Recent advances in production and technology have moved the ball downfield in biofuels’ big game to take market share from fossil fuels.
“We’ve done it already,” says Advanced Biofuels Association president Mike McAdams, referring to the November 2010 opening of a plant turning animal fats from Tyson Foodsinto renewable diesel. “That’s 75 million gallons of capacity. That’s commercial scale.”
While biofuels like corn ethanol have been around for decades, Tyson’s renewable diesel is a “drop-in” biofuel—a fungible bio-based fuel that is a chemical copy of its oil-based analog.
That means it can use the same engines and distribution systems as fossil-fuel diesel, while providing the same performance.
“Our fuel molecules are virtually identical” to fossil-fuel diesel, says Bob Ames, Tyson’s VP for renewable energy, adding that the renewable diesel doesn’t produce some of the carcinogenic compounds and particulate matter when combusted, like with fossil-fuel diesel.
“What we’re excited about is that it’s similar to the best parts of diesel,” he says.
The plant is operated by Dynamic Fuels LLC, a joint venture of Tyson Foods and fuel-maker Syntroleum .
This fall also saw Solazyme—one of several algae-based biofuels startups in the sector — raise $52 million from investors, including Unilever, and deliver its first 1,500 gallons on drop-in bio jet fuel to the US Navy.
While there’s growing optimism in the biofuels sector, some insiders are wont to temper it with patience.
“It’s one thing to fill test tubes in a lab. It’s another to fill tanker trucks, let alone pipelines,” says Dallas Kachan, managing director of cleantech research firm Kachan and Co.
Kachan says the opening of the $150 million Dynamic Fuels plant, near Baton Rouge, La., is welcome news, but the biofuels sector has been promising breakthroughs that compete with fossil fuels on price and scale for years now—consuming millions in capital in the process.
In his firm’s sector predictions for 2011, a bullish Kachan says that “investors still smarting from crop-based ethanol, biodiesel, cellulosic ethanol and algae oil disappointments may not see a drop-in biofuels revolution at hand.”
He points to the recent jump in shares of biofuel firm Amyris as “representative of a larger awakening to the transportation, storage, energy balance and fungibility benefits of drop-in biofuels.”
Algae Gets Hot
In 2009, algae-based fuels were hot, with everyone from newcomers like Solazme to oil-and- gas giants like ExxonMobil ramping up R&D activities.
ExxonMobil, for instance, announced $600 million in algae investments in June that year.
“We looked at every alternative out there and found this to be the most promising biofuel,” says ExxonMobil spokesperson Cynthia Bergman, referring to algae-based biofuels’ compatibility with fossil fuels.
She adds that this past summer, ExxonMobil’s efforts “moved from lab to greenhouse” to test larger scale production.
Before 2009, cellulosic ethanol technologies—ethanol derived from various woody plant sources instead of pricey food-crop plants, like corn—also attracted a lot of investor interest.
But while firms like Range Fuels have opened production facilities, cellulosic ethanol has yet to reach the scale it had hoped.
These incremental moves forward often mean resetting the clock, says Kachan, adding that broader commercial scale production is still a ways off.
“Cellulosic ethanol in any meaningful quantity has been ‘two years away’ for five years now.” he says. “Similarly, drop-in fuels are also at least five years away in any significant quantity."
It's worth noting, however, that his forecast is shorter than the decade or more other industry insiders have mentioned in the past year.
Tyson’s chicken-fat diesel may have proven its technology, but the next step will be ramping up production to drive down costs.
While the scale of the Dynamic Fuels plant rivals that of existing commercial-scale ethanol plants, drop-in biofuels aiming to take on oil and gas will need to grow like chickens on steroids.
Even a 75 million-gallon capacity is a drop in the 40 billion-gallon diesel ocean consumed by the US transportation sector in 2008, according to the most recent Dept. of Energy data.
This kind of scale “can take an immense amount of time and money,” says Michael Kanellos, senior analyst with GTM Research, a cleantech research firm.
In the near term, he says, that may mean more biofuel startups being absorbed by Big Oil, which can leverage their distribution channels and production expertise.
“These guys will make a good living,” he says about the biofuels sector. “They’ll become the ‘biological brain’ for Chevron .”
Kachan says that Solazyme is targeting $60-80 a barrel within about two years for its “biocrude,” rivaling current crude oil prices.
He adds Japan’s Nippon Oil, along with a Hitachi subsidiary, are “hoping to get costs below $3 a gallon for biocrude from Euglena, a pond-dwelling single-celled organism, with no timeframe given.”
Tyson’s Ames wouldn’t comment on production costs for their renewable diesel. “That’s not our strategy” to compete with oil-based diesel on day one, adding, “Our strategy is to build a market for the premium properties of our products” like its cleaner-burning aspects, he says.
Kachan says bringing premium, higher-margin specialty products to market first—before eventually going head-to-head on commoditized products, like diesel—is a “typical route” for new biofuels firms.
Tyson’s Ames agrees but adds he’s confident they’re leveling the playing field on price with fossil fuels across all products, as research and production increases.
“It’s an exciting future,” he says. “Hold on and watch.”