“Tough couple of years, but survivors scaling”: DOE’s Bioenergy 2016 looks optimistically at biofuels future

July 17, 2016 |

By Ed Dodge
Special to The Digest

In Washington, a commercialization panel said that “the biofuels industry has been through a tough couple of years, but the survivors are scaling up and bringing product to market. The panel featured some leading players in the biofuels industry including Brooke Coleman from the Advanced Biofuels Business Council, Brian Foody, CEO of ethanol producer Iogen, K’Lynne Johnson from FMC Corporation, Taite McDonald from the law firm Holland and Knight, and Martin Sabarsky, CEO of algae biofuel producer Cellana.

Brooke Coleman, of ABBC, identified how policies and regulations such as the RFS get the lions share of attention, but market challenges are really the primary issue. Low oil prices in the last two years have been challenging for all players operating at the margins of the oil industry including biofuels, but also tight oil and deepwater oil producers. OPEC has been working hard to drive competition out of business by flooding the markets with oil. Companies have been forced to innovate or die but the strong have survived and oil prices appear to be finally on the rebound.

Biofuels in particular are a regulation driven market and the politics have been challenging. Biofuels are a disruptive industry to existing energy players and the pushback against regulations have string and sustained, so it is important to keep the political pressure on to maintain support for biofuels policies. The new update to the Billion Ton Study is exceptional and demonstrates the viability of bio-based feedstocks.

Brian Foody from Iogen is one of the leading players in cellulosic ethanol, his company has invested over $500 million since 2004. Their Raizen plant in Brazil is a bolt-on facility to an existing sugar cane ethanol plant that processes bagasse, sugar cane residue, into ethanol. Iogen struggled through many unanticipated technical challenges over the years before finally achieving reliable commercial operations.

According to Brian Foody, job #1 is to demonstrate reliability, job #2 is to continuously improve the economics, and job #3 is finding a sustainable way to sustain CAPEX and overall finances. Expect everyone in the industry to struggle to achieve highly reliable operations and the EPA reports on cellulosic ethanol production confirm the industry challenges.

K’Lynne Johnson of FMC Corporation used the analogy of cultivating ten small Chihuahua’s instead of one big Great Dane. Small is beautiful. Companies need to rapidly demonstrate viability and it helps to go after narrow precise market segments where they can find successful niches rather than going after the big commodity markets. A good small product is always better than a big failure, and from small successes it is possible to build a customer base and strong alliances. A company can build a portfolio of small products and opportunities and even attract local funding. You don’t need to be the big dog to be a success.

Taite McDonald, is a lawyer and expert on government funding, particularly the USDA and DOE grant and loan programs. She said that it has been a very difficult time for commercialization, especially in the last year but some companies are finding success and are getting DOE/USDA funding. Half a billion dollars in the last year of gov’t funding was distributed. USDA programs are getting much better and more company friendly. DOE loan guarantees can be expensive, but are still attractive and DOE grant funding has been critical for many companies. National Labs voucher opportunities offer chance to work with labs and gain from their technical expertise.

Martin Sabarsky, of Cellana produces products from algae found that multi product is the rule, not the exception. Multi products production is the norm for corn, soy, crude oil, and algae as well. Cellana views themselves as engaged in high tech agriculture and make three categories of products from algae, their most profitable and important products are Omega-3 oils used in nutraceuticals while they also produce animal feed and feedstock for biofuels. A small portion of the product line may provide outsized profits that can finance the rest of the portfolio.

Policy support from the federal government and some states continues to be a dominant factor in business models throughout the biofuels industry. The RFS in particular has been vital to the livelihoods of many biofuels businesses and uncertainties about the long term viability of the program puts a damper on investment. Many biofuels operations suffer because no one can be assured of the values of RINs through future political administrations. The oil and gas enjoys long term tax credits that have been a great benefit to the industry over decades. But because biofuels are disruptive there is a great deal of political pushback against the RFS which adds risk and uncertainty to the biofuels industry.

Category: Fuels

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