Renewable fuels make ‘good business sense,’ but RFS changes needed — Shell

Source: Amanda Peterka, E&E reporter • Posted: Monday, April 22, 2013

Executives for Royal Dutch Shell PLC this week said they are pushing ahead with plans to research and develop advanced biofuels despite recently scaling back investments in the field and calling for changes in federal biofuels policies.

The oil and gas company is focused on developing drop-in biofuels that can be used in existing fuel infrastructure and is working to commission a pilot facility in Houston, said Shell Vice President for Alternative Energy Matthew Tipper. As that happens, Shell is conducting in-house research at laboratories in Houston, Amsterdam and the United Kingdom.

“We believe it continues to make good business sense to develop and deploy cellulosic biofuels because we believe the world will need them,” Tipper said Monday at an annual biofuels industry conference in Maryland just outside Washington, D.C.

Shell, the world’s largest distributor of biofuels, announced last year that it had built the pilot facility at its Westhollow Technology Center in Houston. Using technology from partner Virent Inc., the plant will use a thermo-catalytic process to produce test quantities of advanced biofuels made from plant-based materials that have the same properties of petroleum-based fuels.

Tipper said the facility is part of Shell’s goal to find a biofuel that can be cost-competitive and easily used in today’s fuel networks. Such a biofuel would overcome issues with the “blend wall” — the term given for the technically feasible saturation in the marketplace — that have dogged the conventional corn ethanol industry.

Acknowledging the existence of climate change, Tipper said that such fuels made from biomass will play a “linchpin role” in future energy systems.

“Liquid fuels will remain essential, and we need solutions to reduce their carbon intensity,” Tipper said.

Like most oil majors, Shell’s track toward advanced biofuels has not been smooth, and its support for policies supporting biofuels production has been nuanced.

The move to expand drop-in biofuels comes after a series of announcements from the company over the past year that it had scaled back its investments in cellulosic ethanol, an advanced biofuel made from plant-based materials like agricultural residues, switchgrass and municipal solid waste. Unlike drop-in biofuels, cellulosic and conventional ethanol must be blended with regular gasoline and cannot be transported using petroleum-based fuel infrastructure.

Last April, Shell and partner Iogen Corp. canceled their plans to build a cellulosic ethanol plant in California, saying they would continue to explore “multiple” other pathways toward advanced biofuels. Later in 2012, Shell and Codexis Inc., a company that produces enzymes needed for biofuel production, severed their agreement.

Other oil majors have also scaled back their involvement in cellulosic biofuels in North America. BP PLC’s biofuels unit last year shelved plans to build a 36-million-gallon cellulosic ethanol plant in Florida and said it would instead focus its biofuels efforts on research and development and licensing its technology (E&ENews PM, Oct. 25, 2012). BP also appears to be focusing on a drop-in solution and is a partner with DuPont Co. in a joint venture to produce isobutanol.

Both BP and Shell are eyeing Brazil as a future for advanced biofuels. Shell has invested billions of dollars in Raizon, a sugar cane ethanol joint venture with Brazilian company Cosan Ltd., while BP announced last December that it would invest $350 million to expand one of its sugar cane processing ventures in Brazil. U.S. EPA guidelines define sugar cane ethanol as an advanced biofuel.

Although refiner Tesoro Corp. last month announced that it would purchase algae-derived fuels made by Sapphire Energy Inc., the excitement among oil majors over algae has dimmed. Shell exited the algae business in early 2011 when it ended its participation in Cellana, a joint venture between Shell and HR BioPetroleum Inc. that had been working to scale up algae fuels and that had a 6-acre demonstration facility in Hawaii.

Executives for Exxon Mobil Corp., which has invested $600 million in algae technologies, earlier this year cast a gloomy picture for algae-derived fuels, saying it would likely be at least 25 years before they would make a dent in the marketplace.

Andrew Soare, a renewable fuels analyst at Lux Research, said in a recent interview that oil companies view biofuels as both a competitive threat and an opportunity to help with the concerns of decreasing oil supply globally. As a result, they have invested in companies but have also looked to block legislation to promote biofuels.

“What fundamentally drives these decisions of these companies is economics,” Soare said. “If biofuels prove they can be cheaper than conventional fuels, the oil industry will look at it as an opportunity.”

Tipper acknowledged the difficulties in scaling up advanced biofuels to take the place of conventional corn ethanol. The advanced biofuels industry, he said, has overall “not been able to live up to expectations, some of which it set itself, and has struggled with significant challenges to scaling up technology.”

Interest in RFS reform

Part of the challenge comes from how EPA has handled the cellulosic portion of the renewable fuel standard, the U.S. policy that mandates yearly levels of biofuels consumption, said John Reese, Shell’s downstream policy and advocacy manager.

Reese, who helped craft the original renewable fuel standard in the early 2000s, said that EPA’s consistent overaggressive targets for cellulosic biofuels have opened the industry up to criticism for not meeting deadlines. Refining groups have accused EPA of using the targets to penalize refiners for not using a fuel that does not yet exist in the market.

Earlier this year, a federal appeals court struck down EPA’s 2012 cellulosic target, finding that the 8.65-million-gallon level was not accurate enough. According to EPA, 20,000 gallons of cellulosic biofuels were produced last year in the nation.

“The way EPA was looking at that provision by not just looking at what could be produced but then adding more on top of it was giving the opponents of the cellulosic provision a softball pitch that they could knock out of the park,” Reese said. “And they started referring to it as ‘phantom fuels’ and that was something that the media could understand pretty rapidly and it made a lot of press.”

Reese said that Shell was “generally supportive” of the renewable fuel standard but that the company believes there needs to be some changes to address the fact that the RFS this year requires refiners to blend ethanol at levels above the blend wall. He urged EPA to reduce the cellulosic and advanced biofuels requirements to be more “realistic” and to issue an overall reduction in the requirements beginning in 2016.

Shell’s trade group, the American Petroleum Institute, is strongly advocating for full repeal of the renewable fuel standard. Tipper, though, said it was important that the government remain committed to advanced biofuels and held the RFS up as an example of a system that can help provide dependable pricing and support mechanisms.

But he also said that the RFS was “not perfect.”

“If we are to achieve significant growth in cellulosic biofuels, we must continue to work together to ensure that policies like the RFS remain fit for the purpose,” Tipper said. “This will require discussion about how the RFS can be amended to secure the growth in cellulosic biofuels.”

Advanced biofuels trade groups argue that EPA has helped spur the industry with its cellulosic requirements and are urging the agency to keep issuing aggressive targets.