Lynn Grooms
Lynn Grooms is an agricultural journalist living in Mt. Horeb, Wis. She watches biofuels industry trends and contributes articles on the subject to Farm Industry News and...more
Valero Energy Corporation (www.valero.com) yesterday reported its first quarter 2009 net income of $309 million, or $.59 per share.
Valero, which entered the ethanol business by agreeing to buy seven ethanol plants from VeraSun Energy Corporation on April 1, closed on six of the plants and one development site this month and expects to close on the last plant soon.
In an earnings conference call yesterday, Bill Klesse, Valero’s chairman of the board and CEO, said that acquiring VeraSun’s assets at a time of low ethanol margins “enabled us to pay only 30% of replacement cost for some of the industry’s best ethanol plants.” Valero selected the plants for their size and access to local feedstocks.
The acquisitions will allow Valero to produce 780 million gallons of ethanol annually, or about 50,000 gallons of ethanol per day. Kleese said that the company expects ethanol demand to grow under the federal mandate and to catch up with production capacity by 2010.
“The U.S. and world economies have evolved over 100 years to rely on petroleum. It will take time to transform the entire economy to rely on biomass instead,” says Brent Erickson, executive vice president of the industrial and environmental section of the Biotechnology Industry Organization (BIO), www.bio.org.
Complicating matters is that with current economic woes, the investment community is more than a little gun shy. Investments in the biobased industry, as in other businesses, have slowed down. For this reason, BIO, which represents 1,200 biotech companies, academic institutions and state industry development organizations, is fighting for major federal investments in the commercialization of advanced biofuels and biobased products.
In fact, BIO recently took several policy recommendations to legislators on Capitol Hill.
Focus on Infrastructure
First, BIO recommends that the government implement a systems approach to advanced biofuels and biobased products deployment that recognizes the need for coordinated end-to-end infrastructure development.
“Our policy recommendations include government support for key biofuel infrastructure—including pipelines, E85 pumps and Flex Fuel Vehicles—because that infrastructure is necessary to the growth and success of our member companies,” Erickson says.
The development of infrastructure for producing, collecting and delivering second-generation feedstocks (such as corn stover, cereal grain straws and trees) is also necessary. “These feedstocks are needed by our members in the biobased products sector so we’re advocating a full range of policies to support the parallel growth of all parts of the industry,” Erickson says.
While there is currently no coalition supporting this kind of infrastructure development, BIO does meet informally with other concerned parties, including vehicle and farm equipment manufacturers, small engine manufacturers and agricultural groups to discuss policy options and overall industry development.
More than Biofuels
Another of BIO’s policy recommendations is to” incentivize the full range of biobased products produced by biorefineries by extending programs beyond support for liquid fuels.”
Erickson points out that nearly any product that can be made from petroleum can also be made from cellulose through fermentation processes. Biobased products include plastics (such as PLA and PHA), bulk and fine chemicals (such as succinic acid and furfural) and food ingredients, such as flavorings.
“There are also many enzymes that can naturally replace chemicals in common household products or manufacturing processes,” Erickson says. “So, just as a petroleum refinery produces more than just gasoline, a biorefinery can make the most of cellulosic feedstocks by adding other production units for these products. Many biofuel producers—POET and BioEnergy International, for example—are pursuing this business model.”
BIO understands that the biofuel and biobased industries face many hurdles. That is why it is fighting for these industries in Washington. As Erickson says, “It will take continual effort to get legislators and policy leaders to understand that biobased industries are developing in every region of the U.S.”
Last year, the 25×25 Alliance formed a Carbon Work Group to analyze the roles of agriculture and forestry in a reduced carbon economy. One of the group’s goals was to recommend how each sector could capitalize on efforts to reduce and capture carbon and greenhouse gas emissions.
Agriculture and forestry have several “reduction” opportunities, according to the guide. This includes emissions reductions, biological sequestration and avoided fossil fuel emissions (through the use of cellulosic ethanol and biodiesel, for example). The accompanying chart shows just what kind of potential gross revenue could lay ahead for agriculture and forestry.
Ernie Shea, project coordinator, 25×25 Alliance, points out that this is gross revenue. There will, of course, also be costs for the ag and forestry sectors to participate.
The chart shows the potential gross revenue at various price points per MT Co2e. If the price is $5 per MT CO2e and the agriculture and forestry sectors offset the lower bound estimate of 10% (705 MMT CO2e) of total U.S. emissions, the annual gross revenue of these sectors is $3.5 billion.
A study by EPA in 2005 suggests that an estimated 2,100 MMT CO2e could be reduced annually over the next 100 years (2,100 MMT is about 30% of total current GHG emissions in this country).
“Using EPA’s high end estimate for the average price of carbon ($50 MT CO2e), agriculture and forestry could realize over $100 billion in additional annual gross revenue,” says the 25×25 report. The total value of U.S. agriculture in 2002 was $200 billion.
