If you’ve seen the astonishing leap in Gevo’s valuation over the past two weeks and the jump in Amyris’ value this week, you might have noticed they have one important element in common: both are making major announcements regarding supply of renewable jet fuel.
Gevo to Alaska Airlines, Amyris to Cathay Pacific. Quantities are small, but these are for operational flights rather than testing and certification, and renewable jet fuel is hot with investors.
There are many pathways from biomass to jet — right now, the hottest is ATJ, or alcohol to jet. In the case of Gevo, they want to convert first-gen ethanol projects to making isobutanol, and upgrade that jet fuel to jet fuel. In cases such as Vertimass and Byogy, they start with ethanol as a feedstock — strictly as an offtaker, and upgrade to jet fuel directly from ethanol.
Other routes make jet fuel directly from vegetable oils (as with HEFA fuels), or from syngas (produced, in the case of Fulcrum Bioenergy, by gasifying municipal solid waste).
Why ATJ At All?
There are skeptics, for sure. Jonathan Lewis at Lee Enterprises Consulting wrote in The Digest this week:
The approved ASTM D-7566 ATJ pathway produces Butanol (BuOH) from Ethanol (EtOH) via fermentation and subsequently dehydrates the BuOH to C2 –C5 olefins, then oligomerizes the olefins to C8 –C16 iso-olefins, then hydrotreats them and finally, fractionates the resulting product to RJ. In the first step (EtOH fermentation → BuOH), there is a maximum efficiency of around 20%. Therefore, for every metric tonne (335+ gallons) of EtOH input, the maximum output of butanol, the ATJ precursor, will not exceed about 67 gallons. At today’s price of $1.70/gallon, this means that about 268 gallons ($455) is lost before any RJ is even produced…And in the best case scenario, the 67 gallons must be priced at least above the MT price of EtOH to make up for the loss. Thus, a gallon of ATJ cannot cost less than $8.50, even before adding in the rest of the processing costs..for most airlines, this is simply not viable.
Or, as Aemetis CEO Eric McAfee noted, ATJ runs into the “Natural Law of Alternative Commodity Markets” — which 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.” How does that work with ATJ?
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 good.
So, What’s Changed? Technology, For One
Vertimass CEO Charles Wyman notes: [In the Vertimass process], the maximum mass yield of hydrocarbon fuels is 28/46 x100 = 60.9 percent. The volume ratio of ethanol input to hydrocarbon output depends on the mass density of the product vs. ethanol but should be about 1.6 volumes of ethanol/volume of hydrocarbon fuel on average for diesel, gasoline, and jet.
Ethanol and Jet Prices, For Another
Accordingly, the value of the molecule is around $2.68 as corn ethanol, $6.20 as cellulosic ethanol. If California begins accepting jet fuel within its Low Carbon Fuel Standard program (and the values are the same per BTU as cellulosic ethanol), then the value of the jet fuel molecule would be around $5.12.
If jet fuel and ethanol priced the same on a BTU basis (right now, jet is far cheaper, per BTU), then the value of the jet fuel molecule would be $6.60 per gallon — yet the airline pays for the competitively-priced jet fuel molecule.
Now, that’s based on Vertimass ethanol-to-jet ratios — and Vertimass is not a scaled-up, commercially-produced tech. And it’s based on California accepting jet fuel within the LCFS program and for jet and ethanol prices to normalize. None of which may happen. But you get the idea how the Natural Law of Alternative Commodity Markets would not be violated — and still a market for jet fuel might emerge.
Not to mention the possibility that cellulosic ethanol may not easily find a market outside of California due to competition with conventional ethanol, while the total pool is challenged by E10 saturation. So, producers may be looking for viable markets even if cellulosic fuel prices are higher for those gallons.
Think of it as a series of Windows, as we have in the movie business. First, producers saturate the high-priced theatrical market, the land of $14 tickets and $8 popcorn. Then, the $12 per room pay-per-view market, then streaming and DVD, and so on until the movie can be seen for free on commercial television.
In fuels, the first window might well be the road transport market. After saturation, it’s then on to the jet market. So long as the molecules provide a viable return to the producer, they will be produced. Even if market #2 doesn’t pay as much as market #1.
This article was originally published by Biofuels Digest and was republished with permission.
Lead image credit: James Wang | Flickr