GM EDITORIAL 27.qxd:Issue 27
20/6/08
17:30
Page 83
acknowledges Ian Waller at FiveBarGate Consultants, an expert on biodiesel and renewable energy. He posits that the image of all bio-fuel producers has been unnecessarily tarnished in the media, with producers using crops being lumped into the same category as those using biomass, algae or other raw material. However, the Renewable Fuels Agency, a UK government body, recently published the Gallagher review on the precise impact of bio-fuel use, which should go a long way in establishing hard facts about the environmental effect of such producers. Choren’s Blades says the Freiberg plant will use around 65,000 tonnes of biomass per year to produce 18m litres of diesel. One third of the raw material will come from waste wood, one third will be recycled wood and one third will be forest residue such as fallen branches. The whole of Choren’s first year production of 18m litres will be bought and distributed by Shell. Shell’s spokesperson Martin von Arronet says his company will evaluate Choren’s efficiency once the production is up and running and before the next plant is built. “You need a good business case in place, that is very important,”von Arronet adds.
Aviation fuel In the future, the real breakthrough for Choren could happen if it cracks the lucrative aviation fuel market. So far, none of the new batch of alternative fuel producers has succeeded in this segment as aviation fuel has very specific requirements. It must stay liquid at low temperatures and have high energy content by volume, for instance. Despite Richard Branson’s brief excursion into palm oil as plane fuel, which has since been abandoned, there is no ‘bio’ equivalent of kerosene, the petroleum-derived fuel currently used by the aviation industry. Blades maintains however that Choren’s fuel could work.“Aviation is waiting with bated breath because this is the only thing that could make them fly more cleanly,”he says, adding that Choren’s main buyer, Shell, already supplies the aviation industry and is talking to a number of companies who are interested in Choren fuel. Shell’s von Arronet says that a team of Shell’s technicians is working on developing new fuels with Choren and that Choren’s patented biomass gasification technology has the potential for aviation application. But actual bio-kerosene is still several years away as the Freiberg plant is currently not configured for this type of fuel. Choren is owned by ten private individuals with minority stakes held byVolkswagen, DaimlerChrysler and Shell.Three principal investors put €180m into the company of which €100m went into the Freiberg plant and €80m was spent on developing technologies and salaries. The initial 18m litres will only be a drop in the ocean of European demand, which is constantly being ramped upwards. According to UK government targets set in 2005, for instance, the UK is obliged to include at least 5% of bio-fuels in transport fuels by 2010, explains the NNFCC. In Europe, this target is at 10% and there are plans for it to be even higher. Choren is banking on higher projected demand and has invested time and effort in developing two large processing
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plants that could produce about 270m litres of bio-fuel per year. Each requires a high level of capital expenditure, requiring investment in excess of €800m.“We are probably beyond the venture capital stage now. We are exploring a number of options,”says Blades.“Raising equity through an IPO could be one of them,” but he acknowledges it is unlikely. He concedes that for the company to go ahead with a listing the Freiberg plant would need to be in full production, and the firm would need to be seen to be making significant progress on engineering a second plant. According to the company’s official statements, a second plant is in the pipeline and will likely be built in Schwedt, a town 80km east of Berlin. Both plans are likely to be achieved by late 2009 or early 2010, Blades estimates. The preferred choice of location for Choren’s third plant, however, is not Europe but the US where the company can get hold of much cheaper biomass—estimated at one quarter of the price in Germany—and where the US Department of Energy offers to guarantee 90% of a loan needed to build it. The location will likely be somewhere in the Southern states, says Blades.“The US is very proactive on such projects particularly on the loan front and if things are agreed they tend to move quicker than in Europe,” he explains, adding that getting government approval in Germany took 20 months. Family homes in the US are mainly built of wood which, when houses are demolished, ends up in landfills. If the landfill is within city limits the wood cannot be burned because it affects air quality. However, Choren’s gasification process can convert wood into synthetic gas and use it either to drive engines or power a turbine and produce electricity. The US produces 60m tons of waste wood a year that could create 12m tons of fuel. On top of that Choren’s technology can use hurricane waste wood, which also ends up in landfills.“The idea is to close the loop [on waste],”says Blades. Plymouth-born Blades, who has over 20 years of experience in the oil and gas upstream industry and has worked in the Middle East, Nigeria, Borneo and Texas, says that when he got the call to join Choren and when a former colleague explained what the company did, “I was caught hook, line and sinker. I was fascinated by the idea of producing something superior. I thought it would be a challenge not to build a new company but to build a whole new industry,”Blades says. Whether he made the right move or not is moot. If high oil prices persist, and analysts are currently calling possible prices as high as $200 a barrel, explaining that supply tightness is likely to persist for years, there will be increasing calls for cheaper alternatives. However, if oil prices turn, the environment will become harder for bio-fuel producers as their product will have to compete with regular oil. In either case, Choren is in a fairly good position with production on line several years ahead of nearest competitors. Should prices turn, which seems unlikely in the immediate future, by that stage Choren should have the economies of scale to see them through any downturn. Even with that outcome, calls for cleaner fuels are not likely to abate.
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