September 2010 Ethanol Producer Magazine

INSIDE: GROWING INTEREST IN FRACTIONATION SEPTEMBER 2010

Turbulent Times In Policy Work Studies, New Ideas Fuel Ethanol Subsidy Debate

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contents

vol. 16 no. 9

features 42 FRACTIONATION Unlocking the Power of Corn The time may have come when more plants will take a serious look at adding front-end fractionation.

–By Holly Jessen 48 POLICY Weathering the VEETC Storm A flurry of contradictory reports and a new policy proposal have complicated the tax incentive extension effort.

–By Holly Jessen 54 PROFILE Fueling a New Market LPP Combustion has developed a process to gasify ethanol or other liquid fuels for use as a natural gas substitute.

–By Kris Bevill

54 4

ETHANOL PRODUCER MAGAZINE

September 2010

contents departments

contributions

8 Editor’s Note It’s About the Message

By Susanne Retka Schill 9 Advertiser Index 10 Events Calendar 14 The Way I See It Examine VEETC Impact, Extend Blends Now

By Mike Bryan 16 View From the Hill Lessons from the Front Lines

By Nathan Kimpel 18 Drive Fueling Freedom

By Tom Buis 20 eBio ILUC Debate in Europe—The Saga Continues

By Rob Vierhoust 24 Business Matters Recent Legal Challenges to EPA’s RFS2

By Andrew Anderson and Jess Phelps 26 Business & People 28 Commodities 20 BIObytes 32 Industry News 62 Marketplace

60 60 CARBON DIOXIDE CO2 Increasingly Important to Ethanol Ethanol producers can benefit by tapping into the best available carbon dioxide market, although future policy and climate needs may drive sequestration efforts.

–By Sam Rushing

6

Ethanol Producer Magazine: (USPS No. 023-974) September 2010, Vol. 16, Issue 9. Ethanol Producer Magazine is published monthly. Principal Office: 308 Second Ave. N., Suite 304, Grand Forks, ND 58203. Periodicals Postage Paid at Grand Forks, North Dakota and additional mailing offices.

POSTMASTER: Send address changes to Ethanol Producer Magazine/ Subscriptions, 308 Second Ave. N., Suite 304, Grand Forks, North Dakota 58203.

ETHANOL PRODUCER MAGAZINE

September 2010

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Susanne Retka Schill Editor's Note

It’s About the Message

R

eading through this EPM issue, one can’t help but notice the turbulence in the ethanol industry. Extension of the ethanol tax credit is by no means assured. New reports continue to come out both damaging and favorable to ethanol. The mainstream press continues its tirades, although there was a glimmer of hope of better balance in a Bloomberg New Energy Finance report on how oil subsidies are 12 times greater than renewables (and written permanently into the tax code). More troubling, however, is the divergence of policy strategies among the ethanol industry’s advocacy groups. Holly Jessen was ready to begin digging into the blenders tax credit for her feature story when Growth Energy announced its Fueling Freedom plan. Needless to say, her story took on new dimensions, looking at that plan and the reactions to it, along with several new reports examining the subsidy issue. Nearly every columnist in this issue addresses the controversy as well.

The best means to further ethanol is the root issue. One hopes that through this tension and diversity of thought, new synergies will emerge and ultimately strengthen the industry.

On a related note, Merle Anderson, chairman emeritus of the American Coalition for Ethanol from Climax, Minn., shared some number crunching in defense of ethanol that formed the core of a letter to the editor he recently submitted to local and regional publications. It makes me think it might be time to recall the calculations of a simpler day, before life-cycle analyses and indirect land use theories muddied the waters. He focuses on the fossil energy used in growing corn, starting with national averages for yields and field inputs. The result: One acre of corn produces 165 bushels with an ethanol yield of 2.7 gallons per bushel which computes to 445.5 gallons of ethanol produced per acre on the average. If you figure 5 gallons of fossil fuel used per acre for traditional farming practices, 89 gallons of ethanol is produced for every gallon of fossil fuel. “Now that is a high gain in replacing foreign oil,” Anderson says.

He ran the numbers again, this time assuming a 200 bushel corn yield (higher than the average, but still not as high as some corn producers routinely get) and a lower fossil fuel use to reflect no-till farm-

8

ing practices. He based his calculations on a quartersection field of corn.

160 acres of corn times 200 bushels per acre equals 32,000 bushels.

Most ethanol plants yield 3 gallons per bushel for a yield of 96,000 gallons per quarter section.

3 gallons of fossil fuel used for planting, harvesting and transporting the crop requires a total of 480 gallons per 160 acres.

96,000 gallons of renewable fuel divided by 480 gallons of fossil fuel used equals 200 gallons of ethanol produced for each gallon of fossil fuel.

That yield goes a long way in replacing oil imports.

Anderson explains he doesn’t include the energy used to produce ethanol, because that comes from domestic supplies. “By using natural gas and electricity, we are simply trading in commerce and it is only good for the country,” he says. Ethanol only uses the starch from the corn kernel, he adds, leaving other nutrients to be used for food and feed. “With our oil imports at nearly 70 percent, we in agriculture can play a huge role to help our economic problem, job creation, and help keep our money in our nation’s heartland instead of sending money to countries that support terrorism.”

Merle may be onto something. Turning public opinion around may require simplifying the argument and illustrating points with concrete examples. Keep encouraging folks in corn country to continue explaining to anyone who will listen how ethanol benefits their local community and the country. Keep it simple. Keep it concrete.

Susanne Retka Schill, Editor sretkaschill@bbiinternational.com

ETHANOL PRODUCER MAGAZINE

September 2010

AdIndex www.EthanolProducer.com 19 & 67 2010 Southeast BIOMASS Conference & Trade Show 25 2011 International Fuel Ethanol Workshop & Expo

E D I T O R I A L

17 2011 National Ethanol Conference

Susanne Retka Schill Editor sretkaschill@bbiinternational.com

66 2011 Pacific West BIOMASS Conference & Trade Show

Holly Jessen Associate Editor

44 Agra Industries Inc.

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47 BetaTec Hop Products

Kris Bevill Associate Editor kbevill@bbiinternational.com

23 Biomass Magazine

Jan Tellmann Copy Editor

41 BrownWinick Law Firm

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2 Burns & McDonnell E D I T O R I A L Mike Jerke

45 CPM Roskamp Champion

B O A R D

51 EISENMANN Corp.

Jeremy Wilhelm

Cilion Inc.

Mick Henderson

Commonwealth Agri-Energy LLC

Keith Kor Walter Wendland Neal Jakel Bert Farrish Eric Mosebey Steve Roe Bernie Punt

46 Crown Iron Works Co.

Chippewa Valley Ethanol Co. LLLP

36 ethanol-jobs.com 37 Fagen Inc.

Corn Plus LLLP

3 Fermentis - Division of S.I. Lesaffre

Golden Grain Energy LLC

52 Gavilon

Illinois River Energy LLC

15 & 21 Genencor® - A Danisco Division

LifeLine Foods LLC

53 HEMCO Industries

Lincolnland Agri-Energy LLC

38 & 39 Hydro-Klean Inc.

Little Sioux Corn Processors LP

5 ICM, Inc.

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10 & 11 Inbicon P U B L I S H I N G Mike Bryan Joe Bryan

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S A L E S

35 Kennedy & Coe LLC

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Tom Bryan Matthew Spoor

7 Novozymes

Vice President tbryan@bbiinternational.com

13 Pioneer Hi-Bred International Inc.

Vice President, Sales & Marketing

68 POET LLC

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Howard Brockhouse Jeremy Hanson

59 Renewable Fuels Association

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57 Victory Energy Operations, LLC

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34 Vogelbusch USA, Inc.

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50 Wabash Power Equipment Co.

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Marty Steen

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ETHANOL PRODUCER MAGAZINE

COPYRIGHT © 2010 by BBI International

September 2010

9

Today’s path to 16,000,000,000 gallons of The New Ethanol.™

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ETHANOL EVENTS Export Exchange 2010 October 6-8, 2010

Southeast BIOMASS Conference & Trade Show November 2-4, 2010

Hyatt Regency McCormick Place Hotel Chicago, Illinois The U.S. Grains Council and Renewable Fuels Association are cosponsoring this international trade conference focused around the export of U.S. distillers dried grains and coarse grains. The focus will be on connecting international buyers of DDGS and coarse grains with the U.S. market. USGC is sponsoring targeted trade teams from more than 25 countries. The conference will address critical issues facing U.S. exports and seek to educate and build awareness among international buyers. www.grains.org

Hyatt Regency Atlanta Atlanta, Georgia With an exclusive focus on biomass utilization in the Southeast—from the Virginias to the Gulf Coast—the Southeast BIOMASS Conference & Trade Show is one of three distinct regional offshoots of Biomass Magazine’s International BIOMASS Conference & Expo. The program will feature more than 60 speakers within four tracks: electricity generation; industrial heat and power; biorefining; and biomass project development and finance. Speaker abstracts are now being accepted online. www.biomassconference.com/southeast

International Biorefining Conference & Trade Show November 16-18, 2010

7th Canadian Renewable Fuels Summit November 29-December 1, 2010

David L. Lawrence Convention Center Pittsburgh, Pennsylvania With a focus on strategies to accelerate the growth of the global biorefining industry, this forum will allow technology developers to connect with investors and strategic partners, putting them on a path toward deployment. Organized by BBI International and produced by Biorefining Magazine, this event will include panels on project finance, market development, technology scale-up and more, all focused on the advanced biofuels and biobased chemicals space. www.biorefiningconference.com

Hilton Lac-Leamy Hotel Gatineau, Quebec Network with the leaders of government and industry at the Canadian Renewable Fuels Association’s seventh annual summit to be held this year in the nation’s capital. The summit attracts participants from across North America and around the world and is open to members and non-members alike, comprised of representatives from all levels of the biofuels industry including grain and cellulosic ethanol producers, biodiesel producers, Canada’s leading petroleum companies and agriculture associations. www.crfs2010.com

Pacific West BIOMASS Conference & Trade Show January 10-12, 2011

National Ethanol Conference February 20-22, 2011

Sheraton Seattle Hotel Seattle, Washington With an exclusive focus on biomass utilization in California, Oregon, Washington, Idaho and Nevada, the Pacific West BIOMASS Conference & Trade Show is one of three distinct regional offshoots of Biomass Magazine’s International BIOMASS Conference & Expo. The program will focus on the vast potential for biomass utilization in the Pacific West, featuring more than 60 speakers within four tracks: electricity generation; industrial heat and power; biorefining; and biomass project development and finance. Speaker abstracts are now being accepted online. www.biomassconference.com/pacificwest

JW Marriott Desert Ridge Phoenix, Arizona Speakers and sessions will focus on opportunities facing the ethanol industry, including policy impacts, decisions, and updates, climate change, and other critical factors shaping the industry. www.nationalethanolconference.com

International BIOMASS Conference & Expo May 2-5, 2011

International Fuel Ethanol Workshop & Expo June 27-30, 2011

America’s Center St. Louis, Missouri The International BIOMASS Conference & Expo is the biomass industry’s largest, fastest-growing event. In 2010, BIOMASS was attended by 1,700 industry professionals from 49 states and 25 nations representing nearly every geographical region and sector of the world’s interconnected biomass utilization industries—power, thermal energy, fuels and chemicals. With six tracks, 38 panels, 120 speakers, 400 exhibitors and an anticipated 2,500 attendees in 2011, BIOMASS will continue to be the industry’s leading educational, networking and business development forum. Speaker abstracts are now being accepted online. www.biomassconference.com

Indiana Convention Center Indianapolis, Indiana Entering its 27th year, the FEW is the largest, longest running ethanol conference in the world. The FEW is renowned for its superb programming which remains focused on commercial-scale ethanol production—both grain and cellulosic—operational efficiencies, plant management, energy use, and nearterm research and development. With five tracks, 32 panels, 100 speakers, 400 exhibitors and an anticipated 2,500 attendees in 2011, the FEW remains the ethanol industry’s leading production-oriented, educational, networking and business development forum. Speaker abstracts are now being accepted online. www.fuelethanolworkshop.com

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ETHANOL PRODUCER MAGAZINE

September 2010

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The Way I See It Examine VEETC Impact, Extend Blends Now The issues currently on the table for review by Congress are critically important to the future of the domestic ethanol industry. The weeks and months ahead could prove to be a dramatic turning point in the history of ethanol.

Some of the major decisions include whether to: Extend the present Volumetric Ethanol Tax Credit or terminate it over time and possibly introduce other options.

Increase the blend levels from 10 percent to 15 percent or an interim step of 12 percent.

Eliminate or continue the tariff on imported Brazilian ethanol.

These are, indeed, game changing decisions that will either secure the future of ethanol or call its future into question. It’s no secret that there is division within the ethanol industry on some of these issues. Unfortunately, divisiveness at this critical time is the worst of all possible scenarios.

On the issue of whether to extend the current excise tax credits, I believe we need time to make sure that all the various alternatives have been thoroughly vetted before calling for it to be rescinded. We need time to come together and discuss the options and ramifications such actions may have on both current and future producers. We need to examine the impact that these policy changes would have on established plants that are carrying low or no debt versus plants that are newer and are still carrying a high debt load. If this means extending the current VEETC program for a shorter than desired period, to allow for these discussions to take place, then so be it.

Increasing the blend levels to 15 percent is virtually a no-brainer. The reason the 10 percent blend level was set in the first place had little to do with technical issues, and much more to do with the ease of calculating the blend ratio. This,

14

of course, was before inline blending was common place. Going to a 12 percent blend may seem like a good interim step, but may end up being a level that we stay at for years to come. There simply is no technical reason why we could not go directly to 15 percent, in fact, there seems little reason why we couldn’t go to a 20 percent blend, but that battle can be saved for another day. Even if we have to hold tight for a little longer in order to get to a full 15 percent, in my opinion, that’s what we should do.

Before any decision on the reduction or lifting of tariffs for imported ethanol takes place, the legislative and tax related future of the domestic industry needs to be thoroughly sorted out. To even consider doing so prior to these matters being settled would be premature at best and at its worst, could be disastrous to the ethanol industry.

These are challenging times, times that will set the course for the domestic ethanol industry for years to come. Together, as a united coalition, we have built an industry that has withstood the test of time and together, in that same united spirit, we now need to come together to build our future.

That’s the way I see it.

Mike Bryan Chairman mbryan@bbiinternational.com

ETHANOL PRODUCER MAGAZINE

September 2010

VIEW FROM THE HILL Lessons from the Front Lines

By Nathan Kimpel (Note: Throughout my 22 years with the RFA, I have benefited from the counsel of those in the industry who are on the front lines producing and marketing ethanol. Nathan Kimpel, one of the founders of the RFA and a long-time board member, is retiring soon. I thought it appropriate for him to take this space this month to share his counsel with you.—Bob Dinneen)

n nearly three decades of experience helping to develop policies and establish markets for American-made ethanol, I am truly proud of, but certainly not surprised at, what we have accomplished. Since the beginning, America’s ethanol industry has lived by the mantra that a rising tide will lift all boats. The industry has fought back efforts from oil companies to limit the use of our product. We have projected a unified voice to members of Congress beginning in the Jimmy Carter administration to win legislative and regulatory victories that have created new markets and allowed for the incredible diversity and innovation in the industry today. Due to this success, and a perceived lack of unity today, we have attracted a plethora of new enemies that smell the proverbial blood in the water. I am here to tell you that this scenario has played out before.

