Make Hay: The Global Bioenergy Mood

October 27, 2013 |
The cob pile at FarmMax is growing.

The cob pile at FarmMax is growing.

Bullish Q4 prospects for the ethanol business, as 2014 looms with all the uncertainty that a make-or-break year should have.

A conversation with Novozymes, as they report surging bioenergy sales, on the trends in the global mood.

About the only thing we know that twists in more gut-wrenching ways than global oil prices — or, even, the twisting Alpengeist rollercoaster at Williamsburg’s Busch Gardens — has to be the global bioenergy mood.

Whether it is nefarious NGOs, policy instability, crush spreads, or financing woes that are top on your pain agenda, reminds one of the scene in Body Heat where William Hurt tells Kathleen Turner, I know that sometimes it comes down so heavy I feel like I should wear a hat.”

In this respect, the producers who stick around, in the end, get some of the fatalism of farmers. No matter how great the harvest this year — between the global prices, the weather, the pests, the predators, the diseases of plants, not to mention competitors — well, you make hay while the sun shines.

But you can see it in the headlines. For example, from today’s Digest: “Re-opening of ethanol plant boon for business”.  “Biofuels Producers Hunting Foreign Fields.” “The growth of alternative fuel stations across the US.”

To check on the current mood, we stopped in this week for a conversation with Novozymes EVP Andy Fordyce, who’s been on the hustings all this year as Novozymes rolled out with a spritely line-up of Spirizyme Achieve, Aventec and Olexa enzymes in the past year.

The US ethanol producer mood

“We’re not hearing that producers think that 2014 will be a ‘dire year’,” said Fordyce, as we talked about the future of the Renewable Fuel Standard, blend walls, and the present and future ethanol market.

“What we are hearing is that the ‘here and now’ makes sense, corn prices have dropped, fuel prices have not, and it’s a case of ‘make hay while the sun shines'”.

2014? “It’s generally a case of ‘wait and see’ — it’s not 100% clear what happens with RFS. We see cautious optimists, but they’ve been through this before, and are realists about the business. But they know that there’s a strong market for ethanol because it is an octane additive and less expensive than petroleum now, and it makes sense to use it.”

It’s perhaps for that reason that Novozymes is so bullish on its bioenergy enzymes business — which, primarily to this point has been for first-generation ethanol production, with a focus on the US market. This week, while trimming the overall Novozymes forecast to 3-5 percent growth for the year (much of that on unfavorable winds in the currency markets), new CEO Peder Holk Nielsen was quick to tout the success of the company’s Avantec and Spirizyme lines – one, freeing up more sugar, and the other getting more ethanol out of the sugar that is there.

The Novozymes mood

“Household Care and BioAg have done well,” said Nielsen, “and we’re currently seeing strong momentum in Bioenergy due to fantastic innovation, which saves both corn and energy for our customers.” According to the company, “Avantec has now been one year in the market place and is 20% into the market. Spirizyme Achieve has been more rapidly adopted by customers than expected and is already 10% into the market.”

For Q3, the company is touting 24% organic sales growth in its bioenergy unit, after launching an updated product lineup in the past year with Avantec, Spirizyme Achieve and Olexa — promising from the “cocktail” approach “up to 5% more ethanol yield, up to 8% energy savings, and up to 13% more corn oil extraction.” Overall, bioenergy is up for Novozymes 8% for the year, despite a dip in US ethanol production earlier this year owing to high corn prices.

“We’ve got examples where we get customers on Avantec,” said Fordyce, “some replacing their GA [glucoamylase enzyme] only with Spirizyme Achieve, some doing both, some getting additional benefit with Olexa. It all comes down to making the case that the numbers are there, that’s it is cost-justified.”

Olexa, with its corn oil extraction enhancements? “It’s a good market for enhancing oil yield,” Fordyce said, “and some customers are quite optimized. We’ve got quite a few customers now, but it is not the same adoption rate as Spirizyme Achieve. Right now, the focus is all about getting ethanol out.”

