Answers to your questions about Renewables and the Advanced Bioeconomy

September 21, 2016 | Jim Lane

bd-ts-092216-asforqs-sm Recently, we held a popular webinar on Renewables and the Advanced Bioeconomy with NEXANT principal Ron Cascone, for which you can see the slides here.

During the webinar, we received a number of excellent questions, some of which we did not have time to get to — all of which are worth looking at. Ron Cascone has provided the answers below — and in a few cases, we have expanded on some of the themes from the Digest’s journalistic point of view.

Food vs Fuels

Q: Don’t you think with such a surplus of food plus a pandemic problem of over-feeding of the population obesity etc. this food versus fuel is just a political battle fueled by the food industry?

A: I don’t mean to be argumentative, but according to the United Nations World Food Program -“Some 795 million people in the world do not have enough food to lead a healthy active life. That’s about one in nine people on earth. The vast majority of the world’s hungry people live in developing countries, where 12.9 percent of the population is undernourished.” This is due largely to political problems, including conflict, plus logistics, rather than any absolute deficiency of food supply. Conversely, in developed countries, obesity is often due to cultural factors, poor food choices, etc. The Japanese, French, Italians, etc. have as much food abundance as Americas, but much less obesity. I agree that fuel vs. food is based on much wrong data, but I do not think it is due a conspiracy of the food industry (maybe the API?). In any case, the battle is long lost.

The Digest adds: Increasingly, in the developed world, we see the discussion about food shifting from cost to quality — as Ron points out, not every affluent country has rampant obesity or other food choice problems. Biotechnology has a role to play — consider, for example, the excitement around early-stage tech like Impossible Foods, Beyond Meat, Modern Meadow, Perfect Day and the like.

Part of the underlying problem is that attention is not generally paid by consumers to the farm sector. It’s not so much a case of “educating consumers” about ‘food vs fuel’ issues and so on, but developing better ways to attract and sustain attention.

Turning specifically to fuels, as Ron points out, there isn’t the shortage of grain or land (yet) that would justify a pullback on every feedstock that could be used as a food. For example, let’s say we shifted corn production in the US to a feedstock with half the yield but was “non-food” — would that really address the problem? Hardly. It comes down to land use decisions — ultimately, we may find that zoning offers a solution in rural land, just as it has in urban land use choices.

Chemicals vs Fuels

Q: The fundamental issue with all of the technologies is return on capital and risks of the market – are we erring by focusing on petrochemicals instead of addressing the unmet needs these products do not deliver? Drop-ins vs novel molecules. For example, things that petro cannot do or do easily or well, such as very long chain molecules.

A: True, high capex (also a question of dis-economies of scale for early commercial plants), and market risks if the cost of production is not competitive has killed a number of biorenewable chemicals (PHAs, etc.). But, er, petro can do very, very long chain molecules well – polymers like PE, PET, nylons, etc. It can also compete with the very long chains (C8-C18) of natural fatty alcohols via LAOs. However, for high performance polyamide monomers, dibasic acids like DC12 (Dodecanedioic Acid), DC14 (Tetradecanedioic Acid), DC16 (Hexadecanedioic Acid), by e.g., Cathay Industrial, fermentation is the way to go.

Everything Else vs Plastics

Q: Why trying to convert biomass into fuels or chemicals. You can better blend them directly with fossil plastic into high performing materials!

A: Sure, there is a role for that, but not so much “biomass”, rather high quality starch or soybean meal blended with polyolefins or other plastics, which is commercial.

Policy & Regulatory Issues

Q: Any updates on the epa’s ruling on RINs for “intermediate feedstocks”?

A: My understanding is that the “co-location/intermediate feedstocks” issue is still unresolved, largely due to fear of double-counting, despite documentary solutions available. I think there is a paranoia driven by experience of some fraud in this area (and, perhaps some lobbying by the API)

Q: Is there specific federal funding grants to develop prototypes?

A: There is a large number and variety of federal programs that assist with “prototyping” from the lab (SBIR grants) to commercialization (USDA Loan Guarantees).

Performance issues

Q: Solazyme: do we know what specific challenges led the company to re-focus its business model on food ingredients? I.e. scale-up issues, higher production costs than expected,etc… In other words, what did they learned from their production plant in Brazil that they did not anticipated in their initial business plant?

A: I do not know, but this is a serious, talented company with all the right moving parts, that does not give up easily, but has proven to be adaptive. And, Brazil is hard.

The Digest adds: The underlying assumption in the question is that TerraVia (formerly Solazyme) focused on nutrition because of “challenges”. But why not “opportunities”? The advanced nutrition market is very strong, and with the limits on capital that face any emerging company, it is a matter of focusing the mission. Not unlike companies that had or have excellent fuel technologies who instead have focused on chemicals or materials. Often, the markets in higher-value molecules prove the most compelling.