Each time, the industry ultimately stood strongly together.

This is not the first time that critics have challenged ethanol.

Almost from day one, Chicken Littles from across the globe have warned that using grain starch to produce ethanol will lead to widespread starvation and skyrocketing food prices. Neither have come to pass. Instead, American farmers have dramatically increased their productivity. Since New Energy’s beginning in 1984, corn used for feed is up 30 percent and exports are up 59 percent. We ethanol producers have improved our efficiencies, increased our yields, and provided improved coproducts that turn each bushel of corn into more than just renewable fuel.

Nor is this the first time we have had to fight oil interests on Capitol Hill, in the administration, and in state capitals all across the country to ensure the market monopolized by oil was opened to renewable fuels. Each time, we have been successful. I have no doubt we will prevail again.

And, while it may seem that we face an uphill battle in extending key tax incentives, we have seen this hill before. Despite repeated warnings about our addiction to imported oil, it strikes me as foolish that permanent subsidies for the oil industry are imbedded in the tax code while renewable technologies such as ethanol must come before Congress with hat in hand every few years. Nevertheless, we

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have been successful because we all meticulously spelled out the benefits domestic ethanol production offers. Current perception of an industry divided on this issue make the current effort more complex, yet I still believe the industry will coalesce around policies that provide the most good for the most people, and we will see federal investment continue.

Retiring from an industry about which I feel a sense of paternalism is bittersweet. I am extraordinarily proud of the ethanol industry, my fellow members of the Renewable Fuels Association, and our champions on Capitol Hill for their perseverance and dedication to an industry we truly believe is doing the right thing.

While I feel pride looking back, I am excited for what is to come.

The industry is just now beginning to gets its feet underneath it. It is deciding what it wants to be when it grows up and is pursuing those policies and technologies that will make it happen. Now is a critical time in the industry’s history. We cannot afford to let disagreements over 10 percent of the industry’s agenda detract from the important 90 percent on which we all agree. What this industry is trying to accomplish, together with our friends in agriculture, is too important to allow it to be derailed. I strongly urge my colleagues to seek out that middle ground, rediscover that important unified voice, and always keep a long term perspective in mind. They say history repeats itself.

In the case of America’s ethanol industry, I certainly hope that is the case.

Nathan Kimpel, New Energy Corp., South Bend, Ind., is a retiring RFA board member. Reach him through RFA at (202) 289-3825.

ETHANOL PRODUCER MAGAZINE

September 2010

Phoenix, Arizona JW Marriott Desert Ridge

February 20-22, 2011

Mark Your Calendar!

JW Marriott Desert Ridge

www.nationalethanolconference.com

DRIVE Buis

Fueling Freedom

By Tom Buis n July, Growth Energy proposed a change in federal energy policy to address the biggest challenge the ethanol industry faces—access to a fair, open and competitive market. We proposed a market-based solution, by modernizing current policies which would result in the permanent elimination of the blend wall.

Growth Energy’s Fueling Freedom proposal would gradually redirect the supports that initially helped ethanol grow—and put in its place a market-driven solution where ethanol can compete, and succeed, on its own. The Growth Energy plan would redirect a portion of the current Volumetric Ethanol Excise Tax Credit to support the build-out of the distribution infrastructure—namely, 200,000 blender pumps, and as many as 120 million flex-fuel vehicles—to give Americans access to an alternative fuel at the pump.

Currently, federal regulation mandates that all fuel be at least 90 percent gasoline, two-thirds of which is refined from imported oil. This 10 percent ethanol-gasoline blend wall restricts the ethanol industry’s access to the fuel market and ultimately will threaten our ability to meet the federal mandate of 36 billion gallons of biofuel production by 2022 as enacted in the 2007 Energy Independence and Security Act. By eliminating market barriers as outlined in the Fueling Freedom plan, we can create an open market where all fuels compete.

In that scenario, domestic ethanol can win. The benefits of building out this infrastructure include an expanded fuel supply, which should help lower the price of fuel for consumers, as well as an invigorated economy in our rural communities and thousands of new jobs created here in the U.S. Expanded access to ethanol would also help decrease our dependence on foreign oil, improve our environment and strengthen our economic and national security. In 2009 alone, the production and use of 10.6 billion gallons of ethanol eliminated the need to import at least 364 million barrels of oil, reduced CO2equivalent greenhouse gas emissions by approximately 16.5 million tons and supported more than 400,000 jobs here in the U.S. There is no question that our plan will benefit the American taxpayer, and every American over time, due to ethanol’s economic, environmental and political benefits. We have seen strong support from consumers, lawmakers, and industry groups who want to see a lasting impact of federal investment in biofuels such as ethanol.

In August, Sens. Tom Harkin, D-Iowa, and Richard Lugar, RInd., offered an amendment that would mandate the production of flex-fuel vehicles and require the installation of blender pumps—

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both provisions included in the Fueling Freedom Plan. We support their amendment and will work to get it adopted in energy legislation when Congress returns in September.

Americans deserve the freedom to choose their fuel and if given the opportunity, will choose America’s fuel, ethanol.

As an industry, we must continually evolve. Today, we no longer have a problem producing ethanol—in fact, we now overproduce.

Our challenge is access to the market. For this reason, we must modernize federal ethanol policies to address today’s challenges.

Will these changes be easy to get adopted? No. Are they worth pursuing? Yes! At Growth Energy, we believe in the entrepreneurial spirit of America. We know that ethanol is the most competitive fuel on the planet because the marketplace will affirm it, despite academic theory to the contrary. And, if artificial suppression of demand can be removed, ethanol can flourish far beyond today’s artificial government “caps”. But, we must evolve. We must believe in the unlimited potential of our product.

Although accomplishing anything in an election year is difficult, it is never too late to stand up for the best interests of our industry.

To stay silent while Congress debates an energy bill that does not address the challenges facing our industry would be shortsighted.

Every other industry involved in energy is part of the debate, ethanol should be too. The status quo will no longer suffice.

We will continue to speak out for the need for reform of federal energy policies that reduce our dependence on foreign oil, create jobs right here in America, and improve our nation’s environment by expanding the market for ethanol.

I invite you to stand with us.

Tom Buis is CEO of Growth Energy. He can be reached at tbuis@ growthenergy.org or (202) 545-4000.

ETHANOL PRODUCER MAGAZINE

September 2010

eBIO INSIDER Vierhout

ILUC Debate in Europe—The Saga Continues

By Robert Vierhout n Europe, we have now entered the next phase of the debate on indirect land use change (ILUC). The European Commission has just issued a three-page consultation document seeking input from stakeholders on four questions. It is the second public consultation on ILUC. The first a year ago was euphemistically called a “pre-consultation.” The views expressed then will probably not vary much from those that will be voiced in this new consultation.

One year ago, environmental non-governmental organizations (NGOs) and green politicians were advocating the precautionary principle be applied with an ILUC factor high enough to make all biofuels impossible to produce with the exception of those produced from cellulosic material or crops grown on marginal land. We, the industry, said there is no sound scientific evidence to justify such punitive ILUC penalties. In the year since, a growing number of researchers have cast serious doubt on the hallucinating emission numbers made up by people like Searchinger et al.

The new consultation document raises (again) all the usual questions, including very sensitive ones that need answers.

The first question is crucial, asking if the analytical work carried out to date “provides a good basis for determining how significant ILUC resulting from the production of biofuels is.” The commission could have stopped there, but instead is soliciting comments on important factors such as the split between firstand second-generation biofuels by 2020, the composition of the vehicle fleet, the diesel/gasoline split, crop yields, land use data and coproducts. By adding this list of variables, it is as if the commission is saying it is not all that obvious. On the other hand, the question implies that ILUC occurs and that the real issue is to find out the reasons why it occurs and whether it is big or small.

The three remaining questions are much more sensitive and political in nature. Question two asks whether the available evidence is persuasive enough to take regulatory steps. Question three asks if such action is taken, is there any relationship between the produced biofuel, the feedstock used, the region the biofuel comes from and the way land is managed? The answers given to the first three questions will provide the answer to ques-

I

20

tion four which seeks input on policy options. The commission poses four options: a) No action, just monitoring; b) Encourage certain biofuels; c) Discourage certain biofuels; d) Some other action.

Two interesting remarks conclude the questionnaire. First, all responses must be justified by reference to available science, meaning that the commission will discard political discourses immediately. That makes sense. A lot of environmental NGOs tend to present only their own biased and unbalanced “science” which all too often reflects ideology rather than actual science. Second, responses may be submitted confidentially. This is remarkable knowing that the commission has been criticized before by several NGOs and the media for a lack of transparency. However, it will certainly lower the threshold for some respondents to suggest approaches that are too controversial or too economically sensitive to be put into the public domain.

Overall the document is predictable in both the issues that it raises and the way in which these are presented. Probably so will the answers that will be handed in by stakeholders.

My personal belief is that the commission is conducting the consultation for reasons of justification only. At the end of this year when the commission publishes its report, it cannot be accused of not having sought stakeholder input. It is highly unlikely that the commission expects anything new from this exercise.

The state of the science is known and so are the positions of the most important stakeholders.

I am certain that just like the external stakeholders, the various commission services fighting internally over the issue made up their minds a long time ago. They might change their position marginally, but not because of what is being presented in this consultation. If the commission services changes its view on ILUC, it will either be because there are scientific breakthroughs (not to be expected) or because the political tide has changed.

On the latter, we are working hard.

Robert Vierhout is the secretary-general of eBIO, the European Bioethanol Fuel Association. Reach him at vierhout@ ebio.org.

ETHANOL PRODUCER MAGAZINE

September 2010

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BUSINESS MATTERS Anderson

Phelps

Recent Legal Challenges to EPA’s RFS2

By Andrew Anderson and Jess Phelps he U.S. EPA’s regulations regarding the expanded renewable fuel standards (RFS2) have recently come under attack from both environmental nonprofits as well as the oil industry. Both challenges could have an impact on the future direction of the biofuels industry and will be closely watched over the coming months as courts begin to wrestle with this complicated and ofttimes contentious rulemaking.

T

The Environmental Challenge On May 25, the Clean Air Task Force challenged the RFS2 on behalf of the environmental group Friends of the Earth. This dispute relates back to Congress’ expansion of the RFS in 2007, which required EPA to analyze biofuels to ensure that each alternative fuel source provided specified reductions in greenhouse gas (GHG) emissions as compared to conventional fuels. This mandate also required EPA to establish safeguards to protect prairies and other natural ecosystems from being converted to cropland in response to the RFS. In its March final rule, after extensive debate, EPA determined that all existing biofuels—including corn ethanol—achieved the applicable emissions reductions goals as required under the biofuels mandate.

The Clean Air Task Force, however, is now challenging EPA’s conclusions regarding the emissions impacts of existing forms of biofuels arguing that “EPA’s rule is seriously flawed because it will actually increase greenhouse gas emissions from the transportation sector in the near term.” The Clean Air Task Force also argues that EPA failed to consider the “global rebound effect” when analyzing the life-cycle GHG from biofuels. In the Clean Air Task Force’s view, the RFS2, by displacing gasoline from the U.S. market, will reduce overall demand for petroleum, which will lead to cheaper petroleum and, in turn, more use and more GHG emissions globally. According to the Clean Air Task Force, if EPA had considered this impact, only a few existing forms of biofuels would have met the emissions re-

24

ductions requirements. This assertion or allegation has been highly controversial. Lastly, the Clean Air Task Force has also asked EPA to reconsider its assumption that the RFS2 will not cause natural ecosystems to be converted to cropland.

The Oil Industry Challenge The National Petroleum and Refiners Association and the American Petroleum Institute have also challenged the RFS2, using a more narrowly tailored argument. According to the oil industry representatives, “EPA made the rule effective on July 1, 2010 … while setting unreasonable mandates on refiners that reach back to 2009 for bio-based diesel and to Jan. 1 for the other advanced biofuels.”

In short, the oil industry believes the retroactive application of the RFS2 is unreasonable and unsupported. To challenge this retroactive application, API filed a legal challenge in the D.C. Circuit Court of Appeals on March 29, shortly after EPA’s rules were finalized.

Both challenges could potentially impact the future of the RFS2. Overall, the Clean Air Task Force suit is likely the more serious threat (as the oil industry challenge is limited in scope) but it is questionable whether this suit will be able to gain any traction under the administrative law principle of deference to the agency. Regardless, both suits are worth tracking as the EPA begins to apply the new rules to the biofuels industry.

The authors are attorneys with Faegre & Benson. Andrew Anderson is head of the firm’s corporate group in Iowa. Reach him at 515-447-4703 or AAnderson@faegre.com. Jess Phelps focuses on international trade issues involving antidumping and countervailing duty litigation. Reach him at 515-447-4721 or JPhelps@ faegre.com.

ETHANOL PRODUCER MAGAZINE

September 2010

Business&People Ethanol Industry Briefs

REX Stores Corp. announced in June that it had changed its name to REX American Resources Corp. and the company’s stock trading symbol on the New York Stock Exchange is now REX. CEO Stuart Rose said the name change better reflects the company’s primary business, assets and focus.

REX currently has interests in six ethanol production facilities, representing 144 million gallons of annual ethanol production.

Additionally, the company’s board of directors has named Zafar Rizvi as president and chief operating officer. Rizvi has served for 18 years as REX’s vice president, most recently overseeing the company’s alternative energy interests. “Zafar Rizvi’s appointment to the roles of president and chief operating officer acknowledges the strong contributions he has made as we transitioned the company to focus on alternative energy,” Rose said.

Maple Energy plc announced it has acquired the equity necessary to pursue its $254 million proposed ethanol project in Peru. The company acquired the final $28 million necessary from shareholders in June and plans to begin commercial operations at the plant, which is located in the Piura region on the northwest coast of Peru, in mid-2011.

26

Yokogawa Electric Corp. has released the latest version of the FAST/TOOLS web-based SCADA system, which enables users to perform remote engineering and maintenance. The system can be utilized for process monitoring and asset management in a variety of industries, according to the company. Benefits of the system include reduced operating costs and optimized sharing and exchange of information, as well as a higher level of management efficiency.

Biotechnology firm Dyadic International Inc. has hired consulting firm The Abraham Group to provide strategic advice and assistance to Dyadic as it pursues global licensing and collaboration opportunities. The Abraham Group is led by former U.S. Energy Secretary Spencer Abraham, who will also serve as Dyadic’s senior advisor. Anne Whitehead, executive director of strategic alliances at Dyadic, said the consulting group will help Dyadic enhance its strategy to team with international energy groups that are committed to commercializing cellulosic ethanol.

Merrick & Co., an employee-owned engineering, archi-

tecture, design-build, surveying and geospatial solutions firm, has elected Jill Tietjan to its board of directors. Tietjen is president and CEO of a consulting firm that serves the electric utility industry and has more than 30 years of experience in the electric utility industry.