Biofuels have the potential to mitigate climate change in two ways: by avoiding emissions through improved production efficiencies (e.g., conservation tillage and irrigation system upgrades); and substituting fossil fuels with ethanol produced from biomass and biodiesel, the report states.
One of the points that I found striking is that, according to the EPA, agriculture and forestry is responsible for just 7% of total U.S. greenhouse gas (GHG) emissions today. This is small compared to the GHG emissions of electric power, transportation and industrial sectors, the report adds. Even more striking is that agriculture and forestry have the potential to reduce 10-25% of this country’s total annual GHG emissions because of their large carbon sequestration potential.
The Carbon Work Group says that the ag and forestry sectors “are well positioned to offer solutions to counter climate change and that farm, ranch and forestland owners have much to gain by helping reduce GHG emissions.”
Solutions (such as carbon sequestration using cover crops) and compensation (such as on a per ton basis by crop or soil type, for example) for emissions reduction could be handled in any number of ways, depending on how programs are structured, Shea says. This, however, is a complex policymaking process and that is why the House Ag Committee and other government agencies have requested input from organizations, such as the 25×25 Alliance.
The 25×25 Alliance is a group of agriculture, forestry, business, labor, conservation and religious organizations whose goal is to get 25 percent of the country’s energy from renewable resources (such as wind, solar, and biofuels) by the year 2025. The Alliance is supported financially by the Energy Future Coalition, a non-partisan public policy initiative funded by foundations.
Just months after VeraSun Energy filed for Chapter 11, another ethanol producing giant, Aventine Renewable Energy Holdings, Inc., Pekin, IL, along with its subsidiaries, have done the same.
In a news release today, Aventine reported that it and certain holders of its 10% senior unsecured notes have agreed to a first priority secured debtor-in-possession (DIP) term loan totaling $30 million that will enable Aventine “to continue to satisfy customary obligations associated with its ongoing operations.” Aventine reported that the DIP loan will provide it with new liquidity permitting it to maintain normal operations and allow the company and its creditors “to jointly plan for the future.”
Ethanol demand has been negatively impacted by low gas prices and by refiners and blenders using excess renewable identification numbers (RINs) to help meet their Renewable Fuels Standard (RFS) obligations instead of actually purchasing ethanol.
Ron Miller, president and CEO, Aventine, said that the ethanol industry has “sound long-term prospects.” He also said that the company anticipates a strong rebound as the RFS mandate continues to increase and the supply of excess RINs are consumed. “The vast majority of our suppliers will not see any disruptions in their business dealings with us,” he added.
The Minnesota Center for Automotive Research at Minnesota State University, Mankato, recently published the results of its test of fuel pumps and sending units using gasoline containing 20% ethanol. The results show promise for gaining EPA approval for 15% ethanol blends (E15), which the ethanol industry is currently seeking.
The study compared running fuel pumps and sending units for a period of 4,000 hours (more than 166 days) in gasoline, E10 and E20. The researchers (Gary Mead, Bruce Jones, Paul Steevens, Nathan Hanson and Joe Harrenstein) studied eight models of fuel pumps. Three of each type, one for each test fuel, were used for a total of 24 pumps. To see which fuel pumps were tested and test results, visit www.mda.state.mn.us/news/publications/renewable/ethanol/e20endurance.pdf.
In addition, the researchers studied three different manufacturers’ fuel level sending units. One of each of these three types was tested in each of the three test fuels for a total of nine sending units.
The researchers reported that ethanol had a cleansing effect on pumps, sending units and test fixtures. When immersed in gasoline, however, these items were coated with a grayish-black residue. Some pumps tested in E20 had light surface corrosion, but not to the extent to affect their function, the researchers said.
The researchers found no clear differences in pump performance between any of the fuels tested. However, the commutators of several of the pumps tested in gasoline wore substantially more than in either ethanol fuel blend. This wear was significant enough that if the test would have continued longer, several of the pumps tested in gasoline would have stopped because their commutator would have worn through. The researchers concluded that, overall, E20 did not cause any greater negative effects than gasoline or E10 on the fuel pumps tested.
The researchers also found no significant differences in performance or in failure between the sending units in any of the three fuels.
Some people are making claims that E10 fuel, a blend of 10% ethanol and 90% gasoline, has led to rough-running, hard-to-start engines in lawnmowers and other outdoor equipment. If you are told this, ask for data supporting these claims.
Current equipment is built for the legal fuel limit which is currently E10. The Outdoor Power Equipment Institute (OPEI) is not anti-ethanol. Right now, however, OPEI is concerned about legacy equipment and its ability to handle mid level ethanol blends (E15, for example). Current equipment is neither designed, built or warrantied for mid-level blends, OPEI says.
OPEI anticipates sending a letter to the EPA and DOE with its interpretation of a recent DOE test study on the effect of mid level blends on outdoor power equipment. It also would urge both agencies to utilize the existing formal waiver process. The process will provide the necessary studies and data to fully understand effects of introducing new fuel types into the marketplace. The studies also will provide information necessary to educate consumers about the use of mid-level ethanol fuels on existing and future products.
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