The Big Biofuels Blog

Robert Gmyrek of PKN Orlen said that one of the keys to biofuel deployment is the cost vs energy balance.

In my opinion we should take the global point of view rather than look at transport and other uses separately.

We can find in many cases that using biofuel for heat or electricity gives much better effect than using in cars.

He went on to say a

Big, big investment is needed to produce 11m tonne biodiesel 9.7m tonne ethanol in 2010 and 11m tonne biodiesel if the EU is going to meet its biofuel targets. This could mean up to 15% of the 103.6m hectares of land covered by the 25 EU states would need to be devoted to growing crops for biofuels.

Turning to the crops used to make biofuels, he said of rapeseed grown in Europe in 2004 38% used for fuel purposes in 2006 60% will be used in fuel production. This change in use could affect the food industry and prices consumers pay.

Gmyrek raised the difficulty of promoting biofuels using taxation.

There are as many tax rates for biofuels as there are countries in the European Union, he said. Speaking in the Q&A session following the first session this morning, Gmyreck said this is the biggest barrier to trade in biofuels within the European Union and tax rates across the union could be harmonised, but it is hard to see this happening quickly.

He was talking at the 2006 European Biofuels Forum organised by the World Refining Association, in Warsaw, Poland.

An interesting morning here, immersed in the world of Biofuels. For me some of the highlights came in the paper by Alexandra Langenheld, from the European Commission, which has admitted that it will miss its own target of ensuring 5.75% of all motor fuel sold in the European Union is biofuel by 2010.

Langenheld, seconded national expert regulatory policy and Promotion of renewable energy said in her presentation that by “2005 biofuels accounted for about 1% of motor fuel.”

Germany led the way, with around 3.8% of its fuel mixture coming from renewable resources, but in six of the 25 member states biofuels accounted for under 0.1% of the fuel mix in these countries.

“The European Union projects that if the current rate of adoption continues, then by 2010 only 4.2% of fuel will be from renewables,” she said.

There's a bit of talk in the corridors about whether there should be some sort of mandatory appraoch to biofuels, or whether it is better to have an obligation... the kind of regulation your teacher enforced by looking over the top of their glasses at you... The arguments for that are along the lines of if you let individual member states of the EU devise their own approaches then the best approach will emerge. Not sure. If you had a minimum level, and a standard for each type of biofuel then you'd be on a level (ish) playing field.

Langenheld also said the European Commission is about to start an internal consultation on certificates for biofuels and their feedstocks that will tell consumers their green credentials.
This looks like a winner to me, if it doesn't either get watered down to a homeopathic prescription or burried altogether.

Langenheld, said consultations with other directorates general in the European Commission on the proposal would start on Friday 25 November and would last for two weeks.

If adopted, the proposal, which calls for certificates to show the green credentials of biofuels could become part of the overarching review of biofuels and the Commissions’ Energy policy which is expected to be adopted on 10 January 2007.

Langenheld, said the proposal is for certificates to cover how producing the biofuel feedstock affects biodiversity, the green house gas emission profile of the biofuel and the type of land which had been used to grow the biofuel feedstock.

It will not discriminate between imports and domestic EU producers and will have to fit into the framework of the WTO, she said.

The 2006 European Biofuels Forum, organised by the World Refining Association, is being held in Warsaw, Poland from 21 to 22 November.

One of the ideas that I liked best this morning came from Pieter Tjan, of the European Petroleum Industry Association (EUROPIA) he suggested that the tax breaks that biofuels attract should depend upon just how green they are.

He said in the European Union the current policy is...

Driving biofuels in the wrong direction. If you absolutely must subsidise biofuels, then give more to the better ones and less to the poorly performing biofuels.

He called for certificates that outline the energy profile, the carbon dioxide emission profile as the basis for deciding the level of subsidy that biofuels should attract.

The 2006 European Biofuels Forum, organised by the World Refining Association, is being held in Warsaw, Poland from 21 to 22 November.

Wow. I was going to apologise for not posting more and sooner from this excellent meeting, but you ever seen a kid in a sweet shop?

I fired off a couple of things yesterday lunchtime from this European Biofuels Forum in Warsaw, but after listening to the papers in the morning I decided on a different approach in the afternoon. So no sneaking back to my room to post, no we were going to mingle…

And after almost 20 years of semi-professional schmoozing I can honestly say that I’ve not often met a nicer bunch of people. Taking the measure of the meeting I think it may be that no-one really has any handle on who’s really important, so no one’s going to cut you dead. Also the crowd reflects the biofuels industry pretty well. Ok, there aren’t any farmers, but there’s pretty much everyone else from engine designers, who are working out where to place their bets, consultants, factory builders, and guys with technology to sell to regulators.

