Ethanol hopes rise as crude oil prices surge

Source: By Financial Times • Posted: Friday, May 18, 2018

Alternative fuel becomes competitive again as Brent trades above $79 a barrel

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 The rebound in the oil price has made the prospects for ethanol made from farm waste — once the great hope of the alternative fuels sector — look promising again.

The head of the last consortium still pursuing large-scale production believes other companies are wrong to have written it off, as consumers face rising fuel bills.

Feike Sijbesma, chief executive of Royal DSM, a Dutch company that is part of the group working on cellulosic ethanol at the Project Liberty plant in Iowa, said it was on course for being able to compete with petrol, and the higher oil price was helping.

The recent rebound in prices to above $75 a barrel for Brent crude has raised hopes that cellulosic ethanol can be competitive, if the remaining process engineering problems can be fixed.

“It has not been an easy road, but we are getting there,” he told the Financial Times. “The technology is more complicated than anybody thought at the beginning.”

DSM, a chemicals and biotech company, set up Project Liberty with Poet, a US ethanol producer, to produce fuel from corn cobs, leaves and husks that are left in the fields after the harvest.

The plant held its opening ceremony in 2014 but has still not yet reached its full production capacity of 20m gallons of ethanol per year.

DuPont of the US and Abengoa of Spain, which had been pursuing similar projects, have abandoned them.

Project Liberty is still in production, however, and its output is rising. In a sign of the Poet-DSM consortium’s continued confidence in the technology, it last year committed to building a facility at the site to manufacture the enzymes used to break down the cellulose in corn waste to make fuel.

Mr Sijbesma said the principal challenge that Project Liberty had faced was managing the logistics of collecting the corn harvest residue and processing it for treatment at the plant. The enzymes had exceeded expectations in their effectiveness in breaking down cellulose, but there were engineering problems such as the difficulty of removing dirt, sand and stones from the plant material.

He added that those process challenges should ultimately be easier to solve than the fundamental science of using enzymes to break down cellulose, because they were the types of issues that were more familiar from other manufacturing processes.

Last November the company hailed a “major breakthrough” at the plant, pre-treating the corn waste so that the enzymes and yeast used to make ethanol could work on it more easily.

Poet and DSM hope to license their technology to other producers, saying it “offers an enormous business opportunity” to companies that are making first generation ethanol from corn and other grains.

If Project Liberty were producing at full capacity, its ethanol would be competitive with petrol at current prices, Mr Sijbesma said. “The higher the oil price, the more economic we are,” he added. “At what oil price are we comfortable? $70.” Brent crude rose above $79 a barrel this week for the first time since 2014.

A decade ago, cellulosic ethanol was widely seen as vital for future energy supplies, providing an alternative to oil-based fuels that had lower greenhouse gas emissions and did not compete with demand for food. The US Energy Independence and Security Act of 2007 set ambitious goals for cellulosic biofuel use, which the industry has not come close to reaching. Just 10m gallons of cellulosic ethanol were produced in the US last year, only 0.2 per cent of the original biofuel objective.

Column chart showing US production of cellulosic ethanol in millions of gallons. The US production of cellulosic ethanol has been rising. At the current rate, production will hit 14.4 million gallons in 2018. Which might sound impressive, except the target set in 2007 for this year was for 7 billion gallons.

DowDupont, the company formed by the merger of DuPont with Dow Chemical, has stopped production at its cellulosic ethanol plant in Iowa and put it up for sale.

Abengoa similarly stopped production at its cellulosic ethanol plant in Hugoton, Kansas, in 2015. The Hugoton plant went into Chapter 11 bankruptcy protection in 2016, and was bought at the end of that year by a US company called Synata Bio, which beat Royal Dutch Shell in an auction with a $48.5m bid. Industry sources said the plant did not appear to be producing cellulosic ethanol. Synata said: “We are not making any comment on Hugoton at this time.”

Other companies are trying different routes to making cellulosic ethanol. DowDupont, for example, sells enzymes for what is known as “1.5 Gen” fuel, made from the corn kernels left over after the production of conventional ethanol. California-based Aemetis has a plan to develop a plant to produce cellulosic ethanol from orchard waste and nutshells.

The mandates for biofuel use set in the 2007 act remain in a vastly modified form. The requirement for cellulosic biofuels has been reduced to about 5 per cent of its original level, and most of that is met not by ethanol but by renewable natural gas, produced from sources such as landfills and municipal waste water treatment facilities.

For 2018 the mandate for cellulosic biofuels has been set at 288m gallons, down from 311m gallons in 2017. Geoff Cooper, of the Renewable Fuels Association, warned that the move could have a “chilling effect” on efforts to increase cellulosic biofuel output.

President Donald Trump has been looking at possible regulatory reforms to encourage ethanol sales, and for the time being the US industry’s future will remain heavily dependent on policy support. In the longer term, however, the prospects for cellulosic ethanol and other biofuels around the world will be much brighter if oil prices remain at current levels or rise higher.