Advanced Ethanol Makers Are Trying To Give Big Oil A Run For Its Money

Source: By Ken Silverstein, Forbes • Posted: Thursday, October 9, 2014

Big Oil can’t put the brakes on a new renewable fuels factory in Iowa — one that will seek to supplement petroleum with next-generation cellulosic ethanol. The “Project Liberty” facility will consume 285,000 tons of biomass a year to produce up to 25 million gallons annually of bio-ethanol.

What makes this deal noteworthy is that, if successful, it would help move the nation away from the controversial corn-based ethanol era and into the cellulosic ethanol period, or one that relies on wood, grasses and inedible plants. The benefits are that cellulosic ethanol is abundant in nature, however, the cost of converting such biomass to a transportation fuel is prohibitively expensive.

To move things along, the U.S. Department of Energy is funding second-generation biomass projects. Beyond Project Liberty, which revved up in September and which is supported by a $100 million public investment, there’s also the Indian River BioEnergy Center in Florida that produces 8 million gallons of cellulosic ethanol a year from municipal waste. Dupont, meanwhile, is going ahead with an advanced unit in Iowa to create 30 million gallons annually.

“Some have called cellulosic ethanol a ‘fantasy fuel,’ but today it becomes a reality,” says Jeff Broin, chief executive of POET, which is an advanced biofuels company that is partnering with Royal DSM to build Project Liberty. “With access now to new sources for energy, Project Liberty can be the first step in transforming our economy, our environment and our national security.”

Congress has sought to expand ethanol use from a base of 6.5 billion gallons in 2005 to 16 billion gallons by 2022, as part of the Renewable Fuel Standard. As such, ethanol is to comprise 10 percent of gasoline’s blend. The concern: Farmers are replacing other crops with corn, thereby creating shortages of other food products. A transition to cellulosic ethanol would therefore mitigate that scenario.

Sugar cane residue can be used as a biofuel

Sugar cane residue can be used as a biofuel (Photo credit: Wikipedia)

Broadly speaking, oil giant BP , has said that bio-fuels could provide up to 23 percent of the global demand for transportation fuels by 2030.

Federal policies have certainly been sympathetic to ethanol makers. The economic argument is that the use of biomass as a fuel supplement lessens the country’s dependence on foreign oil, although it does inflame Big Oil that does not want to cede major parts of the multi-billion dollar annual gasoline market.

Politically speaking, ethanol standards let Washington win favor among the strong agricultural businesses in this country. But that position pits Big Ag against Big Oil, which is also using powerful arguments to make its case: For starters, this country is now the world’s biggest oil producer, given the ability to access domestic tight oil deposits using hydraulic fracturing. And secondly, a lot of car engines can’t handle the increased use of ethanol.

“For the sake of consumers, and for the sake of our economy, we call on the administration to keep ethanol mandates well below 10 percent of gasoline demand,” says Bob Greco, with the American Petroleum Institute. The Renewable Fuels Association would like to see the ethanol blend increased to 15 percent. 

If corn-based ethanol distorts food markets, oil producers say, then cellulosic ethanol is just unworkable: Colorado-based Range Fuels received a $76 million grant through the Bush administration in 2007 but that cellulosic facility and was forced to close.

But both political parties are determined to advance the cause. Project Liberty, they say, could have success like the existing ethanol facilities in Brazil, which is also looking forward: Raízen Energia Participacoes is a $12 billion joint venture between Royal Dutch Shell and Brazilian ethanol company Cosan, which will be located next to a sugar cane mill that will feed the plant.

“Home-grown biofuels have the potential to further increase our energy security, stimulate rural economic development, and help reduce greenhouse gas emissions from the transportation sector,” says Energy Secretary Ernest Moniz.

The ethanol push is a mix of politics, economics and ecology. Certainly, corn farmers have fed from the gravy train, whose next stop might leave them behind. If developers are able to cost-effectively produce cellulosic ethanol, it could take off and perhaps give Big Oil a run for its money.