It’s a market for ideas too, there’s no orthodoxy yet… which is a good thing, and possibly a bad thing too…So after a night sleeping on yesterday’s proceedings we’re going to round things up in the next couple of posts.

The 2006 European Biofuels Forum is being held in Warsaw, Poland from 20-21 November and is organised by the World Refining Association.

Biofuels is big and growing, but just how big was brought home to the meeting here yesterday by Michael Liebreich, ceo, New Energy Finance.

In 2005 global investment in clean energy was, by his estimate $48.9bn which includes venture capital/private equity, public markets, corporate R&D, government R&D, asset finance and small scale projects. If you add in M&A deals the total is around $66.2bn.

Ignoring the value of M&A, the total investment represents a 62% increase on 2004 and he estimates that this year, excluding M&A we’re looking at around $63.3bn.

In terms of equity, biofuels raised around $2 bn between the last quarter of 2005 and the third quarter of this year, which is about a third the level of equity generated by solar projects in the same period and well ahead of wind power.

Liebreich says the biggest investors between 2001 and 2006 (excluding Brazil) are ADM ($1.5bn); Abengoa ($679m) and Tereos $281m.

The type of people investing in biofuels is changing and financial investors are suffering a “gold rush mentality” and are confused between project and technology valuations.

Speaking informally to several consultants here they tell of over optimism, interest in potential projects that are badly thought through. Including statements by investors that ‘the US would never let the biofuels sector fail’ and using that as a justification for investing in bioethanol plants. The US may not let the sector fail, but as one delegate pointed out to me, that doesn’t mean that the investor will be able to hold onto the asset if the bank forecloses to get its money out.

Also the possibility of using Jatropha grown on an island off Africa, lacking roads, ports, or people to harvest the product has been floated to several investors. Put like that it doesn’t make me want to sell the house and put all I’ve got into that particular venture. Did many people get really rich in the Yukon or Klondike?

So if a large amount of money is rushing into biofuels, it won’t all be going into the strongest projects… I think I’d like to know what the chances of a shake out in the next couple of years are. Here’s what yesterday afternoon’s panel said:

Liebreich

There won’t be an unmitigated bump in biofuels because the markets are widely differentiated and quite national

Ioannis Kaltsas , senior economist of the European Development bank

Talking about Europe, I think there could be a big bump sooner rather than later. The market needs regulation, it is easy to make biofuels and unless the market is regulated it will get a big surprise

Martin von Lampe, economist with the OECD

There is a lot of political will in the sector in Europe to expect a major bump is too pessimistic

Which is the closest you’ll get from unanimity from two economists and a consultant.

The 2006 European Biofuels Forum is being held in Warsaw, Poland from 20-21 November and is organised by the World Refining Association.

One comment late in the day got me thinking yesterday. A delegate said that at the moment ‘the profit is with the crushers’ this made me realise that there is not much integration in biofuels from the soil to the wheel. And in other industries I’ve written about if integrated players go to the wall, it is not usually because they have charged themselves too much for thief feedstock.

But I have seen plenty of smaller non-integrated players either get bigger and integrated, or get out of markets. Integration can have advantages, the main one being that you can take your profit anywhere along the chain.

So who’s going to be the owners in five years. If I’m still around then, please throw this back in my face, but my guess today is big firms energy firms, possibly a couple of commodity players, ADM, Cargill, Abengoa, and possibly a couple of technology firms or their spin-offs, if they can stretch their business models enough.

The 2006 European Biofuels Forum is being held in Warsaw, Poland from 20-21 November and is organised by the World Refining Association.

I’m not a farmer, which may explain why I was blown away by one statistic from Jeff Oestermann, business development manager of Cargill, who told us that 16 to 18% of the US corn (that’s maize to me) crop is used to make ethanol.

I’m not a farmer, which may explain why I got slightly depressed during Mahon Brennan’s presentation on oil seed rape. At one point he seemed to me to be suggesting that we plant Europe from the Atlantic to the Urals with the stuff. Its bright yellow and it smells. Sorry, it’s the townie in me. I have to say it.

Brennan, an engaging speaker, did go on to explain that because rape is closely related to the weeds which compete with it that it is not a good idea to grow it too often. Otherwise what ever margin rapeseed gives you will be eaten up in crop protection products. If you want to run your UK farm for biofuels, he suggested to me you might want to grow two crops of wheat and then one of rape.