She serves Tietjan on the board of directors of Georgia Transmission Corp. and has authored several technical papers for electric utility publications. In May, Merrick & Co. formed a consultancy unit focused on the energy market, including renewable, refining and utilities.

Indianapolis-based bioengineering firm Xylogenics Inc. has named three people to its board of directors. William Parry is an attorney with extensive expertise in patent law and mergers and acquisitions. He served as vice president, general counsel, for Nalco Chemical Co. from 1995 to 2000 and previously worked for UOP, a Honeywell company. Joseph Prochaska Jr. has served on internal regulatory boards for more than 25 years, and has held executive positions for several companies, including MetLife Inc. and Aon Financial Services Group Inc. He currently serves on the boards of Baird & Warner Inc. and the audit com-

mittee and advisory council of the Hesburgh Libraries at the University of Notre Dame. Anthony Hubbard serves as the financial advisor and general manager for Stanbio Life Sciences and has more than 15 years of experience in management, operations and business development in emerging technology related to ventures. Chairman Butch Mercer said the trio will assist the company in its objective to develop and market proprietary bioengineered yeast strains and cellulosic ethanol technology to ethanol facilities.

Elevator components manufacturer 4B Components Ltd. has made available a Class II, Division 1 approved bearing temperature sensor that is designed to allow the depth of the probe to be adjusted depending on its application. The ADB series is available with probe lengths of two, four or eight inches, and can be screwed directly into a bearing housing through the existing threaded grease zerk. The sensors are designed for continuous temperature monitoring.

Genera Energy LLC, a for-profit company formed by the University of Tennessee Research Foundation, recently broke ground on a first-of-itskind biomass processing center.

The Biomass Innovation Park will be co-located with the Genera-DuPont Danisco Cellulosic Ethanol demonstration-scale plant near Vonore, Tenn., and

ETHANOL PRODUCER MAGAZINE

September 2010

Sponsored by

will begin processing switchgrass for ethanol production by the end of the year. Located on 21 acres, the facility will provide harvesting, handling, storage, densification, pre-processing and transportation for multiple feedstocks.

Genera President and CEO Kelly Tiller said the biomass facility will initially process up to 50,000 tons of switchgrass, which the company has contracted farmers to grow this season.

Onset Computer Corp., a supplier of data loggers, has a new energy and environmental monitoring product catalog available. The 75-page catalog provides product descriptions, technical specifications, and pricing for the company’s full line of trademarked HOBO data logging solutions. The company expanded the range of measurement options for its line of HOBO U12 data loggers offered for energy and environmental monitoring.

Specifically, multi-channel versions of the U12 data loggers can now measure and record kilowatts, air velocity, gauge pressure, differential pressure, DC current and other energy and environmental parameters.

Dallas-based Evolution Fuels Inc. has retained Bloomfield Advisors to assist in structuring and financing it’s prototype fueling station of the future. As the initial phase of its plan, management plans to build out one to three prototype fueling stations.

The company envisions a brand

that incorporates a broad selection of alternative fuels, a store built with recycled materials and utilyzing solar power, and offering health food and beverages along with fuel.

ExperTune’s PlantTriage Control System Monitoring Software now has tools to diagnose the health of instruments, valves and controls. For years, ExperTune’s patented “Control Loop Health” approach has identified problem control loops. Now. several new tools provide more specific performance metrics and diagnostics for each control loop component: the instrument, the valve and the controller. The Valve Health measurement, for example, combines information about control valve sizing, application,and mechanical performance. The new tools are included in the latest release of ExperTune’s PlantTriage software.

A new biofuels business with products and services for corn-based ethanol plants has been launched by Pursuit Dynamics plc. Validation tests indicate plants utilizing the new PDX Ethanol Reactor System can expect improved production yields, reduced operating costs and substantial throughput improvements. Marquis Energy LLC, a 100 MMgy plant in Hennepin, Ill., and Pacific Ethanol Columbia LLC, a 40 MMgy plant in Boardman, Ore., are participating in the operational validation of the new ERS.

ETHANOL PRODUCER MAGAZINE

September 2010

The new MINIDIS ADXpert analyzer from Grabner Instruments is an alternative to classical ASTM D86 testing, according to the company. The unit has about twice the resolution as D86 distillation units, yielding results that are well within ASTM D86r/R requirements.

MINIDIS also performs according to the new D7344 standard for atmospheric distillation. The MINIDIS development team focused on several design goals: automation, miniaturization and ease of use. Like the D86 method, the ADXpert performs a true atmospheric distillation but on a much smaller scale. It requires as little as 6mL of sample and is much faster.

The sixth edition of the Ethanol Fact Book has been published by the Clean Fuels Development Coalition and is being distributed through the Ethanol Across America campaign. The book addresses issues regarding the ethanol tax incentive, energy security and oil import reductions, economic impacts and benefits to the U.S. Treasury, greenhouse gas reduction and environmental benefits, advancements in cellulose conversion technologies, developments in flex-fuel vehicle production and high level blends. “Through the Ethanol Across America education program, we are getting the facts out and believe when people understand the wide range of benefits ethanol provides they will continue to support it,” said

U.S. Sen. Ben Nelson, D-Neb., co-chair of the Ethanol Across America campaign.

Propel, which builds, owns and operates a network of clean fueling points on the West Coast, added four people to its management team in July. Matt Horton is the company’s CEO. His experience has spanned a broad spectrum of investment activities and board responsibilities most recently with @Ventures, a cleantech-focused venture capital firm specializing in earlystage companies. As a certified public accountant and chief financial officer, Andy Wynne will lead the company’s financial planning and accounting functions including capital strategy, budgeting, and new market analysis for Propel’s growing renewable fuel network. Jim Cannon is the new vice president of construction and development and oversees Propel’s expanding network of green-built fueling stations. Jim Iacoponi is the vice president of operations and leads the company’s efforts to source the most sustainable fuels, grow sales and product lines. EP SHARE YOUR INDUSTRY BRIEFS To be included in Business & People, send information (including photos and logos if available) to: Industry Briefs, Ethanol Producer Magazine, 308 Second Ave. N., Suite 304, Grand Forks ND 58203. You may also fax information to (701) 746-8385, or e-mail it to sretkaschill@bbiinternational.com. Please include your name and telephone number in all correspondence.

27

COMMODITIES REPORT

Natural Gas Report

By Brad Smith, U.S. Energy Services Inc.

Final impact of Wall Street reforms will depend on the rules Aug. 2—The Dodd-Frank Wall Street Reform and Consumer Protection Act that President Obama signed into law July 21 is the first bill, or initiative, to authorize the CFTC and SEC to regulate all over-the-counter derivatives trading. Many energy trading firms are expected to be subject to new capital, margin, reporting, and position limits that were formerly free of regulatory oversight. After all the political self-congratulations, one concern is that only three Republicans in the House and three Republicans in the Senate voted for the bill. The other area of concern is that the wording of the 2,300 page bill is, in many cases, ambiguous, turning the interpretation and rulemaking authority over to the regulatory agencies.

The real work of crafting rules that theoretically match the intent of the bill will take place over the coming year. This will likely be a heavily lobbied and under-reported process that determines the final outcome. The CFTC has broadly outlined the need for 60 rulemaking endeavors (processes) to determine, among other things, the basis for who is a swap dealer or “major swap participant,” a framework for determining capital and margin requirements, timelines and processes for derivatives reporting, the appropriate levels at which to

set position limits within each respective market without significantly reducing liquidity and the timelines for compliance.

During the initial 360 days, the CFTC will attempt to push through its rule-making process. The proposed rules are to be published between 90 and 360 days after the bill becomes law. This will be quite an endeavor as the bill contains more than 350 mandates and the CFTC expects to conduct about a dozen studies, reports, or memoranda of understanding. As for the impact on your financial trading partners, the bill will undoubtedly raise costs that will be passed through to consumers. With that said, a reasonable overview of the bill suggests that end-users taking delivery should be little affected. There is a stated exemption for hedging with forwards, and a stated intent to protect financial hedgers. The real risk is that the bill will raise costs for some market participants to the point that they exit the business, stifling liquidity or effectively killing some markets.

While defining the new world will take time, it is clear the era of deregulation is over. EP

Corn Report

By Jason Sagebiel, FCStone

Corn market subject to spooking Aug. 2—The U.S. corn crop is progressing well with ample moisture. Production problems in Eastern Europe and drought in Russia, however, have led to wheat market volatility and rallied U.S. commodities. World traders express great concern over smaller world wheat production, suggesting greater demand for U.S. wheat and corn. Despite a near 50 percent carry-out-to-use ratio for U.S. wheat, the market has rallied, leading new crop corn to test $4. In the July supply and demand report, USDA placed old crop carry-out at 1.478 billion bushels and new crop carryout estimates at 1.373 billion bushels. A projected yield of 163.5 bushels per acre with acreage 900,000 acres less than previously thought results in production estimates of 13.245 billion bushels.

Corn used for livestock feed, ethanol production and other food, seed, and industrial usage was left unchanged and export demand for next year was lowered by 50 million bushels to 1.950 billion, although that is likely to change.

Excess world wheat supply for 2010-’11 was projected at 187.05 million metric tons (mmt) but that number will erode.

World corn ending inventory decreased from June to July to 141.08 mmt, though still up from 2009-’10. With U.S. production in no threat today, any harvest delays may make an already spooked market susceptible to price spikes. Ultimately corn prices seem overvalued. Ethanol crush values may come under pressure 28

if corn prices continue to rally as energy prices stayed subdued.

The accompanying graph shows world coarse grain carry-out.

The bull run that began in 2006 led by wheat had a carry-out of less than 140 mmt with a carry-out-to-use ratio of 14.96 percent.

July’s projection was 16 percent and is expected to decline. EP

ETHANOL PRODUCER MAGAZINE

September 2010

COMMODITIES REPORT

DDGS Report

Regional Ethanol Prices ($/gallon on July 30) Front Month Futures (AC) $1.706

RACK

REGION

SPOT

West Coast

1.780

1.950

Midwest

1.680

1.800

East Coast

1.805

1.920

By Sean Broderick, CHS Inc.

DDGS demand seeing seasonal softness Aug. 2—DDGS looks as though it is beginning a price disconnect to corn. The hot Gulf barge market of late July appears to be logistics related.

Reports of four or five boats—more than 100,000 metric tons—to arrive in early August set off a scramble. Normally shipments are more spread out, and contracted barges being loaded the last half of July might not have made it in time.

Domestically, prices have been stagnant, making smaller moves as the corn futures fluctuate. Hog producers are eagerly awaiting new crop corn, with its potential to have fewer Vomitoxin problems than last year. There is a lot of wet distillers grains being made and, combined with unusual moisture in typically dry areas, cattle demand has decreased versus normal years.

Ethanol margins have been near breakeven for almost a month, and there are signs of late summer plant slowdowns. The resulting decrease in DDGS supply should offset the lackluster summer domestic demand.

Bad weather in Europe and China is generating interest for DDGS, with China looking for offers seemingly every week. Container demand is still strong in spite of increasing bulk shipments, with the only hitch being container supply. The Superior port has seen increased business, which coincides with the last bulk boat out of the PNW for the season.

The amount of DDGS on the market, combined with the low demand season, will make exports more important than ever. EP

SOURCE: DTN

Regional Gasoline Prices ($/gallon on July 30) Front Month Futures (RBOB) $2.1066

REGION

SPOT

West Coast

2.197

2.376

Midwest

2.143

2.107

East Coast

2.061

2.132

RACK

SOURCE: DTN

DDGS Prices ($/ton) LOCATION

SEPT. 2010

AUG. 2010

Minnesota

95

95

90

Chicago

12

115

116

Buffalo, N.Y.

105

110

110

Central Calif.

152

147

124

Central Florida

138

136

SEPT. 2009

114 SOURCE: CHS Inc.

Corn Futures Prices DATE

(Dec. corn, $/bushel)

HIGH

LOW

CLOSE

4.18

4.03 1/4

4.04 1/2

July 2, 2010

3.86 3/4

3.81 1/4

3.84 1/2

August 3, 2009

3.75 1/4

3.60 1/2

August 2, 2010

3.69

Ethanol Report

SOURCE: FCStone

By Rick Kment, DTN Biofuels Analyst

Corn price rally sparks ethanol surge

Aug. 2—Ethanol prices have followed corn futures step by step this spring and summer. In July, ethanol prices jumped 15 cents per gallon as corn prices increased nearly 60 cents per bushel. At the moment, grain markets are on another sharp rally with corn prices jumping 30 cents per bushel over the past three trading sessions. Although this may be temporary in a market hit by uncertain planting levels, weather, as well as global production problems, has traders actively looking for renewed investor interest. Accordingly, ethanol futures are making very few directional moves on their own account due to the tight connection between ethanol production costs and corn prices. This trend is likely to continue over the next

several weeks and or months, as the market may become much more volatile before calm returns.

At the same time ethanol prices rallied, gasoline markets slipped lower as the summer driving season waned. This will likely continue to limit additional commercial and noncommercial buying activity into the gasoline markets due to expected demand slumps through the end of the year. The soft economy is not helping matters, with jobless rates still double digit, and consumers weary of hoping that the end of hard times is just around the corner. RBOB gasoline prices have fallen 6 cents since the end of June and are currently contained in a moderate trading range. EP

Cash Sorghum Prices ($/bushel) Superior, Neb. Beatrice, Neb. Sublette, Kan. Salina, Kan. Triangle, Texas Gulf, Texas

AUG. 3, 2010

JUNE 25, 2010

JULY 19, 2009

3.44 3.40 3.14 3.70 3.44 3.84

2.76 2.88 2.67 3.20 3.04 3.20

2.72 2.74 2.33 2.72 2.43 3.47 SOURCE: Sorghum Synergies

Natural Gas Prices

($/MMBtu)

JULY 1, 2010

JUNE 1, 2010

JULY 1, 2009

NYMEX

4.717

4.155

3.949

N. Ventura

4.630

4.090

3.360

Calif. Border

4.560

3.930

3.270

SOURCE: U.S. Energy Services Inc.

U.S. Ethanol Production Output

(1,000 barrels)

Per day

Month

End stocks

May 2010

847

26,244

19,721

April 2010

832

24,962

19,682

May 2009

678

21,024

14,173

SOURCE: U.S. Energy Information Administration

ETHANOL PRODUCER MAGAZINE

September 2010

29

BIObytes Ethanol News Briefs

PHOTO: SUE RETKA SCHILL, BBI INTERNATIONAL

Funding awarded for E85 dispensers

Valley Dairy owner Monica Musich, left, was recognized by ACE’s Brian Jennings and Merle Anderson for opening the first blender pump in Grand Forks, N.D.

E85 dispensers get UL approval Gilbarco Veeder-Root and Dresser Wayne, two fuel dispenser companies, received official Underwriter’s Laboratory certification for companyspecific E85 fuel dispensers in June. These were the first ULapproved fuel dispensers for E85, following UL approval of E25 fuel dispensers this spring.

