Drop-in Fuels: Are They the Next Phase of Biofuels Development
As we have noted in previous articles, mandated ethanol blending volumes from the Renewable Fuel Standard, RFS-2, are on a collision course with the ethanol “blend wall” (1). The nation’s average ethanol-gasoline blend reached and at times slightly exceeded 10% last year. Meanwhile, recent gasoline use has been declining from year ago levels (2) in response to higher prices, high unemployment, improved fuel mileage of newer vehicles and other factors, as shown in Figure 1. Figure 1 is a graph of monthly U.S. gasoline supplied. Gasoline supplied can be considered as a close approximation of quantity used (3). The recent downward trend started in August 2007. Monthly use totals for July-December 2011 were down 3.64% from the year-earlier period. The total for calendar year 2011 was down 2.83% from 2010. For the January-February period of 2012, the average gasoline volume supplied was down 6.7% from a year ago. Declining gasoline use is a concern to the biofuels industry from another perspective along with arrival at the 10% blend wall, since it shrinks the potential market size. The average annual equivalent rate of gasoline supplied in the last half of 2011 was 133.956 billion gallons. Mandated blending of conventional (corn starch) ethanol required by the 2007 Energy Independence and Security Act (EISA) (4) will reach a maximum of15 billion gallons in 2015 as shown in Figure 2.
At last-half 2011 U.S. gasoline supplied rates, a 10% blend wall would create a potential maximum domestic ethanol market of about 13.4 billion gallons unless the blend wall can be raised or removed. At that rate of gasoline use and a 10% blend wall, domestic ethanol use would be almost 11% below the mandated 2015 level of conventional ethanol blending. In that scenario, possible inability of the ethanol industry to fill the corn-starch ethanol mandate could reduce the potential demand for corn at ethanol plants by more than half a billion bushels vs. what would be possible at the 15 million gallon level.
EISA mandated cellulosic blending of ethanol in the nation’s gasoline supply is shown in Figure 3. The cellulosic ethanol industry has developed much more slowly than Congress anticipated when it passed the 2007 EISA (RFS-2). The Environmental Protection Agency’s (EPA) response so far has been to sharply reduce the mandated level of cellulosic ethanol blending vs. that called for in EISA. EPA is the government agency responsible for enforcing the mandates.
Any further decline in domestic gasoline use would lead to a possible further shrinkage of the maximum ethanol market, thus increasing competition between conventional and cellulosic ethanol as commercial cellulosic ethanol technology emerges. Future trends in U.S. gasoline use will be influenced by gasoline prices, government auto fuel mileage mandates, strength of the economy and other factors.
Figure 4 shows the seriousness of the blend wall when conventional (corn-starch) and cellulosic ethanol mandates are combined and compared with a 10% blend with U.S. annual gasoline use at 134 billion gallons. The combined ethanol mandates for 2022 total 31 billion gallons or about 23% of last year’s U.S. gasoline use. At current rates of gasoline use and a 10% blend wall, that would create an excess mandated ethanol blending with gasoline of 17.6 billion gallons by 2022. If gasoline use declines further in the next several years due to improved vehicle fuel mileage, possible higher prices and other factors, a larger excess above the blend wall would result.
Domestic fuel ethanol production in the current corn marketing year is expected to be around 13.65 billion gallons, with perhaps a billion gallons or slightly more of the total moving into export markets. It is generally believed that conventional ethanol production capacity could easily fill the gap between current production and the 2015 mandate – if the blend wall can be increased enough to meet that year’s mandate.
The ability to increase the blend wall substantially is still open to question. So far, EPA still has a few issues to deal with in E-15 blends and the retail petroleum industry has been slow in marketing E-15 and E-85 ethanol-gasoline blends. Unless the retail situation can be changed, it appears there will be little or no domestic market for cellulosic ethanol in the mid part of this decade – unless it crowds out conventional ethanol through policy incentives.
EPA has approved the use of E-15 (a blend of 15% ethanol and 85% gasoline) in 2001 and later models of conventional cars and light trucks. Theoretically, E-15 will provide a means for raising the blend wall. However, concerns about vehicle warranty issues and retailer costs of upgrading facilities to sell E-15 have greatly retarded its acceptance by the retail motor fuel industry. Blender pumps also have been approved, but so far have not been widely used by most retailers. Since E-15 has not been approved for all model years, fuel retailers are likely to continue offering E-10. The size of the E-15 market will depend on availability, price and consumer choice. That’s in contrast to E-10, where retailers in many states offer only E-10 and premium grades, leaving consumers with no alternative to ethanol blends.
