21 December 2011

Turning Corn Into Chemicals: Gevo Goes for Profit & Survival

Government mandates and subsidies in the energy field have been largely ineffective, or worse -- destructive. Subsidies to big solar energy firms have resulted in multiple bankruptcies, subsidies to big wind energy projects are resulting in making Warren Buffet richer, but are raising electricity costs and making overall US energy security much worse. And government mandates and credits for cellulosic biofuels are turning out to be worse than useless -- as bio-butanol maker Gevo has discovered.
As the difficulty of producing cellulosic biofuels cheaply becomes apparent, a growing number of advanced-biofuels companies are finding it necessary to take creative approaches to their business, even though that means abandoning some of their green credentials, at least temporarily, and focusing on markets that won't have a major impact on oil imports. This is hardly the outcome the government hoped for when it announced cellulosic-biofuels mandates, R&D funding, and other incentives in recent years.

Cellulosic biofuels still cost much more to produce than either corn ethanol or gasoline. One reason is that startups have had trouble raising enough money to build the large-scale commercial plants needed to lower costs. That's in part because their technology is unproven, and in part because there's no guaranteed market for cellulosic biofuels yet.

Additionally, government mandates that were meant to help create a market for cellulosic biofuels have so far been ineffective; it's typically cheaper for the fuel providers affected by the mandate to purchase credits rather than biofuels. And finally, supply chains for cellulosic materials aren't yet well developed, so companies face a challenge when they try to lock in reliable access to them. _TechnologyReview

Luverne, Minnesota Corn-to-Butanol Plant

Gevo's strategy addresses all these problems. Besides relying on corn in order to overcome supply challenges, the company is reducing capital costs by retrofitting existing corn ethanol plants rather than building new ones; the retrofit of the first plant, in Luverne, Minnesota, will cost about $40 million, a fraction of the hundreds of millions it costs to build a new plant. And rather than making ethanol, Gevo is making butanol, which can command a higher price—especially for use as a feedstock for the chemical industry. Gevo expects that it can make butanol from corn—a readily available feedstock—for significantly less than it costs to make it from petroleum.

Gevo plans to start operations at Luverne within the next six months or so and hopes to produce 17 million gallons of butanol per year there. Most of it is destined for Sasol Chemical Industries, which will sell the butanol to make chemicals.

Butanol can be converted into a wide range of chemicals for making plastics and other products that are now made with oil. Gevo already has an agreement with a major maker of synthetic rubber, and last week it announced a partnership with Coca-Cola to develop plastic bottles made entirely from plants. _TechnologyReview

Versatile Bio-Butanol

Gevo is smart to pursue the high value product which can give them early profits and help the company to survive through these tough early days of advanced biofuels.

There is nothing wrong with using corn (maize) for production of chemicals, since overall production of maize is quite flexible. The additional market in chemicals and fuels gives farmers another market for their product, and helps to maintain stability of price.

Most US corn is used as animal feed, and even after being used to produce bio-chemicals and biofuels, the dried distiller's grain can still be fed to animals as a high protein feed. The oil from the corn can be used for other uses, including food.

It is important to point out that both cellulosic fuels and high value cellulosic chemicals are highly likely to become huge markets in the future. The use of corn will only continue as long as it is more profitable to use corn than to use cellulosic biomass. Eventually corn will lose its advantage in this area -- and at that point, it is likely that much less corn will be planted, as farmers move to other crops to follow the markets.

Those who harp on the tired old "food vs. fuels" refrain are almost certainly people who have never farmed for a living, and who have never had to balance profit and loss in a productive enterprise. Most people who sing that song do so for reasons of political activism, rather than out of any desire to arrive at the actual numbers involved.

But the truth of the matter is that the chemicals market offers higher profits to advanced biofuels producers than the fuels market offers. And that is where many of these companies are certain to go, in the beginning.

The arrival of massive proved reserves of unconventional natural gas is likely to delay the large-scale profitability of advanced biofuels for a number of years -- if not decades.

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