For E25 and lower blends, fuel dispensers can be certified separately from the hanging hardware. However, for E85, UL has withheld certification of any fuel dispensing equipment until it is all certified together at one time, said John Drengenberg, director of consumer safety for UL. The organization granted final certification to the two fuel dispensers only after the final components of the hanging hardware were submitted, he said. By late July, Gilbarco Veeder-Root had UL-approval for a total of 22 dispenser configurations and all of Dresser Wayne’s eco fuel

30

products received approval.

OPW Fueling Components also announced that it received UL certification for its new trademarked nozzles, ethanol swivels, breakaways and emergency shut-off valves for use in applications containing ethanol concentrations up to E85.

The next anticipated step is UL certification of a blender pump. Dengenberg said he couldn’t give out specifics but confirmed that a UL testing program of blender pumps has been established. Meanwhile, retailers continue to install blender pumps in locations across the nation. In late July the American Coalition for Ethanol recognized the first blender pump installed in Grand Forks, N.D. Brian Jennings, ACE executive vice president, and ACE founder Merle Anderson, Climax, Minn., congratulated Valley Dairy owner Monica Musich at a brief event July 20.

Thanks to funding from state, federal and private sources, 75 additional E85 dispensers will be installed in California by Propel Fuels Inc., a West coastbased owner and operator of alternative fueling stations. The California Energy Commission approved a $4 million grant while the DOE is providing $6.9 million in stimulus funding.

Propel itself is pitching in $16.2 million in private equity funds.

Other partners in the project include the California’s Department of General Services, the nation’s largest fleet of stateowned vehicles, the East Bay Clean Cities Coalition, Calstart and the Local Conservation Corps of California.

ADM receives carbon capture funding In June, Archer Daniels Midland Co. received a $99.2 million grant from the U.S. DOE for a commercial-scale carbon capture and sequestration project which will capture and store 1 million tons of CO2 produced annually at the company’s ethanol facility in Decatur, Ill. The $163.9 million project will demonstrate commercialscale carbon capture and storage

through the operation of a collection, compression and dehydration facility. Processed CO2 will be delivered to the nearby Mount Simon Sandstone formation, where it will be stored approximately 7,000 feet below ground. The project is expected to conclude in the third quarter of 2015.

Greenshift restructures debt In June, Greenshift Corp. and YA Global Investments LP executed several agreements designed to reduce and restructure Greenshift’s debt to YA Global.

The companies formed a joint venture—YA Corn Oil Systems LLC—into which Greenshift will transfer up to five of its corn oil extraction facilities in exchange for a reduction of up to $11.7 million in convertible

debt by YA Global. Greenshift will receive a 20 percent equity stake in the joint venture and will provide management services to the company in exchange for management and brokerage fees, as well as earnings-based performance bonuses paid in the form of up to an additional $6 million reduction in debt owed to YA Global.

ETHANOL PRODUCER MAGAZINE

September 2010

Study highlights ethanol’s impact in Indiana A study recently released

by Informa Economics Inc. reports that the ethanol industry is the single most important factor supporting the growth of the agricultural sector in Indiana. The study, which was sponsored by the Indiana Corn Marketing Council and Growth Energy, measured the ethanol

industry’s contribution to Indiana’s gross state product (GSP), household incomes and employment rates. Results showed that ethanol has created more than 3,000 full-time jobs in Indiana, added $499 million to the GSP, and increased overall household income by $255 million.

25x’25 Alliance releases report Between 2004 and 2009 the renewable energy produced in the U.S. increased by about 23 percent, according to a report issued by the 25x’25 Alliance.

The 32-page analysis released in June details the advances made since the group set its goal of meeting 25 percent of the nation’s energy needs with renewable sources by 2025. In the bioenergy market, the report states that the market “has enormous growth potential both in the U.S. and around the world” but is limited by a number of factors, including policy, the blend wall and insufficient infrastructure. “The bottom line is that

NZ flue gas-to-ethanol company strikes deal in China significant progress has been made,” the report says, “but there is more to be done and major challenges to overcome.”

DDGS conference planned for October The Renewable Fuels Association and the U.S. Grains Council are co-sponsoring Export Exchange 2010, a conference focused around the export of U.S. dried distillers grains with soluables (DDGS) and coarse grains.

The event is set for Oct. 6-9 in Chicago, Ill, and will focus on

connecting international buyers with the U.S. market. The USGC will sponsor the attendance of international trade teams from more than 25 countries, representing nearly 80 percent of the global export market for DDGS.

ETHANOL PRODUCER MAGAZINE

September 2010

New Zealand-based LanzaTech Ltd. has partnered with Baosteel Metal, China’s largest steel and iron conglomerate, to commercialize its flue gas-toethanol technology. LanzaTech has been operating a pilot-scale facility in New Zealand since 2008 using bacteria to convert steel mill flue gas to ethanol.

Baosteel and LanzaTech will now construct a demonstration-scale facility at one of Baosteel’s steel mills which is expected to be operational in 2011. The Chinese Academy of Sciences will work with the companies to accelerate the technology and collaborate on

research and development of related technologies.

Additionally, Chinese venture capital firm Qiming Ventures was the leading investor in LanzaTech’s Series B financing drive and said LanzaTech represents a great opportunity for China. “The significance of this technology means that fuel can be produced with no impact on food supply or land use,” said Gary Rieschel, managing director of Qiming. “Using industrial waste gases curbs greenhouse gas emissions and so maintains manufacturing sustainability in China.”

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GHG regulations forge ahead despite protests The challenges to greenhouse regulations and the understanding of complex GHG interactions continue to unfold.

EPA denies petitions In July, the U.S. EPA denied 10 petitions challenging the controversial 2009 endangerment finding regarding greenhouse gases (GHGs), saying climate change is real and threatens human health and environment. The petitions claimed that climate science cannot be trusted. “The endangerment finding is based on years of science from the U.S. and around the world. These petitions—based as they are on selectively edited, out-of-context data and a manufactured controversy—provide no evidence to undermine our determination. Excess greenhouse gases are a threat to our health and welfare,” said Lisa Jackson, EPA administrator. These cases are not closed, however, as all the petitioners also filed legal challenges in the U.S. Court of Appeals for the District of Columbia. If the court rules for the petitioners, the EPA could be prevented from regulating GHG emissions.

Challenge to Calif. law In California, AB32, the law that requires the state to reduce GHG levels back to 1990 levels by 2020, will go to voters in November. The law has been vigorously opposed by many in the energy sector and 800,000 signed a petition to suspend the law due to concerns about economic impact.

“We believe that the aggregate net jobs impact in the near term is likely to be negative, even after recognizing that many of the [California Air Resources Board Scoping Plan] programs phase in over time,” said a report from the California Legislative Analyst’s Of-

32

fice, a non-partisan fiscal and policy analyzer in the state. Opponents have also raised the issue of the appropriateness of state-specific laws for such energy policy.

Meanwhile, two new reports released this summer demonstrate the complexity of quantifying and comparing GHG emissions. Researchers from the University of Nebraska-Lincoln examined emissions by U.S. military operations to protect oil imports from the Middle East, and Stanford Earth scientists found high-yield agriculture has prevented massive amounts of GHGs from being released.

Indirect military emissions The UNL report was completed by Adam Liska and Richard Perrin, who estimate that the war in Iraq releases 43.3 million metric tons of carbon dioxide equivalent (CO2e) annually. Military protection of supertankers in the Persian Gulf amounts to another 34.4 million metric tons of CO2e annually. When gasoline’s impact is evaluated by regulators, the report points out, only direct emissions are counted as part of its environmental impact. Not so for biofuels.

Under the 2007 Energy and Independence Act, biofuels are required to meet specific GHG reductions, from 20 to 60 percent under gasoline, including direct and indirect emissions. “Our conservative estimate of emissions from military security alone raises the greenhouse gas intensity of gasoline derived from imported Middle Eastern oil by 8 to 18 percent,” Liska said. “In order to have a balanced assessment of the climate change impacts of substituting biofuels for gasoline, a comparison of all direct and indirect emissions from both types of fuel is required.”

Yield intensification impact The other study, published online in the Proceedings of the National Academy of Sciences, shows that yield improvements have reduced the need to convert land to crops.”

Every time forest or shrub land is cleared for farming, the carbon that was tied up in the biomass is released and rapidly makes its way into the atmosphere—usually by being burned,” said Jennifer Burney, lead author of the paper describing the study. “Yield intensification has lessened the pressure to clear land and reduced emissions by up to 13 billion tons of carbon dioxide a year.” Plus, for every $1 spent on agriculture research and development since 1961, the emissions of methane, nitrous oxide and carbon dioxide, all GHGs, were reduced by about a quarter of a ton of CO2. “When we look at the costs of the research and development that went into these improvements, we find that funding agricultural research ranks among the cheapest ways to prevent greenhouse gas emissions,” said Steven Davis, co-researcher along with David Lobell. Increasing yield alone isn’t enough to guarantee lower emissions from land use change, the authors said, adding that it must go along with efforts in conservation and development. It is, however, a big factor. “The striking thing is that all of these climate benefits were not the explicit intention of historical investments in agriculture. This was simply a side benefit of efforts to feed the world,” Burney said. “If climate policy intentionally rewarded these kinds of efforts, it could make an even bigger difference. The question going forward is how climate policy might be designed to achieve that.”

—Holly Jessen

ETHANOL PRODUCER MAGAZINE

September 2010

USDA projects 527 biorefineries needed To meet the renewable fuels standard goal of 21 billion gallons of advanced biofuels, 527 biorefineries averaging 40 MMgy will need to be built at an estimated cost of $168 billion, according to a USDA report released in June.

The “Regional Roadmap to Meeting the Biofuels Goals of the Renewable Fuels Standard” is intended to provoke discussion and further work on what the report calls an issue that “may prove to be one of the most important of the 21st century.”

The objectives of the 21-page report are to identify challenges and opportunities for the biofuels industry as well as to come up with solutions. Job creation is one benefit from biofuels, with the USDA estimating 40 direct jobs created for each 100 MMgy ethanol facility. In order to build biorefineries in areas of economic distress, the USDA suggests regional strategies will allow for proper leveraging of transportation, labor and feedstock resources.

“USDA recognized that different regions of the country have a comprehensive advantage to the type of feedstock that can be produced and utilized in biofuel production,” the report states.

The report begins by acknowledging the role of corn starch ethanol in approaching the 15 billion gallon goal set by the renewable fuels standard (RFS2) for conventional biofuels.

“The current ethanol industry provides a solid foundation to build upon and reach the 36 billion gallon goal,” USDA Secretary of Agriculture Tom Vilsack said. “I am confident that we can meet the threshold of producing 36 billion gallons of biofuel annually by 2022.”

The USDA roadmap examines the regional potential for producing the additional 21 billion gallons of advanced biofuels. It identifies the Southeast states and Hawaii, including Alabama, Arkansas, Florida, Georgia, Hawaii, Kentucky, Louisiana, Mississippi, North Carolina, South Carolina, Tennessee and Texas, as having the greatest potential with up to 50 ETHANOL PRODUCER MAGAZINE

percent of the advanced biofuels volume coming from these states due to their long, robust growing seasons. The east central region, which includes Delaware, Iowa, Illinois, Indiana, Kansas, Missouri, Ohio, Oklahoma, Maryland, Minnesota, Nebraska, North Dakota, Pennsylvania, South Dakota, Wisconsin and Virginia, is right behind at 43.3 percent of potential advanced biofuels production. The Northwest and Western regions trail far behind, with only 4.6 percent and less than 1 percent respectively of expected biofuels volume.

The report notes that the U.S. EPA and USDA differ on the expected gallons from various feedstocks. By 2022, the EPA expects switchgrass to provide 7.9 billion gallons; soy biodiesel and corn oil, 1.34 billion gallons; crop residues, 5.5 billion gallons; woody biomass, 100 million gallons; other, such as municipal solid waste, 2.6 billion gallons; algae, 100 million gallons; and imports, 2.2 billion gallons.

The USDA, on the other hand, estimates dedicated energy crops at 13.4 billion gallons, oilseeds at 500 million gallons, crop residues at 4.3 billion gallons and woody biomass (logging residue only) at 2.8 billion gallons.

The report concludes that in order to meet cellulosic ethanol targets, a rapid build-up and substantial investment will be needed. U.S. farms are capable of producing many types of feedstocks to make the biofuels industry a true national effort, but there are multiple infrastructure needs. “A process for identifying bottlenecks and barriers related to locating

September 2010

biorefineries involving the federal government, Congress, states, the industry and interested stakeholders can help facilitate a biorefinery system that is national in scope,” the report says. “While we expect the market to respond to the infrastructure needs of a growing industry, we recognize that the path from production to actual consumption presents challenges that will need to be anticipated and addressed.”

Among the bottlenecks is the limited numbers of flex-fuel vehicles (FFVs) that are primarily located in the Midwest. In addition, those FFVs actually use more gasoline than E85 or other ethanol blends due to their limited availability. The USDA suggests that California, Texas and Florida should be the primary targets for blender pumps and FFVs in the future.

Blender pumps infrastructure is one area where USDA could provide immediate assistance the report adds, citing the anticipated EPA decision on a higher blend waiver.

Another infrastructure challenge is the need for rail and truck transportation of ethanol, blending terminals and storage, all factors that can affect decisions on where biorefineries are built. The EPA has projected that 40 unit train rail receipt facilities will be needed, with a cost of more than $12 billion, to distribute the additional volumes of ethanol targeted in the RFS2. This equals 6.9 cents per gallon of additional costs for shipping ethanol. “Developing unit train destinations is a time-consuming process, usually taking three to five years,” the report says. “The industry has responded to this challenge by developing rail-to-truck transloading facilities for smaller-than-unit train shipments of ethanol.”

—Holly Jessen

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EPA expected to lower 2011 cellulosic biofuels volume After evaluating the market availability of cellulosic biofuels, the U.S. EPA said in July that only five producers are expected to contribute cellulosic ethanol to the overall volume next year and that it might reduce the cellulosic target by as much as 240 million gallons from its original goal. The renewable fuel standard established in the Energy Independence and Security Act of 2007 called for 250 million gallons of cellulosic biofuels to be produced in 2011, but the EPA is predicting a much lower actual achievable volume of between 5 million and 17.1 million gallons.

The EPA said it evaluated both domestic and foreign sources of cellulosic biofuel before issuing its proposed volume standard. The agency found only five U.S. cellulosic ethanol producers with the potential to contribute next year, including: AE Biofuels, Agresti Biofuels, DuPont Danisco Cellulosic Ethanol, Fiberight LLC and KL Energy Corp. Ontario-based Iogen Corp. was the sole Canadian producer with the potential to export cellulosic biofuel into the U.S. in 2011. A handful of producers questioned the EPA’s method of reaching those determinations, but the agency stood by its analysis. EPA senior press officer Cathy Milbourn said producers were encouraged to submit any production changes to the EPA during the proposed volume standard comment period. The EPA would then re-evaluate before issuing its final standard in November.

