Wednesday, January 16, 2013

Great Scott! Look up in the Sky! There hasn’t been a hotter sector in biofuels demand than aviation.

Now, flight tests and fuel development has given way to real capacity building. Who’s in the lead to win in this $180 billion sector?

Faster than a speeding bullet…more powerful than a locomotive…that’s the growth and momentum in aviation biofuels. First there were the partnerships, then the fuel R&D, then the flight tests, then the offtake agreements.
And there was the hope — especially at airlines — that strategic investors and lenders would jump into the financing of the first commercial fuel projects. That was, as the saying goes, then.
Now – it’s all about organizing sustainable, affordable feedstock and building capacity. And, airlines providing capital for the first commercial projects — to ensure that capacity building reaches levels in line with the industry’s self-imposed targets:  to stabilize carbon emissions from 2020 with carbon-neutral growth; and to a net reduction in carbon emissions of 50% by 2050 compared to 2005.

The demand data

What does carbon-neutral growth mean, exactly, in terms of biofuels capacity building? The airlines aim for an average of 4 percent annual passenger growth (and hope to do better), and will offset 1.5 percent of that growth through more fuel-efficient planes.
That leaves 2.5 percent growth in capacity to be offset primarily through projects like aviation biofuels. Assuming a 60 percent improvement in lifecycle emissions from switching to advanced biofuels — and global demand of 60 billion gallons — you need 2.5 billion gallons of biofuels in the mix.
Now, targets are targets, financing and building capacity are another thing. And lifecycle emissions may change for selected biofuels. And airlines may achieve more efficiencies from new fleets. And airlines certainly aren’t interested in paying more for carbon-friendly fuel. And yada yada yada.
But 2.5 billion gallons gives the industry a meaningful target to shoot for. Overall, spot prices for jet fuel are running around $3.00 per gallon — meaning that there is something like $7.5 billion in revenue up for grabs in this wave of capacity building.
Let’s look at the trends as the airlines and fuel producers turn to meeting those goals.

Capacity building

Just before Christmas, Neste Oil said it will produce 4,000 metric tons per year of renewable jet fuel using sustainable Spanish camelina oil and used cooking oil under the EU-funded ITAKI project. The three-year project received $13.2 million and will feed into the 2 million ton renewable jet fuel initiative European Aviation Biofuels Flightpath.
Last month, Paradigm BioAviation announced plans to build a $120 Million facility in Bloomington-Normal designed to transform municipal solid waste into green electrical power and alternative liquid fuels for the transportation and aviation industries. Construction is slated to begin in 2014, after completing the zoning and EPA permitting process in 2013. Production of green power will start in 2015, according to the company.
Earlier in December, British Airways committed to a 10-year, $500 million offtake agreement with the GreenSky London facility, and permitting is now underway for construction in East London. GreenSky London — a joint development between British Airways and Solena — will convert around 500K tonnes of locally-sourced waste into 50,000 tonnes of sustainable aviation biofuel and 50,000 tonnes of bionaphtha and biodiesel. The facility will also have a renewable power generating capacity of 40 MW.
In September, Algae.Tec and Lufthansa signed a Collaboration Agreement for the construction of a large-scale algae to aviation biofuels production facility. The site will be in Europe adjacent to an industrial CO2 source. Lufthansa will arrange 100% funding for the project. Algae.Tec will receive licence fees and profits from the Project, which will be managed by Algae.Tec.

