Much of the technology to build cellulosic bio refineries was ready 10 years ago, but the economic forces in the marketplace today mean that companies are now in a far better position to drive the deployment of biorefineries.
To understand why we are more prepared to produce biofuels and bio-based chemicals today than in the last decade, we look at one of the main differences: the recent oil price spikes and fundamental shifts in pricing mechanisms.
The cost of the marginal barrel of oil production 10 years ago was approximately US$20-30 per barrel, which would imply that oil needs to be somewhere higher than US$30 over time, so that producers earn an economic return. Sustaining prices much higher than that is very difficult, however, because too much oil becomes available if a high price is maintained.
Today, most experts view tar sand production as the marginal barrel and it is much more expensive to produce than traditional oil. New tar sand production costs are estimated to be US$60-70 per barrel, setting a new ‘floor price’ for oil over time.
| "The cost of the marginal barrel of oil production 10 years ago was approximately US$20-30 per barrel." |
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Extracting oil is becoming more costly than in the past, and the effect is a fundamental shift in the price regime we should expect to see in the future. So, the era of US$30 oil is over, and the era of US$70 is probably in place. And simply put, at this new price level, cellulosic products like biofuels and bio-based chemicals are able to compete.
Oil users: the chemicals industry
When it comes to bio-based chemicals, we are seeing the major chemical players moving towards bio-based products because of concern for pricing volatility and production security.
Pricing models with fixed feedstock costs are much more appealing to chemical producers than pricing models that change on a day-to-day basis according to the price of oil. If you are a refiner and the price of crude oil goes up, the price of gas generally goes up in lock step. But if you are a chemicals producer, price volatility is best avoided because it cannot handle price changes quickly.
For chemical players, if the price of crude goes up, plastic price doesn't necessarily go up right away. It takes time, and chemical makers are caught in a potential double whammy: if oil prices go up, no one wants to compensate them. However, if oil prices go down, everybody expects a price concession.
The chemicals industry is starting to view bio-based chemicals as a way to have the best of all worlds. A secure and stable feedstock price translates into a secure and stable chemicals price for a customer. For a chemicals producer this approach really makes economic sense: it would be the first time ever that they can break away from the volatile price of oil.
| "Remember the 1973 oil crisis and how we would all stop driving our cars if petrol ever hit US$2/gallon?" |
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A ‘black’ reputation
Several assumptions exist about a negative environmental disposition held by oil and chemical companies. These assumptions are mistaken. Namely, that oil and chemical companies are anti-‘not making money’. If they do not aggressively seek a new technology, it is because they don't see a long-term profit potential. Other misconceptions exist about infrastructure. Infrastructure is not a static thing.
You hear a lot about inefficiencies of ethanol in the infrastructure, but if you examine what is happening in current markets, the dynamic looks like this: as ethanol volumes increase and look to be viable over the long-term, it starts to make economic sense to either add to or convert existing infrastructure to ethanol use.
| "The crops do not compete with the price of food and are grown for the sole purpose of producing fuels and chemicals." |
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As an example, testing and conversion of pipelines to ethanol use is beginning to move forward. The key that is still lacking is clarity as to long-term future regulations. Infrastructure is not cheap and requires many years to pay off, hence the need by industry to have clear, long-term policy and regulation.
Not playing with food
This upcoming generation of bio-products and biofuels will not be produced from corn or other food crops, but from three potential sources: waste, agricultural and forest residues, and dedicated energy crops (see box – Georgia looks to biomass). While waste and residues can supply a portion of the market, the real solution is in sustainable and dedicated energy crops. The crops do not compete with the price of food and are grown for the sole purpose of producing fuels and chemicals.
ZeaChem's energy crop strategy will produce an entire portfolio of advanced biofuels and intermediate chemicals, including several value-added chemicals to be purchased by chemical companies to create commercial and industrial products. At an expected Nth* commercial plant yield of 135 US gallons per bone dry US ton (gal/BDT) [~0.56 litre/kg], the process is efficient, sustainable, and requires no additional energy input from fossil fuels (creating what is called a net zero energy process).
And as any energy professional will tell you, at the end of the day it is efficiency that drives economics. Low yield processes will not be economically sustainable over time.
Countries should target their biomass resources
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| The Southeastern United States provides a prime example of a region with high-yielding biomass production.
It is useful to distinguish between woody biomass, such as forest residues, wood chips from plantation thinning and short rotation tree crops, and energy crops like miscanthus or switchgrass. The former can be left growing until it is ready for harvest and use, while the latter must be cut like hay when it is ready for harvest, and either compacted or stored until it is ready for use.
