Chicago Board of Trade Dictates Price of Corn and Oil Companies Control Price of Ethanol
By Brian J. Donovan
July 28, 2009
The issue is whether the proper development of an advanced biofuel industry in the United States is feasible when: (a) independent ethanol producers in the U.S. are at the mercy of volatile commodities markets for feedstock; and (b) the price of ethanol is controlled by the oil companies.
Commodity Market Volatility
The corn-to-ethanol business is highly dependent on corn prices. The price paid for corn is determined by taking the Chicago Board of Trade futures price minus the basis, which is the difference between the local cash price and the futures price. The more corn-to-ethanol contributes to our nation's energy supplies, the more it drives up corn feedstock prices and consequently its own cost. While increased ethanol production is partially responsible for the increase in corn prices, the main driving factors in the run-up in corn prices are: rising demand for processed foods and meat in emerging markets such as China and India, droughts and adverse weather around the world, a decrease in the responsiveness of consumers to price increases, export restrictions by many exporting countries to reduce domestic food price inflation, the declining value of the dollar, skyrocketing oil prices, and commodity market speculation. It is important to note that excessive speculation is not necessarily driving corn prices above fundamental values. Speculation can only be considered "excessive" relative to the level of hedging activity in the market.
The government's announcement that it would resurvey corn acreage in several U.S. states launched a rally in Chicago Board of Trade corn on July 23, 2009, giving life to a market that appeared to be sinking toward $3 a bushel. September corn ended up 19 cents to $3.27 a bushel and December corn ended up 19 1/2 cents to $3.38 3/4 a bushel. Traders see the market moving toward the $3.50-$3.75 a bushel range in the December contract. Ethanol futures were also higher. August ethanol ended up $0.065 to $1.597 a gallon and September ethanol ended up $0.064 to $1.555.
Dr. David J. Peters, Assistant Professor of Sociology - College of Agriculture and Life Sciences at Iowa State University, has developed a calculator to determine the long-term economic viability of proposed ethanol plants. Dr. Peters was surprised to learn how sensitive the bottom line is to small changes in corn and ethanol prices. According to Dr. Peters, a typical 100 MGY corn ethanol plant built in 2005 (financing 60 percent of its capital costs at 8 percent interest per annum for 10 years, with debt and depreciation costs of $0.20 per gallon of ethanol produced, and labor and taxes at a cost of $0.06 per gallon) will lose money in the current market:
At $3.25 corn, the ethanol break even price is $1.76 per gallon.
At $3.50 corn, the ethanol break even price is $1.82 per gallon.
At $3.75 corn, the ethanol break even price is $1.88 per gallon.
At $4.00 corn, the ethanol break even price is $1.94 per gallon.
Oil Company Monopoly
U.S. oil companies are using ethanol merely as a blending component in gasoline (in the form of E10) rather than a true alternative transportation fuel (in the form of E85). The major obstacle to widespread ethanol usage continues to be the lack of fueling infrastructure. Only 2,175 of the 161,768 retail gasoline stations in the United States (1.3%) offer E85. These E85 fueling stations are located primarily in the Midwest. According to the U.S. Department of Energy, each 2% increment of U.S. market share growth for E85 represents approximately 3 billion gallons per year of additional ethanol demand.
While alleging an oversupply of corn ethanol, U.S. oil companies, due to a loophole in the Caribbean Basin Initiative, are currently allowed to import thousands of barrels of advanced biofuel ("non-corn ethanol") every month without having to pay the 54-cent-per-gallon tariff.
Oil companies, or affiliates of oil companies, currently have a monopoly on blending fuel ethanol with unblended gasoline. Many states, e.g., Florida, allow only oil companies and their affiliates to blend and receive the 45 cents-per-gallon blender’s tax credit. This monopoly impairs fair and healthy competition in the marketing of ethanol blends. Independent U.S. ethanol producers have the legal right, and must be assured the availability of unblended gasoline, to blend fuel ethanol and unblended gasoline to receive the blender’s tax credit and be cost-competitive.
In short, independent U.S. ethanol producers do not have bargaining power on either end of the supply chain. Corn ethanol producers are price takers. A comprehensive advanced biofuel industry development initiative is required to disrupt the status quo and establish fair and healthy competition in the marketing of advanced biofuel blends in our nation.
The Louisiana Solution
Louisiana is the first state to enact alternative transportation fuel legislation that includes a variable blending pump pilot program and a hydrous advanced biofuel pilot program. On June 21, 2008, Louisiana Governor Bobby Jindal signed into law the Advanced Biofuel Industry Development Initiative ("Act 382"). Act 382, the most comprehensive and far-reaching state legislation in the U.S. enacted to develop a statewide advanced biofuel industry, is based upon the “Field-to-Pump” strategy.
It is the cost of the feedstock which ultimately determines the economic feasibility of an ethanol processing facility. “Field-to-Pump” does not allow an advanced biofuel producer to fall victim to rising feedstock costs. Non-corn feedstock is acquired under the terms of an agreement analogous to an oil & gas lease. It is not purchased as a commodity. A link exists between the cost of feedstock and ethanol market conditions. Farmers/landowners receive a lease payment for their acreage and a royalty payment based on a percentage of the gross revenue generated from the sale of advanced biofuel. “Field-to-Pump” marks the first time that farmers/landowners share risk-free in the profits realized from the sale of value-added products made from their crops.
Smaller is better. “Field-to-Pump” establishes the first commercially viable large-scale decentralized network of small advanced biofuel manufacturing facilities ("SABMFs") in the United States capable of operating 210 days out of the year. Each SABMF has a production capacity of 5 MGY. As with most industrial processes, large ethanol plants typically enjoy better process efficiencies and economies of scale when compared to smaller plants. However, large ethanol plants face greater supply risk than smaller plants. Each SABMF utilizes feedstock from acreage adjacent to the facility. The distributed nature of a SABMF network reduces feedstock supply risk, does not burden local water supplies and provides broad-based economic development. The sweet sorghum bagasse is used for the production of steam. Vinasse, the left over liquid after alcohol is removed, contains nutrients such as nitrogen, potash, phosphate, sucrose, and yeast. The vinasse is applied to the sweet sorghum acreage as a fertilizer.
Act 382 focuses on growing ethanol demand beyond the 10% blend market. Each SABMF produces advanced biofuel, transports the advanced biofuel by tanker trucks to its storage tanks at its local gas stations and, via blending pumps, blends the advanced biofuel with unblended gasoline to offer its customers a choice of E10, E20, E30 and E85. Each SABMF captures the blender’s tax credit of 45-cents-per-gallon to guarantee sufficient royalty payments to its farmers/landowners and be cost-competitive. In the U.S., the primary method for blending ethanol into gasoline is splash blending. The ethanol is “splashed” into the gasoline either in a tanker truck or sometimes into a storage tank of a retail station. The inaccuracy and manipulation of splash blending may be eliminated by precisely blending the advanced biofuel and unblended gasoline at the point of consumption, i.e., the point where the consumer puts E10, E20, E30 or E85 into his or her vehicle. A variable blending pump ensures the consumer that E10 means the fuel entering the fuel tank of the consumer’s vehicle is 10 percent ethanol (rather than the current arbitrary range of 4 percent ethanol to at least 24% ethanol that the splash blending method provides) and 90% gasoline. Moreover, a recent study, co-sponsored by the U.S. Department of Energy and the American Coalition for Ethanol, found E20 and E30 ethanol blends outperform unleaded gasoline in fuel economy tests for certain motor vehicles.
Hydrous advanced biofuel, which eliminates the need for the costly hydrous-to-anhydrous dehydration processing step, results in an energy savings of 35% during processing, a 4% product volume increase, higher mileage per gallon, a cleaner engine interior, and a reduction in greenhouse gas emissions. On February 24, 2009, the U.S. EPA granted a first-of-its-kind waiver for the purpose of testing hydrous E10, E20, E30 & E85 ethanol blends in non-flex-fuel vehicles and flex-fuel vehicles in Louisiana. Under the test program, variable blending pumps, not splash blending, will be used to precisely dispense hydrous ethanol blends of E10, E20, E30, and E85 to test vehicles for the purpose of testing for blend optimization with respect to fuel economy, engine emissions, and vehicle drivability. The Louisiana Department of Agriculture & Forestry Division of Weights and Measures will conduct the vehicle drivability phase of the test program. Fuel economy and engine emissions testing will be conducted by Louisiana State University in Baton Rouge, Louisiana. Sixty vehicles will be involved in the test program which will last for a period of 15 months.
Louisiana Act 382 ensures: (a) ethanol producers in the U.S. are no longer at the mercy of volatile commodities markets for feedstock; (b) farmers/landowners share risk-free in the profits realized from the sale of value-added products made from their crops (c) the price of ethanol is no longer controlled by the oil companies; (d) feedstock supply risk, the burden on local water supplies, and the amount of energy necessary to process advanced biofuel are minimized; and (e) rural development and job creation are maximized. Furthermore, due to the advantages of producing advanced biofuel from sweet sorghum juice, the use of sweet sorghum bagasse for the production of steam in the SABMF, and the energy savings of processing hydrous advanced biofuel, the Louisiana solution reduces field-to-wheel lifecycle GHG emissions by 100%.
Tuesday, July 28, 2009
Monday, July 27, 2009
Fill Up with Ethanol? One Obstacle is Big Oil: Rules Keep a Key Fuel Out of Some Stations; Car Makers Push Back
By Laura Meckler
The Wall Street Journal
April 2, 2007
President Bush, domestic auto makers, farmers and others tout ethanol as a home-grown alternative to imported oil. Across the Midwest, plants that make the fuel out of corn are multiplying at a torrid pace. Yet so far, only a tiny fraction of U.S. service stations let a driver fill up with ethanol. There are a number of reasons, but one big one is resistance from oil companies.
Although some oil executives voice enthusiasm for alternative fuels, oil-company policies make it harder for many service stations to stock a fuel called E85, a blend of 85% ethanol and 15% gasoline.
These policies are hardly the only barrier to wider use of the ethanol fuel. Demand is limited by the small number of vehicles that can burn it -- only about 5% of those on the road in America. It can be slightly costlier to burn E85, even though it costs less per gallon, because a car doesn't go as far on a gallon of the ethanol fuel as on gasoline. These demand restraints would limit service-station owners' enthusiasm for spending on the equipment needed to offer E85 even if the policies of the oil companies were not a factor.
But those policies add a significant extra obstacle. Oil companies lose sales every time a driver chooses E85, and they employ a variety of tactics that help keep the fuel out of stations that bear the company name. For instance, franchises sometimes are required to purchase all the fuel they sell from the oil company. Since oil companies generally don't sell E85, the stations can't either, unless the company grants an exception and lets them buy from another supplier.
Contracts sometimes limit advertising of E85 and restrict the use of credit cards to pay for it. Some require that any E85 pump be on a separate island, not under the main canopy.
Oil companies say they will allow stations to sell E85, but they must have certain rules for the protection of customers and protection of their brand. They call the restrictions reasonable and in some cases necessary to make sure drivers don't fill up with E85 if their vehicle can't burn it.
Most of the U.S.'s 170,000 fuel stations aren't owned by oil companies but are either franchised from them or independent. Less than 1% stock E85. Some experts say that to really take hold and be seen as a viable alternative to gasoline, the fuel would have to be available at, roughly, 10% of stations.
Targeting Stations
Those pushing for ethanol are targeting two very different types of fuel stations: those run by big retailers like Kroger Co. and Wal-Mart Stores Inc., and independent ones owned by small businesses. These represent the biggest and smallest of businesses, but have one thing in common: They aren't under the thumb of the oil industry.
Nearly half of the gasoline sold in the U.S. does have some ethanol in it. Oil companies routinely use it as an additive, typically at 10% ethanol to 90% gasoline, because the corn-based fuel burns cleaner. The blending enables companies to meet government smog-reduction rules. They also add ethanol because of a federal mandate on the industry as a whole, requiring that it use a certain amount of "renewable" fuels in its products.
Among those pressing for wider use of E85 are domestic auto makers, especially Ford Motor Co. and General Motors Corp. Ethanol is one energy initiative where they're out in front of Japanese car makers. While Toyota Motor Corp. and Honda Motor Co. are known for their gasoline-electric hybrids, Detroit, which has been heavily criticized for its sales of gas guzzlers, is far ahead in making "flexible-fuel" vehicles that can burn either gasoline or ethanol.
In Dwight, Ill., Becker's BP on Interstate 55 is one of just a few dozen major-brand gasoline retailers in the U.S. that sell E85. Owner Phil Becker says the governor wanted the state's vehicles to use E85 and targeted his station as a popular stop for state workers. He says BP PLC let him get the fuel from a non-BP supplier, and the Illinois Corn Growers Association gave him $100,000 for new tanks and pumps that BP required.
"Because I've got E85 and we've advertised it, we've had four or five farmers that traded their trucks to get E85 vehicles," Mr. Becker says.
Exxon Mobil Corp.'s standard contract with Exxon stations bars them from buying fuel from anybody but itself, and it doesn't sell E85. A spokeswoman for Exxon Mobil says it makes exceptions case by case.
Even if one is granted, the station must follow rules including one that says E85 must be dispensed from its own unit, not part of an existing multihose dispenser. "This minimizes customer confusion around vehicle compatibility issues and maintains product quality integrity," says the spokeswoman, Prem Nair.
A ConocoPhillips memo to franchisees says the company doesn't allow E85 sales on the primary island, under the covered canopy where gasoline is sold. Stations must find another spot. As a result, it isn't quite as simple for a driver to decide on the spur of the moment to fill up with E85. ConocoPhillips declines to comment.
A Chevron Corp. agreement with franchisees also appears to discourage selling E85 under the main canopy. It says dealers offering alternative fuels cannot "deceive the public as to the source of the product," a phrase that some gas-station interests interpret to mean that E85 can't be sold under the main canopy. Chevron says it recommends, but doesn't require, that E85 pumps be outside the canopy.
Chevron says it requires Chevron- and Texaco-branded stations to keep "E85" off their primary signs listing fuel prices. To show the fuel's price, and alert approaching drivers that E85 is for sale, the stations have to erect a separate sign.
More Expensive
Another Chevron recommendation makes it much more expensive for a station to offer E85 at all. Stations usually have three tanks, for the three gasoline grades, regular, mid-grade and premium. The easiest way to offer E85 in addition to these three is to convert the mid-grade tank to E85. Such a station can still offer mid-grade gasoline, because a "blender pump" can mix some regular with some premium, and mid-grade will come out of the hose.
But Chevron's agreement with station owners recommends they install new pumps and tanks at their own expense if they want to stock E85. Doing so can cost more than $200,000 per station, according to a fuel-station trade group in Washington state called Automotive United Trades Organization. Chevron says it requires special tanks only if they're needed for safety.
Oil companies also require stations to stock all three grades, meaning stations may not simply replace a low-selling mid-grade with E85.
At BP, guidelines for stations that carry the company name bar any mention of E85 on signs on gasoline dispensers, perimeter signs or light poles. The stations also can't let buyers use pay-at-the-pump credit-card machines.
Selling E85 is "not impossible -- it's just that they really kind of hassle you to not put it in," says Ron Lamberty, who owns two stations in South Dakota, one a BP station. Mr. Lamberty doesn't sell E85, even though he is director of market development for the American Coalition for Ethanol. He says he is looking into adding the fuel to his BP station in Sioux Falls.
Mr. Lamberty mocks BP's "Beyond Petroleum" slogan: "It's 'beyond petroleum' but not so far beyond petroleum that it would contain anything but petroleum," he says.
BP says its guidelines are in place so customers realize the mostly ethanol fuel isn't a BP product. The company also bars stations from selling it under another brand name, such as VE85, the brand of a maker in Brookings, S.D., called VeraSun Energy Corp.
A BP spokesman, Scott Dean, says, "When you've got 97% of your customers unable to use the product, you want to be very, very sure it is very clearly advertised." He says BP bought 718 million gallons of ethanol last year to blend into U.S. gasoline in small amounts. "BP is one of the largest if not the largest purveyor of biofuels in the U.S. and the world," Mr. Dean says.
E85 also faces barriers having nothing to do with Big Oil, like the limited number of cars that can burn it. Domestic auto makers have vowed to double production of flex-fuel vehicles to about two million a year by 2010 and to make half of their new vehicles sold in America E85-capable by 2012.
While the fuel usually costs less, it can be costlier to drivers because they get about 25% fewer miles per gallon from ethanol than from gasoline. At a pro-ethanol group called the Iowa Renewable Fuels Association, Executive Director Monte Shaw estimates that E85 has to be at least 20 to 30 cents a gallon cheaper to compete with gasoline on price.
Iowa statewide average prices on a recent day were $2.18 a gallon for regular gasoline and $1.97 for E85, according to a Department of Energy Web site. Because E85 is less energy-intensive, the site said, it would cost the average owner of a big Chevy Tahoe SUV about $2,364 a year to fuel it with E85, and $1,935 to fuel it with regular gasoline.
Creating a Conflict
The price of ethanol has risen in the past year, partly because of demand from oil companies that want it for an additive. This usage creates something of a conflict for big ethanol producers like Archer-Daniels-Midland Co. Their main ethanol customers are the oil companies. Customers for E85 are far smaller and more fragmented.
ADM, whose yearly output of 1.1 billion gallons is more than 20% of the domestic ethanol market, says it is happy to sell E85 if someone wants it, but that is a "very small" part of its business. "Near term, we have focused more attention on the" additive side, says an ADM executive, Edward Harjehausen.
Even the main ethanol lobbying group in Washington, the Renewable Fuels Association, has focused mostly on developing the market for the fuel as an additive. "If you have a pump that sells E85 but you don't have customers pulling up to that pump, why do you want to bother?" says Bob Deneen, its chief lobbyist.
A few smaller producers do actively promote E85, such as VeraSun, which seeks to establish a branded E85. But even the smaller producers sell the bulk of their output for blending as a gasoline additive.
Because ethanol is more corrosive than gasoline, there's some concern it could leak out of a standard dispensing system and spark a fire. No E85 dispensing system -- nozzles, hoses, pumps -- has been certified by Underwriters Laboratories, the organization that tests the safety of products.
In October, UL suspended certification of parts that had been certified for use in E85 systems. Though there hadn't been any reports of problems, UL said it decided it needed to do its own safety research. Results aren't expected until late this year.
Among those trying to overcome obstacles to E85 are the domestic auto makers. They have built flex-fuel vehicles for years because doing so gives them "credits" in their efforts to meet federal fuel-economy standards. Without the credits, Ford and GM wouldn't have met mileage goals for light trucks in 2003, 2004 and 2005 and would have owed fines. The mileage goals pose a bigger challenge to Detroit because of its heavy reliance on large, thirsty vehicles. Foreign makers generally haven't resorted to building flex-fuel cars to meet the mileage goals.
For Detroit, the credits applied even if the flex-fuel cars they built never actually burned ethanol. For a long time, the auto makers said little about ethanol, and many owners of flex-fuel cars didn't know they had them. But when gasoline prices surged in 2005 and 2006, GM and Ford saw their flex-fuel cars as a way to counter their image as gas-guzzler makers.
Both began promotional campaigns, such as one in which GM gave buyers in Chicago and Minneapolis $1,000 gift cards good for E85. GM began to work with state officials to find grants to pay for installing pumping equipment. It has helped add E85 to 235 stations. Ford helped pay for installing 50 pumps so someone could drive from Chicago to Kansas City while filling up only with E85.
