INSIGHT: US CO2 shortage persists amid lower ethanol, refinery rates

Author: Al Greenwood

2020/05/28

HOUSTON (ICIS)--Falling production at refineries and ethanol plants in the US has caused a shortage of carbon dioxide (CO2), leading to surcharges that can sometimes exceed the price of the gas.

Ethanol plants account for 40% of US CO2 supplies, which produce 3m-3.5m tonnes/year  of the gas, according to the Renewable Fuels Association (RFA), a trade group.

Another 15-20% of the nation's CO2 comes from refineries, where methane reformers make the gas as a byproduct to hydrogen, said Sam Rushing, a CO2 consultant and president of Advanced Cyrogenics.

Carbon dioxide is an important part of the food industry. The following chart shows the main uses for CO2.

Source: Compressed Gas Association (CGA)

Rushing estimates that CO2 production in the US is down by at least 20% based on allocations and surcharges he is hearing about in the market.

Rushing has heard of some surcharges approaching $100/tonne, roughly equal to the typical price of CO2. He has heard of some customers being allocated 50% of what they would normally receive from suppliers.

Early in April, a coalition of trade groups made up of meat producers, ethanol companies, brewers and compressed-gas firms warned US Vice President Mike Pence about the CO2 shortage.

Since then, supplies of the gas are down by about 30%, said Rich Gottwald, president of the Compressed Gas Association, a trade group.

CO2 OUTLOOK
Most of the ethanol produced in the US is blended into gasoline and used as a fuel. As a result, CO2 supplies is linked to fuel demand and production.

Both have been falling because of work and travel restrictions imposed to limit the spread of the coronavirus (Covid-19).

US weekly ethanol output has been less than 700,000 bbl/day since April, according to the Energy Information Administration (EIA). Normally, production is about 1m bbl/day.

The declines reflect shutdowns and reduced rates among ethanol plants, some of which recover CO2. Out of the 46 ethanol plants in the US that can recover CO2, only 13 are running at or near full capacity, about the same number as in early April, the RFA said.

The loss of CO2 production has been somewhat offset by a decline in demand caused by shutdowns in the meat-processing industry, Gottwald said. Those plants closed operations to prevent the coronavirus from spreading among their workers.

Demand for CO2 from the meat-processing plants will start rising once they resume operations.

The start of summer typically marks another demand spike from the beverage industry, which uses CO2 to carbonate drinks, Gottwald said. It is unclear how the coronavirus will affect this seasonal trend.

LONG-TERM PROSPECTS
The disruptions in travel caused by the coronavirus has revealed a link between CO2 supplies and the fuel market.

US supplies of CO2 could remain depressed if the coronavirus causes a permanent decline in driving.

Longer term, the widespread adoption of electric vehicles could further tighten CO2 supplies.

Given the gas' critical role in the food industry, the market will need to find alternatives.

Companies could switch to nitrogen or mechanical refrigeration, but these options come with their own pros and cons, Gottwald said.

More ethanol plants could recover the gas, but the upgrades cost millions of dollars and take about 12-18 months to complete, he said.

Flue gas could be another source of CO2, Rushing said. However, recovery is expensive under the current technology, which relies on amine solvents. He estimates that cost/tonne exceeds $100. By contrast, CO2 from ethanol plants cost $30-40/tonne. Natural sources cost $15/tonne.

Further out, the CO2 shortage could make carbon capture a more attractive and viable process, Gottwald said. But that's in the future.

"In the short term, there are very few options for the industry," Gottwald said.

With the prospects of new CO2 supplies unlikely, the market will need fuel demand to recover.

By Al Greenwood

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