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Hack This Voice Mail: The Facts About Advanced Biofuels Capacity

Jim Lane

Following a stinging WSJ editorial board critique on cellulosic biofuels, we leave a fact-filled voice mail for News Corp to hack.

Meanwhile, Mascoma lands $80M and heads for scale.


The Wall Street Journal editorial page writers recently published a stinging indictment of cellulosic biofuels.

Bottom line: the Journal is offering the shortfall in the cellulosic biofuels pool (around 2% of the overall US Renewable Fuel Standard this year), as evidence that government mandates and subsidies do not work, and that the US government has shoveled a lot of money into advanced biofuels for nothing.

Was it brain-failure?

Well, they must be stupid at Valero, announcing this week that the company would invest some $150 million in the new Mascoma cellulosic biofuels plant in Michigan. And at Waste Management (WM), too, announcing last week that they would provide the bulk of financing for Enerkem’s initial commercial-scale cellulosic ethanol facility, and $70 million in financing (a few weeks back) for Fulcrum Bioenergy’s first commercial cellulose biofuels facility in Nevada. Hoo-hah, what morons!

Why are companies like BP, Shell, Valero, Dupont, Dow, Waste Management, Tyson, and Darling all investing in what is, we are now informed, a phantom? Have they all gone simultaneously bonkers?

And yet … perhaps companies like Waste Management and Valero are not investing because of the $1.01 per gallon cellulosic biofuels tax credit, which expires next year before these projects are even completed. Or because of corporate brain-failure. They think that – perish the thought – that they are going to make money from the technology.

It came just the same

As the Grinch might say,“It came without swaps, or options, or fees, it came without points that will knock out your knees. It came without puts, or Ponzi-sourced cash, those foolish folk making fuel out of trash. But despite all our efforts to sell ‘em on oil, they went for renewables after all of our toil. Their investments came, they came just the same.

It makes you almost wish that the voice-mail hackers at News Corp had targeted, say, Waste Management, instead of celebrities from the entertainment industry, over the past decade. They might have learned something useful from their innovative approach to privacy invasion.

Hack this voice mail

As a gift to our brothers-in-journalism at News Corp, we left a message on the Biofuels Digest voice mail this morning, explaining how much qualifying advanced biofuels capacity is now available to fill the 2 billion gallons that will be mandated in 2012 by the US Government.

That would be, er, around 13 billion available gallons. With some 4 billion gallons in added advanced biofuels capacity announced around the globe for opening by 2016. Four years after the cellulosic biofuels tax credit expires.

There you go again, another example of abject failure in public-private partnerships. You put up a mandate and what do you get? 13 billion lousy gallons to fill a 2 billion gallon mandate. Could there be any more compelling evidence available that mandates do not work? Sheeesh.

For more information on the topic, News Corp can hack our voice mail instead of, say, Madonna’s. 786-393-8530: hack away.

Who’s investing faster than the US Government?

When it comes to RFS-qualifying advanced biofuels capacity, there are a couple of companies investing faster than the US government, as it turns out.

Lord, what fools. Who could those be? Mere pawns for quick destruction by real companies, real companies like oil companies.

Um, that would be Shell and BP.

Oops.

The pool, by the numbers

As we have repeated so many times it just gets nauseating, cellulosic biofuels are a component within the advanced biofuels pool.

Here’s how a pool works. If cellulosic biofuels come up short, the other qualifying fuels can easily slip in to fill the gap. Sort of like, when one oil well dries up, you can make up the shortfall by drilling another. And when Saudi Arabia dries up, oil-wise, the Journal can urge us to drill the heck out of the Arctic National Wildlife Reserve. Or the ocean. Or Neptune. And so on. That’s how pools work.

Just so you know.

Pointing out that one component of the overall pool is behind, well that’s like taking one stock out of the Dow Jones Industrials and saying that, because one component stock is underwater, the world of equities is going to hell.

In retrospect, the Congress was simply wrong to prescribe one portion of the pool so narrowly. They were just asking for trouble back in 2007. It has become a poster child for the failure of advanced biofuels, despite the fact that the world is awash in capacity to fill the RFS mandate.

For example, the Diamond Green Diesel project from Valero and Darling (DAR), scheduled for completion next year with 137 million gallons in capacity. Or more than 500 million gallons in renewable diesel capacity that Neste Oil has brought online in the past there years. Or the 75 million gallon Dynamic Fuels project that Syntroleum and Tyson opened last year. Just to name a few.

Are market-makers important?

Now, for sure, the RFS mandated market is a helpful thing, because it provides assurance of market access. Anyone who ever tried to launch a web browser to compete with Internet Explorer knows that it can take government action to get a rival technology distributor (in this case, fossil oil, as opposed to Microsoft) to make a disruptive, competitive product available to their customers.

And DOE loan guarantees and project grants are a useful thing. Government support in the early days was instrumental in other technologies, too. For instance, that 7th wonder of private enterprise, the oil pipeline. The internet. The GPS system that helps you navigate around town. Just to name a few.

Mascoma heads for scale

Therefore, its not exactly bad news when, this week, Mascoma announced that it has signed a cooperative agreement with the DOE to assist in the design, construction and operation of its first commercial  commercial-scale hardwood cellulosic ethanol facility.