Among ethanol backers' recruits are two grocery chains. Kroger installed E85 at about 40 stations in Ohio and Texas. Privately held Meijer Inc. did the same in Michigan and Indiana.
Wal-Mart could provide a significant boost. It said last year it was considering selling E85 at its 388 company-owned stations but hasn't made a decision.
The U.S. tax code acts as a stimulus. Service-station owners can get a credit of up to $30,000 for their outlays to convert equipment to sell E85.
Some states have done their bit to spur the market. New York enacted a bill last year that barred oil companies from requiring stations to buy all of their fuel from the companies.
In the Albany area, station owner Christian King has begun selling E85 at one of his three Mobil outlets and plans to do so at a second. He says Mobil's restrictions still mean he can't put the price of E85 on the main sign or let drivers charge it on their Mobil credit cards.
Adding E85 "is a personal thing," Mr. King says. "I'm trying to do anything I can to reduce our dependence on foreign oil. And if this thing kicks off, I'm in a position to benefit."
Write to Laura Meckler at laura.meckler@wsj.com
The Wall Street Journal
April 2, 2007
President Bush, domestic auto makers, farmers and others tout ethanol as a home-grown alternative to imported oil. Across the Midwest, plants that make the fuel out of corn are multiplying at a torrid pace. Yet so far, only a tiny fraction of U.S. service stations let a driver fill up with ethanol. There are a number of reasons, but one big one is resistance from oil companies.
Although some oil executives voice enthusiasm for alternative fuels, oil-company policies make it harder for many service stations to stock a fuel called E85, a blend of 85% ethanol and 15% gasoline.
These policies are hardly the only barrier to wider use of the ethanol fuel. Demand is limited by the small number of vehicles that can burn it -- only about 5% of those on the road in America. It can be slightly costlier to burn E85, even though it costs less per gallon, because a car doesn't go as far on a gallon of the ethanol fuel as on gasoline. These demand restraints would limit service-station owners' enthusiasm for spending on the equipment needed to offer E85 even if the policies of the oil companies were not a factor.
But those policies add a significant extra obstacle. Oil companies lose sales every time a driver chooses E85, and they employ a variety of tactics that help keep the fuel out of stations that bear the company name. For instance, franchises sometimes are required to purchase all the fuel they sell from the oil company. Since oil companies generally don't sell E85, the stations can't either, unless the company grants an exception and lets them buy from another supplier.
Contracts sometimes limit advertising of E85 and restrict the use of credit cards to pay for it. Some require that any E85 pump be on a separate island, not under the main canopy.
Oil companies say they will allow stations to sell E85, but they must have certain rules for the protection of customers and protection of their brand. They call the restrictions reasonable and in some cases necessary to make sure drivers don't fill up with E85 if their vehicle can't burn it.
Most of the U.S.'s 170,000 fuel stations aren't owned by oil companies but are either franchised from them or independent. Less than 1% stock E85. Some experts say that to really take hold and be seen as a viable alternative to gasoline, the fuel would have to be available at, roughly, 10% of stations.
Targeting Stations
Those pushing for ethanol are targeting two very different types of fuel stations: those run by big retailers like Kroger Co. and Wal-Mart Stores Inc., and independent ones owned by small businesses. These represent the biggest and smallest of businesses, but have one thing in common: They aren't under the thumb of the oil industry.
Nearly half of the gasoline sold in the U.S. does have some ethanol in it. Oil companies routinely use it as an additive, typically at 10% ethanol to 90% gasoline, because the corn-based fuel burns cleaner. The blending enables companies to meet government smog-reduction rules. They also add ethanol because of a federal mandate on the industry as a whole, requiring that it use a certain amount of "renewable" fuels in its products.
Among those pressing for wider use of E85 are domestic auto makers, especially Ford Motor Co. and General Motors Corp. Ethanol is one energy initiative where they're out in front of Japanese car makers. While Toyota Motor Corp. and Honda Motor Co. are known for their gasoline-electric hybrids, Detroit, which has been heavily criticized for its sales of gas guzzlers, is far ahead in making "flexible-fuel" vehicles that can burn either gasoline or ethanol.
In Dwight, Ill., Becker's BP on Interstate 55 is one of just a few dozen major-brand gasoline retailers in the U.S. that sell E85. Owner Phil Becker says the governor wanted the state's vehicles to use E85 and targeted his station as a popular stop for state workers. He says BP PLC let him get the fuel from a non-BP supplier, and the Illinois Corn Growers Association gave him $100,000 for new tanks and pumps that BP required.
"Because I've got E85 and we've advertised it, we've had four or five farmers that traded their trucks to get E85 vehicles," Mr. Becker says.
Exxon Mobil Corp.'s standard contract with Exxon stations bars them from buying fuel from anybody but itself, and it doesn't sell E85. A spokeswoman for Exxon Mobil says it makes exceptions case by case.
Even if one is granted, the station must follow rules including one that says E85 must be dispensed from its own unit, not part of an existing multihose dispenser. "This minimizes customer confusion around vehicle compatibility issues and maintains product quality integrity," says the spokeswoman, Prem Nair.
A ConocoPhillips memo to franchisees says the company doesn't allow E85 sales on the primary island, under the covered canopy where gasoline is sold. Stations must find another spot. As a result, it isn't quite as simple for a driver to decide on the spur of the moment to fill up with E85. ConocoPhillips declines to comment.
A Chevron Corp. agreement with franchisees also appears to discourage selling E85 under the main canopy. It says dealers offering alternative fuels cannot "deceive the public as to the source of the product," a phrase that some gas-station interests interpret to mean that E85 can't be sold under the main canopy. Chevron says it recommends, but doesn't require, that E85 pumps be outside the canopy.
Chevron says it requires Chevron- and Texaco-branded stations to keep "E85" off their primary signs listing fuel prices. To show the fuel's price, and alert approaching drivers that E85 is for sale, the stations have to erect a separate sign.
More Expensive
Another Chevron recommendation makes it much more expensive for a station to offer E85 at all. Stations usually have three tanks, for the three gasoline grades, regular, mid-grade and premium. The easiest way to offer E85 in addition to these three is to convert the mid-grade tank to E85. Such a station can still offer mid-grade gasoline, because a "blender pump" can mix some regular with some premium, and mid-grade will come out of the hose.
But Chevron's agreement with station owners recommends they install new pumps and tanks at their own expense if they want to stock E85. Doing so can cost more than $200,000 per station, according to a fuel-station trade group in Washington state called Automotive United Trades Organization. Chevron says it requires special tanks only if they're needed for safety.
Oil companies also require stations to stock all three grades, meaning stations may not simply replace a low-selling mid-grade with E85.
At BP, guidelines for stations that carry the company name bar any mention of E85 on signs on gasoline dispensers, perimeter signs or light poles. The stations also can't let buyers use pay-at-the-pump credit-card machines.
Selling E85 is "not impossible -- it's just that they really kind of hassle you to not put it in," says Ron Lamberty, who owns two stations in South Dakota, one a BP station. Mr. Lamberty doesn't sell E85, even though he is director of market development for the American Coalition for Ethanol. He says he is looking into adding the fuel to his BP station in Sioux Falls.
Mr. Lamberty mocks BP's "Beyond Petroleum" slogan: "It's 'beyond petroleum' but not so far beyond petroleum that it would contain anything but petroleum," he says.
BP says its guidelines are in place so customers realize the mostly ethanol fuel isn't a BP product. The company also bars stations from selling it under another brand name, such as VE85, the brand of a maker in Brookings, S.D., called VeraSun Energy Corp.
A BP spokesman, Scott Dean, says, "When you've got 97% of your customers unable to use the product, you want to be very, very sure it is very clearly advertised." He says BP bought 718 million gallons of ethanol last year to blend into U.S. gasoline in small amounts. "BP is one of the largest if not the largest purveyor of biofuels in the U.S. and the world," Mr. Dean says.
E85 also faces barriers having nothing to do with Big Oil, like the limited number of cars that can burn it. Domestic auto makers have vowed to double production of flex-fuel vehicles to about two million a year by 2010 and to make half of their new vehicles sold in America E85-capable by 2012.
While the fuel usually costs less, it can be costlier to drivers because they get about 25% fewer miles per gallon from ethanol than from gasoline. At a pro-ethanol group called the Iowa Renewable Fuels Association, Executive Director Monte Shaw estimates that E85 has to be at least 20 to 30 cents a gallon cheaper to compete with gasoline on price.
Iowa statewide average prices on a recent day were $2.18 a gallon for regular gasoline and $1.97 for E85, according to a Department of Energy Web site. Because E85 is less energy-intensive, the site said, it would cost the average owner of a big Chevy Tahoe SUV about $2,364 a year to fuel it with E85, and $1,935 to fuel it with regular gasoline.
Creating a Conflict
The price of ethanol has risen in the past year, partly because of demand from oil companies that want it for an additive. This usage creates something of a conflict for big ethanol producers like Archer-Daniels-Midland Co. Their main ethanol customers are the oil companies. Customers for E85 are far smaller and more fragmented.
ADM, whose yearly output of 1.1 billion gallons is more than 20% of the domestic ethanol market, says it is happy to sell E85 if someone wants it, but that is a "very small" part of its business. "Near term, we have focused more attention on the" additive side, says an ADM executive, Edward Harjehausen.
Even the main ethanol lobbying group in Washington, the Renewable Fuels Association, has focused mostly on developing the market for the fuel as an additive. "If you have a pump that sells E85 but you don't have customers pulling up to that pump, why do you want to bother?" says Bob Deneen, its chief lobbyist.
A few smaller producers do actively promote E85, such as VeraSun, which seeks to establish a branded E85. But even the smaller producers sell the bulk of their output for blending as a gasoline additive.
Because ethanol is more corrosive than gasoline, there's some concern it could leak out of a standard dispensing system and spark a fire. No E85 dispensing system -- nozzles, hoses, pumps -- has been certified by Underwriters Laboratories, the organization that tests the safety of products.
In October, UL suspended certification of parts that had been certified for use in E85 systems. Though there hadn't been any reports of problems, UL said it decided it needed to do its own safety research. Results aren't expected until late this year.
Among those trying to overcome obstacles to E85 are the domestic auto makers. They have built flex-fuel vehicles for years because doing so gives them "credits" in their efforts to meet federal fuel-economy standards. Without the credits, Ford and GM wouldn't have met mileage goals for light trucks in 2003, 2004 and 2005 and would have owed fines. The mileage goals pose a bigger challenge to Detroit because of its heavy reliance on large, thirsty vehicles. Foreign makers generally haven't resorted to building flex-fuel cars to meet the mileage goals.
For Detroit, the credits applied even if the flex-fuel cars they built never actually burned ethanol. For a long time, the auto makers said little about ethanol, and many owners of flex-fuel cars didn't know they had them. But when gasoline prices surged in 2005 and 2006, GM and Ford saw their flex-fuel cars as a way to counter their image as gas-guzzler makers.
Both began promotional campaigns, such as one in which GM gave buyers in Chicago and Minneapolis $1,000 gift cards good for E85. GM began to work with state officials to find grants to pay for installing pumping equipment. It has helped add E85 to 235 stations. Ford helped pay for installing 50 pumps so someone could drive from Chicago to Kansas City while filling up only with E85.
Among ethanol backers' recruits are two grocery chains. Kroger installed E85 at about 40 stations in Ohio and Texas. Privately held Meijer Inc. did the same in Michigan and Indiana.
Wal-Mart could provide a significant boost. It said last year it was considering selling E85 at its 388 company-owned stations but hasn't made a decision.
The U.S. tax code acts as a stimulus. Service-station owners can get a credit of up to $30,000 for their outlays to convert equipment to sell E85.
Some states have done their bit to spur the market. New York enacted a bill last year that barred oil companies from requiring stations to buy all of their fuel from the companies.
In the Albany area, station owner Christian King has begun selling E85 at one of his three Mobil outlets and plans to do so at a second. He says Mobil's restrictions still mean he can't put the price of E85 on the main sign or let drivers charge it on their Mobil credit cards.
Adding E85 "is a personal thing," Mr. King says. "I'm trying to do anything I can to reduce our dependence on foreign oil. And if this thing kicks off, I'm in a position to benefit."
Write to Laura Meckler at laura.meckler@wsj.com
Saturday, July 25, 2009
Oil Companies and Ethanol Plants: Slash, Burn and Buy
RenewableEnergyWorld.com
by David Blume
February 26, 2009
With all of the corporate bailouts and economic disasters our country is facing at present, it really is easy to welcome the wallet-relief provided by currently low transportation and heating fuel prices. As the saying goes, “Why look a gift horse in the mouth?” It isn’t comfortable to consider that the relatively calm waters international oil prices present could be covering an insidious undertow that is quietly dragging our renewable and alcohol fuel industry down to the OPEC equivalent of Davey Jones’s Locker where it will lay submerged until the big oil pumps finally do run dry.
In some places around the country today we are paying US $1.89 a gallon for gas (or even less). However, it is important to point out that with that short term windfall comes the ominous realization that nearly 25% of our Alcohol fuel producing industry will be going belly-up soon. That is correct. Many investor-backed as well as entrepreneurially driven Alcohol plants currently producing in the US may be bankrupted by the end of February 2009.
It is very likely that 40 of the nearly 200 alcohol fuel plants we have working now will be victims of what I refer to as big oil’s slash, burn and buy strategy to collapse, consume and control our fledgling alcohol fuel industry.
The obvious poster child for this tragedy is VeraSun. Declaring bankruptcy recently in a federal court in Delaware, VeraSun represents a considerable failure for the alcohol fuel industry. Having fallen from the vanguard of ethanol plants funded by venture capital, its collapse is having a rip-tide effect through the investment (and sadly) the farming community as well. Once a mighty force for alcohol expansion VeraSun is now reduced in value to pennies on the dollar. [Editor's note, for more on the takeover bid, read RenewableEnergyWorld.com's story, Ethanol Industry Eyes Valero's Bid for Verasun.]
How did this happen? What is the sleight of hand big oil is using to lull us to sleep at the wheel, while it methodically implements the conquest and enslavement of America’s independent and sustainable energy future?
Here’s the answer. Oil companies are using the commodities futures trading system to artificially drive up the price of corn while depressing the price of alcohol, essentially gaming the futures market. The impact of artificially high corn prices is that plants like VeraSun (that aren’t built and supported by farm-owners, but rather by capital investors) had to pay high prices to compete with big oil to buy corn and make fuel. Meanwhile, the futures price of alcohol was driven down by big oil’s fuel monopoly-easy since they buy over 99% of alcohol fuel produced.
Although VeraSun recently named the company that has offered to buy it out of bankruptcy and as I had predicted, it’s an oil company. Big oil recently spent a billion dollars conducting a fictitious food vs. fuel campaign, contributing to devaluation of US $6 billion dollars’ worth of alcohol plants by more than 90%. Big oil is now quietly spending a fraction of the $125 billion they made in profit last year to buy up alcohol fuel plants for pennies on the dollar.
It is sad that VeraSun and some other independent distillery companies face bankruptcy, but the real market losers are our farmers. While oil companies bought futures contracts for corn at $6 a bushel, farmers were subjected to a quadrupling of prices for oil-based crop inputs such as fertilizer.
With the federal court ruling in the VeraSun bankruptcy, a legal precedence is being set that now allows plant owners to reject contract commitments for grain and corn purchases they have made with working farmers. For the first time ever for any company, there may be an escape from paying for the futures contracts that are bought. The problem with this is that farmers have of course already borrowed money (based on futures pricing) to pay for higher input costs in producing the supposedly higher-priced corn. Unlike the plant owners, they won’t get to avoid their debts and as that crunch goes on.
I think that there is a real chance that big oil will buy up the alcohol plants, reject the futures contracts, bankrupt the farmers and then be able to buy their land.
If the oil companies gain control of even a quarter of the alcohol production infrastructure and land for the crops, there will be no end to the disruption they can cause in markets, they could even potentially bankrupt the rest of the industry. If you think that it’s a nightmare that big oil controls our energy, think what life would be like if it controlled our land and food, as well.
Oh no, I hear another bailout in the makings! Unfortunately, I think that the only way to avoid this catastrophic scenario is for us to provide alcohol fuel plants with a bail-out plan. However, as I have recommended for the auto industry bailout, there should be conditions. While a number of initiatives should be addressed to ensure the alcohol fuel industry’s long-term growth, implementing these bailout conditions in the short term will make the ethanol business more secure and less likely to need any future assistance:
•All alcohol fuel plants should be required to install the equipment necessary to handle non-corn energy crops.
•By 2010 plants should be required to diversify their crop inputs, limiting corn to 50% of the total. This would insulate them from further manipulation by oil companies and start the country, especially the Midwest, on the path of sustainable agriculture.
•By 2011 all plants should be required to run at least 90% on renewable fuel, not fossil fuels. Corn Plus has already converted its plant to run on biomass, reporting a 6:1 energy return compared to the usual 1.5:1 of coal-based alcohol fuel plants.
•The bailout should include loans to provide energy to alcohol fuel plants using biomass-fired combined-heat-and-electricity facilities. This would reduce alcohol price volatility, since alcohol production would largely be decoupled from the prices of oil, coal, and natural gas.
Even though I am an advocate for smaller alcohol fuel plants for many reasons (security, local economy strength, true energy independence among others), the larger plants need to be protected for the health of the industry and the United States. Without an effective alcohol industry to compete with big oil, the sky would be the limit on gasoline prices.
I have already gone on record predicting that we can expect gas prices to rocket by March 2009. I have also stated that there will be a concerted effort to blame the new administration for this occurrence. This will happen because oil companies and OPEC are afraid that President Obama will carry out his campaign promises to reduce oil imports and address climate change.
There is already a big oil campaign going on to portray the oil companies as back in control of energy prices that somehow got out of control last summer due to “speculators.” You might have caught the 60 Minutes Infomercial they ran for OPEC and the Saudi family recently, (wow take a guess at what that cost to purchase and produce).
Big oil is already floating articles that say that putting money into alternative fuels will be a waste of taxpayer dollars and will raise rather than lower the price of auto fuel. Expect this chorus to become a propaganda flood during the first 60 to 90 days of President Obama’s administration, with the aim of discouraging Congress from doing anything substantial to cut our oil use via any alternatives not controlled by big oil (oil shale, tar sands, coal-to-gas).
It will be in the oil companies’ best interests to avoid attention until after the first round of legislation from the new administration. Traditionally, new presidents can get almost anything passed in the first 60 days or so. The oil companies would prefer to not have the gun sights of legislators trained on them during this period. Once the first flush of legislation is introduced, it will be autumn before another major bill could be introduced to interfere with the oil companies. They will hope to have the ethanol industry and enough legislators bought up by then.
I urge citizens everywhere to contact their Congressional representatives, the Department of Justice, Antitrust Division and the Federal Trade Commission, Bureau of Competition to express their concern regarding the Valero acquisition of Verasun and to help mandate protectionary and regulatory programs for the formation of a truly independent renewable energy and fuel producers market. (Note: email is not always secure. Mark confidential information “Confidential” and send it via postal mail).