Refining seeds is a pretty tough job. Brennan told me that rape started off at about five feet (1.3m) high and had been successfully shrunk to make it more resistant to the wind. (You can’t combine harvest a crop that is flat to the ground because its blown over). Call me an optimist if you like but I’d hope the shorter variety would put its effort into growing bigger, oilier seeds. Not so there was a bonsai effect where the seeds stayed in proportion to the size of the plant.

But Brennan sees a bright future for the crop in Europe. A lot of his enthusiasm comes from the youth of the crop. Wheat has been farmed for about 5000 years, and has been pretty well optimised. Oilseed rape, though is about 100 years old and we’ve got tools to modify seeds, which weren’t available 5000 years ago.

The 2006 European Biofuels Forum is being held in Warsaw, Poland from 20-21 November and is organised by the World Refining Association.

What do you do if you make biofuels and the monopoly gasoline supplier in your country is not interested in your product? One delegate here has an interesting take on the problem… sell to alternative users. That’s groups like fishermen and farmers and sell them B100. If they like it they’ll find a way to use it in their domestic vehicles too.

The 2006 European Biofuel Forum is organised by the World Refining Association in Warsaw, Poland and concludes today.

Interesting stuff about the new biofuel, biobutanol, from Chris Wilks of BP this afternoon. While he is positioning the product as a direct competitor to ethanol because of its much greater energy density, typically 27MJ/litre compared to 32MJ/l for gasoline and 21 MJ/l for bioethanol, he also seemed to be suggesting that it can be used to mitigate the effects of water absorption by high ethanol blends.

He presented a slide showing that if you add 2% water to blend of 10% ethanol :90% gasoline then most of the ethanol finds its way into the water. Biobutanol, though does not, it stays in the gas when you add water. That’s a good thing. He showed that if you add biobutanol in small quantities to the 10:90 ethanol gas mixture, and mix in water, then the ethanol stays in the gas. This could be helpful if we’re going to be mixing high ethanol blend with straight gasoline in the future. And if it doesn’t take off as a fuel in its own right, there’s a potential future as an additive.

Also, unlike ethanol, biobutanol helps to reduce the vapour pressure of the mixture, making it safer to use.

Biobutanol is being developed in a joint venture between DuPont and BP, and no public decision has been taken on whether to license the technology once it has been proven.

The 2006 European Biofuels Forum, organised by the World Refining Association, is being held in Warsaw. It ends today 22 November 2006.

Bioecon, says it has a silver bullet for converting cellulolsic biomass into useful ethanol or biodiesel starting materials. I can’t say much more than that because Paul O’Connor, the firm’s director did not say much more than that. But his group, which features academics from blue chip universities is looking to trial the process commercially in 2007. O’Connor says the nano-scale catalyst can break down tough bundles of cellulose in the body of plants like switchgrass and waste products such as wood chips fairly quickly and in concentrations that are much higher than enzymes can handle.

The 2006 European Biofuels Forum has just ended and what are my take aways from the meeting?
Delegates want a number of things, whether they are possible is another matter. They feel it is imperative that they get a sensible long term legislative framework that will give them some certainty that the investments they make will be commercially sensible and that will help them to make money and also produce biofuels.
The harder question to answer is the form of legislation. It is pretty certain in some areas that prescription is out at this stage in biofuels development. It would be a mistake to legislate too firmly on the types of technology that should be used. Legislation should be enabling not stifling. Legislators need to be certain about what they are legislating for is it to keep rural jobs or is it to help the environment or is it to stimulate technology?
But there does need to be regulation of the different parts of the biofuel industry in Europe, once again, this should help encourage, rather than stifle innovation, but the current European minimum standards for fuel should be strengthened. It seems to me that it would be best for Europe if this came from the centre. Returning to different fuel standards by country will help no one. Having common standards would help the customers of the biofuels businesses. Engine manufactures, especially want sensible standards that apply across Europe and also want the assurance if they design engines for a fuel it will still be around in 20 or 30 years.
One of the best parts of the meeting for me has been the openness and interest that delegates have shown in each others businesses. I have said before that this is because the industry is fragmented and no-one quite knows who’s really going to be important to them in the future. With age comes maturity, and when the industry grows older it is likely to stratify more, there will be consolidation, prices and margins will fall and there will be shake outs. But until that time comes, let’s enjoy the ride.

American Biodiesel is planning a biodiesel plant in East Toledo, Ohio that will refine soya bean oil and employ 25 people, according to Toledoblade.com.
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I'm going to the inaugural Clean Fuels Finance Forum, in London on 29-30 January, organised by Euromoney Energy Events.

Highlights of the speaker programme for me should include Phil New, Senior Vice President, Global Fuels Management Group BP chairing the session on weather and political risk, the positioning of biofuels.

