Making a Profit on Biofuels at Goldilocks Oil Prices (Part 3)

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April 09, 2025

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by Bob Kozak* (Atlantic Biomass,LLC) As I’ve been running a Phase I STTR biofuel processing project, I have been looking deeper and deeper at the current economics of biofuels and what needs to change to restore profitability. Here are my thoughts and recommendations. I hope you’ll find them helpful.

As long as oil prices stay below $80/barrel and natural gas prices stay around $4/million BTUs, biofuels will remain a low margin industry. The corn starch-to-ethanol segment is especially stressed.corn

Current gasoline wholesale prices of between $2.02-$2.15/gallon keep ethanol per gallon prices at or below these values.
Natural gas prices have increased from about $3/mBTUs to $4/mBTUs because of increased LPG exports to Europe. While this is a good thing for Ukraine and its Allies, it is bad for US corn farmers. The average price per ton of ammonium nitrate, made from natural gas, went from $355/ton in December 2023 to $510/ton in March 2024 (a 43.7% increase). Continuing to use the same quantities of fertilizer needed to maintain optimum corn yields means significantly higher growing costs which are probably not completely covered by current corn prices.

Continuing US tariff increases on agricultural products and equipment, as well as the growth of BRICS agricultural powers such as Brazil, have driven down US agricultural exports and farmer income. According to the latest available USDA figures, in 2023 US agriculture exports fell $17 billion (8.7%) as compared to 2022. These exports included 977 million bushels of soybeans exported to China. For comparison, Brazil exported 2.737 billion bushels of soybeans to China in 2023, 180% more than the US.

Here’s how these numbers come together for current corn starch to ethanol production (Table 1).

One could move some of the numbers around, but I don’t think the bottom line changes – relying on just corn to ethanol income is unprofitable.

So, how do corn growers and ethanol processors (often one and the same through co-operative arrangements) stay in business?

Through the sale of higher value co-products.

In this case, dried distillers grain (DDG). DDGs are produced from the corn biomass leftover from corn carbohydrate fermentation. DDGs are a very good animal feed supplement and sell for about $1.30/bushel of harvested corn. (Distillers corn oil is also produced at about $.29/bushel.)

By combining DDG with ethanol sales, growers and ethanol producers can produce a net profit over expenses. The following table (Table 2) compares ethanol only with ethanol and DDG sales.

Two things jump out from this table:

It looks like ethanol processing is more of a DDG production process than a profit producing system.

It also brings into question why ethanol producers continue to spend money distilling and filtering ethanol to the 99.9%+ purity requirement of transportation fuel instead of supplying ethanol to biorefineries at lower/cheaper purities for SAF and other higher value products.

And, I think it raises another point. Should US biofuel production continue to rely on a feedstock that costs more than 70% of the wholesale product price?

A New Biofuel Approach Is Needed

For the US biomass to biofuel industry to have long-term profitability (or sustainability if you will) it must combine the following six design and operational goals into integrated systems. While many of these goals have been discussed before, it’s time to put them all together.

Biomass feedstocks must cost below 50% of product prices.

Biomass must have low production costs.

Systems must utilize multiple feedstocks to counter climate and crop negative situations (drought, flooding, diseases).

Production design and product choices must be cost-effective.

Multiple commodity and value-added outputs must be integral to system designs.

Production systems must be simplified and integrated to the minimum number of steps needed.

Biomass Feedstocks Must Be Below 50% of Sales Price: Keeping biofuel feedstock prices below 50% of wholesale fuel prices will give the biofuel industry pricing freedom while maintaining profits. This will allow the industry to compete with petroleum pricing maneuvers designed to raise their market share. While beginning at less than 50%, the real challenge will be to sustain that as farming costs rise. How can that be done?

Biomass Must Have Low Production Costs: Farming costs are a sum of: land, seed, planting, fertilizing, watering, pest control, harvest, and storage costs. Any reduction in those areas means lower biomass production costs. For instance, perennial crops such as grasses eliminate annual seed and planting costs while also reducing land and fertilizer costs since many grasses can be grown on marginal lands regenerated by plant roots. Another key cost reduction strategy is to increase the percentage of planted biomass that can be used for biofuels. Compare the percent of biomass from energy sugar beets that can used with corn ears. Finally, just-in-time continuous harvest would reduce storage costs over once a year harvest.

Production Design and Product Choices Must be Cost-Effective: While near to 100% biomass to biofuel conversion would be ideal, trade-offs on cost of conversion and product selling prices must be balanced. Sometimes 60-70% conversion at a lower production price will allow the biofuel industry to compete successfully in a lower priced, but large market. Therefore, a combination of simplicity and flexibility is needed throughout the production chain to branch out to adequately address multiple markets.

Systems Must Utilize Multiple Feedstocks: Not all planted crops or perennial grasses are going to have near maximum yields every year. Ideally, biomass hydrolysis and fermentation sub-systems should be able to process mixtures. Even being able to simultaneously process three or four types of grasses with different compositions would significantly improve grower and processor flexibility.

