As the sunset of 2011 gives way to the dawn of 2012, here at the Digest we resist the holiday temptation to look back over the challenges and highlights of the year gone by, and instead once again roll out our crystal ball as we list the 10 Biofuels Predictions for 2012.
Top 10 Biofuels Predictions for 2012
10. Advanced biofuels capacity surges to 1 billion gallons globally. We see 570 million gallons in capacity from Neste Oil alone; 137 Mgy from Diamond Green, 75 Mgy from Dynamic Fuels, 62 Mgy from KiOR, 37 Mgy from Gevo, and 25 Mgy from POET. New, smaller commercial facilities (8-20 Mgy) are expected from Amyris, Chemtex, Solazyme, INEOS Bio and POET; the rest, 50 Mgy in capacity at Nature Works and Metabolix, and small demonstrations and pilots from nearly 200 other companies.
9. Merger-mania. 200 companies can’t all continue to march forward, developing advanced bioenergy projects. Projects that have completed pilots are going to be ripe for merger and acquisition as they search high and low for expansion capital and find that the well is getting quite dry, as many oil and chemical giants will have already placed their bets. Look for projects to attempt to tap feedstock providers next – absent that, the projects seeking $100M+ for commercial-scale expansion will be looking to make themselves more attractive to investors by issuing so much equity to investors that it will feel like a merger even if the projects remains technically independent.
8. Selected IPOs go forward. The buzz around Elevance and Genomatica continues to be strong, and Fulcrum and Mascoma have put themselves into very strong positions with financing deals from Valero and Waste Management. All of the IPOs in the queue, and there are 10 of them, have merit, but we expect that several of them might opt instead to be acquired.
7. Momentum shifts to Asia. Brazil has ruled the roost for the past two years – now, sugarcane shortages, surging demand, and the fact that many of the partners have already chosen their partners for the Brazilian shuffle – well, momentum is shifting to Asia. For those that can utilize palm oil or palm waste – think Indonesia and Malaysia. Cassava? Thailand or Vietnam. Cane? That’s India. Need industrial partners, coal, or residues from forest, animal or municipality? That’s China. Thinking algae? Think a little farther to the south, in Algstralia, where cane is also in relatively plentiful supply.
6. U.S. Renewable Fuel Standard is revised. Though most U.S. biofuels trade associations have kept strongly to a “don’t mess with the RFS” strategy, its common sense that the forces that opposed the VEETC ethanol tax credit – chicken and beef producers, anti-corn activists and small government zealots – will now pivot their full attention to the Renewable Fuel Standard, showcasing the shortfall in the cellulosic biofuels pool. Oil companies may be divided on the RFS given their increasing investments in the sector, but chemical investors won’t care much, and the algae-based biofuels developers will support a revision of RFS targets.
5. Oil and chemical companies rule. Venture capital is just about maxed out in advanced biofuels, and the players that are making a difference are a handful of visionary feedstock-side investors (ADM, Cargill, Bunge) on light duty, more aggressively so from Waste Management. But the big dollars will be downstream in 2012. Valero and BP are stepping up, Shell expects to deploy billions in Brazil, and Petrobras, too. The major Indian oil companies may go big, and we expect to see more and more interest in the sector from Dow, BASF, Dupont, Rhodia and others in the chemicals businesses.
4. Aviation biofuels capacity increases, but U.S. $510 million investment de-funded. Aviation biofuels will continue to get hotter and hotter – more and more airlines will try small purchases to try and stimulate large-scale production and helping costs to come down. But we expect only a series of delays and frustrations in U.S. government efforts to fund its $510M commitment to invest in military and aviation biofuels. It’s going to be “sorry” from the House of Representatives throughout 2012 on the question of either re-purposing funds from earlier appropriations, or granting new funds for the Navy’s and the DOE’s side of the investment. After the US elections, in 2013 – that’s a different story.
3. Ethanol producers begin switch to biobutanol and chemicals en masse. If last year was the year of the IPO, as 2009 was the summer of algae, 2012 will be the year that ethanol producers begin to switch over to higher-value molecules, such as butanol or various organic acids. For ethanol producers, its the path of least resistance in getting around the ethanol blend wall. For the high priests developing the new technologies and magic bugs, its an opportunity to partner with companies that have feedstock, infrastructure, 90 percent of the required steel in the ground, and existing markets for co-products.
2. “Carbon capture & re-use” is the new buzzword. It’s been “carbon capture and storage” for some time, but it is beginning to dawn on technologists that, in the end, the costs are too high and the technology can only help stem the flow of carbon into the atmosphere, not provide a permanently sustainable solution. The problem is not that there is too much carbon. There is exactly as much carbon now as 100 years ago – it is a distribution problem. Carbon that needs to be in the soil, helping to produce food and fuel, is trapped in the atmosphere and in the ground. Technologies that capture carbon emissions before they are vented into the atmosphere, and pipe CO2 to technologies that can utilize CO2 to make products for a fast-growing world – that’s where the action will be.
1. U.S. Farm Bill contains reduced, targeted energy title. A new farm bill is due in 2012, and there continue to be a question as to whether there will be a Farm Bill at all, any kind of Energy title within the bill, and what that title might look like. Our belief? Yes, the grand coalition that brings forth a Farm Bill will re-form, fractiously as ever. Yes, Virginia, there will be an energy title. But, holy Vilsack, will it be smaller or what? Look for the energy title to focus on four key programs programs – a revised biomass crop assistance program, designed to help bring cellulosic feedstocks to market; direct equity to inject in commercializing advanced biofuels for military use, that utilize rural biomass; loan guarantees to ensure that a project finance market emerges for advanced biofuels, at scale; finally, a blender pump program to help industry to circumvent the E10 ethanol blend wall with expanded E30 and E40 availability.
Last year’s predictions: 8.5 marks out of 10
For our 2011 batch of predictions, we give ourselves 8.5 marks out of 10.
We gave ourselves 1 full mark for predicting a new set of USDA Loan Guarantees, the end of the VEETC ethanol tax credit, status quo on the US Renewable Fuel Standard, the continuation of IPO Fever, the dominance of renewable chemicals among early-breakout strategies, the domination of renewable diesel in production capacity, the advent of numerous “bolt-on” deals including increasing US-Brazilian ties, and for the rise of the strategic investors.
We gave ourselves a half mark on our prediction that Brazil, India and China would dominate the development headiness – not much activity, in the end, in India, and more in the U.S. than expected.
We gave ourselves a zero on expanded capacity in cellulosic ethanol – it expanded, but not nearly as much that would justify including it in our predictions.