The October Surprise: BP Cancels Plans for US Cellulosic Ethanol Plant

Jim Lane, Biofuels Digest
October 26, 2012 | 10 Comments

In Florida, BP announced it is canceling plans to build a 36 million gallon commercial-scale cellulosic ethanol plant in Highlands County. The company said that it would refocus its US biofuels strategy on R&D, as well as licensing its industry–leading biofuels technology.

“Given the large and growing portfolio of investment opportunities available to BP globally, we believe it is in the best interest of our shareholders to redeploy the considerable capital required to build this facility into other more attractive projects,” said Geoff Morrell, BP vice president of communications.

BP originally announced plans to build the Florida facility in 2008 with the intention of turning thousands of acres of energy crops into 36 million gallons per year of cellulosic ethanol.

While BP did not directly comment on its plans to build a second, 72 million gallon plant in the southeastern US by 2017, the company, in a statement, said that was “ending its pursuit of commercial-scale cellulosic ethanol production in the US.”

The October surprise factor

As recently as the London Olympics, BP had described its long-term lower-carbon strategy as investing in the right feedstocks and technology ‘to do biofuels well.' In London, BP continued to guide media and its shareholders that it was “developing a commercial facility in Florida, where the first 2,000 of a future 20,000 acres of energy grasses are being grown.”

BP Biofuels, refocused

In our most recent review of BP’s activities we noted that the company’s strategy had shifted decisively to Brazil and sugarcane.

The company has completed construction of its joint venture 110 million gallon per year ethanol plant in Hull, England, which is expected to come online later this year. In Brazil, BP took ownership of three sugarcane ethanol mills located in the Goiás and Minas Gerais states of Brazil in 2011 and is currently expanding production there. In addition, BP is developing advanced biofuel technology via its joint venture investment in biobutanol company Butamax.

The company said that it would continue to invest in and operate its biofuels research facility in San Diego and a its cellulosic ethanol demonstration plant in Louisiana — to further develop next generation cellulosic biofuel technologies and license them for commercial use.

BP Biofuels CEO Philip New has cautioned Digest readers and other industry observers, for some time, that BP was not pursuing advanced biofuels, but advantaged biofuels.

“Our biofuels business is about accessing the most efficient feedstocks available and turning them into useful, value-adding molecules,” says Philip New, BP’s vice president, biofuels. “For biofuels to make the contribution that we believe they have the potential to make, they have to meet four fundamental criteria.

“They have to be sustainable and scalable, offer real carbon savings and, in time, demonstrate competitiveness with crude oil without subsidies."

BP and the US Renewable Fuel Standard

In recent months, the company had expressed increasing degrees of alarm over policy uncertainty in the US, particularly over the future of the Renewable Fuel Standard.

BP Biofuels chief Phil New noted to the Digest that it was introduction of the US Renewable Fuel Standard that had “galvanized us into action” in terms of development of cellulosic ethanol capacity, during the Bush Administration.

Increasing attacks on the RFS from a coalition of cattle, dairy, poultry and food manufacturing interests – primarily because of what they contend are rising grain prices from corn ethanol mandates — have ironically have had little impact on corn ethanol capacity, but have resulted in investor flight from advanced ethanol projects designed to move the US beyond corn as a feedstock.

What happened? The problem of feedstocks

BP has not directly commented on the specific economic drivers that led to the decision to cancel its long-contemplated Florida project, so late in its development cycle — but all signs point to problems in sourcing economically viable cellulosic feedstocks. Notably, BP Biofuels and Mendel Biotechnologies discontinued a project to develop miscanthus. In the Florida project, BP Biofuels had an agreement with Lykes Brothers to supply feedstocks — primarily it was focused on energy canes and napiergrass.

Certainly, if BP had concluded that its processing technology was unviable, there was little point in switching to a technology licensing strategy. After all, if BP couldn’t justify moving forward with its own project – especially after having sunk so much capital in its development — why would anyone else?

The Biomass Crop Assistance Program – projects areas and BP

Ominously, the US Department of Agriculture, in establishing its Biomass Crop Assistance Program, did not establish any of its 11 BCAP project areas in Florida, Louisiana or Texas — where BP had focused its projects.