According to the proposed standard, Fiberight is pegged

to be the largest cellulosic ethanol contributor next year. The company is expected to ramp up its Blairstown, Iowa, facility to its full production capacity of 5.7 MMgy by late 2011 and the EPA said it could produce as much as 2.8 million gallons of cellulosic ethanol next year. Craig Stuart-Paul, Fiberight CEO, said that production estimate is “doable” and the company has been rapidly installing necessary production equipment at the facility.

Agresti Biofuels is expected to contribute 1 million gallons of cellulosic ethanol from a 20 MMgy municipal solid waste-toethanol facility to be located in Pike County, Ky. The company is currently in the final stages of setting up a demonstration-scale facility in Vietnam, according to program director Zig Resiak, and won’t begin construction on the Kentucky plant until the Vietnam plant is up and running. “Everything is dependent on Vietnam,” he said. “It all comes down to that first demonstration project.” Resiak said the Kentucky site has been cleared and is ready for construction to begin as soon as the Vietnam plant comes online in the fourth quarter of this year. According to Resiak, 1 million gallons of cellulosic ethanol from Agresti next year is an “absolutely” attainable goal and he believes the company can produce more than its allotted share.

The EPA expects AE Biofuels to produce 500,000 gallons of cellulosic ethanol from a corn-based ethanol plant in Keyes, Calif. The AE Advanced Fuels Keyes facility is anticipated to begin producing late this year using starch-based feedstock, but the

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September 2010

EPA said the plant will transition to some cellulosic feedstock beginning in mid-2011. The company plans to eventually use up to 25 percent cellulosic feedstock at the 55 MMgy facility.

Wyoming-based KL Energy Corp. has been slowly ramping up its 1.5 MMgy cellulosic facility in Upton, Wyo., since 2007.

According to the EPA, KL Energy said it intends to produce 400,000 gallons of cellulosic ethanol next year from wood chips and wood waste.

DuPont Danisco Cellulosic Ethanol’s 250,000 gallon per year demonstration-scale facility at Vonore, Tenn., will be expected to contribute all of the cellulosic ethanol it produces next year to the overall volume. DDCE told the EPA it doesn’t plan to produce more than 150,000 gallons in 2011.

The EPA stated that while it is uncertain whether Canadian producers would export cellulosic ethanol, Iogen Corp. is producing cellulosic ethanol at its demonstration-scale facility now and could potentially participate in the RFS2 program next year.

According to the EPA’s proposal, while all of the ethanol produced to date at Iogen’s 500,000 gallon per year facility has been sold locally, the company is exploring the possibility of exporting in 2011 and could contribute up to 250,000 gallons of fuel to the total volume requirement. However, Iogen Executive Vice President Jeff Passmore said the company has no current plans to export large amounts of fuel to the U.S. in 2011. Additionally, he said Iogen doesn’t plan to produce 250,000 gallons of fuel at its facility next year. “We have no plans to export,” he said. “We’re using our fuel for demonstration purposes. Some might get sent to the U.S. for small fuel demonstrations such as car races, but we

don’t have any plans for major exports.” Passmore said Iogen has delivered approximately 8,000 gallons of cellulosic ethanol to the U.S. this year, all of which was used for racing applications, and he anticipates a similar scenario to occur next year.

Several notable projects were left out of the EPA’s expected producer list because they are not scheduled to be complete until 2012. The EPA said it will continue to monitor proposed projects and it anticipates significantly increased cellulosic ethanol production beginning in 2012. However, none of the expectant 2011 producers are currently producing cellulosic biofuel at the rates they project for 2011. The EPA noted that several significant hurdles need to be overcome before the anticipated production rates can be achieved, including outstanding issues in the areas of technology, funding and construction. Producers on the EPA’s list were not surprised that the agency expects a lower production volume than initially anticipated and said it reflects the current state of the industry. “The reality of the marketplace is that there are not that many people producing [cellulosic ethanol] right now,” Fiberight’s Stuart-Paul said.

“Nobody’s breaking ground at the moment,” pointed out Iogen’s Passmore. “It takes over a year to build these plants, so I think it reflects the commercialization challenges that the cellulosic ethanol industry faces. Those challenges need to be addressed by Congress if we’re serious about achieving the targets.”

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Companies make progress in cellulosic arena As the U.S. EPA slashed its targeted volume standard for 2011 cellulosic ethanol production (see previous story), a report from the U.S. Governmental Accountability Office report shed light on one of the causes for the slower-than-expected build out of cellulosic capacity. The GAO report released in late July found flaws with the U.S. DOE Loan Guarantee Program. With a current loan guarantee authority of $77 billion, the DOE had only issued one loan guarantee for $535 million as of April and made nine conditional commitments. The GAO, which was mandated by Congress to conduct the review, found that the DOE treated applicants inconsistently and lacked a mechanism for appeals or feedback.

It also recommended that the DOE come up with more performance goals for the Loan Guarantee Program. The DOE didn’t take issue with the findings and said it is taking steps to address the GOA’s concerns.

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Two oil majors made moves this summer to bolster their efforts in cellulosic ethanol developments. In July, BP Biofuels purchased Verenium Corp.’s cellulosic biofuels business for $98.3 million. Included in the deal are the pilot plant and demonstration-scale facilities in Jennings, La. Verenium will continue in its core commercial enzyme business and will transition out of its research and development facilities in San Diego, Calif., during the next two years. BP will pay Verenium another $10.8 million in cash to be released upon assignment of its lease for that facility. “By acquiring Verenium’s cellulosic biofuels technologies, BP Biofuels should be well placed to accelerate the delivery of low-cost, low-carbon, sustainable biofuels, at scale,” said Philip New, CEO of BP Biofuels.

Following the BP announcement, Verenium promoted Executive Vice President Janet Roemer to president and chief operat-

ing officer of Verenium’s enzymes business.

She joined Verenium in 2008, moving over from BP Group where she had held several positions.

In a similar move, Janet Roemer a Royal Dutch Shell plc. executive president, executive will be taking vice Verenium over direction of Iogen Energy, a 50-50 joint venture of Shell and Iogen Corp. In early July, Duncan Macleod was appointed chief operating officer of Iogen Energy and on Sept. 30 he will step in as president and CEO. Brian Foody, founding president and current CEO, will take on the duties of chairman of Iogen Energy and continue to serve as president and CEO of Iogen Corp.

ETHANOL PRODUCER MAGAZINE

September 2010

Several other bigname cellulosic ethanol companies received funding or otherwise moved ahead on projects during June and July. ICM Inc. signed a cooperative agreement Duncan Macleod CEO, Iogen with the DOE, receiving Energy $25 million to construct and operate a cellulosic ethanol pilot in St. Joseph, Mo. The company plans to modify its existing pilot plant at LifeLine Foods LLC to produce fuel from corn fiber, switchgrass and energy sorghum. ICM will contribute $6 million of its own funds to compete the project.

BlueFire Ethanol Fuels Inc. announced that it had completed Phase I of the DOE loan guarantee program and was moving on to Phase II. The company has applied for a

$230 loan guarantee to build a 19 MMgy facility to produce cellulosic ethanol from woody biomass, mill residue and other cellulosic waste in Fullton, Miss.

INEOS Bio made two announcements recently concerning projects here and abroad.

The company was awarded $11.6 million in grant money to build a 7.9 MMgy ethanol plant in England to convert biodegradable household and commercial waste to ethanol.

INEOS New Planet BioEnergy, a joint venture between INEOS Bio and Florida-based New Planet Energy LLC, said it officially took ownership of a former juice factory, located next to a Florida landfill in Indian River County. When completed, the ethanol plant will produce 8 MMgy from renewable biomass including yard, wood and vegetative wastes.

Another company concentrating on municipal solid waste (MSW), Fiberight LLC, hopes to have its second MSW-to-ethanol

demonstration plant up and running by the end of August. The company, which completed its first plant in Blairstown, Iowa, in May, will install a second demonstration plant in Lawrenceville, Va., the current location of the company’s pilot plant. Fiberight is working with CleanTech Biofuels Inc. which will install its patented biomass recovery process at the Lawrenceville plant using steam and pressure to clean and separate MSW into biomass and recyclables. The biomass will then be processed into cellulosic ethanol using Fiberight’s targeted fuel extraction process. CleanTech announced in early July that it had received a patent for its process from the U.S. Patent and Trademark Office.

—Holly Jessen

Plants change hands, reorganize financials The summer of 2010 has been a busy one for many ethanol producers, with several plants acquiring new owners and others reorganizing.

In June, petroleum refiner Sunoco Inc. began operations at the former Northeast Biofuels LLC plant near Fulton, N.Y. Sunoco purchased the 100 MMgy facility in 2009 for $8.5 million through a bankruptcy auction and hired ICM Inc. to install upgrades worth $25 million. Sunoco Fulton Ethanol Facility may soon be operating at full capacity for the first time since its initial construction. Sunoco expects the plant will supply up to 20 percent of the company’s gasoline blending requirements.

On June 29, Poet LLC completed the purchase of a 90 MMgy plant near Cloverdale, Ind., previously operated by Altra Biofuels, increasing Poet’s total capacity to 1.7 billion gallons per year. Poet now owns and operates 27 ethanol plants throughout the Midwest. The company plans to spend $30 million in upgrades, including its patentpending fermentation process, a water recovery system and new pollution control equipment. Poet expects to reopen the facility by April 2011. “This plant has all the ingredients we need to put together a top operation: a steady corn supply, rail access, a great workforce and productive farmers,” CEO Jeff Broin said. “The ample corn supply

in the area includes significant quantities of agricultural waste, making the plant a likely location for cellulosic ethanol production in the future.”

REX American Resources Corp., a relative newcomer to the ethanol industry, acquired a 48 percent ownership interest in the 100 MMgy NuGen Energy LLC plant near Marion, S.D. The former electronics company, which just last year switched its focus to alternative energy, now has interests in seven ethanol facilities representing a total annual nameplate capacity of 632 million gallons. The company owns 191 million gallons of annual nameplate capacity. “The NuGen investment furthers REX’s strategy to prudently deploy its strong balance sheet for new investments in ethanol production facilities or other attractively valued renewable resources or industrial project opportunities,” REX CEO Stuart Rose said. REX acquired the ownership stake in NuGen for $9.2 million with a commitment of up to an additional $6.5 million based on the plant’s profitability.

Hawkeye Renewables LLC also received new ownership interests, but under less ideal circumstances. The company announced June 18 that it had successfully emerged from bankruptcy with new equity owners for the Hawkeye facilities in Iowa Falls and Fairbank, Iowa. The names of the new owners are not being publicly disclosed,

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according to spokeswoman Victoria Weld. However, the equity owners have no plans to sell the facilities and Hawkeye will continue to manage operations at both plants. “It is important for farmers and producers who sell corn to Hawkeye Renewables to know that both plants are emerging from this process with significant working capital, minimal debt and a new balance sheet,” said Jim Continenza, Hawkeye Renewables board chairman. “We believe the financial future of the two plants has been stabilized and the two plants will continue to make positive contributions to their local communities.”

Hawkeye Renewables continues to own and operate its remaining ethanol facilities in Menlo and Shell Rock, Iowa.

On the East Coast, Bionol Clearfield LLC, which brought its 100 MMgy plant in Pennsylvania on line earlier this year, has been working through a breach of contract issue with its marketing contractor. Bionol claims Getty Petroleum Marketing Inc., a subsidiary of OAO Lukoil, defaulted on its billion dollar ethanol contract with Bionol in June. The companies had entered into a five-year contract in which Getty was to purchase all of the Clearfield plant’s ethanol for a set price. Bionol said that after just two months, Getty began paying less than the agreed-upon price for the plant’s ethanol, claiming that the contract price is not valid. The dispute will be taken to arbitration with a decision not expected for months. In the meantime, Getty continues to distribute ethanol from the facility.

Further down the coast, Praxair Inc. has signed a 15-year contract with Osage Bio Energy to purchase CO2 from the company’s Appomattox Bio Energy ethanol plant near Hopewell, Va. Praxair is constructing a $15 million industrial gas facility to be co-located with the 65 MMgy barley-to-ethanol plant to capture 190,000 tons of CO2 annually, beginning at the end of 2011, for use in food processing and beverage applications.

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DOE finds ethanol pipeline feasible, with conditions The U.S. DOE recently completed a study to determine the feasibility of constructing and using a pipeline to transport ethanol from the Midwest to the East Coast. The agency concluded that while a dedicated ethanol pipeline would reduce the burden of transport on railroads, enhance fuel delivery infrastructure and reduce greenhouse gas emissions, ethanol volume must be increased significantly before a pipeline could be economically viable.

According to the study, the ethanol volume expected to be pipelined from producers in the Midwest to demand centers in the East Coast is approximately 2.8 billion gallons per year. This estimate is based on current consumption projections and includes demand for E10 and E85. Using an assumed pipeline construction cost of $4.25 billion, the DOE determined that a pipeline tariff would average 28 cents per gallon. Comparatively, other modes of transport along the same corridor currently charge an average tariff of 19 cents per gallon. Therefore, in order for the ethanol pipeline to be cost competitive with truck, barge and rail options, the DOE found the pipeline would need to transport approximately 4.1 billion gallons of ethanol annually. The DOE stated that this increased volume can only be achieved through a significant increased demand for E85 or widespread use of ethanol blends greater than E10. Even if pipeline construction costs

were lowered by $50 million, the agency said significant financial incentives would still be required to make the pipeline feasible if ethanol demand is not increased.

Aside from financial considerations, other risks associated with an ethanol pipeline focus mainly on policy issues. The DOE stated that if current supportive policy measures were removed, including the renewable fuels standard mandate, the Volumetric Ethanol Excise Tax Credit or the ethanol tariff, the pipeline’s feasibility would face serious consequences. “Government policy is likely to play an integral role in the commercial viability of the asset throughout its operating life,” the report stated.

Additionally, advanced biofuels and other non-ethanol alternative fuels could decrease the demand for ethanol if they become commercially available. However, the DOE stated that ethanol pipelines could potentially be used to transport those other biofuels as well.

The hypothetical pipeline used in the DOE’s feasibility study was based on a pipeline project proposed in 2008 by Magellan Midstream Partners LP and Buckeye Partners LP. The pipeline would gather ethanol produced in the Corn Belt and transport it to demand centers in New England, the Central Atlantic and the Virginias. The DOE stated that this is the most likely path for an ethanol pipeline, but other routes

port ethanol from the Midwest to a distribution center in New Jersey.

The companies said their project differs somewhat from the DOE’s hypothetical pipeline and has been found economically viable in their own analysis. It is based on a smaller capital cost of $3.55 billion and is estimated to have transport rates 15 percent lower than rail rates. The pipeline would have an annual capacity of 3.5 billion gallons.

The companies said they were pleased with the DOE study’s overall results and said the report will be valuable to Congress as it considers energy legislation. “We believe the DOE’s conclusions are directionally correct: a large-scale pipeline project is feasible under certain conditions and that a federal loan guarantee is necessary to move forward,” the companies said in a statement. “In addition, the DOE confirms that transporting energy via pipelines has multiple benefits such as reducA U.S. DOE feasibility study found that an ethanol pipeline would not be ing congested highway and rail systems while reducing greenhouse gas emissions when compared to other modes of transportation.” economically viable unless ethanol demand were significantly increased.