5% more ethanol yield? Huge. Allows a producer the option to reduce corn buying, when corn prices are high, or increase throughput when corn prices drop and fuel holds — as is the case now.

The global mood

But, let’s turn from Novozymes (understandable) ebullience — and on to the global mood.

Are things good? In the US, it’s “good in the moment,” said Fordyce. “Crush margins are looking good — balanced by uncertainty and discomfort around RFS. But last year at this time, when we launched the products, the market was depressed and it was hard to see how to generate growth. So, the sun is shining. Plus we are excited by 2G. We’ve been developing there for a long time and are starting to see things move. You see it in the United States with Abengoa, Poet, DuPont, and there’s a good line of site for Beta Renewables in the US and elsewhere. We see people moving; it’s going to be a while until it gets really good, but we can start to sell some enzymes. In fact, we’re hosting our Capital Markets day at the Crescentino site [Beta Renewables in Crescentino, Italy].

China? “The ethanol business there is pretty small,” Fordyce said. “They’re quite big into corn
for beverage alcohol and starch conversion — there’s a big sweetner business and in lactic acid. We see the mood in China down . The economy is growing a little bit slower, corn price are high, sucrose low. But it’s not very transparent — and we know that China is promoting 2G heavily.”

Brazil? “For Brazil, 2G is heavily in focus. For us, we have a great relationship building up with Raizen there.” True enough — last month, Raizen announced that Novozymes will supply enzyme technology to Raízen’s first commercial-scale cellulosic ethanol plant in Brazil, scheduled to be operational by end 2014. The plant will be a bolt-on facility to Raízen’s Costa Pinto sugarcane mill in the state of São Paulo and will have the capacity to produce 40 million liters of cellulosic ethanol a year from sugarcane bagasse and straw. Furthermore, Novozymes intends to establish new enzyme-manufacturing capacity in Brazil.”

Elsewhere?

In the EU, pretty depressed over the guidance, or lack thereof, from EU lawmakers as the EU attempts to sort through all the NGO-speak on indirect land use change, emissions, global food prices, and rainforest preservation; farmer-speak on building strong prices and markets; and oil-speak of the usual kind (drill, baby, drill).

Over in the Grand Duchy of Biowa

They’re bullish in the heartland of corn ethanol.

According to the Iowa Renewable Fuel Association, “recent calls to gut the federal Renewable Fuel Standard (RFS) have centered on the myth that it is impossible to sell blends above 10 percent ethanol, but actual retailer sales data proves otherwise. IRFA Executive Director Monte Shaw reports that — for the six retailers that sell E15 and E85 and report sales to the association, “Averaged across all fuel blends, ethanol accounted for roughly 25 percent of the retailers’ gasoline sales.  Every retailer that offers higher ethanol blends like E15 and E85 exceeds the percentage of conventional renewables called for by the Renewable Fuel Standard – in 2014 and far beyond.  This proves consumers will buy enough higher ethanol blends to exceed the RFS if given a chance.”

IRFA also said that second quarter E85 sales in Iowa nearly doubled those in the first quarter.  While official third quarter sales data has not been released by the state, a sampling of retailers indicates third quarter sales will continue the upward trajectory and could be 50 percent higher than second quarter data.

Over in the Empire of Oil

Oil interests — in this case, the American Petroleum Institute, call for this:

9.8% com ethanol is a large step towards a viable solution but it does not go far enough. Volume is too close to the limit, it may still limit flexibility. Segment of market still needs and wants EO. The 9.7% ethanol limit must include all ethanol com, advanced (sugar cane) and cellulosic.”

In other words, they are not buying IRFA’s argument that consumers, left to make a choice, will opt for as much as 25 percent ethanol content if the options are fairly priced and made available at the pump. Rather, they focus on the E10 limits — in fact, proposing a hair below that, at 9.7%.

The bottom line

Make hay, sun’s shining.

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