David Blume is the executive director of the International Institute for Ecological Agriculture, (I.I.E.A.). He is a globally renowned permaculture and alcohol fuel expert and is author of the Amazon best-selling book Alcohol Can Be A Gas (www.alcoholcanbeagas.com). Mr. Blume is a leading advocate for alcohol fuel and the role of the American farmer in developing a truly sustainable energy and food policy for the post-oil era.
by David Blume
February 26, 2009
With all of the corporate bailouts and economic disasters our country is facing at present, it really is easy to welcome the wallet-relief provided by currently low transportation and heating fuel prices. As the saying goes, “Why look a gift horse in the mouth?” It isn’t comfortable to consider that the relatively calm waters international oil prices present could be covering an insidious undertow that is quietly dragging our renewable and alcohol fuel industry down to the OPEC equivalent of Davey Jones’s Locker where it will lay submerged until the big oil pumps finally do run dry.
In some places around the country today we are paying US $1.89 a gallon for gas (or even less). However, it is important to point out that with that short term windfall comes the ominous realization that nearly 25% of our Alcohol fuel producing industry will be going belly-up soon. That is correct. Many investor-backed as well as entrepreneurially driven Alcohol plants currently producing in the US may be bankrupted by the end of February 2009.
It is very likely that 40 of the nearly 200 alcohol fuel plants we have working now will be victims of what I refer to as big oil’s slash, burn and buy strategy to collapse, consume and control our fledgling alcohol fuel industry.
The obvious poster child for this tragedy is VeraSun. Declaring bankruptcy recently in a federal court in Delaware, VeraSun represents a considerable failure for the alcohol fuel industry. Having fallen from the vanguard of ethanol plants funded by venture capital, its collapse is having a rip-tide effect through the investment (and sadly) the farming community as well. Once a mighty force for alcohol expansion VeraSun is now reduced in value to pennies on the dollar. [Editor's note, for more on the takeover bid, read RenewableEnergyWorld.com's story, Ethanol Industry Eyes Valero's Bid for Verasun.]
How did this happen? What is the sleight of hand big oil is using to lull us to sleep at the wheel, while it methodically implements the conquest and enslavement of America’s independent and sustainable energy future?
Here’s the answer. Oil companies are using the commodities futures trading system to artificially drive up the price of corn while depressing the price of alcohol, essentially gaming the futures market. The impact of artificially high corn prices is that plants like VeraSun (that aren’t built and supported by farm-owners, but rather by capital investors) had to pay high prices to compete with big oil to buy corn and make fuel. Meanwhile, the futures price of alcohol was driven down by big oil’s fuel monopoly-easy since they buy over 99% of alcohol fuel produced.
Although VeraSun recently named the company that has offered to buy it out of bankruptcy and as I had predicted, it’s an oil company. Big oil recently spent a billion dollars conducting a fictitious food vs. fuel campaign, contributing to devaluation of US $6 billion dollars’ worth of alcohol plants by more than 90%. Big oil is now quietly spending a fraction of the $125 billion they made in profit last year to buy up alcohol fuel plants for pennies on the dollar.
It is sad that VeraSun and some other independent distillery companies face bankruptcy, but the real market losers are our farmers. While oil companies bought futures contracts for corn at $6 a bushel, farmers were subjected to a quadrupling of prices for oil-based crop inputs such as fertilizer.
With the federal court ruling in the VeraSun bankruptcy, a legal precedence is being set that now allows plant owners to reject contract commitments for grain and corn purchases they have made with working farmers. For the first time ever for any company, there may be an escape from paying for the futures contracts that are bought. The problem with this is that farmers have of course already borrowed money (based on futures pricing) to pay for higher input costs in producing the supposedly higher-priced corn. Unlike the plant owners, they won’t get to avoid their debts and as that crunch goes on.
I think that there is a real chance that big oil will buy up the alcohol plants, reject the futures contracts, bankrupt the farmers and then be able to buy their land.
If the oil companies gain control of even a quarter of the alcohol production infrastructure and land for the crops, there will be no end to the disruption they can cause in markets, they could even potentially bankrupt the rest of the industry. If you think that it’s a nightmare that big oil controls our energy, think what life would be like if it controlled our land and food, as well.
Oh no, I hear another bailout in the makings! Unfortunately, I think that the only way to avoid this catastrophic scenario is for us to provide alcohol fuel plants with a bail-out plan. However, as I have recommended for the auto industry bailout, there should be conditions. While a number of initiatives should be addressed to ensure the alcohol fuel industry’s long-term growth, implementing these bailout conditions in the short term will make the ethanol business more secure and less likely to need any future assistance:
•All alcohol fuel plants should be required to install the equipment necessary to handle non-corn energy crops.
•By 2010 plants should be required to diversify their crop inputs, limiting corn to 50% of the total. This would insulate them from further manipulation by oil companies and start the country, especially the Midwest, on the path of sustainable agriculture.
•By 2011 all plants should be required to run at least 90% on renewable fuel, not fossil fuels. Corn Plus has already converted its plant to run on biomass, reporting a 6:1 energy return compared to the usual 1.5:1 of coal-based alcohol fuel plants.
•The bailout should include loans to provide energy to alcohol fuel plants using biomass-fired combined-heat-and-electricity facilities. This would reduce alcohol price volatility, since alcohol production would largely be decoupled from the prices of oil, coal, and natural gas.
Even though I am an advocate for smaller alcohol fuel plants for many reasons (security, local economy strength, true energy independence among others), the larger plants need to be protected for the health of the industry and the United States. Without an effective alcohol industry to compete with big oil, the sky would be the limit on gasoline prices.
I have already gone on record predicting that we can expect gas prices to rocket by March 2009. I have also stated that there will be a concerted effort to blame the new administration for this occurrence. This will happen because oil companies and OPEC are afraid that President Obama will carry out his campaign promises to reduce oil imports and address climate change.
There is already a big oil campaign going on to portray the oil companies as back in control of energy prices that somehow got out of control last summer due to “speculators.” You might have caught the 60 Minutes Infomercial they ran for OPEC and the Saudi family recently, (wow take a guess at what that cost to purchase and produce).
Big oil is already floating articles that say that putting money into alternative fuels will be a waste of taxpayer dollars and will raise rather than lower the price of auto fuel. Expect this chorus to become a propaganda flood during the first 60 to 90 days of President Obama’s administration, with the aim of discouraging Congress from doing anything substantial to cut our oil use via any alternatives not controlled by big oil (oil shale, tar sands, coal-to-gas).
It will be in the oil companies’ best interests to avoid attention until after the first round of legislation from the new administration. Traditionally, new presidents can get almost anything passed in the first 60 days or so. The oil companies would prefer to not have the gun sights of legislators trained on them during this period. Once the first flush of legislation is introduced, it will be autumn before another major bill could be introduced to interfere with the oil companies. They will hope to have the ethanol industry and enough legislators bought up by then.
I urge citizens everywhere to contact their Congressional representatives, the Department of Justice, Antitrust Division and the Federal Trade Commission, Bureau of Competition to express their concern regarding the Valero acquisition of Verasun and to help mandate protectionary and regulatory programs for the formation of a truly independent renewable energy and fuel producers market. (Note: email is not always secure. Mark confidential information “Confidential” and send it via postal mail).
David Blume is the executive director of the International Institute for Ecological Agriculture, (I.I.E.A.). He is a globally renowned permaculture and alcohol fuel expert and is author of the Amazon best-selling book Alcohol Can Be A Gas (www.alcoholcanbeagas.com). Mr. Blume is a leading advocate for alcohol fuel and the role of the American farmer in developing a truly sustainable energy and food policy for the post-oil era.
Friday, July 24, 2009
CBOT Corn Review: Rallies On USDA's Plan To Resurvey Acreage
By Ian Berry
DOW JONES NEWSWIRES
July 23, 2009
CHICAGO (Dow Jones)--The government's announcement that it would resurvey corn acreage in several U.S. states launched a rally in Chicago Board of Trade corn Thursday, giving life to a market that to many appeared to be sinking toward $3 a bushel.
September corn ended up 19 cents to $3.27 a bushel and December corn ended up 19 1/2 cents to $3.38 3/4.
After recent weakness amid bearish weather and technical pressure, the market was "suddenly served with an input we weren't trading," a floor trader said. Prices opened about 10 cents higher and continued to climb throughout the day, ending at session highs. Funds bought an estimated 10,000 contracts.
The catalyst was the U.S. Department of Agriculture's announcement that it would be conducting more surveys and revising its planted acreage estimate in the August crop production report. With the USDA already having issued a large, bearish planted-acreage estimate in June, most analysts said the only direction for the corn acreage to go is down.
"We, and many in the market, are and remain skeptical that farmers planted 87 million acres of corn as reported in June," Morgan Stanley said in a report.
Traders said the news could have put a seasonal low in the market.
"I think they changed the rules of the game, and you have to adjust," a trader said. He sees the market moving toward the $3.50-$3.75 range in the December contract.
Strong weekly export sales added to the supportive tone and demonstrated that demand picked up on the recent break in prices, traders said. A generally bullish tone in commodities was also supportive, traders added.
Some analysts said an increase in acreage could not be ruled out. Gavin Maguire, a director of EHedger, said he expects an acreage cut, but said it could be offset by larger yields. Benign weather for weeks, with forecasts calling for more cool weather, has weighed on prices and fueled expectations of a bumper crop.
"Maybe we will lose a million acres, but we could see yields jump by 5, 6, 7 bushels per acre," Maguire said.
Farmer selling could provide a headwind for any rally, a trader said. Farmers are holding large amounts of grain after refusing to sell as prices dropped from about $4.50 to just above $3 in about a month.
Farmer selling also likely helped the September-December spread to widen, a trader said. The trader added that funds are primarily in the December contract, so short covering gave an added boost to that contract.
CBOT oats futures ended higher in a modest correction after a sharp drop the past couple of days. A trader said that corn provided support but that the rally was disappointing after two days of fund liquidation. September oats ended up 3 1/2 cents to $2.02 1/2 a bushel and December oats ended up 3 1/2 cents to $2.14 1/2.
Ethanol futures were higher. August ethanol ended up $0.065 to $1.597 a gallon and September ethanol ended up $0.064 to $1.555.
DOW JONES NEWSWIRES
July 23, 2009
CHICAGO (Dow Jones)--The government's announcement that it would resurvey corn acreage in several U.S. states launched a rally in Chicago Board of Trade corn Thursday, giving life to a market that to many appeared to be sinking toward $3 a bushel.
September corn ended up 19 cents to $3.27 a bushel and December corn ended up 19 1/2 cents to $3.38 3/4.
After recent weakness amid bearish weather and technical pressure, the market was "suddenly served with an input we weren't trading," a floor trader said. Prices opened about 10 cents higher and continued to climb throughout the day, ending at session highs. Funds bought an estimated 10,000 contracts.
The catalyst was the U.S. Department of Agriculture's announcement that it would be conducting more surveys and revising its planted acreage estimate in the August crop production report. With the USDA already having issued a large, bearish planted-acreage estimate in June, most analysts said the only direction for the corn acreage to go is down.
"We, and many in the market, are and remain skeptical that farmers planted 87 million acres of corn as reported in June," Morgan Stanley said in a report.
Traders said the news could have put a seasonal low in the market.
"I think they changed the rules of the game, and you have to adjust," a trader said. He sees the market moving toward the $3.50-$3.75 range in the December contract.
Strong weekly export sales added to the supportive tone and demonstrated that demand picked up on the recent break in prices, traders said. A generally bullish tone in commodities was also supportive, traders added.
Some analysts said an increase in acreage could not be ruled out. Gavin Maguire, a director of EHedger, said he expects an acreage cut, but said it could be offset by larger yields. Benign weather for weeks, with forecasts calling for more cool weather, has weighed on prices and fueled expectations of a bumper crop.
"Maybe we will lose a million acres, but we could see yields jump by 5, 6, 7 bushels per acre," Maguire said.
Farmer selling could provide a headwind for any rally, a trader said. Farmers are holding large amounts of grain after refusing to sell as prices dropped from about $4.50 to just above $3 in about a month.
Farmer selling also likely helped the September-December spread to widen, a trader said. The trader added that funds are primarily in the December contract, so short covering gave an added boost to that contract.
CBOT oats futures ended higher in a modest correction after a sharp drop the past couple of days. A trader said that corn provided support but that the rally was disappointing after two days of fund liquidation. September oats ended up 3 1/2 cents to $2.02 1/2 a bushel and December oats ended up 3 1/2 cents to $2.14 1/2.
Ethanol futures were higher. August ethanol ended up $0.065 to $1.597 a gallon and September ethanol ended up $0.064 to $1.555.
Wednesday, July 22, 2009
Big Oil Bets on Biofuels
By Jennifer Kho
Renewable Energy World
July 21, 2009
At first glance, it might look like oil companies are pulling out of renewables. At the end of June, BP closed its alternative-energy headquarters. The oil company also has cut its alternative-energy budget and closed several solar factories in Spain. And that's after Shell sold off most of its solar business at the end of 2007. But while solar might not have been the best fit for the petroleum industry, analysts say that oil companies might be better-positioned in renewable fuels - and are seeing some obvious signs of movement into the area.
One of the biggest is ExxonMobil's announcement last week that it will invest more than $600 million in algae-based biofuels, with more than $300 million going to Synthetic Genomics. Of course, oil companies have previously invested at the research level, such as when BP announced it would invest $500 million - over a decade - in a research consortium led by the University of California at Berkeley in 2007. But Michael Butler, CEO of investment bank Cascadia Capital, said that starting last fall, about when the economic downturn began, he began seeing more activity in the business of renewable fuels as well.
Some examples? U.S. oil company Valero Energy Corp. in March won court approval to buy seven ethanol plants - and one partially completed plant - from VeraSun Energy Corp. Earlier this month, Redmond, Wash.-based Prometheus Energy, which converts waste methane into liquid natural gas, said it raised $20 million from the Shell Technology Ventures Fund and Black River Asset Management, a subsidiary of the agricultural giant Cargill. And in February, Conoco opened an ethanol fuel-blending station in Kansas in partnership with ICM, Poet and Crescent Oil. Conoco and Tyson Foods in May suspended plans for a plant that would have made biodiesel from animal fat, but DTN Research analyst Rick Kment said Conoco is considering buying a biofuel plant on the East Coast.
One reason for these investments is that the recession - along with the hard times for the ethanol and biodiesel industry - has led to great deals for biofuel assets, Kment said. Valero was able to acquire VeraSun assets for a mere 30 percent of the estimated cost of building the plants, and similar opportunities may be available. In February, Archer Daniel Midlands told analysts that nearly 21 percent of U.S. ethanol production capacity had been shut down, meaning that plenty of defunct assets could be up for grabs.
Kment said he expects to see more examples of oil companies buying ethanol and biofuel plants to meet that standard. After all, the renewable fuel standard calls for 36 billion gallons of biofuel to be blended into transportation fuels by 2022, up from 9 billion gallons last year. At today's low prices, it makes sense for blenders to buy biofuel assets as a hedge against higher prices in the future, Kment said. "At this point, companies are looking at this as economical and a good investment," he said. "The value of these plants are at nickels or dimes on the dollar, so [oil companies] have an opportunity to lock up a portion of their blending needs of biofuels ... and hedge their overall cost in case the overall supply becomes tighter in the future."
Kment sees oil companies spending more money at the asset-acquisition level than at the startup stage. But even those smaller startup investments represent a significant trend at a time when many venture capitalists and private-equity investors are pulling back, Butler said. "They're filling a void in the marketplace," he said. "Oil companies have the [technological expertise] to get really deep into this technology. So they can afford to take these bets and take on some of this risk."
Many renewable-fuel technologies have turned out to be harder to fully commercialize than startups expect. (It took Prometheus Energy, for example, an extra 1-plus year to get up and running. The company was delisted from the London AIM exchange last year, before scoring its funding round.) But even though financial investors have been burned by the significant amount of capital and secure distribution channels that it takes to make biofuels successful, those same factors could give oil companies an edge, Butler said. In fact, several of his clients are currently in discussions with big oil and gas companies. "It's just a natural fit," he said. "Big companies bring the distribution and [scale], and startups bring the technology and the innovation."
In any case, all the investments signify that the petroleum industry "really looks at biofuels as a stable part of the industry," Kment said. "Whether they like it or appreciate it or not, they see it as being part of the [fuels] industry and one of the things needed to [do business] in the United States."
Butler agrees that it's a milestone for biofuels. "My gut [feeling] is that oil companies understand that, at some point, they've got to get into renewables," he said. "I'm not really sure they're going to develop the products in their own companies, so it probably makes more sense for them to go outside. If the technology ends up working, this could be very, very synergistic."
The trend of oil companies expanding from buying to also producing biofuels could significantly grow the industry, analysts said. Renewable fuels is certainly a better fit for oil companies than solar power, said Ron Pernick, a principal at research firm Clean Edge. "They didn't know [solar] manufacturing, didn't have the distribution channels for something like a solar panel - it didn't fit their gestalt or their DNA," he said.
Alternative fuels could make far more sense because they tie more closely to oil and gas companies' core business, he added. "Here is a business where a lot of biofuel tech companies have tried and failed, and maybe that wasn't the right fit for them," he said. "I think if anyone can crack this nut, it's probably the chemical and oil and gas guys."
Renewable Energy World
July 21, 2009
At first glance, it might look like oil companies are pulling out of renewables. At the end of June, BP closed its alternative-energy headquarters. The oil company also has cut its alternative-energy budget and closed several solar factories in Spain. And that's after Shell sold off most of its solar business at the end of 2007. But while solar might not have been the best fit for the petroleum industry, analysts say that oil companies might be better-positioned in renewable fuels - and are seeing some obvious signs of movement into the area.
One of the biggest is ExxonMobil's announcement last week that it will invest more than $600 million in algae-based biofuels, with more than $300 million going to Synthetic Genomics. Of course, oil companies have previously invested at the research level, such as when BP announced it would invest $500 million - over a decade - in a research consortium led by the University of California at Berkeley in 2007. But Michael Butler, CEO of investment bank Cascadia Capital, said that starting last fall, about when the economic downturn began, he began seeing more activity in the business of renewable fuels as well.
Some examples? U.S. oil company Valero Energy Corp. in March won court approval to buy seven ethanol plants - and one partially completed plant - from VeraSun Energy Corp. Earlier this month, Redmond, Wash.-based Prometheus Energy, which converts waste methane into liquid natural gas, said it raised $20 million from the Shell Technology Ventures Fund and Black River Asset Management, a subsidiary of the agricultural giant Cargill. And in February, Conoco opened an ethanol fuel-blending station in Kansas in partnership with ICM, Poet and Crescent Oil. Conoco and Tyson Foods in May suspended plans for a plant that would have made biodiesel from animal fat, but DTN Research analyst Rick Kment said Conoco is considering buying a biofuel plant on the East Coast.
One reason for these investments is that the recession - along with the hard times for the ethanol and biodiesel industry - has led to great deals for biofuel assets, Kment said. Valero was able to acquire VeraSun assets for a mere 30 percent of the estimated cost of building the plants, and similar opportunities may be available. In February, Archer Daniel Midlands told analysts that nearly 21 percent of U.S. ethanol production capacity had been shut down, meaning that plenty of defunct assets could be up for grabs.
Kment said he expects to see more examples of oil companies buying ethanol and biofuel plants to meet that standard. After all, the renewable fuel standard calls for 36 billion gallons of biofuel to be blended into transportation fuels by 2022, up from 9 billion gallons last year. At today's low prices, it makes sense for blenders to buy biofuel assets as a hedge against higher prices in the future, Kment said. "At this point, companies are looking at this as economical and a good investment," he said. "The value of these plants are at nickels or dimes on the dollar, so [oil companies] have an opportunity to lock up a portion of their blending needs of biofuels ... and hedge their overall cost in case the overall supply becomes tighter in the future."
