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Halliburton Sees Fracking Activity Picking Up

Halliburton Sees Fracking Activity Picking Up

Halliburton Company (NYSE: HAL), the…

Robert Rapier

Robert Rapier

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The Billion Dollar Biofuel That Fell 2.7 Billion Gallons Short

Ten years ago a visionary named Vinod Khosla gave a presentation called Biofuels: Think Outside the Barrel. It seems to have disappeared from his Khosla Ventures website, but you can find an archived version here. In that presentation Mr. Khosla outlined his vision for biofuels. He projected that ethanol produced from biomass – aka “cellulosic ethanol” – would scale up rapidly. From zero commercial production in 2006, Khosla foresaw the first 100 million gallons of cellulosic ethanol hitting the market in 2008 (see Slide 78), ramping rapidly to 2.5 billion gallons in 2011, 14.6 billion gallons in 2015, and ultimately 173 billion gallons per year by 2030. Combined with corn ethanol production, he believed cellulosic ethanol could totally end U.S. dependence on petroleum for transportation fuel – but he needed to get the government on board to foot some costs.

Khosla addressed potential obstacles in his presentation. Certainly cellulosic ethanol wouldn’t fail because of technology. There were too many companies working on it. The magic of Moore’s Law and black swans would be the ticket to success. (As an aside, he doesn’t seem to understand the black swan theory, as he frequently cites these “high-profile, hard-to-predict, and rare events” as an expected outcome). The only real barrier he could identify was those despicable oil companies, who had to be shaking in their boots that this 100-year old upstart technology would spell their demise. Related: UAE Offers India Free Oil To Ease Storage Woes

But he would deal with the oil companies through legislation by forcing them to purchase this product that had yet to be commercialized. So he lobbied, and he testified before Congress. He lost a vote or two, but he was instrumental in getting cellulosic ethanol mandates included in the Renewable Fuel Standard (RFS) in the Energy Independence and Security Act of 2007. The EPA was charged with implementing the RFS, and they based the mandated volumes on the amount that potential cellulosic ethanol producers claimed they would be able to produce. For 2010 the EPA was counting on 100 million gallons of cellulosic fuels based on claims primarily from two companies associated with Vinod Khosla: Range Fuels and Cello Energy.

This is ground that has been amply covered here before. Range Fuels and Cello Energy both went out of business after spending hundreds of millions of dollars — including taxpayer money — without delivering a drop of cellulosic fuel. In fact there were zero gallons of qualifying cellulosic ethanol production for 2010 and 2011. In 2012 the first qualifying batch of cellulosic ethanol was produced — 20,069 gallons by Blue Sugars Corporation. The ethanol was produced in April 2012, but that was it for the year. And Blue Sugars went out of business.

There was no qualifying cellulosic ethanol produced in 2013, the year Vinod Khosla had projected 7.2 billion gallons of cellulosic ethanol production. But 2014 finally saw some qualifying production as several new plants came online.

INEOS Bio and its joint venture partner New Planet Energy had announced the opening of the Indian River County BioEnergy Center in Florida in 2012. The nameplate capacity of this plant was 8 million gallons of cellulosic ethanol per year. The House Committee on Agriculture was told in 2012 “The biorefinery is a major landmark for this country. It’s the first commercial cellulosic refinery.” But the EPA doesn’t show any production from anyone in 2012 or 2013, and in December 2013 the company issued a press release that said in part: “Bringing the facility on-line and up to capacity has taken longer than planned due to several unexpected start-up issues at the Center. These efforts have highlighted some needed modifications and upgrades.” Another update from them in 2014 cast doubt that they would ever produce any ethanol.

On July 7, 2011 the U.S. Department of Energy had announced a $105 million loan guarantee to POET for the development of its 25 million gallon per year corn cob-to-ethanol facility, dubbed Project Liberty, at Emmetsberg, Iowa. POET, one of the largest producers of ethanol in the world announced that they were open for commercial cellulosic ethanol production in September 2014. Cellulosic ethanol production had been slated to begin in May 2013, but more than a year later than projected Jeff Broin, POET Founder and Executive Chairman, stated “Some have called cellulosic ethanol a ‘fantasy fuel,’ but today it becomes a reality.” Related: Is Venezuela Trying To Hide Oil Assets With This Bizarre Move?

