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Biofuels: Value vs. Volume

Geoffrey Styles's picture
GSW Strategy Group, LLC

Geoffrey Styles is Managing Director of GSW Strategy Group, LLC, an energy and environmental strategy consulting firm. Since 2002 he has served as a consultant and advisor, helping organizations...

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I was only partially surprised to read in MIT’s Technology Review that Amyris, a biotechnology company developing renewable diesel and jet fuel from sugar cane, was backing away from the biofuel market to pursue more lucrative products. Fuels are a highly competitive, low-margin business, and it’s hard enough to make money refining them even with established technology and a ubiquitous feedstock like crude oil. This is a great, under-appreciated challenge facing every company that seeks to produce new, greener fuels from biomass using processes that haven’t yet reached commercial scale or are only just arriving there. The key is either to produce something for which customers will pay better-than-commodity prices, yielding a high margin per gallon, or on such a vast scale that you can survive with a thin margin.

When I listened to the replay of the investor call Amyris held last week, I picked up some nuances missing from the Technology Review article. Confining its biofuels efforts to joint ventures with Total and with Cosan, a large Brazilian sugar and ethanol producer, probably makes sense for Amyris for many reasons. However, the discussion of value vs. volume segmentation on the call pointed to the need to attain a scale in fuels that would likely be beyond the wherewithal of a firm its size, investing on its own. As it is, the total cane ethanol production of its Brazilian partner Cosan–via the latter’s JV with Shell–is still less than the throughput of all but a handful of US oil refineries, and only about one-tenth the volume by which Shell’s Motiva joint venture is expanding its Port Arthur, TX refinery. Biofuel refineries needn’t reach that scale–they probably couldn’t due to the limitations of their feedstock logistics, in any case–but they still need to crack the challenge of repaying big capacity investments while making low-margin products, in addition to any technical challenges they face.

Last week I ran cross a clever plan to circumvent this challenge, in conjunction with meeting the 36 billion gallon per year US Renewable Fuel Standard (RFS). Jim Lane of Biofuels Digest proposed a scenario for meeting the 2022 RFS target using mainly existing corn ethanol and biodiesel facilities. He suggests converting the former to produce higher-value biobutanol, and then capturing and converting their CO2 emissions–after correcting a typo that pegs them at 90 million lb. per year instead of 90 billion lb.–into additional fuels using algae or solar energy. Mr. Lane gets full marks for ingenuity and for coming up with a pathway that doesn’t depend on the widespread adoption of E15 and E85 ethanol blends that the public hasn’t embraced and might never. However, in my view it relies too much on promising but unproven technologies and on the durability of a price premium for butanol in chemical markets that would be completely swamped by fuels-scale output. I’d expect any shift from ethanol to butanol to proceed only about as far as it took to crush the price differential between butanol and wholesale gasoline.

The advanced biofuels industry has made enormous strides in the last decade and proved that you can start with biomass or even CO2 and produce fuels that are chemically identical or otherwise broadly compatible with the petroleum-based fuels that remain the world’s primary source of energy for transportation. What it hasn’t yet achieved is to prove that it can do so at a cost that competes with that of oil, even when the latter is over $100 per barrel, notwithstanding the cumulative trillions of cubic feet of rhetoric asserting that it can do so as soon as it scales up. The experience of companies like Amyris, which is refocusing its wholly-owned activities on high-margin speciality products, rather than fuel, and of cellulosic dropouts like Range Fuels, reminds us just how hard this will be.

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Geoffrey Styles's picture
Geoffrey Styles on Feb 14, 2012

Jim,

And all of those will ultimately be reflected in the economics of the inputs or processes.

Rick Engebretson's picture
Rick Engebretson on Feb 20, 2012

There was an article describing a very different approach

The problem will be finding botanists and physicists and engineers who talk the same language. My guess is the oil industry is there in a very big way.

Plants exist to make other complex plants. Native photosynthesis does not make energy, it makes complexity, and uses energy to do it. But the energy chemisty is not limited to plant chemistry, and surely these people were speaking to developers of all backgrounds.

There are already many people working on solar energy dyes, etc. Same thing. It just gets slandered differently.

Rick Engebretson's picture
Rick Engebretson on Feb 20, 2012

Jim Baird, sincere thanks again for your thoughtful dialog.

To directly answer your question, NO! To be more accurate, the involvement of water depends on the reaction, and my inclination is hydrogen rich fuels which would require water, just like fuel cells.

Nothing is being grown, and so metabolic need for phosphates and nitrogen are zero. The article suggests the key problem which is UV degradation of the organic solar collector.

There is a serious problem communicating this stuff. In the late 70s adding physics to biochemistry I saw a large dipole was created by the peptide alpha helix. The head of our lab (I kid you not) said to me, “you dummy dopey stupid moron, it’s just a structure.” I asked my EM physics prof. and he said, “if that’s the structure it has a dipole.” I asked department head and he confused the peptide helix with the Watson-Crick DNA helix. So I dug and found a brilliant article by Akioshi Wada from the 60s describing the quantum mechanics of the dipole. Suddenly everybody was an expert. I couldn’t get electro statics heard, and this guy was doing quantum mechanics.

In 1987 Japan announced a gene mapping program, led by Akioshi Wada, described as a “leading geneticist.” I made the point he was a polymer physicist and could manufacture these challenging polymers in plants. He had worked on other electro polymers.

There are competent scientists out there, and I suspect this meeting brought some rare ones together for a specific purpose.

 

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