The third session on commercialising clean fuel technologies will see John Ranieri, general manager Bio-Based Materials at DuPont speaking along with Wolfgang Steiger, head of Group Research at Volkswagen.

Session five on hedging commodities looks interesting, how do you manage the risk posed by fluctuating commodity prices? I hope to find out. Session Six on landmark biofuel deals will also be worth a visit, I hope.

"The next couple of years are going to be difficult transition years, but I believe that markets work well and that a certain number of ethanol plants that are being planned at the moment will not be built,” Thomas Dorr, undersecretary of state, told the first Clean Fuels Finance forum.

He added that the US market for agricultural products was changing from one driven by food and annual feed with the addition of biofules as an outlet for farm products.

Key take aways from the second session at the First Investing in Clean Fuels conference

Sam Coxe, executive vice president of Credit Suisse said
There is no sign of mergers and acquisition activity in the biofuels sector, and there is not great deal of interest from big oil in capacity in the biofuels sector. There are a lot of entrepreneurs with between 1 and 4 plants and there could be economies of scale.
The question at the moment is whether to buy or to build capacity.

Jose Xavier of Jeffries & Co says he doesn’t expect the large oil companies to start blending or alliances with biofuel producers until they can prove that they can make their products to consistent quality standards.

Shai Weiss, of Virgin Biofuels suggested that consolidation in the US ethanol market may start in 2007 and his group has capital allocated to take advantage of any repossessions or bankruptcies that may happen next year. It currently looks cheaper to buy capacity than to build. The bioehtanol business is a leveraged bet on the oil price, he said.

Other points

As to integration between oil and corn there is a major disconnection between input costs, such as the price of corn, and the price of oil. Ethnaol, though follows oil, to some extent. The price of corn is important t several speakers said because for every cent cheaper you can get it you can save around 18 centrs/gallon on ethanol produced.

In US first generation ethanol, the long term stable ebitda margin (that’s the ratio of a plants’ earnings after interest, taxes depreciation and amortisation to its sales) is likely to be around 25% to mid to high teens this is down considerably from margins of around 35-45% which early players had.

Clean Fuels Finance forum is being held in London from 29 to 30 January.

Chatting over lunch, at the First Investing in Clean Fuels forum, we have to wonder how many more rail tank cars will be needed in the US if all the extra ethanol has to be made and moved around the country and if they can all be built in time. Given the largest one that has moved to date across US rails was 50 000 gal/capacity (and that was a ‘rolling experiment) that would be a further 700 of the monsters.

It ain’t just the corn…that the president will be short of…

International business consultancy Frost & Sullivan will be holding a dial in teleconference whether there is enough feedstock to fuel the European Biodiesel Market at 3pm GMT.

before the event register at

www.frost.com/euanalystbriefings.

and await instructions...

A new biofuels event is scheduled for St Louis September. It will be called Biofuels 2007- A Global Perspective and will be jointly run by my employers ICIS and Kline & Co. It will be held at the Westin Hotel on 19-20 September.

Disclosure: I work for ICIS: About ICIS.

There is due to be a biofuels seminar in Singapore for people who want to understand the biofuels markets and relationships within and between them. It is being organised by my employer, ICIS and will be held on May 21.

About ICIS

There was a Brazilian US biofuels symposium at the end of May. You can find some details of it courtesy of Chemical and Engineering News on Myninjaplease

ICIS, my employers, will be holding a biofuels conference in conjunction with the Kline Group in St Louis, Missouri on 14-15 November 2007. Our conference department is some way towards securing the first day's speakers. When I've got any more information I'll pass it on.

ICIS will be holding its own biofuels conference in conjunction with Kline consulting in St Louis, Missouri, on 14-15 November. They seem to have an interesting speaker panel.

(Disclosure: I work for ICIS: About ICIS)

I might be there myself...

I'm going to be moderating the plenary session of the 2008 World Biofuels Markets Congress, to be held 12th-14th March, 2008 at the Brussels Exhibition Centre, Belgium. The organisers, Greenpower conferences, are expecting around 1300 people to turn up with CEO's banks and the financial community attending.

I'll also be appearing live and in person at the First ICIS Bioresouces Summit in Sedgfield, County Durham on 4 December, where I'll be honing my act.

Looking at the biofuel challenge to the agricultural supply chain.Here are some soundbites from Paul's presentation that caught my attention

As a farmer we harness the environment we produce the only truly renewable raw materials. Biofuels are "one of the brighter areas".

FAO calculated 41.88m km2 land is available 15.06 km are in use 0.11m km being used of biofuels.

We can genuinely hit the UK targets from production because there is set aside and fallow and because we are exporting a large area in wheat. We are faced with CAP reforms that are changing the way we look at production, not linked directly to support, have to be market based.

