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