Kment sees oil companies spending more money at the asset-acquisition level than at the startup stage. But even those smaller startup investments represent a significant trend at a time when many venture capitalists and private-equity investors are pulling back, Butler said. "They're filling a void in the marketplace," he said. "Oil companies have the [technological expertise] to get really deep into this technology. So they can afford to take these bets and take on some of this risk."
Many renewable-fuel technologies have turned out to be harder to fully commercialize than startups expect. (It took Prometheus Energy, for example, an extra 1-plus year to get up and running. The company was delisted from the London AIM exchange last year, before scoring its funding round.) But even though financial investors have been burned by the significant amount of capital and secure distribution channels that it takes to make biofuels successful, those same factors could give oil companies an edge, Butler said. In fact, several of his clients are currently in discussions with big oil and gas companies. "It's just a natural fit," he said. "Big companies bring the distribution and [scale], and startups bring the technology and the innovation."
In any case, all the investments signify that the petroleum industry "really looks at biofuels as a stable part of the industry," Kment said. "Whether they like it or appreciate it or not, they see it as being part of the [fuels] industry and one of the things needed to [do business] in the United States."
Butler agrees that it's a milestone for biofuels. "My gut [feeling] is that oil companies understand that, at some point, they've got to get into renewables," he said. "I'm not really sure they're going to develop the products in their own companies, so it probably makes more sense for them to go outside. If the technology ends up working, this could be very, very synergistic."
The trend of oil companies expanding from buying to also producing biofuels could significantly grow the industry, analysts said. Renewable fuels is certainly a better fit for oil companies than solar power, said Ron Pernick, a principal at research firm Clean Edge. "They didn't know [solar] manufacturing, didn't have the distribution channels for something like a solar panel - it didn't fit their gestalt or their DNA," he said.
Alternative fuels could make far more sense because they tie more closely to oil and gas companies' core business, he added. "Here is a business where a lot of biofuel tech companies have tried and failed, and maybe that wasn't the right fit for them," he said. "I think if anyone can crack this nut, it's probably the chemical and oil and gas guys."
Monday, July 20, 2009
US Renewable Energy Grant Rules Exclude Private Equity
By Yuliya Chernova
DOW JONES CLEAN TECHNOLOGY INSIGHT
July 20, 2009
A grant program introduced in the federal stimulus package passed earlier this year was intended to jump-start investment in renewable energy, but the rules of the program threaten to hobble it from the start by restricting private equity involvement in any projects the government backs.
The rules, published July 9, exclude from the program any projects with investors that have tax-exempt status. That was done because the grant program is intended to replace tax credits, which have become less widely used as taxable incomes have fallen. Tax-exempt investors wouldn't have been able to take advantage of tax credits so the intention is to bar them from the grant program too, according to industry participants.
However, most private equity firms receive backing from tax-exempt limited partners like endowments, pension funds and family trusts, excluding them from the program. Even if the tax-exempt entity holds just a 0.1% interest in the renewable energy project four tiers up the ownership structure, the entire project is disqualified, according to the rules published on the U.S. Treasury Department Web site and several attorneys and industry members. In a similar vein, if any of a project's ownership lands in the hands of a tax-exempt entity within five years of operation, the grant can be reclaimed by the government, according to the Treasury rules.
Projects backed by private equity can get around the ban by creating an extra layer of ownership, but this would force investors to pay more taxes.
The exclusion is "taking a huge piece of renewable energy off the table," said Greg Wetstone, vice president for government affairs at Terra-Gen Power LLC, a large solar, wind and geothermal project development company owned by private equity firm AcrLight Capital Partners.
Renewable energy industry groups estimate that this ban places more than $10 billion in new renewable energy development at risk, according to a letter seen by Clean Technology Insight that the groups sent to several members of the U.S. House of Representatives in June in response to their concerns about the program wording in the stimulus package. The groups sending the letter were the American Wind Energy Association, Geothermal Energy Association, Solar Energy Industries Association and Private Equity Council.
A Treasury official didn't respond to a request for comment.
When he announced the new guidelines, Energy Secretary Steven Chu said in a statement: "These payments will help spur major private sector investments in clean energy and create new jobs for America's workers. It is part of our broad effort to double our renewable energy capacity in the next few years and make sure that America leads the world in creating the new clean energy economy of the future."
But the letter from the industry groups counters that the ban included in the guidelines actually "has the effect of discouraging renewable energy investment by private equity funds."
The letter goes on to say: "it will be next to impossible to achieve the President's ambitious goal of doubling renewable energy production in the United States over the next three years. The participation of private equity is especially important in the current economic environment where renewable energy developers are having difficulty raising capital, development is being scaled back, it is difficult to borrow money, and there is a several billion dollar shortfall in the supply of tax equity."
Terra-Gen's Wetstone said that he and others in the industry are lobbying the government to change the rules before the Treasury starts taking applications Aug. 1. Wetstone declined to say whether Terra-Gen would apply for the grants if the rules don't change before the deadline.
The American Recovery and Reinvestment Act of 2009 authorized the Treasury to offer cash grants to renewable energy projects worth about 30% of their cost. The aim was to make up for the departure of tax-equity investors, a major source of capital for renewable energy in the past who backed projects and then used government tax credits to offset taxable income. At the same time, many in the industry looked to private equity as a new source of capital for projects that were being orphaned by banks.
As well as keeping the grants focused on tax-paying entities, the restriction in the program is also to ensure that entities eligible for another renewable energy incentive called Clean Renewable Energy Bonds don't also apply for the Treasury grants. Those issuing government-supported bonds are state, local and tribal governments, public power providers and electric cooperatives, according to the industry group letter.
Keith Martin, a partner at the law firm of Chadbourne & Parke LLP who works on renewable energy projects, described the restrictions on tax-exempt institutions as "like a nuclear bomb, when all that was needed was a fire cracker."
In order to circumvent the rules as they are, private equity firms would have to create "blocker" corporations that would be tax-paying entities. "Putting a blocker in the structure means the earnings from the project will be taxed at the blocker level at a 35% corporate tax rate," Martin said.
Some private equity firms intend to invest and apply for the Treasury grants even if the rules remain as they are.
"If there are transaction costs to be borne, so be it," said Neil Z. Auerbach, managing director at Hudson Clean Energy Partners, a clean technology focused private equity firm that holds controlling interests in two project-development companies, Recurrent Energy and Element Power. "I don't think there's any risk that the cost will outweigh the benefit. The benefit is huge," he said, adding "we are absolutely ready to operate within the system."
Even so, it's clear that projects that have private equity backers are at a disadvantage compared with those that don't. "Ironically, the stimulus [helped] the top tier of developers, but not the lower tiers that have had to turn to private equity funds to raise money," Martin said.
The issue hearkens to a broader discussion in the renewable energy world, according to Edwin Feo, partner at the law firm of Milbank Tweed Hadley & McCloy LLP, where he co-chairs the project finance and energy practice.
Feo said that all types of tax subsidies have unequal effect on industry members. So there's a school of thought, he said, that questions "why are we continuing to play the game of having subsidies through tax benefits that have these pernicious unequal effects versus direct pay subsidies that provide cash usable by anyone. That's the school of thought that's pushing feed in tariffs. And that's seeing traction at the state level."
DOW JONES CLEAN TECHNOLOGY INSIGHT
July 20, 2009
A grant program introduced in the federal stimulus package passed earlier this year was intended to jump-start investment in renewable energy, but the rules of the program threaten to hobble it from the start by restricting private equity involvement in any projects the government backs.
The rules, published July 9, exclude from the program any projects with investors that have tax-exempt status. That was done because the grant program is intended to replace tax credits, which have become less widely used as taxable incomes have fallen. Tax-exempt investors wouldn't have been able to take advantage of tax credits so the intention is to bar them from the grant program too, according to industry participants.
However, most private equity firms receive backing from tax-exempt limited partners like endowments, pension funds and family trusts, excluding them from the program. Even if the tax-exempt entity holds just a 0.1% interest in the renewable energy project four tiers up the ownership structure, the entire project is disqualified, according to the rules published on the U.S. Treasury Department Web site and several attorneys and industry members. In a similar vein, if any of a project's ownership lands in the hands of a tax-exempt entity within five years of operation, the grant can be reclaimed by the government, according to the Treasury rules.
Projects backed by private equity can get around the ban by creating an extra layer of ownership, but this would force investors to pay more taxes.
The exclusion is "taking a huge piece of renewable energy off the table," said Greg Wetstone, vice president for government affairs at Terra-Gen Power LLC, a large solar, wind and geothermal project development company owned by private equity firm AcrLight Capital Partners.
Renewable energy industry groups estimate that this ban places more than $10 billion in new renewable energy development at risk, according to a letter seen by Clean Technology Insight that the groups sent to several members of the U.S. House of Representatives in June in response to their concerns about the program wording in the stimulus package. The groups sending the letter were the American Wind Energy Association, Geothermal Energy Association, Solar Energy Industries Association and Private Equity Council.
A Treasury official didn't respond to a request for comment.
When he announced the new guidelines, Energy Secretary Steven Chu said in a statement: "These payments will help spur major private sector investments in clean energy and create new jobs for America's workers. It is part of our broad effort to double our renewable energy capacity in the next few years and make sure that America leads the world in creating the new clean energy economy of the future."
But the letter from the industry groups counters that the ban included in the guidelines actually "has the effect of discouraging renewable energy investment by private equity funds."
The letter goes on to say: "it will be next to impossible to achieve the President's ambitious goal of doubling renewable energy production in the United States over the next three years. The participation of private equity is especially important in the current economic environment where renewable energy developers are having difficulty raising capital, development is being scaled back, it is difficult to borrow money, and there is a several billion dollar shortfall in the supply of tax equity."
Terra-Gen's Wetstone said that he and others in the industry are lobbying the government to change the rules before the Treasury starts taking applications Aug. 1. Wetstone declined to say whether Terra-Gen would apply for the grants if the rules don't change before the deadline.
The American Recovery and Reinvestment Act of 2009 authorized the Treasury to offer cash grants to renewable energy projects worth about 30% of their cost. The aim was to make up for the departure of tax-equity investors, a major source of capital for renewable energy in the past who backed projects and then used government tax credits to offset taxable income. At the same time, many in the industry looked to private equity as a new source of capital for projects that were being orphaned by banks.
As well as keeping the grants focused on tax-paying entities, the restriction in the program is also to ensure that entities eligible for another renewable energy incentive called Clean Renewable Energy Bonds don't also apply for the Treasury grants. Those issuing government-supported bonds are state, local and tribal governments, public power providers and electric cooperatives, according to the industry group letter.
Keith Martin, a partner at the law firm of Chadbourne & Parke LLP who works on renewable energy projects, described the restrictions on tax-exempt institutions as "like a nuclear bomb, when all that was needed was a fire cracker."
In order to circumvent the rules as they are, private equity firms would have to create "blocker" corporations that would be tax-paying entities. "Putting a blocker in the structure means the earnings from the project will be taxed at the blocker level at a 35% corporate tax rate," Martin said.
Some private equity firms intend to invest and apply for the Treasury grants even if the rules remain as they are.
"If there are transaction costs to be borne, so be it," said Neil Z. Auerbach, managing director at Hudson Clean Energy Partners, a clean technology focused private equity firm that holds controlling interests in two project-development companies, Recurrent Energy and Element Power. "I don't think there's any risk that the cost will outweigh the benefit. The benefit is huge," he said, adding "we are absolutely ready to operate within the system."
Even so, it's clear that projects that have private equity backers are at a disadvantage compared with those that don't. "Ironically, the stimulus [helped] the top tier of developers, but not the lower tiers that have had to turn to private equity funds to raise money," Martin said.
The issue hearkens to a broader discussion in the renewable energy world, according to Edwin Feo, partner at the law firm of Milbank Tweed Hadley & McCloy LLP, where he co-chairs the project finance and energy practice.
Feo said that all types of tax subsidies have unequal effect on industry members. So there's a school of thought, he said, that questions "why are we continuing to play the game of having subsidies through tax benefits that have these pernicious unequal effects versus direct pay subsidies that provide cash usable by anyone. That's the school of thought that's pushing feed in tariffs. And that's seeing traction at the state level."
Saturday, July 18, 2009
Biofuel Fraud Case Could Leave the EPA Running on Fumes
Cello Energy is unlikely to produce 70 million gallons of cellulosic biofuel next year, which means that the EPA will not meet its 2010 target of 100 million gallons
By Brendan Borrell
Scientific American
Grassoline it ain't. After a jury ordered a leading cellulosic biofuel company to pony up millions for defrauding investors, the U.S. Environmental Protection Agency will likely come in 60 million gallons shy of its 100 million gallon target next year.
Late last month, a federal court in Mobile ordered Cello Energy of Bay Minette, Ala., to pay $10.4 million in punitive damages for fraudulently claiming it could produce cheap diesellike fuel from hay, wood pulp and other waste.
Cello's owner, Jack Boykin, allegedly built a sham facility and lured pulp producer Parsons & Whittemore Enterprises to invest $2.5 million in an ownership stake in 2007. In court, Parsons & Whitmore CEO George Landegger said he was unimpressed with the company's facilities, and a string of expert witnesses testified that fuel samples were derived from petroleum sources.
Neither Boykin nor his attorney, Forrest Latta, returned calls for comment, but in statements to the press following the trial, Latta has indicated that Cello's technology has "global potential." Another defendant, Khosla Ventures, a California firm that invested $12.5 million in Cello in 2007, was unavailable to comment.
Although it's no surprise that investors might be dazzled in the rush to hop on board the biofuels bandwagon, the EPA appears to have been duped as well.
Cellulosic biofuel technology is still in its infancy, and the agency and Congress required gasoline blenders to purchase and sell just 100 million gallons next year, less than 1 percent of the nation's proposed renewable fuel mandates. To encourage biofuel producers to meet that demand, the government would establish a credit scheme to set a floor on the wholesale price of $3.00 per gallon—about twice that of corn-based ethanol—if production fails to reach the 100 million gallon mark.
But David Woodburn, an analyst at ThinkEquity Partners in Chicago says that the agency had pinned its hopes on Cello and has not put in place the cellulosic biofuel credit system required to maintain that price point. "EPA was supposed to have prepared it in late June," he says, "In the EPA's eyes, they only need to implement that system if they see a shortfall coming.... Up to now on paper they've totally ignored this credit system."
As reported in earth2tech, Woodburn first realized the EPA would fall short of its target when it released its draft regulatory impact analysis in May. This document listed firms that were to make cellulosic biofuel, and most were on the hook to produce one million or two million gallons by the end of 2010. Cello Energy, however, claimed that its Bay Minette facility would pump out 20 million gallons. The agency also had Cello down for new plants that would produce another 50 million gallons. Woodburn says he grew skeptical of the company after calls and e-mails to the company for verification were never returned.
EPA spokeswoman Cathy Milbourn says Cello estimates were "derived based on commercialization plans from the company. They never gave us volume—only size of the facilities and planned timeline."
So, what's the chance that Cello can still meet its target? "It seemed extremely unlikely three weeks ago before this jury verdict," Woodburn says. "It seems extremely unlikely today. How can you create three additional plants and have them producing in 2010 when ground hasn't been broken yet?"
Woodburn adds that Cello also faces another hurdle, which is that it has no distribution agreements: in other words, no one has promised to buy their biofuel. In the best-case scenario, he says, the nation will produce 39 million gallons of cellulosic biofuel next year and blenders will be on the hook to pay the government a $600 million or more for biofuel credits through a program that still does not exist.
Alternatively, the EPA could lower the cellulosic biofuel target when it finalizes the contentious renewable fuel standards in the fall, a decision that would defeat the whole idea of the goal in the first place.
Milbourn says the EPA is "continuing to assess the viability of not only Cello, but also the various other technologies and companies in supplying cellulosic biofuel."
For George Huber, the University of Massachusetts Amherst chemical engineering professor who wrote Scientific American's July cover story about cellulosic biofuels, Cello is a lesson to be learned. "There are no magic processes for conversion of biomass into liquid fuels," he says, "If something sounds too good to be true, it probably is not true."
By Brendan Borrell
Scientific American
Grassoline it ain't. After a jury ordered a leading cellulosic biofuel company to pony up millions for defrauding investors, the U.S. Environmental Protection Agency will likely come in 60 million gallons shy of its 100 million gallon target next year.
Late last month, a federal court in Mobile ordered Cello Energy of Bay Minette, Ala., to pay $10.4 million in punitive damages for fraudulently claiming it could produce cheap diesellike fuel from hay, wood pulp and other waste.
Cello's owner, Jack Boykin, allegedly built a sham facility and lured pulp producer Parsons & Whittemore Enterprises to invest $2.5 million in an ownership stake in 2007. In court, Parsons & Whitmore CEO George Landegger said he was unimpressed with the company's facilities, and a string of expert witnesses testified that fuel samples were derived from petroleum sources.
Neither Boykin nor his attorney, Forrest Latta, returned calls for comment, but in statements to the press following the trial, Latta has indicated that Cello's technology has "global potential." Another defendant, Khosla Ventures, a California firm that invested $12.5 million in Cello in 2007, was unavailable to comment.
Although it's no surprise that investors might be dazzled in the rush to hop on board the biofuels bandwagon, the EPA appears to have been duped as well.
Cellulosic biofuel technology is still in its infancy, and the agency and Congress required gasoline blenders to purchase and sell just 100 million gallons next year, less than 1 percent of the nation's proposed renewable fuel mandates. To encourage biofuel producers to meet that demand, the government would establish a credit scheme to set a floor on the wholesale price of $3.00 per gallon—about twice that of corn-based ethanol—if production fails to reach the 100 million gallon mark.
But David Woodburn, an analyst at ThinkEquity Partners in Chicago says that the agency had pinned its hopes on Cello and has not put in place the cellulosic biofuel credit system required to maintain that price point. "EPA was supposed to have prepared it in late June," he says, "In the EPA's eyes, they only need to implement that system if they see a shortfall coming.... Up to now on paper they've totally ignored this credit system."
As reported in earth2tech, Woodburn first realized the EPA would fall short of its target when it released its draft regulatory impact analysis in May. This document listed firms that were to make cellulosic biofuel, and most were on the hook to produce one million or two million gallons by the end of 2010. Cello Energy, however, claimed that its Bay Minette facility would pump out 20 million gallons. The agency also had Cello down for new plants that would produce another 50 million gallons. Woodburn says he grew skeptical of the company after calls and e-mails to the company for verification were never returned.
EPA spokeswoman Cathy Milbourn says Cello estimates were "derived based on commercialization plans from the company. They never gave us volume—only size of the facilities and planned timeline."
So, what's the chance that Cello can still meet its target? "It seemed extremely unlikely three weeks ago before this jury verdict," Woodburn says. "It seems extremely unlikely today. How can you create three additional plants and have them producing in 2010 when ground hasn't been broken yet?"
Woodburn adds that Cello also faces another hurdle, which is that it has no distribution agreements: in other words, no one has promised to buy their biofuel. In the best-case scenario, he says, the nation will produce 39 million gallons of cellulosic biofuel next year and blenders will be on the hook to pay the government a $600 million or more for biofuel credits through a program that still does not exist.
