While many are breathlessly waiting for liquefied natural gas (LNG) exports from the United States to begin in 2015, there’s a natural gas export boom already happening right under the noses of most investors. I’m talking about rapidly growing gas exports from the United States to our southern neighbor, Mexico. LNG exports, which are travelling via pipeline, are at their highest levels ever and growing.
For ethanol it is the best and worst of times. Silos are bursting with a bumper crop and the price of corn has fallen by half, from $7 to $3.50 a bushel over the past year. Refiners are buying feedstock at rock-bottom prices.
“This is the most profitable time I can remember,” Dan Syekh, plant manager at Southwest Iowa Renewable Energy of Council Bluffs, told the Lexington Clipper-Herald of Nebraska. “People are beginning to pay off debt and invest in ever more advanced technologies.”
Yet hanging over all this is the question of what the U.S. Environmental Protection Agency will do about the Renewable Fuel Standard, which specifies how much ethanol the refining industry must buy next year.
“I feel like [the EPA is] playing politics instead of doing what’s right for America,” Iowa Gov. Terry Bradshaw told a Farm Progress Show in Boone last week. “Farmers aren’t buying equipment and John Deere is laying people off. What EPA has done is not only damage farm income but cost us jobs in farm machinery and manufacturing.”
At issue is the EPA’s announcement last spring that it would cut the mandate from the 14.4 billion gallons, originally required by the law, to 13.01 billion gallons, in order to deal with overproduction. With gasoline consumption having fallen since 2007, although numbers are now starting to rise again, the federal requirement had pushed ethanol additives past the 1 percent “blend wall,” where auto and oil companies claim it will damage engines. Many people dispute this but the auto companies are refusing to honor warranties in cars that use blends higher than 10 percent without authorization. Others say the solution is E85 — a blend of 85 percent ethanol and 15 percent gasoline — is the answer but it is not yet widely available outside the Midwest.
The EPA was supposed to make a decision on the mandate last November but has delayed after the furor over its initial proposal. Only last week it sent a final proposal to the White House for review. Rumors are that the EPA has settled on a figure somewhere between the original mandate and its April number, but there is nothing definite. In any case, the Obama administration could take several weeks to approve, even pushing its verdict past the November elections. This is the longest delay in the program’s history.
For several years now the ethanol industry has seen its influence waning in Congress. In 2011, Congress repealed the tariff on foreign biofuels, opening the door to cheaper sugar ethanol. Then it allowed a production tax credit to expire. Perhaps most significant has been the loss of support from large portions of the environmental community. Last year the Associated Press ran a story documenting how the mandate has led to over intensive cropping and the removal of land from conservation soil banks. “Corn ethanol’s brand has been seriously dented in the last 18 months,” Craig Cox, director of the Environmental Working Group in Ames, Iowa, told Politico. “The industry is still politically very well connected but it doesn’t occupy the same pedestal it did two years ago.”
Yet oddly enough, all this is happening at the moment when the industry may be on the verge of a huge breakthrough. On September 3, POET, the South Dakota refiner of ethanol, and Royal DSM, a Dutch maker of enzymes, will hold opening day ceremonies in Emmetsburg, Iowa for the inauguration of what could be the country’s first cellulosic ethanol plant — long considered the holy grail of biofuels. King William-Alexander of the Netherlands is scheduled to be in attendance.
Cellulosic ethanol uses the non-grain parts of the corn plant — the shucks and stalks that cannot be eaten. By cultivating certain enzymes and bacteria from the stomach of cows and other ruminants, several companies now believe they are able to break down the starches in these plant “wastes” and turn them into fuel. Various inventors have made the same claim over the years but have never been able to achieve cellulosic digestion at a commercial level. Now it appears POET may be about to break the barrier.
They aren’t the only ones. In fact, there is now $1 billion worth of cellulosic ethanol investments in the Midwest about to bear fruit:
Should any of these plants succeed, it would change the face of the industry.
So ethanol finds itself in a very strange position. Just as it may be on the verge of a huge breakthrough in production, it finds its markets drying up. Several Midwestern agricultural professors have suggested that the real solution is E85, which readily substitutes for gasoline and would create an almost unlimited demand. There are 15.5 million flex-fuel vehicles on the road — 6 percent of the entire fleet — all of which accept E85. There are also 3,200 gas stations that dispense it. But there is a huge mismatch between them. Most of the stations are in the Midwest where support for ethanol is strong while the flex-fuel vehicles are concentrated in cities on the East and West Coasts. So far no one has come up with a solution for making a better match.
There remains one potential market, however, that could tide over the ethanol industry until better auto markets develop. This is the U.S. Navy. The Department of Defense burns 300,000 barrels of oil a day, 2 percent of national consumption. For some time the Navy has been trying to find “drop-in” biofuels that would substitute for imported oil in jets and other vehicles. This year, for the first time, the Navy will include biofuels in its annual procurements. It is trying to get 50 percent of its fuels from renewable resources by 2020. “Up in the air you don’t have any other choice but liquid fuels,” said Tyler Wallace, professor of agricultural economics at Purdue. “The U.S. uses 21 billion gallons of aviation fuel annually and cellulosic ethanol would make a perfect drop-in.”
So would a huge order from the Navy be able to galvanize an infant cellulosic industry? Or will ethanol have to continue to holds its breath waiting for a decision on the Renewable Fuel Mandate from the White House and the EPA? For the industry, it remains the best and worst of times.
