COLUMN-U.S. target fails to spur synthetic diesel: Wynn
(The author is a Reuters market analyst. The views expressed are his own.)
LONDON, Aug 20 (Reuters) - Technologies for producing synthetic diesel from waste have failed to step up to rapidly rising U.S. biofuel targets, leaving the long-term future of those targets further in doubt.
The targets are already under pressure, because they require refiners to use more ethanol than filling stations are able to sell using existing gasoline blends.
As a result, the Environmental Protection Agency (EPA) two weeks ago advised that the targets would be trimmed next year.
The commercial failure to make synthetic diesel, which is chemically equivalent to petroleum-based diesel, is bad news for the next generation of biofuels, called cellulosic fuels, and suggests a policy that is too ambitious.
Cellulosic biofuel is made from biomass waste, and depending on the process can produce either ethanol or diesel, for blending into conventional, petroleum-based gasoline or diesel.
The backbone of the policy is the Energy Independence and Security Act (EISA) of 2007, which set increasing annual mandates for biofuel consumption, to drive a shift from imported oil and so boost energy security and cut carbon emissions.
The act was meant to shift to cellulosic biofuels from corn ethanol over time, to compete less with food crops.
But actual production of cellulosic biofuels has lagged far behind targets due to high costs.
The EISA mandated a nine-fold increase in all biofuel volume in 2022 compared with 2006, to 36 billion gallons.
Chart - http://link.reuters.com/fux76t
Conventional corn ethanol would peak at 15 billion gallons in 2015, and maintain that level thereafter.
The cellulosic portion was supposed to gain steadily from 1 billion gallons this year, on top of the corn ethanol requirement, to 16 billion gallons in 2022.
In its "primary control" scenario, the agency estimated that in 2022, cellulosic biofuel production would split between 11.08 billion gallons of diesel (ethanol-equivalent volume) and 4.92 billion gallons of ethanol.
That was in its 2010 publication, "Regulation of Fuels and Fuel Additives: Changes to Renewable Fuel Standard Program; Final Rule".
It assumed that the so-called Fischer-Tropsch process would account for at least 30 percent of cellulosic diesel.
But actual output has been disappointing - zero commercial production of any cellulosic biofuel (ethanol or diesel) in 2010 and 2011, and just a few thousand gallons last year, and none from Fischer-Tropsch.
That has forced the EPA to waive most of the cellulosic biofuel mandate each year since its introduction.
Fischer-Tropsch is a multi-step process which can produce diesel from a wide range of feedstocks, from crop residues to municipal waste, albeit at a relatively high cost.
Being very similar chemically to petroleum-based diesel, it is interchangeable and so faces no blending problem.
That sets it apart from biodiesel made from animal fats which can be blended with regular diesel but only up to a certain limit, and at least 5 percent depending on the vehicle.
Even animal fat biodiesel is safe for now from an ethanol-style blend wall, given the U.S. biodiesel blend rate at present is just 2.9 percent.
The high cost of producing synthetic diesel - which can be made from coal as well as biomass - has so far limited its use to extreme circumstances when oil is in short supply.
The many production steps add to capital costs.
These include gasification, where the biomass is heated and partially oxidised to produce a syngas of carbon monoxide and hydrogen; cleaning of the syngas; reaction over an iron or cobalt catalyst to produce hydrocarbons; and cracking of these into diesel fuel and naphtha.
The U.S. National Renewable Energy Laboratory estimated the cost of production, in a 2009 publication, "Techno-Economic Analysis of Biofuels Production Based on Gasification".
EPA used the NREL estimate to calculate a production cost of $2.37 per gallon, in 2007 dollars, for a commercial scale plant.
That cost was calculated for the year 2022, but NREL reported that it would be similar in intervening years.
It does not include present cellulosic biofuel subsidies, such as a $1.01 per gallon tax credit, and a waiver credit which refiners must buy if they fail to blend the fuel, and set this year at $0.42 per gallon.
It compares favourably with the road diesel price now, at $3.9 per gallon, according to the U.S. Energy Information Administration.
The lack of available product suggests the production costs estimates were too optimistic.
In its report three years ago, EPA listed nine companies pursuing Fischer-Tropsch technologies with biomass.
One of these, German biofuel firm Choren Industries, has since filed for bankruptcy; its biomass gasification business appears to be in various stages of sale.
Sweden-based Chemrec was involved in a pilot project, but has reported no recent steps. Other projects appear to be delayed, awaiting funding or scrapped.
The failure of synthetic diesel for cellulosic biofuel is a concern, given this leaves the bulk of the U.S. cellulosic target to be met by ethanol, where production processes have struggled with high costs, and which also face the ethanol blend wall difficulty.
A restructuring of the biofuel target is needed, to curb or halt annual increases in the biofuel mandate, downgrade the role for corn ethanol and favour cellulosic biofuel and biodiesel.
From high hopes, synthetic diesel appears off the menu.
(Reporting by Gerard Wynn)