Multiple Commodity and Value-Added Outputs Must be the Goal: As shown by current corn-to-ethanol production, every possible bit of the biomass must be used for the added revenue that maintains profitability. While a perennial grass system in the near future may derive the largest share of its income from SAF via the ethanol pathway, significant quantities of hydrocarbon rich biomass and clean CO₂ from fermentation remain. Methanol (CH₃OH) immediately comes to mind through the use of current technologies. Syngases and even plant protein recovery should not be overlooked. Remember, petroleum refineries make their profits on a variety of fuels and chemicals, not just gasoline. Biorefineries should do the same.

Production Systems must be Simplified and Integrated to the Minimum Number of Steps Needed: As discussed in Part 2 of this series we are working to reduce the number of steps needed for hydrolysis, fermentation, and distillation from 8 to 4. We are doing this by replacing multiple steps with single, cost-effective solutions and integrating other steps wherever possible. Simplified, integrated solutions offer two important possibilities. One: CapEx can be reduced. In times of high interest rates and tariff driven supply costs, lower direct and interest costs reduce the need to build plants to extremely large sizes (100 million barrels/year for instance) to derive the economies of scale sufficient to compensate for high CapEx costs to reduce the operational costs of complex operations. Two: Simplified Systems offer Production Flexibility. Simplified systems offer the possibility of separate modules for different production steps. This would allow combinations of portable hydrolysis modules that could serve disbursed growing areas with combined fermentation/distillation/SAF hubs co-located with transportation hubs. The smaller size and lower levels of complexity needed would reduce CapEx needs to allow profitability at a smaller scale.

Making the Production of Multiple Biofuels Possible and Profitable in the US System

Talking about multiple product biomass fed refineries (biorefineries) is nothing new. The US Department of Energy has been preaching this doctrine for over 20 years.

I think the reason it was largely ignored is that it came across as a political doctrine that had to be complied with to receive Federal funding instead of as a fundamentally good economic idea.

Furthermore, the biorefinery concept became so distorted that the six design and operational goals listed above cannot be efficiently integrated and used to benefit from the Federal policy approach.

A primary example is the procedure for receiving US Federal biofuel (SAF included) tax credits. Under this program, all biomass and conversion processes have to comply with a limited number of approved pathways. And, unfortunately, many of them have come to be interpreted as simplistic “one crop-one process” pathways that limit innovation. An example of this is a recent (March 2025) DOE biomass-to-feedstock handout (Photo 1).

Photo 1

DOE Biomass Card March 2025.jpg

Note how its organization is one crop for one process pathway. It seems to say that corn stover can only be used for biochemical conversion and pine for pyrolysis, etc. In addition, it doesn’t address how feedstocks can feed multiple production systems.

This is contrary to what makes sense economically – multiple biomass sources for one or several intermediate feedstocks that can used in multiple biofuel/bioproduct production systems.

To get Federal regulators to treat biofuel/bioproduct production this way would mean breaking down the overall crop-to-fuel process into its component steps and allowing growers and producers to: 1) innovate at each step, and 2) integrate the innovations into new systems that may not fit existing pathways. How could this be administered? Simply create credit systems based on end-point performance standards. You know, like the Clean Air Act did in 1970, 1977, and 1992.

And yes, we all can dream.

So, without a Revolution in US Federal regulatory thinking, how will we transform the biofuel industry to one based on the integrated production of multiple products that can respond quickly to market changes?

Forget US Federal Tax Credits. Sure they sound great to MBAs, but given the work needed to get them, I do not think they are worth it. Also they constantly need legislative renewals. Furthermore, we are a low-margin industry. I do not think tax credits are the way to help us.

Work with States and Regions. Many States and inter-state regions want to help their agricultural and industrial communities. Corn ethanol would never have gotten off the ground without the Iowa state government. Push state legislators and governors to help. Also, find out what the land-grant and research universities are doing. Their research and contacts are very valuable.

Be innovative. Forget received “wisdom.” It’s not working. Be the Wright Brothers or Henry Ford. Devise a new science (the Wright Brothers) or a new production and economic model (Henry Ford). Remember investors didn’t support either of them. Heck, Wall Street still hates the Ford Motor Company!

Success Will Come if We Stay the Course We Devise. Don’t get distracted by VCers or MBAs who do not know agriculture or fuel/chemical production. Yes, I’m looking at you Silicon Valley.

Use the Economic Facts, Not Policy Goals. Show how an integrated system can build wealth in the agricultural and production industries – don’t cite which environmental or energy policies will be fulfilled.

And, speaking of facts, how would an integrated products system based on perennial grasses look? Here’s an estimate based on using the following intermediate products as feedstocks: 1) ethanol, 2) post-fermentation biomass, and process CO₂.

It’s not spectacular, but I think it’s solid and a sustainable goal for a Goldilocks or unpredictable future.

Back to the lab!

*Bob Kozak is the founder and President of Atlantic Biomass, LLC, and a co-founder and board member of Advanced Biofuels USA. After working in the transportation, energy, environmental, and government relations industries, he is now focusing on the development of integrated end-to-end biomass-to-fuel systems that do not require pretreatment. He can be reached at atlanticbiomass @ aol.com

Related articles

Is the “Goldilocks” Cost of Oil Pricing out Corn for Ethanol Production? (Part 1) (Atlantic Biomass)
Where Is the Technical Solution for Overcoming the “Goldilocks Pricing” Problem for the Biofuel Industry? (Part 2) (Atlantic Biomass)

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