Sen. Tom Harkin, D-Iowa, and Reps. Leonard Boswell, D-Iowa, and Lee Terry, R-Neb., have been working to expand DOE loan guarwould also be possible and would carry similar risks and investment antee funding to qualify a renewable fuel pipeline as an eligible project. requirements. The West Coast represents the least feasible end-point Terry said the DOE study proves that an ethanol pipeline cannot befor a pipeline due to increased costs associated with terrain and the ad- come a reality without the aid of legislation. ditional distance between supplier and demand center.

—Kris Bevill Magellan and Poet LLC are developing a project similar to the DOE’s hypothetical pipeline, seeking to construct a pipeline to trans-

FRACTIONATION

Fractionation—long considered an interesting but expensive add-on—may finally gain traction in the ethanol industry.

By Holly Jessen

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ETHANOL PRODUCER MAGAZINE

September 2010

FRACTIONATION

ETHANOL PRODUCER MAGAZINE

September 2010

43

FRACTIONATION

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ront-end fractionation can help ethanol plants diversify coproduct streams for increased revenue. As Jeff Scharping, director of product management and sales for ICM Inc., says, “Fractionation unlocks the power of corn.” He’s not alone in admiring the technology. “I’m a huge believer in fractionation,” says Neal Jakel, general manager of Illinois River Energy LLC in Rochelle, Ill. “Fractionation will change this industry. It makes us much more profitable, diversifies our risk. It is worth the investment, no doubt about that. You will see in the next two to five years, a lot more investments in this. I know it, I feel it.”

Jakel and Scharping, along with Michael Regier, technical director at Cereal Process Technologies LLC, gave presentations about the technology at the 2010 International Fuel Ethanol Workshop & Expo. All agreed fractionation is a proven technology that, when implemented correctly, can provide myriad benefits for an ethanol plant. Scharping says corn-to-ethanol production hasn’t been close to utilizing corn to its full potential. With fractionation, and the ability to use corn bran as a cellulosic ethanol feedstock, the ethanol

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industry can take corn-based ethanol to the next generation, he says.

Interest in fractionation has been renewed since the U.S. EPA identified it as one of the advanced technologies ethanol plants can use to reduce greenhouse gas (GHG) emissions, says Pete Moss, vice president of marketing for CPT. While ethanol plants under construction prior to the passage of the Energy Independence and Security Act of 2007 were grandfathered in, new ethanol plants and new production capacity at grandfathered plants have to meet at least a 20 percent reduction in GHG emissions. The inclusion of indirect land use impacts in the calculation of GHG reductions for the revised renewable fuels standard (RFS2) will make this a tough hurdle. The EPA says that corn ethanol plants using natural gas or biomass for process heat and installing new, more efficient technologies will meet GHG goals for conventional biofuels. “Fractionation is one of those technologies,” Moss says.

According to the company’s initial evaluation, CPT fractionation can help an ethanol plant reduce GHGs by 23 percent.

Benefits of Fractionation Dry fractionation is the mechanical separation of corn, Regier explains. The endosperm, or the higher starch portion, is used for ethanol production. Removing the non-starch fraction results in energy savings for the plant due to more efficient fermentation, less fouling due to the removal of corn oil and decreased energy requirements to dry the distillers grains.

“Traditionally the germ and bran just go along for the ride throughout the ethanol plant and don’t do anything for the ethanol product, other than require more energy to dry that product and require more pump horsepower to transport that product,” Reiger says.

New coproducts providing ethanol plants with new revenue streams help producers diversify and provide risk mitigation, Scharping says. ICM’s President and CEO Dave Vander Griend believes the ethanol industry can provide both food and fuel for the world, Scharping explains.

ETHANOL PRODUCER MAGAZINE

September 2010

PHOTO: CPT

FRACTIONATION

CPT fractionation technology is installed in one ethanol plant and three other non-biofuel facilities.

“We look at dry fractionation as a front door to that.” Germ is the high oil portion and can result in food-grade corn oil or nonfood-grade oil suitable as a biodiesel feedstock. Fiber can be used in a variety of ways, including burning for steam generation, as a feed ingredient or potentially for cellulosic ethanol production. In addition, at the end of the process, ethanol producers will have higher protein levels in

their distillers grains making it better suited for monogastric feeding in swine, poultry and aquaculture operations. CPT is also working with a company that is interested in producing anhydrous ammonia from bran.

Ultimately, fractionation provides flexibility, Reiger says, and transforms ethanol producers into agricultural processing facilities, able to diversify and take advan-

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CRAWFORDSVILLE, INDIANA ETHANOL PRODUCER MAGAZINE

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FRACTIONATION

tage of market fluctuations. “It’s not only about the ethanol yield per bushel now, it’s also about the coproduct revenue per bushel,” Regier says. “In an ag processing mindset, you want to maximize your highest revenue streams.”

While the CPT system provides the flexibility to produce more corn oil when prices are good, maintaining consistency in the protein content of the distillers grains produced is important too. To maintain 40 to 42 percent protein content in the distillers grains, CPT performance data shows that a balanced starch/oil yield is approximately 59 to 63 per-

cent oil from the germ stream and 93 to 95 percent from starch. “That’s what the marketplace wants, they want consistency,” Moss adds.

CPT’s fractionation system has been proved on a large scale at one ethanol plant— the Valero Energy Corp. plant in Jefferson, Wis. In addition, the same system is installed at three other locations that produce products for the industrial and food-grade industries. In the near future, it will be installed at the National Corn-to-Ethanol Research Center for additional testing.

ICM’s fractionation technology has

been in place for more than three years at LifeLine Foods LLC in St. Joseph, Mo., Scharping says. In early June, the company announced that it would receive $25 million from the U.S. DOE to build a cellulosic ethanol pilot plant at that location, where ICM will modify the existing dry fractionation operation to incorporate cellulosic ethanol production from corn fiber, switchgrass and energy sorghum.

For producers looking for a fractionation process with lower capital costs, ICM is developing solvent fractionation.

This system will provide food-grade corn oil, fiber for cellulosic production, foodgrade protein, grits with 50 percent protein, clear starch and feed-grade protein.

The company plans to complete a pilot plant by the end of the summer and a demonstration plant in 2011.

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Although fractionation offers ethanol producers many positive possibilities, Jakel cautions producers to do their research before selecting a technology. It’s a big investment and it’s critical that producers ask the right questions as they evaluate fractionation, he says. Although Illinois River Energy doesn’t have a fractionation system installed, Jakel has experience in designing and optimizing fractionation in previous jobs. A turnkey fractionation system including building and utilities for a 100 MMgy plant can cost $30 million to $60 million. Further complicating the issue is that there are many wet and dry fractionation technologies out there. Jakel says he has counted 14 fractionation companies, and there are likely more. “Every single technology is different,” he says.

One factor to examine closely is coproduct quality. What kind of distillers grains will the technology produce? Different companies have used different protein percentage numbers, varying from 30 to 40 percent, depending on how the plant is run and whether syrup is added. The impact distillers grains has is a huge driver, Jakel says, since it is a premium product and the potential loss to the plant is large.

“It has a dramatic effect on the bottom

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line.” A savvy producer will also ask what kind of bran a certain fractionation technology produces. Is it fine or whole? Will it need additional grinding? What is the starch content of the bran produced?

Germ quality will impact pricing, and corn oil with high free fatty acid content will be dramatically discounted. “With some of the technologies out there, you will have a hard time extracting (corn oil),” Jakel adds.

“All germ is not created equally.”

Other markets ethanol producers can access with fractionation, such as fertilizers or pet foods, can be tricky. While the margins are good in pet food, for example, it’s an even pickier market than livestock feed. “People are willing to pay a premium, but man, you’d better make sure it’s the highest quality-controlled product you’ve got in your facility,” Jakel says.

It’s also important to be realistic, he cautions. Different fractionation companies are promising widely different throughput increases, from 8 to 20 percent. “Can your plant even do it?” Jakel asks. “I know for sure that at my plant right now, we are running full out at 115 MMgy, I cannot get 10 percent more capacity unless I invest another 20 or 30 million dollars.”

Corn is another major consideration.

A front-end fractionation system requires more corn to produce the same amount of ethanol. Again, the numbers Jakel has heard are all over the board, from 3 percent up to 30 percent more corn. Although the added coproducts mean additional revenue, the increased cost of corn must be taken into account. Corn logistics need to be considered as well. With more corn coming in, additional on-site storage bins may be needed and more man hours needed to cover additional corn-receiving operations.

The list of points Jakel recommends be covered in vetting a fractionation process is long. Other questions include the type of performance data the company has for its technology and whether it has been tested or verified by a third party.

It’s also a good idea to ask about the financial backing of the company, he says.

ETHANOL PRODUCER MAGAZINE

Next on the list are available resources, such as what kind of training and start-up services the company provides. What about breakdowns? Does the company offer 24-hour service? Does it have spare parts on hand?

An engineer can help an ethanol plant as it is evaluating new technologies, Jakel says.

For those companies without an in-house engineer, he recommends contracting with an engineer. “I can’t stress enough, when you are investing this kind of money on these technologies, spending money on someone who understands this industry, who under-

stands corn, is well worth the due diligence effort from you,” he says.

Despite Jakel’s long list of factors to consider, he’s still very much a proponent of fractionation. “It really is that key technology that opens the door to many more things,” he says. “It opens up the door, but you have got to find out, what’s behind the door.” EP Holly Jessen is associate editor of Ethanol Producer Magazine. Reach her at (701) 738-4946 or hjessen@ bbiinternational.com.

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Weathering the VEETC

Contradictory reports and new policy proposals are causing turbulence in efforts to extend the ethanol blenders tax credit, set to expire in December.

Storm

By Holly Jessen

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hile both are in the business says, and the group wants to get its ideas out of promoting the ethanol there for discussion before the energy debate industry, Growth Energy in Congress, although it is not clear that will and the Renewable Fuels happen this year. A Senate energy bill was Association don’t always agree on the best introduced July 27 that, notably, ignores bioway to proceed. That was especially apparent fuels completely. in July, when the two groups diverged on the With Growth Energy going one direcbest course of action in the fight to extend tion and RFA advocating another, will that the Volumetric Ethanol Excise Tax Credit. be a problem for the industry as a whole? It On July 15, Growth Energy proposed is a valid concern, Dinneen says. “Is it one a strategic shift in policy, setting off waves that will keep us from doing what we want to in the ethanol industry. The group unveiled do?” he asked. “I don’t know yet.” its Fueling Freedom Plan, suggesting some At the American Coalition for Ethanol incentives be diverted to support infrastruc- Conference & Trade Show in August in Auture such as blender pumps and pipelines gust, representatives from ACE and the Naand requiring all new vehicles to be flex fuel. tional Corn Growers talked about holding a The plan would lead to an open market and face-to-face industry meeting with RFA and eventually allow the phasing out of govern- Growth Energy, as soon as possible. Darrin ment support for the industry, the group Ihnen, president of NCGA, which has long said. Growth Energy had been considering called for cooperation among ethanol indusvarious options for several months try groups, said that NCGA has before unveiling its Fueling Freebeen serving as a “babysitter,”, atdom Plan, CEO Tom Buis says. tempting to get the three groups, The lapse of the biodiesel blendACE, RFA and Growth Energy, ers credit figured in the discussion to at least agree in public. as did the multiple delays in getting Raymond Defenbaugh, an E15 waiver approved. Growth president, CEO and chairman of Energy’s goal is to look at what is Big River Resources LLC in West best for the industry, Buis says, not Tim Buis Burlington, Iowa, commented CEO, only today, but also in the future. from the audience that what the The RFA, joined by the Growth Energy industry needs is one voice of American Coalition for Ethanol, support for ethanol from all three the National Corn Growers Association groups. ACE, RFA and Growth Energy may and the National Sorghum Producers, re- have different strategies, but they are united acted swiftly, throwing their support behind in support of ethanol. “We might be usthe legislation introduced in the ing different tools,” he said. “We U.S. House of Representatives might even have a different timeand U.S. Senate to extend ethanol line on using those tools.” Big tax incentives. “There’s very little River Resources is the only U.S. time left for this Congress to do ethanol plant that is a member of much,” RFA President and CEO ACE, RFA and Growth Energy.

Bob Dinneen tells EPM, “which Defenbaugh has exactly the right is why we are trying to stay the message, and the organizations course and make sure we keep it need to do what is necessary to Bob Dinneen simple, because complexity is the president, CEO, make that happen, said Brian Jenenemy right now.” Although Din- Renewable Fuels nings, ACE’s executive vice presineen agrees that certain parts of Association dent. “The truth is that we have the proposal are very attractive, so much more in common than changing the U.S. renewable fuels strategy we are apart,” he said. isn’t something that can or should be done Ron Fagen, president and CEO of Faquickly. gan Inc., said that he doesn’t see a problem Conversely, Growth Energy contends with having three separate ethanol industry that the time is right to discuss changes. A groups. Although those groups do need to change this big won’t happen overnight, Buis deliver the same message, having multiple ETHANOL PRODUCER MAGAZINE

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voices is actually a strength. “We all have our allies,” he said. “We all get along better with certain politicians that we do others.”

Larry Johnson of LLJ Consulting and Business Development reminded the conference that there was a lot of arguing in the 1980s over the Clean Air Act. The NCGA was in the same middleman position it is in right now, he said. And yet, despite the fighting, the ethanol industry won because it was fighting for a worthy cause. “I’m not really worried about this,” he said.

For its part, if the Fueling Freedom Plan isn’t adopted, Growth Energy says it will support a straight extension of the VEETC, adding that, without an open market, decreasing the value of the VEETC would not be good for the industry. Several big players back the Fueling Freedom Plan. Jeff Broin, CEO of Poet LLC, the second largest ethanol producer in the U.S., the largest dry-mill ethanol producer and a founder of Growth Energy, is a big supporter. Green Plains Renewable

Energy Inc., the fourth largest ethanol producer and also a Growth Energy founding member, has expressed its support.

Valero Energy Corp., the third largest ethanol producer in the U.S. and—ironically—a blender, commented on the issue in late July. A top official said in an investor/media conference call that it would not make a difference to its ethanol business if the blenders credit were not extended. Gene Edwards, executive vice president of corporate development and strategic planning, said with current prices and a blending margin of 30 cents per gallon, the VEETC is “irrelevant” to Valero’s ethanol business. “You would not see blending bat down one barrel because of the credit being gone,” he said.

While there are multiple bills proposed in the House and the Senate, the one furthest along in late July was released by the House of Representatives Committee on Ways and Means. A pared down version of the bill introduced by Reps. Earl Pomeroy, D-N.D.,

The Environmental Law Institute used information from the Internal Revenue Service, U.S. DOE, Congressional Joint Committee on Taxation, Office of Management and Budget and USDA to compile this pie chart showing the relative subisidies to renewable energy and fossil fuels. The ELI study found that the majority of government subsidies support energy sources that emit high levels of greenhouse gases. Fossil fuels enjoy the largest portion of subsidies, coming from just a handful of tax breaks.