That said, fast-growing perennial energy crops produce higher yields/hectare than pine plantations. Agricultural residues such as corn stover, cotton stalks, and peanut hulls can serve as biomass feedstocks as well.
The conversion process vary widely according to the feedstock and the desired product. Thermochemical processes such as acid hydrolysis reduce cellulose, a complex sugar, into simpler sugars that may then be fermented and distilled as alcohol, or sold as feedstock for the industrial chemical industry.
Biomass may be gasified by heating it in the absence of oxygen. The resulting biogas can be made into a range of chemicals and liquid fuels, and the residual char can be incorporated into fertilisers or soil amendments.
Biological processes use either bacteria or enzymes to reduce the cellulose into sugars that can be fermented with yeast. And of course, biomass can always be combusted to drive steam turbines to produce renewable electricity.
Some of the more promising technologies reduce the biomass to the molecular level, then use catalysts, pressure, and heat to re-combine to produce liquid fuels suitable for transportation use. Several multinational energy companies such as BP-Amoco, Chevron and Shell have invested heavily in research and patents for biomass conversion technologies.
From an economic perspective, woody biomass and energy crops can provide a steady market to help balance the cyclical markets of traditional forest products and agricultural commodities.
The fuel moisture, size, and energy density of wood pellets can be controlled within parameters that allow it to be co-fired with coal. Wood pellets and wood chips are cost-competitive with coal and can contribute to achieving renewable portfolio standards being implemented to mitigate the concentration of greenhouse gasses in the atmosphere.
Otherwise unsalable residues from agriculture and forest operations can also be used instead of being wasted. The existing feedstock supply chain for forest products industry can be readily adopted for bioenergy production.
Sources of renewable energy in the UK and Europe are diverse, but the advantages of biomass make this burgeoning industry worthy of a prominent place among them.
By Jill Stuckey. Stuckey is director of the Georgia Center of Innovation for Energy. Georgia has an established ‘brain trust’ of university research and development. The University of Georgia, with its laboratories and agricultural experiment stations researches fermentation, enzymes and genetic engineering. Its Athens campus also includes a pilot scale model biorefinery, where feedstocks are tested to produce bio-oil, syngas, char and a variety of industrial chemicals.
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A fickle public memory
The public viewpoint on energy unfortunately tends to be very short. Remember the 1973 oil crisis and how we would all stop driving our cars if petrol ever hit US$2/gallon? We've had a long-term, fundamental issue with energy security and the question is not whether it is real, but how and when we will truly address it.
Last July, oil was US$150 a barrel and everyone was excited about alternative energy. Then the price dropped to US$30/barrel early this year and you would have thought last year never happened. Notice how fuel efficient and hybrid car sales were positively impacted when oil prices spiked, but then were negatively impacted when the price of oil fell.
The right policies
The US Government needs to think from a long-term perspective, and based on that, what are the right policies to promote and support increased energy independence?
Improving energy security is something most people can probably agree makes sense. Solutions that move us in the direction of improving energy security and appear to be competitive long-term are actions we should go for.
There will always be oil [some would take issue with this statement, ed]. The key question is: how much and at what price. If the price goes up, alternatives naturally come into play. It goes back to the fundamental concept that markets are organic and tend to solve problems over time. The challenge in energy is that the inherent volatility in oil makes it hard for the market to support investing large amounts of capital if there is not a confidence that oil prices will remain high over the long-term.
As biofuels and bio-based chemicals will continue to hit the marketplace in increasing volumes, it will help solve national economic and security challenges as it dampens the price of energy overall. Not everyone understands that bio-based alternatives lessen demand for crude, which reduces overall demand and therefore the price for the petroleum-based products.
A future for bio-based oil
The benefits described above are considerable. But biorefineries are made of concrete and steel and are large undertakings. Once a plant is built, it will run for decades. ZeaChem's goal is to build its first demo plant and commercial plant in the USA and create new jobs in a fast-growing industry.
Some new technologies need a helping hand to get started, but over time they need to be competitive on their own. Solar PV power generation is a good example. By helping the industry get started, the cost of solar panels is dropping dramatically and eventually the industry should be competitive on its own. When it is truly cheaper to build a solar power plant, why would you ever spend more to use natural gas or coal?
In the same way, advanced biofuels and bio-based chemicals will ultimately survive in the energy industry on their own without government help.
Players in this industry must have proven technology and a strong business model. They must treat Government help as a temporary hand-up and not a long-term hand out.
* Editor's note: Nth refers to the optimised commercial facility in terms of efficiency and costs. ZeaChem says that the facility will produce 135 G/BDT of feedstock which is 40 percent higher yield than other technologies. The renewable feedstock will also produce all the power demands of the facility so that there are zero net energy (fossil) requirements from the grid.