Jim Lane
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March 7, 2013
Louisiana — it’s as hot as cayenne pepper in biofuels capacity development, but there are cautionary tales hidden in the sauce.
When it comes to the first generation of ethanol and biodiesel-based biofuels, Louisiana didn’t figure much into the calculations — to date, there’s just the 5 million gallon (per year) Oswalt Bioenergy biodiesel plant in Lake Providence and the 15 Mgy Vanguard Synfuels in Pollock.
But since drop-in renewable fuels arrived, Louisiana hasn’t just been in the race, or near the front of the pack — it has become the Secretariat of project development — out in front by a mile. In all, more than 500 million gallons in advanced biofuels and chemicals project capacity announced — a 100-fold jump in the past five years.
Now — before booking your ticket down to Baton Rouge for the “renewable fuels forever” victory parade , let’s emphasize the phrase “project announcement”.
76 million gallons of that proposed capacity is currently completed (another 142 million expected to come online this year, and 50 million more in 2014, the rest we don’t have firm dates on as we await financing news). From that capacity, today, there’s not currently any commercial production — as Dynamic Fuels awaits better RIN price conditions (and the 1.5 mgy BP Biofuels plant in Jennings is a pilot plant used in research and development).
So, we can learn a lot down in the bayous about what works, and what’s problematic, in advanced biofuels development.
1. Smoke ‘em if you got ‘em
Louisiana has many blessings above and beyond Bourbon Street and cajun spices. Among them are an abundance of gases for sale — from hydrogen to natural gas; fats and greases from animal rendering, and a forestry sector that has fallen on tough times with the decline of newsprint. Buck Vandersteen, executive director of the Louisiana Forestry Association, spoke for a lot of these resources in observing, “We have to recognize our traditional industries and seek out new industries.”
The combination of rendering greases and hydrogen is, for now, the primary catalyst for growth — as Louisiana firms have perfected the art of purifying greases into renewable oils which are then hydrotreated to remove excess oxygen — voila, producing renewable diesel. Variations on this formula are the source of the Tyson-Syntroleum 75 million gallon plant in Geismar (Dynamic Fuels), the Valero-Darling 137 million gallon project in Norco (Diamond Green Diesel), the proposed Emerald Biofuels 85 million gallon project in Plaquemine, and the proposed D2 Renewable 150 million gallon project in Convent.
[Over in Pollock, Vanguard's been up to good things, too — introducing their own 2nd gen technology thermo-chemical solution (more about it here). Word is from Vanguard that they have the only catalyst that produces four non-sulfur alcohols simultaneously: 40% Ethanol, 40% Methanol, 15% Propanol and 5% Butanol. ]
In all, that’s just on 90 percent of the activity in the state. Most of the remainder comes from the Sundrop Fuels project near Alexandria. Using forest waste and hydrogen from natural gas, the plant will produce up to 50 MGy of renewable gasoline. The biofuels plant will salvage wood waste in Central Louisiana and adjacent regions and also will extract hydrogen from abundant supplies of Louisiana natural gas, combining the hydrogen in a proprietary reactor with carbon extracted from wood waste. Construction is expected to be complete in 2014.
The projects pale with the scope of Sasol’s proposed $21 billion gas-to-liquids and ethane cracking plant proposed for Louisiana — but it goes to show you that there is nothing that stimulates activity more than an abundance of low-cost feedstocks.
2. In grease, color matters
White grease bad, yellow grease better, brown grease best.
Generally speaking, traditional biodiesel plants utilize choice white grease if they can utilize grease at all. Only a few companies have pioneered cost-effective technologies for making FAME biodiesel out of yellow greases — that been one of Renewable Energy Group’s great advantages, for example.
These days, white grease is expensive — and you don’t see much traditional biodiesel capacity being built in the bayous as a result.
Yellow greases — the economics used to be wonderful — now, not so much. Projects like Dynamic Fuels were based on those feedstocks — but these days, the price of the feedstock has made renewable diesel a tough economic proposition unless the RIN prices for renewable fuel credits, and other incentives like blenders credits, are available.