BCAP, according to the USDA, was established to address a classic chicken-or-egg challenge around the start up of commercial scale bioenergy activities.

Many bioenergy crops need several years to become established, and many bioenergy facilities need several years to reach commercial scale, the USDA noted. It designed BCAP to reduce the financial risk for landowners who decided to grow unconventional crops for these new markets.

Under program rules, crop producers and bioenergy facilities team together to submit proposals to USDA for selection as a BCAP project area. If selected, crop producers are eligible for reimbursements of up to 75 percent of the cost of establishing a bioenergy perennial crop. Producers can receive up to five years of annual payments for herbaceous crops (annual or perennial), and up to 15 years of annual payments for woody crops (annual or perennial).

BP Biofuels and DSM

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10 Comments

Cliff Claven
November 2, 2012

@Fred: I don't think you understand the difference between F-T synthesis of carbon and hydrocarbons and fast pyrolysis of lignocellulosic materials. In a word, it's oxygen. Wood and other cellulosic feedstock have lots of oxygen (in addition to moisture) and require hydrodexygenation and also produce smaller fractional yields of only 45-70% bio-oil, leaving 30-55% of the output as byproducts such as bio-char and other less innocuous things depending upon the solvents or catalysts used.

Fred Linn
November 2, 2012

-----" @Fred: are you a convert to F-T synthesis? You know the feedstocks are coal and methane, not cellulosic biomass."---------

The input feedstock can be any carbon source whatever, including biomass.

Germany used coal because it was available during WW2----however, the prefered input was was wood(of which there was an ample supply thanks to Allied bombing). Coal was needed for steel production. Coal has the added problem of contamination by sulphur and heavy metals that poison the catalytic conversion beds that convert the synthgas into the desired length hydrocarbon chain.

Biomass produces the necessary carbon input, requires far less hydrogen input(produced by thermo-pressure cracking of H20 molecules, hence more energy out than coal)

The basic output molecule is methane, CH4. Methane can be reformed using heat, pressure and catalyst beds to any length of hydrocarbon desired.

Or, we can use the methane directly---there is no need to convert it to something else. We can do anything we need done with methane----including power our vehicles. We've been doing it for over 90 years.

There are times and situations where liquid fuels are preferable to methane. We can build engines that run on a wide range of fuels----it is already being done. The Fiat Siena Tetrafuel can run on gasoline, gasoline and ethanol mixtures, pure hydrous ethanol(unblended, straight from the still), and/or natural gas. The Siena can be run its entire lifetime using petroleum, some petroleum, or no petroleum at all. There are distinct advantages to using no petroleum---methane and biofuels burn very cleanly, less oil changes, less maintainence, less pollution.

The best favor we could possibly do to ourselves, the environment, the economy, and overall for our security and well being is to convert our vehicle to multifuel capable engines----and use a mix of fuels.

Fred Linn
November 2, 2012

---------" @Fred: I think you misunderstand monopoly. There is not one global oil company or even one US oil company, there are hundreds"-------

And when they act in unison to control market conditions, they are a cartel monopoly---whether there is agreement between members or not(as in the case of OPEC). The definition of a monopoly is a company or product that has an 80% or greater market share.

In this case, the product, petroleum, is the monopoly in the US. In other places, petroleum either no longer meets the monopoly definition(more than 80% of market share) or else is moving rapidly to lose 80% market share, and thus would no longer be considered a monopoly product. In Brazil and Argentina, this is already the case---Germany, Italy, Denmark and many other European countries are moving rapidly to replace petroleum with natural gas. CNG vehicles are common in Pakistan, India and Phillipines. China and New Zealand are moving toward natural gas and will soon be introducing programs to expand their CNG fleets.

We should do the same.