Alternatively, the EPA could lower the cellulosic biofuel target when it finalizes the contentious renewable fuel standards in the fall, a decision that would defeat the whole idea of the goal in the first place.
Milbourn says the EPA is "continuing to assess the viability of not only Cello, but also the various other technologies and companies in supplying cellulosic biofuel."
For George Huber, the University of Massachusetts Amherst chemical engineering professor who wrote Scientific American's July cover story about cellulosic biofuels, Cello is a lesson to be learned. "There are no magic processes for conversion of biomass into liquid fuels," he says, "If something sounds too good to be true, it probably is not true."
Biofuel Development a Burning Priority for Obama Camp
By Greg Burns
Chicago Tribune
July 9, 2009
Even with new rules in the offing that would slap handcuffs on oil traders, a prospect that sent shares of Chicago-based CME Group tumbling, the feds are more eager than ever to promote oil-free gasohol. They especially love the stuff brewed from wood chips, corn cobs, switch grass and other forms of cellulose.
Yet cellulosic ethanol, as it's called, remains more of a promise than a reality. So far, no one has produced it on a mass commercial scale at a price that would rival ethanol made from corn or sugar cane.
For a shining moment, the fuel-from-sawdust movement attracted a fortune in private investment, before venture capital funds dried up across the globe. Now, however, at least a few of those bucks are being clawed back the hard way.
The wood chips hit the shredder in Alabama at the end of June, when a federal jury ordered a cellulosic energy company and its executives to pay $10.4 million in a fraud suit brought by an unhappy investor. It's a complex case focused on allegations of bad-faith business practices that involved Silicon Valley visionary Vinod Khosla, whose firm denied any wrongdoing.
But the case also highlighted a once-eager convert's loss of faith in cellulosic fuel.
"This was supposedly a breakthrough technology," said investor George Landegger, who runs the privately held pulp producer Parsons & Whittemore Inc. "This particular one is worthless."
Will any live up to the hype? The potential for scaling up beyond a lab or pilot program "has yet to be proven," he said.
For its part, Cello Energy LLC vowed to continue fighting the legal case and moving ahead with its plant startup.
"It would be wrong to read the lawsuit as any kind of scientific referendum on the ultimate success or failure of the cellulosic fuel process," the company said in a statement.
The fight between Landegger and Cello has a bigger dimension. Government officials were counting on the Alabama-based company to meet 50 percent of the bio-requirement under the nation's motor-fuel standards for next year.
That's not happening, said David Woodburn, research analyst at ThinkEquity LLC in Chicago.
Counting all the demonstration projects, pilot plants and one or two bigger ventures, then assuming that all perform at maximum advertised capacity, only 39 million gallons of a required 100 million will be produced in 2010, he calculates. That's a tiny fraction of the fuel used by U.S. cars and trucks in a year. In 2011, the requirement rises to 250 million, but production to no more than 82 million.
Federal officials may delay imposing the standards, and the production shortfall may in turn trigger further incentives for development.
Certainly, the government shows no sign of backing off. Announcing an additional $787 million for biofuel research and commercialization in May, Chu reportedly sounded an optimistic note: Corn-based ethanol was "a good start," he said, but "research will lead the way to give us much better options."
Landegger worries those research dollars could be wasted. By the time he severed ties with Cello, he said, "It was no longer a biofuel enterprise. It was a grant-requesting enterprise."
Chicago Tribune
July 9, 2009
Even with new rules in the offing that would slap handcuffs on oil traders, a prospect that sent shares of Chicago-based CME Group tumbling, the feds are more eager than ever to promote oil-free gasohol. They especially love the stuff brewed from wood chips, corn cobs, switch grass and other forms of cellulose.
Yet cellulosic ethanol, as it's called, remains more of a promise than a reality. So far, no one has produced it on a mass commercial scale at a price that would rival ethanol made from corn or sugar cane.
For a shining moment, the fuel-from-sawdust movement attracted a fortune in private investment, before venture capital funds dried up across the globe. Now, however, at least a few of those bucks are being clawed back the hard way.
The wood chips hit the shredder in Alabama at the end of June, when a federal jury ordered a cellulosic energy company and its executives to pay $10.4 million in a fraud suit brought by an unhappy investor. It's a complex case focused on allegations of bad-faith business practices that involved Silicon Valley visionary Vinod Khosla, whose firm denied any wrongdoing.
But the case also highlighted a once-eager convert's loss of faith in cellulosic fuel.
"This was supposedly a breakthrough technology," said investor George Landegger, who runs the privately held pulp producer Parsons & Whittemore Inc. "This particular one is worthless."
Will any live up to the hype? The potential for scaling up beyond a lab or pilot program "has yet to be proven," he said.
For its part, Cello Energy LLC vowed to continue fighting the legal case and moving ahead with its plant startup.
"It would be wrong to read the lawsuit as any kind of scientific referendum on the ultimate success or failure of the cellulosic fuel process," the company said in a statement.
The fight between Landegger and Cello has a bigger dimension. Government officials were counting on the Alabama-based company to meet 50 percent of the bio-requirement under the nation's motor-fuel standards for next year.
That's not happening, said David Woodburn, research analyst at ThinkEquity LLC in Chicago.
Counting all the demonstration projects, pilot plants and one or two bigger ventures, then assuming that all perform at maximum advertised capacity, only 39 million gallons of a required 100 million will be produced in 2010, he calculates. That's a tiny fraction of the fuel used by U.S. cars and trucks in a year. In 2011, the requirement rises to 250 million, but production to no more than 82 million.
Federal officials may delay imposing the standards, and the production shortfall may in turn trigger further incentives for development.
Certainly, the government shows no sign of backing off. Announcing an additional $787 million for biofuel research and commercialization in May, Chu reportedly sounded an optimistic note: Corn-based ethanol was "a good start," he said, but "research will lead the way to give us much better options."
Landegger worries those research dollars could be wasted. By the time he severed ties with Cello, he said, "It was no longer a biofuel enterprise. It was a grant-requesting enterprise."
BP Exits Jatropha Biofuel Project to Focus on Ethanol
Bloomberg News
July 17, 2009,
BP Plc, Europe's second-largest oil company, will exit its jatropha biofuel project with D1 Oils Plc to focus on production of ethanol in Brazil and the U.S. and advance biobutanol development.
“To ensure the success of these investments, BP is concentrating new business development in these areas and will no longer be directly involved in the jatropha as a biofuel feedstock,” Sheila Williams, a London-based company spokeswoman, said today in an e-mail.
D1 Oils said today it agreed to acquire BP's 50 percent interest in their joint D1-BP Fuel Crops Ltd. venture, set up in June 2007 to develop jatropha, a drought-resistant tree whose seeds contain oil used mainly in biodiesel production.
BP and D1 Oils had failed to find a third investor for the project. They began talks this year on dissolving the venture and bringing planting and plant-science operations under D1's control. London-based D1 said last month it would be able to maintain the business at lower cost until market conditions allowed the injection of new capital.
The partners had planned to plant 1 million hectares of jatropha over four years, of which 220,000 hectares had been planted by April.
BP Alternative Energy has earmarked $8 billion for project investment in the decade through 2015. BP, which expects biofuels to account for 11 percent to 19 percent of the world's transport-fuel market by 2030, supplied about 10 percent of global biofuels last year, according to company estimates.
The British oil producer is cooperating with U.S. universities to spend about $500 million over 10 years on biofuels research. It's also working with DuPont Co., the third- largest U.S. chemicals maker, to develop biobutanol, a gasoline- like fuel made from biomass.
BP last year agreed to invest in Brazilian ethanol venture Tropical BioEnergia SA and plans to spend $5 billion to $6 billion to boost production over 5 to 10 years. Brazil's Santelisa Vale SA and Grupo Maeda Ltda each hold 25 percent of Tropical BioEnergia, while BP has 50 percent.
“We believe that biofuels will make a major contribution to road transport fuels, reducing carbon emissions and diversifying supply,” Williams said.
BP and the U.S.'s Verenium Corp. agreed in February to set up a venture to produce cellulosic ethanol, which, unlike sugar- cane ethanol, is derived from non-food crops such as switchgrass, corn cobs and wood waste.
Last year, BP teamed up with Associated British Foods Plc and DuPont to start building a $450 million wheat-based ethanol plant in Hull, northeast England. The partners may complete construction in the second or third quarter of next year, Philip New, head of biofuels at BP, said on March 17.
Europe's largest oil company is Royal Dutch Shell Plc.
July 17, 2009,
BP Plc, Europe's second-largest oil company, will exit its jatropha biofuel project with D1 Oils Plc to focus on production of ethanol in Brazil and the U.S. and advance biobutanol development.
“To ensure the success of these investments, BP is concentrating new business development in these areas and will no longer be directly involved in the jatropha as a biofuel feedstock,” Sheila Williams, a London-based company spokeswoman, said today in an e-mail.
D1 Oils said today it agreed to acquire BP's 50 percent interest in their joint D1-BP Fuel Crops Ltd. venture, set up in June 2007 to develop jatropha, a drought-resistant tree whose seeds contain oil used mainly in biodiesel production.
BP and D1 Oils had failed to find a third investor for the project. They began talks this year on dissolving the venture and bringing planting and plant-science operations under D1's control. London-based D1 said last month it would be able to maintain the business at lower cost until market conditions allowed the injection of new capital.
The partners had planned to plant 1 million hectares of jatropha over four years, of which 220,000 hectares had been planted by April.
BP Alternative Energy has earmarked $8 billion for project investment in the decade through 2015. BP, which expects biofuels to account for 11 percent to 19 percent of the world's transport-fuel market by 2030, supplied about 10 percent of global biofuels last year, according to company estimates.
The British oil producer is cooperating with U.S. universities to spend about $500 million over 10 years on biofuels research. It's also working with DuPont Co., the third- largest U.S. chemicals maker, to develop biobutanol, a gasoline- like fuel made from biomass.
BP last year agreed to invest in Brazilian ethanol venture Tropical BioEnergia SA and plans to spend $5 billion to $6 billion to boost production over 5 to 10 years. Brazil's Santelisa Vale SA and Grupo Maeda Ltda each hold 25 percent of Tropical BioEnergia, while BP has 50 percent.
“We believe that biofuels will make a major contribution to road transport fuels, reducing carbon emissions and diversifying supply,” Williams said.
BP and the U.S.'s Verenium Corp. agreed in February to set up a venture to produce cellulosic ethanol, which, unlike sugar- cane ethanol, is derived from non-food crops such as switchgrass, corn cobs and wood waste.
Last year, BP teamed up with Associated British Foods Plc and DuPont to start building a $450 million wheat-based ethanol plant in Hull, northeast England. The partners may complete construction in the second or third quarter of next year, Philip New, head of biofuels at BP, said on March 17.
Europe's largest oil company is Royal Dutch Shell Plc.
Proposed Ethanol Pipeline to Extend into South Dakota
By DIRK LAMMERS
July 17, 2009
The nation's largest biofuels producer and a Tulsa-Okla.-based pipeline company are expanding the route of a proposed $3.5 billion dedicated ethanol pipeline into South Dakota, the companies said Friday.
Poet LLC and Magellan Midstream Partners LP are studying the feasibility of the 1,800-mile pipeline, which is dependent upon studies addressing technical issues and Congress revising the U.S. Department of Energy's loan guarantee program, the companies say.
If built, the route would begin in Davison County, S.D. -- further west than O'Brien County, Iowa, as originally planned -- and deliver the alternative fuel from plants in Iowa, South Dakota, Minnesota, Illinois, Indiana and Ohio to distribution terminals in the northeastern United States.
"With South Dakota being in the top five of ethanol producing states and having almost a billion gallons of production capacity, that just made sense," said Poet spokesman Nathan Schock.
Magellan has been working with the Association of Oil Pipe Lines for years on how to transport ethanol through a pipeline, said spokesman Bruce Heine.
Heine said the biggest challenge is stress corrosion cracking, in which ethanol tends to cause internal cracking of carbon steel pipe more so than gasoline or diesel.
Magellan thinks the solution will be a combination of potential additives to help protect the pipe and the use of different welding techniques.
"We believe the combination of these factors would allow us to reliably, safely and cost effectively transport ethanol from the Midwest to the East Coast," Heine said.
Poet, based in Sioux Falls S.D., is the nation's largest ethanol producer with more than 1.5 billion gallons of annual production from 26 ethanol plants.
Magellan Midstream Partners LP transports, stores and distributes refined petroleum products.
Schock said Poet is taking the lead on market analysis for the project, while Magellan is addressing technical and issues. The two are working together on legislative challenges.
A positive assessment would allow one or both partners to enter into an agreement to construct an ethanol pipeline, but any project would take several years to complete.
Schock said he hopes for a decision on whether to move forward by the end of year or early 2010.
July 17, 2009
The nation's largest biofuels producer and a Tulsa-Okla.-based pipeline company are expanding the route of a proposed $3.5 billion dedicated ethanol pipeline into South Dakota, the companies said Friday.
Poet LLC and Magellan Midstream Partners LP are studying the feasibility of the 1,800-mile pipeline, which is dependent upon studies addressing technical issues and Congress revising the U.S. Department of Energy's loan guarantee program, the companies say.
If built, the route would begin in Davison County, S.D. -- further west than O'Brien County, Iowa, as originally planned -- and deliver the alternative fuel from plants in Iowa, South Dakota, Minnesota, Illinois, Indiana and Ohio to distribution terminals in the northeastern United States.
"With South Dakota being in the top five of ethanol producing states and having almost a billion gallons of production capacity, that just made sense," said Poet spokesman Nathan Schock.
Magellan has been working with the Association of Oil Pipe Lines for years on how to transport ethanol through a pipeline, said spokesman Bruce Heine.
Heine said the biggest challenge is stress corrosion cracking, in which ethanol tends to cause internal cracking of carbon steel pipe more so than gasoline or diesel.
Magellan thinks the solution will be a combination of potential additives to help protect the pipe and the use of different welding techniques.
"We believe the combination of these factors would allow us to reliably, safely and cost effectively transport ethanol from the Midwest to the East Coast," Heine said.
Poet, based in Sioux Falls S.D., is the nation's largest ethanol producer with more than 1.5 billion gallons of annual production from 26 ethanol plants.
Magellan Midstream Partners LP transports, stores and distributes refined petroleum products.
Schock said Poet is taking the lead on market analysis for the project, while Magellan is addressing technical and issues. The two are working together on legislative challenges.
A positive assessment would allow one or both partners to enter into an agreement to construct an ethanol pipeline, but any project would take several years to complete.
Schock said he hopes for a decision on whether to move forward by the end of year or early 2010.
Friday, July 17, 2009
Energetic Debate: Senate Grapples with Clean Energy and Jobs
The Wall Street Journal
Environmental Capital Blog
July 16, 2009
Well, the Senate is still trying to sort out whether the clean-energy push is a good thing or a bad thing for job creation.
The basic thrust goes like this: Venture capitalists, such as John Doerr, and clean-tech corporate types, such as General Electric’s John Krenicki, warned that countries such as China are stealing a lead in the clean-energy race thanks to lagging U.S. policies, which will leave the U.S. at a disadvantage in the next big industry. Sen. Barbara Boxer agreed.
Mr. Doerr noted that only one of the top five wind-turbine companies in the U.S. is actually American (it’s GE). “That’s simply not acceptable,” he said.
So much talk about wind turbines exhausted the patience of Tennessee’s Lamar Alexander, who again called for a nuclear solution to America’s energy woes. “Is nuclear power renewable energy?” he asked Mr. Doerr.
“Well, it’s low-carbon energy,” the veteran venture capitalist replied. But nuclear power’s long lead times work against it, he added: “If we wait a decade, we’re out of the race.” Later, he said, referring to America’s place in the clean-energy race, “We barely got a dog in the fight, we’re barely in the game right now.”
Lingering behind all the exchanges was the fundamental tension: How can China be poised for clean-energy leadership when the country planning greenhouse-gas limits is the U.S.?
Julian Wong of the Center for American Progress cut to the chase: “We need to separate the rhetoric of the international climate process from what is actually happening on the ground.” And China, he stressed, is moving rapidly with both stimulus money and ambitious renewable-energy targets (not to mention a stiff dose of protectionism.)
Which would seem to lend credence to the idea that cleaning up the energy system is more important than setting goals for eventually reducing carbon emissions. For China, at least.
That might explain why 34 Nobel Prize winners today sent President Obama a letter asking him to live up to his campaign pledge to spend $15 billion promoting clean energy, a promise that has been gutted by the horse-trading in the Congressional fight over the climate bill.
Environmental Capital Blog
July 16, 2009
Well, the Senate is still trying to sort out whether the clean-energy push is a good thing or a bad thing for job creation.
The basic thrust goes like this: Venture capitalists, such as John Doerr, and clean-tech corporate types, such as General Electric’s John Krenicki, warned that countries such as China are stealing a lead in the clean-energy race thanks to lagging U.S. policies, which will leave the U.S. at a disadvantage in the next big industry. Sen. Barbara Boxer agreed.
Mr. Doerr noted that only one of the top five wind-turbine companies in the U.S. is actually American (it’s GE). “That’s simply not acceptable,” he said.
So much talk about wind turbines exhausted the patience of Tennessee’s Lamar Alexander, who again called for a nuclear solution to America’s energy woes. “Is nuclear power renewable energy?” he asked Mr. Doerr.
“Well, it’s low-carbon energy,” the veteran venture capitalist replied. But nuclear power’s long lead times work against it, he added: “If we wait a decade, we’re out of the race.” Later, he said, referring to America’s place in the clean-energy race, “We barely got a dog in the fight, we’re barely in the game right now.”
Lingering behind all the exchanges was the fundamental tension: How can China be poised for clean-energy leadership when the country planning greenhouse-gas limits is the U.S.?
Julian Wong of the Center for American Progress cut to the chase: “We need to separate the rhetoric of the international climate process from what is actually happening on the ground.” And China, he stressed, is moving rapidly with both stimulus money and ambitious renewable-energy targets (not to mention a stiff dose of protectionism.)
Which would seem to lend credence to the idea that cleaning up the energy system is more important than setting goals for eventually reducing carbon emissions. For China, at least.
That might explain why 34 Nobel Prize winners today sent President Obama a letter asking him to live up to his campaign pledge to spend $15 billion promoting clean energy, a promise that has been gutted by the horse-trading in the Congressional fight over the climate bill.
Wednesday, July 15, 2009
Sweet Harvest
By Timothy Charles Holmseth
Ethanol Producer Magazine
July 2008 Issue
One hundred and fifty years ago sweet sorghum plants could be found swaying in the winds across southeastern United States. A U.S. patent officer brought the plant to the United States in 1853, according to the National Sweet Sorghum Producers and Processors Association. The plant was of interest as a substitute for sugarcane, but extracting dry sugar from the syrup proved to be too difficult. Sorghum production peaked in the 1880s and declined as it faced competition from sugarcane and sugar beets.
Today, sweet sorghum is making its second debut as a versatile feedstock that can be used for food, fuel and animal feed. “It is the only crop that can save the United States,” says Ismail Dweikat, an associate professor at the University of Nebraska-Lincoln. An agronomy and horticulture expert, Dweikat says the speed bumps, headaches, economical and political challenges the nation presently faces as it attempts to wean itself from foreign oil could be avoided if we would focus on using the sugar from this 18-foot-tall energy crop to produce ethanol. “Despite controversy, support for nonpetroleum fuels remains strong,” he says.