Another company, Abengoa (NASDAQ: ABGB) built a $500 million cellulosic ethanol plant in Hugoton, Kansas. In October 2014 they announced the grand opening of the facility: “Abengoa’s new industry-leading biorefinery finished construction in mid-August and began producing cellulosic ethanol at the end of September with the capacity to produce up to 25 million gallons per year.”

A 4th company, Quad County Corn Processors (QCCP), claims they are producing 2 million gallons of cellulosic ethanol from the cellulose in corn kernels in a bolt-on process to a corn ethanol plant.

In October 2015 DuPont announced what was billed as the largest cellulosic ethanol plant in the world. The $225 million plant in Nevada, Iowa was designed to convert corn stover to 30 million gallons per year of cellulosic ethanol.

Thus the cellulosic ethanol revolution is well underway. To summarize the plants and their capacity:

- INEOS – 8 million gallons per year. Announced start up in 2012.

- Quad County Corn Processers – 2 million gallons per year. Announced first production in July 2014

- POET – 25 million gallons per year. Announced start up in September 2014

- Abengoa – 25 million gallons per year. Announced start up in October 2014

- DuPont – 30 million gallons per year. Announced start up in October 2015

The initial mandate in the RFS had called for 3 billion gallons of cellulosic ethanol to be produced in 2015. At the beginning of 2015 there were 4 companies all claiming to produce cellulosic ethanol. Nameplate capacity for the 4 companies was 60 million gallons per year. So how much was actually produced?

Last month the EPA announced total cellulosic ethanol production for 2015. The tally? 2.2 million gallons. That’s about 3.6% of the nameplate capacity on plants that cumulatively cost more than $1 billion to build. Related: Oil Price Volatility Off The Charts

Leaving DuPont out of the mix because they didn’t start up until late in 2015, it’s not even clear who is producing the ethanol. QCCP alone claims they are making 2 million gallons per year. It doesn’t appear that INEOS is producing any cellulosic ethanol at all. Abengoa filed for bankruptcy in November, shutting down its cellulosic ethanol plant.

What on earth is going on?

It’s simple really. This is a technical issue and an economic issue that has been known for 100 years. Ethanol can be produced from cellulose. The technology has been around a long time. This isn’t even the first time over a million gallons of cellulosic ethanol have been produced. It was done in 1910. But it’s very costly to produce fuel grade ethanol from cellulose. Thus, there have been many attempts to commercialize cellulosic ethanol since the early 1900′s, and every 20-30 years or so we forget why this already failed. So we saddle up and attempt to do it again. People think they are the first to discover fire, and they sometimes convince Congress to give them tax dollars to commercialize their “invention.”

The technical issues can obviously be addressed, or we wouldn’t see any production at all. It’s just that the solutions come at a high cost. So, I don’t think any of these guys will make any money at this point. Certainly not when you consider the capital involved. I think you will see POET and DuPont persevere for a few more years, running at low capacities because they are losing money on every gallon they make. Then they will idle the projects, and we will chalk it up as a lesson learned. Again.

By Robert Rapier

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  • John Scior on February 17 2016 said:
    Well perhaps in one of those up and down cycles, oil scarcity will plunge he technology forwad and this time a new improved way emerges that once and for all relieves us from the slavery of fossile fuels
  • Ted on February 17 2016 said:
    And perhaps if we all clap loud enough tinkerbell will not die from drinking the poison!
  • al mannato on February 18 2016 said:
    Good article but missed a very important fact. Virtually all of the 2.2 million cellulosic renewable identification numbers (RINs) listed in EPA's data base for 2015 were generated from biogas from landfills, not ethanol.
  • Rick Kohn on July 16 2016 said:
    Nice article. I think the profit is made by contractors who build the plants. No one can afford to make cellulosic ethanol, we knew that would be the case, but as long as someone else (e.g. taxpayers) is paying, building plants seems pretty lucrative.

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