Crossing the Valley of NLACM with alcohol-to-hydrocarbon technology

September 7, 2017 |

There’s one crossing worse than the Valley of Death and that is the Valley of NLACM.

Although it sounds more like a goose trying to say “You’ll like him” — it’s the Natural Law of Alternative Commodity Markets, and it’s the biggest single impediment, globally, retarding the advance of renewable transport fuels as a world-scale low-carbon alternative to petroleum.

NLACM states that no one will make a fuel, however attractive to customers (such as a drop-in hydrocarbon fuel) if the market value of the intermediates (such as an alcohol) is higher when sold separately.

In other words, no one will ever make a hydrocarbon fuel from Johnnie Walker Black Label scotch, excepting a complete emergency, no matter if the technology exists or not.

And as long as renewables are confined to niche markets like E10 ethanol or B5 biodiesel blending — they can be good business for producers, and good investments, but they are not decarbonizing transportation fuel to the extent they could be.

Now, along comes Vertimass technology as a neat advance in alcohol-to-hydrocarbons. It is the first (or perhaps others, or many, to come) that leaps the Valley of NLACM. It’s not yet proven at scale yet, so let’s keep a perspective on promise vs. delivery. But here are the need to knows.

The tech edge

The edge is simple enough to describe. For example, the Mobil methanol-to-gasoline process starts with dehydrating methanol to DME, and you lose a lot of hydrogen in that step. It takes 2.6 gallons of methanol to make a gallon of gasoline using this method. By comparison, Vertimass reports that it is producing 1 gallon of hydrocarbon fuel for every 1.6 gallons of ethanol.

The commercial edge – crossing the Valley of NLACM

Here’s some NLACM math. You would use $2.48 in ethanol to produce a gallon of diesel worth $3.19, according to our Fuel Calculator. That’s well past the NLACM threshold, and it’s really the first one to get there.

By contrast, the Mobil technology would use $3.90 of methanol (at 2.9:1) to produce $1.60 of gasoline. If renewable methanol is used, there’s $2.25 more in RIN value. But still the economics are “spend $3.90 in feedstock to make $3.85 of product, before capex, opex, risk and profit”.  Mobil’s MTG technology is useful under conditions where methanol is cheaper, compared to gasoline, than today.

The renewables edge

Keep in mind that the economics play out only because of the value of low-carbon fuels compared to high-carbon fossil fuels. A technology that would convert a fossil-based alcohol to a hydrocarbon would not work economically in today’s markets.

How does this class of fuels solve problems of earlier renewable fuels?

Earlier low-carbon fuel technology classes have been beset by more than NLACM problems.

1. The E10 saturation point, and low acceptance to date for higher ethanol blends in road transport, excepting Brazil, Argentina and Uruguay.

2. Shortages of targeted feedstocks — wood and grains are replete, but crop residue aggregation/clean-up is still in its infancy, there are practical limits on availability of residues, and novel crops have yet to be widely adopted, or in some cases reach sufficient productivity to overcome high establishment costs (e.g. algae).

3. Cellulosic recalcitrance. It’s proven difficult to affordably extract cellulosic sugars — several technologies are on the way, but few expected cellulosic fuels to be at such an embryonic stage in 2017.

4. Catalyst cost and performance. Some of those that perform well cost too much, and many that are more affordable have struggled to perform with biomass conditions. Generally, too much catalyst poison. A new generation of catalysts are being deployed, but progress has been slow compared to what was expected back in 2006-07.

5. Biomass transport costs. Moving water-laden biomass across enough miles to make for large, economically efficient plants has not yet proven affordable using trucks and rail.

6. High capex for greenfield projects in advanced biofuels. $200-$400 million checks have rarely been forthcoming from investors for commercial biorefineries, and many projects with high capex have found it impossible in current market conditions to raise affordable capital.

7. The crash in oil prices. Low commodity prices have put severe pressure on the bioeconomy to slash costs, and those technologies that have the economics have not yet reached sufficient maturity and in some cases, to hit attractive numbers, depend on the residue feedstocks that we noted in #2.

Strategic advantages

There are material strategic advantages that come into play with hydrocarbons made from renewable alcohols.

1. Reduced capex/opex where hydrocarbon production is a bolt-on to existing ethanol plants. We’ve yet to see if the complete techno-economic assessment will show that the entire cost of production will stay below the NLACM threshold — but we have real reasons to be optimistic because of the size of the NLACM spread based on inputs alone.

2. Ethanol producers are facing E10 saturation pressure, despite very low corn feedstock prices, which depresses ethanol prices and limits growth. E15 and E85 adoption are not yet delivering massive numbers of gallons.  E30 really is an amazing target for future engines, but those technologies are still far away — no one has a production engine. Ethanol exports, which also offer opportunities for producers, have an uncertain history. Those countries that have strong ethanol mandates generally have had strong domestic ethanol production — the mandate serves the domestic energy industry and energy security as much as a greenhouse gas emission agenda.

So, there are classic incentives to action for ethanol producers.

3. What is the size of the US diesel market? It is huge — 30 billion gallons of on-road diesel and more than 20 billion gallons in off-road usage. That’s why Neste, REG, Diamond Green Diesel are making renewable diesel as fast as they can — the limitation for them has been feedstock availability and price, rather than the market size problems, and there are no saturation issues. Also, there’s the global diesel market.

4. Assist for cellulosic or sorghum adoption. The production of affordable hydrocarbon fuel from ethanol could be an assist that the cellulosic ethanol industry needs. Converting corn ethanol to hydrocarbons could open up more of the established E10 market to cellulosics or established, lower-carbon grain feedstocks like sorghum.

The Bottom Line

What we like especially is the opportunity to:

1. ‘Open a window” for cellulosic ethanol expansion
2. Expand markets for existing producers and growers
3. Bypass the on-going battles over ethanol saturation
4. Provide a fuel that is affordable even in today’s low-priced fuel markets
5. Take advantage of existing feedstock and a supply chain that has drastically increased greenhouse gas emissions savings.
6. Provide opportunities for countries that do not have ethanol markets to participate in a global renewables trade or supply their domestic hydrocarbon fuel markets.
7. Avoid high capex, given the reluctance of markets to provide capital.
8. Hurdling the NLACM problem.

We’ll be keeping a close eye on this technology area, and industry might, too. Will it prove to work at scale, and as well as it works in the lab? Will the overall system economics prove to cross the NLACM threshold — not just feedstock costs?

An excellent area for the Department of Energy to look into would be expanding looking into production rate and catalysts life for alcohol-to-hydrocarbons options. Vertimass technology was developed originally by a team from Oak Ridge National Laboratory and there may be other great ideas lurking within the national lab systems’ gaggle of innovative minds.

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