Dweikat spoke to attendees at the 13th annual National Ethanol Conference in February in Orlando using this quote from George Washington Carver to kick off his presentation: “I believe that the great Creator has put ores and oils on this earth to give us a breathing spell. As we exhaust them, we must be prepared to fall back on our farms, which is God’s true storehouse and can never be exhausted. We can learn to synthesize material for every human need from things that grow.”
Dweikat believes that sweet sorghum can do the job of producing ethanol for the nation, and he’s giving it his personal letter of recommendation. Sweet sorghum is appealing on several fronts, he explains. “It doesn’t need additional irrigation so you can save money on irrigation,” he says. “It doesn’t need as much nitrogen as corn—50 to 60 pounds of nitrogen will give you a full crop of sweet sorghum,” he says, noting that one pound of nitrogen is required for each bushel of corn produced.
Dweikat explains that the total biomass stover from corn is 4 to 5 tons per acre plus 150 to 180 bushels of grain per acre. Sweet sorghum trumps corn when produced and sold to cellulosic ethanol plants. Sweet sorghum typically yields 14 tons of biomass per acre. “If you are selling it for $40 a ton, that’s about $560 per acre. That would out-produce corn, with less output,” he says, noting they both go for about $40 per ton.
“Sweet sorghum requires half the amount of water that sugarcane needs,” Dweikat says. “It has more sugar on a plant than sugarcane. “On a one crop basis, sweet sorghum out-produces sugarcane because sweet sorghum matures within 100 to 120 days, while it takes the first sugarcane crop one year to mature. Also on a volume basis, sweet sorghum has a higher sugar content than sugarcane. As sweet sorghum requires less water (one-third less than sugarcane) and has a higher fermentable sugar content than sugarcane (which contains more crystallizable sugars), it is better suited for ethanol production. Also, sweet sorghum-based ethanol is sulfur-free and cleaner than molasses-based ethanol, when mixed with gasoline,” he explains.
Sizing it all up, Dweikat says quite plainly, “The more sugar, the more ethanol.” The net energy ratios of sugarcane and sweet sorghum are similar, with 1 input rendering 8 outputs, he says. “In corn … [the ratio] is 1:1.25,” he adds.
David Cukierman, president and chief executive officer of Ethano Peru LLC in Houston, also finds that sweet sorghum is a better ethanol feedstock compared with corn. “The average corn yield in the U.S. is about 150 bushels per acre. The average ethanol yield per bushel is 2.8 gallons per bushel,” he explains. “That equates to an average production rate of 420 gallons per acre.” And it looks even better in certain areas of the country that have optimal growing conditions. The average sweet sorghum yield in the United States corresponds with two cuttings per year, in comparison to the four cuttings it renders in Peru, Cukierman explains. They are planning to test their hybrids in the South Texas Valley near the Rio Grande, he says, adding that cuttings are determined by global longitude and latitude and three annual cuttings are expected in that region. “[Ethano Peru] strongly believes that sweet sorghum is the future and the answer to the food-versus-fuel controversy based on tests with our own hybrids in Peru,” Cukierman says.
Sweet sorghum also wouldn’t interfere with food production because it can be grown on marginal land, Dweikat explains. “You don’t have to use your best land,” he says. It’s also drought tolerant, he says describing that the plant behaves much like a camel. “It is more drought-tolerant than corn,” Dweikat says.
Testing and Investing
Most commonly grown in Texas, Louisiana, Oklahoma, Nebraska, Florida, Kansas and Iowa, sweet sorghum has garnered some attention, and significant money has been invested to advance its growth. “In Florida, they have just approved a $54 million ethanol plant based on sweet sorghum ethanol,” Dweikat says. “In Louisiana, they are going to plant 750 acres this year to replace sugarcane because it requires less irrigation.” Testing is also underway in Nebraska and Texas, he notes.
The crop has proven to be durable under the relentless heat of the Texas plains, where corn doesn’t thrive as well. “The Southeast grows pretty crappy corn,” says Juerg Blumenthal, associate professor and state sorghum cropping specialist at Texas A&M University. “One-hundred-bushel corn is common.” Biomass sorghum can endure periods of stress much better than grain sorghum or corn, he says.
Although sweet sorghum can be grown a little further north, it has some issues with the cold winters, Dweikat explains. “The problem in the Midwest is that it gets killed by the freeze so you have to re-plant it every year, like corn” he says. “That’s one of the limitations here in the United States.” However, continuous testing and hybrids are being pursued to address the plants’ tolerance for cold. “We are trying to make sweet sorghum a cold-tolerant plant by introducing a rhizome to it,” Dweikat notes.
He says indicators of sweet sorghum’s viability can be found across the globe where much testing is taking place. “In terms of acreage, the premier country that is using [sweet sorghum] now for ethanol is India,” Dweikat says.
Belum Reddy, the principal sorghum breeder for the International Crops Research Institute for the Semi-Arid Tropics in Andhra Pradesh, India, says a future exists for this plant. “In the past 35 years, the ICRISAT has been doing continuous research to develop improved sorghum hybrid parents, varieties and hybrids,” he says. The crop is especially of interest because it can be used for food, animal feed and ethanol. “Farmers can harvest the grain for their food and then sell the surplus in the market,” he says. “The stalks of the sweet sorghum plants have sugar-rich juice in them. They can be crushed and used by a distillery to produce ethanol. The crushed stalk, after the juice is extracted [and the stripped leaves], can also be used as animal feed.”
At a distillery not far from ICRISAT, sweet sorghum juice is being converted into ethanol at a rate of 10,000 gallons per day, Reddy says. “Ethanol can also be produced from grain sorghum,” he says, although ICRISAT encourages farmers to sell sorghum grain for ethanol only after all their food needs are met.
With testing underway on several continents, sweet sorghum production is being observed in a variety of climactic conditions. With 750 acres of testing grounds on the coast of Peru, Cukierman says his company is rapidly discovering methods that will lead to sweet sorghum’s production as an ethanol feedstock on a worldwide basis.
One issue producers face is finding seed, but research into corn hybrids is being used to remedy that situation. “In their native countries, seed is saved from sorghum plants by farmers to plant the next generation crop,” Cukierman says. Over time plant breeders discovered and applied hybrid vigor to corn that rendered a higher yield than either parent, and the concept eventually reached sorghum. “It involves producing and maintaining a male and a female line,” he says.
Ethano Peru’s experimentation with hybrid seeds for sweet sorghum has shown promising results. “Hybrids of sweet sorghum for Peru are very fast growers,” Cukierman explains. The cycle for one crop is 90 days to harvest. With that short of a growing cycle, four crops per year could be produced.
Although the cost involved in breeding, producing, storing and marketing hybrid seed makes the cost of production relatively high, that cost is not prohibitive because the performance of the seeds is so high and more gallons of ethanol are produced with sweet sorghum, Cukierman says.
Dweikat points to Brazil and its research advances over the past 30 years using sugarcane to prove that energy independence can be obtained. “[Brazil] announced last year that they soon expect to be oil free,” he says.
A Viable Biomass Alternative
How does sweet sorghum fare in the viability arena? Dweikat says the plant meets or exceeds expectations. The criteria for determining the viability of biomass use for biofuels centers on four general areas: energy balance, materiality, sustainability and economics, he observes. “Does it yield more energy than is required to produce it?” he asks rhetorically, pointing out that sweet sorghum does. “Can it be produced at a large enough scale to be meaningful in terms of fuel supply?” he continues, stating that sweet sorghum certainly can. “The U.S. is capable of producing 1 billion dry tons of biomass annually—enough for 60 billion gallons of ethanol per year, [which is] 30 percent of today’s transportation fuel usage,” Dweikat explains, noting the numbers include agricultural and forestry wastes, grains and perennial bioenergy crops. He says the country can produce at that level “and continue to meet food, feed and export demands.”
Is sweet sorghum a solution to the food-versus-fuel issue? Dweikat, Cukierman, Reddy and Blumenthal believe it because it’s not raised for human consumption. Sweet sorghum experiences a short vegetative period at a very high photosynthesis rate, which is why it can produce more sugar than any other crop. It has low water requirements, grows on marginal land, experiences little disease or pest attacks, and produces good cash flow at a low investment per acre. “[It has a] high conversion to alcohol, and therefore to ethanol,” Cukierman says.
Ethanol Producer Magazine
July 2008 Issue
One hundred and fifty years ago sweet sorghum plants could be found swaying in the winds across southeastern United States. A U.S. patent officer brought the plant to the United States in 1853, according to the National Sweet Sorghum Producers and Processors Association. The plant was of interest as a substitute for sugarcane, but extracting dry sugar from the syrup proved to be too difficult. Sorghum production peaked in the 1880s and declined as it faced competition from sugarcane and sugar beets.
Today, sweet sorghum is making its second debut as a versatile feedstock that can be used for food, fuel and animal feed. “It is the only crop that can save the United States,” says Ismail Dweikat, an associate professor at the University of Nebraska-Lincoln. An agronomy and horticulture expert, Dweikat says the speed bumps, headaches, economical and political challenges the nation presently faces as it attempts to wean itself from foreign oil could be avoided if we would focus on using the sugar from this 18-foot-tall energy crop to produce ethanol. “Despite controversy, support for nonpetroleum fuels remains strong,” he says.
Dweikat spoke to attendees at the 13th annual National Ethanol Conference in February in Orlando using this quote from George Washington Carver to kick off his presentation: “I believe that the great Creator has put ores and oils on this earth to give us a breathing spell. As we exhaust them, we must be prepared to fall back on our farms, which is God’s true storehouse and can never be exhausted. We can learn to synthesize material for every human need from things that grow.”
Dweikat believes that sweet sorghum can do the job of producing ethanol for the nation, and he’s giving it his personal letter of recommendation. Sweet sorghum is appealing on several fronts, he explains. “It doesn’t need additional irrigation so you can save money on irrigation,” he says. “It doesn’t need as much nitrogen as corn—50 to 60 pounds of nitrogen will give you a full crop of sweet sorghum,” he says, noting that one pound of nitrogen is required for each bushel of corn produced.
Dweikat explains that the total biomass stover from corn is 4 to 5 tons per acre plus 150 to 180 bushels of grain per acre. Sweet sorghum trumps corn when produced and sold to cellulosic ethanol plants. Sweet sorghum typically yields 14 tons of biomass per acre. “If you are selling it for $40 a ton, that’s about $560 per acre. That would out-produce corn, with less output,” he says, noting they both go for about $40 per ton.
“Sweet sorghum requires half the amount of water that sugarcane needs,” Dweikat says. “It has more sugar on a plant than sugarcane. “On a one crop basis, sweet sorghum out-produces sugarcane because sweet sorghum matures within 100 to 120 days, while it takes the first sugarcane crop one year to mature. Also on a volume basis, sweet sorghum has a higher sugar content than sugarcane. As sweet sorghum requires less water (one-third less than sugarcane) and has a higher fermentable sugar content than sugarcane (which contains more crystallizable sugars), it is better suited for ethanol production. Also, sweet sorghum-based ethanol is sulfur-free and cleaner than molasses-based ethanol, when mixed with gasoline,” he explains.
Sizing it all up, Dweikat says quite plainly, “The more sugar, the more ethanol.” The net energy ratios of sugarcane and sweet sorghum are similar, with 1 input rendering 8 outputs, he says. “In corn … [the ratio] is 1:1.25,” he adds.
David Cukierman, president and chief executive officer of Ethano Peru LLC in Houston, also finds that sweet sorghum is a better ethanol feedstock compared with corn. “The average corn yield in the U.S. is about 150 bushels per acre. The average ethanol yield per bushel is 2.8 gallons per bushel,” he explains. “That equates to an average production rate of 420 gallons per acre.” And it looks even better in certain areas of the country that have optimal growing conditions. The average sweet sorghum yield in the United States corresponds with two cuttings per year, in comparison to the four cuttings it renders in Peru, Cukierman explains. They are planning to test their hybrids in the South Texas Valley near the Rio Grande, he says, adding that cuttings are determined by global longitude and latitude and three annual cuttings are expected in that region. “[Ethano Peru] strongly believes that sweet sorghum is the future and the answer to the food-versus-fuel controversy based on tests with our own hybrids in Peru,” Cukierman says.
Sweet sorghum also wouldn’t interfere with food production because it can be grown on marginal land, Dweikat explains. “You don’t have to use your best land,” he says. It’s also drought tolerant, he says describing that the plant behaves much like a camel. “It is more drought-tolerant than corn,” Dweikat says.
Testing and Investing
Most commonly grown in Texas, Louisiana, Oklahoma, Nebraska, Florida, Kansas and Iowa, sweet sorghum has garnered some attention, and significant money has been invested to advance its growth. “In Florida, they have just approved a $54 million ethanol plant based on sweet sorghum ethanol,” Dweikat says. “In Louisiana, they are going to plant 750 acres this year to replace sugarcane because it requires less irrigation.” Testing is also underway in Nebraska and Texas, he notes.
The crop has proven to be durable under the relentless heat of the Texas plains, where corn doesn’t thrive as well. “The Southeast grows pretty crappy corn,” says Juerg Blumenthal, associate professor and state sorghum cropping specialist at Texas A&M University. “One-hundred-bushel corn is common.” Biomass sorghum can endure periods of stress much better than grain sorghum or corn, he says.
Although sweet sorghum can be grown a little further north, it has some issues with the cold winters, Dweikat explains. “The problem in the Midwest is that it gets killed by the freeze so you have to re-plant it every year, like corn” he says. “That’s one of the limitations here in the United States.” However, continuous testing and hybrids are being pursued to address the plants’ tolerance for cold. “We are trying to make sweet sorghum a cold-tolerant plant by introducing a rhizome to it,” Dweikat notes.
He says indicators of sweet sorghum’s viability can be found across the globe where much testing is taking place. “In terms of acreage, the premier country that is using [sweet sorghum] now for ethanol is India,” Dweikat says.
Belum Reddy, the principal sorghum breeder for the International Crops Research Institute for the Semi-Arid Tropics in Andhra Pradesh, India, says a future exists for this plant. “In the past 35 years, the ICRISAT has been doing continuous research to develop improved sorghum hybrid parents, varieties and hybrids,” he says. The crop is especially of interest because it can be used for food, animal feed and ethanol. “Farmers can harvest the grain for their food and then sell the surplus in the market,” he says. “The stalks of the sweet sorghum plants have sugar-rich juice in them. They can be crushed and used by a distillery to produce ethanol. The crushed stalk, after the juice is extracted [and the stripped leaves], can also be used as animal feed.”
At a distillery not far from ICRISAT, sweet sorghum juice is being converted into ethanol at a rate of 10,000 gallons per day, Reddy says. “Ethanol can also be produced from grain sorghum,” he says, although ICRISAT encourages farmers to sell sorghum grain for ethanol only after all their food needs are met.
With testing underway on several continents, sweet sorghum production is being observed in a variety of climactic conditions. With 750 acres of testing grounds on the coast of Peru, Cukierman says his company is rapidly discovering methods that will lead to sweet sorghum’s production as an ethanol feedstock on a worldwide basis.
One issue producers face is finding seed, but research into corn hybrids is being used to remedy that situation. “In their native countries, seed is saved from sorghum plants by farmers to plant the next generation crop,” Cukierman says. Over time plant breeders discovered and applied hybrid vigor to corn that rendered a higher yield than either parent, and the concept eventually reached sorghum. “It involves producing and maintaining a male and a female line,” he says.
Ethano Peru’s experimentation with hybrid seeds for sweet sorghum has shown promising results. “Hybrids of sweet sorghum for Peru are very fast growers,” Cukierman explains. The cycle for one crop is 90 days to harvest. With that short of a growing cycle, four crops per year could be produced.
Although the cost involved in breeding, producing, storing and marketing hybrid seed makes the cost of production relatively high, that cost is not prohibitive because the performance of the seeds is so high and more gallons of ethanol are produced with sweet sorghum, Cukierman says.
Dweikat points to Brazil and its research advances over the past 30 years using sugarcane to prove that energy independence can be obtained. “[Brazil] announced last year that they soon expect to be oil free,” he says.
A Viable Biomass Alternative
How does sweet sorghum fare in the viability arena? Dweikat says the plant meets or exceeds expectations. The criteria for determining the viability of biomass use for biofuels centers on four general areas: energy balance, materiality, sustainability and economics, he observes. “Does it yield more energy than is required to produce it?” he asks rhetorically, pointing out that sweet sorghum does. “Can it be produced at a large enough scale to be meaningful in terms of fuel supply?” he continues, stating that sweet sorghum certainly can. “The U.S. is capable of producing 1 billion dry tons of biomass annually—enough for 60 billion gallons of ethanol per year, [which is] 30 percent of today’s transportation fuel usage,” Dweikat explains, noting the numbers include agricultural and forestry wastes, grains and perennial bioenergy crops. He says the country can produce at that level “and continue to meet food, feed and export demands.”
Is sweet sorghum a solution to the food-versus-fuel issue? Dweikat, Cukierman, Reddy and Blumenthal believe it because it’s not raised for human consumption. Sweet sorghum experiences a short vegetative period at a very high photosynthesis rate, which is why it can produce more sugar than any other crop. It has low water requirements, grows on marginal land, experiences little disease or pest attacks, and produces good cash flow at a low investment per acre. “[It has a] high conversion to alcohol, and therefore to ethanol,” Cukierman says.
Tuesday, July 14, 2009
Florida Governor's Style is to Encourage Ethanol Imports Rather Than Local Production of Ethanol
Florida Governor to Lobby for Ethanol
By Inae Riveras
Reuters
November 6, 2007
SAO PAULO (Reuters) - Florida Gov. Charlie Crist said on Monday he will encourage Congress members to lobby for more ethanol use and a reduction in the 54-cent-a-gallon tariff on Brazilian imports of the biofuel.
The use of more cane-based ethanol is seen as a way to curb greenhouse gas emissions in the state, which is aiming to reduce them to 1990 levels by 2015.
"My style is to encourage (ethanol imports) and I have great friends in the Florida delegation in Washington, senator Mel Martinez, also senator Bill Nelson...I will encourage them to do exactly that," Crist told Brazilian and U.S. businessmen.
"We are a gateway (for ethanol to the United States) and we're all about reducing taxes," Crist said a meeting at Sao Paulo's Industry Federation (Fiesp).
As the tariff is in force at least until 2009, any possible change would take place beyond that.
Crist came to Brazil along with about 200 delegates on a mission to improve bilateral trade. Brazil is already Florida's leading partner, with two-way trade worth at around $11 billion per year.
Crist also will visit an ethanol mill in Sao Paulo and Brazil's state oil company Petrobras' headquarters.
Florida next year will discuss ways to reduce gas emissions. The adoption of a 10 percent mix of ethanol into gasoline is an option, said Michael Sole, Florida's secretary of Environmental Protection, who also attended the event.
He said a recommendation to the government should be made by October 2008.
"Florida will be a tremendous ethanol market, which is going to grow, and would be an important gateway," said Marcos Jank, president of Brazil's Sugar Cane Industry Union (Unica).
Florida demands 8.6 billion gallons of gasoline per year and currently does not produce any of the biofuel.
Logistics problems to get corn-based ethanol from the Midwest to Florida are seen as an advantage to Brazilian imports.
Brazil currently exports minimal amounts of ethanol to Florida, all through the Caribbean, where the Brazilian product is reprocessed and re-exported to the U.S. market exempt of the tariff, through the Caribbean Basin Initiative (CBI) trade pact.