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and John Shimkus, R-Ill., the current bill calls for a one-year extension of the VEETC with a 9-cent reduction of the current 45-cent blenders credit. “The tax credit is a bridge to a future where renewable fuels standards create the market without requiring the tax credit drawing on the federal treasury,” Pomeroy tells EPM. “However, we aren’t there yet. We’re going to continue to press as hard as we can to get it extended.”

What’s in an Incentive?

Getting biodiesel’s blenders credit extended has been fraught with difficulties. Attempts prior to its lapse on Dec. 31 failed, and multiple amendments to bills have since died in Congress. In July, with the Unemployment Extension Act passing without a biodiesel extension, the effort started over with new amendments being attached to bills in both houses. In the meantime, the biodiesel industry has been “knocked on its back,” says Renewable Energy Group Inc.’s CEO Jeff Stroburg. Many biodiesel plants, including REG, have cut back on

production or are standing idle. Some are teetering on the edge of bankruptcy. REG, the largest U.S. biodiesel producer, has a capacity of 360 MMgy, including fuel both produced and marketed for others. “More than half of our capacity is shut down, although we may not have plants that are totally mothballed like other companies,” he tells EPM, adding that getting the tax credit reinstated would mean many restored jobs industry wide.

If the VEETC were not extended, would the same thing happen to the ethanol industry?

The RFA has been very vocal that failing to extend the VEETC would mean closed ethanol plants and lost jobs. This spring, John M. Urbanchuk of Entrix Inc., released a report commissioned by the RFA showing that without the VEETC, the equivalent of two out of every five plants would close, resulting in more than 112,000 lost jobs, both direct and indirect.

The Food and Agricultural Policy Research Institute at the University of Missouri also says the ethanol industry would suffer without the VEETC—although less severely than RFA pre-

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dicts. In its yearly report, FAPRI says U.S. fuel ethanol and biodiesel production would be cut by 10 percent if biofuels tax credits expire.

Others aren’t so sure. A staff report released in July by Bruce A. Babcock, director of Iowa’s Center for Agricultural and Rural Development, projects the expiration of the blenders credit and import tariff would not have dramatic, adverse effects on the U.S. ethanol industry. Furthermore, if supports lapse, it would save tax dollars annually and decrease prices at the pump. The renewable fuel standard is the primary driver of ethanol demand and U.S. production will increase to 14.5 billion gallons by 2014 even without the tax credit and tariff. Finally, if the supports were not extended, it would only result in 300 lost jobs in 2014, according to CARD. Growth Energy points out Babcock’s paper assumes the U.S. EPA increases the blend limit to E15, supporting the Growth Energy argument that if the ethanol industry gets access to a bigger share of the market, government supports like the blenders credit aren’t as important. However, without that open market, the VEETC is still vital, Growth Energy admits.

A Congressional Budget Office study on biofuel tax credits released in mid-July stirred the debate further, highlighting differences in the tax incentives for ethanol, cellulosic ethanol and biodiesel. Adjusting for energy content and petroleum used for production, the CBO determined that corn ethanol producers receive 73 cents for every unit with the energy equivalent of one gallon of gas. By the same reckoning, incentives for cellulosic ethanol were $1.62 and biodiesel $1.08 per unit. To reduce gas consumption with corn ethanol by one gallon, it costs taxpayers $1, the report said. For cellulosic ethanol the number is $3.

To reduce greenhouse gas (GHG) emissions through tax credits, it costs $750 per metric ton of carbon dioxide equivalent (CO2e) for corn ethanol and $275 per metric ton of CO2e for cellulosic ethanol.

The RFA countered that the CBO report failed to give credit for coproducts and relied on worst-case, pessimistic and debatable assumptions. The industry group said the report likely overestimates the cost of displacing petroleum with ethanol by a factor of three to four and overestimates the cost of reducing GHG emissions by a factor of six to eight. In

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addition, the RFA pointed out that CBO didn’t compare biofuel incentives with other energy tax incentives—particularly oil subsidies.

Last year, the Environmental Law Institute did just that and found that energy subsidies are “black, not green.” The institute looked at fossil fuel and renewable energy subsidies from 2002 through 2008. Subsidies to fossil fuels totaled about $72 billion over those seven years, while subsidies for renewable energy added up to $29 billion. Of that amount, only $16.8 billion went to corn ethanol, with the remainder going to wind, solar, geothermal and hydro power sources. The results were surprising, says John Pendergrass, a senior attorney for ELI. “It did seem like the provisions to encourage oil and gas and coal, some of which have been around for 80 and 90 years, would not be necessary for a mature industry,” he tells EPM. “It raised questions for us. Is it really needed for a mature industry, compared to a relatively new industry of renewables?”

In general, subsidies for fossil fuels increased over the study period. Funding for renewables increased as well, but dropped steeply in 2006'07. An exception was in 2008, when subsidies to fossil fuels decreased and subsidies for renewables increased. For Pendergrass, another eyebrow raiser was how much of the subsidies to big oil come in the form of direct spending.

A total of $16.3 billion in direct spending went to fossil fuels, nearly as much as the total of tax breaks and direct spending for corn ethanol combined. In addition, the largest subsidies to fossil fuels are permanently written into the U.S. Tax Code, which is changed only as legislators decide to amend it. “By comparison, many subsidies for renewables are time-limited initiatives implemented through energy bills, with expiration dates that limit their usefulness to the renewables industry,” the report says.

Those words have never rung truer for the ethanol and biodiesel industry than right now.

While the ELI paper indicated some hesitation to fully embrace corn ethanol, Pendergrass says he certainly believes it is time to reconsider all incentives. “We think that Congress should revisit and carefully consider the amount of money being spent,” he says. “I think there is inertia.”

While movement in Congress has been slow, the debate has fueled another round of negative editorials. The week before the ways and means committee released its draft bill for ETHANOL PRODUCER MAGAZINE

a one-year, 36-cent tax incentive for ethanol, three major newspapers ran editorials bashing the fuel, three days in a row. The Chicago Tribune started off July 23, calling for an elimination of the tax credit, saying that “heavy subsidies and protectionism” are a bad mix. Then, the Washington Post chimed in, also calling for an elimination of the VEETC, vaguely claiming that “there are certainly more effective ways to reduce oil consumption and greenhouse emissions.” The last editorial from the Wall Street Journal bitingly argued that the cost of ethanol subsidies is too high compared to the amount of carbon it replaces in fossil fuels. The industry responded swiftly. In a letter published in The Washington Post, Dinneen called the editorial misleading and pointed out that it offered readers no alternative to ethanol. “Calling for an end to tax credits for ethanol while ignoring the billions of dollars of tax subsidies for Big Oil is as inequitable as it is shortsighted,” he wrote.

Pomeroy has heard plenty of ethanol backlash too. “The past few years, ethanol has lost a lot of public support, at least in the halls

of Congress,” he says. “I don’t fully understand why.” Although ethanol was not the cause for increased food prices, reshaping opinion has been difficult. And, unfortunately, many environmentalists continue to use flawed science to tear down the fuel. “I don’t have an understanding of what their end game is,” he adds. “I guess they’d put us all on bicycles and call it a day.”

Ethanol, as many industry supporters are fond of repeating, is here today. Production is over 10 billion gallons yearly and continues to increase, cutting a chunk out of the amount of fossil fuel the U.S. imports from the Middle East. It’s created 119,000 direct and indirect jobs. “Ethanol is a success story,” Pomeroy says.

“In the early years we had to justify ethanol based on theory, now the evidence is in, and it is working in a big way.” EP Holly Jessen is associate editor of Ethanol Producer Magazine. Reach her at (701) 738-4946 or hjessen@bbiinternational.com.

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PROFILE

Fueling a

New Market A mid-Atlantic company may have developed a solution for two of ethanol producersâ&#x20AC;&#x2122; main problems: natural gas usage and how to increase demand for their product.

By Kris Bevill

PHOTO: LPP COMBUSTION LCC

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hances are that if ethanol producers had to name one operational cost they wish they could reduce or eliminate entirely, the unanimous answer would be “natural gas.”

According to this year’s Christianson & Associates PLLP biofuels benchmarking report, 92 percent of non-electrical energy consumed by plants participating in the survey is natural gas. It is the most expensive input in ethanol production after corn and because of this, ongoing research is being conducted to find sustainable replacements for natural gas in the ethanol industry.

LPP Combustion LLC may have the answer to the ethanol industry’s search. The Columbia, Md.-based technology company has developed a system that can convert ethanol and other liquid fuels into a natural gas substitute, which can then be used in gas turbines and boilers in a number of industries.

Leo Eskin, president and chief operating officer of LPP Combustion, describes his company’s technology as being a fairly basic conversion process. “What it does is it changes liquid fuels into a type of gas called LPP [lean, pre-mixed, pre-vaporized] gas. The way we do that is simply by heating the liquid and combining it with a background diluents— we use nitrogen from the air—and, basically, we dilute the liquid vapor down. The LPP gas looks and acts just like natural gas and can be burned in hardware and burners that are designed for natural gas.”

Benefits of Burning Ethanol This technology could provide a boost for ethanol producers on two fronts: it provides a new use for their biofuel while simultaneously reducing their need for natural gas.

LPP leaders saw the opportunity for ethanol producers early on in their development pro-

cess. So far, however, they have struggled to sign up multiple ethanol producers for the system. “It came to mind to our group that these guys are using power off the grid or natural gas or other fossil fuels and they’re trying to be a ‘green’ facility,” Eskin says.

“We’ve tried to approach them to see if there might be an opportunity, but the market has been challenged. There hasn’t been a lot of new construction recently and they’re pretty tight on cash [so] we haven’t been able to take that forward as quickly as I had hoped.”

Financing issues may be preventing a widespread launch of LPP technology at ethanol plants, but it hasn’t been a total shutout. Caseus Energy and its subsidiary, Dubay Biofuel-Greenwood LLC, are very interested in the possibilities of utilizing LPP’s technology. Caseus Energy has been sending ethanol samples from the Dubay Biofuel demonstration-scale, cheese whey-to-ethanol facility in Wisconsin to LPP to determine “basically, how much green electricity we can produce from our ethanol and which form of ethanol should be used to produce maximum electricity,” says Eduard Zaydman, Caseus Energy’s business development and marketing manager. Caseus Energy is constructing a commercial-scale facility near its demonstration plant and plans to bring it online in 2011, possibly with LPP equipment installed. Zaydman says engineers from both companies are collaborating to determine if and how the equipment will work at that facility. “Once we finalize the tests and know exactly how much ethanol [is needed], we can deploy that system,” he says. “We’re definitely interested in that.”

Ideally, Caseus Energy would employ LPP technology to utilize the over-capacity ethanol produced at the plant. “For example, if our plant produces 3 million gallons of

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LPP Combustion LLC's technology converts any number of liquid fuels into natural gas substitute.

ILLUSTRATION: LPP COMBUSTION LLC

ETHANOL PRODUCER MAGAZINE

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PROFILE

ethanol a year and we can produce, let’s say, three and a half, we can use that half a million gallons a year towards electricity production,” Zaydman says. “So we’ll use electricity generally in the plant, saving some money and capturing green credits.”

Green Electricity Eskin says the opportunity for users to reduce their emissions is an important benefit of LPP’s technology, adding that, depending on the feedstock used to produce the biodiesel/ethanol, the LPP gas could be CO2 neutral. “The work that we’ve done with a small gas turbine actually showed that the biofuels burned had lower emissions of CO [carbon monoxide] than even natural gas,” he says.

“These small industrial settings put out a fair bit of CO2. A 10 or 25 megawatt gas turbine is probably one of their main sources of CO2 emissions, so [they] can make a great savings in CO2 emissions all at one time.”

In addition to the Wisconsin plant, Caseus Energy is pursuing projects in South America and Europe, where producing ethanol for clean energy generation is a bigger attraction than using it for transportation fuel.

According to Zaydman, areas where cap and trade programs are in place have greater demands for clean electricity and, in general,

ethanol as a transportation fuel is not as popular in those areas as it is in the U.S. “They are really interested in producing electricity only,” he says. “We have developments going on right now in Argentina, we’re cooperating with Brazil, we’ll have a project in Italy, and we’re hoping to deploy LPP technology in those places.” Caseus Energy will use its whey-to-ethanol technology to produce ethanol for all of the projects. Zaydman says Italy is the largest of the three proposed projects and therefore may also produce some ethanol for transportation.

Another reason to produce ethanol for electricity generation, according to Zaydman, is that a lower grade of alcohol can be used, which reduces the amount of costly equipment needed at the production facility. Eskin says LPP has tested the technology with a range of fuels and found that it works well even when low-grade fuels are used. “We’re very actively pursuing all of these opportunities for low-grade fuels, like the water in the ethanol or liquid natural gas condensates— things that are normally thrown away or flared because they can’t sell them—we’re looking to turn those into a natural gas replacement and create electricity with them,” Eskin says. “For example, we’ve tested ethanol with a very substantial amount of water in the ethanol.

Air Separation Unit

LPP Combustion LLC's equipment is skid-based and is approximately one-sixth the size of an industrial-scale gas turbine, according to the company.

ILLUSTRATION: LPP COMBUSTION LLC

ETHANOL PRODUCER MAGAZINE

September 2010

PROFILE

We can burn with the 5 percent, weâ&#x20AC;&#x2122;ve actually burned ethanol with significantly more water than 5 percent, more than 20 to 25 percent water.â&#x20AC;?

Eskin says LPPâ&#x20AC;&#x2122;s technology costs approximately 10 cents per gallon so the cost comparison between LPP gas and natural gas relies heavily on the cost of the liquid fuel used. â&#x20AC;&#x153;Itâ&#x20AC;&#x2122;s not a large cost of conversion,â&#x20AC;? he says. â&#x20AC;&#x153;Thatâ&#x20AC;&#x2122;s why itâ&#x20AC;&#x2122;s very important that we donâ&#x20AC;&#x2122;t need transportation-grade.â&#x20AC;?

The equipment used in the system is skidbased and is not largeâ&#x20AC;&#x201D;between one-sixth and one-fifth the size of an industrial-scale

gas turbine according to Eskin. The system can be installed during new construction or as a retrofit. â&#x20AC;&#x153;Our piece of equipment goes just upstream from where the natural gas comes in,â&#x20AC;? Eskin explains. â&#x20AC;&#x153;The liquid fuel storage tanks or pipeline would come in to our skidbased piece of equipment. We try to do the vaporization fairly close to the combustion device because we have to keep the piping hot enough to make sure the liquid stays in the gaseous form. The liquid goes in one side and hot LPP gas comes out a pipe on the other side and gets piped into whatever the piece of equipment is.â&#x20AC;?

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New Market Possibilities While many ethanol producers may not be in the financial position to install LPPâ&#x20AC;&#x2122;s technology at their own plants, they could find a market in supplying fuel to other facilities that are able to utilize the substitute natural gas. â&#x20AC;&#x153;One of the types of groups that weâ&#x20AC;&#x2122;re actively partnering with is fuel suppliers, because theyâ&#x20AC;&#x2122;re the ones that have the ability to produce liquid fuel at a reduced grade,â&#x20AC;? Eskin says.