Set aside to zero initiated by NFU partly because of new biofuels market. 260m tonne cereals 4.5m were going to biofuels, they're not a driving factor. 166m tonne to animal feed is

Only sensible way forward is to find a new market biofuels is one of these, the alternative is having land an rural economies doing absolutely nothing.

Media perception how communicate food vs fuel argument because of rising costs sustainability land conversion and media cost of carbon savings.

Its not about one solution its about a mix, potential of cutting co2 down by 20% if we get it right. Global energy use in its current form is not sustainable.

Brazilians want to make ethanol but domestic consumption is rising fast so it won't be a cheap feedstock it is about sustainability standards.

We'd like to see far more aspirational targets. IEA 7% by 2030 is achievable. 1st generation biofuels as a first step. 1st gen bridge to 2nd possibly.Doing nothing is not adoption when transport fuel growing by 40% over a 10 year period.

How to get gold standard prove that we have sustainability that we talk about? In the UK farm assurance (little red tractor) is a basis to work from. 90% of cereal area covered with a few tweaks this can actually deliver substantiated records that show we do what it says on the tin.

The UK consumed 192 000 tonnes biodesel 2006
with capacity for 445 000 tonnes
07 capacity 6576 000 tonnes

Media perception don't want easy pick up with NGOs selling subjective stories. We are engaged in the long term. Cereal price increases and food security food vs fuel. Productive farming is vital for society.

Subsidies why different? History production cycles up to 1 and 2 ww unsuported agriculture and decline. Culture then need value to it. Subsidies are like insuranc. For example 6-8 months ago scrapping intervention, but have somewhere to offload milling wheat. Commission were keen to see that scrapped. 14m tonnes in 05 last year all left intervention but off loaded it into the market keeping 20m tonne short fall and no intervention stocks you have seen a 100% increase in cereals.

This was an interesting presentation with good cogent arguments for producing an annual surplus of grain. I was less convinced by the argument that we can simply use the excess grain that is exported at the moment unless we can significantly increase the volume of grain grown to match demand for fuel and possible future shocks whihc could drive up the price.

Mark Lewis Technical Director of the North East Process Industries Cluster spoke about the opportunities for bioresources in the North East of England at the 1st ICIS Bioresources Summit.
How to integrate the process to make biofuels and create value out of the other streams.
Biorefineries will be large but limited by the ability to get biomas into it.They are likely to use high temperature and some flexible process. use all of the biomass to produce platform chemicals and some speciality grades.
They're in Teeside, Humberside and North West England, as well as Grangemouth, Scotland. We should do it for energy security, climate change, to make new products and potentially reduce cost of production and to create wealth.
The North East of England is good because supply chains are developing for rape and other crops with North West biofuels, along with wood recycling, also a port for imports and exports as well as companies investing in biofuels. Good science base. Significant private investment from big firms. Biofuels Corporation has Europe's largest biofuels plant 250 000 tonne/year and others also renewable energy.
Existing chains olefins, aromatics synthesis gas on Teeside, which is integrated.
Going to see an industry based on lignocellulosic fermentation and a chemicals industry within 20 years.
Eventually, new fuels, new energy sources, new feedstocks and possibly a new cluster producing chemicals from biomass.
Next? Work with chemicals and fuel companies as well as farming, food Regional Development Agencies and Universities.
They have set up a regional study and are proposing making liquids from biomass bio oil or torrefraction to make a char (I'll find out what that process is) by 2020 1m tonne synthetic fuel and chem from 7m tonne biomasss about £1bn investment targeting aviation fuels.
The challenge is building the demand to do it to build a consortium, but having the vision gives us some hope of getting it.

I like getting away to conferences, its good to have your pre-occupations tested in by friendly questioning in a supportive atmosphere. This (OK so I work for ICIS) was a good conference,and its local focus helped.
I like the North East Process Industry Consortium's plan to try and build a 1m tonne/year biofuels and biochemcials plant by 2020, mentioned in my earlier post. It is a vision; it probably won't happen in quite the way that Stan and Mark outline, and they dont really expect it to come together in the way they propose. But the point is it is something substantial to aim for, and that kind of beacon project could light the way for others in the UK and across Europe.

There's an international biochar conference coming up between 8-10 September 2008, its in Newcastle, UK. I might go along. I'm interested in what the effect of removing cellulose could have on soil structure should cellulosic biofuels take off. This conference aims to discuss the effects of adding a carbon char to the soil, which seems to be pretty positive.

If you're into using biofuels for municpal power generation, it might be worth going along to the inaugural Bio Power Generation Forum meeting in Beligium in April