cost of building the plants, yet there’s this lack of a signal. In other areas such as funds from cap and trade structures, money can be used to fund rapid transition, but clearly the cap and trade systems need to be directed to better support retail [if ambitious carbon goals are to be achieved].”
The Brazilian market
Yet we don’t see the same market challenges in, for example, the Brazilian market.
“Ethanol is fundamentally competitive in Brazil,” Tipper said, “and the ethanol price broadly follows the international price of oil and supports a 20-25 percent minimum blend range for ethanol, which is ultimately netted back to the price of cane.
“But [in the case of the US and EU, such volumes] would clearly require cellulosic fuels, and the capital intensity of those processes is multiples higher than the price for sugarcane ethanol technology. So one of the challenges is to ensure the returns of capital, the capital recovery.
The Renewable Fuel Standard compared to other structures
Shell has been notable in being relatively adamant that structures such as the Renewable Fuel Standard are superior to systems like the EU’s FQD or California’s Low Carbon Fuel Standard, in terms of encouraging investment. Why?
“The FQD is fuzzy and getting fuzzier,” said Tipper. “The Directive is in the 5-7 percent range related to gasoline. But the problem there is that with these mounting ambitious targets there are real gaps with available feedstock and targets. And, beyond 2020 there’s very little to go on, and that’s not a reasonable horizon fro developing these second-generation technologies that are still immature.
“What you have with RFS is some certainty of demand, and there are the waiver credits and RINs , so you have both a price and volume signal. We’ve seen this approach work elsewhere very well. For example, the dramatic success of solar in the last few years relates back to solar panel costs falling dramatically.
“But those came because 10 years ago there were the introduction of feed-in tariffs that were relatively high in countries like Germany, generated price and volume signals and created a competitive market. It’s not unreasonable to expect that this will work for fuels as well. We’ve seen it in solar, and to some extent in wind, not in biofuels.
“The RFS attempts to do this and we support the effort to solve the volume and price problem. Of course, RFS is not emphatic like a feed in tariff but a more complex tool.
“With a Low Carbon Fuel Standards, an LCFS is not a guarantee of volume, and the price signals are not clear to us. It tries to make outcomes in carbon but these are not translated to price.
“But we also look at the duration of legislation and the security of the volumes promised. Does it last 3 years, 10 years, or 20 years? That’s a big question, and that’s where structures like the FQD create challenges. We need to see volumes through an investment horizon like at least 2030, because what we are going to need to build are plants that can easily last 30 years.”
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