According to Eskinâ&#x20AC;&#x2122;s estimates, a massive amount of ethanol would be required to operate a commercial-scale turbine. â&#x20AC;&#x153;A good rule of thumb is that an 80 megawatt gas turbine would use something on the order of 50 million gallons per year of diesel,â&#x20AC;? he says. â&#x20AC;&#x153;You would use almost twice that amount of ethanol. Thatâ&#x20AC;&#x2122;s actually a good thing in many respects because now youâ&#x20AC;&#x2122;ve got a guaranteed offtake for these clients.â&#x20AC;?

While LPPâ&#x20AC;&#x2122;s technology is fuel agnostic, users need to determine if they are going to use ethanol or other fuels before installing the system. Because ethanol has a lower Btu content than biodiesel and requires more fuel, the pipe sizes need to be larger for ethanol-fueled systems and more heat would be required to gasify the ethanol. â&#x20AC;&#x153;It would be hard to transition from diesel fuel to ethanol,â&#x20AC;? Eskin admits. â&#x20AC;&#x153;If you knew you wanted to use ethanol, you would make sure that you designed for the heaters and things to be properly sized for the ethanol requirements.â&#x20AC;?

LPP is currently operating a 30 kilowatt Capstone gas turbine at its demonstrationscale facility in Columbia, Md., and Eskin says the company is developing several industrialand utility-scale projects throughout the U.S. â&#x20AC;&#x153;Utilities tend to be slow to make decisions, so weâ&#x20AC;&#x2122;re certainly in discussions with utilities but our expectation is that other smaller opportunities will come to pass more quickly,â&#x20AC;? he says. â&#x20AC;&#x153;There are over 300 university presidents that have made announcements that they plan to reduce their carbon footprints significantly, and many of these universities tend to have 10 to 20 megawatt gas turbines. Those are very good opportunities for us.â&#x20AC;? EP Kris Bevill is an associate editor at Ethanol Producer Magazine. Reach her at kbevill@ bbiinternational.com or (701) 850-2553.

ETHANOL PRODUCER MAGAZINE

September 2010

RFA

The voice of the ethanol industry.

Since 1981, the Renewable Fuels Association (RFA) has been the authoritative voice of the ethanol industry. Our efforts have yielded an unequaled record of legislative and regulatory victories. But we consider our track record just the beginning, and are expanding our efforts with a focus on market development.

The RFA is a trusted source for reliable LQIRUPDWLRQ DQG VFLHQWLĂ&#x20AC;F DQDO\VLV IRU the industry, policymakers, and media alike. The RFA is the leading expert on ethanol standards and guidelines for safety. We are also the preeminent authority on E10 and E85.

The RFA is a member-centered, member-driven organization. Join with us to help build a strong future for the industry. For more information, visit www.ethanolrfa.org, or call (202) 289-3835.

Renewable Fuels Association, One Massachusetts Avenue NW - Suite 820 - Washington, DC 20001 - (202) 289-3835.

CARBON DIOXIDE. BY SAM RUSHING Contribution

CO2 Increasingly Important to Ethanol Carbon dioxide must be properly developed economically in order to yield the greatest return, while the implications for an ever-warming globe and the ultimate reduction of greenhouse gas emissions must also be considered.

CO2 is a friend and foe of the ethanol industry. The friend, of course, is the increasingly important byproduct providing a revenue stream. As an environmental foe, the greenhouse gas is somewhat of a Pandora’s box and a daunting challenge to reduce and control. By some estimates, more than 75 million metric tons of CO2 are emitted globally each day; with perhaps one-third absorbed by natural oceanic activity and photosynthesis. This leaves more than 50 million tons of CO2 being

emitted each day, with a negligible global effort to stem the tide. While an increase in average world temperatures of 2 degrees Fahrenheit may seem modest, it may well result in a major loss of species, habitats—both human and animal—and a change in the world as we know it.

Markets, Old and New CO2 markets are often referred to as captive, niche, merchant and sequestration.

A captive market would be an enhanced oil recovery project

(EOR), or series of projects served by one or more sources, typically via pipeline due to size.

One such project is the Dakota Gasification project in Beulah, N.D., which supplies the Encana and Apache EOR projects in Saskatchewan with up to 10,000 tons of crude CO2 daily from coal gasification. Other examples would be carbon dioxide for chemical production of sodium bicarbonate, methanol or urea.

An example of a niche market is a group of large poultry processors that use hundreds of tons

of CO2 daily for cryogenic freezing and refrigeration.

About 40 percent of the North American merchant market for CO2 is sourced from ethanol plants. This sector includes all forms of CO2 sold to industry— liquid being the primary form, followed by dry ice. These markets include the manufacturing of soft drinks, beer and frozen foods, and multiple industrial uses such as grain fumigation, pH reduction of municipal water and effluent, welding, metallurgy, rubber manufacturing and chemical

The claims and statements made in this article belong exclusively to the author(s) and do not necessarily reflect the views of Ethanol Producer Magazine or its advertisers. All questions pertaining to this article should be directed to the author(s).

60

ETHANOL PRODUCER MAGAZINE

September 2010

production, to name a few. Food and beverage uses require high purity, driven by the standards of the International Society of Beverage Technologists.

Ethanol’s CO2 market share is likely to grow, despite the recent ethanol industry upset and lingering recession. The lion’s share of recent source agreements involve ethanol, primarily due to the cost effectiveness of ethanol-sourced CO2. Other major sources include natural wells and anhydrous ammonia production. Anhydrous ammonia sources almost disappeared when natural gas prices approached $10 per million Btu. Natural well sources also have their problems, with a potential for contamination with radon gas, sulfur compounds and other organics. Other sources include flue gas and various energy and chemical projects.

In addition to the grain-based ethanol industry, second-generation biofuels promise to become a new carbon dioxide source. A key consideration for the many technologies for cellulosic ethanol under the microscope today, and those that have reached pilot and demonstration phases, is making them competitive with grainbased ethanol. Subsidies will help, as will implementation of energy and/or climate legislation that gives CO2 recovery and sequestration an economic value. We are still some distance away from significant volumes of ethanol and CO2 from cellulosic sources being produced, but in the future, the market will likely be driven by cellulosic, algae and syngas sources for renewable fuels.

Pricing Factors A full understanding of market factors is key in realizing the best possible price for carbon dioxide, with strategic location being top on the list. Many of the strong markets in the U.S. sell for more than $100 per ton to the consuming plant. Since the direct-to-customer market yields the best selling price, it is entirely possible to consider the direct market as the actual customer base for marketing CO2 from a biofuels venture. Should a full evaluation of the markets, requirements, margins, competitors and options show promise compared to selling raw gas to the refiners, then the direct approach would be a fine moneymaking choice for the biofuels producer.

In some cases, however, selling it to the industrial gas companies as a raw gas can be best. Other options can be agreements with distributors of CO2 to the liquid (or dry ice) markets, or joint ventures or other arrangements outside of a long-term raw gas contract.

Utilizing CO2 expertise for the evaluation of markets, process requirements, costs and allied information, can help identify the best available options to the ethanol project to maximize revenues and reduce risk.

The Midwest is currently well supplied with merchant CO2, although there still may be profitable niche markets in this rather large geographical region. Other regions requiring strategically located new CO2 sources include the Northeast, mid-Atlantic, Florida, Northwest, and certain areas of the Southeast, Midsouth, West Coast and Southwest. Canadian regional markets have their own

ETHANOL PRODUCER MAGAZINE

September 2010

source requirements, along with different merchant gas operating philosophies.

Gas companies contracting for raw CO2 have traditionally been considered the base market for ethanol plants capturing and selling the gas, yet the negotiated prices are often fully inadequate in these raw-CO2 sales arrangements. An industry expert can often negotiate the best arrangement on behalf of the ethanol producer, and in some specific situations CO2 can be sold directly to a niche customer at a greater value. While only some ethanol plants supply the direct merchant markets, there are good opportunities in select regional markets and markets with the right combination of price, market content and competition. Proper investigation, evaluation and development of CO2 markets are crucial to the long term health of the ethanol producer. A dollar or two more per ton from the CO2 revenue stream can represent millions of dollars of revenue lost over the years if due diligence and the proper evaluation and development of the markets were not achieved.

Environmental Incentives Overshadowing the sale of carbon dioxide are the environmental factors and the prospect for regulation. The final structure of policy incentives to deal with the environmental impact of CO2 is still unknown at this time. Environmental and energy bills are not moving along through the U.S. Senate, but have, at least, made progress in the House of Representatives. It is inevitable that

greenhouse gas (GHG) legislation in some form will be passed. The how and when of serious GHG reduction efforts won’t be solely driven by politics—big business will have a role, too. The electric power sector is the worst GHG offender, for example, with CO2 comprising the largest volume in emissions followed by methane.

Ultimately, sequestration will take a greater role in reducing GHG emissions. Several promising technologies are being investigated, including growing algae with CO2, sunlight, water and nutrients with a goal of creating biofuels from the algae oil and biomass. Another means of sequestering carbon is to inject CO2 into aquifers or other geological formations. Other technologies under development incorporate CO2 into new products, such as fuels or plastics. These processes convert CO2 into a form that cannot enter the atmosphere again, unless the manufactured product decomposes or is changed significantly.

In the end, carbon dioxide is a friend and a foe, and it must be properly developed in economic terms in order to yield the greatest bang for the buck as a friend.

As a foe, we need to consider all of the implications with respect to an ever-warming globe, and ultimately a reduction of carbon dioxide emissions. EP Sam A. Rushing is president of Advanced Cryogenics, Ltd., a chemist and a CO2 consultant.

Reach him at 305-852-2597 or rushing@terranova.net; www. carbondioxideconsultants.com

61

EPM MARKETPLACE Associations/Organizations Growth Energy 202-545-4000

www.growthenergy.org

Clean Cities

Premium Plant Services, Inc. 888-549-1869 www.premiumplantservices.com

Fans Hydro-Klean, Inc. 515-283-0500

Red River Valley Clean Cities 651-227-8014 www.CleanAirChoice.org Twin Cities Clean Cities Coalition 651-223-9568 www.CleanAirChoice.org

Premium Plant Services, Inc. 888-549-1869 www.premiumplantservices.com

Filter Media Hydro-Klean, Inc. 515-283-0500

Chemicals

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Anti-Microbial Ferm Solutions 859-402-8707

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Desiccant Interra Global 847-292-8600

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Enzymes CTE Global, Inc. 847-564-5770

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Novozymes 919-494-3101

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Yeast Ferm Solutions 859-402-8707

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Martrex,Inc. 952-933-5000 Ext 18

Hydro-Klean, Inc. 515-283-0500

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Railcar Spill Response

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Hydro-Klean, Inc. 515-283-0500

Dryer Systems Hydro-Klean, Inc. 515-283-0500

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Premium Plant Services, Inc. 888-549-1869 www.premiumplantservices.com Seneca Companies 800-369-5500

Seneca Companies 800-369-5500

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Hydro-Klean, Inc. 515-283-0500

Seneca Companies 800-369-5500

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Hydro-Klean, Inc. 515-283-0500

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Tank Cleaning Equipment www.hydro-klean.com www.senecaco.com

Evaporators Hydro-Klean, Inc. 515-283-0500 62

www.hydro-klean.com

Smoke Stack

Emergency Spill Response Hydro-Klean, Inc. 515-283-0500

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Scrubbers Hydro-Klean, Inc. 515-283-0500

Ductwork

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Railcars Hydro-Klean, Inc. 515-283-0500

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Cloud/Sellers Cleaning Systems 800-234-5650 www.sellersclean.com

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September 2010

EPM MARKETPLACE J.C. Ramsdell Enviro Services, Inc. 877-658-5571 www.jcramsdell.com

Tank Cleaning Services Hydro-Klean, Inc. 515-283-0500 Seneca Companies 800-369-5500

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Design/Build

Westmor Industries 320-589-2100

www.westmor.biz

Consulting Environmental

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Aquaterra Environmental Solutions, Inc. 877-913-8200 www.aquaterra-env.com

Andy J.Egan Co. 616-791-9952

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Plant Construction

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Harris Group Inc. 206-494-9422

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ICM, Inc. 877-456-8588

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Harris Group Inc. 206-494-9422

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ICM, Inc. 877-456-8588

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Centrifuges

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Intersystems 800-228-1483

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Biogas Scrubbers

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RenewableEnergy-Careers.com

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Tanks

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Seneca Companies 800-369-5500

Agra Industries, Inc. 715-536-9584

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Process Design

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ETHANOL PRODUCER MAGAZINE

September 2010

www.searchpathofchicago.com

Corn Oil Recovery ICM, Inc. 877-456-8588

www.icminc.com

63

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Total-Yield Diesel from Distillers 402-640-8925 www.total-yield.com

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Perten Instruments, Inc. 801-936-8165

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Distillation Equipment

Molecular Sieves

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Grace Davison Renewable Technologies 410-531-8731 www.gracebiofuels.com

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Buhler Aeroglide 919-851-2000

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Custom Rotary Driers for DDGS & Biomass Feedstocks

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Process Control Harris Group Inc. 206-494-9422

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Productivity Enhancements

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ICM, Inc. 877-456-8588

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PeopleFlo Manufacturing 847-929-4774 www.peopleflo.com

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Quality Kiln and Dryer Inc 318-335-2001 www.qualitykilnanddryer.com

Fermentors WINBCO Tank Company 641-683-1855

Miller Insulation Co., INC 701-297-8813 www.millerinsulation.com

Perten Instruments, Inc. 801-936-8165

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Fluid Engineering 814-453-5014

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ICM, Inc. 877-456-8588

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Millwright www.agraind.com

Instrumentation

64

Sensors

Loading Equipment www.buhlergroup.com/us

Agra Industries, Inc. 715-536-9584

www.perten.com

Laboratory-Equipment www.winbco.com

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Buhler Inc. 763-847-9900

QA Test Products

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www.perten.com ETHANOL PRODUCER MAGAZINE

September 2010

EPM MARKETPLACE Tanks Agra Industries, Inc. 715-536-9584 ATEC Steel 620-856-3488

Thermal Oxidizers

Mergers & Acquisitions Moglia Advisors 847-884-8282

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Legal Services

www.atecsteel.com

Spokane Industries Inc. 509-921-8868 www.spokanemetalproducts.com

PROVEN RELIABILITY for VOC, CO & PM ABATEMENT EISENMANN Corporation Crystal Lake, Illinois 815.455.4100 es.info@eisenmann.com

Attorneys WOHLSIFER & ASSOCIATES, P.A. 850-219-8888 www.wohlsifer.com

Marketing Fuel Ethanol CHS Renewable Fuels 651-355-6271

www.chsinc.com

Miscellaneous Maas Companies 507-424-2640

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Research & Development Engine Testing Roush Industries 734-779-7736

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Transportation Marine

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EPM MARKETPLACE

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Hydro-Klean, Inc. 515-283-0500

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Water Treatment With all contact information placed in one convenient location, Ethanol Producer Magazine not only contains

Finance

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ETHANOL PRODUCER MAGAZINE

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