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Gevo, Lufthansa Rock Markets with Renewable Jet Fuel Deal

Submitted by on September 9, 2016 – 11:07 amNo Comment

by Jim Lane (Biofuels Digest)  In Colorado, Gevo has entered into a heads of agreement with Lufthansa to supply Gevo’s alcohol-to-jet fuel from its first commercial hydrocarbon facility, intended to be built in Luverne, MN. The terms of the agreement contemplate Lufthansa purchasing up to 8 million gallons per year of ATJ from Gevo, or up to 40 million gallons over the 5 year life of the off-take agreement.

Gevo utilized the enthusiasm generated in financial markets yesterday to raise $15.6M in cash and to convert $11M in debt to equity.

What the deal means in the short term

Here’s what it means in a practical sense. Expect Gevo to wind down ethanol production and convert the entire Luverne facility over to isobutanol, now that demand is ramping up. There will be a hydrocarbon upgrading technology added, which will give Gevo the option to produce up to 10 million gallons of hydrocarbon fuel from 13 million gallons of isobutanol.

That’s a mix of isooctene and kerosene – that mix can be dialed in to an 80/20 ratio either way, depending on market conditions. The kerosene will be blended by a third party to Lufthansa’s preferred blend. Could be a low percentage, could be high, that’s Lufthansa’s call.

So, now there are 4 approved alternative fuel specs. F/T fuels, which no one is making. Farnesene, up to a 10% blend, which TOTAL-Amyris makes but is expensive at the moment based on sugar and jet fuel prices. There’s HEFA, which is in wide use but also has waste oil / jet fuel price issues at the moment that have limited the production. Now, there’s the isobutanol-to-jet fuel pathway, which essentially is all Gevo’s right now.

Why would anyone make jet fuel from alcohol, anyway?

So, here’s the critique of jet fuels made from alcohol. Aside from the technical hurdles, why would anyone convert $3.50 corn into $1.20 aviation fuel when the yields are something like 1.3 gallons of hydrocarbon fuel per bushel? Isn’t that $1.56 worth of fuel from $3.50 in feedstock?

Well, yes and no.

First, Gevo is producing its own distillers grains, worth roughly $1.15 per bushel in normal market conditions. And, we believe the fuel will qualify for the biomass-based diesel tax credit of $1.01 per gallon,….

Biomass-based diesel is defined as a renewable transportation fuel, transportation fuel additive, heating oil, or jet fuel, such as biodiesel or non-ester renewable diesel, and achieves a 50% GHG emissions reduction.

And there’s roughly $1.00 in RIN value.

Back in 2012, the airlines said that believed that A1 jet fuel will remain the main aviation fuel for the next 20 years but expected renewable jet fuel to replace up to 5% of the market by 2019. With the European economic climate no longer interesting for investors, the airline believes that agricultural investments—for feedstock for aviation biofuel, for example—is an area not yet fully exploited.    READ MORE

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