The combination of the $80 million from DOE and the remained from Valero effectively completes the financing for the first project. Groundbreaking is scheduled for the first half of next year, opening of the facility for year-end 2013. It will have an initial name plate capacity of 20 million gallons, expandable to as much as 80 million gallons. Kinross Cellulosic Ethanol LLC, a joint venture formed by Mascoma and Valero, will develop and operate the Kinross facility.

Reaction from Mascoma

“This DOE award is a significant milestone for Mascoma, and the biofuels industry, as it completes the financing for the development and construction of a first-of-its-kind 20 million gallon per year cellulosic ethanol facility in Kinross,” stated Bill Brady, President and CEO of Mascoma.

“Mascoma is honored to receive this award and we are fortunate to have such a strong partnership with the DOE for the Kinross project. We look forward to the continued support from and collaboration with the DOE,” added Michael Ladisch, Ph.D., Chief Technology Officer of Mascoma, Principal Investigator for the DOE award, and Distinguished Professor at Purdue University.

Reaction from DOE

“Biofuels hold great potential, not only for reducing our dependence on foreign oil, but also for creating new jobs and economic opportunities for America’s rural communities,” said Valerie Reed, Ph.D., Acting Biomass Program Manager, Office of Energy Efficiency & Renewable Energy, of the DOE. “The cooperative agreement between Mascoma and the DOE will enable the construction of a new commercial-scale advanced biofuels facility, and the only one using CBP technology. It is indeed a significant step towards meeting America’s energy challenges with cost-effective and sustainable bioprocesses.”

Money pits?

This week, Motley Fool writer Travis Houim described biofuels as a “green energy money pit,” citing Solazyme, Amyris, and Rentech in particular, as publicly traded companies he recommended avoiding. Houim wrote:

“The first problem is scale. Right now none of the companies mentioned above makes fuel in any sort of scale, having only proven their technologies in labs or pilot plants. But moving to a large scale means sourcing more fuel and building larger plants. When it became time for corn ethanol to make that jump, the increased demand for corn resulted in higher prices and any advantage ethanol had evaporated.

Now, let’s observe for the record that Amyris (AMRS) has three commercial-scale facilities under construction, Solazyme (SZYM) is doing commercial-scale work at tolling facilities and it building its first commercial, and Rentech (RTK) just completed construction of a demonstration-scale plant. It’s more than a little disingenuous to focus in on the existing capacity when so much steel is going into the ground.

Can the feedstock remain affordable?

But let’s hone in on that last point. It’s a fair question. Is there enough feedstock that advanced biofuels can scale up to meaningful numbers without causing a run-up in feedstock prices?

Oak Ridge National Laboratory thinks so. In the revised “Billion Ton Study, (a/k/a Son of Billion Ton), they projected that, in their baseline assumption, there will be 193 million tons of woody biomass – the type that Mascoma uses – available at under $60 per bone dry ton, by 2030, to support scale-up at Mascoma and its brethren. That’s enough to support more than 80 projects of Mascoma’s scale. That’s just in the United States, not disturbing anyone else’s supply, or with costs rocketing up to unaffordable levels.

Is the Billion Ton Study correct? Time will tell. But certainly, the potential is there and deserves a little more than derision. See our “Son of Billion Ton – the 10-Minute Version”, for full details.

Warning signs to watch

Now, there’s one metric worth watching. The CAPEX for the Mascoma project. At $230 million for its 20 million gallon first phase, that’s $11 per gallon. Now, that’s for 20 million gallons. We’ll have to wait for Mascoma, probably, to get through its IPO before we have a lot of commentary on what it will cost, per gallon, to build out larger-scale facilities.

Moreover, once sufficient industry demand was established for solar panels, the price for manufacturing dropped, and fast. It was that very phenomenon that ultimately doomed Solyndra.

But that number had better come down. In the long-run, it is only one component, along with the operating costs, that determine the viability of cellulosic biofuels. But it narrows the field of potential investors when the project equity portion is north of $50 million, much less north of $200 million.

Jim Lane is editor and publisher of Biofuels Digest where this article was originally published.  Biofuels Digest is the most widely read Biofuels daily read by 14,000+ organizations.  Subscribe here.



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Comments

One thing we need to talk about: The feedstock question needs clarifying.

With corn, we have a feedstock resource that is flexible in quantity. It is a mis-understanding of how the corn planting and corn as a commodity works to say that an increase in demand, therefor a tightening of supply, brings an increase in corn cost.

In fact we grow enough corn each year to fill all corn markets with no shortfall, and with a small carryover each year to new harvest time.

When we find more markets we always grow more corn to fill those markets; and we have a large capacity in America to increase corn production as new markets develop.

The price of corn is always volatile; always has been.

There is always a tightening of corn supplies every summer before new corn harvest, no matter what markets we have; because we always grow just enough corn to fill those markets with only a small carryover.

To grow very much more than we need would crash the markets and bankrupt farmers around the world. It has been done before, and the bailouts were very costly.

There are other factors driving corn prices, but running out of corn is not one of them because we never actually run out of corn to meet all of our market demands.

Garbage as a bio feedstock, on the other hand, is a finite resource. We will not produce more garbage simply because we can sell it to bio processors. When the landfills are all closed and all garbage is being processed, that is it. the garbage processing industry is then saturated.

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