E-85 is approved only for flex-fuel vehicles. The number of these vehicles on the road is a relatively small percentage of the nation’s vehicle fleet, although it will increase substantially in the next few years. Additionally, E-85 blends have 24 to 28 percent lower fuel mileage than gasoline (5). Thus, to be competitive in the retail market, E-85 needs to be priced at least 24 to 28% below gasoline to offset the mileage disadvantage. Ethanol also has a logistical cost disadvantage relative to petroleum products because it has to be transported by truck and rail. It is not suitable for transport in conventional pipelines used for low-cost petroleum product transport.
RFS-2 calls for 16 billion gallons of cellulosic ethanol to be blended with U.S. gasoline in 2022. Most reports indicate cellulosic ethanol will be a higher-cost product than conventional ethanol, and most of the future increase in mandated ethanol blending beyond 2015 will be this type of ethanol. It is uncertain whether cellulosic ethanol production costs will be low enough to allow it to be competitive in the E-85 market, which may be one of the main tools for raising the blend wall. Along with the cellulosic ethanol mandate, there is an additional mandate for five billion gallons of other Advanced Biofuels for 2022. For mandate purposes, cellulosic ethanol can also qualify for this “Advanced Biofuel” mandate. The other fuels that currently qualify as advanced biofuels are sugar-cane ethanol, and biodiesel. If a substantial portion of these other advanced biofuels are ethanol, it will create additional pressure to eliminate the blend wall.
Conventional (corn starch) ethanol does not qualify as an advanced biofuel. Changes in legislation and in typical production technology would be needed to allow it to meet that qualification. For the ethanol industry to continue expanding in a blend-wall and declining gasoline use setting, changes are needed such as
- Expanding E-15 and/or E-85 markets,
- New automotive technology that reduces the E-85 fuel mileage disadvantage, and/or
- New types of biofuels that do not face a blend wall.
Drop-in Fuels
In this setting, some firms in the renewable fuels industry are looking seriously at “drop in” fuels as a possible avenue for market expansion and avoidance of blend-wall issues. Drop in fuels are fuels that can be shipped in the same pipelines as petroleum and petroleum products, thus eliminating the need for higher-cost truck and rail shipping. Also, they do not require special facilities for blending with gasoline, do not require special tanks and pumps at retail facilities, and have less fuel mileage disadvantage than gasoline.
| Most analysts do not see drop-in fuels as a threat to existingconventional ethanol plants, but as a way of enlarging the renewablefuels market and possibly by-passing the blend wall. |
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For the last few years, numerous researchers have been working to develop these fuels. Estimates of their cost of production are not generally available. Even if their cost modestly exceeds that of ethanol, lower transport, handling and marketing costs could allow them to be competitive with ethanol. At this stage of development, most analysts do not see drop-in fuels as a threat to existing conventional ethanol plants, but as a way of enlarging the renewable fuels market and possibly by-passing the blend wall. Depending on production costs, drop-in fuels could possibly be a significant competitor of cellulosic ethanol. However, without changes in the 2007 energy legislation and/or EPA waiver of mandated volumes, large quantities of cellulosic ethanol will need to be blended with the nation’s gasoline supplies in the future even with possible emergence of a sizable drop-in fuels industry. Drop-in fuels could fill some or possibly a large part of the “Other Advanced Biofuels” mandates. Requirements for being able to do that from an economic viewpoint would include
- Cost competitiveness,
- Widespread acceptance of drop-in fuels by the wholesale and retail petroleum industries, and
- Widespread acceptance by motorists.
Biobutanol (6)
Biobutanol is a possible drop-in fuel that may emerge in the next few years. More than a dozen companies are working to develop commercial biobutanol production. It is a 4-carbon alcohol (butal alchol). Biobutanol has about 90 percent of the energy content of gasoline (7). That compares with ethanol’s 66% of gasoline’s energy content. The website, biobutanol.com indicates butanol allows more complete combustion than gasoline, thus producing higher fuel mileage than gasoline (8). However, we are not aware of government or other scientific testing of biobutanol for fuel mileage. Biobutanol also has the potential to reduce greenhouse gas (GHG) emissions (9). The amount of reduction varies somewhat with the production process used for its production. It is not clear whether emerging processes would be efficient enough to classify biobutanol as an Advanced Biofuel.
