Businessman wants second life for ethanol’s leftovers

Source: By Russell Hubbard, World-Herald staff writer • Posted: Thursday, May 12, 2016

In one way, Scott Hornafius is like many of those who have come before him: He has a big idea, and he thinks Warren Buffett should take a good look at it.

In other ways, he is far different. One, Hornafius is himself the president of a company, Elk Petroleum, which is trying to wrest some profit — unsuccessfully so far — from some Wyoming oil wells. Elk is an Australian company whose U.S. office is in Wyoming.

While that is worlds away from Omaha-based Berkshire — one of the world’s largest companies — Elk’s latest idea is right in Buffett’s power zone: tied to renewable energy and with an economic moat in the form of a monopoly.

Hornafius, you see, wants to build a $1 billion, 1,000-mile underground pipeline across Iowa and Nebraska to Wyoming. The line would carry ethanol-plant production leftovers in the form of carbon dioxide — the bubbly stuff in soft drinks. The gas is valuable for use in stimulating production from old oil wells.

Now, all Hornafius needs is $1 billion and a pipeline company. Which, in Hornafius’s view, could be where Buffett and Berkshire come in: Berkshire Hathaway is one of the nation’s largest pipeline operators, owning Nebraska’s Northern Natural Gas and Utah’s Kern River Gas Transmission, which move about 10 percent of the nation’s natural gas.

“I think Mr. Buffett would be very interested and see it as a sound business proposition,” said Hornafius, who for the past couple of years has been touting his pipeline plan at forums such as the Nebraska Ethanol Board’s conference last week in Omaha.

Todd Sneller, administrator of the Nebraska Ethanol Board, said the idea was “another way to increase the ethanol-related product portfolio.”

Instead of simply letting the ethanol-production byproduct escape into the air, a pipeline would allow the carbon dioxide to be “sold into a new market,” Sneller said.

Hornafius said there is plenty of incentive to interest investors: It is related to California laws requiring motor fuels to be far less polluting than before. And there is some serious money at stake. The nation’s oil companies operating in California — think of the major gasoline brands you see on every corner — are in a race to decrease the carbon output of their fuels.

“It is a live-or-die issue with oil companies in California,” said Hornafius, who has a doctorate in geophysics and structural geology and whose résumé includes experience with Mobil Oil Corp.

That’s where Iowa and Nebraska ethanol come in. They are the two biggest producers of ethanol, the alcohol-based motor fuel distilled from corn that oil refiners add to gasoline to lower carbon emissions. Iowa has 42 ethanol plants, Nebraska 25, and both are awash in the corn it takes to make the fuel.

But the ethanol as a fuel additive is just part of the equation, as Hornafius sees it. As part of the distillation process, large amounts of carbon dioxide, or CO², are produced. (It is a lot like making moonshine, but ethanol pros don’t mention that very often.)

And there are ready customers for some of the bubble-producing gas, from beverage makers to chemical companies; North America is already dotted with CO² pipelines. There are more than a dozen of them, running in a crooked line from Texas to North Dakota, many of them sourcing CO² from natural deposits.

The basic method is to collect CO² where it is produced and then whisk it away in a pipeline, just as with natural gas, crude oil or aviation fuel.

(Hornafius said there has never been a leak other than from construction crews digging where they weren’t supposed to. He also said CO² is naturally occurring anyway, produced by every living organism, although it is considered a greenhouse gas.)

But there are no CO² pipelines serving the great Iowa and Nebraska ethanol belt, which runs from western Nebraska almost to Illinois. For most of those plants, the CO² is just vented into the air, dollars wafting to the heavens.

And to Hornafius, that is an enormous waste, because right over in Wyoming, the old oil wells, such as those Elk Petroleum is trying to coax into giving up more crude, need a ready supply of CO² to stimulate the last bits that resist primary and secondary extraction methods.

“The main limitation for us is alternatives to naturally occurring sources of CO²,” Hornafius said.

The U.S. Energy Department recognizes the challenge. The agency said in a paper last year that while “roughly 80 percent” of pipelined CO² comes from naturally occurring underground formations, currently planned new pipelines using industrial sources of the gas are expected to cut the percentage to 50-50 by 2020.

And then there is California. The largest market for private vehicle motor fuel in the nation is also home to the strictest motor-vehicle pollution laws in the nation. The way Hornafius figures it, therein lies another opportunity.

California has a low-carbon fuel standard that requires energy companies to reduce the emissions of the fuels they sell in the state. Part of the compliance plan by refiners is to use ethanol, which is considered by the California standards to improve the pollution profile of clear gas. California oil refiners and gasoline blenders, Hornafius said, are already the largest buyers of Iowa and Nebraska ethanol because they are the closest large-scale producers and conveniently linked by railroads.

But Iowa and Nebraska ethanol would make an even bigger contribution to California’s fuel standard if the states’ producers sold their CO² to oil wells. That’s because more CO² used in oil well stimulation remains sequestered underground than is given off by the fuel produced with it.

So oil refiners that blend gasoline with ethanol whose CO² has been captured and reused would dramatically improve their environmental report card with California, which leads the nation with 30 million motor vehicles, according to the U.S. Transportation Department.

But so far, it is still just a dream, with no investors, no contracts, no right-of-way, no government approval for the CO² pipeline that would be required to set all the complex machinery in motion.

“There is interest, there are conversations ongoing,” is how Hornafius describes the state of play.

As for Berkshire’s end, Buffett didn’t respond to email requests for comment on what would be a large investment in renewable energy infrastructure. (There’s no indication that he shares Hornafius’s enthusiasm for the project.) Berkshire’s Iowa energy subsidiaries are already the largest wind power producers, and the company has made substantial investments in solar energy, calling itself the world leader, producing enough to supply 255,000 California households.

Berkshire’s Omaha-based pipeline, Northern Natural Gas, isn’t aware of the details of the CO² pipeline plan but is monitoring industry trends, spokesman Mike Loeffler said. Houston-based Kinder Morgan, the largest U.S. pipeline company and a major stock holding of Berkshire Hathaway, declined to comment, saying “it did not have anything to add about the proposed project.”

The idea comes during a down cycle in the notoriously cyclical ethanol business, with prices down and supply high. The industry has an economic impact of about $5 billion a year in Nebraska, according to an analysis by the University of Nebraska.

While detractors cite lower gas mileage and federal requirements for how much ethanol must be blended with clear gas to comply with environmental laws, supporters say the business has spawned a science-based, value-added industry that encompasses enzymes used in corn distillation and production of high-protein cattle feed from grain leftovers.

As for objections, they seem to be a given for any major energy-related construction project. Sneller of the state’s ethanol board said CO² is not toxic and is benign. Hornafius said “it does seem possible that there would be objections” to the construction of the pipeline across the prairies and inhabited areas of the Great Plains.

But in the end, Hornafius said the market incentives all align: Ethanol producers get a market for their gas, a pipeline company gets to collect a fee to transport it, the Wyoming oil wells get their poke in the ribs and the California refiners get their carbon-friendly ethanol.

“But when you really think about it, Nebraska and Iowa would be the big beneficiaries,” Hornafius said.

Berkshire Hathaway Inc. owns the Omaha World-Herald.

Contact the writer: 402-444-3197, russell.hubbard@owh.com

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