Biofuels: What’s Happened and Where Are We Going?
by Scott Chabina (Fierce Energy) The transformation of Gen 1.0 to 1.5 and the reality of Gen 2.0. Advanced, commercially viable biofuel facilities no longer “unicorns on the horizon” … Conventional, or “Gen 1.0”, corn ethanol producers have continued to diversify their revenue streams through the development of higher-margin, value-added co-products, as well as the successful implementation of various performance-enhancing capital projects designed to extract incremental value from the corn kernel.
Despite this period of profitability, there remain a number of key factors that continue to impact the industry, including:
- Volatile commodity pricing;
- On-going legislative and regulatory uncertainty;
- Continued consolidation activity; and
- Increased liquidity during 2014 that offered capital market solutions for select producers.
Over the last decade, the ethanol industry has continued to mature from a relatively nascent sector to one that expanded quickly following the ban on MBTE. Due to rapid expansion, over-leverage and risk management problems, many producers experienced insolvency between 2009-2011. During this period, several large strategic ethanol producers emerged as significant players in the rationalization and consolidation of the industry; namely Valero Energy Corporation, Koch Industries (Flint Hills Resources) and Green Plains.
These producers, along with POET, ADM and a handful of others, now control the vast majority of the total production capacity in the U.S. Even so, the overall market remains fragmented and certain producers continue to actively seek additional gallons from select production facilities.
Aided by favorable commodity (crush) spreads and the low interest rate environment, many domestic ethanol producers were able to refinance burdensome debt loads and avoid a wave of restructurings similar to those witnessed in earlier years.
Domestic ethanol producers have successfully evolved from solely corn ethanol production facilities with limited co-products (principally DDGS) into diversified agri-businesses. Whether it be through retrofitting facilities to produce separate specialty chemicals (e.g. butanol), developing bolt-on capacity to produce ancillary fuels (e.g. biodiesel), or continuously extracting further value from the existing corn kernel (e.g. corn oil extraction, selective milling technology, etc.), these former “Gen 1.0” producers continue to expand their end markets and product offerings, simultaneously reducing their dependence on solely corn and ethanol.
(A)s of January 2015, the advanced biofuel industry in the U.S. is finally demonstrating some truly significant accomplishments. These include, but are not limited to, the following:
- Abengoa Bioenergy (Hugoton, KS) — Abengoa’s cellulosic ethanol facility came online in late 2014 and is expected to produce 25 million gallons per year (“MMGY”) using corn stover, wheat straw, milo stubble and switchgrass.
- DuPont (Nevada, IA) — DuPont has stated that its 30MMGY cellulosic ethanol plant will begin production in Q1 2015 using corn stover collected from ~500 farmers that are participating in the company’s “Feedstock Harvest Program.”
- POET-DSM Advanced Biofuels (Emmetsburg, IA) — “Project Liberty” held its grand opening in September 2014 and produces cellulosic ethanol using corn cobs, leaves, husk and stalk. The 20-25MMGY facility anticipates full production sometime in 2015.
- Quad County Corn Processors (Galva, IA) — Quad County Corn Processors began production at its cellulosic ethanol facility (2 MMGY capacity) in July 2014 utilizing a co-product of its co-located Gen 1.0 corn ethanol facility known as corn kernel cellulose. The company claims that this patented technology has the ability to generate 1.0 billion gallons of additional ethanol (without using additional corn) by adding the bolt-on technology to existing corn ethanol facilities.
Undeniably, there remains a myriad of significant operational and technical hurdles for each of these advanced biofuel producers to address (e.g. feedstock procurement, marketing of co-products, etc.) before there can be any reliable contribution of commercial volumes of advanced biofuels for an extended period of time.
However, regardless of how far behind these revolutionary facilities are from the originally proposed volumes made nearly a decade ago, it remains critical to stay the course. READ MORE