Butanol is less corrosive than ethanol (10). Additionally, it can be added to gasoline as an oxygenate to meet EPA regulations for meet winter emissions requirements in certain areas of the country. Biobutanol can be blended with gasoline, stored longer than ethanol-gasoline blends, and used in various percentage blends without the need for vehicle or retail facility modifications. It can be used alone, or can be blended with ethanol-gasoline blends. It can also be transported in petroleum pipelines. Biobutanol’s octane rating is higher than gasoline but lower than that of ethanol (11). Thus, biobutanol appears to meet most of the requirements needed for effective marketing. However, production costs are a key factor in its marketability, and are not available at this writing.
Biobutanol can be produced through a fermentation process using corn as a feedstock, with modest modifications of existing dry-mill ethanol plants. The process produces distillers grain as a co-product. Thus, its potential impacts on the grain and feed industry are similar to those from corn-starch ethanol plants. However, with recently used technology, the butanol yield per bushel of corn is substantially lower than that of ethanol. The lower yield increases the cost per bushel and restrains butanol’s effectiveness in reducing greenhouse gas (GHG) emissions relative to ethanol (12). Laboratory work has produced biobutanol from feedstocks such as sugar beets, as well as straw and other cellulosic materials. On-going research at UCLA, UC Berkley, USDA’s Agricultural Research Service, the Argonne Laboratory and other institutions is focused on development of bacteria and enzymes for increasing the biobutanol yield per unit of feedstock, thus lowering its cost and increasing its effectiveness in curtailing GHG emissions.
How close is the fuel industry to commercial biobutanol production?
At least two ethanol-producing companies have recently, announced plans for modification of corn-starch ethanol plants to produce biobutanol. (13) The Ethanol Producer Magazine reports that Highwater Ethanol LLC in Lamberton, Minnesota has entered into an agreement with a BP-DuPont joint venture to re-work its 50 million gallon per year ethanol plant to produce biobutanol, using corn as the feedstock. A representative of the joint-venture firm reportedly suggested the plant could begin commercial production of biobutanol in 2014. The joint venture firm, butamax, indicates current government regulations will allow blending of biobutane at up to a 16% blend with gasoline (14).
Another firm, Gevo Inc. reportedly has partnered with a major ethanol plant engineering firm, ICM, Inc. to retro-fit ethanol plants to produce biobutanol. (15) It reportedly is modifying a 22-million gallon per year corn ethanol plant in Luverne, Minnesota and believes it may begin production this summer but does not expect to reach full production until later in the year. At full production, it is expected to produce 18 million gallons per year. The firm reports that it also plans to retro-fit another ethanol plant in South Dakota (16).
| If it proves to be competitive with ethanol and regulatory issues can be resolved, biobutanol may contribute significantly to future growth in value-added demand for corn. |
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A third firm, Biologics Inc., reportedly is looking for ethanol plants that are interested in using its technology to convert existing ethanol facilities to biobutanol production. Another alternative would be to add a butanol production unit to current ethanol production facilities so that the plant could produce both ethanol and biobutanol. Biologics, Inc. would market the biobutanol for the ethanol plant. (17)
Challenges in Developing a Biobutanol Fuel Market
There is a sizable industrial chemical market for butanol, and that market typically has higher value than the fuel market. Firms likely will consider this market as the logical outlet for initial production, in part because of regulatory issues that still need to be worked out with EPA for its use as an on-road motor fuel. For the longer term, it is likely that these issues will be resolved. More experience with commercial production will be needed before accurate costs of production and competitive comparisons with ethanol can be made. However, the blend-wall challenges create a strong incentive for the biofuels industry to work with EPA to develop a biobutanol motor fuel market. If it proves to be competitive with ethanol and regulatory issues can be resolved, biobutanol may contribute significantly to future growth in value-added demand for corn.