France currently grants new car buyers a credit of 6,300 euros ($8,400) if they purchase an electric vehicle. But if a new bill submitted to Parliament by France’s Minister for Ecology, Sustainable Development and Energy is approved, customers will be eligible for an additional bonus of 10,000 euros if they switch from a diesel powered vehicle to an electric one. That’s a total of 16,300 Euros or about $22,000.
China is considering a massive government program to build more charging stations for electric vehicles and boost demand for the eco-friendly cars. The policy, which could provide as much as 100 billion yuan ($16 billion) in funding, will be announced soon, two people familiar with the matter told Bloomberg News this week.
The Galveston County Economic Alliance announced on Tuesday that Fund Connell USA Energy and Chemical Investment Corp. is exploring plans to build a large methanol production and export facility at Shoal Point, Texas City.
Kansas City is now home to the largest fast-fill compressed natural gas facility in Missouri.
Simple-Fill Inc., which is developing technology to allow vehicles running on compressed natural gas to fill up at home, has raised $170,000 through convertible notes offered to three investors, the company disclosed in a Securities and Exchange Commission filing.
In the early 1990s, California tried to force the introduction of electric cars by requiring that auto companies produce a zero-emissions vehicle in order to remain in the state. The result was Chevrolet’s EV1, which everyone agreed was the best electrical vehicle that could be built at the time. Owners loved them, but somehow the effort didn’t take off.
The infrastructure simply wasn’t in place. The car only had a 70-mile range and drivers spent much of their time worrying about their next charge. Many EV1s ended up on the lots of rental agencies where they attracted little attention. All this, of course, was interpreted by some people as the fault of the oil companies and the auto industry, which didn’t push the case hard enough. The award-winning documentary “Who Killed the Electric Car?” made this argument.
Then three years later, Toyota introduced the Prius, a gas-electric hybrid that gave drivers some breathing room. It was a spectacular success. By not trying to make the technological transition in one giant leap, the Prius introduced drivers to the advantages of electric propulsion without asking them to sacrifice anything in terms of a nerve-wracking search for a refill. In fact, when Toyota brought out the Prius it deliberately left off a home charger so that buyers would not associate it with the failed EV1. Not until several years later did the company release a plug-in hybrid. In both cases, the Prius has been the most successful of all hybrids.
Natural gas vehicles seem determined to avoid the same mistake. This year both Ford and General Motors are releasing commercial NGVs in their light-truck and sedan lines. But they are taking care to make them bi-fuel vehicles that run on both gasoline and natural gas, although they are expensive. (Both companies have been making tri-fuel — gasoline, ethanol and CNG — for many years in Brazil.) First out of the box will be the immensely popular Chevrolet Silverado and the GMC Sierra, both full-sized pickups that sold 480,000 and 184,000 last year, respectively, the highest sales mark since 2007. GM is offering bi-fuel versions for every cabin configuration. The 2015 model will offer a 16-gallon gasoline tank and a 17-gallon-equivalent compressed natural gas tank. When both are filled, the truck will have a remarkable range of 650 miles.
Along with that, GM will be releasing a bi-fuel Chevrolet Impala to introduce ordinary drivers to the advantages of natural gas. The Impala will feature an 18.5-gallon gasoline tank and a 7.7-GGE CNG tank. The result will be a 500-mile range.
Not to be outdone, Ford has already introduced a bi-fuel version of the immensely successful F-150 half-ton pickup truck. Released only last November, the company managed to sell 15,000 vehicles across eight models in 2013. That beat 2012 sales by 25 percent. When combined with its conventional gas tank, the CNG boost gives the F-150 an astounding 700-mile range, beating the Silverado by 100 miles. Unfortunately, the price differential for all these NGV models will be about $10,000.
But motorists could see a 2-3-year payback if the price gap between gasoline and its natural gas equivalent holds up. Right now it has settled around $1.50 gap per gallon and has remained there for almost five years. Give motorists the opportunity to save almost half the price on a gallon of gas is bound to make the new bi-fuel models more attractive.
Other developments are also moving in the direction of a transition to natural gas for high mileage vehicles. In 2012, ARPA-E, the federal government’s program for advanced energy research, awarded $2.3 million to GE Global Research, Chart Industries and the University of Missouri to design a gas refueling station for homeowners. GE already makes a $5,000 medium-sized refueling kit for commercial businesses called “CNG in a Box” that takes gas out of the utility pipes and compresses it for fleet vehicles. The target price for the scaled-down homeowner version is $500. The consortium has set a release date for later this year, at which point we’ll find out if they’ve been successful. The launching of such a cheap conversion system that would allow homeowners to tap the natural gas pipes in their house to refuel their cars would revolutionize the whole NGV effort.
Of course there’s always another possibility — converting our abundant natural gas supplies to ethanol or methanol that would fit right into our current gasoline delivery system. Switching to liquids would not require a new on-board gas tank but would simply involve adjusting existing engines so they could run on a variety of liquids — the “flex-fuel” system. Giving motorists the widest variety of choices would let them experiment with different strategies without having to make a giant leap over some technological chasm. That’s what California learned twenty years ago when it tried to rush the introduction of the electric car and the lesson still holds good today.
In the US, ethanol production averaged 937,000 barrels per day for the week before last, or 39.35 million gallons daily, up 6,000 b/d from the week before.
The Southeast Alternative Fuel Conference & Expo is set for Oct. 22-24 at the Raleigh Convention Center in Raleigh, NC. Hosted by the N.C. Clean Energy Technology Center, the event will feature plenary and breakout sessions with national and regional leaders.