As evidence for an “opportunity-based” shift as opposed to “challenge-based”, consider the successful sale of the Algenist brand. Profitable by all means, and successfully produced.

Q: What can you say about all the failures and closing of plants for II generation biofuels around the world. Are they economicaly sustainable without public funds?

A: Mostly not at current fossil fuel prices. But actually, most of the “successful startups” have not been running at capacity, mostly due to biomass feedstock / feeding / other mechanical issues.

The Digest adds: Aside from KiOR’s (technical) failure and Abengoa’s (financial) struggle, we haven’t had so much “next-gen failure” as much as very elongated commissioning and normalization periods in roughly 8 cases. With the one exception these have been advanced fermentation tech. Others have not had these issues (e.g. renewable diesel and jet fuel). As Ron, points out, some of this is mechanical and cost based.

Turning to the larger issue, which is the question of public funds. Long-term, biofuels will exist either because of favorable public policy or tolerance from the likes of Saudi Arabia, which could easily drop the price to $15 per barrel from a production margin POV, and replace all US petroleum as well as biofuels. If oil prices are at $30, $40 or $80 or $90, this is because of public policy decisions taken by OPEC nations, not by the free market.The extent to which Saudi Arabia’s government spending could last at current levels without large amounts of oil income is another matter for another day.

Accordingly, the US public sector response is key, too. The US can simply accept whatever OPEC hands out, or can establish through vehicles like the RFS a mechanism which a) establishes confidence for investors that there will be a market, b) has counter-measures should oil prices spike or crash and c) converts the societal benefit of low-carbon technologies into an economic benefit for investors, for a period of time while these technologies establish scale.

Though the RFS has flaws, the intent is to address those three factors, not only for low-carbon purposes but for energy security purposes as well.

Emerging Technologies

Q: What do you think of fermentation of natural gas technologies?

A: Great, could use very cheap fossil methane, and/or biogas.

Q: Is there any technology to solve problems in scaling -up of biofuel production by algae?

A: Nexant is not bullish on algae-to-engine fuels in the near- to mid-term.

The Digest adds: The Natural Law of Alternative Commodity Markets applies here. Which is to say, no one is going to produce a $2 fuel when they can produce a $5 fish feed, $6 chemical, or a $50 nutraceutical, regardless of production costs, until the top markets are saturated or a strategic investor comes forward with finance predicated on fuel production. The exception would be technologies that can’t produce anything but a fuel-grade molecule, but we don’t have any of those in algae..

For now, algae production is minuscule even compared to opportunities with high-value chemicals. Perhaps only the pipeline for nutraceuticals is getting anywhere near saturated. So, absent an off-taker specifically requiring algae-based fuels and coupling that with the capital to invest in a plant, we won’t expect financial investors to be constructing fuels capacity any time soon.

On the production side, the DOE is working on a plan to have $3.00-$3.50 fuels available from algae early in the 2020s. If oil prices rise, and DOE’s partners hit those targets or exceed them we well might find revived interest in algae-based fuels from strategics.

The Economics

Q: What do we know about the margins between sugars and end-use biopolymers?

A: If you can get to a drop-in monomer in one step (or even maybe two) against a petro value chain to the same monomer that is 3-5 steps, you have pretty much washed out the competiveness of crude oil price with the buildup of multiple capex and opex down that value chain.

Q: Is there any hope for renewable fuel products?

A: Maybe, if based on low-cost, no-cost feeds (stack gas or MSW) with simple technology and investors that take a long view. And, “winter is coming” for petroleum prices, eventually.

The Digest adds: See our notes above in the section on performance issues. As Ron points out, low-cost feedstocks will be incredibly important and will be the near-term winners so long as bioconversion works out as expected.

But those have a public policy element as well, if you think about it. If landfill could be built in the future with impunity as in the past, who would pay tipping fees to fuel producers to take away MSW? Or, if there were no concerns around CO2 emissions, would stack gases (or steel mill carbon monoxide) for biofuels production be available on the cheap? We doubt it.

In a market as big as fuels, twe not only have some issues of “Too Big to Fail”, but there is also a giant case of Too Big to Fail to Formulate a Policy. Public policies around waste feedstocks, energy security, and climate change are responding to real drivers. For that reason, there are real drivers for renewable fuels, which can address several drivers at once.

Q: Where do you see the price of sugars (1st, 2nd generation) in the future versus crude oil prices?

Funny you should ask (hold for a word from our sponsor), Nexant Thinking is about to publish a world-class cost of production modeling study and global data base on conventional sugars from a range of Ag commodities and with various scenarios of co-products, such as starch or ethanol. We already have one on Cellulosic Sugars). From this, we know that answer is very much dependent on the feedstock to sugar production, the process to produce the sugar, and geography, and it is also specific to the yields of the technology fed.