Brazil and the United States signed a broad agreement to work together to advance biofuels technology, help spread ethanol production and set common standards for ethanol trade, when President George W. Bush visited the country in March.
The accord did not include changes in the tariff despite a direct appeal to Bush by Brazilian President Luiz Inacio Lula da Silva on the matter.
By Inae Riveras
Reuters
November 6, 2007
SAO PAULO (Reuters) - Florida Gov. Charlie Crist said on Monday he will encourage Congress members to lobby for more ethanol use and a reduction in the 54-cent-a-gallon tariff on Brazilian imports of the biofuel.
The use of more cane-based ethanol is seen as a way to curb greenhouse gas emissions in the state, which is aiming to reduce them to 1990 levels by 2015.
"My style is to encourage (ethanol imports) and I have great friends in the Florida delegation in Washington, senator Mel Martinez, also senator Bill Nelson...I will encourage them to do exactly that," Crist told Brazilian and U.S. businessmen.
"We are a gateway (for ethanol to the United States) and we're all about reducing taxes," Crist said a meeting at Sao Paulo's Industry Federation (Fiesp).
As the tariff is in force at least until 2009, any possible change would take place beyond that.
Crist came to Brazil along with about 200 delegates on a mission to improve bilateral trade. Brazil is already Florida's leading partner, with two-way trade worth at around $11 billion per year.
Crist also will visit an ethanol mill in Sao Paulo and Brazil's state oil company Petrobras' headquarters.
Florida next year will discuss ways to reduce gas emissions. The adoption of a 10 percent mix of ethanol into gasoline is an option, said Michael Sole, Florida's secretary of Environmental Protection, who also attended the event.
He said a recommendation to the government should be made by October 2008.
"Florida will be a tremendous ethanol market, which is going to grow, and would be an important gateway," said Marcos Jank, president of Brazil's Sugar Cane Industry Union (Unica).
Florida demands 8.6 billion gallons of gasoline per year and currently does not produce any of the biofuel.
Logistics problems to get corn-based ethanol from the Midwest to Florida are seen as an advantage to Brazilian imports.
Brazil currently exports minimal amounts of ethanol to Florida, all through the Caribbean, where the Brazilian product is reprocessed and re-exported to the U.S. market exempt of the tariff, through the Caribbean Basin Initiative (CBI) trade pact.
Brazil and the United States signed a broad agreement to work together to advance biofuels technology, help spread ethanol production and set common standards for ethanol trade, when President George W. Bush visited the country in March.
The accord did not include changes in the tariff despite a direct appeal to Bush by Brazilian President Luiz Inacio Lula da Silva on the matter.
Monday, July 13, 2009
Ethanol Production May Consume Too Much Water
By Cynthia Barnett
Florida Trend
July 1, 2009
From agricultural and energy company boardrooms to university laboratories, excitement is building over the potential for large-scale biofuel production in Florida. But a new study by forestry researchers at the University of Florida raises an important question: Does the state have enough water to supply thirsty energy crops?
Matthew Cohen, a professor in UF’s School of Forest Resources and Conservation, and post-doctoral researcher Jason Evans in the Department of Wildlife Ecology and Conservation analyzed energy and water impacts for four ethanol crops — corn, sugarcane, sweet sorghum and pine — in Florida and Georgia. Their study, published in Global Change Biology, found that all four yielded net energy; meaning they are viable for replacing fossil fuels. But it also concluded that ramping up production enough to meet U.S. Energy Independence and Security Act mandates for renewable fuels by 2022 “would have significant impacts on both land use and water resources.”
Estimated water requirements for sweet sorghum, the most water-efficient crop in the study, “would increase by almost 25% total freshwater withdrawals for all human uses reported in Florida and Georgia for 2000,” Cohen and Evans write. “Corn and sugarcane would require well over twice this water volume.” While pine is not irrigated, the study says large-scale pine biofuel production could have a critical impact on regional water supplies available for humans and nature because of accelerated evaporation.
Cohen says the message for Florida policy-makers is that “any debate about biofuels should be explicitly coupled with strategies for water and energy conservation.”
Florida Trend
July 1, 2009
From agricultural and energy company boardrooms to university laboratories, excitement is building over the potential for large-scale biofuel production in Florida. But a new study by forestry researchers at the University of Florida raises an important question: Does the state have enough water to supply thirsty energy crops?
Matthew Cohen, a professor in UF’s School of Forest Resources and Conservation, and post-doctoral researcher Jason Evans in the Department of Wildlife Ecology and Conservation analyzed energy and water impacts for four ethanol crops — corn, sugarcane, sweet sorghum and pine — in Florida and Georgia. Their study, published in Global Change Biology, found that all four yielded net energy; meaning they are viable for replacing fossil fuels. But it also concluded that ramping up production enough to meet U.S. Energy Independence and Security Act mandates for renewable fuels by 2022 “would have significant impacts on both land use and water resources.”
Estimated water requirements for sweet sorghum, the most water-efficient crop in the study, “would increase by almost 25% total freshwater withdrawals for all human uses reported in Florida and Georgia for 2000,” Cohen and Evans write. “Corn and sugarcane would require well over twice this water volume.” While pine is not irrigated, the study says large-scale pine biofuel production could have a critical impact on regional water supplies available for humans and nature because of accelerated evaporation.
Cohen says the message for Florida policy-makers is that “any debate about biofuels should be explicitly coupled with strategies for water and energy conservation.”
Florida Eyes Dominican Sugarcane for Clean Fuel Mandate
SANTO DOMINGO. - The State of Florida needs to find permanent suppliers of ethanol to cover a demand estimated at 786 million gallons starting next year, when it implements a norm calling for a 10% mix of that fuel in gasoline.
Florida Gateway president Brian C. Dean, interviewed by newspaper Listin Diario on the conference “Establishing a hemispherical biofuels market” dictated in Santo Domingo, said Florida has taken on the development and use of biofuels “very seriously.”
He said that state must look for an ethanol exporter in the region, for which Dominican Republic, with its experience in sugar cane and sufficient lands, could be a key ally to reach part of its objective.
Dean, invited to the country by the National Energy Commission (CNE), said Gateway Florida aims to get public policies implemented in Latin American and Caribbean countries to support the development of the ethanol and biofuels industry.
In the Dominican case, the executive said in addition to sugar cane, piñon jatropha, higuereta and other plants that have yielded good results could also be used to produce ethanol.
He added that within the Lula-Bush initiative and the biofuels development agreement, Dominican Republic is among the first four countries eligible for funding to develop clean energy projects.
Florida Gateway president Brian C. Dean, interviewed by newspaper Listin Diario on the conference “Establishing a hemispherical biofuels market” dictated in Santo Domingo, said Florida has taken on the development and use of biofuels “very seriously.”
He said that state must look for an ethanol exporter in the region, for which Dominican Republic, with its experience in sugar cane and sufficient lands, could be a key ally to reach part of its objective.
Dean, invited to the country by the National Energy Commission (CNE), said Gateway Florida aims to get public policies implemented in Latin American and Caribbean countries to support the development of the ethanol and biofuels industry.
In the Dominican case, the executive said in addition to sugar cane, piñon jatropha, higuereta and other plants that have yielded good results could also be used to produce ethanol.
He added that within the Lula-Bush initiative and the biofuels development agreement, Dominican Republic is among the first four countries eligible for funding to develop clean energy projects.
Friday, July 10, 2009
One Year After Oil’s Price Peak: Volatility
By Jad Mouawad
The New York Times
July 10, 2009
A year ago this weekend, oil prices reached a trading record of $147.29 a barrel. That peak followed months of speculation that oil prices would zoom past $200 or $250 a barrel — predictions often made by people with a major stake in seeing that happen, even as experts said they were puzzled that prices could rise so high, so fast.
Within weeks of the July highs, prices collapsed as the mortgage crisis in the United States morphed into a full-fledged economic and financial meltdown around the world.
Oil demand has dropped by nearly 1.5 million barrels a day since last year, and OPEC producers are now sitting on five or six millions of barrels of daily idle capacity. As the world confronted its worst economic crisis in over 50 years, oil fell to around $33 a barrel by December.
But prices remain as volatile as ever.
With oil rising above $70 a barrel, I wrote on Monday about big swings in the oil markets over the past 18 months (which also included this neat graphic).
The story ran a day before the Commodities Futures Trading Commission, the Federal government agency in charge of commodity markets, said it was considering regulating “speculation” in commodity markets.
Oil is now headed below $60 a barrel, and some major banks like J.P. Morgan Chase see prices headed to the low $50-range in coming weeks. The reason? While investors pushed up oil prices earlier this year in anticipation of a global economic rebound, reality seems to have set back in, and most people now expect a slow recovery.
But the volatility in the energy markets is unlikely to end soon. While one trader told me this week he was bearish for oil in the short term, he said that long term he was “extremely” bullish for oil. Most of the reasons that have pushed up prices in the past years — tight supplies, geopolitical risk in major producing countries, declining production in major oil basins like the North Sea and Mexico, as well as strong demand growth — have not disappeared.
____________
A note of clarification for statistical sticklers: The July 11 record of $147.29 a barrel was the highest trading level ever reached by oil. But in print, we typically refer to the highest settlement price at the closing of a trading session on the New York Mercantile Exchange. That was set on July 3, 2008, at $145.29 a barrel.
The New York Times
July 10, 2009
A year ago this weekend, oil prices reached a trading record of $147.29 a barrel. That peak followed months of speculation that oil prices would zoom past $200 or $250 a barrel — predictions often made by people with a major stake in seeing that happen, even as experts said they were puzzled that prices could rise so high, so fast.
Within weeks of the July highs, prices collapsed as the mortgage crisis in the United States morphed into a full-fledged economic and financial meltdown around the world.
Oil demand has dropped by nearly 1.5 million barrels a day since last year, and OPEC producers are now sitting on five or six millions of barrels of daily idle capacity. As the world confronted its worst economic crisis in over 50 years, oil fell to around $33 a barrel by December.
But prices remain as volatile as ever.
With oil rising above $70 a barrel, I wrote on Monday about big swings in the oil markets over the past 18 months (which also included this neat graphic).
The story ran a day before the Commodities Futures Trading Commission, the Federal government agency in charge of commodity markets, said it was considering regulating “speculation” in commodity markets.
Oil is now headed below $60 a barrel, and some major banks like J.P. Morgan Chase see prices headed to the low $50-range in coming weeks. The reason? While investors pushed up oil prices earlier this year in anticipation of a global economic rebound, reality seems to have set back in, and most people now expect a slow recovery.
But the volatility in the energy markets is unlikely to end soon. While one trader told me this week he was bearish for oil in the short term, he said that long term he was “extremely” bullish for oil. Most of the reasons that have pushed up prices in the past years — tight supplies, geopolitical risk in major producing countries, declining production in major oil basins like the North Sea and Mexico, as well as strong demand growth — have not disappeared.
____________
A note of clarification for statistical sticklers: The July 11 record of $147.29 a barrel was the highest trading level ever reached by oil. But in print, we typically refer to the highest settlement price at the closing of a trading session on the New York Mercantile Exchange. That was set on July 3, 2008, at $145.29 a barrel.
A Rough Year for High Ethanol Blends
By Kate Galbraith
The New York Times
July 10, 2009
Far fewer people have been refueling with high ethanol blends this year in parts of the Midwest.
In North Dakota, sales of E85 — gasoline blended with 85 percent ethanol — were down by more than 60 percent this year from January to May, compared with a year earlier, according to the state’s Department of Commerce.
Minnesota has also seen a severe dip in E85 sales, according to the Minneapolis Star Tribune. Around 1.5 million gallons were sold in May — which is almost 1 million less than a year earlier, the paper reports.
National figures are not tallied by the Energy Department.
“It’s all about price, price and price,” said Phil Lambert, the vice-president for market development at Growth Energy, an ethanol lobby group. He noted that consumption of regular gasoline has also fallen across the country.
E85 can be used in “flex-fuel” vehicles, which can also take regular gasoline. Mr. Lambert said that there were slightly more than 8 million such vehicles in the United States today, or less than 3 percent of all vehicles.
Because ethanol has a lower energy content than gasoline, ideally it should be priced 15 to 20 percent lower than regular unleaded to make it worthwhile on a cost-for-energy basis, according to Mr. Lambert. Consumers, he said, should “never, ever, ever buy E85 when it is priced higher than gasoline.”
But the price was higher, at least briefly, in Iowa, according to Monte Shaw, the executive director of the Iowa Renewble Fuels Association, in the wake of plunging gasoline prices last year.
In Fargo, N.D., E85 was retailing for up to 20 cents above regular gasoline prices this spring, according to Julie Fedorchak, the communications manager for the state’s Department of Commerce — and the town of Harvey, N.D. even put bags over its E85 pumps for a time.
Recent months have brought better news for the industry. Harvey has taken the bags off its pumps, and several states report a pick-up in demand as prices return to a more viable level.
Growth Energy has a calculator on its E85 Web site suggesting that the fuel is currently priced 15 percent below regular gasoline, although there is substantial local variation.
Mr. Shaw of Iowa said that he had recently filled up at a pump where E85 was at least 70 cents cheaper than gasoline. “That’s very attractive,” he said.
The New York Times
July 10, 2009
Far fewer people have been refueling with high ethanol blends this year in parts of the Midwest.
In North Dakota, sales of E85 — gasoline blended with 85 percent ethanol — were down by more than 60 percent this year from January to May, compared with a year earlier, according to the state’s Department of Commerce.
Minnesota has also seen a severe dip in E85 sales, according to the Minneapolis Star Tribune. Around 1.5 million gallons were sold in May — which is almost 1 million less than a year earlier, the paper reports.
National figures are not tallied by the Energy Department.
“It’s all about price, price and price,” said Phil Lambert, the vice-president for market development at Growth Energy, an ethanol lobby group. He noted that consumption of regular gasoline has also fallen across the country.
E85 can be used in “flex-fuel” vehicles, which can also take regular gasoline. Mr. Lambert said that there were slightly more than 8 million such vehicles in the United States today, or less than 3 percent of all vehicles.
Because ethanol has a lower energy content than gasoline, ideally it should be priced 15 to 20 percent lower than regular unleaded to make it worthwhile on a cost-for-energy basis, according to Mr. Lambert. Consumers, he said, should “never, ever, ever buy E85 when it is priced higher than gasoline.”
But the price was higher, at least briefly, in Iowa, according to Monte Shaw, the executive director of the Iowa Renewble Fuels Association, in the wake of plunging gasoline prices last year.
In Fargo, N.D., E85 was retailing for up to 20 cents above regular gasoline prices this spring, according to Julie Fedorchak, the communications manager for the state’s Department of Commerce — and the town of Harvey, N.D. even put bags over its E85 pumps for a time.
Recent months have brought better news for the industry. Harvey has taken the bags off its pumps, and several states report a pick-up in demand as prices return to a more viable level.
Growth Energy has a calculator on its E85 Web site suggesting that the fuel is currently priced 15 percent below regular gasoline, although there is substantial local variation.
Mr. Shaw of Iowa said that he had recently filled up at a pump where E85 was at least 70 cents cheaper than gasoline. “That’s very attractive,” he said.
Thursday, July 9, 2009
The Cellulosic Ceiling
By Ryan C. Christiansen
Ethanol Producer Magazine
From the August 2009 Issue
The renewable fuel standard calls for 100 MMgy of cellulosic biofuel to be blended into the nation’s fuel in 2010, ramping up to 16 billion gallons per year in 2022. Will the U.S. produce enough to satisfy the mandate?
By 2022, the U.S. EPA expects the domestic biofuels industry to produce more than 32 billion gallons per year of renewable fuel. However, less than half of that fuel is expected to be corn-based ethanol. The majority, 16 billion gallons, will be cellulosic biofuel. The Energy Independence and Security Act of 2007 defines cellulosic biofuel as renewable fuel produced from any cellulose, hemicelluloses, or lignin that is derived from renewable biomass and has life-cycle greenhouse gas (GHG) emissions that are at least 60 percent less than the baseline life-cycle GHG emissions. The EPA predicts that, in the long run, those 16 billion gallons of cellulosic biofuel will be cellulosic ethanol. However, EISA’s definition for cellulosic biofuel leaves open the possibility that the mandate can be met by other fuels.
Federal Investments
The goal of ultimately producing billions of gallons of cellulosic biofuel has a hefty price tag. Between 2002 and 2008, the U.S. DOE’s Energy Efficiency and Renewable Energy Biomass Program, established to develop and demonstrate biomass feedstock and conversion technologies for integrated biorefineries and to ensure cellulosic ethanol can be produced cost-effectively by 2012, was allocated more than $800 million in federal funding. Since 2007, the DOE has announced more than $1 billion in multi-year investments in cellulosic biorefineries and since 2006 the USDA has invested almost $600 million to develop biofuel technology.
The bulk of the DOE’s investments began in February 2007 when it announced plans to invest $385 million in six biorefinery projects over four years for a total cellulosic ethanol production capacity of 131 MMgy. Combined with the industry cost share, the projects equated to more than $1.2 billion in investments. Projects identified for funding included an 11 MMgy Abengoa Bioenergy SA plant in Kansas, a 14 MMgy Alico Inc. plant in Florida, a 19 MMgy BlueFire Ethanol Fuels Inc. facility in California, a 30 MMgy Poet LLC plant in Iowa, an 18 MMgy Iogen Corp. plant in Idaho, and a 40 MMgy Range Fuels Inc. plant in Georgia.
In May 2007, the DOE announced it would provide up to $200 million over five years to support the development of small-scale cellulosic biorefineries. The first $114 million was allotted in January 2008 for four projects. The companies identified for funding included ICM Inc., Lignol Energy Corp., Pacific Ethanol Inc., and Stora Enso Oyj. The remaining $86 million was allotted to RSE Pulp & Chemical LLC, Mascoma Corp. and Ecofin LLC in April 2008. In July 2008, the DOE announced an additional $40 million investment for two more companies - Flambeau River Biofuels LLC for its project in Wisconsin and Verenium Corp. for its demonstration-scale facility in Louisiana. Seven of the nine plants were funded for cellulosic ethanol and two for cellulosic diesel.
On the research side, both the DOE and the USDA also provided funding to companies and universities. In March 2007, the DOE invested $23 million in five projects to develop highly efficient fermentative organisms to convert biomass material to ethanol; the companies and organizations identified for funding included Cargill Inc., Verenium, E. I. du Pont de Nemours and Co., Mascoma, and Purdue University. In June 2007, the DOE and USDA together awarded $8.3 million to 10 universities for biomass genomic research. During that month, the DOE also announced a $375 million investment in three new bioenergy research centers, including the DOE BioEnergy Science Center, the DOE Great Lakes Bioenergy Research Center, and the DOE Joint BioEnergy Institute.
To close out the year, the DOE awarded $7.7 million in December 2007 to four projects to demonstrate the thermochemical conversion process of biomass-to-biofuels. Then, in February 2008, the DOE invested $33.8 million in four projects to develop improved enzyme systems to convert cellulosic material into sugars suitable for the production of biofuels. The companies identified for funding included DSM Innovation Center Inc. (a partner with Abengoa), Genencor, a division of Danisco A/S, Novozymes A/S, and Verenium.
In March 2008, the DOE and USDA awarded $18 million to 18 universities and research institutes to develop biomass-based products, including biofuels.
