Feb
23
Big Oil Gets Ankle Deep In Biofuels
February 23, 2009 | 4 Comments
With small toe dips, some near foot submergence now comes a commitment of sorts from British oil major BP Plc who became the latest oil company getting into biofuels by taking major a stake in ethanol production when it extended an agreement with Verenium Corp. to build a cellulosic ethanol plant in Highlands County in Florida. The 36 million gallons-per-year plant will cost $250 million to $300 million. BP will contribute $22.5 million to the Florida plant as part of the 50-50 $90 million joint venture first announced last August.
This comes after oil refiner Valero Energy Corp. reached a deal with bankrupt ethanol maker VeraSun Energy Corp. to buy five traditional ethanol plants for $280 million. VeraSun is required to hold an auction next month to see if other players would sweeten Valero’s bid. Marathon Oil Corp. has invested in a few plants in the Midwest to make conventional ethanol from corn with the Andersons Inc. Royal Dutch Shell has taken equity stakes in a handful of biofuel companies.
Carlos Riva, the chief executive and president of Verenium said Big Oil can help take next generation biofuels made of non-food crops from a “curious science” to a commercial industry, “It signals that the most sophisticated players in the industry are looking at this and deciding it has real potential to contribute to the energy mix and it’s not just curious science, but a real contributor.”
It’s quite a relief to see more movement by the Big Oil community into biofuels. Riva also said, “BP will bring construction and refining and fuel distribution knowledge to Verenium.” Those are just the skills that an economy needs for a transition. It’s also the things the Big Oil shareholders need for long-term value.
The plant is going to use cellulosic feedstocks from diverse sources as switchgrass and woodchips by breaking down tough cell walls into sugars that can be fermented into fuel, is harder to make than fuel from corn starch. The schedule points to production coming in 2012. Last August Verenium said it had hoped to be making cellulosic in commercial levels by 2011, which is likely a result of the economic convulsion of the past few months.
Verenium and BP hope to build more and bigger plants along the Gulf Coast after the Florida plant. The region has the potential to make hundreds of millions of gallons per year of cellulosic ethanol using “energy cane” — a sugar cane relative — and other sources including sugar cane waste and sorghum.
Big Oil is helping the biofuel industry move past the persistent perception that cellulosic-based fuel is five years from reality. “That would have been accurate five years ago,” Riva said. “It’s not accurate today.”
Meanwhile Exxon Mobil is in the media openly talking about its interest in biofuels. With an industry reputation of strong research and high powered engineering skills, Exxon Mobil getting into the business would mark a turning point for biofuels and for the long term viability of oil being an economy dominating club for the market manipulators.
On the other hand there are significant matters to come. Biomass to feed these plants is bulky and hauling it to plants will be an issue. The stated size of the plant would be 1/444th of the needed capacity to meet the Federal mandated 16 billion gallons of ethanol by 2022. Yet the corn ethanol guys managed to close up market share ahead of schedule. Then the ethanol product needs shipped to markets and no provision for pipelining is at hand. But one has to suspect that the oil industry is thinking about solutions to that.
The other matter is the $250 to 300 million dollars the plant is expected to need to get built. That number is more than triple the costs of a corn ethanol plant. But keep in mind this is the very first one. Reports have it that the acreage yield for the net product is coming in at 1800 gallons an acre, a good number, more than triple the corn results.
These kinds of things are prototypes, or templates for others to follow. Building costs will go down, yields will increase. But the run of plants should come up with over 50,000 jobs, consume perhaps $100 billion dollars and put nearly 14,000 square miles of land into fuel production. Compare that to the money (an estimated $700 billion dollars) exported just last year to import oil.
With the progress in fuel cells that split out the carbon in ethanol suggesting models to come, a story about Nissan that they have a solid oxide fuel cell that may be modified to run ethanol perhaps at 80% efficiency the future for ethanol looks brighter by the passing week.
But the news is that BP is in the biofuels business. Big Oil, with all the baggage the industry has to cope with in people’s perceptions has more incentive, capital, skill and management than any other segment of the economy. What the press and media overlook is that for over one hundred years the oil industry drove to lower fuel prices, expanded markets and a higher standard of living. Check your history till 1972 when the first embargo from OPEC began the market distortions. The oil industry had been a boom and bust business before OPEC, even more so since. No one craves a low priced, high volume, steadily profitable business more than Big Oil. Nearly two generations of oil industry people have endured a torrent of troubles.
On the soapbox for a moment, if you’ll forgive me. The BP announcement and the other Big Oil activities point to something that the political world is missing:
These people are seeing a few things that matter to everyone in a huge way. Biofuels can get to scale, no doubt now. Consumers will have, now that the Underwriter’s Lab has OKed the use of 15% ethanol blends in equipment and the expectation that new biofuel power units are coming, choices in products that lift the uncertainty from getting powered transport and other work done. Those two things, plus the knowledge that the world’s most sophisticated engineering teams are now deeply engaged in solving the transport fuel energy issue that most constrains the economy, takes out the fear for the future.
It won’t be a bumpless ride – witness the economy outside of energy and fuels is still a mess. Yet while most of the media, press and politicians are busily talking and spending, someone is solving problems. The world’s independent oil companies.
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The unintended consequence of corn ethanol plants was a huge run up in the cost of food. In addition, marginal farm lands were planted in corn which was energy and fertilizer intense.
Let’s hope that cellulosic ethanol can be successful with out harmful unintended consequences.
Matt is exactly wrong. Increased demand in China swamped world grain production and drove up grain prices. Demand for biofuels was not even close. The same thing is apt to happen again, as China’s drought and grain blight picture suggests its grain harvests will not be even nearly enough this year again.
Of course there are always unintended consequences for everything. But making them up doesn’t help anyone plan for the future.
Nice posting, Brian. Oil companies are certainly not investing their money into grain alcohol. Cellulosic biofuels — not just alcohol but jet fuel, diesel, gasoline, etc — are the first step, and a big one.
Algal fuels, once developed and scaled, will put palm oil plantations in the rainforests out of business and create a revolution in bio-energy.
Breakthroughs in fuel cells running on alternate fuels (not hydrogen), nanotech-assisted electrodes for batteries and photovoltaics, and better supercapacitors all point toward a better energy match for the biological planet called Earth.
Of course we’re going to need all the other energy sources we have while we bridge to more sustainable sources.
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