The next yellow grease project to come online will be Diamond Green Diesel, capable of producing over 9,300 barrels per day or 137 million gallons per year of renewable diesel on a site adjacent to Valero’s St. Charles refinery near Norco, Louisiana. The facility will convert grease, primarily animal fats and used cooking oil supplied by Darling. Completion of the facility is expected to be imminent.
But the future may well be in brown grease – the really tough to use material – sludgy and klugy. That’s said to be the strategy for D2 Renewable, developing a 70 acre energy park, located in Convent, Louisiana. The energy park will ultimately consist of five 30 million gallon refineries producing ASTM D 975 Renewable Ultra-Low Sulfur Diesel fuel.
3. RFS2 matters, RINs matter
As mentioned above, yellow grease is a tough business without good RIN prices and a strong RFS2 mandate to drive RIN values.
In December, Dynamic Fuels filed this with the SEC:
“The economics of the U.S. biomass based diesel industry are currently challenged by significantly lower RIN (renewable identification number) prices. D4 RIN prices averaged $1.39 for the first six months of 2012. As of December 10, 2012, the D4 RIN price was $0.56. RIN prices at these levels have not been seen since the implementation of the RFS2 program by EPA in July of 2010.
“The regulatory framework underpinning biomass based diesel production remains intact. The biomass based diesel mandate for 2013 is 1.28 billion gallons, or 28% above the 2012 mandate. We expect markets to adjust positively in 2013 due to the higher mandate.”
Since then, Syntroleum has not indicated that they have re-started production.
4. Creative financing matters
Two of the most creative financing efforts in recent years are behind two of the next projects to come online in Louisiana.
Myriant’s Lake Providence, LA commercial plant will produce 30 million pounds of bio-succinic acid annually and construction is on-schedule for the planned commercial start-up in the first quarter of 2013. Myriant is the first bio-based chemicals company to receive funding from USDA’s B&I Rural Development Loan Guarantee program — and a bond issue sold in by Stern Brothers.
As we wrote last June “We’re heard about the “3 Impossibles” for some time. Impossible to get a project without the term of the offtake being at least equivalent to the term of the debt. Impossible to get a project funded without the feedstock contracts covering the entire portion of the loan.
Impossible to get a project funded without the offtake 100% covered by contracts.
That may remain true for the bank side – but over here in bond world – the three Impossibles have been converted into the three “you’ll pay more, but it’s do-ables”. Here, there was first-timer risk.
Technology risk. Market risk. All absorbed in the rate.
Bonds are also expected to provide financing magic for Sundrop’s 50 million gallons renewable gasoline plant. Using forest waste and hydrogen from natural gas, their plant will produce up to 50 MGy of renewable gasoline. The plant will cost $450 to $500 million to build and will be financed in part through the sale of tax-exempt Private Activity Bonds.
5. Long-term — diversify feedstocks
You’d think that with all that natgas, rendering grease and hydrogen that the state would rest on its laurels. Not so. In fact, the state has seen enough in the potential of renewables to double down on support for developing dedicated energy crops.
In January, the LSU AgCenter officially opened its pilot plant. The plant focuses on sweet sorghum, energy cane and other grasses to produce convertible sugars, fiber and bioproducts and can be scaled up to any capacity. The project is part of a larger USDA-funded five-year, $17.2 million grant.
Switchgrass is particularly in focus, as the grass is native to the Cajun prairie, and test plots are being co-planted with eastern cottonwood trees that could also be interesting feedstocks for the region.
The bottom line
The trend is clear. Assess immediate opportunities in abundant, low-cost feedstocks — but develop others with an eye on the future.
Be careful with technology development so that you can continue to access the lowest-cost feedstocks and use RINs as an equity sweetener for shareholders rather than as a necessary component of production – else you will see fits and starts in production, and costs will soar.
Above all, tap in to the bond market where possible and be as a creative in financing as you are in technology and feedstock. Put them all together — you might see a hundred-fold increase in capacity, as is expected for Louisiana — and ensure that that capacity once taken online, stays online.
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