bioenergy companies flip strategies to lure investors

In what seems to be the beginning of a trend, some early stage bioenergy companies are shifting their focus and their feedstocks away from biomass and towards really really cheap natural gas (thanks to fracking).

The first example was Sundrop Fuels.  Initially, the company proposed using concentrated solar energy to gasify biomass, as described here:

Last year, they scrapped the whole idea of using solar energy.  Instead, they will just get the high temperatures needed to gasify biomass by burning natural gas.  Seems kind of strange, using natural gas (mainly methane, CH4) to gasify biomass and make more methane and some carbon monoxide (CO) and hydrogen gas (H2).  For more on how that works, read about gasification here.  Then their plan is to upgrade the gas to methanol, and then convert to drop in fuels.  I imagine that they plan to have this qualify as advanced fuel under the renewable fuel standard (RFS), but a lifecycle assessment would be good to see.  Under the RFS it would need to have at least 50% less emissions than fossil fuels to qualify.  Even if it did, it seems a strange way to be using our resources to make liquid fuel when the biomass and natural gas are probably better used to generate electricity.  But this is an example of how policy drives certain goals and in this case policy is directing companies to produce liquid fuel.

http://ht.ly/b6yNJ

http://www.huffingtonpost.com/2012/05/24/sundrop-fuels-to-build-na_n_1543759.html

The next and more recent example is Coskata.  This example may be even more interesting because Coskata basically gave up on the RFS and renewable fuel as a viable market.  Kind of a bad sign when companies don’t trust that a policy (the RFS) designed to encourage development of a new industry (renewable liquid fuel) won’t be repealed or modified by congress.  People wonder why we don’t have cellulosic energy yet?  Companies need to trust that they will have a long term return on their investments!

http://www.bloomberg.com/news/2012-07-20/coskata-shelves-ipo-shifts-focus-to-natural-gas-ethanol.html

Given the potential that the RFS will be changed, investing in cellulosic-biofuel plants is “not a risk that we’re willing to take,” he said, though “we’re not at all abandoning the notion of biomass as a feedstock.”

Instead, they will be taking advantage of the low price of natural gas by using microorganisms to convert it to ethanol – arbitrage of one fuel type with another:

Ethanol was about six to eight times more expensive than gas last year per million British thermal units, presenting “compelling economics” for companies that convert gas to transportation fuels

http://www.biofuelsdigest.com/bdigest/2012/07/20/coskata-switches-from-biomass-to-natural-gas-to-raise-100m-in-natgas-oriented-private-placement/

Here’s the opportunity: it’s simply the arbitrage of lifting natural gas, now available at the Henry Hub at $2 and change per million BTUs, into the fuel markets where the prices are more like $28 per million BTUs for finished fuels.

“Even if gas settles into the $4-$6 range,” Roe observed, “as many observers now predict they will in the US for a decade or two, these economics are extraordinary. We don’t understand the tiger we have by the tail.”

It is a fascinating time to be watching the transformations in the field of energy resources right now.  Who knows what will happen as we begin to tap these huge fields of shale gas and possibly revise the RFS that has been driving investment and economics of everything from corn prices to ethanol in Brazil.

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2 Responses to bioenergy companies flip strategies to lure investors

  1. Pingback: comparing original RFS volumes with revised volumes (some perspective) | Energy and the Future

  2. John says:

    Interesting example of a company going the exact opposite direction- the folks at BioNitrogen Corp. just patented a technology that replaces natural gas use in nitrogen fertilizer synthesis with syngas derived from the gasification of crop residues.

    The patent announcement- http://biomassmagazine.com/articles/9490/bionitrogen-granted-biomass-to-urea-technology-patent
    The technology is explained in this video starting at around 2:15- http://www.youtube.com/watch?v=lTHO9vNVLdI
    Compare this to the traditional process for ammonia production using methane via the Haber process- http://en.wikipedia.org/wiki/Haber_process

    Cool stuff!

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