R&D partnerships and flight tests

Just before the New Year’s holiday, Popular Science magazine named the 100 percent biofuels-fueled test flight this year as one of its 25 “Big Science Stories Of 2012″. The flight involved a partnership including Applied Research Associates, Chevron Lummus Global, the National Research Council of Canada, the U.S. Air Force Research Laboratory (AFRL), and Agrisoma Biosciences. The ReadiJeft fuel flight took place in Ottawa, Canada using carinata developed by Agrisoma.
In October, a newly formed technology center created by Boeing and Commercial Aircraft Corp. of China (COMAC) has announced that Hangzhou Energy Engineering & Technology, Co., Ltd., (HEET) will conduct the center’s first research project. The project aims to identify contaminants in waste cooking oil, which often is described in China as “gutter oil,” and processes that may treat and clean it for use as jet fuel.
Earlier in October, FAA announced that it will form a Center of Excellence for Environment and Energy during FY-13. The COE will be a consortium of the FAA, university partners, and private industry affiliates selected by the FAA Administrator to work collectively on business and operational issues of mutual interest and concern. Among other topics, the COE will focus on Alternative Jet Fuels Research.
Back in September, JATRO announced a major collaboration agreement with BioJet International – on feedstock development and supply, crushing and refining technology solutions, network integration, logistics and funding efforts.

Policy matters

In November, the US Senate voted 62-37 to repeal section 313 of the annual Defense appropriations bill. Section 313 language, which was offered by Senator Inhofe and adopted in Committee, prohibits DOD from procuring alternative fuels if they cost more than their conventional counterparts. The Committee-passed annual Defense Authorization bill would have blocked efforts to develop a commercial supply of cost-competitive advanced biofuels as detailed in a MOU between the DOD, Department of Energy and USDA.
The same week, the Senate voted 54-41 in favor of an amendment offered by Senator Kay Hagan of North Carolina to repeal section 2823 of the bill. Sec. 2823 would have prohibited the Secretary of Defense or any other official from the Department of Defense from entering into a contract to plan, design, refurbish, or construct a biofuels refinery or any other facility or infrastructure used to refine biofuels unless such planning, design, refurbishment, or construction is specifically authorized by law.
In September, transport minister Peter Ramsauer and US ambassador Philip Murphy signed an alternative aviation fuels development agreement to “make research and development in alternative aviation fuels even more dynamic,” the minister said.
The same week, CAAFI’s executive director told Reuters at the ILA Berlin air show  that the industry is focused on looking at second generation biofuels so as to avoid conflict with food crops when looking to reduce the carbon footprint of air travel. Airbus says the main challenge is figuring out the feedstock that will take advantage of the up to 3.5 billion hectares of land worldwide not suitable for food crop production.

A cautionary tale

In November, we identified NLACM as a problem in an October article, “The Solyndra Effect.” NLACM may sound like a dog trying to get peanut butter off its mouth — but it stands for the “Natural Law of Alternative Commodity Markets” — and can be used to analyze the problem of alcohol-to-jet fuels.
NLACM states that “the value of any intermediate products produced in any process must be significantly exceeded by the value of the end product, or the end product will not be produced.”
ATJ fuels — the Department of Defense wants them badly for its military aviation biofuels program – and yet insiders say that they, and engine manufacturers, are privately wondering why it is so difficult to get samples of aviation jet fuel made from alcohol, so that they advance the certification process. Where are the gallons, given that the science has made so much progress? Well, think of it through the NLACM lens.
1. Produce non-food, advanced biofuels such as cellulosic ethanol worth $4 per gallon ($2.50 ethanol + $0.45 advanced fuels RIN + $1.01 tax credit).
2. Recombine ethanol molecules in a reaction that makes about 1 molecule of jet fuel from 2.5 molecules of ethanol.
3. The value of the total molecule is now about $7 as corn ethanol and $10 as cellulosic ethanol, but only $3.50 as unsubsidized jet fuel.
4. Repeat at high production volumes to achieve “economies of scale”.
5.  Invoke the Defense Production Act to allow direct investment by the military in building a full-scale plant.
6. Shut down the production of jet fuel when less expensive direct conversion technologies enter the market.
7. Sell the plant to someone else, who happily and profitably produces cellulosic ethanol, due to the high cost of cellulosic ethanol feedstock for jet fuel relative to the alternative use of the feedstock as motor fuel.
8. Wonder why the spreadsheet looked so goo