To meet renewable fuel standard targets, the U.S. EPA says cellulosic ethanol plant startups must begin in earnest with a few small plants during 2010-'11 and must continue at an increasing pace thereafter with larger plants. The EPA says the rate of growth for the cellulosic ethanol industry should be similar to that of the corn starch-based ethanol industry in recent years.
SOURCE: U.S. EPA
Finally, in May 2009, the DOE announced that it would provide $786.5 million from the American Recovery and Reinvestment Act to accelerate advanced biofuels research and development and to provide additional funding for commercial-scale biorefinery demonstration projects. Of the total, $480 million will be distributed among 10 to 20 projects for pilot- or demonstration-scale integrated biorefineries that produce advanced biofuels, bioproducts, and heat and power in an integrated system, which must be operational within three years. In addition, $176.5 million will be used to increase the federal funding ceiling on two or more demonstration- or commercial-scale biorefinery projects that were selected and awarded funds within the past two years. Also, $110 million will be used to support new research. Finally, $20 million has been set aside for optimizing flexible fuel vehicle technology, evaluating the impact of higher ethanol blends on conventional vehicles, and upgrading refueling stations to be compatible with ethanol blends up to E85.
Scaling up
To meet renewable fuel standard targets, the EPA says cellulosic ethanol plant start-ups must begin in earnest with a few small plants during 2010-'11, increasing pace thereafter with larger plants. The EPA says the rate of growth for the cellulosic ethanol industry should be similar to that of the corn starch-based ethanol industry in recent years, beginning with 40 MMgy plants from 2010-'13, increasing to 80 MMgy during 2014-'17 and 100 MMgy and upwards during 2018 and beyond. The EPA projects that approximately two billion gallons per year of new plant construction will need to come online between 2018 and 2022. In total, approximately 180 plants will need to be completed by 2022.
However, with only a few months to go before petroleum blenders must begin to use cellulosic biofuels, there are no commercial-scale plants ready to deliver the fuel. Since the DOE’s initial February 2007 funding announcement, very little money has actually been distributed to selected projects. Two of the first six companies to be awarded DOE money - Alico and Iogen - have dropped their applications. Lignol announced in February that it was discontinuing its project as a result of instable energy prices, capital market uncertainty and general market malaise. Meanwhile, subsidiaries of Pacific Ethanol filed for bankruptcy in May.
Abengoa and Poet say they are on track to begin production, but not until 2011. Only Range Fuels, which received an additional $80 million loan guarantee from the USDA in January (the first-ever USDA loan guarantee for a commercial-scale cellulosic ethanol plant), expects to begin producing at near-commercial scale during 2010, with plans to complete the first phase of its planned 40 MMgy facility in Soperton, Ga., early next year.
According to Range Fuels CEO David Aldous, the plant is expected to be mechanically complete during the first quarter of 2010 and commissioning will begin soon thereafter. The plant will produce ethanol from wood chips, he says, and will be scaled up gradually from an initial 20 MMgy capacity. The EPA is predicting that Range Fuels will supply 10 million gallons of cellulosic ethanol toward the cellulosic biofuels mandate in 2010.
Aldous says Range Fuels’ technology is unique. “It is proprietary technology,” he says. “There are a lot of companies that are doing thermal front-end processes, whether they are pyrolysis or gasification, and there are a lot of other companies using different kinds of back-ends, converting the syngas into ethanol, (but) we use a proprietary catalyst on the back end and we use a proprietary technology on the front end.” Prior to leading Range Fuels, Aldous was executive vice president for strategy and portfolio at Royal Dutch Shell plc and also served as president of Shell Canada Products. He is also the former CEO for the Shell Group’s catalyst company, CRI/Criterion Inc.
Meeting the Mandate
To help meet the 100 MMgy cellulosic biofuels target for 2010, the EPA says there will be 24 pilot- or demonstration- scale plants and seven commercial- scale plants producing cellulosic ethanol or cellulosic diesel in 2010. However, ethanol will satisfy only 28 percent of the total cellulosic biofuels mandate. The EPA says the only companies that will produce more than one million gallons of cellulosic ethanol during 2010 are Verenium, Western Biomass Energy LLC, Fulcrum Bioenergy Inc., RSE, Southeast Renewable Fuels LLC, and Range Fuels.
The majority of the cellulosic biofuels volume (72 percent), the EPA says, is projected to come from cellulosic diesel. A small portion (3 million gallons) will be produced by Flambeau River Biofuels at its 6 MMgy plant in Park Falls, Wis., while the majority of all cellulosic biofuels that will be produced, the EPA says, will be cellulosic diesel from Cello Energy (pronounced “sell-oh”), which has a 20 MMgy plant in Bay Minette, Ala. The EPA says to expect 20 million gallons from the Bay Minette plant, as well as 16.67 million gallons from each of three future 50 MMgy plants, which are expected to be swiftly built—two in Alabama and one in Georgia—at locations to be determined.
Feedstock for Cello Energy’s operation can include plant biomass, waste wood, and other organic materials, as well as plastics and used tires. The company uses a catalytic depolymerization technology, the EPA says, to convert the feedstock into short-chain hydrocarbons that are polymerized to produce diesel fuel that meets ASTM standards at a cost between 50 cents and $1 per gallon. The process is reported to be 82 percent efficient and the only energy input is electricity. Allen Boykin, president of Cello Energy, told EPM that the catalyst used by the company is a proprietary catalyst that takes approximately 22 to 25 minutes to convert garbage into fuel oil using a continuous process.
Boykin says Cello Energy’s technology has been in the making for 12 to 15 years. His father, Dr. Jack Boykin, a chemical engineer who served as a Lieutenant in the U.S. Navy from 1961 to 1965, is CEO of Cello Energy and has been conducting the research. Allen says he became involved in 2002 to help bring the system to commercial-scale. Allen says bench-and pilot-scale testing was previously conducted in Prichard, Ala.
Imports to Meet Targets
The EPA admits that because cellulosic ethanol production technology is still developing, production plants will be considerably more complex and expensive to build than corn starch-based ethanol plants, thus requiring much more capital funding as well as design and construction resources. “Although technologies needed to convert cellulosic feedstocks into ethanol (and diesel) are becoming more and more understood, there are still a number of efficiency improvements that need to occur before cellulosic biofuel production can compete in today’s marketplace,” the EPA renewable fuel standard report says. “Additionally, because cellulosic biofuel production has not yet been proven on a commercial level, financing of these projects has primarily been through venture capital and similar funding mechanisms, as opposed to conventional bank loans.”
Alternatively, the EPA suggests that usage targets might be met using cellulosic biofuel that is produced internationally, for example, from feedstocks such as bagasse or straw.
Indeed, as much as 21 billion gallons per year of cellulosic biofuel might be produced outside the U.S. by 2017, the EPA says, the majority from bagasse, but also from forest products, and mostly from Brazil.
A recent report from Novozymes describes how Brazil might produce more than two billion gallons of cellulosic biofuel from bagasse by 2020, which would represent an additional $4 billion in export revenue for that country. Like in the U.S., the development of cellulosic biofuels in Brazil will depend on the industry’s ability to attract the needed investments and political support, Novozymes says.
Despite a slow start for cellulosic biofuels in the U.S., some in the industry are bullish about the future. “Advanced biofuel companies are ready to deploy their technology and begin meeting the requirements of the [RFS],” says Brent Erickson, executive vice president of the Biotechnology Industry Organization’s Industrial and Environmental Section. “Now that the rules of the program are finally moving forward and the Obama administration has demonstrated a firm commitment to the industry, companies are prepared to build the next generation of biorefineries.”
Ryan C. Christiansen is the assistant editor of Ethanol Producer Magazine. Reach him at rchristiansen@bbiinternational.com or (701) 373-8042.
Ethanol Producer Magazine
From the August 2009 Issue
The renewable fuel standard calls for 100 MMgy of cellulosic biofuel to be blended into the nation’s fuel in 2010, ramping up to 16 billion gallons per year in 2022. Will the U.S. produce enough to satisfy the mandate?
By 2022, the U.S. EPA expects the domestic biofuels industry to produce more than 32 billion gallons per year of renewable fuel. However, less than half of that fuel is expected to be corn-based ethanol. The majority, 16 billion gallons, will be cellulosic biofuel. The Energy Independence and Security Act of 2007 defines cellulosic biofuel as renewable fuel produced from any cellulose, hemicelluloses, or lignin that is derived from renewable biomass and has life-cycle greenhouse gas (GHG) emissions that are at least 60 percent less than the baseline life-cycle GHG emissions. The EPA predicts that, in the long run, those 16 billion gallons of cellulosic biofuel will be cellulosic ethanol. However, EISA’s definition for cellulosic biofuel leaves open the possibility that the mandate can be met by other fuels.
Federal Investments
The goal of ultimately producing billions of gallons of cellulosic biofuel has a hefty price tag. Between 2002 and 2008, the U.S. DOE’s Energy Efficiency and Renewable Energy Biomass Program, established to develop and demonstrate biomass feedstock and conversion technologies for integrated biorefineries and to ensure cellulosic ethanol can be produced cost-effectively by 2012, was allocated more than $800 million in federal funding. Since 2007, the DOE has announced more than $1 billion in multi-year investments in cellulosic biorefineries and since 2006 the USDA has invested almost $600 million to develop biofuel technology.
The bulk of the DOE’s investments began in February 2007 when it announced plans to invest $385 million in six biorefinery projects over four years for a total cellulosic ethanol production capacity of 131 MMgy. Combined with the industry cost share, the projects equated to more than $1.2 billion in investments. Projects identified for funding included an 11 MMgy Abengoa Bioenergy SA plant in Kansas, a 14 MMgy Alico Inc. plant in Florida, a 19 MMgy BlueFire Ethanol Fuels Inc. facility in California, a 30 MMgy Poet LLC plant in Iowa, an 18 MMgy Iogen Corp. plant in Idaho, and a 40 MMgy Range Fuels Inc. plant in Georgia.
In May 2007, the DOE announced it would provide up to $200 million over five years to support the development of small-scale cellulosic biorefineries. The first $114 million was allotted in January 2008 for four projects. The companies identified for funding included ICM Inc., Lignol Energy Corp., Pacific Ethanol Inc., and Stora Enso Oyj. The remaining $86 million was allotted to RSE Pulp & Chemical LLC, Mascoma Corp. and Ecofin LLC in April 2008. In July 2008, the DOE announced an additional $40 million investment for two more companies - Flambeau River Biofuels LLC for its project in Wisconsin and Verenium Corp. for its demonstration-scale facility in Louisiana. Seven of the nine plants were funded for cellulosic ethanol and two for cellulosic diesel.
On the research side, both the DOE and the USDA also provided funding to companies and universities. In March 2007, the DOE invested $23 million in five projects to develop highly efficient fermentative organisms to convert biomass material to ethanol; the companies and organizations identified for funding included Cargill Inc., Verenium, E. I. du Pont de Nemours and Co., Mascoma, and Purdue University. In June 2007, the DOE and USDA together awarded $8.3 million to 10 universities for biomass genomic research. During that month, the DOE also announced a $375 million investment in three new bioenergy research centers, including the DOE BioEnergy Science Center, the DOE Great Lakes Bioenergy Research Center, and the DOE Joint BioEnergy Institute.
To close out the year, the DOE awarded $7.7 million in December 2007 to four projects to demonstrate the thermochemical conversion process of biomass-to-biofuels. Then, in February 2008, the DOE invested $33.8 million in four projects to develop improved enzyme systems to convert cellulosic material into sugars suitable for the production of biofuels. The companies identified for funding included DSM Innovation Center Inc. (a partner with Abengoa), Genencor, a division of Danisco A/S, Novozymes A/S, and Verenium.
In March 2008, the DOE and USDA awarded $18 million to 18 universities and research institutes to develop biomass-based products, including biofuels.
To meet renewable fuel standard targets, the U.S. EPA says cellulosic ethanol plant startups must begin in earnest with a few small plants during 2010-'11 and must continue at an increasing pace thereafter with larger plants. The EPA says the rate of growth for the cellulosic ethanol industry should be similar to that of the corn starch-based ethanol industry in recent years.
SOURCE: U.S. EPA
Finally, in May 2009, the DOE announced that it would provide $786.5 million from the American Recovery and Reinvestment Act to accelerate advanced biofuels research and development and to provide additional funding for commercial-scale biorefinery demonstration projects. Of the total, $480 million will be distributed among 10 to 20 projects for pilot- or demonstration-scale integrated biorefineries that produce advanced biofuels, bioproducts, and heat and power in an integrated system, which must be operational within three years. In addition, $176.5 million will be used to increase the federal funding ceiling on two or more demonstration- or commercial-scale biorefinery projects that were selected and awarded funds within the past two years. Also, $110 million will be used to support new research. Finally, $20 million has been set aside for optimizing flexible fuel vehicle technology, evaluating the impact of higher ethanol blends on conventional vehicles, and upgrading refueling stations to be compatible with ethanol blends up to E85.
Scaling up
To meet renewable fuel standard targets, the EPA says cellulosic ethanol plant start-ups must begin in earnest with a few small plants during 2010-'11, increasing pace thereafter with larger plants. The EPA says the rate of growth for the cellulosic ethanol industry should be similar to that of the corn starch-based ethanol industry in recent years, beginning with 40 MMgy plants from 2010-'13, increasing to 80 MMgy during 2014-'17 and 100 MMgy and upwards during 2018 and beyond. The EPA projects that approximately two billion gallons per year of new plant construction will need to come online between 2018 and 2022. In total, approximately 180 plants will need to be completed by 2022.
However, with only a few months to go before petroleum blenders must begin to use cellulosic biofuels, there are no commercial-scale plants ready to deliver the fuel. Since the DOE’s initial February 2007 funding announcement, very little money has actually been distributed to selected projects. Two of the first six companies to be awarded DOE money - Alico and Iogen - have dropped their applications. Lignol announced in February that it was discontinuing its project as a result of instable energy prices, capital market uncertainty and general market malaise. Meanwhile, subsidiaries of Pacific Ethanol filed for bankruptcy in May.
Abengoa and Poet say they are on track to begin production, but not until 2011. Only Range Fuels, which received an additional $80 million loan guarantee from the USDA in January (the first-ever USDA loan guarantee for a commercial-scale cellulosic ethanol plant), expects to begin producing at near-commercial scale during 2010, with plans to complete the first phase of its planned 40 MMgy facility in Soperton, Ga., early next year.
According to Range Fuels CEO David Aldous, the plant is expected to be mechanically complete during the first quarter of 2010 and commissioning will begin soon thereafter. The plant will produce ethanol from wood chips, he says, and will be scaled up gradually from an initial 20 MMgy capacity. The EPA is predicting that Range Fuels will supply 10 million gallons of cellulosic ethanol toward the cellulosic biofuels mandate in 2010.
Aldous says Range Fuels’ technology is unique. “It is proprietary technology,” he says. “There are a lot of companies that are doing thermal front-end processes, whether they are pyrolysis or gasification, and there are a lot of other companies using different kinds of back-ends, converting the syngas into ethanol, (but) we use a proprietary catalyst on the back end and we use a proprietary technology on the front end.” Prior to leading Range Fuels, Aldous was executive vice president for strategy and portfolio at Royal Dutch Shell plc and also served as president of Shell Canada Products. He is also the former CEO for the Shell Group’s catalyst company, CRI/Criterion Inc.
Meeting the Mandate
To help meet the 100 MMgy cellulosic biofuels target for 2010, the EPA says there will be 24 pilot- or demonstration- scale plants and seven commercial- scale plants producing cellulosic ethanol or cellulosic diesel in 2010. However, ethanol will satisfy only 28 percent of the total cellulosic biofuels mandate. The EPA says the only companies that will produce more than one million gallons of cellulosic ethanol during 2010 are Verenium, Western Biomass Energy LLC, Fulcrum Bioenergy Inc., RSE, Southeast Renewable Fuels LLC, and Range Fuels.
The majority of the cellulosic biofuels volume (72 percent), the EPA says, is projected to come from cellulosic diesel. A small portion (3 million gallons) will be produced by Flambeau River Biofuels at its 6 MMgy plant in Park Falls, Wis., while the majority of all cellulosic biofuels that will be produced, the EPA says, will be cellulosic diesel from Cello Energy (pronounced “sell-oh”), which has a 20 MMgy plant in Bay Minette, Ala. The EPA says to expect 20 million gallons from the Bay Minette plant, as well as 16.67 million gallons from each of three future 50 MMgy plants, which are expected to be swiftly built—two in Alabama and one in Georgia—at locations to be determined.
Feedstock for Cello Energy’s operation can include plant biomass, waste wood, and other organic materials, as well as plastics and used tires. The company uses a catalytic depolymerization technology, the EPA says, to convert the feedstock into short-chain hydrocarbons that are polymerized to produce diesel fuel that meets ASTM standards at a cost between 50 cents and $1 per gallon. The process is reported to be 82 percent efficient and the only energy input is electricity. Allen Boykin, president of Cello Energy, told EPM that the catalyst used by the company is a proprietary catalyst that takes approximately 22 to 25 minutes to convert garbage into fuel oil using a continuous process.
Boykin says Cello Energy’s technology has been in the making for 12 to 15 years. His father, Dr. Jack Boykin, a chemical engineer who served as a Lieutenant in the U.S. Navy from 1961 to 1965, is CEO of Cello Energy and has been conducting the research. Allen says he became involved in 2002 to help bring the system to commercial-scale. Allen says bench-and pilot-scale testing was previously conducted in Prichard, Ala.
Imports to Meet Targets
The EPA admits that because cellulosic ethanol production technology is still developing, production plants will be considerably more complex and expensive to build than corn starch-based ethanol plants, thus requiring much more capital funding as well as design and construction resources. “Although technologies needed to convert cellulosic feedstocks into ethanol (and diesel) are becoming more and more understood, there are still a number of efficiency improvements that need to occur before cellulosic biofuel production can compete in today’s marketplace,” the EPA renewable fuel standard report says. “Additionally, because cellulosic biofuel production has not yet been proven on a commercial level, financing of these projects has primarily been through venture capital and similar funding mechanisms, as opposed to conventional bank loans.”
Alternatively, the EPA suggests that usage targets might be met using cellulosic biofuel that is produced internationally, for example, from feedstocks such as bagasse or straw.
Indeed, as much as 21 billion gallons per year of cellulosic biofuel might be produced outside the U.S. by 2017, the EPA says, the majority from bagasse, but also from forest products, and mostly from Brazil.
A recent report from Novozymes describes how Brazil might produce more than two billion gallons of cellulosic biofuel from bagasse by 2020, which would represent an additional $4 billion in export revenue for that country. Like in the U.S., the development of cellulosic biofuels in Brazil will depend on the industry’s ability to attract the needed investments and political support, Novozymes says.
Despite a slow start for cellulosic biofuels in the U.S., some in the industry are bullish about the future. “Advanced biofuel companies are ready to deploy their technology and begin meeting the requirements of the [RFS],” says Brent Erickson, executive vice president of the Biotechnology Industry Organization’s Industrial and Environmental Section. “Now that the rules of the program are finally moving forward and the Obama administration has demonstrated a firm commitment to the industry, companies are prepared to build the next generation of biorefineries.”
Ryan C. Christiansen is the assistant editor of Ethanol Producer Magazine. Reach him at rchristiansen@bbiinternational.com or (701) 373-8042.
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