Are We There Yet? A Biofuel Refinery Update

In September 2014, the Department of Energy (DOE), along with the Departments of the Navy and Agriculture, announced a significant financial partnership to advance the construction of three biorefineries, infrastructure “capable of producing ‘drop-in’ fuels to meet the needs of the military and private sector.”

This announcement included endorsements from Navy Secretary Ray Mabus, Agriculture Secretary Tom Vilsack and Deputy Energy Secretary Daniel Poneman. This public-private partnership would expand the operational capability of the Navy and Marines, use American grown fuels, foster employment in an advanced biofuel sector, and help reduce carbon emissions.

Senior Airman Jacob Prine checks the fuel connection to a F-15 Eagle prior to a flight test of new, environmentally-friendly fuel at Eglin Air Force Base, Fla. The Air Force is working toward changing half of the continental U.S. jet fuel requirement to alternative fuels by 2016. Credit: U.S. Air Force / 2nd Lt. Andrew Caulk.

DOE’s private sector partners are Fulcrum Bioenergy, based in California, building a refinery in Storey County, NV (near Reno, NV); Emerald Biofuels, a Chicago company, building in Port Arthur, TX; and Red Rock Biofuels, based in Colorado, building near Longview, OR. [Red Rock and Joule announced a merger as this magazine went to press.] The three projects, when completed are expected to “produce more than 100 million gallons of military grade fuel beginning in 2016 and 2017 at a price competitive with their petroleum counterparts.”

An August 2015 project update indicated that FedEx and Southwest Airlines agreed to buy fuel from Red Rock and that United and Cathay Pacific Airlines had invested in Fulcrum and would be purchasing its fuel. These purchase agreements are important because demand is critical for supply and investors wont fund a project unless they are pretty sure that there is an offtaker for the product. Unfortunately, however, there seems to be little progress on building the refinery projects themselves.

Any refinery project, of course, is complex, from siting to engineering to construction. Plus, alternative fuel projects are invariably affected by the price of oil. Cheap oil forces even tougher scrutiny from financiers who want assurances that a new fuel can remain cost competitive and that producers can retain customers (and repay loans). Finally biorefinery projects, like all refinery projects, present significant industrial-manufacturing challenges requiring close regulatory scrutiny for safety, air, water and hazardous materials impacts. Permitting takes time.

DOE’s August update does not mention revised construction and production schedules. However, since 2016 is less than three months away, and refinery construction has not started, production timelines have obviously slipped. Are these significant delays or just indicative of inevitable difficulties within complex projects? Perhaps a more important question: are they cautionary delays?

A DOE spokesperson expressed confidence that the projects are proceeding as expected. Emerald, Red Rock and Fulcrum are “finishing their permitting process and obtaining financing. These activities take time particularly in a low oil price market. We are not concerned with the current timeline,” he wrote in an e-mail reply to questions. The Department expects construction on one project to begin soon likely in the next few months.

The companies cannot draw any federal money until all private sector financing is in place. Again, cheap oil makes this tough. In addition, each project is based on relatively untested technologies and processes. These unknowns add additional risk. DOE remains confident, though, that each company is close to completing all due diligence for investors and regulators. For DOE, it is not particularly material whether fuel production starts in 2017 or 2018 as long as the projects are meeting and completing substantial milestones.

Rendering of the Sierra BioFuels Plant, which will be entering construction later this year. Credit: Fulcrum BioEnergy.

Among the three companies, Fulcrum appears to be closest to hitting the start button. The company has been working at this a long time — first entering capital markets in 2011, trying to secure financing on a proprietary technology that uses municipal solid waste as the initial feedstock that is eventually processed into liquid fuels.

Fulcrum’s website references swings in oil prices. The company is confident that its business model can handle short- and long-term volatile oil markets. Fulcrum writes that it can remain “cash flow positive with oil below $30 per barrel, provide good returns with oil at $50 per barrel and extremely attractive returns with oil at $80 per barrel.” These price points put the company in a good spot. In July, the US Energy Information Agency forecast a 2018 oil price around $75 per barrel, rising to $120 per barrel by 2035.

Rick Barraza, Fulcrom’s Vice President of Administration, said that last May Fulcrum finalized a fixed-price engineering, procurement and construction contract with Abengoa, providing cost, schedule and performance guarantees. He said that Fulcrum “expects to begin construction during the fourth quarter of this year.” On financing, Barazza said “funds are in place to begin construction” and that the company is “finalizing the loan documentation under our $105 million loan guarantee with the USDA at which point these (federal) funds will be available.” Barazza expects Fulcrum to start operations “in late 2017.”

Wood is made of simple sugars, a building block compound for biofuels. However, these sugars first have to be unbundled from other molecules, which is tricky. This flow diagram illustrates one approach, using sulfite pretreatment, by researcher Jinlan Cheng and colleagues. Credit: Northwest Advanced Renewables Alliance (NARA).

Emerald and Red Rock are harder to assess. DOE’s comments do not singularly reference each company. Emerald and Red Rock officials did not return interview requests nor respond to e-mails. From public records, Red Rock has received an air permit from the Oregon Department of Environmental Quality, an important step. Emerald has a permit, submitted July 31, 2015, which was approved on September 20. Paper work, at least, shows progress.

United is a strategic investor in Fulcrum BioEnergy. Credit: United.

For energy and environmental policies there’s a lot riding on the success of these public-private partnerships, much more than the hoped-for success of three companies.

DOE and its partner agencies, as well as White House leadership, need to demonstrate that policy initiatives and financial subsidies can build a new, competitive energy industry almost from the ground up.

Time is a factor. People need to see shiny tanker trucks, filled with biofuels, pulling onto the airport tarmac soon. Too long a wait foments opposition. With 2016 an election year a partisan shift could force an unfriendly reevaluation of federal alternative energy programs. Contentious issues will fade when the US Navy can buy jet fuel from a Red Rock or a Fulcrum, at no extra hit to the U.S. taxpayer.

Finally U.S. airlines need biofuel to help decrease carbon emissions while still expanding service to meet increased travel demands. FAA wants U.S. airlines to use one billion gallons of biofuel by 2018. Maybe that’s a stretch goal but some consistent level of supply needs to be in the market soon. The next year is critical. ◑

The Projects

Emerald Biofuels

Corporate Headquarters: Chicago, IL

Biorefinery location: Port Arthur, TX

Feedstock: Non-edible oils and animal fats.

Finished product: Renewable diesel.

Quantity (max.): 82 million gallons annually.


Fulcrum Bioenergy

Corporate Headquarters: Pleasanton, CA

Biorefinery location: Storey County, NV. The plant will be called the Sierra BioFuels Plant.

Feedstock: Municipal solid waste.

Finished product: Renewable syncrude upgraded and processed into a low-carbon jet fuel product.

Quantity: 10 million gallons annually.


Red Rock Biofuels Merging with Joule

Corporate Headquarters: Fort Collins, CO

Biorefinery location: Longview, OR

Feedstock: Woody biomass, forest by-products.

Finished product: Jet, diesel, and naphtha fuels.

Quantity: 12 million gallons annually.

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