Cliff Claven
November 2, 2012

@Fred: I think you misunderstand monopoly. There is not one global oil company or even one US oil company, there are hundreds. And refineries buy their oil on the open market. There is intense competition. Have you actually ever looked at the profit margins of oil versus other businesses? They are much smaller than most. The big oil companies are not colluding but competing. They belong to different nations. If Total ELF from France suddenly developed a new refinery feedstock that was cheaper than crude oil and available in bulk, refineries around the world would buy it, and Total would gain market share at the expense of Exxon and Chevron and BP and Shell, and Saudi ARAMCO etc. They are all looking for a competitive edge on each other. They view themselves, not as oil companies, but as energy companies, just like Toyota views itself, not as a car company, but as a transportation company.

Cliff Claven
November 2, 2012

@Fred: are you a convert to F-T synthesis? You know the feedstocks are coal and methane, not cellulosic biomass. You know there is a lot of CO2 involved. But you are right, it blows the doors off all "drop-in" fuel alternatives from biomass in capacity and economics. Since it truly does not depend on oil energy, unlike all cultivated biomass biofuels, it can become competitive with oil when oil prices are high enough. Interesting to see how many biofuel proponents are suddenly embracing natural gas as feedstock and becoming realists about GHG.

Fred Linn
November 2, 2012

------" Chemically it's three times tougher to make ethanol from lignocellulose than from starch"-------

Fischer-Tropsch reaction is exothermic. You get more energy out than you put it. F-T can produce any type of hydrocarbon you want, from methane to cetanes.

F-T has been around since 1923. In WW2 Germany used F-T to produce synthetic fuels to power every thing from submarines, panzer tanks, even rockets and jet fighters(Me 262).

Fred Linn
November 2, 2012

-----------" I challenge you to add up all the money the majors have flushed down the toilet on joint ventures and internal research on biofuels."-------------

When an oil company buys a controling interest in a biofuel company----then shuts down biofuel programs----they haven't "flushed [money] down the toilet"----------they have "invested in market share strategy. And the market share strategy they have invested in is maintaining a de facto monopoly. Oil companies do not have the slightest interest in converting to biofuel use----they like having a monopoly position to maximize market profitability and control.

Monopolies are very good for businesses that control the monopoly----and very bad for consumers who have to depend on the businesses that control the monopoly.

Cliff Claven
October 31, 2012

@Fred: "oil company executives with a vested interest in maintaining a market monopoly and selling petroleum." I challenge you to add up all the money the majors have flushed down the toilet on joint ventures and internal research on biofuels. Shell alone threw money at Cellana and Choren and blew $400M on Codexis. It is truer to say that the oil companies are in the primary energy business and cannot afford to be upstaged by a competitor finding the next big thing that displaces oil and ruins their market share. They've collectively thrown away billions before doing their chemistry homework out of fear that they might be left out. I think they've learned a hard lesson. So have many private investors. Some refuse to learn.

Fred Linn
October 31, 2012

Ethanol was being produced in commercial quantities from wood forestry and milling waste using the Scholler process as early as the 1890s in both Germany and the US.

----------" Apparently chemists don't run these companies and aren't much heeded when they object."-----------

That is correct, it is run by oil company executives with a vested interest in maintaining a market monopoly and selling petroleum. That's why the name of the company is BP. BRITISH PETROLEUM.

Cliff Claven
October 28, 2012

Chemically it's three times tougher to make ethanol from lignocellulose than from starch. If corn ethanol only yields an EROI of 1.25:1, then the best cellulosic ethanol can do is 0.42:1. It's not just unprofitable, it's huge negative energy balance. The entrepreneurs who didn't do their chemistry homework before soliciting millions from investors are now trying to blame feedstock. They failed to understand the difference between lignocellulose (raw biomass) and pure cellulose (what's necessary for fermentation). It takes a great deal of energy to separate cellulose from lignin, even with designer enzymes, and that's the deal-breaker. What's amazing is that BP is figuring this out before Dupont, who should know the chemistry better than anybody. Apparently chemists don't run these companies and aren't much heeded when they object.

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Jim Lane

Editor & publisher of Biofuels Digest, the most widely-read biofuels daily and newsletter. The Digest covers producer news, research, policy, policymakers, conferences, fleets and financial news. It is home to the Biofuels Digest Index™,...