21 March 2014 10:03 [Source: ICB]
The US ethanol industry will increasingly rely on foreign markets as it struggles with slow domestic growth. Several trends are holding back consumption. The US has hit the so-called blend wall, which effectively caps ethanol blend rates at 10%. Once rates exceed 10%, many US automobiles cannot burn the fuel safely.
US regulators have recognised this fact and, for the first time, the Environmental Protection Agency (EPA) has proposed scaling back the nation’s ethanol blending mandate to 15.2bn gallons (57.5m litres) in 2014 from the earlier goal of 18bn gal.
For ethanol produced from corn, that would lower the blending mandate to 13.0bn gal from 14.4bn gal, according to the Renewable Fuels Association (RFA), a trade group that represents ethanol producers. The EPA has proposed lowering the mandate because fuel consumption has fallen well below the forecasts that lawmakers made in 2007, when they established the original target for 2014.
The US can not meet its blending mandate without putting more ethanol in gasolene than some vehicles can safely burn
Given the current state of the nation’s fuel distribution infrastructure, as well as demand for ethanol, it is difficult to see how the US could maintain the earlier mandated volumes and blend 14.4bn gal of corn-based ethanol in 2014.
That much ethanol would likely break the 10% blend wall, given that 2014 gasoline consumption is predicted to be 8.78m bbl/day − or 134.6bn gal for the year. Additional ethanol from advanced and cellulosic sources would increase concentrations further, either bringing the US right at the blend wall or breaking it.
To successfully break the 10% blend wall, drivers would have to own vehicles that can consume fuels with higher concentrations of ethanol. In addition, they would have to find fuelling stations that sell those higher blends.
In addition to blends of 10% ethanol (E10), US regulations also allow blends of 85% ethanol (E85) and a new blend of 15% ethanol (E15). In 2012, the EPA approved the E15 blends for vehicles made in 2001 and later. However, several groups warned that many vehicles were not designed with E15 in mind. If drivers put E15 fuel in these vehicles, automakers warned that they could void warranties.
In fact, the E15 blend was unsuccessfully challenged in court by the Alliance of Automobile Manufacturers, a trade group that represents auto makers. The alliance is still urging drivers to follow the advice of their owners manuals − and not the EPA − in determining whether they should put E15 into their vehicles. This would exclude most vehicles made before 2012.
AAA, a group that represents drivers, warned members in 2012 not to use E15, a warning that still stands, says Michael Green, AAA spokesman. “For the most part, people do not have cars that can use it,” he adds. Even if more people did drive E15 vehicles, they would have a hard time finding the fuel. That is because the US has only 59 stations that sell it, according to the RFA.
Regarding E85, there are just 2,391 stations that sell it, according to the US Department of Energy. That is in a country that has about 160,000 retail gasoline stations, according to the EIA, which quoted figures from the fuel-retailer trade journal NPN.
The automobiles that can burn E85 are called flexible fuel vehicles (FFV) because they can also use gasoline. The number of such flex-fuel vehicles is relatively small, at 16m, according to the RFA. That compares with a light-vehicle fleet that numbered 203.2m in 2011, the most recent statistic available from the US Department of Transportation.
FLEX-FUEL NO LONGER ATTRACTIVE
Flex-fuel capability is not a top priority among buyers, explains Sharon Basel, spokeswoman for General Motors (GM), which built the majority of the flex-fuel vehicles driven in the US. Instead of E85 compatibility, fuel efficiency and safety rank near the top, along with features such as connectivity and entertainment systems, Basel says.
Automobile producers themselves may have even fewer incentives to make the vehicles. New regulations are phasing out the favourable credits that companies received for making flex-fuel vehicles. As a result, the EIA expects that flexible-fuel vehicles will make up just 11% of all vehicle sales by 2040.
In the past, the ethanol industry could rely on overall growth in US fuel consumption, which would increase demand for renewable fuel. That growth ended with the financial crisis and with a fundamental shift among driving habits and automobile preferences. US motorists are now buying smaller vehicles and driving fewer miles, causing overall fuel demand to decline.