Emerging Technology for Producing Synthetic Gasoline and Other Fuels
Two companies last year announced that they have jointly developed a 10,000 demonstration plant in Wisconsin to produce “biogasoline” (19). The firms were Royal Dutch Shell and Virent. Initial production used sugarbeet sugar as a feedstock although other feedstocks also were tested. The plant uses a catalystic process similar to that used in petroleum refining (20). Shell also announced early this year that it has built a pilot plant in Houston, Texas to produce synthetic gasoline using a similar process. (21) It is too early to evaluate how significant this technology may be in the future of the biofuels industry. A potential advantage, as with biobutanol, is that the resulting fuel can be stored and transported in infrastructure designed for gasoline. Also, it has the potential to by-pass the ethanol blend wall and the need for vehicle modifications if it is used in high-level blends with gasoline. As with biobutanol, likely commercial production costs are an unanswered question that will be a major factor determining its future competitiveness. Reports by the companies involved suggest EPA regulatory issues may be less of a challenge than with biobutanol.
Concluding Comments
The “blend wall” has become a serious restraint to growth of the U.S. biofuels industry. Several possibilities are being considered that could raise the blend wall, allow further growth of the domestic biofuels industry, and attainment of future blending mandates spelled out by Congress in the 2007 energy legislation. Allowing higher blends of ethanol to avert the blend wall, with current automotive technology, carries with it the need for retail ethanol prices that are enough lower than gasoline to make the blends competitive. Lower ethanol prices, could negatively impact feedstock producers and ethanol plant profitability. The need for low ethanol prices relative to gasoline is an especially important challenge for E-85 markets. E-85 gasoline-ethanol blends, with current automotive technology, have substantially lower fuel mileage than gasoline.
With an uncertain future for the blend wall, several firms have taken initial steps toward developing commercial “drop-in” fuels. These fuels would be transportable in lower-cost pipelines, would not require special retail facilities, could be blended at varying percentages with gasoline without requiring vehicle modifications, and in the examples discussed here would provide higher fuel mileage than ethanol blends. The biofuels industry is in the very early stages of developing two of these fuels, biobutanol and synthetic gasoline. Cost data are not available at this stage of development, but are likely to decline in the future as technology improves and volumes of production increase. Production costs will be a key factor influencing the future size and scope of these potential new biofuels.
References
1 R. Wisner, “Biofuels prospects for 2012: Emerging developments”, Renewable Energy and Climate Change Newsletter, Ag Marketing Resource Center, January 2012 and R. Wisner, “Ethanol Blending Economics, the Expected "Blending Wall" and Government Mandates”, Renewable Energy and Climate Change Newsletter, Ag Marketing Resource Center, January 2009
2 EIA, U.S. Energy Department, “Motor Gasoline Supply and Disposition”
3 Based on EIA explanations of data series
4 U.S. Congress, Energy Information and Security Act, 2007.
5 EPA fuel mileage web site
6 This section is based partly on the U.S. Energy Department, Alternative Fuels and Advanced Vehicle Center, Alternative and Advanced Fuels, Biobutanol, and Peter Dürre, “Biobutanol: an attractive biofuel”, Biotechnology Journal, . 2007, 2, 1525–1534:
7 http://en.wikipedia.org/wiki/Butanol_fuel
8 http://www.biobutanol.com/Butanol-Fuel-RoadTest.html
9 May Wu, Michael Wang, Jiahong Liu, and Hong Huo, “Life-Cycle Assessment of Corn-Based Butanol as a Potential Transportation Fuel”, Argonne National Laboratory, ANL/ESD/07-10, 2007
10 Agricultural Research Service, USDA, Jan Suszkiw “Retooled Approach May Make Bio-based Butanol More Competitive with Ethanol”, October 16, 2008 and Jan Suszkiw “Banking on Biobutanol”, October 2008
11 Kris Bevill, “Can biobutanol provide ethanol producers new paths towards diversification?”, Ethanol Producer Magazine, February 22, 2012.
12 P. H. Pfromm, V. Amanor-BoadU, R. Nelson, P. Vadlani, and R Madl, “Bio-butanol vs. bio-ethanol: A technical and economic assessment for corn and switchgrass fermented by yeast or Clostridium acetobutylicum”, Biomass and Bioenergy, Volume 34, Issue 4, April 2010, Pages 515–524
13 Kris Bevill, Ibid.
15 Kris Bevill, Op. Cit.
16 Ibid.
17 Ibid.
18 Ibid.
19 Jim Lane, “Virent, Shell announcing startup of biogasoline plant” Biofuels Digest, March 23, 2010
20 Ibid
21 Ibid.