The EIA predicts that US gasoline consumption will reach 8.78m bbl/day in 2014, down from 8.79m bbl/day for 2013. Both figures are far from the 9.29m bbl/day record set in 2007.
Longer term, the outlook for fuel consumption will worsen for the ethanol products if the US successfully implements stricter fuel-efficiency standards, called the corporate average fuel economy (CAFE). For passenger cars and light trucks, fuel efficiency standards will rise from 30.5 miles/gal in 2013 to 35.5 miles/gal in 2016 and 54.5 miles/gal in 2025.
LOW GROWTH LEADS TO EXPORT DRIVE
The stricter fuel-efficiency standards could pose one benefit for the ethanol industry, which could help offset the decline in demand. To meet the higher fuel-efficiency standards, automobile makers could design vehicles with smaller engines. Such engines operate under higher temperature and pressure, which can cause engine knock.
Nonetheless, the ethanol industry is facing dim prospects for growth, according to the EIA. The US will likely consume 1.111 quadrillion BTUs of ethanol in 2015, down from 1.119 quadrillion BTUs expected for 2014. Neither year represents a substantial increase from consumption levels in 2010, which was 1.092 quadrillion BTUs.
To offset flat demand in the US, the ethanol industry is relying on foreign markets. US exports of ethanol had their third-best year in 2013 and prospects could continue to improve as more countries adopt blending mandates and seek low-cost octane boosters.
It is this later reason that made the United Arab Emirates (UAE) the fourth-largest destination of US ethanol in 2013. The country is a distribution hub for the Middle East and the region is finding it more cost effective to import ethanol from the US than to produce octane boosters domestically.
Looking ahead, new technology could lower production costs and improve margins for the industry. Cellulosic ethanol, which for years has been stuck in the development stage, reached commercial scale last year, when INEOS Bio started an 8m gal/year plant in Florida. The plant gasifies biomass to produce carbon monoxide, which is fed to anaerobic bacteria to produce ethanol.
This year could see the start-up of three commercial-scale cellulosic ethanol plants that rely on a different process, which uses enzymes to extract sugar from biomass. The sugar is then used to make ethanol. Abengoa is weeks away from starting up its 25m gal/year ethanol plant in Kansas.
By the end of the second quarter, POET-DSM Advanced Biofuels plans to complete the start-up of its ethanol plant in Iowa, which also has a capacity of 25m gal/year. By the end of this year, DuPont should start operations at a 30m gal/year cellulosic ethanol plant in Iowa. If the technology proves successful, it could provide ethanol producers with a cheap and abundant source of sugar, one that could someday beat corn on cost.
Meanwhile, other new sources of sugar could reach commercial scale. Proterro has started a pilot plant that uses cyanobacteria that consumes carbon dioxide to produce sucrose. If successful, Proterro could set up the units alongside ethanol fermenters, giving the cyanobacteria a concentrated stream of carbon dioxide and producers a cheap source of sugar. Costs for Proterro’s process could be as low as 5 cents/lb.
Renmatix is developing another process that would extract sugar from biomass by using supercritical water. Other companies, too, are developing so-called energy crops that could also be a source of sugar. If successful, these new sources of low-cost sugar could improve profit margins for ethanol prducers.
Companies may choose to use some of this sugar for products other than ethanol. In fact, the renewable industry will need to find new markets if the EIA’s flat forecasts for ethanol demand become true. New fermentation technology could give ethanol producers several alternatives, such as farnesene, succinic acid, isobutanol (IBA), butanediol and acrylic acid.
Companies have already started production for several of these products. In 2013, Myriant started operations at its 30m lb/year (13,608 tonne/year) succinic acid plant in Lake Providence, Louisiana. Gevo is in the midst of commissioning its IBA plant in Luverne, Minnesota. Early last year, Amyris shipped its first truckload of farnesene produced at its Brazilian plant in Brotas, Sao Paulo, and in 2013, Butamax Advanced Biofuels started retrofitting an ethanol plant so it can produce IBA.
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